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Letter of Intent
This form of letter of intent assumes a single buyer buying all of the stock of a privately-held
company owned by multiple stockholders, and that target management is in charge of the sale
process. Although there is (minimal) language dealing with confidentiality, consideration
should be given to having the parties sign a separate confidentiality agreement. Consideration
should also be given to adding provisions dealing with employment agreements, earn-out
payments and governing law.
[Buyer Letterhead]
Address of Target
Ladies and Gentlemen:
[Xyz, Inc.] (“Buyer”) is pleased to submit this proposal to acquire all of the outstanding
capital stock and other equity interests, in [Target] (“Company”).
1. Acquisition. Subject to the terms and conditions of the Definitive Agreement (as
defined below), Buyer is prepared to acquire all of the capital stock and other equity interests of
Company for the following consideration aggregating $[●] million:
(i) $ [●] million in cash, of which approximately $[●] million will be used to repay
Company’s bank indebtedness in full;
(ii) $ [●] million in shares of a new series of preferred stock of Buyer. The shares will be
additional shares of a new series of preferred stock to be placed with investors to fund a
portion of the acquisition price, and such shares to be valued at the price paid by such
investors; and
(iii) interest-bearing non-convertible promissory notes in the principal amount of $[●]
million; such notes will be subordinated to Buyer's existing or future debt to banks or
other financial institutions, and are expected to have a term of [●] years and bear interest
at the rate of [●]%.
The transaction is expected to be structured as a reverse triangular merger, but the
transaction may be re-structured as an asset acquisition if more tax favorable to Buyer.
The transaction will be structured so as to qualify as a private placement under
applicable securities laws. Buyer desires to minimize the number of Company stockholders
who will hold its stock and notes. The consideration will be allocated in such a way so as to
repay in full Company's current and any future bridge loans, as well as conform to the
liquidation preferences of Company’s current capital structure, or as the stockholders of
Company may otherwise agree. It is also understood that all equity interests in Company, such
as options and warrants, will be cancelled in the transaction. Attached is a capitalization table
showing how such consideration (and the components thereof) would be allocated among the
bridge note holders and the different classes of stock and stockholders of Company.
Buyer expects that certain employees of Company who are identified by Buyer as key
employees will commit to become employees of Buyer, will commit to remain with Buyer for an
acceptable initial period of employment, and will sign mutually acceptable employment and
non-competition agreements.
The Definitive Agreement will provide for customary representations and warranties,
covenants and conditions to closing, including receipt of necessary consents and regulatory
approvals and that there has been no material adverse change in the business. We understand
that the business will be run in the ordinary course until the closing and that no dividends or
other distributions will be made in that period. The Definitive Agreement will also provide for
negotiated mutually agreeable indemnification and escrow provisions to be provided by all
Company stockholders to Buyer.
Buyer will work with Company to ensure that its continuing due diligence effort causes
minimal disruption to Company's ongoing business operations. Buyer desires to negotiate and
sign the Definitive Agreement, and to close the acquisition, as soon as reasonably possible. It is
understood that Buyer must complete its preferred stock financing before it is able to close.
Due Diligence; Access. Company and Buyer shall each provide the other and its
prospective investors with access to its books and records and shall cause its directors, officers,
employees, accountants and other agents and representatives to cooperate with them in
connection with the due diligence process.
No-Shop. Because of the significant effort and expense that must be undertaken
by Buyer in connection with the acquisition, Buyer must have Company’s assurance that it will
move forward exclusively with Buyer until [●]. To put it more formally, until 5:00 p.m. (Eastern
time) on [●], Company shall not, and none of the undersigned Company securityholders shall,
directly or indirectly (including through agents), enter into any agreement, solicit or entertain
offers from, discuss or negotiate with or in any manner consider any proposal of any other
person or entity relating to the acquisition, by any means, of Company or any assets of
Company outside the ordinary course of business. If Company or any such securityholder shall
receive any such communication, offer or proposal, such communication, offer or proposal shall
be unqualifiedly refused, and Company or such securityholder shall notify Buyer of the receipt
of such communication, offer or proposal.
4. Disclosure. Except as and to the extent required by law, without the prior written
consent of the other party, neither Company nor any Company stockholder, on the one hand,
nor Buyer, on the other, nor their respective officers, affiliates or representatives, shall disclose
the existence of discussions regarding a possible transaction between the parties or any of the
terms, conditions or other aspects of the transaction proposed in this letter, except to
shareholders, directors, officers, employees, legal and financial advisors and potential investors
who have a need to know.
5. Costs. Buyer shall be responsible for and bear all of its own costs and expenses
incurred in connection with the proposed transaction. The stockholders of Company shall be
responsible for and bear all of their own and, in the event a closing occurs, Company’s, costs
and expenses (including any attorney fees and any brokers’ or finders’ or investment banking
fees) incurred in connection with the proposed transaction.
6. Definitive Agreement; Binding Effect. Buyer and Company intend promptly to
begin negotiating a written definitive agreement relating to the acquisition (the “Definitive
Agreement”). This letter is not intended to, and shall not create or constitute, any legally
binding or enforceable obligation between Buyer, on the one hand, and Company and its
stockholders, on the other hand, to consummate the transaction, and no party hereto shall have
any liability to the other party with respect to any provision hereof. Notwithstanding the
foregoing, paragraphs numbered [2 through 6] are intended to create legally binding
obligations until the Definitive Agreement, if successfully negotiated, is executed and delivered
by all parties. If the Definitive Agreement is not executed and delivered for any reason, no
party to this letter shall have any liability to any other party hereto based upon, arising from or
relating to the provisions hereof other than those set forth in paragraphs numbered [2 through
6]. This letter shall expire at 5:00 p.m. (Eastern time) on [●] (except that such expiration shall
not relieve any party of liability for any breach of the binding obligations set forth herein).
This letter shall be governed by and construed in accordance with the laws of Delaware.
If you are in agreement with the foregoing, kindly so indicate by signing and returning to
the undersigned the enclosed duplicate copy of this letter. This letter of intent shall expire and
be of no force or effect unless a copy hereof duly executed by Company and each securityholder
named below shall have been received by Buyer prior to 5:00 p.m. (Eastern time) on [●].
Very truly yours,
Acknowledged and agreed as
of _____________________