What still binds you after the deal falls apart

A dead deal does not end the paperwork. Where your letter of intent and nondisclosure agreement contain them, confidentiality, return-or-destroy, employee non-solicitation, no-contact and expense allocation keep running after the buyer walks, often for years measured from signature. Those clauses protect you only if you calculate their end dates and enforce them in writing.

What happens if a letter of intent falls through when you are selling your business?

When a letter of intent falls through, termination kills the deal, not the document. Most letters of intent are nonbinding on price and structure but expressly binding on confidentiality, exclusivity, expenses and governing law. Those binding paragraphs are a contract. They survive on their own schedule and a court can enforce them.

Delaware has said plainly that a preliminary document can create real obligations. In SIGA Technologies, the parties signed a license term sheet with an express agreement to negotiate in good faith, and the deal never closed. The Delaware Supreme Court held that obligation enforceable in 2013, allowed expectation damages because the trial court found the parties would have reached agreement but for bad faith, and affirmed the award in 2015. Delaware law does not automatically govern your letter of intent, so read the governing law line.

Cases: SIGA Technologies, Inc. v. PharmAthene, Inc., 67 A.3d 330 (Del. 2013); second appeal, Del. 2015.

I read the termination and survival paragraphs of the letter of intent before I read the price.

How long does the confidentiality obligation last after the buyer walks away?

Confidentiality obligations last exactly as long as the nondisclosure agreement says. Many are drafted to run a fixed number of years from signature rather than from termination. On that wording, a two-year term signed before a process that ran nine months leaves roughly fifteen months, and the buyer’s copy of your financials outlives that clock.

Read the survival sentence and do the arithmetic. Then read the definition of Representatives. Most nondisclosure agreements let the buyer share your information with its lawyers, accountants, lenders and equity sources, and make the buyer answerable for their breaches. Confirm yours does, and ask for the list.

The use restriction matters more than the disclosure restriction. In Martin Marietta, the Delaware Court of Chancery held that a bidder breached a nondisclosure agreement and a joint defense agreement by using material received for a negotiated transaction, and enjoined its exchange offer and proxy contest for four months. The Delaware Supreme Court affirmed. That was a public-company fight and the injunction was discretionary, but the drafting lesson transfers down: a clause restricting use to the specific transaction is what stops a former buyer from repurposing your pricing model.

Case: Martin Marietta Materials, Inc. v. Vulcan Materials Co. (Del. Ch. 2012), aff’d (Del. 2012).

When the contract term expires, trade secret law is what is left, and it covers less. Federal law protects information the owner has taken reasonable measures to keep secret and that derives independent economic value from not being generally known; the definition covers financial and business information. Nearly every state has a parallel statute. Reasonable measures are things you did: access controls, a signed nondisclosure agreement, per-user permissions, a preserved download log.

Law: 18 U.S.C. 1839(3) (definition); 18 U.S.C. 1836 (federal civil claim); state trade secret statutes.

The nondisclosure agreement expires on a date. Your customer list does not.

What does return or destroy actually require, and what stays in the buyer’s backups?

Return-or-destroy means the buyer must hand back or delete your confidential materials, and in most nondisclosure agreements the obligation is triggered only when you ask in writing. Standard carve-outs then let the buyer keep copies in automatic electronic backups, in board or committee records, and wherever law or a litigation hold requires retention.

Those carve-outs are not a trick. A party that reasonably anticipates litigation must preserve electronically stored information, and in federal court Rule 37(e) governs what a judge may do when it is lost because the party failed to take reasonable steps. Those measures are not automatic: the rule requires prejudice, and the severest require intent to deprive. Counsel will not let an IT team wipe backup sets on request.

Rule: Fed. R. Civ. P. 37(e).

Two fixes make the carve-out survivable.

• A certification, not a promise. Ask for a written statement signed by an officer listing what was returned, what was deleted and what remains.
• A tail on the retained copies. Backup material should stay subject to the confidentiality and use restrictions for as long as it exists.

Without that tail, the buyer keeps a lawful archival copy, the term runs out, and nothing in the contract stops it being read.

Can a buyer who walked away hire your operations manager?

Often, yes. An employee non-solicitation covenant, where the nondisclosure agreement contains one, bars the buyer from recruiting the people it met during diligence for a stated period. Most are drafted to carve out general advertisements, public job postings and unsolicited applicants. That carve-out is the route a former buyer takes to your manager.

The mechanics are dull. The buyer posts an opening. Your manager, who sat through a management meeting with that buyer, applies. The buyer hires the applicant. If your clause bars solicitation only, there is no breach.

Two drafting points close most of the gap, and both belong in the nondisclosure agreement:

• Cover hiring, not only soliciting, for a short list of people identified to the buyer during the process.
• Keep the carve-out for genuine general advertising, exclude outreach targeted at your workforce, and tie it to that list, not your whole payroll.

Overreaching costs you the clause. The Delaware Court of Chancery has refused to narrow covenants that swept too far and struck them entirely, including one given on the sale of a business. That covenant ran against a seller, and other states will rewrite where Delaware will not, so your governing law decides the rule. A narrow covenant beats a wide one a court deletes.

Case: Kodiak Building Partners, LLC v. Adams (Del. Ch. 2022).

