Price is usually the top priority when a seller thinks of selling stock and the letter of intent to buy the stock of a company is usually issued by the buyer, who more often than not, wants to buy out the entire company. The first draft of the letter of intent to buy the stock of a company is usually in the form of an asset deal though the seller may look at it from the point of view of a stock deal. The stock deal can be written out to provide functionally the best protection to the buyer as well as cause least hassles for the seller.
Venture capitalists may be wary of signing the letter of intent to buy the stock of a company that has a confidentiality clause but in the case of an M&A transaction, signing the letter of intent is mandatory. When and if a deal does not materialize, both the buyer and the seller are left in an awkward position because each is in possession of sensitive and confidential information regarding the other. This makes the confidentiality clause to become one of the only legally binding provisions of the letter of intent, in addition to the choice of law and break up fees clauses. All the other provisions of the letter of intent are dependent on the deal materializing and in any case, on closure of the deal these provisions hardly matter since the buyer will completely own the seller.
Another clause within the letter of intent to buy the stock of a company is that relating to escrow, which is a matter that is negotiated with quite some gusto, though sometimes their meaning is left rather ambiguous. The escrow or holdback refers to money that the buyer is keeping back or withholding till such time as he satisfies himself that any issues that pop up after financing
but are not included in the purchase agreement are dealt with adequately. Some letter of intents contain very detailed information pertaining to the provisions of the escrow agreement, while others simply refer to it as "standard escrow and indemnity standards shall apply". The term standard terms can become a pitfall since it can be a trap to defer possibly brutal negotiations, post the letter of intent.
Usually, all letters of intent to buy the stock of a company will hold mention of representations and warranties made by the seller to favor the buyer. This is an important aspect of the letter of intent and if not properly worded can cause a lot of legal wrangling at the time of negotiating a definitive agreement. Another important aspect is the consideration of the acquisition and how it is to be defined in the letter of intent. It concerns the "basis" of the stock options, also called "strike price" or "barter element" and can reduce the stock option's value. In addition, there is also the assumption of stock option to be considered in the letter of intent. This involves considering whether the plan is being assumed by the buyer, and in such a case is the assumption of the stock option being netted against the purchase price?
The letter of intent to buy the stock of a company is a document requiring intense negotiations and thus requires a lot of spadework. In order to save a lot of time, money and effort in drafting a letter of intent it is much better to buy one from a vendor who has such low cost and effective documents prepared for use under different circumstances. All that needs to be done is to fill out relevant information, tailor it to suit individual needs and the letter of intent will be ready for use straightaway, without any hassle at all.
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