Letters of Intent in Mergers and Acquisitions: Practical Tips
for Negotiating (and Preparing)
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Letters of Intent in Mergers and Acquisitions: Practical Tips
for Negotiating (and Preparing)
Author
James S. Bruce
K&L Gates LLP
Charleston, SC
Presenter
JAMES S. BRUCE is a partner with K&L Gates LLP, where he represents clients in
mergers and acquisitions, joint ventures, and other business transactions. He advises
Fortune 500 companies, as well as middle-market and emerging growth companies in a
broad range of industries. Mr. Bruce also represents private equity firms, corporate
strategic investors and distressed company investors. He is admitted to practice in
Georgia and South Carolina. Mr. Bruce earned his B.A. degree from Washington and
Lee University, and his J.D. degree from Georgetown University Law Center.
NBI Teleconference
Letters of Intent in Mergers and Acquisitions:
Practical Tips for Negotiating and Preparing
James S. Bruce
Partner
K&L Gates LLP
© Copyright 2018 by K&L Gates LLP. All rights reserved.
OVERVIEW
 Letter of intent (“LOI”)
 Structured as a formal letter, usually from buyer
 Sets forth certain preliminary terms of deal
 Establishes a deal roadmap
 Useful, but not appropriate for every transaction
 Other similar documents
 Term sheet
 Memorandum of understanding
 Commitment letter
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PURPOSES OF A LETTER OF INTENT
 Summarizes the key terms of a potential deal
 Most of the material terms are not binding
 Allows parties to determine how close (or far apart)
the two sides are
 Establishes a roadmap for the transaction
 Sets the tone for the ensuing negotiations
 Lays out key dates and deadlines
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ADVANTAGES AND DISADVANTAGES
 Factors to consider

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Complexity and timing of the deal
Desire for exclusivity
Disclosure obligations
Regulatory approvals needed
Leverage of parties
Sophistication of parties and counsel
 For some deals, cost of negotiating the LOI may
outweigh its benefits
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BUYER CONSIDERATIONS
 Eliminate competition
 Exclusivity
 No-shop provision
 Break-up fee
 Access to the business
 Buyer wants as much as possible
 Business as usual
 Operating covenants from seller
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SELLER CONSIDERATIONS
 Capitalize on leverage
 Seller wants material terms in the LOI
 Preserve the business
 Delay Buyer’s ability to access key employees
 Restrict access to customers and suppliers
 Prevent business disruption
 Protect proprietary information
 Separate Non-Disclosure Agreement
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BINDING VS. NON-BINDING
 Most terms are not binding
 Intention is to leave room for negotiation
 Superseded by definitive purchase agreement
 Expressly designate which provisions are
binding and which are not
 Otherwise court may find LOI inadvertently binding
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BINDING VS. NON-BINDING
 Typical binding terms include:

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Exclusivity
Break-up / Termination fees
Confidentiality
Expenses
Termination
No third-party beneficiaries
Governing law
Scope of binding terms
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DUTY TO NEGOTIATE IN GOOD FAITH
 May apply even if LOI not binding
 Requires parties to attempt to reach agreement
 LOI may include express duty to negotiate in
good faith
 State laws vary as to whether courts will enforce
 Some states may impose duty even in absence
of express provision
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DUTY TO NEGOTIATE IN GOOD FAITH:
STATE-BY-STATE SURVEY
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KEY LOI PROVISIONS
 Parties
 Identify actual buyer and seller entities
 Acquisition subsidiary / purchaser designee
 May include parent guarantors / stockholders
 Deal type and structure
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Asset acquisition / stock acquisition / merger
Deal structure will affect drafting and timeline
Outline assets and assumed liabilities for asset deal
Describe structure of merger
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KEY LOI PROVISIONS
 Purchase Price
 Cash, stock, promissory note or combination
 Generally assumes no encumbrances
 Assumption or payoff of debt
 Escrow




Amount
Purpose
Fixed dollar amount vs % of purchase price
Duration
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KEY LOI PROVISIONS
 Purchase price adjustments
 Net Working Capital Adjustment
 Net Worth Adjustment
 Earnout

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Important to flag in LOI if buyer is proposing
Can bridge value gap
Outline metrics for achieving earnout payments
Seller likely to resist deferred purchase price
Often lead to post-closing disputes
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KEY LOI PROVISIONS
 Due diligence access
 Level of access / timing
 Buyer
 Wants immediate and full access / due diligence review is
critical to appropriately evaluating business
 Will want this to be binding
 Consider timing and other constraints in scope of request
 Seller
 Concerned with minimizing disruptions to business
 May want to limit access or stage disclosure
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KEY LOI PROVISIONS
 Closing
 Target date vs mutual agreement
 Purchase Agreement
 Outline expectations for definitive agreement
 Set target for timing / drafting responsibility
 Generally reference provisions to be included:




Representations and warranties
Closing conditions
Restrictive covenants
Indemnification
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KEY LOI PROVISIONS
 Closing Conditions
 Often simply refer to “customary” conditions
 Specific conditions can include:

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HSR clearance
Material consents
Financing out
Due diligence out
Board / shareholder approval
 Seller – Should seek to minimize conditions to closing
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KEY LOI PROVISIONS
 Conduct of Seller Business
 Ordinary course
 Affirmative covenants
 Preserve business
 Retain key employees
 Maintain relationships with customers and suppliers
 Negative covenants




No unusual compensation increases
No dividends inconsistent with past practice
Capital expenditure commitments
No material contracts outside ordinary course w/o consent
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KEY LOI PROVISIONS
 Exclusivity
 LOIs often include a “no-shop” provision
 Critical provision from buyer perspective
 Keeps seller from negotiating with other parties or
soliciting other offers for a fixed period of time
 Consideration is cost and time of diligence required
 Another binding provision
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KEY LOI PROVISIONS
 Expiration / Termination of LOI
 Expiration date usually included
 Buyer’s ability to terminate LOI
 Surviving provisions
 Break-up Fee
 Seller pays to break exclusivity for superior deal
 Reverse Break-up Fee
 Buyer pays if deal falters for failure to secure
financing
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KEY LOI PROVISIONS
 Confidentiality
 Can be in LOI or in a separate agreement
 Generally should not supersede existing NDA
 Prohibit public disclosure
 Governing law
 Usually not contentious
 But may set precedent for the purchase agreement
 Parties often choose Delaware or New York
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KEY LOI PROVISIONS
 Costs & Expenses
 Often parties agree to pay own fees
 Can be subject of negotiation
 Other expenses (HSR fee, etc.)
