A more recent version of these Heads Of Agreement Aka Letter Of Intent notes – written by Cambridge And Oxilp And College Of Law students – is available here.
The following is a more accessble plain text extract of the PDF sample above, taken from our Private Acquisitions Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:
M&A Work Shop 2
Heads of Agreement/Letters of Intent A heads of agreement/letter of intent is a good preliminary way to probe the target Company and its general conditions. As it is overall a non-binding document it is a good way to determine whether the transaction should go ahead as proposed. It may be possible that the contents of the letter of intent (although generally very wide and general) could disclose problems with the company which the buyer did not know e.g. liabilities that the buyer is not willing to take on and therefore will change what was originally a Share acquisition into an Asset acquisition in order to limit its liability. It is also a good way to determine the price of the target company. e.g. "Until signing the SPA each of us shall be entitled to break off the negotiations at any time without thereby incurring any liability to the other beyond the obligations provided for in this letter" England &Wales No. Parties include a "subject to agreement" clause in the contract to avoid it being binding.
Legally Binding P.37
Duty to negotiat e in good faith P.37
Agreements to agree are not enforceable under English law unless there the parties have agreed a clear and unequivocal mechanism for fising that which is to be agreed (Foley v Clasique Coaches). But parties may expressly agree that some terms in the Heads be binding e.g. confidentially, exclusivity of bargaining and liability for costs. Non-contractual obligations are governed by Rome II, Article 12 - if arising out of pre-contractual dealings the law applicable is that which applies to the contract. P.38 No - agreements to negotiate in good faith are not enforceable because they lack the necessary certainty. But an undertaking for a limited period of time to negotiate in good faith can be enforceable if the obligation is sufficiently certain. In US Law. There is No obligation to negotiate in good faith.
Continental Europe In civil jurisdictions like France and Germany it is possible to enter into an Agreement to Agree. Agreements to Agree are not enforceable under English law. If there is a cross-border transaction an Agreement to Agree clause could, in principle, be avoided by carefully drafting the letters to make it clear that there is no intention to agree to agree. However, even this may be proven futile in jurisdictions such as France and the Netherlands or in Spain if the parties carry on negotiating.
Yes. Known as "Culpa in Contrahendo" and the duty extends to all phases of the commercial relationship, pre-contractual and contractual. The exact scope of this duty of good faith varies from country to country, but usually includes the following obligations: (a) to inform each other where reasonable of all points which, if known by the other party, might be expected to lead it to change its views on material aspects of the transaction;
Buy the full version of these notes or essay plans and more in our Private Acquisitions Notes.