Case Studies

Sale of a Business & the Letter of Intent

One of my clients was selling his business. I reviewed the buyer's Letter of Intent, which outlined the basic terms of the deal. I advised my client that the Letter of Intent should include two additional provisions: First, that it be "nonbinding" so neither party can hold the other to terms still to be hashed out. Second, that it should include an NDA (a non-disclosure agreement which is binding) to prevent the buyer from using the client's proprietary business information in a competitive business if the deal doesn't close.

I further advised my client that even with the confidentiality and non-compete provisions, his employees should still be directed not to speak with the buyer and that the initial disclosure of business information should redact the names of suppliers, vendors and customers, further maintaining these trade secrets for the sole benefit and advantage of my client until the deal is closer to completion.

My client then said they wished they had called me earlier because they had already disclosed all the business information to the buyer without the confidentiality and non-compete provisions. The deal fell through and the buyer then established a competitive business and contacted all of my client’s customers and vendors to undercut my client’s pricing, severely damaging his business. While my client may have had a claim for interference with contract, the costs of litigation were prohibitive, and my client was left with no other remedies.

- David A. Perlick

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