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Discussion Outline for Model Letter of Intent A. Pros and Cons of Letters of Intent 1. Advantages to Buyer. a. At minimum, a letter of intent represents a written statement of intent/moral obligation of Seller, desirable before Buyer incurs out-of-pocket expenses or opportunity costs. (i) Likely also to import, at minimum, obligations of good faith and fair dealing under state contract law. (ii) Possibly a basis for holding the Seller to contractual liabilities. (iii) Possibly a basis for discouraging third parties with tortious interference claims. (iv) At least the expense allocation and “no shop” provisions should be binding. — Consider fiduciary duty out to “no shop” provision, especially in public company context. b. Memorializes basic business terms, reducing likelihood of misunderstanding/acquisition falling apart at a later stage. c. May be necessary for Buyer to obtain financing. d. Permits Hart-Scott-Rodino filing. e. Governs relationships pending definitive documentation or closing (no shop, access for diligence, conduct of business, etc.). f. Can create momentum to get deal done. 2. Disadvantages to Buyer. a. Signing letter of intent, and especially public announcement, may have adverse affect on the value of the company being acquired. — Employees, customers, vendors, etc., react to the uncertainty created by the acquisition. b. Prior to signing the letter of intent, the Seller has other options, so the Buyer’s bargaining position may be weaker than it is during later negotiations of the definitive documentation. — Accordingly, a Buyer may prefer to defer a letter of intent, or at least defer negotiation of as many detailed terms as possible. c. Creation of inadvertent legal consequences. (i) Possible liability if transaction not closed. (ii) Can be mitigated through careful drafting. (iii) Understand client’s intentions re binding nature of letter; advise client of risks. 3. Seller considerations. a. Generally, the converse of advantages and disadvantages to the Buyer. b. If the Seller is a public company, consider possible disclosure requirements. c. If an acquisition is not closed after a letter of intent is signed, a “busted auction” situation may result, placing the Seller in a very disadvantageous position.

CALIFORNIA BAR LICENSE # 281147 | 2240 Encinitas Blvd., Suite: D999 Encinitas, CA 92024

B. Assumptions in Model Buyer’s Form of Letter of Intent The letter of intent following this outline is a model premised on the following state of affairs being present as a factual matter: 1. Auction conducted by investment banker. a. Assumes bid is in response to investment banker’s request for second round bids. — Preliminary or “first round” letters usually state a range of total consideration expected to be bid, address process (timing, conditions, etc.), and are nonbinding. b. Bid should address all items (or consciously not address certain items) requested in the solicitation for bids. 2. Transaction structure. a. Assumes stock purchase. — Consider tax effects of asset purchase/§ 338(h)(10) election. b. Assumes draft purchase documentation distributed with the bid package. Possible responses include: (i) Definitive markup. (ii) Conceptual markup. (iii) Conceptual comments. 3. Purchase price. a. Assumes fixed cash purchase price. b. Consider offering Seller paper (notes, preferred stock, etc.). c. Consider formula purchase price/earn-outs/purchase price adjustments. — See “Discussion Outline of Purchase Price Considerations” included in these materials. 4. Identity of Seller. a. Assumes that the Seller is selling stock of a 100 percent owned subsidiary. b. Various aspects of the letter must be readjusted if this assumption is varied. (i) Obligor on “no shop” changes. (ii) Party bearing Seller’s expenses changes. 5. Binding nature. a. Assumes judgment has been reached that the parties desire to be bound by the letter of intent. b. Or at least that the parties are willing to assume risk of claims re good faith/fair dealing, unjust enrichment, promissory estoppel, etc. C. Key Points for Seller to Negotiate 1. What is the nature of the party acting as Buyer? — Should Buyer be allowed to sign through a shell acquisition subsidiary? 2. Deposit/earnest money. 3. Financing condition alternatives. a. Do not permit financing condition (fully financed offers only). b. Or require funding condition instead of financing condition. c. Or require signed, firm commitment letters from financing sources. d. Or require financing condition to be removed within a short period of time. e. Reputational issues can constrain Buyer’s ability to use financing (or other) conditions. 4. Diligence condition. — Consider requiring diligence condition to be removed within a short period of time. 5. Consider adding Seller conditions. a. Consent/approvals. (i) Board of directors/shareholders. (ii) Third parties. b. Satisfaction with definitive documentation. 6. Confidentiality obligations. — Clarify survival of confidentiality agreement. 7. No shop provision. a. Shorten time period? b. Exclude unsolicited bids? c. Fiduciary duty out?

CALIFORNIA BAR LICENSE # 281147 | 2240 Encinitas Blvd., Suite: D999 Encinitas, CA 92024

8. Preclosing covenants. — Exception for conduct necessary to run business in the ordinary course. (i) E.g., routine intercompany...

CALIFORNIA BAR LICENSE # 281147 | 2240 Encinitas Blvd., Suite: D999 Encinitas, CA 92024