Non-Binding Letter of Intent and Term Sheet for Proposed Acquisition
Date: [•]
To:
[Seller Legal Name]
[Address]
Attention: [•], [Title]
From:
[Buyer Legal Name]
[Address]
Attention: [•], [Title]
Re: Indicative proposal to acquire [all issued and outstanding equity interests in]/[substantially all assets of] [Target Company Legal Name] (the Company)
1. Purpose and structure
This non-binding letter of intent (this Letter) sets forth certain principal terms and conditions upon which [Buyer] proposes to acquire the Company (the Transaction), subject to the detailed term sheet attached as Exhibit A (the Term Sheet), confirmatory due diligence, definitive documentation, and requisite approvals. Except as expressly stated in Section 6 (Binding effect) below, this Letter and the Term Sheet are intended only as a preliminary expression of interest and not as a binding agreement to consummate the Transaction.
2. Process; access; cooperation
2.1 Buyer and its professional advisers will conduct confirmatory legal, financial, tax, operational, regulatory, technology, intellectual property, and compliance due diligence. Seller shall provide reasonable access to information, facilities, and key personnel, subject to applicable law and the Confidentiality Agreement (defined below).
2.2 Seller will use commercially reasonable efforts to facilitate obtaining required third-party consents and regulatory clearances identified by Buyer, including antitrust/merger control, foreign investment, industry-specific, and data protection approvals, as applicable.
2.3 The parties agree to work in good faith to negotiate definitive transaction documentation consistent with the Term Sheet.
3. Exclusivity; no-shop; standstill
3.1 Exclusivity. In consideration of Buyer’s expenditure of time and resources, Seller agrees that, during the Exclusivity Period (defined below), neither Seller, the Company, nor any of their respective affiliates or Representatives (as defined in the Confidentiality Agreement) shall, directly or indirectly:
(a) solicit, initiate, encourage, or facilitate any inquiries, proposals, or offers from any person or group (other than Buyer and its Representatives) concerning any Acquisition Proposal;
(b) engage in, continue, or otherwise participate in any discussions or negotiations with any person (other than Buyer and its Representatives) concerning any Acquisition Proposal; or
(c) furnish to any person (other than Buyer and its Representatives) any information or afford any access to the Company’s properties, books, or records in connection with any Acquisition Proposal.
Acquisition Proposal means any proposal or offer, whether written or oral, for any acquisition of the Company or any material equity or assets thereof, any merger, consolidation, recapitalization, joint venture, or similar transaction, or any financing that would reasonably be expected to preclude or materially delay the Transaction.
3.2 Notice. Seller shall promptly (and in any event within two business days) notify Buyer of any unsolicited approach, inquiry, or proposal received in respect of any Acquisition Proposal, including the material terms thereof and the identity of the proposer, and shall keep Buyer reasonably informed of any material developments.
3.3 Standstill. During the Exclusivity Period, Seller shall not authorize or permit any person (other than Buyer and its Representatives) to conduct confirmatory diligence or to receive non-public information relating to the Company in connection with an Acquisition Proposal. If applicable, Seller shall suspend any ongoing such activities.
3.4 Duration. Exclusivity Period means the period from the date of Seller’s countersignature of this Letter until 11:59 p.m. [New York]/[London]/[Beijing] time on the date that is [60–90] calendar days thereafter, subject to automatic extension to the earlier of (i) the date definitive agreements are executed, or (ii) the first business day following written notice by Buyer that Seller has materially breached this Section 3 and failed to cure such breach within five business days after written notice.
3.5 Remedies. Seller acknowledges that money damages may be an inadequate remedy for any breach of this Section 3 and that Buyer shall be entitled to equitable relief, including injunctive relief and specific performance, in addition to any other remedies available at law or equity.
4. Confidentiality; announcements
4.1 Confidentiality. The parties acknowledge the existing [Mutual] Confidentiality Agreement dated [•] (the Confidentiality Agreement), which remains in full force and effect and governs all non-public information exchanged in connection with the Transaction. In the event of any conflict between this Letter and the Confidentiality Agreement, the Confidentiality Agreement shall control with respect to confidentiality obligations.
4.2 Public statements. Except as required by applicable law or stock exchange rules (and then only after reasonable prior consultation with the other party to the extent legally permissible), neither party shall issue any press release or make any public announcement regarding this Letter, the Term Sheet, or the Transaction without the other party’s prior written consent.
5. Process milestones
The parties will seek to (i) complete confirmatory due diligence within [•] business days, (ii) agree principal definitive documentation within [•] business days thereafter, and (iii) target signing [and closing] as set forth in the Term Sheet. These milestones are indicative and not binding.
