The letter of intent (LOI) of an M&A deal tells the Seller that the Buyer is interested in going through with the purchase. The LOI lays out the terms for continuing discussions about the deal.
M&A LOI: Non-disclosure and publicity
Both sides simply agree to not tell anyone (outside of those in their respective inner circles) about the proposed deal. This provision is especially important for Seller because premature release of news about the pending sale may harm Seller’s business by spooking customers, employees, and/or vendors.
M&A LOI: Nonbinding agreement
Just in case the nonbinding nature of the LOI isn’t clear, the letter includes language that indicates the document isn’t binding in a court of law. This text is usually boilerplate, but it’s important boilerplate for Buyer because it gives him a clear out should he want to walk away.
M&A LOI: Governing law or jurisdiction
In the case of a dispute that needs to be adjudicated in a court of law, both parties agree to the state where that adjudication will take place. If Buyer and Seller are in the same state, that decision is pretty easy because they typically agree to use their mutual home state.
However, if Buyer and Seller are in different states, each party will naturally want to use its own home state. In these examples, most Buyers simply list their home state in the LOI.
Therefore, Seller has to pay close attention to the designation in this section of the letter and suggest a change of venue. Buyer may agree to use Seller’s state, but in most cases, a neutral state is the best option.
If you and the other party can’t agree on whose state to use for jurisdiction, remember that many deal-makers choose Delaware, mainly because Delaware has a separate court system for business issues.