Chapter 2 Appendices

APPENDIX 2C
LETTER OF INTENT
This form of letter of intent assumes a single buyer buying all of the stock of a
privately held company owned by multiple shareholders, and that Target
management is in charge of the sale process. Although there is (minimal) language
dealing with confidentiality, consideration should be given to having the parties
sign a separate confidentiality agreement. Consideration should also be given to
adding provisions dealing with employment agreements, earnout payments, and
governing law.

[Buyer Letterhead]

[Date]

Target
Address of the Target

Ladies and Gentlemen:

[Xyz, Inc.] (the “Buyer”) is pleased to submit this proposal to acquire all of the outstanding
capital stock and other equity interests in [the Target] (“Company”).

1. Acquisition. Subject to the terms and conditions of the Definitive Agreement (as defined
below), the Buyer is prepared to acquire all of the capital stock and other equity interests of Company for
the following consideration aggregating $______ million:

(i) $______ million in cash, of which approximately $______ million will be used to repay
Company’s bank indebtedness in full;
(ii) $ _______ million in shares of a new series of preferred stock of the Buyer. The shares will
be additional shares of a new series of preferred stock to be placed with investors to fund a
portion of the acquisition price, and such shares to be valued at the price paid by such investors;
and
(iii) interest-bearing nonconvertible promissory notes in the principal amount of $_______
million; such notes will be subordinated to the Buyer's existing or future debt to banks or other
financial institutions, and are expected to have a term of _______ years and bear interest at the
rate of _______%.

The transaction is expected to be structured as a reverse triangular merger, but the transaction
may be restructured as an asset acquisition if more tax favorable to the Buyer.

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The transaction will be structured so as to qualify as a private placement under applicable

securities laws. The Buyer desires to minimize the number of Company shareholders who will hold its
stock and notes. The consideration will be allocated in such a way so as to repay in full Company's
current and any future bridge loans, as well as conform to the liquidation preferences of Company’s
current capital structure, or as the shareholders of Company may otherwise agree. It is also understood
that all equity interests in Company, such as options and warrants, will be cancelled in the transaction.
Attached is a capitalization table showing how such consideration (and the components thereof) would be
allocated among the bridge note holders and the different classes of stock and shareholders of Company.

The Buyer expects that certain employees of Company who are identified by the Buyer as key
employees will commit to become employees of the Buyer, will commit to remain with the Buyer for an
acceptable initial period of employment, and will sign mutually acceptable employment and
noncompetition agreements.

The Definitive Agreement will provide for customary representations and warranties, covenants,
and conditions to closing, including receipt of necessary consents and regulatory approvals and that there
has been no material adverse change in the business. We understand that the business will be run in the
ordinary course until the closing and that no dividends or other distributions will be made in that period.
The Definitive Agreement will also provide for negotiated mutually agreeable indemnification and
escrow provisions to be provided by all Company shareholders to the Buyer.

The Buyer will work with Company to ensure that its continuing due diligence effort causes
minimal disruption to Company's ongoing business operations. The Buyer desires to negotiate and sign
the Definitive Agreement, and to close the acquisition, as soon as reasonably possible. It is understood
that the Buyer must complete its preferred stock financing before it is able to close.

2. Due Diligence; Access. Company and the Buyer shall each provide the other and its
prospective investors with access to its books and records and shall cause its directors, officers,
employees, accountants, and other agents and representatives to cooperate with them in connection with
the due diligence process.

3. No-Shop. Because of the significant effort and expense that must be undertaken by the
Buyer in connection with the acquisition, the Buyer must have Company’s assurance that it will move
forward exclusively with the Buyer until _______. To put it more formally, until 5:00 p.m. (Eastern time)
on _______, Company shall not, and none of the undersigned Company security holders shall, directly or
indirectly (including through agents), enter into any agreement, solicit or entertain offers from, discuss or
negotiate with, or in any manner consider any proposal of any other person or entity relating to the
acquisition, by any means, of Company or any assets of Company outside the ordinary course of business.
If Company or any such security holder shall receive any such communication, offer or proposal, such
communication, offer or proposal shall be unqualifiedly refused, and Company or such security holder
shall notify the Buyer of the receipt of such communication, offer or proposal.

4. Disclosure. Except as and to the extent required by law, without the prior written consent
of the other party, neither Company nor any Company shareholder, on the one hand, nor the Buyer, on the
other, nor their respective officers, affiliates or representatives, shall disclose the existence of discussions
regarding a possible transaction between the parties or any of the terms, conditions or other aspects of the
transaction proposed in this letter, except to shareholders, directors, officers, employees, legal and
financial advisers and potential investors who have a need to know.

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5. Costs. The Buyer shall be responsible for and bear all of its own costs and expenses
incurred in connection with the proposed transaction. The shareholders of Company shall be responsible
for and bear all of their own and, in the event a closing occurs, Company’s costs and expenses (including
any attorney fees and any brokers’ or finders’ or investment banking fees) incurred in connection with the
proposed transaction.

6. Definitive Agreement; Binding Effect. The Buyer and Company intend promptly to begin
negotiating a written definitive agreement relating to the acquisition (the “Definitive Agreement”). This
letter is not intended to, and shall not create or constitute, any legally binding or enforceable obligation
between the Buyer, on the one hand, and Company and its shareholders, on the other hand, to
consummate the transaction, and no party hereto shall have any liability to the other party with respect to
any provision hereof. Notwithstanding the foregoing, paragraphs numbered [2 through 6] are intended to
create legally binding obligations until the Definitive Agreement, if successfully negotiated, is executed
and delivered by all parties. If the Definitive Agreement is not executed and delivered for any reason, no
party to this letter shall have any liability to any other party hereto based upon, arising from or relating to
the provisions hereof other than those set forth in paragraphs numbered [2 through 6]. This letter shall
expire at 5:00 p.m. (Eastern time) on _______ (except that such expiration shall not relieve any party of
liability for any breach of the binding obligations set forth herein).

This letter shall be governed by and construed in accordance with the laws of Delaware.

[Signature page immediately follows.]

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If you are in agreement with the foregoing, kindly so indicate by signing and returning to
the undersigned the enclosed duplicate copy of this letter. This letter of intent shall expire and be
of no force or effect unless a copy hereof duly executed by Company and each security holder
named below shall have been received by the Buyer prior to 5:00 p.m. (Eastern time) on
_______.

Very truly yours,

BUYER, INC.

By:
Title:

Acknowledged and agreed as

of _____________________

[Target]

By:__________________________
Title:

SHAREHOLDERS/NOTEHOLDERS:

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