Letter of Intent to purchase
Shares and Assets of a Business
[Date]
________________
Dear _____________:
This letter confirms your and our mutual
intentions with respect to the potential
transaction described herein between _____
______ (?Buyer?) and _______________
(?Seller?).
RE: CONFIDENTIAL LETTER OF INTENT
Gentlemen:
The purpose of this Letter of Intent
(?Letter?) is to set forth certain non-binding
understandings and certain binding
commitments between ____________________
, an [type of business] (?Acquirer?) and
[list names of owners], owners of 100% of
the capital stock of ______________________,
an [type of business] (?Target?), with
respect to a proposed transaction in which
Acquirer, or its successor, will purchase all
of the capital stock of Target. For purposes
of this Letter, Target, each of its
shareholders, and Acquirer are sometimes
collectively referred to as ?parties? and
individually as a ?party.?
The terms of the acquisition will be more
particularly set forth in a purchase
agreement and one or more definitive
agreements (collectively ?Definitive
Agreements?) to be mutually agreed upon
by the parties. This Letter outlines the
proposed transaction based on each party?s
present understanding of the current
condition of the assets and business
operations of Target. In particular, Acquirer
understands that Target owns all of the
land, buildings, equipment, rolling stock,
and other assets consisting of the facility in
[city and state of facility/assets] and that
[list names of shareholders] collectively
own 100% of the outstanding shares of
capital stock of Target. [List names of
shareholders] understand that Acquirer
may assign its rights under this Letter.
The following numbered paragraphs 1 ? 4
of Part One constitute a general outline of
the proposed transaction, the purchase
price, key ancillary agreements and
important conditions. The provisions shall
be included in the Definitive Agreements,
but in all instances shall be subject to and
contingent upon the parties reaching
agreement on the Definitive Agreements
and the terms and conditions set forth in
the Definitive Agreements. The parties?
expressly state their intention that this
Letter as a whole, and paragraphs 1 ? 4 of
Part One in particular, do not and shall not
constitute a legal and binding obligation,
contract or agreement between any of the
parties, are not intended to be an extensive
summary of all of the terms and conditions
of the proposed acquisition or the
Definitive Agreements, and are subject to
the approval of Acquirer?s primary lender.
The parties do, however, expressly intend
that paragraphs 5 ? 10 of Part Two of this
Letter, upon acceptance by [list names of
shareholders] , Target and Acquirer, shall
constitute the parties? agreements with
respect to the procedures for negotiation
and preparation of the Definitive
Agreements.
PART ONE: NONBINDING STATEMENT OF
UNDERSTANDING
1. ACQUISITION OF THE STOCK. Subject to
(1) the satisfactory results of a due
diligence inspection by Acquirer (as
provided in paragraph 5) and the making of
any agreed upon adjustments to the
acquisition price reflecting the assets,
liabilities (both known and contingent),
finances and business operations of Target,
and (2) the ability of Acquirer to secure
adequate debt financing to acquire the
capital stock for the purchase price (as
defined below) and adequately capitalize
the business to operate Target?s business,
and (3) also subject to the conditions,
agreements and undertakings referred to
below in this Letter, Acquirer will purchase
all of the issued and outstanding capital
stock of Target.
Acquirer will purchase the capital stock for
a purchase price of $___________________
(?Purchase Price?) subject to the provisions
of this Letter. $________________ of the
Purchase Price will be paid in cash on the
date of acquisition (?closing?). Acquirer will
pay the remaining $____________ portion of
the Purchase Price over a 5-year period
under a subordinated note secured by a
pledge of Target stock with the following
terms and other terms that may be agreed
to by the parties and subject to senior
lender approval: (1) the annual rate of
interest on the unpaid portion shall be ____
__%; (2) payments shall be made quarterly
with the first payment being an interest
only payment in the amount of $___________
; (3) payments 2 through ___ shall be
interest and principal payments each in the
amount of $__________; (4) Acquirer may
prepay the note at any time without
penalty; and (5) in the event of default,
[list names of shareholders] may take
actions necessary to protect their interest.