 Binding / Non-binding terms




Critical provision
LOI should generally be non-binding
Expressly designate which provisions are binding
Should be included in binding terms
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KEY LOI PROVISIONS
 Assignment
 Buyer should preserve flexibility to assign to affiliate
 Amendment
 Must be in writing
 Authority
 Parties have the authority to execute and perform
 No third-party beneficiaries
 Important if LOI references commitments with respect
to employees or other third parties
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KEY LOI PROVISIONS
 Counterparts
 Provide for counterpart signature pages from parties
 Entire Agreement / Integration
 Supersede other negotiations / agreements
 Exceptions
 Expiration of LOI Offer
 Can range from one day to one week or longer
 Motivates seller to accept LOI quickly
 Avoid seller acceptance of “stale” LOI
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CONCLUSIONS
 LOI Benefits

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Help parties find consensus
Create deal momentum
Used with regulators, banks, insurers, etc.
Create a sense of “moral commitment”
 LOI Disadvantages
 Time and resources
 Trigger disclosure requirements
 Inadvertent binding agreement
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NBI TELECONFERENCE
LETTERS OF INTENT IN MERGERS AND ACQUISITIONS:
PRACTICAL TIPS FOR NEGOTIATING AND PREPARING
JAMES SHARPE BRUCE 1
K&L GATES LLP
I.
Overview
A letter of intent (an “LOI”) is a document entered into at a preliminary stage of a
negotiated transaction, especially in connection with mergers and acquisitions. An LOI often
takes the form of a formal letter from the buyer to the seller and generally sets forth certain
preliminary terms of the deal. An LOI is not required for an M&A deal, although they are
common in most deals (other than public company mergers) and can be useful in setting out the
key terms of a transaction. However, as will be discussed in more detail below, there are several
reasons or situations where an LOI is not necessary or recommended. An LOI is similar to, and
may sometimes be referred to as, a “term sheet,” a “memorandum of understanding” or a
“commitment letter.” For the most part, the points discussed below will also be applicable to
these other documents, but there are some key differences.
The terms of the LOI are often negotiated by the business side of the deal team – rather
than among the lawyers – so that the attorneys’ first involvement in a deal may be after the LOI
has been signed. However, if possible, the legal team should be actively involved in the drafting
of the LOI. At the very least, attorneys should review and comment on the LOI before it is
signed. Although most of the terms of an LOI are not intended to be legally binding, having the
guidance of counsel during the negotiating and drafting of the letter can set the deal up for
success and help clients avoid many common pitfalls.
II.
Purpose of a Letter of Intent
An LOI summarizes the key terms of an M&A transaction. While it does not necessarily
set out every detail of the deal, the LOI typically includes many of the material provisions. The
1
Mr. Bruce is a partner in the Corporate/M&A practice group of K&L Gates LLP and oversees the
Corporate/M&A practice in the firm’s Charleston, SC office. Mr. Bruce gratefully acknowledges the assistance
of his colleagues Will Grossenbacher, Nate Strickler and Claire Flowers in preparing these materials.
© 2018 K&L Gates LLP. All rights reserved.
14
final agreement between the parties will be laid out in a formal, comprehensive negotiated
agreement – generally an asset purchase agreement, a stock purchase agreement or a merger
agreement (each referred to herein as a “purchase agreement”) – that will govern the transaction
in its entirety. Once the definitive purchase agreement is executed, the terms of set forth in LOI
will generally be superseded by the terms of the purchase agreement. The LOI nevertheless
plays an integral role in guiding the deal negotiations throughout drafting of the purchase
agreement. Additionally, in the event that the parties cannot reach a consensus and the purchase
agreement is not signed, the binding terms in the LOI (such as confidentiality and expenses) will
be even more crucial.
A.
Setting Initial Terms
The main purpose of an LOI is to document the initial understanding of the parties with
respect to the key terms of the deal.
Even though the LOI is generally nonbinding and
unenforceable with respect to the main deal terms, it is important in documenting the basic terms
of the deal as the parties move toward a definitive agreement. The key to an effective LOI is to
strike the appropriate balance between outlining sufficient details of the transaction and keeping
the momentum of the deal progressing towards the purchase agreement. If the parties get bogged
down in too many details in the LOI, they may simply abandon the transaction out of a belief
that an agreement will ultimately be unreachable, or they may determine that it would be more
efficient to move directly to a purchase agreement. On the other hand, if the LOI does not cover
enough of the material terms, the parties may discover at a later stage of negotiation that there
are fundamental disagreements that will prevent the parties from reaching a deal.
B.
Establishing a Roadmap
Another important purpose of an LOI is to establish a framework or plan for the
transaction. The LOI helps the parties work towards a final agreement by forcing both sides to
come to terms on the key issues and identifying potential areas of conflict. By memorializing the
key terms of the proposed purchase agreement, the parties reduce the chances for disagreement
later. Finally, the LOI will often contain the preliminary schedule and deadlines for signing the
purchase agreement and closing the deal. The LOI may also contain other deadlines, such as a
period of exclusivity or a date by which the terms of the LOI must be accepted by the seller or
they will expire.
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III.
Advantages and Disadvantages
It is important to note that an LOI is not necessary or desirable for every deal. Factors
that ought to be considered in deciding whether to implement an LOI include:
x
the size and complexity of the deal;
x
timing of the transaction;
x
the desire for exclusivity;
x
disclosure requirements;
x
the necessary regulatory approvals required;
x
the amount of apparent leverage; and
x
the sophistication of the parties and their counsel.
A relatively simple deal without an intense buyer bidding process may be best served by
skipping the LOI entirely and focusing on the definitive purchase agreement. In some cases,
negotiating an LOI could disrupt, rather than help, the deal flow, as well as create disclosure
obligations for public companies under the securities laws. Ultimately, counsel must weigh
whether the possible benefits of an LOI outweigh the costs, both in terms of time and resources,
as well as deal disruption and reaching the client’s goals.
IV.
Buyer Interests
A.
Eliminate Competition
Buyers typically prefer to enter into an LOI if they are able to achieve exclusivity and
eliminate other bidders for some period of time. This may come in the form of a “no-shop”
provision, whereby the seller is forbidden from marketing the business to prospective buyers for
certain duration. This may also mean the seller is free to continue to field offers under certain
conditions, such as providing the buyer with notice and copies of any other offers the seller
receives. A buyer may also attempt to negotiate for some compensation from the seller should
the seller move forward with another buyer. This could take the form of a break-up fee or a
seller reimbursement of the expenses the buyer accrued during due diligence and negotiations,
which can be substantial.
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B.
