Exhibit 10.1


 


May 10, 2022


 


Monterey Capital Acquisition Corporation


419 Webster Street


Monterey, CA 93940


 


Re:          Initial
Public Offering


 


Ladies and Gentlemen:


 


This letter (this “Letter
Agreement”) is being delivered to you in accordance with the Underwriting Agreement (the “Underwriting Agreement”)
entered into by and among Monterey Capital Acquisition Corporation, a Delaware corporation (the “Company”),
and EF Hutton, division of Benchmark Investments, LLC, as representative (the “Representative”) of the several
underwriters (each, an “Underwriter” and collectively, the “Underwriters”), relating
to an underwritten initial public offering (the “Public Offering”), of 9,200,000 of the Company’s units
(including up to 1,200,000 units that may be purchased to cover over-allotments, if any) (the “Units”), each
comprised of one share of the Company’s Class A common stock, par value $0.0001 per share (the “Common Stock”),
one redeemable warrant and one right to receive one-tenth (1/10) of one share of Common Stock (the “Rights”).
Each warrant (a “Warrant”) entitles the holder thereof to purchase one share of Common Stock at a price of $11.50
per share, subject to adjustment. The Units will be sold in the Public Offering pursuant to a registration statement on Form S-1
(File No. 333-264460) and prospectus (the “Prospectus”) filed by the Company with the U.S. Securities and
Exchange Commission (the “Commission”) and the Company has applied to have the Units listed on The Nasdaq Global
Market. Certain capitalized terms used herein are defined in paragraph 11 hereof.


 


In order to induce the Company
and the Underwriters to enter into the Underwriting Agreement and to proceed with the Public Offering and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, each of Monterrey Acquisition Sponsor, LLC, a Delaware limited
liability company (the “Sponsor”), and the undersigned individuals, each of whom is a member of the Company’s
board of directors and/or management team or an advisor of the Company (each, an “Insider” and collectively,
the “Insiders”), hereby agrees with the Company as follows:


 


1.             The
Sponsor and each Insider agrees that if the Company seeks stockholder approval of a proposed Business Combination, then in connection
with such proposed Business Combination, it, he or she shall (i) vote any shares of Capital Stock owned by it, him or her in favor
of any proposed Business Combination and (ii) not redeem any shares of Common Stock owned by it, him or her in connection with such
stockholder approval. If the Company engages in a tender offer in connection with any proposed Business Combination, the Sponsor and each
Insider agrees that it, he or she will not seek to sell its, his or her shares of Capital Stock to the Company in connection with such
tender offer.


 






    


     


    

 


2.             The
Sponsor and each Insider hereby agrees that in the event that the Company fails to consummate a Business Combination within the timeframe
set forth in the Company’s amended and restated certificate of incorporation, as it may be amended from time to time (the “Charter”),
the Sponsor and each Insider shall take all reasonable steps to cause the Company to (i) cease all operations except for the purpose
of winding up, (ii) as promptly as reasonably possible but not more than 10 business days thereafter, subject to lawfully available
funds therefor, redeem 100% of the Common Stock sold as part of the Units in the Public Offering (the “Offering Shares”),
at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account (as defined below), including
interest earned on the funds held in the Trust Account and not previously released to the Company to pay its taxes (less up to $100,000
of interest to pay dissolution expenses), divided by the number of then outstanding Offering Shares, which redemption will completely
extinguish all Public Stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if
any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval
of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in the case
of clauses (ii) and (iii) to the Company’s obligations under Delaware law to provide for claims of creditors and other
requirements of applicable law. The Sponsor and each Insider agrees not to propose any amendment to the Charter to modify (i) the
substance or timing of the ability of holders of Offering Shares to allow redemption in connection with a Business Combination or amendments
to the Charter prior thereto or (ii) (A) the Company’s obligation to redeem 100% of the Offering Shares if the Company
does not complete a Business Combination within such time set forth in the Charter or (B) any other provisions relating to stockholders’
rights or pre-initial Business Combination activity, unless the Company provides its public stockholders with the opportunity to redeem
their shares of Common Stock upon approval of any such amendment at a per-share price, payable in cash, equal to the aggregate amount
then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to
the Company to pay its taxes, divided by the number of then outstanding Offering Shares.