6. Binding effect; non-reliance
6.1 Non-binding provisions. The provisions of this Letter and the Term Sheet are non-binding expressions of mutual intent and do not create any obligation to enter into definitive documentation or to consummate the Transaction, nor any obligation to continue negotiations, except for Sections 3 (Exclusivity; no-shop; standstill), 4 (Confidentiality; announcements), 6 (Binding effect; non-reliance), 7 (Costs; expenses), 8 (Governing law; dispute resolution), 9 (Notices), and 10 (Miscellaneous), which are binding and enforceable in accordance with their terms.
6.2 No reliance. Each party acknowledges that no other statement, promise, or representation—written or oral—outside the binding provisions identified above shall form the basis of any claim in contract, tort, or otherwise, and no duty to negotiate in good faith is created except as may be expressly stated herein and permitted under the Governing Law (as defined below).
7. Costs; expenses
Each party will bear its own costs and expenses (including advisers’ fees) incurred in connection with this Letter, the Term Sheet, due diligence, negotiation of definitive agreements, and the Transaction, except as may be otherwise agreed in definitive documentation.
8. Governing law; dispute resolution
8.1 Governing Law. This Letter and the binding provisions hereunder shall be governed by and construed in accordance with the laws of [New York, without regard to conflicts of laws principles]/[England and Wales]/[Hong Kong]/[•].
8.2 Forum. Any claim or proceeding arising out of or relating to the binding provisions hereunder shall be brought exclusively in the state or federal courts located in [New York County, New York]/[the courts of England and Wales]/[•], and each party irrevocably submits to such courts’ jurisdiction and waives any objection based on forum non conveniens or venue.
8.3 Equitable relief. Each party acknowledges that a breach of the binding provisions may cause irreparable harm for which monetary damages are inadequate and agrees that the other party may seek equitable relief without posting bond.
9. Notices
All notices shall be in writing and deemed given when delivered by hand, by nationally recognized overnight courier, or by email (with confirmation of transmission) to the addresses first listed above or as otherwise designated in writing.
10. Miscellaneous
10.1 Entire agreement. This Letter (including the Term Sheet) and the Confidentiality Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede all prior discussions.
10.2 Amendments; waivers. Any amendment or waiver of the binding provisions must be in writing and signed by both parties.
10.3 Assignment. Neither party may assign this Letter or any rights or obligations hereunder without the prior written consent of the other party, except that Buyer may assign to one or more controlled affiliates or acquisition vehicles for structuring purposes, provided that Buyer remains responsible for performance of binding obligations herein.
10.4 No third-party beneficiaries. This Letter is for the sole benefit of the parties and their permitted successors and assigns.
10.5 Counterparts; electronic signatures. This Letter may be executed in counterparts (including by electronic signature and PDF), each of which is deemed an original and together constituting one and the same instrument.
If the foregoing is acceptable, please countersign and return a copy of this Letter by [•].
Sincerely,
[Buyer Legal Name]
By: ______________________
Name:
Title:
Agreed and accepted:
[Seller Legal Name]
By: ______________________
Name:
Title:
Date:
Exhibit A – Indicative Term Sheet
The following non-binding term sheet summarizes key terms of the proposed Transaction. Capitalized terms not defined herein have the meanings set forth in the Letter.
1. Parties; structure
- Buyer: [•], or its permitted designee(s) and/or newly formed acquisition vehicle(s).
- Seller: [•].
- Company: [•].
- Structure [toggle]:
- [Share Purchase]: Acquisition of [100%] of the issued and outstanding [shares/quotas/interests] of the Company from Seller.
- [Asset Purchase]: Acquisition of substantially all assets and assumption of specified liabilities of the Company, with excluded assets/liabilities to be detailed.
- [Merger]: Statutory merger of the Company with a Buyer affiliate, with the Company surviving and becoming a wholly owned subsidiary.
- Jurisdictional tailoring: The definitive structure will be finalized following tax, regulatory, and corporate analysis in relevant jurisdictions.
2. Consideration; valuation
- Valuation range: Enterprise Value (cash-free, debt-free) of [USD/EUR/RMB] [•] to [•], subject to confirmatory diligence.
- Price mechanism [toggle]:
- [Closing Accounts]: Equity value to be determined at Closing based on actual cash, debt (including debt-like items), and normalized net working capital relative to a target level, with customary post-Closing true-up within [60–90] days.
- [Locked-Box]: Equity value fixed by reference to a locked-box balance sheet as of [•] (the Locked-Box Date), with economic risk and benefit passing from the Locked-Box Date; customary leakage protections and permitted leakage to be agreed.