Access to the Business
Usually, a buyer has already been provided access to some information about seller’s
business prior to the signing of the LOI. However, the LOI often ushers in the due diligence
period where the buyer inspects the seller’s business to determine if it is worth purchasing at the
proposed purchase price. The terms of the LOI will often govern the nature of the due diligence
to be performed by the buyer, and in negotiating the LOI a buyer will be fighting for wide access
to the business. A buyer’s goal is to learn as much about the seller’s business as possible to
understand exactly what it is buying and to confirm buyer’s preliminary valuation of the
business. This means the buyer will want broad access to contracts, books and records, real
estate, customers, suppliers and employees. Particularly with respect to both customers and
employees, the buyer wants to ascertain whether the business will operate as it did under the
prior ownership by confirming that key customers and employees will not leave when their
relationship with the prior owner ceases. Of course, the seller often resists providing this
information to the buyer prior to the signing of a definitive purchase agreement to decrease the
risk of disclosing sensitive information (in some cases to one of its competitors) in connection
with a deal that does not ultimately close. On the other hand, a buyer is unlikely to purchase a
business that it knows nothing about, so the seller must provide reasonable access to the business
so the buyer can make an informed decision.
C.
Business as Usual
Finally, a buyer will want certain operating covenants from the seller. If the seller knows
the business is soon to be sold, its managerial rigor may become lax or it may seek to accelerate
distributions or defer ordinary course maintenance. For this reason, the buyer will want the
seller to agree to continue to operate the business up to certain standards or refrain from taking
certain actions. For example, a seller may not be permitted to enter into certain material
contracts without the consent of the buyer or the seller may not be able to make certain
expenditures unless they are in the ordinary course of the seller’s business. Further, a seller may
be prevented from taking certain actions, such as selling assets or issuing dividends that could
cause the business to decrease in value.
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V.
Seller Interests
A.
Capitalize on Leverage
A seller generally wants to make sure that all material terms of the agreement are
hammered out in the LOI. It is important to note that the seller’s strongest negotiating position is
generally prior to the signing of the LOI, and the seller’s leverage typically diminishes
precipitously after the LOI is signed. This is because the seller generally will not be able to
market the business to other potential buyers for a period of time due to a “no-shop” provision
contained in the LOI. Accordingly, after the signing of an LOI there is generally no longer a
competitive bidding process with buyers competing as to both price and terms. This means the
buyer can pressure the seller into making concessions it may not have otherwise made if it knew
it could get better terms from another prospective buyer.
Because the buyer is usually trying to get the LOI signed and achieve exclusivity, it is not
uncommon for the seller to use this as leverage to get a more seller-favorable LOI. For example,
the seller may attempt to negotiate for some type of break-up fee to be paid by the buyer in the
event a definitive agreement is not reached. A buyer may be willing to risk a potential break-up
fee for the benefit of eliminating competing prospective buyers. Similarly, a seller will want to
nail down important terms, such as purchase price, escrow amounts and indemnification terms,
in the LOI, when its bargaining power is strongest, as opposed to waiting to negotiate after the
LOI when it may have substantially less leverage.
B.
Preserve the Business
The seller also generally wants to delay for as long as possible, preferably until a
definitive agreement is signed, the buyer’s ability to contact key customers and employees. The
seller wants to create as little disruption as possible to the operation of the business in case the
deal fails to close. Normally, this means the seller will try and keep the key employees and
customers from knowing that the business is up for sale or that a deal may be imminent until
there is a signed purchase agreement. One way to do this is to delay disclosure of, and limit the
buyer’s access to, such customers and personnel. Of course, the buyer wants to get to know the
key employees because they are often integral to the success of the business, and therefore an
important aspect of the buyer’s diligence.
The seller not only wants to prevent business
disruption, it also wants to prevent a scenario where the transaction does not close, but the buyer
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has poached one or more its key employees. To prevent the latter, some LOIs will contain no
hire/no solicitation provisions that preclude the buyer from attempting to draw employees away
from the seller’s business. An LOI may also provide that seller will not disclose customer
information until immediately prior to the signing of the purchase agreement.
C.
Protect Proprietary Information
As noted above, the seller should also make sure that all the buyer and its affiliates are
bound by a nondisclosure agreement either in the LOI or in a separate document. After the LOI
is signed, the buyer will be conducting due diligence on the seller during which the buyer will
have access to a plethora of non-public and proprietary information. Because of this, sellers
often require buyers to enter into a separate confidentiality agreement prior to initial
negotiations. This agreement should obligate the buyer to not only refrain from disseminating
private information, but also return or destroy the information if the deal is not consummated.
VI.
Binding vs. Non-Binding
A.
No Binding Agreement
One of the primary legal issues concerning LOIs is whether the letter is binding or
nonbinding. In most cases, either the buyer or the seller, or both, do not want to be obligated to
consummate a proposed sale before the parties have actually entered into a definitive purchase
agreement. This means that the parties generally stipulate in the agreement that it is not binding
(except with respect to certain provisions discussed below). In the event that negotiations fall
apart, there is always the risk that one party will nonetheless attempt to enforce the terms
established in the LOI. In order to avoid such claims to the greatest extent possible, the LOI
should clearly state which provisions, if any, are to be binding on the parties. However, as
discussed more fully below, the conduct of the parties in negotiating the transaction can also
come into play in the event that the parties dispute the binding or non-binding nature of the
agreement.
B.
Conduct Matters When Courts Consider Whether an LOI Is Binding
If there is an intention that an agreement is not complete until reduced to a subsequent
definitive purchase agreement, the general rule is that no binding contract exists. If the intent of
the parties to be bound, or not to be bound, is clearly stated in the LOI, courts presumably give
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such intent effect. However, courts may look beyond the words of the LOI to the parties’ “real”
intent. To do so, courts consider the parties’ surrounding conduct, both before and after the
signing of the LOI. Because of this, parties should make always sure the LOI reflects reality and
their conduct remains consistent.
For example, in the widely cited case Texaco, Inc. v. Pennzoil Co., the Texas Court of
Appeals upheld a jury award of $10.7 billion in damages after the seller backed out of a proposed
sale, even though the parties had only entered into a memorandum of understanding that
contemplated a more definitive agreement. 729 S.W.2d 768 (Tx. App. Ct. 1987). In reaching
that conclusion, the court placed particular emphasis on the wording of a press release between
the parties that indicated an intent to be bound, even though the memorandum of understanding
did not contain such language. Additionally, even though the memorandum of understanding
contained open terms (which were presumably to be settled in the definitive agreement), the
court argued that these terms were largely perfunctory and not material to the agreement.
While the language of the LOI and the parties’ intentions are the most important
considerations that courts will consider in determining whether an LOI will be binding or nonbinding, the Second Circuit, applying New York law, has looked to other factors in its analysis.
In Vacold, LLC v. Cerami, the court stated that preliminary agreements, such as LOIs, fall into
one of two categories. 545 F.3d 114 (2d Cir. 2008). The first type of preliminary agreement is a
fully binding agreement where the parties agree to all terms and require no further negotiation.
The second type of preliminary agreement is where “the parties agree to certain major terms, but
leave other terms open for further negotiation.”
