It is not mandatory to prepare a letter of intent, term sheet or memorandum of understanding under Mexican law, although company bylaws may provide otherwise. However, these preliminary documents are very helpful guides for the drafting and negotiation of transaction documents. Letters of intent or term sheets may have a nonbinding section and a binding section. The nonbinding section typically includes an indicative methodology or range to determine the price and may include a description of the general transaction structure. The binding section usually includes a confidentiality agreement and may include a penalty upon termination for certain listed reasons.

• Exclusivity: A term sheet customarily includes exclusivity provisions.
• Break fee: It is not typical for a term sheet to include provisions dealing with break fees.
• Confidentiality: A term sheet customarily includes confidentiality provisions.

It is not common to prepare separate confidentiality agreements and exclusivity agreements. The letter of intent usually includes provisions dealing with those matters.

Parties are generally assumed to act in good faith under Mexican law. The Federal Civil Code, the Commerce Code and other legislation make several references to the assumption that parties entering into transactions act in good faith and provide for consequences when parties do not act in good faith. The penalties applicable to a party acting with bad faith include, for example, the nullification of the relevant contract. Since the good faith of parties is generally assumed, a claim to receive indemnity for damages requires full evidence of the bad faith intent of the relevant party. Including a specific penalty in the purchase agreement for acting in bad faith is highly recommended because of the evidence requirements mentioned above and difficulties determining and quantifying damages.