Merger and Acquisitions Series – Non-Binding Letter of Intent

Introduction:

A single of the 1st ways in the merger and acquisition (“M&A”) approach soon after executing a confidentiality agreement (“Confi”) or non-disclosure agreement (“NDA”) is the issuance of a non binding letter of intent. A letter of intent, referred to as the “LOI”, is a authorized document that is delivered to display desire in progressing with a transaction, this sort of as to order, joint venture or merger.

An LOI is a nonbinding lawful settlement that not only expresses desire, but typically facts the preliminary terms for the contemplated transaction, timing for due diligence, any contingencies (financing, Board approval, and so on.), and specifies the timing to execute a ultimate definitive agreement and near the transaction.

Though this document is not lawfully binding, the LOI is an critical component of a acquiring process because it typically suggests that the two parties have fundamentally agreed on a invest in price, simple phrases of the offer and have agreed to negotiate exclusively with every other.

Instance:

The subsequent is a really “vanilla” example of an LOI for reference, but it is strongly advisable that authorized counsel prepare the LOI to assure the business enterprise is secured throughout the M&A system.

Day

Seller’s Name
Organization Name
Tackle

Expensive Seller:

This letter places forth the non-binding intent of Purchaser Title (Consumer) and Seller Title. (Vendor) to enter into an Settlement whereby Consumer would obtain basically all of the tangible and intangible assets, functions, and organization identify for the sum of Total Price, furthermore (or minus) the amounts for stock, accounts receivable, accounts payable, and function-in-process (at price) at the time of closing. Such amount of money to be paid out for as follows at Closing:

1.$XX.00 deposit on date executed by Consumer and signed by Seller and shall be applied as component of the payment at closing, but shall be refunded if no closing takes place on or just before Day. Also, the deposit can be contingent on funding or other concerns.
2.$XX.00 observe payable to Vendor at a X% rate for XX months (this relates to a Seller have not as element of the funding),
3.$XX.00, (additionally or minus adjustments ordinarily for functioning money modifications), to be paid in accredited money, at near with a article close adjustment interval generally 60-90 days after close to correct the final accounting and doing work money.

This present will continue to be open right up until X:00 p.m (typically 5:00pm japanese time). on a specified Working day, and Day, and will automatically expire except if acknowledged before that time. It is the intention of Purchaser to present work immediately after the sale to all of Seller’s employees (then an employment agreement with phrases will have to be communicated). Usually, some of the obligations, but not constrained to that the Buyer and Vendor may well want to include to consummate a transaction expected by the LOI are:

1.Execution of a definitive Deal for Sale (Asset Buy Arrangement or Stock Invest in Agreement) satisfactory to the two functions on or just before the specified date, which clearly specifies the belongings and liabilities to be acquired from Vendor by Customer and contains the customary warranties, representations and other provisions for a transaction.
2.Seller warrants that at the time actual physical possession is delivered to Customer, all tools will be in working get and that the premises will pass all inspections necessary to carry out these enterprise.
3.The Seller assures that it has or will have very clear and marketable title to the small business being marketed.
4.Adjustments and pro-rations shall be made at Closing for hire, utilities, and residence taxes.
5.Customer must obtain satisfactory funding for a part of the purchase price tag. (could be a contingency)
6.Seller shall support in offering, and Customer should acquire, a lease arrangement with prices and conditions that are acceptable to the Consumer for the house at specified deal with.
7.Purchaser, and/or his brokers, shall have the right to assessment all publications and information employed in the planning of the monetary statements and tax returns for the final three many years (might use an exterior consulting or audit business to validate the guides and data)
8.Proprietor shall continue to be on for a highest of XX months at a compensation fee agreeable to both equally parties (if essential and demanded).
9.Buyer shall spend all sales tax on fixtures and devices, if any.
10.Vendor shall execute a X 12 months non-compete arrangement.

Closing shall be on or in advance of specified day at a put and time agreeable to all parties.

From the signing of this letter of intent until Closing, Vendor shall function its enterprise underneath the usual system of enterprise and Vendor shall not current, enter into discussions, or offer to market its organization to any other get together. This paragraph shall be binding on the parties even though the harmony of this letter only expresses the intentions of the events.

Conclusion:

The LOI is lawful document containing the preliminary agreement of each functions to finish a contemplated transaction that is non-binding in its mother nature. The writer is not an attorney and does not purport to give legal counsel, but only supply a common overview of the letter of intent as aspect of the general M&A system. Consequently, it is strongly encouraged that legal counsel be engaged and symbolize both of those the customer and vendor in the course of the entirety of the M&A course of action to make sure all legal rights are safeguarded.