This type of preliminary agreement only
obligates the parties to negotiate the open terms in good faith. The court looked to the context of
the negotiations and determined that the parties fully intended and understood the letter
agreement to be fully binding. The court also noted that the parties left open no major terms and
that “there is a strong presumption against finding binding obligations in an agreement that
includes open terms.”
Another important consideration is to ensure that the LOI remains completely in effect
until a formal deal is reached, no matter how close to a deal the parties think they are. In Turner
Broadcasting System, Inc. v. McDavid, the parties had a non-binding LOI in place; however, it
expired before a formal deal was made. 693 S.E.2d 873 (Ga. Ct. App. 2010). The principal
negotiator for Turner stated that an extension of the LOI was not necessary because the parties
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were “very, very close to a deal.” Two weeks later Turner told McDavid on the phone, “We
have a deal.” The court interpreted that statement as a binding oral contract, even though the
LOI stated that all agreements must be executed in writing. The court found that the LOI
provision that the parties express their intentions to be bound only by written agreement had
expired when Turner’s representative told McDavid that he had a deal. The court further stated
that a meeting of the minds of the parties on the material terms of the agreement had occurred at
that point, which expressed both parties’ intent to be bound.
Whether or not an LOI is considered binding or non-binding could depend on how the
court characterizes the function of the LOI. In Copeland v. Baskin Robbins, U.S.A., the court
drew a distinction between “a contract to negotiate the terms of an agreement” and an
“agreement to agree.” 96 Cal. App. 4th 1251 (2002). The court held that when two parties are
simply negotiating to potentially “form or modify a contract, neither party has an obligation to
continue negotiating or negotiate in good faith.” However, if parties are under a contractual
obligation to continue negotiating, then the covenant of good faith and fair dealing attaches. In
this case, the court determined that the LOI constituted a contractual obligation to negotiate and
that the damages should be measured by the injury the plaintiff suffered in relying on the
defendant to negotiate in good faith.
These damages could include out-of-pocket costs
associated with conducting the negotiation as well as lost opportunity costs. The court was
unwilling to award damages for lost expectations (profits) because “there is no way of knowing
what the ultimate terms of the agreement would have been or even if there would have been an
agreement.”
C.
Intentionally Binding Provisions
Although most LOI provisions are typically intended to be non-binding, LOIs almost
always contain some binding provisions. In most cases, provisions regarding the business terms
of the deal (such as the purchase price) are non-binding and subject to continued negotiations.
Binding provisions are usually limited to those that a party thinks necessary during the
negotiation period. Common binding provisions include exclusivity, confidentiality, expenses,
no third-party beneficiaries, and governing law.
In some rare cases, the parties may make the entire LOI binding. If the party that wants a
binding LOI has more bargaining power, the other party can agree to be bound if it is highly
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motivated to complete the deal.
Parties must ensure that the LOI properly reflects their
intentions. If the LOI includes provisions that are intended to be binding, these must be clearly
identified and the legal requirements for creation of a valid contract must be satisfied (for
example, the terms must be sufficiently certain and there must be consideration). The parties
should be careful to include appropriate language to document the non-binding nature of the LOI
provisions, because otherwise a court may find that the parties have entered into a binding
agreement. This is more of a risk for the buyer who will generally be at a disadvantage if forced
to acquire a target business on the basis of an LOI without the protections afforded by a full
purchase agreement.
VII.
Duty to Negotiate in Good Faith - Surveying Case Law
In the event of a dispute over the terms of an LOI, even if the court does not find that the
parties intended the agreement to be binding, the court may impose a duty to negotiate in good
faith that is distinct from a breach of contract claim. The existence of this duty does not
necessarily require that the parties actually close a deal once negotiations have begun. Rather,
the duty to negotiate in good faith imposes a duty on the parties to at least attempt to reach a
deal. Failure to do so could result in reliance damages to the injured party. Notably, in a recent
case, the Delaware Supreme Court ruled that expectation damages can be awarded if the court
determines that the parties would have reached a deal but for the defendant’s breach of its duty to
negotiate in good faith. SIGA Technologies, Inc. v. PharmAthene, Inc., 67 A.3d 330 (Del. 2013).
Courts have not applied this duty uniformly. However, the states can generally be
grouped into four categories as follows: (i) a court has affirmatively found that there is no duty
to negotiate in good faith; (ii) a court has enforced a duty to negotiate in good faith if the LOI is
binding or the LOI states such a duty; (iii) a court has imposed a duty to negotiate in good faith
for preliminary agreements, such as non-binding LOIs; or (iv) courts applying that state’s laws
have not addressed the issue. Based on these four categories, the current state of case law for
each state is indicated in the table on Exhibit A attached hereto with citations where applicable.
-9-
22
VIII.
Advanced Strategic Negotiations
A.
Transaction Type
The LOI should state both the subject and structure of the transaction. This means
determining whether the purchase will be of stock or assets and whether the deal will be in the
form of an acquisition or merger. For an asset purchase transaction, the parties may not know all
the specific assets that will be purchased. In that event, the LOI should at least contain a general
description of the assets or provide a mechanism for determining the assets (such as “all assets
used or held for use in the business”). While big-picture deal terms such as these can (and often
do) change after the LOI is agreed to, establishing these key terms early in the negotiation
process is critical. With these terms outlined in the LOI, the parties can more efficiently
negotiate and draft the purchase agreement pursuant to which they will actually consummate the
transaction.
While some transactions may be conducted between a single buyer on one side and a
single seller on the other, other transactions can be more complex. As a general rule, the LOI
should also identify the parties to the transaction, or, if the parties cannot be presently defined,
then contain a reference to that fact. For a transaction structured as a stock purchase, this could
mean listing the selling shareholders or providing a mechanism for determining the selling
shareholders or at least identifying a shareholder representative. Additionally, in certain merger
transactions, the acquiring entity may have not been formed as of the time of the signing of LOI.
In that case, including additional information about the timeline for forming the acquisition
subsidiary and additional information on the entity type (e.g. a Delaware limited liability
company) will be useful in creating certainty and reducing to writing the various moving parts of
the deal.
B.
Price
The LOI should also set out the purchase price and whether the purchase price will be
paid in cash, stock, via a promissory note, or a combination of methods. If all or a portion of the
purchase price is to be paid with a promissory note from the buyer or in buyer stock, the LOI
should reflect this. If a promissory note is to be issued, seller’s counsel should consider setting
out the principal terms of the note (for example, unsecured or secured, interest rate, maturity
date). There are typically a number of commercial and tax considerations that determine the
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23
nature and structure of the consideration.
The tax consequences to the parties can vary
depending on the type of consideration and the transaction structure, so counsel should consult a
tax specialist before committing to any particular structure at this stage.
If the purchase price is subject to any adjustment (such as a working capital adjustment),
the LOI should reflect this.