- Earn-out [optional]: Up to [•]% of the consideration payable upon achievement of specified performance metrics for fiscal years [•]–[•]; detailed definitions, accounting policies, audit rights, and dispute mechanics to be agreed.
- Consideration form [toggle]: [All cash]/[cash plus rollover equity of [•]% in the post-Closing entity]/[seller note of [•] bearing interest at [•]%].
- Escrow/holdback: [•]% of the consideration to be placed in escrow/[held back] for [12–24] months to secure indemnity and price adjustment obligations.
3. Closing arrangements; timing [toggle]
- Option A – Simultaneous signing and closing: Execution and Closing to occur concurrently, subject to satisfaction of customary conditions set forth below.
- Option B – Sign-and-close: Definitive agreements to be executed upon completion of diligence, with Closing to occur on the date all conditions precedent are satisfied or waived, but in any event no later than the Long-Stop Date.
- Long-Stop Date: [•] months from signing, subject to extension for regulatory approvals by up to [•] months.
- Interim period covenants (Option B): From signing until Closing, the Company will conduct business in the ordinary course and will be subject to customary negative covenants (e.g., no extraordinary transactions, indebtedness, asset transfers, equity issuances, affiliate dealings, compensation changes) without Buyer’s consent, subject to carve-outs for emergencies and legal obligations.
4. Conditions precedent to Closing
- Regulatory approvals: Receipt of all required merger control/antitrust, foreign investment, and industry-specific approvals/clearances, expiration/termination of any applicable waiting periods.
- Third-party consents: Consents to assignment or change of control under material contracts, leases, and licenses.
- No injunction: No law, order, or injunction prohibiting or restraining consummation of the Transaction.
- Accuracy of representations and warranties: Bring-down at Closing to a negotiated standard (e.g., all representations true and correct in all respects, subject to materiality qualifiers).
- Performance of covenants: Material compliance with pre-Closing covenants.
- No Material Adverse Effect: No Company Material Adverse Effect since [reference date] (to be defined).
- Financing [if applicable]: Buyer financing obtained on terms acceptable to Buyer (or financing-out provision waived).
- Works council/employee consultation: Completion of any required consultation processes.
- Tax structuring steps: Completion of agreed pre-Closing reorganizations, if any.
5. Representations; warranties; indemnities
- Seller/Company reps: Customary due organization, power, authority, title to shares/assets, financial statements, absence of undisclosed liabilities, compliance with laws, permits, material contracts, IP, data privacy/cybersecurity, employment/benefits, real property, environmental, tax, litigation, anti-corruption/sanctions/export controls, brokers.
- Buyer reps: Due organization, power, authority, financing/solvency, no conflict, brokers.
- Survival; caps; baskets: Survival periods customary for private M&A ([12–24] months for general reps; fundamental reps and tax reps subject to longer survival); indemnity cap of [•]% of purchase price for general reps; de minimis and basket thresholds; fraud carve-out. Exclusive remedy language customary, subject to equitable relief and specific carve-outs.
6. Employees; benefits
- Offers: Buyer to offer employment to specified employees on terms no less favorable in the aggregate than current terms for [12] months post-Closing.
- Benefits: Service credit for eligibility/vesting; COBRA/continuation benefits as legally required; treatment of bonuses, options, and other incentive awards to be agreed.
7. Transition; post-Closing matters
- Transitional services: Seller to provide specified transitional services for up to [•] months on cost-plus/[market] terms.
- Non-compete; non-solicit: Seller and key shareholders to agree to reasonable restrictive covenants for [24–36] months, subject to applicable law.
- IP and data: Transfer and assignment of all Company IP; data migration and regulatory notifications as required.
8. Tax matters
- Tax structure: To be finalized following diligence; intent to achieve tax-efficient structure for both parties.
- Withholding: Buyer entitled to withhold to the extent required by law.
- Tax covenants: Pre-Closing tax liabilities to Seller; post-Closing to Buyer, subject to customary provisions; tax returns; cooperation; tax audit control; purchase price allocation.
9. Financing
- Buyer expects to fund the Transaction with [existing cash]/[equity]/[debt financing]; any debt commitment letters to be delivered prior to signing if required; cooperation covenant from Seller to support financing on customary terms.
10. Fees; expenses; deposits
- Break fee/reverse break fee [optional]: [•] payable upon specified triggers, if agreed in definitive documentation.
- Good faith deposit [optional]: Buyer to deposit [•] into escrow upon signing the Letter; refundable upon [failure of CPs not caused by Buyer’s breach]/[•]; applied to consideration at Closing.
