Canada: Letters of Intent – Part II

Last Updated: February 25 2017


This is the second of two Practice Guides discussing the use of Letters of Intent in M+A transactions, particularly private M+A transactions, and some issues and considerations in relation thereto. The first Letter of Intent Practice Guide provides an overview of the use of Letters of Intent and their use. This Practice Guide summarizes matters often included in a Letter of Intent.

How Much Should be Included in a Letter of Intent?

The first Letters of Intent Practice Guide discusses strategic considerations regarding how much to include in a Letter of Intent, as compared to leaving certain issues to be negotiated as part of the Definitive Agreement. It also includes advice regarding the extent to which parties should retain assistance of legal counsel before finalizing and agreeing to a letter of intent, even where most of the provisions may be expressed to be “non binding.”

What Matters Are Typically Included in a Letter of Intent?

Letters of Intent often include:

  • The non-binding agreement of the parties regarding the amount of the Purchase Price (often subject to a price adjustment provision) and the manner of payment (e.g. payable in cash, securities of the acquiror, or a combination thereof), as well, in most cases, as the timing of payment (e.g., payable in full at the time of Closing, or whether some portion may be deferred and payable post closing (other than under an escrow or holdback), and if so what amount or percentage may be deferred (and, in such case, in some cases the Letter of Intent may address any security that is intended to secure the deferred portion of the purchase price). In some cases a Purchaser may be reluctant to agree, even on a non-binding basis, to some of these terms, possibly including the total purchase price, prior to completing its due diligence. In some such cases, Letters of Intent specify agreement upon the agreed upon terms based on certain stated key assumptions to be verified by the due diligence process (e.g. an assumption that the target company has no “indebtedness”).
  • The structure of the proposed Acquisition transaction (e.g. whether the transaction is intended to be an asset purchase or share purchase). In some Letters of Intent, however, the Purchaser may specify that it retains flexibility to change the structure, on a mutually agreeable basis, for example, to reflect tax considerations.
  • Whether, in addition to the basic purchase price, there is intended to be any earn out under which an additional purchase price may potentially be paid depending on achievement of agreed upon specified agreed upon milestones over some agreed upon specified post closing period (and, if this is applicable, the Letter of Intent likely will often specify, in less technical detail than will ultimately be specified in the Definitive Agreement, the agreed upon milestone thresholds).
  • Whether there is intended to be any purchase price adjustment, such as a working capital adjustment, and if so, it is not uncommon for the Letter of Intent to specify a proposed base or target amount of working capital (e.g., based on preliminary information) (e.g. based on information in a Confidential Information Memorandum that may have been provided to the Purchaser by a target company’s financial advisor).
  • The proposed deadline, or anticipated date, for closing (often reflecting “wishful” thinking on the part of both parties) and also usually a “drop dead date” reflecting a deadline by which, if the parties have not entered into a Definitive Agreement, any exclusivity obligations cease to apply and the parties will discontinue negotiations (unless they agree otherwise).
  • The intention of the parties to cause their respective legal counsel to commence preparation of a draft Definitive Agreement and to negotiate the terms thereof. In some cases, this is intended to follow after a further period during which the Acquiror is to conduct due diligence. In some cases, Acquirors seek to specify that their legal counsel is to prepare the initial draft of the Definitive Agreement (or the Definitive Agreement and other related transaction documents).
  • Although generally not expressed as legally binding, Letters of Intent usually include features that are legally binding, most notably:
    • Exclusivity – A no-shop covenant by the target company prohibiting the target company from soliciting other potential acquirors or negotiating with other prospective purchasers for a limited period.
    • Access – A general covenant (which can be short and simple) pursuant to which it is agreed the Purchaser will be permitted access to the target company and its books, records and documents. In many cases, however, the Purchaser is restricted in the ability to contact employees of the target company without express approval of the target company. (In some Letters of Intent, the access covenant is included as one of the covenants that is expressed to be binding. In others it is instead part of the non-binding provisions).
    • Confidentiality – Letters of Intent often include covenants of the parties to not disclose information regarding the proposed transaction and, if there is not a separate Confidentiality or Non-Disclosure Agreement in place, obligations (e.g. of the Acquiror) not to disclose confidential information.  If there is no Confidentiality or Non-Disclosure Agreement in place, the Letter of Intent should include appropriate provisions ensuring that the Purchaser may not disclose or use (except for purposes of assessing and completing the proposed Acquisition) confidential information it may obtain as part of its due diligence.
  • Some Letters of Intent address the following additional matters, but these are generally less common:
    • Restrictive covenants regarding actions the target company may take between the date of the Letter of Intent is entered and termination of the Letter of Intent (or the Definitive Agreement being entered into).
    • Restrictive covenants restricting the Acquiror from soliciting employees, customers or suppliers of the target company.
    • Certain intended key Conditions Precedent for completion of the proposed Acquisition (or specifying that the Definitive Agreement will include specified Conditions Precedent). For example, where applicable, an Acquiror may wish to expressly specify that the completion will be subject to it obtaining financing. As these typically are negotiated as part of the Definitive Agreement, this is likely not strictly necessary, except perhaps to help make clear that the Letter of Intent does not give rise to any binding obligation to complete the proposed Acquisition and to record that the parties have reached agreement on at least some of the conditions that must be satisfied before they are wiling to be bound to complete the transaction. To the extent that the parties can identify key regulatory or third party approvals, authorizations and consents that will be required, which may take a considerable time to obtain, it may be desirable to expressly refer to obtaining such consents as a Condition Precedent and also make reference to the parties making application for such consents, perhaps even prior to the Definitive Agreement being entered into.
    • Some Letters of Intent include certain representations and warranties (e.g., regarding title to the shares to be sold under a Share Purchase transaction), but that is not very common. Some Letters of Intent alternatively specify that the Definitive Agreement will contain representations and warranties that are “customary” for the type of transaction. Some instead specify that the Definitive Agreement will include certain representations and warranties which are specified on a non-exhaustive basis.
    • Some Letters of Intent for Asset Purchase transactions refer to the major assets being acquired and liabilities the Purchaser is agreeing to acquire (although this may not be determined until the Acquiror finishes its due diligence), and any significant assets that the parties agree are excluded. In a Share Purchase transaction, if applicable, any major assets that one intended to be disposed of prior to Closing, or any material liabilities that are to be repaid before Closing, may be specified. In some cases, the Letter of Intent may seek to address the allocation of the purchase price among asset classes, but this is often left to the Definitive Agreement.
    • As noted above, in some cases the parties seek to reach agreement or some other key deal structure matters, such as escrow or holdbacks,  guarantees or indemnification obligations and indemnification Caps or break fees. In many cases, however, these matters are left to be negotiated as part of the terms of the Definitive Agreement.
    • Letters of Intent in some cases either confirm that each party is to bear their own expenses in connection with the proposed transaction or, in some cases, may contemplate an Acquiror agreeing to pay for a portion of a target company’s expenses (which, if applicable, should likely be one of the provisions expressed to be binding). Some Letters of Intent address responsibility for payment of broker’s fees.
  • As a general comment, like Acquisition Agreements, Letters of Intent are not standard “off the shelf” precedent documents, and matters covered (or not covered) and terms and conditions included, vary considerably. Often Letters of Intent may, at least initially, be prepared without involvement of legal counsel. However, it is strongly recommended that Letters of Intent be prepared with the involvement and assistance, and with appropriate legal advice obtained from, legal counsel.

