Buyer-favorable Letter of Intent


[Date], 2017



Attention: [Target CEO]

Dear [Name]:

We are pleased to present this Letter of Intent (“LOI“) relating to the proposed acquisition by [Buyer], a Delaware corporation (“Buyer“), of substantially all of the assets and liabilities (the “Proposed Transaction“) of [Target], a Delaware corporation (collectively with its subsidiaries, if any, the “Company“).  We look forward to working with you towards a successful transaction.

This LOI, which, except as expressly set forth below, is not binding on either Buyer or the Company, sets forth the general terms and conditions, as currently contemplated by the parties, for the Proposed Transaction.  The Proposed Transaction will be structured as an asset purchase, and the details of the transaction and the following general terms and conditions are subject to Buyer’s due diligence investigation of the Company, and decision and appropriate approvals by Buyer and the Company to proceed with the Proposed Transaction and execution of definitive written agreements executed by the parties.

Purchase Price The aggregate purchase price for the Proposed Transaction will be up to  $[amount] million payable in cash.  $[amount] million will be paid at closing and an additional $[amount] million will be payable upon achieving certain milestones as more specifically set forth below (the “Earn Out“). The $[amount] million payable at closing will be distributed as follows,

  1. 10% of net proceeds received by Company shareholders to be paid out to current employees as part of an employee and management carve out plan administered by the Company at closing; and
  2. the remainder to be paid to the Company at closing subject to an indemnity escrow.
Earnout $[amount] million will be payable in cash upon achievement of milestone targets defined during the due diligence investigation period and under mutually agreed to Company performance objectives for calendar year 2016, including but not limited to a Contribution Margin dollar target.  In general, Contribution Margin is defined as Gross Margin as presented in due diligence materials delivered by the Company to Buyer plus/minus mutually agreed to adjustments.  Payments of portions of the total of $[amount] million may be payable upon sliding scale achievement of such milestones.
Key Employees Buyer will determine in good faith during its due diligence investigation which employees of the Company it desires to offer employment.  Buyer ascribes meaningful value to the Company’s employees and anticipates making offers to a substantial majority of the Company’s employees. Company employees who are offered employment with Buyer will be offered (i) base and variable cash compensation and (ii) equity compensation, each in amounts that are comparable with such benefits of similarly-situated employees of Buyer.
Due Diligence Investigation As soon as practicable after execution of this LOI, Buyer will commence its due diligence investigation of the Company.  Such due diligence investigation will include the review of all books, records and business affairs of the Company, and Buyer and its representatives will be entitled to full access to the personnel and facilities of the Company during normal business hours.
Closing; Conditions Precedent The closing of the Proposed Transaction (the “Closing“) will be subject to the satisfaction of customary conditions at or prior to the Closing, including, without limitation: (i) satisfactory results of a business, technical, financial, accounting, legal and tax due diligence of the Company; (ii) the negotiation, documentation and execution of definitive acquisition documents acceptable to both parties; (iii) the receipt of all necessary regulatory approvals and any required consents of third parties; (iv) the absence of litigation challenging the Proposed Transaction; (v) the absence of any material adverse change (including litigation) affecting the financial condition, assets, liabilities, results of operations or prospects of the Company; (vi) the execution of employment, consulting and/or non-competition agreements with certain key individuals involved with the Company to be identified by Buyer, with terms and conditions reasonably satisfactory to Buyer; and (vii) debt free / cash-free transaction with the inclusion of minimum net working capital of $[amount].
Shareholder Approvals Prior to or contemporaneously with the execution of the definitive acquisition documents, holders of a sufficient number of shares of each class of the Company’s capital stock to approve the Proposed Transaction will either (i) execute written consents approving the terms of the Proposed Transaction or (ii) enter into voting agreements in which they agree to vote in favor of the Proposed Transaction and any necessary amendments to the Company’s charter in connection therewith.
Indemnification The Company and each of its shareholders, severally and not jointly, will indemnify Buyer after the Closing for claims relating to (i) a breach of any representation, warranty or covenant, (ii) any liability relating to the Company other than the liabilities that are expressly assumed by Buyer, whether contingent or otherwise, and (iii) all liabilities of the Company other than liabilities that are expressly assumed by Buyer.
Definitive Agreements In addition to the provisions specifically described herein, the definitive agreements relating to the Proposed Transaction will contain standard representations, warranties, survival periods, limits on indemnification, escrow provisions, conditions, covenants, termination rights and other provisions appropriate for a transaction of the type contemplated herein.
