Cette
page en français 
This page in French
Author:
Jonathon
Wise Polier
Member
of the Bars of New York State and Paris (France)
4
rue de Marignan, 75008 Paris
Telephone: (33) 1 47 23 41 51
/
Fax: (33) 1 47 23 37 93
E-Mail: j-polier@paris-law.com
/
http://www.paris-law.com
(List
of articles in English and French relating to various legal issues)
Not all acquisition are preceded by the signing of a Letter of Intent. The purchaser's suggest Letter of Intent may be a very important tactical choice and should be discussed with legal counsel.
In making that decision, it is important to remember that to the purchase of a company is fundamentally different from a letter relating to the purchase of goods or services. In the former situation, the “target” company is unique and can be sold only one. Naturally, goods and services can be sold to multiple buyers.
The objectives of the prospective buyer and the "target" company become immediately apparent when the purchasing company and its legal counsel start to formulate an initial draft of a Letter of Intent. The conflicting objective to be considered may include the following:
| The Purchasing company's Objective/reaction to the "target" company's Objective | The "target" company's Objectives/reaction to the Purchasing company's Objective |
| Contractually obligate the target company not to "shop" the opportunity to other potential purchasers during a reasonable period (possible 3-6 months). | Limit this "lock-up" to a reasonable period and orally suggest that the period can be extended if due diligence and negotiations move forward at a reasonable pace. |
| Committing adequate legal and accounting resources to the task is considered an acceptable burden in exchange for the "lock-up" protection. (In some very big acquisitions where the due diligence can cost hundreds of thousands of dollars, the purchaser may seek a "break-up" indemnity fee if the seller sells to a third party within a certain period of time. But this is not generally relevant to smaller acquisitions.) | Encourage the prospective purchasing company to conduct its due diligence quickly and to apply adequate (and costly) legal and accounting resources to the task. |
| NDA acceptable but must have US choice of law and forum provision. | "NDA" (Non-Disclosure Agreement) protecting proprietary information. |
| Acceptable to use apply US law. (i.e., "This Letter of Intent", the ensuing negotiations and the finial agreements shall be governed by and construed in accordance with the laws of the State of New York.) | Avoid French law, as the target is in the United States and the American's will not accept French law. (The target company may prefer the law of the state where its principal offices are located.) |
| Choice of forum for conflict resolution which des not give the "target" company an unfair "home court advantage". (For example, if the target company is located in California, provide for AAA or ICC arbitration in New York City. | Keep such "home court advantage". (This is presumably not a very important issue for the "target" company.) |
The above list is not exhaustive.
It should be remembered that a Letter of Intent may well create a strong obligation to "negotiate in good faith", a legal principal which is more important under French law. A choice of law provision excluding French law helps manage this problem.
Confidentiality of Exchanged Drafts
In addition, once the letter of intent has been signed and the parties move forward, there will be exchanges of letters, faxes, e-mails, possibly drafts of a "Heads of Agreement", a "Purchase and Sale Agreement", and/or ancillary agreements. The current rules of the French bar relating to what is "confidential" (documents not admissible in evidence) do not lend themselves to transnational merger and acquisition transactions (click here for additional information on French practices on this point). In contrast, under the laws in effect in the United States, if the letters, faxes, e-mails, and draft agreement exchanged among the parties and/or lawyers are clearly marked "Confidential-Document for Negotiation Purposes Only and Shall not be Deemed to Constitute an Offer or an Acceptance" (or other appropriately crafted language), there is reason to believe that the document will not subsequently be usable as evidence of a premature firm offer or an premature firm acceptance.
|
DISCLAIMER The information provided here and on the other pages linked hereto is intended for educational purposes only, and is not legal advice. Particular situations require particular analyses that can only be provided by legal professionals who specialize in the relevant fields and who know all the details of a situation. Also, a presentation such as this does not establish the attorney-client relationship that is necessary in any rendering of legal advice. Finally, one should be aware that the law is a chameleon-like beast that changes its colors frequently, and what holds good today may be reversed by tomorrow. The comments herein should then be read in that light. |