It is customary to prepare letters of intent or other similar documents (such as memoranda of understanding) acting as term sheets for the negotiation of the transaction. They are generally nonbinding, as their main purpose is to register and summarize the status of, and the principles that shall apply to, the negotiations between the parties. Typically, letters of intent provide for the structure of the transaction, the principles applicable to the due diligence process, the evaluation principles, the expected timing and process of the negotiations and an exclusivity period. Provisions relating to confidentiality, standstill clauses, non-solicitation, exclusivity, costs and governing law and jurisdiction are usually binding provisions, while no commitment is normally assumed by the parties in relation to the finalization of the transaction.

• Exclusivity: It is market practice to include an exclusivity provision, which may vary in duration from a period of three or four weeks to two or three months, pursuant to which the buyer may be granted the right to negotiate exclusively for a period of time with the seller. During such period the seller would be prevented from engaging in discussions or sharing information on the target company with any third party. Exclusivity clauses are usually binding, despite the fact that the general provisions of a term sheet are usually nonbinding. In the case of a breach of exclusivity, the potential buyer can seek compensation for damages from the seller as well as from a third-party buyer if it is ascertained that the third-party buyer was aware of the exclusivity undertakings between the parties.
• Break fee: It is not market practice to include break fees in Italian agreements. This is mainly because Italian law already provides for a specific pre-contractual liability if negotiations are interrupted unilaterally by a party not acting in good faith (i.e., without due and reasonable justification). In this case, the costs/damages incurred by the other party would be recoverable even in the absence of any specific contractual break fee or penalty.
• Confidentiality: It is market practice to include binding provisions on confidentiality, although it is also common to enter into separate confidentiality agreements or non-disclosure agreements to set out the terms of the relevant obligations of the parties in detail (including the obligations of each of the parties’ external advisors). Such agreements generally provide for the obligations of the parties involved to treat the information exchanged during the negotiations as confidential, including the existence of the negotiation itself. Specific exclusions in order to limit the confidentiality obligations may be included (e.g., to allow the parties comply with disclosure request by public authorities or regulatory bodies in cases of listed companies). The confidentiality agreements may also contain non-solicitation clauses aimed at limiting the buyer's access to the target company's employees, suppliers and customers.

Confidentiality obligations are often separately negotiated in agreements rather than provisions in letters of intent/term sheets, especially due to the fact that parties want to address confidentiality protections before entering into any negotiation. This is sometimes also the case for exclusivity. Break fees are generally not used in Italy.

The Italian Civil Code mandates that all parties act in good faith during the negotiations in general, inclusive of the negotiations and drafting of the acquisition agreement and any other transaction documents. Failing to do so will expose the defaulting party to pre-contractual liability. Although there is not a specific and exhaustive list of behaviors that would entail the breach of such good faith principles, some examples include the following: making untrue statements, omitting essential information, and ending the negotiations unilaterally without due and reasonable justification after inducing the counterparty to a reasonable reliance on completion of the transaction.

The practical application of the above principle allows the buyer not to enter into an agreement ultimately where fraudulent misrepresentations have been made by the seller, aimed at inducing the buyer to enter into an acquisition agreement that the buyer would not have entered into had it been aware of the actual circumstances. However, if the buyer would have still entered into the agreement, although under different terms and conditions, then the agreement remains valid, but the seller may be liable vis-à-vis the buyer for any damages suffered by the latter.