 


The Sponsor and each Insider
acknowledges that it, he or she has no right, title, interest or claim of any kind in or to any monies held in the Trust Account or any
other asset of the Company as a result of any liquidation of the Company with respect to the Founder Shares held by it, him or her. The
Sponsor and each Insider hereby further waives, with respect to any shares of Common Stock held by it, him or her, if any, whether acquired
now or hereafter, any redemption rights it, he or she may have in connection with the consummation of a Business Combination or amendments
to the Charter prior thereto, including, without limitation, any such rights available in the context of a stockholder vote to approve
such Business Combination or a stockholder vote to approve an amendment to the Charter to modify (i) (A) the substance or timing
of the Company’s obligation to allow redemption in connection with a Business Combination or to redeem 100% of the Offering Shares
if the Company has not consummated a Business Combination within the time period set forth in the Charter or (B) any other provisions
relating to stockholders’ rights or pre-initial Business Combination activity or (ii) in the context of a tender offer made
by the Company to purchase shares of Common Stock (although the Sponsor, the Insiders and their respective affiliates shall be entitled
to redemption and liquidation rights with respect to any Offering Shares it or they hold if the Company fails to consummate a Business
Combination within the time period set forth in the Charter).


 






    


     


    

 


3.         
    During the period commencing on the date of the Underwriting Agreement and ending
180 days after such date, the Sponsor and each Insider shall not, without the prior written consent of the Representative,
(i) sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase or otherwise dispose of
or agree to dispose of, directly or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call
equivalent position within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended (the
 “Exchange Act”), and the rules and regulations of the Commission promulgated thereunder, with respect
to any Units, shares of Capital Stock, Warrants, Rights or any securities convertible into, or exercisable, or exchangeable for,
shares of Capital Stock owned by it, him or her, (ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of any Units, shares of Capital Stock, Warrants, Rights or any
securities convertible into, or exercisable, or exchangeable for, shares of Capital Stock owned by it, him or her, whether any such
transaction is to be settled by delivery of such securities, in cash or otherwise, or (iii) publicly announce any intention to
effect any transaction specified in clause (i) or (ii). Each of the Insiders and the Sponsor acknowledges and agrees that,
prior to the effective date of any release or waiver, of the restrictions set forth in this paragraph 3 or paragraph 7 below, the
Company shall announce the impending release or waiver by press release through a major news service at least two business days
before the effective date of the release or waiver. Any release or waiver granted shall only be effective two business days after
the publication date of such press release. The provisions of this paragraph will not apply if the release or waiver is effected
solely to permit a transfer not for consideration and the transferee has agreed in writing to be bound by the same terms described
in this Letter Agreement to the extent and for the duration that such terms remain in effect at the time of the transfer.


 


4.     
        In the event of the liquidation of the Trust Account
upon the failure of the Company to consummate its initial Business Combination within the time period set forth in the Charter, the
Sponsor (which for purposes of clarification shall not extend to any other shareholders, members or managers of the Sponsor) (the
 “Indemnitor”) agrees to indemnify and hold harmless the Company against any and all loss, liability,
claim, damage and expense whatsoever (including, but not limited to, any and all legal or other expenses reasonably incurred in
investigating, preparing or defending against any litigation, whether pending or threatened) to which the Company may become subject
as a result of any claim by (i) any third party for services rendered (other than the Company’s independent public
accountants) or products sold to the Company or (ii) any prospective target business with which the Company has entered into a
written letter of intent, confidentiality or other similar agreement or Business Combination agreement (a
 “Target”); provided, however, that such indemnification of the Company by the Indemnitor shall
(x) apply only to the extent necessary to ensure that such claims by a third party or a Target do not reduce the amount of
funds in the Trust Account to below the lesser of (i) $10.00 per Offering Share and (ii) the actual amount per Offering
Share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.10 per Offering Share is
then held in the Trust Account due to reductions in the value of the trust assets, less interest earned on the Trust Account which
may be withdrawn to pay taxes, (y) not apply to any claims by a third party or a Target which executed a waiver of any and all
rights to the monies held in the Trust Account (whether or not such waiver is enforceable) and (z) not apply to any claims
under the Company’s indemnity of the Underwriters against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. The Indemnitor shall have the right to defend against any such claim with counsel of its choice reasonably
satisfactory to the Company if, within 15 days following written receipt of notice of the claim to the Indemnitor, the Indemnitor
notifies the Company in writing that it shall undertake such defense.


 






    


     


    

 


5.        
     To the extent that the Underwriters do not exercise their over-allotment
option to purchase up to an additional 1,200,000 Units in full within 45 days from the date of the Prospectus (and as further
described in the Prospectus), the Sponsor agrees to forfeit, at no cost, a number of Founder Shares in the aggregate equal to
300,000 multiplied by a fraction, (i) the numerator of which is 1,200,000 minus the number of Units purchased by the
Underwriters upon the exercise of their over-allotment option, and (ii) the denominator of which is 1,200,000. The Sponsor will
be required to forfeit only that number of Founder Shares as is necessary so that the Initial Stockholders will own an aggregate of
20.0% of the Company’s issued and outstanding shares of Capital Stock after the Public Offering.


 


6.         
    (a) Each of the officers and directors of the Company hereby agrees not to
participate in the formation of, or become an officer or director of, any other special purpose acquisition company with a class of
securities registered under the Exchange Act until the Company has entered into a definitive agreement regarding an initial Business
Combination or until the Company has liquidated the Trust Account.


 


(b)            The
Sponsor and each Insider hereby agrees and acknowledges that: (i) the Underwriters and the Company would be irreparably injured in
the event of a breach by such Sponsor or an Insider of its, his or her obligations under paragraphs 1, 2, 3, 4, 5, 6(a), 7(a), 7(b), and
9, as applicable, of this Letter Agreement (ii) monetary damages may not be an adequate remedy for such breach and (iii) the
non-breaching party shall be entitled to injunctive relief, in addition to any other remedy that such party may have in law or in equity,
in the event of such breach.


 


7.      
       (a) The Sponsor and each Insider agrees that it, he or
she shall not Transfer any Founder Shares (or shares of Common Stock issuable upon conversion thereof) until the earlier of
(A) 180 days after the completion of the Company’s initial Business Combination or (B) subsequent to the Business
Combination, (x) if the last sale price of the Common Stock equals or exceeds $12.00 per share (as adjusted for stock splits,
stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period
commencing at least 150 days after the Company’s initial Business Combination or (y) the date on which the Company
completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of the
Company’s stockholders having the right to exchange their shares of Common Stock for cash, securities or other property (the
 “Founder Shares Lock-up Period”).


 


(b)            The
Sponsor and each Insider agrees that it, he or she shall not Transfer any Private Placement Warrants or shares of Common Stock issued
or issuable upon the exercise of the Private Placement Warrants, until after the completion of a Business Combination (the “Private
Placement Lock-up Period”, together with the Founder Shares Lock-up Period, the “Lock-up Periods”).


 






    


     


    

 


(c)            Notwithstanding
the provisions set forth in paragraphs 7(a) and (b), Transfers of the Founder Shares, Private Placement Warrants and shares of Common
Stock issued or issuable upon the exercise or conversion of the Private Placement Warrants or the Founder Shares that are held by the
Sponsor, any Insider or any of their permitted transferees (that have complied with this paragraph 7(c)), are permitted (a) to the
Company’s officers or directors, any affiliate or family member of any of the Company’s officers or directors or any affiliate
of the Sponsor or to any member(s) of the Sponsor; (b) in the case of an individual, by gift to a member of such individual’s
immediate family or to a trust, the beneficiary of which is a member of such individual’s immediate family, an affiliate of such
individual or to a charitable organization; (c) in the case of an individual, by virtue of laws of descent and distribution upon
death of such individual; (d) in the case of an individual, pursuant to a qualified domestic relations order; (e) by private
sales or transfers made in connection with the consummation of an initial Business Combination at prices no greater than the price at
which the shares or warrants were originally purchased; (f) in the event of the Company’s liquidation prior to the completion
of an initial Business Combination; (g) by virtue of the laws of the State of Delaware or the Sponsor’s limited liability company
agreement upon dissolution of the Sponsor, or (h) in the event of the Company’s liquidation, merger, capital stock exchange,
reorganization or other similar transaction which results in all of the Company’s stockholders having the right to exchange their
shares of common stock for cash, securities or other property subsequent to the completion of the Company’s initial Business Combination;
provided, however, that in the case of clauses (a) through (e) or (g), these permitted transferees must enter
into a written agreement with the Company agreeing to be bound by the transfer restrictions herein.


