4.10 Simple Letter of Intent for Stock Acquisition[Letterhead of Purchaser or Seller's Counsel]
[Date of Letter]
________________________________
________________________________
________________________________
Re: Letter of Intent
Dear __________________:
This letter, when countersigned by your clients, will confirm the
discussions to date between _______________, a [Purchaser's State of
Organization] [Purchaser's Type of Entity] ("Purchaser"), and _______________,
[Seller's State of Organization] [Seller's Type of Entity] ("Seller"), regarding
the possible acquisition by Purchaser of [Percentage of Outstanding Stock to Be
Acquired: Numeric]% of the outstanding capital stock of Seller. Purchaser and
Seller are sometimes collectively referred to as the "Parties," and individually
as a "Party." Purchaser's possible acquisition of [Percentage of Outstanding
Stock to Be Acquired: Numeric]% of the capital stock of Seller and the related
transactions are sometimes collectively referred to as the "Possible
Acquisition." The Parties wish to commence negotiating a definitive written acquisition
agreement providing for the Possible Acquisition (the "Definitive Agreement").
To facilitate the negotiation of the Definitive Agreement, the Parties request
that [Purchaser or Seller's Counsel to Prepare Initial Draft] counsel prepare an
initial draft. Each of the paragraphs below contained under the heading "Matters
in Principal" summarizes certain economic and other terms related to the
Possible Acquisition that we have discussed to date, but is not intended to be
binding upon either of us. Each of the paragraphs below contained under the
heading "Binding Agreements" is intended to bind and be enforceable against each
of us whether or not we sign the Definitive Agreement.
I. MATTERS IN PRINCIPAL
No paragraph set forth in this section of this letter (the "Nonbinding
Provisions") shall be legally binding or enforceable against either or both of
the Parties.
Section 1. Basic Transaction.
(a) Stock Purchase; Closing. Seller would sell to Purchaser
[Percentage of the outstanding Stock to Be Acquired]% of the capital stock of
Seller at the price (the "Purchase Price") set forth in Section 2 below. The
closing of the Possible Acquisition (the "Closing") would occur as soon as
possible after the receipt of any and all consents required in connection with
the Possible Acquisition and the satisfaction of the other conditions to closing
contained in the Definitive Agreement.
(b) Other Material Terms. [Insert other material terms: e.g., if a
stock transaction, then a Section 338(h)(10) election, leveraged
recapitalization accounting, pooling of interests accounting, etc.].
Section 2. Purchase Price; Payment Terms and Escrow; Purchase Price
Adjustment.
(a) Purchase Price. The Purchase Price would be $[Aggregate Total
Purchase Price], plus or minus the purchase price adjustment described in this
Section 2.
(b) Payment Terms and Escrow. Purchaser Subsidiary would pay the
Purchase Price to Seller at the Closing in the following manner: (i) payment of
$[Dollar Amount of Cash to Be Paid at Closing] by wire transfer of immediately
available funds; (ii) delivery of an unsecured, non-negotiable promissory note
in the principal amount of $[Principal Amount of Promissory Note to Be Delivered
at Closing], accruing interest at a rate of [Interest Rate on Promissory Note]%
per annum, and providing for [Number of Payments under Promissory Note] equal
[annual] [quarterly] [monthly] payments of principal and accrued interest; and
(iii) deposit of $[Dollar Amount to Be Held in Escrow as a Deposit] with a
mutually acceptable escrow agent to be held in escrow for a period of [Number of
Years Deposit to Be Held in Escrow] years in order to secure the performance of
Seller's obligations under the Definitive Agreement and related documents.
(c) Purchase Price Adjustment. The Purchase Price assumes that the
Seller would have [stockholders' equity/working capital] of at least $[Seller's
Amount of Stockholders' Equity or Working Capital at Closing] as of the Closing.
The Purchase Price would be increased or decreased, as the case may be, on a
dollar-for-dollar basis based on the Seller's actual [stockholders'
equity/working capital] as of the Closing. [describe any thresholds].
Section 3. Employment; Noncompetition Agreements.(a) Employment Agreements. Seller and each of [Names of Individuals
Who Would Be Subject to Employement Agreements] would enter into employment
agreements on mutually agreeable terms, including the following: [describe any
pre-agreed terms].
(b) Noncompetition Agreements. Each of [[Names of Individuals Who
Would Be Subject to Noncompetition Agreements] would execute noncompetition
agreements in favor of Purchaser. [describe any pre-agreed terms].
Section 4. Other Terms of the Definitive Agreement.
(a) Representations and Warranties, Covenants, Indemnities. Seller
would make customary representations and warranties to Purchaser and would
provide comprehensive covenants, indemnities and other protections for the
benefit of Purchaser. The representations and warranties in the Definitive
Agreement would be without qualification as to knowledge, materiality or
otherwise.
(b) Significant Conditions. The consummation of the Possible
Acquisition would be subject to the satisfaction of, among other things, the
following conditions [specify any material consents, releases, etc. and other
significant conditions].
II. BINDING AGREEMENTS
Each of the sections set forth below (collectively, the "Binding
Provisions") is a legally binding and enforceable agreement of the Parties.
Section 5. Access. During the period commencing on the date this letter is
signed by Seller (the "Signing Date") and ending on the date the Binding
Provisions are terminated pursuant to Section 14 hereof (the "Termination
Date"), Seller will afford Purchaser reasonable access to its personnel,
properties, contracts, books and records, and all other documents and data.Section 6. Exclusive Dealing. Until the later to occur of the Termination
Date or [Number of Days after Signing for Termination of Letter of Intent] days
after the Signing Date: (a) Seller will not, directly or indirectly, through any
representative or otherwise, solicit or entertain offers from, negotiate with or
in any manner encourage, discuss, accept, or consider any proposal of any other
person relating to the acquisition of any of its stock, its assets or business,
in whole or in part, whether directly or indirectly, through purchase, merger,
consolidation, or otherwise (other than sales of inventory in the ordinary
course consistent with past practice); and (b) Seller will immediately notify
Purchaser in writing of any contact (whether by telephone, personal
conversation, fax, e-mail or otherwise) between Seller or their respective
representatives and any other person regarding any offer, proposal or inquiry of
the nature specified in subsection (a) of this Section 6.
Section 7. Break-up Fee. If (a) Seller breaches any material term of the
Binding Provisions or (b) Seller terminates this letter as provided herein, and
(c) within twelve months after the date of such termination, Seller enters into
any agreement relating to the acquisition of a majority of the shares of its
stock, its assets or business, in whole or in part, whether directly or
indirectly, through purchase, merger, consolidation, or otherwise (other than
sales of inventory or immaterial portions of such Seller's assets in the
ordinary course) whether or not such transaction is ultimately consummated,
then, Seller will immediately pay to Purchaser in immediately available funds an
amount equal to $[Dollar Amount of Break-Up Fee]. In addition, Purchaser will be
entitled to all other rights and remedies provided by law or in equity.
Section 8. Conduct of Business. During the period commencing on the
Signing Date and ending on the Termination Date, Seller will operate its
business in the ordinary course of business consistent with past practices and
refrain from any extraordinary transactions.
Section 9. Disclosure. Except as and to the extent required by law,
without the prior written consent of the other Party, neither Purchaser nor
Seller will make, and each will direct its representatives not to make, directly
or indirectly, any public comment, statement, or communication with respect to,
or otherwise to disclose or to permit the disclosure of the existence of
discussions regarding, a possible transaction between the Parties or any of the
terms, conditions, or other aspects of the Possible Acquisition. If a Party is
required by law to make any such disclosure, it must first provide to the other
Party the content of the proposed disclosure, the reasons that such disclosure
is required by law, and the time and place that such disclosure will be made.
Section 10. Costs. In the event that the Possible Acquisition is not
consummated, each Party will be responsible for and bear all of its own costs
and expenses (including any broker's or finder's fees and the expenses of its
representatives) incurred at any time in connection with pursuing or
consummating the Possible Acquisition. If, however, the Possible Acquisition is
consummated, all of Purchaser's fees and expenses shall be paid out of the
assets of the acquired entity or entities.
Section 11. Entire Agreement. The Binding Provisions constitute the entire
agreement between the Parties and, except for that certain Confidentiality
Agreement dated [Date of Confidentiality Agreement] by and between the Parties,
supersede all prior oral or written agreements, understandings, representations
and warranties, and courses of conduct and dealing between the Parties on the
subject matter hereof. Except as otherwise provided in this letter, the Binding
Provisions may be amended or modified only by a writing executed by each of the Parties.Section 11. Governing Law. The Binding Provisions will be governed by and
construed under the laws of the State of [Name of State for Governing Law
Purposes] without regard to conflicts of laws principles.
Section 12. Termination. This letter will automatically terminate upon the
earlier to occur of: (a) closing of the Possible Acquisition or (b) [Number of
Months After Signing for Termination of Letter of Intent] months after the
Signing Date. In addition, this letter may be terminated earlier upon written
notice by either Party to the other Party unilaterally, for any reason or no
reason, with or without cause, at any time; provided, however, that the
termination hereof will have no effect on the liability of a Party for a breach
of any of the Binding Provisions. Upon termination of this letter, the Parties
shall continue to be bound by all of the Binding Provisions other than those
relating to "Conduct of Business," which obligations will survive any such
termination in accordance with its terms for a period of [Number of Months After
Signing for Termination of Letter of Intent] months.
Section 13. Counterparts. This letter may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this letter
and all of which, when taken together, will be deemed to constitute one and the
same agreement.
[Signature page follows]
If you are in agreement with the foregoing, please sign and return one copy of
this letter agreement to me.
Very truly yours,
[Name of Purchaser]
By: ________________________________
Name: [Name of Purchaser's Signatory]
Title: [Title of Purchaser's Signatory]
Duly executed and agreed as to the Binding Provisions on [Signing Date]. [Name of Seller]
By: _______________________________
Name: [Name of Seller's Signatory]
Title: [Title of Seller's Signatory]
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