M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Wednesday, December 9, 2009

K&E on LOIs

This client alert from K&E offers a timely reminder of potential pitfalls for parties entering into letters of intent or term sheets believing they are merely unenforceable "agreements to agree." It offers the sound advice that, when you enter into a LOI, you should clearly express which provisions are intended to be binding and which are not, and should expect to be held to these commitments.

The client alert notes that, in a recent Delaware bench decision, newly appointed VC Laster cited a number of key factors that merit consideration by parties negotiating LOIs.  These include (quoting the alert):

  • Delaware does not recognize an inherent fiduciary out in every contract if one is not negotiated by a party. A seller that agrees to exclusivity with a potential buyer should not expect that it can later violate that agreement based on an implicit back-door exit from that commitment grounded in its fiduciary duties.

  • An exclusivity or no-shop provision is a unique right, the breach of which is not "readily remedied after the fact by money damages." As such, injunctive relief is an appropriate judicial remedy to enforce the benefits bargained for by the potential buyer.

  • When an LOI requires the parties to negotiate or to enter into an agreement, this creates an affirmative obligation on the parties to in fact engage and negotiate in good faith notwithstanding the fact that there are still material issues to be hashed out and other pieces to fall into place. The court stated that "radio silence is not negotiating in good faith."

  • The court briefly noted that parties can protect themselves against unexpected obligations by expressly stating that the relevant terms of the LOI are non-binding.


  • http://lawprofessors.typepad.com/mergers/2009/12/ke-on-lois.html

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