 


8.     
        The Sponsor and each Insider represents and warrants
that it, he or she has never been suspended or expelled from membership in any securities or commodities exchange or association or
had a securities or commodities license or registration denied, suspended or revoked. Each Insider’s biographical information
furnished to the Company (including any such information included in the Prospectus) is true and accurate in all respects and does
not omit any material information with respect to the Insider’s background. Each Insider’s questionnaire furnished to
the Company is true and accurate in all respects. Each Insider represents and warrants that: it, he or she is not subject to or a
respondent in any legal action for, any injunction, cease-and-desist order or order or stipulation to desist or refrain from any act
or practice relating to the offering of securities in any jurisdiction; it, he or she has never been convicted of, or pleaded guilty
to, any crime (i) involving fraud, (ii) relating to any financial transaction or handling of funds of another person, or
(iii) pertaining to any dealings in any securities and it, he or she is not currently a defendant in any such criminal
proceeding.


 


9.       
      Except as disclosed in the Prospectus, neither the Sponsor nor any
officer, director, advisor or affiliate of the Sponsor, nor any officer, director or advisor of the Company, shall receive from the
Company any finder’s fee, reimbursement, consulting fee, monies in respect of any repayment of a loan or other compensation
prior to, or in connection with any services rendered in order to effectuate, the consummation of the Company’s initial
Business Combination (regardless of the type of transaction that it is).


 


10.           The
Sponsor and each Insider has full right and power, without violating any agreement to which it is bound (including, without limitation,
any non-competition or non-solicitation agreement with any employer or former employer), to enter into this Letter Agreement and, as applicable,
to serve as an officer and/or director on the board of directors or an advisor of the Company and hereby consents to being named in the
Prospectus as an officer and/or director of the Company or an advisor of the Company.


 






    


     


    

 


11.           As
used herein, (i) “Business Combination” shall mean a merger, capital stock exchange, asset acquisition,
stock purchase, reorganization or similar business combination, involving the Company and one or more businesses; (ii) “Capital
Stock” shall mean, collectively, the Common Stock and the Founder Shares; (iii) “Founder Shares”
shall mean (a) the 2,875,000 shares of the Company’s Class B common stock, par value $0.0001 per share, initially issued
to the Sponsor ((x) up to 300,000 Founder Shares of which are subject to complete or partial forfeiture by the Sponsor if the over-allotment
option is not exercised by the Underwriters and (y) 575,000 Founder Shares of which were forfeited by the Sponsor as of the date
hereof) for an aggregate purchase price of $25,000, or $0.009 per share, prior to the consummation of the Public Offering; (iv) “Initial
Stockholders” shall mean the Sponsor and any Insider that holds Founder Shares; (v) “Private Placement
Warrants” shall mean the 2,800,000 Warrants (or 3,040,000 Warrants if the over-allotment option is exercised in full) that
the Sponsor has agreed to purchase for an aggregate purchase price of $2,800,000 (or $3,040,000 if the over-allotment option is exercised
in full) in the aggregate, or $1.00 per Warrant, in a private placement that shall occur simultaneously with the consummation of the Public
Offering; (vi) “Public Stockholders” shall mean the holders of securities issued in the Public Offering;
(vii) “Trust Account” shall mean the trust fund into which a portion of the net proceeds of the Public
Offering shall be deposited; and (viii) “Transfer” shall mean the (a) sale of, offer to sell, contract
or agreement to sell, hypothecate, pledge, grant of any option to purchase or otherwise dispose of or agreement to dispose of, directly
or indirectly, or establishment or increase of a put equivalent position or liquidation with respect to or decrease of a call equivalent
position within the meaning of Section 16 of the Exchange Act, and the rules and regulations of the Commission promulgated thereunder
with respect to, any security, (b) entry into any swap or other arrangement that transfers to another, in whole or in part, any of
the economic consequences of ownership of any security, whether any such transaction is to be settled by delivery of such securities,
in cash or otherwise, or (c) public announcement of any intention to effect any transaction specified in clause (a) or (b).


 


12.           The
Company will maintain an insurance policy or policies providing directors’ and officers’ liability insurance, and each director
of the Company shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage
available for any of the Company’s directors or officers.


 


13.           This
Letter Agreement constitutes the entire agreement and understanding of the parties hereto in respect of the subject matter hereof and
supersedes all prior understandings, agreements, or representations by or among the parties hereto, written or oral, to the extent they
relate in any way to the subject matter hereof or the transactions contemplated hereby. This Letter Agreement may not be changed, amended,
modified or waived (other than to correct a typographical error) as to any particular provision, except by a written instrument executed
by all parties hereto.