2. CONSULTING AGREEMENT; NON-
COMPETE; BOARD SEAT. At closing, [list
names of shareholders] will each enter
into a ____-month consulting agreement
providing for compensation of $_____/day
and reimbursement of out of pocket
expenses when their services are requested
by Acquirer. In a separate agreement, and
except for providing services to benefit
Acquirer, [list names of shareholders] will
also each agree not to be involved in any
way with the [list type of business that
shareholders cannot engage in] until the
earlier of Acquirer discontinuing operations
or ___ years from the date of closing.
[List names of shareholders] will also be
entitled to appoint one director to the
Board of Acquirer until the Purchase Price
is paid in full. If [list names of
shareholders] wish to appoint someone
other than one of them, that appointment
must be mutually agreed to by all parties.
This right extends into any entity that
Acquirer merges into or otherwise assigns
its rights in this Letter.
3. PREPARATION OF DEFINITIVE
AGREEMENTS. The parties will negotiate
the terms and
begin preparation of the Definitive
Agreements that will govern the Acquirer?s
proposed acquisition of the capital stock.
To the extent appropriate for transactions
of this type and size, the Definitive
Agreements will contain customary
representations, warranties, covenants,
indemnities and other agreements of the
parties, including but not limited to: (1)
representations and warranties related to
each party?s power and authority to enter
into the Definitive Agreements and perform
its obligations thereunder; (2)
representation and warranty by [list names
of shareholders] that the accounts
receivable plus cash, less accounts payable,
of Target will be equal to or greater than $_
__________ on the day prior to closing; (3)
ownership and title to the capital stock of
Target (and that such interest will be
conveyed free and clear of all
encumbrances); (4) various representations
and warranties concerning Target and
Acquirer such as due organization, good
standing, the absence of violation of other
agreements and laws, the accuracy of
financial information being relied upon,
and other matters customary for
transactions of this sort; (5) indemnities
from [list names of shareholders] in favor
of Acquirer against all claims and liabilities
with respect to breach of such
representations and warranties concerning
their ownership interest in the capital stock
of Target in favor of Acquirer against all
claims and liabilities with respect to breach
of such representations and warranties; (6)
indemnities from [list names of
shareholders] in favor of Acquirer for
environmental liability caused prior to the
date of closing and an indemnity from
Acquirer in favor of [list names of
shareholders] for environmental liability
caused after the date of closing; and (7)
indemnities from Acquirer in favor of [list
names of shareholders] against all claims
and liabilities with respect to breach of
Acquirer?s representations and warranties
The Definitive Agreements are expected to
include, without limitation: (1) a purchase
and sale agreement to govern Acquirer?s
acquisition of the capital stock; (2) a
promissory note; (3) a consulting
agreement; (4) a non-compete agreement,
and (5) any other agreements necessary or
desirable in connection with any of the
foregoing arrangements or any transaction
contemplated herein.
4. CONDITIONS PRECEDENT TO THE
CLOSING OF PROPOSED ACQUISITION.
The Definitive Agreements shall include
customary conditions precedent generally
applicable to an acquisition of the nature
and size of the transactions contemplated
by this Letter, each of which must be
satisfied prior to the consummation of the
transactions contemplated thereby. In
general, the closing of the proposed
acquisition and the obligations of each
party under the Definitive Agreements will
be subject to the satisfaction of the
conditions precedent, which shall include
but not be limited to:
(a) Satisfactory Results of Due Diligence.
The satisfactory completion of due diligence
investigation and acquisition audit by
Acquirer (as provided in paragraph 5)
showing that the assets of Target and any
actual or contingent liabilities against those
assets, and the prospective business
operations by Acquirer of Target?s business
are substantially the same as currently
understood by Acquirer as of the date of
this Letter (determined without regard to
any documents which Target or any party
may have previously delivered to Acquirer).