Conduct of Business The Company will continue to conduct business in the ordinary course consistent with past practice and will not, among other things, (i) engage in any transactions outside of the ordinary course consistent with past practice, (ii) enter into any material contracts, (iii) make or rescind any tax elections, (iv) increase any employee salaries or benefits, or (v) take any action that would tend to materially diminish the value of the business after the Closing or that would interfere in any material respect with the business of Buyer to be engaged in after the Closing, in each case without the prior written consent of Buyer; provided that, notwithstanding the foregoing, the Company may (i) borrow under its current secured bridge financing facility and (ii) renegotiate debt service and repayment terms with its principal secured lender.  In addition, the Company will use its best efforts to obtain, or cooperate in obtaining, the receipt of all necessary regulatory approvals and any required consents of third parties.
Governing Law; Jurisdiction This LOI and all claims and disputes arising hereunder or related to this LOI, the Proposed Transaction or the conduct of either party in connection therewith shall be governed by and construed in accordance with the laws of the State of  Delaware, without regard to its conflicts of laws provisions.  All disputes arising out of or related to this LOI will be adjudicated exclusively in the state or federal courts located in the County of New Castle in the State of Delaware.
Commentary: Unlike the other provisions discussed above, this provision only relates to the LOI itself rather than the terms of the agreements that will govern the transaction. It is important to include governing law and jurisdiction provisions like these in LOIs, particularly when the transacting parties are not resident in the same state. The choice of law may have a significant impact on the interpretation and enforceability of the LOI (discussed below). For example, generally speaking, the state of Delaware recognizes an implied contractual covenant of good faith and fair dealing while the state of Texas does not. The parties may, but do not usually, extend the governing law and jurisdiction provisions of an LOI to the definitive transaction agreements, as well.
Good Faith Negotiation After execution of this LOI, the parties will cooperate, and exercise their respective commercially reasonable efforts in good faith, to negotiate, draft and sign an Agreement consistent with the terms of this LOI as promptly as reasonably practicable.
Exclusivity From the date of this LOI through 11:59 p.m. [Eastern] Time on [date 15-60 days later] or such earlier time, if any, as Buyer notifies the the Company that it wishes to terminate the negotiation of the Transaction (the “Exclusivity Period“), the Company shall not, and shall cause its affiliates and their respective directors, officers, stockholders, employees, agents, consultants and other advisors and representatives (collectively, “Representatives“) not to, directly or indirectly, (i) solicit, initiate, encourage, knowingly facilitate or entertain any inquiry or the making of any proposal or offer from any person (other than Buyer) relating to any sale or lease of all or any part of the Company (an “Alternate Transaction“); (ii) enter into, continue or otherwise participate in any discussions or negotiations with any person (other than Buyer) relating to any Alternate Transaction; (iii) furnish to any person (other than Buyer) any non-public information or grant any person (other than Buyer) access to its properties, assets, books, contracts, personnel or records for the purpose of determining whether to make or pursue any inquiries or proposals relating to any Alternate Transaction; or (iv) enter into any agreement or understanding with any person (other than Buyer) with respect to, or otherwise cooperate in any way with, or assist, participate in, facilitate or encourage any effort or attempt by any person (other than Buyer) to seek to do, any of the foregoing.
Expenses Each party will pay its own expenses and any other professional fees (including, without limitation, all legal, accounting and investment banking fees and expenses) for due diligence, preparation of this LOI or the definitive agreements and any other deal-related expenses.
Binding Terms Only the terms of the sections of this LOI entitled “Governing Law; Jurisdiction”, “Good Faith Negotiation,” “Exclusivity” and “Expenses” shall be legally binding and enforceable agreements of the parties. All other provisions of this LOI constitute only preliminary statements of the intentions of the parties and do not contain all matters upon which agreement must be reached for the Proposed Transaction to be effectuated. It is understood that this LOI does not constitute an obligation or commitment of either party to enter into the definitive agreements, and any obligations or commitments to proceed with the Proposed Transaction will be contained only in mutually acceptable definitive agreements relating to the Proposed Transaction that have been prepared, approved, executed and delivered by the parties hereto.

Unless accepted, this offer expires at 5:00 pm [Eastern] Time on [date 7-15 days later]. Please acknowledge your acceptance of the terms of this letter by signing and returning it on or before 5:00 pm [Eastern] Time on [date 7-15 days later].

Very truly yours,


Accepted and agreed: