This letter confirms our understanding of the mutual present intentions of [Insert the name of purchaser] (the "Purchaser"), [Insert name of seller] (the "Company") and [Insert name of shareholder] (the “Principal Shareholder”) with respect to the principal terms and conditions under which the Purchaser will acquire all of the outstanding capital stock of the Company. Such transaction is hereinafter referred to as the "Acquisition." The Purchaser, the Company and the Principal Shareholder may be referred to collectively as the “Parties” or individually as “Party”.
The obligations of the Parties hereto to consummate the Acquisition are subject to the negotiation and execution of the Purchase Agreement referred to in paragraph 3 below.
At the closing (the "Closing"), subject to the satisfaction of all conditions precedent contained in the Purchase Agreement, the Purchaser will purchase all of the outstanding capital stock, warrants, options and convertible securities of the Company, free and clear of any liens, charges, restrictions or encumbrances thereon (collectively, the "Shares").
The purchase price for the Shares will consist of $ [Insert amount] Dollars. The Purchaser has separately provided to the Company the Purchaser’s capitalization table showing outstanding shares, options and warrants.
The Purchaser, the Principal Shareholder and the Company hereby agree to use reasonable diligence to commence good faith negotiations in order to execute and deliver a definitive stock purchase or merger agreement relating to the Acquisition (the "Purchase Agreement") acceptable to the Parties hereto within [Insert no. of days] days of Company’s acceptance of this letter. All terms and conditions concerning the Acquisition shall be stated in the Purchase Agreement (or agreements to be entered into pursuant to the Purchase Agreement), including without limitation, representations, warranties, covenants, holdback provisions and indemnities that are usual and customary in a transaction of this nature as such may be mutually agreed upon between the Parties.
The Purchase Agreement will contain representations and warranties customary to transactions of this type, including without limitation, representations and warranties by the selling shareholders and the Company as to:
4.1 the accuracy and completeness of the Company's financial statements for the past three years and current financial statements;
4.2 disclosure of all the Company's contracts, commitments and liabilities, direct or contingent;
4.3 the physical condition, suitability, ownership and absence of liens, claims and other adverse interests with respect to the Company's assets;
4.4 the selling shareholders’ ownership of the Shares;
4.5 the absence of liabilities with respect to the Company, other than as set forth in the balance sheet dated [date], and liabilities incurred in the ordinary course of business since that date;
4.6 the absence of a material adverse change in the condition (financial or otherwise), business, properties, assets or prospects of the Company;
4.7 the absence of pending or threatened litigation, claims, investigations or other matters affecting the Acquisition;
4.8 the Company's compliance with laws and regulations applicable to its business and obtaining all licenses and permits required for its business; and
4.9 the due incorporation organization, valid existence, good standing and capitalization of the Company.
The obligation of the Purchaser with respect to the Acquisition shall be subject to satisfaction of conditions customary to transactions of this type, including without limitation;
5.1 receipt and approval by the Purchaser of the Company's last year end [audited] financial statements and current financial statements;
5.2 execution of the Purchase Agreement by all Parties;
5.3 the obtaining of all requisite regulatory, administrative, governmental or third party authorizations and consents;
5.4 absence of a material adverse change in the condition (financial or otherwise), business, properties, assets or prospects of the Company;
5.5 absence of pending or threatened litigation, claims, investigations or other matters affecting the Company or the Acquisition;
5.6 satisfactory completion by the Purchaser of a due diligence investigation of the Company; and
5.7 confirmation that the representations and warranties of the selling shareholders and the Company are true and accurate in all respects;
5.8 the Purchaser obtaining financing, if necessary.
The Company will give the Purchaser and its representatives full access to any personnel and all properties, documents, contracts, books, records and operations of the Company relating to its business. The Company will furnish the Purchaser with copies of documents and with such other information as the Purchaser may request.
The Company shall use its best efforts to preserve intact the business organization and employees and other business relationships of the Company; shall continue to operate in the ordinary course of business and maintain its books, records and accounts in accordance with generally accepted accounting principles, consistent with past practice; shall use its reasonable best efforts to maintain the Company's current financial condition, including working capital levels; shall not incur any indebtedness or enter into any agreements to make business or product line acquisitions; and shall not declare or make any dividend or stock distributions.
Each of the Parties shall pay all of its expenses incident to this letter, the Purchase Agreement and consummation of the transactions contemplated hereby and thereby. The Principal Shareholder and the Company each represent and warrant that there are no brokerage or finder's fees which are or will be payable in connection with the Acquisition.
The Purchaser and the Company have executed a Confidentiality Agreement, dated as of [date], which agreement shall survive the execution and delivery of this letter.
Without the prior written consent of the Purchaser, the Company will cause its directors, officers, shareholders, employees, agents, other representatives and affiliates not to, disclose to any person the fact that discussions or negotiations are taking place concerning the transactions contemplated hereby, the status thereof, or the existence of this letter and the terms thereof, unless in the opinion of such party disclosure is required to be made by applicable law, regulation or court order, and such disclosure is made after prior consultation with the Purchaser.
In the event of any dispute arising out of or relating to this letter, such dispute shall be resolved exclusively by confidential binding arbitration with the [city], [state] commercial rules of arbitration in effect at the time of the commencement of arbitration and heard before one arbitrator. Each Party shall bear its own attorneys’ fees, expert witness fees, and costs incurred in connection with any arbitration.
The Parties agree not to make any public announcement with regard to the transaction contemplated by this Letter without the prior written consent of the other. Additionally, each of the Parties shall bear its own costs and expenses related to the transaction contemplated by this Letter, including but not limited to fees and expenses of legal counsel and accountants.
For valuable consideration, the receipt of which is hereby acknowledged, the Company and the Principal Shareholder agree that the Purchaser shall have the right to complete its due diligence and to consummate the Acquisition on the terms outlined herein, and the Company and the Principal Shareholder agree to cooperate fully and in good faith to complete the transaction as expeditiously as possible after the Purchaser has confirmed its due diligence investigation to its satisfaction.
This letter may be executed in one or more counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument.
This letter shall be governed by the laws of the State of [state], without regard to such state’s principles of conflicts of laws.
16. If the foregoing correctly sets forth our mutual understanding, please so indicate by signing two copies of this letter in the spaces provided below and returning one copy to us no later than 5:00 p.m. on [DATE]. This letter will expire if you have not returned to us an executed copy of this letter by said time.
Very truly yours,
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