Do I Need a Lawyer to Prepare or Review My Draft Letter of Intent?

This issue is discussed in the first Letters of Intent Practice Guide.

However, we recommend that parties (particularly target companies or target company shareholders) have legal counsel review and comment on a draft Letter of Intent and provide advice before it is finalized or executed.  As noted in that Practice Guide, among other factors to be considered:

  • Legal counsel should provide advice regarding whether the Letter of Intent in fact achieves the parties intentions regarding only setting out a non-binding expression of intent, rather than a binding mutual agreement that is intended to be supplemental by a subsequent Definitive Agreement.
  • Despite reflecting only a non-binding agreement regarding certain terms, some of those terms (e.g., complicated purchase price, earn out or other concepts) may require greater technical precision in drafting to ensure the intention of both parties is correctly captured.
  • There are strategic considerations in relation to the potential impact of decisions regarding which items potentially should be included in the Letter of Intent, including risks that a proposed Acquisition transaction may prematurely get “bogged down” or derailed attempting to negotiate specific deal points, and the potential impact on negotiation of other key terms and conditions to be included in the Definitive Agreement.

Any other Useful Tips or “Hacks”?

One concept we have seen that can be useful for Vendors is to include in the Letter of Intent a provision which provides that, if either party has reason to believe the other party has requested or is seeking or will seek a material change to the deal terms outlined in the Letter of Intent, other than as may be reasonably required to address any due diligence matters identified after execution of the Letter of Intent, they may give notice to the other party requesting the other party affirm that the other party will not request or seek any material change to the deal terms outlined in the Letter of Intent (other than as reasonably required to address due diligence matters) and the exclusivity covenant will terminate if the Acquiror fails to provide such affirmation within a specified time (e.g. two business days).

Any Last Advice?

Just repeating the comment noted above, which is worth emphasizing: Letters of Intent are not standard form “change the name” precedents. The terms that are included in Letters of Intent vary considerably and are (or should be) the subject of negotiation. The appropriate matters to include in a Letter of Intent, or seek to negotiate, can or should vary depending on the facts and circumstances of the particular proposed Acquisition.

And of course, ask a good lawyer for advice.

This document is not intended to create an attorney-client relationship. You should not act or rely on any information in this document without first seeking legal advice. This material is intended for general information purposes only and does not constitute legal advice. If you have any specific questions on any legal matter, you should consult a professional legal services provider.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Contact the Author?
Click here to email the Author
In Association with
In Partnership with
Other Canada Advice Centres
Competition and Antitrust
Labour and Employment
Intellectual Property
More Advice Centers
Useful Resources
An Act to provide for the general regulation of trade and commerce in respect of conspiracies, trade practices and mergers affecting competition.
Regulations Respecting Notifiable Transactions Pursuant to Part VIII of the Competition Act.
The Regulations Respecting Anti-Competitive Acts of Persons Operating a Domestic Service.
An Act respecting investment in Canada.
The Competition Bureau, as an independent law enforcement agency, ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace.
The Competition Tribunal is a specialized tribunal that combines expertise in economics and business with expertise in law.
Our Mergers, Acquisitions + Financing team draws upon their Canadian M&A legal experience and shares legal insights, from the essentials for novices to more advanced concepts for seasoned dealmakers.
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions