ERHC Energy Inc (ERHE)

[RubyMartin]

Letters of Intent (“LOI”) , also known as Memoranda of Understanding and Memoranda of Agreement, are a device used to signal parties’ agreement to the basic structure of serious negotiations to close a deal. An LOI typically comes into play after a round of initial discussions and after the signing of a Confidentiality Agreement and a second round of more serious discussions about the proposed transaction.
Business Functions of a Letter of Intent

A Letter of Intent serves several business functions:

Commitment to Each Other and to the Deal: Signing a letter of intent, from a business perspective, indicates that each party has obtained senior management’s approval to work towards closing the proposed business transaction and that the parties have moved into a stage of serious negotiations.
Commitment to the Deal for Others to See: After signing a letter of intent, the parties usually issue a joint press release announcing the event. This is usually to provoke a positive reaction in the stock market to the news and some times to send a message to competitors in the marketplace.
Commitment to a Time Line: An LOI will set forth a time line for negotiations, including a deadline for closing the deal and what will occur if the parties fail to meet the deadline.

Partial Performance and Authorization of Expenditures: After signing a letter of intent, parties will often begin due diligence for the transaction and/or preparation of a formal estimate regarding the transaction. Research and preparation of such documents involves expenditure of significant funds for the time and materials of employees designated to perform these tasks. Senior management will usually authorize spending such funds based on signing the letter of intent, although rarely will the LOI specify that there is any way to recoup these funds if the deal does not close.

Confidentiality: If not already agreed to in a Confidentiality Agreement, each party will agree to keep the transaction and information exchanged in negotiations confidential in an LOI.

http://www.avvo.com/legal-guides/ugc/letters-of-intent--why-business-people-love-them-and-lawyers-hate-them