(b) Compliance. Satisfactory determination
that the acquisition and prospective
business operations by Acquirer of Target?s
business will comply with all applicable
laws and regulations, including antitrust
and competition laws.
(c) Consents and Approvals. The approval
and consent of the Definitive Agreements
by the respective Boards of Target and
Acquirer and the receipt of the consents
and approvals from all governmental
entities, utility providers, railways, material
vendors, lenders, landlords, customers,
and other parties which are necessary or
appropriate to the acquisition of the capital
stock and for the prospective business
operation by Acquirer, and the receipt of all
necessary governmental approvals
including the expiration or termination of
all required waiting periods.
(d) Absence of Material Litigation or
Adverse Change. There must be no
pending or threatened material claims or
litigation involving Target, and no material
adverse change in the business prospects
of Acquirer operating Target?s business.
(e) Delivery of Legal Opinions. Customary
legal opinions must be delivered, the
content of which shall be mutually agreed
upon.
(f) Successful Financing. Acquirer must
secure the debt and equity financing
necessary to acquire the capital stock of
Target.
(g) Environmental. An environmental
inspection by a licensed environmental
inspection firm contracted by Acquirer
must show the assets of Target to be free
from significant environmental liabilities.
Acquirer shall be given access to the
property of Target and documents as
necessary for Acquirer and its agents to
conduct the inspection and prepare the
reports at the Acquirer? cost. [List names
of shareholders] , and Target shall
represent and warrant as a condition of
closing that to the best of their knowledge
there are no material adverse
environmental liabilities associated with
Target or the property it owns.
PART TWO: AGREEMENTS OF THE PARTIES
REGARDING THE PROCEDURES FOR
NEGOTIATION AND PREPARATION OF THE
DEFINITIVE AGREEMENTS.
In consideration of the costs to be borne
by each party in pursuing the acquisition
and sale contemplated by this Letter and in
consideration of the mutual undertakings
by the parties as to the matters described
in this Letter, upon execution of
counterparts of this Letter by each party,
the following paragraphs 5 through 10 will
constitute legally binding and enforceable
agreements of the parties regarding the
procedures for the negotiation and
preparation of the Definitive Agreements.
5. DUE DILIGENCE. From the date of
acceptance by the parties of the terms of
this Letter, until the negotiations are
terminated as provided in paragraph 9 of
this Letter, Target will give Acquirer and
Acquirer?s management personnel, legal
counsel, accountants, and technical and
financial advisors, full access and
opportunity to inspect, investigate and
audit the books, records, contracts, and
other documents of Target as it relates to
Target?s business and all of Target?s assets
and liabilities (actual or contingent),
including, without limitation, inspecting
Target?s property and conducting
additional environmental inspections of
property and reviewing financial records,
contracts, operating plans, and other
business records, for the purposes of
evaluating issues related to the operation of
Target?s business. Target further agrees to
provide Acquirer with such additional
information as may be reasonably
requested pertaining to Target?s business
and assets to the extent reasonably
necessary to complete the Definitive
Agreements.
6. CONFIDENTIALITY. By their signature
below, each party agrees to keep in strict
confidence all information regarding the
terms of the proposed acquisition of the
capital stock, except to the extent Acquirer
must disclose information to lenders and
equity partners to obtain necessary debt
and equity financing. If this proposal is
terminated as provided in paragraph 9,
each party upon request will promptly
return to the other party all documents,
contracts, records, or other information
received by it that disclose or embody
confidential information of the other party.
Acquirer agrees to keep all material and
information provided to it, under
paragraph five above, confidential and to
promptly return the same to Target upon
termination of this Letter. The provisions of
this paragraph shall survive termination of
the agreements set forth in paragraphs 5 ?
10.