Until due diligence has been completed, the buyer is at a
disadvantage in terms of knowledge about the business being sold. The buyer may or may not
have received an information statement concerning the target business, and the preliminary
information on which it based its valuation is not likely to include particularly sensitive
contingencies or other material non-public information. It is possible that the purchase price
reflected in the LOI may be negatively affected by the due diligence findings and a more
thorough review of the target’s financial statements. In terms of establishing any adjustments,
the LOI often states the general basis on which the purchase price was calculated and the
assumptions considered by the buyer in determining the purchase price. This will provide the
buyer with additional leverage if it wants to lower the purchase price if one of the assumptions
proves false during the course of due diligence.
Buyers use purchase price adjustments to protect themselves against decreases in the
value of the target business (or a depletion of its working capital) during the period between the
date of the most recent financial statements and the closing. Counsel to the buyer must confirm
with the buyer that a working capital adjustment is appropriate for the proposed transaction.
Alternatively, the buyer can include a purchase price adjustment based on something other than
working capital, such as net worth, profits and losses, value of specific assets and EBITDA. In
that case, appropriate changes must be made in this section although it is not necessary to fully
document the mechanics of the desired adjustment. In drafting the LOI, it may be better to state
the general principle of the adjustment rather than attempt to provide any detailed formula,
calculations or definitions in the LOI itself.
The LOI should also discuss whether a portion of the purchase price will be held in
escrow to settle potential indemnification claims against the seller and other post-closing
obligations. Also, if the parties agree to an earn-out, the seller may request that the buyer deposit
some or all of the deferred consideration payments into escrow. In either case, if either party is
considering an escrow, the general terms (such as, how much should be deposited into escrow
and for how long) are often negotiated at this stage and incorporated into the LOI. The other
- 11 -
24
details of the escrow will be negotiated when the purchase agreement and escrow agreement are
drafted.
C.
Confidentiality
An LOI generally contains commercially sensitive information, and the parties will want
to ensure that the contents (and even the existence) of the document are confidential. Assuming
a confidentiality agreement has already been entered into, the LOI should simply acknowledge
that the information is confidential and make it clear that it is subject to the terms of the existing
confidentiality agreement that will continue in full force and effect. The parties should confirm
the terms of the confidentiality agreement to ensure that what is said in the LOI is consistent with
the operative provisions of that agreement. If no confidentiality agreement has been entered into
by the time the LOI is to be signed (or it is unclear whether the LOI will be treated as
confidential information for the purpose of any confidentiality agreement), the parties should
consider including a legally binding confidentiality provision in the LOI.
D.
Costs and Expenses
An expense reimbursement provision can be included along with an exclusivity provision
to further shift the risk that the transaction is not consummated onto the seller. An expense
reimbursement provision requires the seller to pay the buyer’s legal and other transaction
expenses if the seller decides not to proceed with the transaction, except in limited circumstances
(mutual agreement, a material change in the offer terms or the buyer deciding not to proceed).
This provision may be viewed as fairly aggressive at this stage of the transaction, but depending
on the buyer’s leverage and its concerns about the seller’s commitment to agreeing to a definitive
agreement and completing a transaction, it may be appropriate.
Buyer’s counsel should expect resistance to this provision, which is similar to a break-up
fee. Seller’s counsel will likely argue that the seller is also investing considerable time and
expense (such as legal and financial advisors’ fees) in undertaking the proposed transaction and
it therefore has demonstrated its commitment to seriously consider the transaction. If the buyer
insists on an expense reimbursement provision, the seller can counter by requesting either a
reciprocal expense reimbursement provision or that the buyer pay an exclusivity fee. Whether or
not an expense reimbursement is included in the LOI will depend ultimately on the negotiating
leverage of the parties.
- 12 -
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E.
Exclusivity
Another important function of an LOI is to establish the terms of exclusivity, if any,
among the parties.
The exclusivity provision acts as a way to shift some of the risk of
negotiating the transaction and conducting due diligence onto the seller. The length of the
exclusivity period can vary, ranging from a few weeks to a few months, depending on factors
such as the complexity of the transaction, the amount of due diligence material to be reviewed,
and the presence of other interested buyers. Thirty to sixty days are common exclusivity periods
in LOIs.
The most common means of enacting an exclusivity provision is through a no-shop
provision. The no-shop seeks to prevent the seller from negotiating with, or soliciting offers
from, other parties for a fixed period. It gives the buyer a period of exclusivity so that it can
negotiate the definitive agreement with a view toward completing the proposed transaction. A
comprehensive no shop provision requires the seller and its affiliates to terminate any pending
discussions with any third parties and prohibits the seller group from entering into, soliciting or
negotiating an alternative transaction for the duration of the exclusivity period. Restrictions such
as these are fairly standard for exclusivity provisions.
Exclusivity is frequently negotiated as a part of the LOI. Usually this is because the
seller has chosen to preserve its leverage and not grant exclusivity to the buyer until it has
negotiated the material terms of the transaction. Exclusivity provisions are common in LOIs
because transactions can involve complex, expensive due diligence reviews and lengthy
negotiations. A buyer often conditions its execution of the LOI on the seller agreeing to an
exclusivity period. While exclusivity provisions are often included in an LOI, the parties can
also negotiate and document exclusivity in a stand-alone agreement.
The exclusivity provision should be one of the binding provisions in an LOI. To be
enforceable, the seller’s obligation not to shop the deal must be supported by consideration.
Generally, the consideration for having an exclusivity agreement is the time and expense
incurred by the buyer in pursuing the proposed transaction. However, if there is doubt as to the
sufficiency of this consideration, especially agreements with particularly long exclusivity
periods, the buyer sometimes pays a fee in consideration for exclusivity.
- 13 -
26
F.
Termination
An LOI should also include terms for how and when the parties can withdraw from the
proposed transaction. One potential termination provision is a “financing out,” whereby the
buyer is not longer obligated to consummate the transaction if it is unable to obtain financing.
Including the availability of financing as a closing condition protects the buyer, but is a
controversial provision. While sellers typically resist financing outs, a buyer may succeed in
including one if it has significant leverage in the transaction. The buyer should be prepared for
the seller to ask about the details of the financing (such as the amount needed, the stage of
commitments and buyer’s history with financings and relationship with prospective lender or
lenders).
G.
Break-up Fee
The buyer may also seek to include a “break-up fee” provision that requires the seller to
pay the buyer an agreed-upon amount in the event the seller sells the target to any other buyer
within a specified time. The seller may also require a “reverse break-up fee,” whereby the buyer
will be obligated to pay the seller should the transaction not close due to some condition not
caused by the seller (such as buyer’s failure to secure financing). The logic for the seller,
particularly sellers who may have multiple interested buyers, is that there is a potential
opportunity cost for agreeing to exclusively negotiate with the buyer and that in the event that the
buyer backs out, that cost should be accounted for.
