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Quick Tips for Negotiating a Great Letter of Intent From the Seller’s Perspective



A Seller’s leverage is greatest prior to signing a term sheet or Letter of Intent (or, LOI) because: (1) the Buyer is at an informational disadvantage - as the Buyer gains information in the due diligence process it will gain momentum in the #negotiations; (2) relatedly, Seller loses momentum as employees, vendors, lenders, customers and others are advised of the deal - Seller cannot afford to be viewed as “damaged goods;” and (3) the Buyer does not yet have an exclusive (or, may not know that it is not going to get one). Accordingly, most buyers are anxious to negotiate on the “big issues” before someone else does. 1. Seize the opportunity to draft the LOI if possible. Negotiate the LOI to be as specific as possible with respect to each of the material terms of the transaction. As a guide, pull and review a well-written definitive agreement from your files.
2. Provide that the purchase price is to be paid “at closing” to foreclose the later argument that a portion of the purchase price should be subject to an escrow or holdback.
3. If stock in a public company is to be acquired, attach a term sheet specifying the applicable registration rights and valuation provisions (caps, collars, floors, windows, etc).
4. If a promissory note is to be used as part of the purchase price, consider interest rates (including default rate), personal guarantees and other security and whether offset rights will be permitted and under what circumstances. Further, consider acceptable subordination provisions to the extent a primary lender is contemplated.
5. Consider how the due diligence review should proceed. Provide that #Buyer not communicate with employees, vendors, lenders, etc. until authorized in writing. Provide that no representations are made with respect to the information supplied as part of the due diligence process, all of which will be contained exclusively in the definitive document.
6. Provide for binding confidentiality and non-solicitation agreements that survive the termination or expiration of the LOI.
7. Consider those representations and warranties that will be rejected - including such “wide-net” representations as
(1) the 10b-5 rep and (2) the ”no unknown liabilities” rep.
8. Provide that the representations are expected to contain “standard and necessary carve-outs, scheduling, materiality and knowledge qualifiers and the like.”
9. Fully delineate the indemnification mechanism. Provide for an indemnification basket and that Buyer’s sole and exclusive remedy shall be for indemnification. Include a reasonable indemnity cap, not to exceed the purchase price.
10. Provide, if possible, that the definitive purchase agreement will specify that consequential damages are to be excluded and (2) an indemnifiable loss must be reduced by both tax benefits (i.e., recorded loss) and insurance recoveries available to Buyer.
negotiations Buyer


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