Two outside limits matter. First, antitrust. The Department of Justice and the Federal Trade Commission treat naked no-poach agreements between employers as per se illegal, while no-hire restraints ancillary and reasonably necessary to a legitimate transaction are analyzed differently. The agencies replaced their 2016 guidance with joint guidelines in January 2025 that keep the distinction. Keep the covenant narrow and transaction-specific.

Guidance: DOJ and FTC, Antitrust Guidelines for Business Activities Affecting Workers (Jan. 16, 2025), replacing the 2016 Antitrust Guidance for Human Resource Professionals.

Second, state law. California voids contracts restraining a person from engaging in a lawful profession, and a California appellate court used that statute to strike an employee non-solicitation provision in an employment agreement; section 16600.5 extends the voidness and adds a private right of action with attorney fees. How far it reaches a no-hire between two companies is less settled. Section 16601 can preserve a covenant you give the buyer at closing, but it will not save a no-hire aimed at your workforce. Assume that covenant is weak there.

Law: Cal. Bus. & Prof. Code 16600, 16600.5, 16601; AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. (Cal. Ct. App. 2018). Rulemaking: the FTC Non-Compete Clause Rule was set aside in Ryan LLC v. FTC (N.D. Tex. 2024); the FTC dismissed its appeals in September 2025.

What is a standstill or no-reapproach clause, and does it matter in a private sale?

A standstill is a promise by the buyer not to acquire your securities or launch an unsolicited bid for a stated period without consent. Standstills are a public-company device and are uncommon in the sale of a privately held company at this size. The private-company equivalent is a no-contact or no-reapproach clause, and that is the one worth checking.

No-contact language, where your document has it, bars the buyer from approaching your employees, customers, suppliers and lenders. A buyer who knows your top three customers and your margin on each has a map. Confirm in writing that it still runs, and state its end date.

Who pays the transaction expenses when the deal terminates?

Transaction expenses on a terminated deal are allocated by the expenses paragraph of the letter of intent, which almost always says each side bears its own costs. Break fees payable by a private seller are uncommon at this size. Some letters add a narrow reimbursement trigger tied to breach of exclusivity, and that paragraph binds even though price did not.

Your own costs are the larger number, and their treatment is worth one call. Costs that facilitate a sale are generally capitalized rather than deducted, and on abandonment they are generally recovered as a loss in that year. The deduction depends on a closed and completed transaction fixed by an identifiable event, so the termination notice itself has tax value. Whether the loss is ordinary or capital is fact-specific, and a later related sale can change the answer. Stated as of September 2026. Ask your CPA before filing.

Tax: Treas. Reg. 1.263(a)-5; 26 U.S.C. 165(a); Treas. Reg. 1.165-2; Rev. Rul. 73-580; 26 U.S.C. 1234A on character; Rev. Proc. 2011-29 on success-based fees.

How do you re-market a business that has already been through a failed diligence process?

A business re-marketed after a broken deal carries a history, and the next buyer will ask why the last one walked. The question arrives early, usually on the first management call. A specific answer given voluntarily beats a defensive one extracted later, because the story a buyer invents is always worse than the truth.

Answer with the file, not with a story. Deals die for reasons that say nothing about your company: the buyer’s lender repriced, the investor moved on. They also die for reasons that are about your company: customer concentration, add-backs that did not survive scrutiny, unsigned leases, worker classification. Whatever the last buyer found, the next one finds too.

The documents already produced are assets or liabilities.

• The quality-of-earnings report. If you commissioned a sell-side report, it is yours, but its use with a new buyer turns on the accounting firm’s engagement letter and reliance terms. Ask the firm what it permits before you promise anything.
• The disclosure schedules. Reuse the structure, and correct every item the failed diligence proved wrong. A schedule that repeats a known error is worse than none.
• The diligence issues list. Treat the dead buyer’s request list as a free audit. Fix three items before the next process starts.
• The data room. Revoke buyer access and export the download log, which supports the reasonable-measures element of a trade secret claim.

Your broker’s engagement letter may keep the dead buyer inside the fee base for a tail period after the engagement ends. Note it too.

I ask for the buyer’s diligence request list before I ask the broker what went wrong.

Termination closes the transaction. It does not close the file. Your financial statements are still live in someone else’s system.

What should you send in writing the week a deal dies?

The week a deal dies is when the surviving obligations are fresh and the other side is still cooperative. Five written items, sent within days of termination, preserve what matters: a termination notice, a return-or-destroy demand, a certification request, a survival-date schedule, and a data room shutdown. Silence that week costs leverage you never get back.

• A termination notice citing the section under which the deal ends, stating when exclusivity ended, and listing by number the paragraphs both sides agree survive.
• A return-or-destroy demand addressed to the buyer and expressly extended to its Representatives, since the obligation is usually triggered only by written request.
• A certification request for a statement signed by an officer describing what was returned, what was deleted, which systems were searched and what remains in backups, and confirming that retained copies stay restricted.
• A survival-date schedule: nondisclosure agreement expiry, non-solicitation end date, no-contact end date, broker tail end date. Set reminders ninety days before each.
• A data room shutdown: revoke every external user, export the full log, store it with the deal file, and confirm in writing.

A breach you spot is not something to sit on; the limitations period varies by state.

Then make two calls. One to your accountant, about the broken-deal costs. One to whoever runs the next process, diligence issues list in hand. The dead deal left your numbers in someone else’s system, on a clock only you are watching.