H.
Due Diligence Requirements and Access to Information
Another important consideration is the amount of access that the seller will give the buyer
and its representatives to the records and key employees of the target business in order for the
buyer to conduct its due diligence. Sellers will generally want to avoid giving unlimited access
and a commitment to provide all information requested or deemed relevant by the buyer. This is
because the due diligence process can be disruptive to the employees, customers and suppliers of
the target business. Once employees and others become aware that a transaction in the works, it
may be difficult for the seller to terminate discussions and resume business as usual if the seller
decides not to go forward with the proposed deal.
Additionally, open access to employees and information may be inconsistent with the
approach set out in the relevant confidentiality agreement. There also may be regulatory or
- 14 -
27
contractual limitations on the disclosure of information. For example, providing information that
contains person data about employees may be subject to federal and state privacy and data
security laws. Finally, if the parties are competitors, the seller may want to impose additional
restrictions on disclosing materials. Competitors may be prohibited by law from sharing certain
information (for example, pricing). Even if not prohibited by law, a seller may be wary about
sharing information (such as customer names) before a closing is imminent.
Nonetheless, from a buyer perspective, adequate access to information is crucial in
determining whether the transaction is viable. At the same time, the buyer should be aware that
its legal and financial teams will not have unlimited time to review the provided material, so the
buyer should not sacrifice negotiating leverage to gain access to material it has no ability or
intention to review.
I.
Expiration Date
Buyer’s counsel usually includes a bid expiration date to motivate the seller to timely
accept the terms of the LOI. Essentially the buyer is saying that if the LOI is not accepted by a
date certain, the proposal is no longer valid. Counsel to the buyer should discuss with its client
the appropriate date when the offer will expire. This period varies and can range anywhere from
one day to one week or longer. Including an expiration date also protects the buyer from having
a seller attempt to accept a stale LOI after negotiations have broken down.
J.
Governing Law
Most LOIs do not need to contain overly detailed boilerplate provisions. In general, the
parties should choose the law of a state that has a relationship to the parties or the proposed
transaction (or there should be some other reasonable basis for the choice). The parties should
also consider whether the choice of governing law for a preliminary agreement like the LOI will
set a precedent for the choice of law for the purchase agreement. Many parties choose Delaware
or New York as a neutral governing law because of their sophistication and well-established
contract law.
IX.
Sample Letter of Intent
Attached hereto as Exhibit B is a sample LOI that can be tailored for use in connection
with an asset purchase transaction. This sample LOI is drafted from a buyer’s perspective and
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28
assumes, inter alia, that the transaction involves a single corporate buyer and a single corporate
seller and that the buyer is purchasing substantially all of the assets of seller. This sample LOI
also includes a number of other assumptions, including, without limitation, that (a) the
consideration is in cash, with a portion being paid into escrow, (b) there is a working capital
adjustment, (c) the signing and closing of the transaction will not be simultaneous, and (d) the
parties have already entered into a confidentiality agreement. Buyer’s counsel should discuss the
terms and utility of an LOI with the client prior to drafting the LOI and should carefully tailor the
LOI to the specifics of a given transaction.
X.
Conclusions
An LOI can be useful both for documenting points where the parties can easily find
consensus, as well as identifying potential points that could derail the deal. It can also help
provide the parties with a better sense of the potential timeline of the deal by laying out a staged
schedule. Signing an LOI can provide both sides with momentum and increase the confidence of
the parties that a final deal can be struck. It can also be used with regulators (e.g., Hart-ScottRodino filings), financiers, insurers, and others to help bring the deal to an eventual closing.
Furthermore, an LOI can create a sense of “moral commitment” between the parties to work out
their differences when negotiations stall to find a way to come to agreement.
On the other hand, LOIs can take considerable time and resources and may not always
justify the extra expense. A signed LOI can also potentially trigger public disclosure obligations,
something one or both parties may wish to avoid at this juncture of the deal process. Also, by
agreeing to an LOI at an early stage in the deal process, a party may hinder its ability to negotiate
a better deal at a later time. Finally, while an LOI can be a useful tool to facilitate a transaction,
if not properly drafted it can leave open the possibility that the parties have inadvertently created
a binding agreement.
* * * * *
- 16 -
29
Exhibit A
Duty to Negotiate in Good Faith
State-By-State Survey
State
No Duty to Negotiate in
Good Faith Imposed on
Preliminary
Agreements
Duty to Negotiate in
Good Faith when LOI is
Binding or the LOI
States a Duty to
Negotiate in Good Faith
Implied Duty to
Negotiate in Good
Faith for Preliminary
Agreements, such as
Non-Binding LOIs
Have Not
Addressed
the Issue
Alabama
9
Alaska
9
9
Arizona
Arkansas
FutureFuel Chemical Co.
v. Lonza, Inc., 2012 WL
4049267 (E.D. Ark. Sept.
13, 2012).
California
Copeland v. Baskin
Robbins, U.S.A., 96
Cal. App. 4th 1251 (2d
Dist. 2002).
9
Colorado
Connecticut
Kopperl v. Bain, 2010
WL 3490980 (D. Conn.
Aug. 30, 2010).
Delaware
SIGA Technologies, Inc.
v. PharmAthene, Inc., 67
A.3d 330 (Del. 2013).
District of
Columbia
Howard Town Center
Developer, LLC v.
Howard University, 278
F. Supp. 3d 333 (D.D.C.
2017).
Florida
Aldora Aluminum &
Glass Products, Inc. v.
Poma Glass & Specialty
Windows, Inc., 683 F.
App’x 764 (11th Cir.
2017).
Georgia
Wells Fargo Bank, N.A.
v. Thomas, 2011 WL
13234704 (N.D. Ga. Dec.
22, 2011).
Hawaii
9
Idaho
9
A-1
30
State
No Duty to Negotiate in
Good Faith Imposed on
Preliminary
Agreements
Illinois
Duty to Negotiate in
Good Faith when LOI is
Binding or the LOI
States a Duty to
Negotiate in Good Faith
Implied Duty to
Negotiate in Good
Faith for Preliminary
Agreements, such as
Non-Binding LOIs
Have Not
Addressed
the Issue
Midwest Mfg. Holding,
LLC v. Donnelly Corp.,
975 F. Supp. 1061 (N.D.
Ill. 1997).
Indiana
9
Iowa
9
Kansas
9
Kentucky
Cinelli v. Ward, 997
S.W.2d 474 (Ct. App.
Ky. 1998).
Louisiana
Beary v. Deese, 2017 WL
4791177 (E.D. La. Oct.
23, 2017).
9
Maine
Maryland
Phoenix Mut. Life Ins.
Co. v. Shady Grove Plaza
Ltd. Partnership, 734 F.
Supp. 1181 (D. Md.
1990).
