Earlier this week, Osram said it would consider a takeover by AMS that trumps a competing bid by Bain and Carlyle with a cash offer valuing it at 4.3 billion euros ($4.79 billion).
Osram on Wednesday called the negotiations "constructive", while AMS said talks were "moving ahead in good faith".
Both companies said that they aim to start the tender period for the offer before the end of Sept. 5.
"Osram and AMS have held constructive discussions on a business combination agreement and on other topics since Tuesday and will continue to do so," Osram said in a statement.
It said that its management and supervisory boards would review the agreement "in the near term" and decide whether to proceed by lifting a standstill agreement.
(Reporting by Tom Sims; Editing by Kirsten Donovan)