 


14.           No
party hereto may assign either this Letter Agreement or any of its rights, interests, or obligations hereunder without the prior written
consent of the other parties. Any purported assignment in violation of this paragraph shall be void and ineffectual and shall not operate
to transfer or assign any interest or title to the purported assignee. This Letter Agreement shall be binding on the Sponsor and each
Insider and their respective successors, heirs and assigns and permitted transferees.


 






    


     


    

 


15.           Nothing
in this Letter Agreement shall be construed to confer upon, or give to, any person or corporation other than the parties hereto any right,
remedy or claim under or by reason of this Letter Agreement or of any covenant, condition, stipulation, promise or agreement hereof. All
covenants, conditions, stipulations, promises and agreements contained in this Letter Agreement shall be for the sole and exclusive benefit
of the parties hereto and their successors, heirs, personal representatives and assigns and permitted transferees; provided, however,
that the Representatives on behalf of the Underwriters are third party beneficiaries of this Letter Agreement.


 


16.           This
Letter Agreement may be executed in any number of original or facsimile counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.


 


17.           This
Letter Agreement shall be deemed severable, and the invalidity or unenforceability of any term or provision hereof shall not affect the
validity or enforceability of this Letter Agreement or of any other term or provision hereof. Furthermore, in lieu of any such invalid
or unenforceable term or provision, the parties hereto intend that there shall be added as a part of this Letter Agreement a provision
as similar in terms to such invalid or unenforceable provision as may be possible and be valid and enforceable.


 


18.           This
Letter Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving
effect to conflicts of law principles that would result in the application of the substantive laws of another jurisdiction. The parties
hereto (i) all agree that any action, proceeding, claim or dispute arising out of, or relating in any way to, this Letter Agreement
shall be brought and enforced in the courts of New York City, in the State of New York, and irrevocably submit to such jurisdiction and
venue, which jurisdiction and venue shall be exclusive and (ii) waive any objection to such exclusive jurisdiction and venue or that
such courts represent an inconvenient forum.


 


19.           Any
notice, consent or request to be given in connection with any of the terms or provisions of this Letter Agreement shall be in writing
and shall be sent by express mail or similar private courier service, by certified mail (return receipt requested), by hand delivery or
facsimile transmission.


 


20.           This
Letter Agreement shall terminate on the earlier of (i) the expiration of the Lock-up Periods or (ii) the liquidation of the
Company; provided, however, that this Letter Agreement shall earlier terminate in the event that the Public Offering is not consummated
and closed by August 31, 2022; provided further that paragraph 4 of this Letter Agreement shall survive such liquidation.


 


[Signature Page Follows]


 






    


     


    

 


Sincerely,


 


	 	 	By:	/s/ Bala Padmakumar
	 	 	 	Name:	Bala Padmakumar
	 	 	 	Title:	Chief Executive Officer
	 	 	 
	 	 	By:	/s/ Daniel Davis
	 	 	 	Name:	Daniel Davis
	 	 	 	Title:	Chief Financial Officer
	 	 	 
	 	 	By:	/s/ Vivek Soni
	 	 	 	Name:	Vivek Soni
	 	 	 	Title:	 Executive Vice President and Director
	 	 	 
	 	 	By:	 /s/ Leela Gray
	 	 	 	Name:	Leela Gray
	 	 	 	Title:	Director
	 	 	 
	 	 	By:	/s/ Kathy Cuocolo
	 	 	 	Name:	Kathy Cuocolo
	 	 	 	Title:	Director
	 	 	 
	 	 	By:	/s/ Stephen Markscheid
	 	 	 	Name:	Stephen Markscheid
	 	 	 	Title:	Director
	 	 	 
	 	Monterrey Acquisition Sponsor, LLC,
	 	a Delaware limited liability company
	 	 	 
	 	 	By:	/s/ Bala Padmakumar
	 	 	 	Name:	Bala Padmakumar
	 	 	 	Title:	Chief Executive Officer




 


	Acknowledged and Agreed:	 
	 	 
	MONTEREY CAPITAL ACQUISITION CORPORATION	 
	 	 
	By:	 /s/ Bala Padmakumar	 
	Name: Bala Padmakumar	 
	Title: Chief Executive Officer	 




 


[Signature Page to Letter Agreement]