Massachusetts
Schwanbeck v. FederalMogul Corp., 592 N.E.2d
1289 (Mass. 1992).
Michigan
Frazier Industries, L.L.C.
v. General Fasteners Co.,
137 F. App’x 723 (6th
Cir. 2005).
Minnesota
C & S Acquisitions Corp.
v. Northwest Aircraft,
Inc., 153 F.3d 622 (8th
Cir.).
Mississippi
9
Missouri
9
Montana
9
Nebraska
9
9
Nevada
New Hampshire
Howtek, Inc. v. Relisys,
958 F. Supp. 46 (D.N.H.
1997).
New Jersey
Katsiavrias v. Cendant
Corp., 2009 WL 872172
(D.N.J. March 30, 2009).
9
New Mexico
A-2
31
State
No Duty to Negotiate in
Good Faith Imposed on
Preliminary
Agreements
Duty to Negotiate in
Good Faith when LOI is
Binding or the LOI
States a Duty to
Negotiate in Good Faith
New York
Teachers Insurance and
Annuity Ass’n of America
v. Tribune, 670 F. Supp.
491 (S.D.N.Y. 1987).
North Carolina
TSC Research, LLC v.
Bayer Chemicals Corp.,
552 F. Supp. 2d 534
(M.D.N.C. 2008).
Implied Duty to
Negotiate in Good
Faith for Preliminary
Agreements, such as
Non-Binding LOIs
9
North Dakota
Ohio
Nephrology &
Hypertension Specialists,
LLC v. Fresenius Medical
Care Holdings, Inc., 2010
WL 3069758 (S.D. Ohio
Aug. 5, 2010).
9
Oklahoma
Oregon
Logan v. Sivers, 169 P.3d
1255 (Or. 2007) (en
banc).
Pennsylvania
Channel Home Centers,
Div. of Grace Retail
Corp. v. Grossman, 795
F.2d 291 (3d Cir. 1986).
Rhode Island
South Carolina
Have Not
Addressed
the Issue
Newharbor Partners, Inc.
v. F.D. Rich Co., Inc., 961
F.2d 294 (1st Cir. 1992).
Stevens & Wilkinson of
S.C., Inc. v. City of
Columbia, 762 S.E.2d
696 (2014).
9
South Dakota
Tennessee
Barnes & Robinson Co.,
Inc. v. OneSource Facility
Services, Inc., 195 S.W.3d
637 (Tenn. Ct. App.
2006).
Texas
Karns v. Jalapeno Tree
Holdings, LLC, 459
S.W.3d 683 (Tex. Ct.
App. 2015).
A-3
32
State
Utah
No Duty to Negotiate in
Good Faith Imposed on
Preliminary
Agreements
Duty to Negotiate in
Good Faith when LOI is
Binding or the LOI
States a Duty to
Negotiate in Good Faith
Have Not
Addressed
the Issue
King v. Nev. Elec. Inv.
Co., 893 F. Supp. 1006
(D. Utah 1994).
Vermont
Sunnyside Cogeneration
Associates v. Central
Vermont Public Service
Corp., 915 F. Supp. 675
(D. Vt. 1996).
Virginia
Beazer Homes Corp. v.
VMIF/Anden
Southbridge Venture, 235
F. Supp. 2d 485 (E.D.
Va. 2002).
Washington
Commercial
Development Co. v.
Abitibi-Consolidated,
Inc., 2008 WL 916951
(W.D. Wash. April 1,
2008).
West Virginia
Implied Duty to
Negotiate in Good
Faith for Preliminary
Agreements, such as
Non-Binding LOIs
Akers v. Minnesota Life
Ins. Co., 35 F. Supp. 3d
772 (S.D.W.V. 2014).
Wisconsin
9
Wyoming
9
* * * * *
A-4
33
Exhibit B
Sample Letter of Intent for Asset Acquisition
[BUYER LETTERHEAD]
_____________, 2018
[SELLER AND ADDRESS]
[_____________________]
[_____________________]
[_____________________]
Dear [___________]:
[BUYER], a [________] corporation (“Buyer”), is pleased to submit this letter (this
“Letter”) to [SELLER], a [________] corporation (the “Company”), [and [STOCKHOLDER]
(the “Stockholder”), the sole stockholder of the Company,] with respect to the proposed
acquisition of substantially all of the assets of the Company by Buyer (the “Transaction”). This
Letter of Intent is intended to summarize the principal terms and conditions of the Transaction
and the present intentions of the parties.
1.
Acquisition of Assets. Subject to the satisfaction of the conditions described in
this Letter of Intent, Buyer would acquire substantially all of the assets of the Company (the
“Assets”) at the closing of the Transaction, [except that Buyer will not purchase certain assets to
be specified in the Purchase Agreement including the following: ____________].
2.
Assumption of Liabilities. Buyer would not assume any liabilities of the
Company except for those obligations of the Company under certain assumed contracts and
certain current liabilities reflected in the Net Working Capital Amount (as hereinafter defined)
(the “Assumed Liabilities”).
3.
Purchase Price. Subject to adjustment as provided below, based on information
that Buyer has received to date, the purchase price for the Assets would be
$_________________ (the “Purchase Price”). A portion of the Purchase Price in the amount of
$_________ will be deposited in escrow for a period of _________ following the Closing (as
defined below) to secure post-closing obligations of the Company. The Purchase Price assumes
the Assets would be purchased free of any liens or encumbrances. Any long term debt or
capitalized lease obligations (including the current portion thereof and any prepayment penalties
B-1
34
or similar costs or expenses) giving rise to any such liens or encumbrances will be repaid in full
at Closing out of the Purchase Price.
4.
Net Working Capital Adjustment. The Purchase Price would be decreased dollarfor-dollar by the amount, if any, by which the Net Working Capital Amount set forth on an
[audited] closing balance sheet reflecting the Assets and Assumed Liabilities is less than the
target Net Working Capital Amount agreed to by the parties in the definitive purchase
agreement. “Net Working Capital Amount” shall mean the book value of the current assets
included in the Assets less the book value of the current liabilities included in the Assumed
Liabilities.
5.
Closing. The closing (the “Closing”) of the Transaction would occur on a date to
be set pursuant to the terms of a definitive asset purchase agreement (the “Purchase Agreement”)
to be executed by the parties hereto.
6.
Due Diligence. The Company will afford to Buyer and its officers, employees,
accountants, counsel and other authorized representatives full access to and the right to inspect,
review and make copies of the assets, properties, books, contracts, commitments and records of
the Company, view physical properties and communicate with key employees, customers and
vendors of the Company. The Company will furnish promptly to Buyer such additional financial
and operating data and other documents and information related to the Company as Buyer or its
representatives may from time to time request.
7.