11. Documentation
- Definitive agreements: Stock/asset purchase agreement or merger agreement, disclosure schedules, ancillary agreements (escrow, TSA, IP assignments, employment/retention, non-compete, rollover agreements).
- Governing documents: Amendments to charter/bylaws, shareholder agreements, and other constitutional documents as required.
12. Governing law; dispute resolution
- As set forth in Section 8 of the Letter.
Advisory legal notes on enforceability and selected authorities (for the parties’ consideration; not part of the Letter or Term Sheet)
A. New York law (recommended for cross-border private M&A when parties desire enforceable exclusivity and confidentiality)
- Binding versus non-binding preliminary agreements. Under New York law, parties may create (i) “Type I” preliminary agreements that are fully binding on all essential terms, and (ii) “Type II” agreements that obligate parties to negotiate open terms in good faith while not committing them to consummate the ultimate transaction. See Teachers Insurance & Annuity Association v. Tribune Co., 670 F. Supp. 491 (S.D.N.Y. 1987); Adjustrite Systems, Inc. v. GAB Business Services, Inc., 145 F.3d 543 (2d Cir. 1998); Brown v. Cara, 420 F.3d 148 (2d Cir. 2005). Clear drafting that delineates which provisions are binding (e.g., exclusivity, confidentiality, governing law, costs) and which are not (e.g., price, structure) is generally respected by New York courts.
- Exclusivity/no-shop provisions. Courts applying New York law routinely enforce express exclusivity provisions as binding covenants where the parties’ intent is clear, and they may grant injunctive relief for breach given the difficulty of quantifying damages. See, e.g., Tribune, 670 F. Supp. at 497–99 (recognizing enforceability of exclusivity commitments and equitable remedies where intent is manifest).
- Duty to negotiate in good faith. A Type II agreement with an express obligation to negotiate in good faith is enforceable, and breach may give rise to expectation or reliance damages depending on the record. See Brown v. Cara, 420 F.3d at 153–58. To avoid unintended obligations, it is prudent to include a no-reliance clause and to expressly limit any duty to negotiate as set forth in the LOI.
- Specific performance and injunctive relief. Equitable remedies are available where legal remedies are inadequate and the agreement so provides. The proposed language in Section 3.5 is consistent with New York practice.
- Cautionary note. Ambiguity may result in unintended “Type II” obligations. The non-reliance and non-binding language in Section 6 is designed to mitigate that risk.
B. England and Wales (alternative widely used governing law)
- Agreements to negotiate in good faith. Under English law, open-ended agreements to negotiate in good faith are generally unenforceable for uncertainty. Walford v. Miles [1992] 2 AC 128 (HL).
- Exclusivity (“lock-out”) agreements. Exclusivity agreements for a fixed period, supported by consideration (which may include mutual promises or nominal consideration), are enforceable. Pitt v. PHH Asset Management Ltd [1994] 1 WLR 327 (CA). The Exclusivity Period, standstill, and equitable relief language are drafted to be compatible with English law requirements.
- Non-binding terms. Clear statements that commercial terms are non-binding are generally upheld, reducing risk of unintended contractual obligations.
C. Delaware law (if Buyer or Company is a Delaware entity)
- Duty to negotiate in good faith. Delaware recognizes liability for breach of an obligation to negotiate in good faith under a preliminary agreement with sufficiently definite terms; expectation damages may be available. SIGA Technologies, Inc. v. PharmAthene, Inc., 67 A.3d 330 (Del. 2013), aff’d on damages, 132 A.3d 1108 (Del. 2015).
- Equity-specific M&A authorities. While primarily addressing definitive merger agreements, Delaware jurisprudence supports enforceability of covenants and equitable remedies where terms are clear and negotiated between sophisticated parties.
Drafting and process recommendations
- Expressly delineate binding versus non-binding provisions to avoid unintended obligations (New York “Type II” risk; English law uncertainty).
- Ensure Exclusivity Period is time-limited and supported by consideration (the mutual promises herein are ordinarily sufficient under New York; in England consider nominal consideration recitals).
- Align price mechanism and closing arrangements early (locked-box vs closing accounts; simultaneous vs split sign/close) to avoid later regulatory or financing friction.
- Prepare antitrust/foreign investment filings calendars promptly; include realistic long-stop dates with extension mechanics.
- Consider adding a reverse break fee only where financing certainty is robust and parties desire calibrated allocation of regulatory/financing risk.
This draft is intended to be customized to the parties, transaction structure, and governing law. Local law advice should be obtained in each relevant jurisdiction, particularly with respect to merger control, foreign investment, employment/works council, data protection, regulatory licensing, and tax.
