In the process of a business acquisition or participation, an NDA (non-disclosure agreement) is often signed first. This is usually followed by an offer from the buyer or investor (non-binding offer).
If this offer is interesting enough for the seller, the next step will be taken: establishing the agreements in principle in a Letter of Intent. This is a preliminary agreement in which the intended cooperation or takeover is laid down and in Dutch takeover practice - due to international influences - has various names, such as Letter of Intent (LOI), Memorandum of Understanding (MOU), Term Sheet (TS), Head of Terms (HOT) and Heads of Agreement (HOA).
Substance over form
Now does it matter what you call the document or is it all one and the same?
In form, these documents can be quite different. For example, a TS is usually a point-by-point overview of the important topics (essentials) of the proposed transaction, while the LOI is usually a more written-out (detailed) document that addresses the parties' considerations and specific intentions.
But beware, in the Netherlands "substance over form" applies. The substance of the document is more important than the form in which it is cast. This means that the manner in which the agreements in principle are recorded (the literal or linguistic meaning) is the primary determinant in assessing the document in question. For this reason, you would want to avoid texts such as "parties have agreed" in an agreement of intent and should use more texts such as "express the intention...".
In addition, what the parties meant under the circumstances and based on what they could mutually expect from each other is also important. In short, the intention of the parties also plays an important role in the interpretation of the agreement of intent. In this regard, it is important to avoid a situation where one party expects to be engaged, while the other party thinks they are married.
Freedom happy?
It happens that preliminary agreements are already so specifically worded that the question arises whether these agreements already qualify as a binding agreement in a legal sense. As a result, breaking off negotiations can lead to an obligation to compensate the other party for damages (liability) or even an obligation to effectuate the purchase, when this was not yet intended.
It is therefore recommended that the document itself should carefully establish that it is not a definitive agreement and the parties are only required to enter into the transaction after the definitive purchase agreement/participation agreement is actually signed by all parties.
So despite the name of the document, in terms of content they govern essentially the same things. And whether or not such a document contains binding agreements is a matter of interpretation of the principle agreements in the document.