Definitive Agreement. The objective of this Letter of Intent is to document the
intention of the parties to seek to execute and consummate a Purchase Agreement. The
obligation of the parties to enter into a definitive Purchase Agreement will be subject to the
negotiation by the Company and Buyer of a mutually agreed upon form of such Purchase
Agreement. The Purchase Agreement would contain, among other provisions, appropriate
representations and warranties and indemnities of the Company and the Stockholder, closing
conditions, noncompetition and nonsolicitation covenants and other matters reasonably required
by Buyer and its counsel and mutually agreeable to all parties.
8.
Conditions to Closing. The Purchase Agreement would contain customary
conditions to each party’s obligation to close. In addition, the obligation of Buyer to close shall
be conditioned upon [list closing conditions such as HSR or other regulatory approvals, material
consents, employment agreements, etc.]
9.
Conduct of Business. During the effectiveness of this Letter of Intent, the
Company will conduct its business in the ordinary and usual course of business consistent with
past and current practices, and will use its reasonable best efforts to (a) maintain and preserve
intact the business organization and goodwill of the Company, (b) retain the services of key
personnel and employees, and (c) maintain satisfactory relationships with all persons having
B-2
35
business relationships with the Company (including customers and vendors). The Company will
not (v) increase the compensation of or pay or accrue any bonus to any employee other than in
accordance with past established practices both as to type and amounts without the consent of
Buyer, (w) pay any dividends inconsistent with past practices, (x) commit to any material capital
expenditures, (y) make any unusual purchases or commitments, or (z) enter into any material
contract or agreement or engage in any transaction out of the ordinary course of business without
prior consultation with Buyer.
10.
Exclusivity. In consideration of Buyer’s commitment to expend time, effort and
expense to evaluate the transactions contemplated hereby, the Company and the Stockholder
hereby agree that all negotiations or discussions with third parties regarding the sale of all or any
portion of the stock or any of the assets of the Company or any of its subsidiaries (other than
sales of inventory in the ordinary course of business) (a “Sale”), if any, will immediately cease,
and that neither the Company or any of its affiliates, the Stockholder nor their representatives
will directly or indirectly solicit or respond to any solicitation from, or provide any information
to, or otherwise enter into any discussions or negotiations with, or enter into any letter of intent,
memorandum of agreement or other binding or non-binding agreement with, any person or entity
regarding a Sale or any other transaction inconsistent with the transactions contemplated by this
Letter of Intent.
11.
Termination. This Letter of Intent will automatically terminate and be of no
further force or effect upon the earlier of (a) execution of the definitive Purchase Agreement, and
(b) 5:00 p.m. New York City time on _________, 2018; provided, however, that the obligations
contained in Sections 12, 13, 14 and 16 shall survive such termination. The termination of this
Letter of Intent shall not affect any rights any party hereto has with respect to the breach of this
Letter of Intent by another party hereto prior to such termination.
12.
No Disclosure. The parties agree that the existence of this Letter of Intent, all of
its terms and the discussions of the parties regarding the transactions contemplated hereby will
be kept confidential by the parties in accordance with the confidentiality agreement, dated
_________, 2018, executed by the parties (the “Confidentiality Agreement”). Buyer, the
Stockholder and the Company will not, and Buyer, the Stockholder and the Company will cause
their representatives and affiliates not to, issue any press release or make any other public
announcement relating to the transactions contemplated herein without the prior written consent
of the other party, except that any party may make any disclosure required to be made by it under
applicable law. Prior to issuing any press release or making any public announcement required
under applicable law, the party issuing such press release or making such public announcement
will give reasonable prior notice to the other party.
13.
Governing Law. This Letter of Intent shall be governed and construed and
enforced in accordance with the laws of the State of _________, without giving effect to any
B-3
36
choice or conflict of law provision or rule that would cause the application of laws of any
jurisdiction other than those of the State of __________.
14.
Costs and Expenses. [The Company and Buyer will each pay one-half of the
Hart-Scott-Rodino filing fee.] Each party will bear its own costs and expenses (including,
without limitation, any investment banker’s, broker’s or finder’s fees and any attorney’s and
accountant’s fees) incurred in connection with the execution and delivery of this Letter of Intent
and the consummation of the transactions contemplated herein.
15.
Non-Binding. It is understood that this Letter of Intent is intended only to state
the present understandings and intentions of the parties with respect to the proposed acquisition
of the Assets by Buyer. Notwithstanding the terms of this Letter of Intent, or any other past,
present or future written or oral indications of assent or indications of results of negotiation or
agreement to some or all matters then under negotiation, it is agreed that no party hereto (and no
person or entity related to any such party) will be under any legal obligation with respect to the
proposed transaction or any similar transaction, unless and until a formal and definitive Purchase
Agreement has been executed and delivered by all parties intending to be bound; provided,
however, that the obligations set forth in Sections 6, 9, 10, 11, 12, 13, 14, 15 and 16 hereof will
be binding on Buyer, the Stockholder and the Company upon execution and delivery of this
Letter of Intent in accordance with the terms hereof.
16.
Miscellaneous.
a.
Assignment. This Letter of Intent may not be assigned by any party
hereto, except that Buyer may assign this Letter of Intent to any affiliate.
b.
Amendment. This Letter of Intent may be amended only by a written
agreement executed by all parties hereto.
c.
Authority. Each party hereto represents and warrants that it has full power
and authority to execute, deliver and perform this Letter of Intent and that such execution,
delivery and performance do not violate (or require disclosure to any third party under)
any provision of any other agreement to which any party hereto is a party.
d.
No Third Party Beneficiaries. Nothing herein is intended or shall be
construed to confer upon any person or entity other than the parties hereto and their
successors or permitted assigns, any rights or remedies under or by reason of this Letter
of Intent.
e.
Counterparts. This Letter of Intent may be executed in counterparts, each
of which will be an original, but all of which together will constitute one and the same
agreement.
f.
Entire Agreement. This Letter of Intent constitutes the entire agreement
between Buyer and the Company with respect to the matters covered herein and
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37
supersedes any prior negotiations, understandings or agreements with respect to the
matters contemplated hereby, other than the Confidentiality Agreement.
If the foregoing proposal is satisfactory to the Company, please so indicate by executing
and returning a copy of this letter to the undersigned on or before 5:00 p.m. New York City time
on __________, 2018. This Letter of Intent shall expire and be of no further force and effect if
not executed and returned to Buyer prior to such time.
Sincerely,
[BUYER]
By:_______________________________
Name: ____________________
Title: _____________________
Agreed to and accepted this ___ day of __________,
2018 by:
[THE COMPANY]
By:___________________________
Name:_________________
Title: _________________
[THE STOCKHOLDER]
By:___________________________
Name:_________________
Title: _________________
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38
Thank You
for choosing NBI for your
continuing education needs.
Please visit our website at
www.nbi-sems.com
for a complete list of
upcoming learning opportunities.
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