The Letter of Intent

The letter of intent is the first step toward an asset purchase agreement. It should contain the general terms of the deal. Those terms should include:

  • Name of the buyer
  • Name of the seller
  • Purchase price
  • Down payment paid at closing
  • Terms of payment of the balance of the purchase price
  • Whether assets will be purchased for cash or equity in the buyer or some combination of the two
  • Any financing contingencies
  • A general description of the assets to be purchased
  • A description of the liabilities that will be assumed by the buyer
  • Whether liens and encumbrances will be paid at closing or transferred
  • Employment of seller's employees
  • How accrued vacation/paid time off of employees, medical plans and 401(k) plans will be dealt with
  • Covenants not to compete of buyer, seller, owners, and key employees
  • Broker commissions
  • Closing details
  • Closing date
  • Who will pay consultant fees
  • Preparation of the asset purchase agreement, legal opinions, assignment and assumption agreements, approvals, consents, estoppel letters, bills of sale
  • Earnest money
  • Employment and/or consulting agreements with owners or other key executives of seller
  • Due diligence 
  • Agreement to act in good faith
  • Confidentiality of negotiations and information learned by the parties
  • Indemnity by owners

The letter of intent is not intended to be a final agreement, so it needs only to generally address these items.