7. PUBLIC DISCLOSURE . No party will make
any public disclosure or issue any press
releases pertaining to the existence of this
Letter or to the proposed acquisition and
sale between the parties without having
first obtained the consent of the other
parties, except for communications with
employees, customers, suppliers,
governmental agencies, and other groups
as may be legally required or necessary or
appropriate (i.e., any securities filings or
notices), and which are not inconsistent
with the prompt consummation of the
transactions contemplated in this Letter.
The provisions of this paragraph shall
survive termination of the agreements set
forth in paragraphs 5-10.
8. DISCLAIMER OF LIABILITIES. Except for
breach of any confidentiality provisions
hereof, no party to this Letter shall have
any liability to any other party for any
liabilities, losses, damages (whether special,
incidental or consequential), costs, or
expenses incurred by the party in the event
the negotiations among the parties are
terminated as provided in paragraph 9.
Except to the extent otherwise provided in
any Definitive Agreement entered into by
the parties, each party shall be solely
responsible for its own expenses, legal fees
and consulting fees related to the
negotiations described in this Letter,
whether or not any of the transactions
contemplated in this Letter are
consummated.
9. TERMINATION. Except for the provisions
set forth in paragraphs 5 ? 10 of Part Two,
each party hereby reaffirms its intention
that this Letter as a whole, and paragraphs
1 ? 4 in particular, are not intended to
constitute, and shall not constitute, a legal
and binding obligation, contract or
agreement between any of the parties, and
are not intended to be relied upon by any
party as constituting such. Accordingly, the
parties agree that any party to this Letter
may unilaterally withdraw from negotiation
or dealing at any time for any or no reason
at the withdrawing party?s sole discretion
by notifying the other party of the
withdrawal in writing. If any party
withdraws from dealing or negotiation prior
to ___________, or fails to negotiate in good
faith, or if each party hereto has not
entered into the Purchase Agreement by ___
______________, then any obligation to
negotiate and prepare the Definitive
Agreements or otherwise deal with any
other party to this Letter, and the
agreements of the parties set forth in
paragraphs 5 ? 10 shall immediately
terminate and Target(s) shall retain the
deposit described in paragraph 10. It is
agreed, however, that the terms of any
Purchase Agreement or other Definitive
Agreements entered into by the parties
controls over the right to withdraw from
dealing or negotiations in this paragraph.
10. ACQUIRER EXCLUSIVE OPPORTUNITY;
DEPOSIT. [List names of shareholders]
agree that neither of them nor any of their
affiliates will pursue, solicit or discuss any
opportunities for any party other than
Acquirer to acquire or otherwise control the
capital stock of Target until this Letter is
terminated by Acquirer or mutually by
Acquirer and [list names of shareholders]
or any of the events in paragraph 9 do not
occur by the dates stated and [list names
of shareholders] notify Acquirer in writing
that they are pursuing other buyers for the
capital stock. In consideration for this
exclusive opportunity, Acquirer will pay to
[list names of shareholders] , collectively,
a $__________ deposit upon the execution
by them of this Letter. The deposit is non-
refundable but will be applied to the
Purchase Price at closing.
If the terms of this Letter are agreeable to
you, please sign a copy of this Letter and
return a signed copy by facsimile to me at _
____________________ by no later than noon
on _________________, followed by a mailed
original signed copy. This Agreement may
be executed in one or more counterparts,
each of which when so executed shall be
deemed an original, but all of which taken
together shall constitute one and the same
document. Upon acceptance of the binding
provisions of this Letter (those provisions
set forth in paragraphs 5 ? 10) by each
party, the parties will negotiate in good
faith to prepare and enter into Definitive
Agreements to govern the proposed
acquisition and sale, subject to the
termination provisions set forth in
paragraph 9.
Should you have any questions, please
contact me at the phone number listed
above.
Sincerely,
?ACQUIRER? ____________________________
By: __________________________
Its: __________________________
________________________________________,
Individually and on behalf of Target
________________________________________,
Individually and on behalf of Target
________________________________________,
Individually and on behalf of Target
________________________________________,
Individually and on behalf of Target
AI
