XYZ Corporation
December 23, 2004 To: ABC Corporation
Letter of Intent
This letter of intent serves to formalize the intention and set forth the understanding between KLM XYZ Corporation, a North Carolina corporation doing business as XYZ Systems (“XYZ”) and ABC Corporation, a Delaware corporation ("ABC") for the purchase by XYZ of certain machinery and equipment (the "Assets", as more particularly defined below) and certain Inventory (as more particularly defined below), from ABC located at the ABC Plant in Nowhere, Tennessee (the “Facility”). XYZ's interests and intentions are serious and XYZ proposes a process by which XYZ would work in good faith with ABC in developing and closing this transaction. This letter of intent reflects the parties’ mutual understanding, but shall not give rise to a binding obligation except for paragraphs 7, 11, 12, and 13 below and this paragraph, which shall be binding on the parties. It is the intent of the parties to enter into a definitive agreement for the purchase of the Assets and Inventory (the "Asset Purchase Agreement"), and once fully executed, the terms and conditions of such agreement shall supercede this letter of intent. This letter of intent may be executed in multiple counterparts, which together shall constitute one and the same instrument. 1. Assets. For the purpose of becoming an ABC Center and sub-contractor of FGH (UK) to supply equipment formerly known as ABC equipment, XYZ intends to purchase all of the tangible assets located at the Facility. These assets consist of manufacturing machinery, manufacturing toolings, jigs and fixtures, office furniture, fixtures and selected computer equipment at the Facility which were used to produce wet end equipment products (the "Assets"). A visual inspection of the Assets was completed by the parties on December 14, 15 and 16, 2004 (the "Inspection"). All Assets identified as of December 16, 2004 will remain in the Facility to be acquired by XYZ. The final list of Assets to be acquired shall be specifically identified in the Asset Purchase Agreement for the transaction contemplated hereby; provided, however, that that it is anticipated that there will be little or no changes to the list of items from the Inspection. 2. Purchase Price of Assets. XYZ intends to purchase the Assets (as identified in the Inspection) for a cash purchase price of Sixty Thousand Dollars ($60,000.00). In the event that some items identified from the Inspection are not located at the Facility at the closing, the purchase price for the Assets shall be adjusted accordingly.
ABC Corporation
Page 2 of 4
December 23, 2004
3. Inventory. A visual inspection of inventory located at the Facility (the "Inventory") was conducted by the parties on December 15 and 16, 2004. XYZ’s interest in the Inventory will be determined as part of a due diligence review scheduled for January 2005. The quantity of Inventory to be purchased and the price to be paid therefore shall be as mutually agreed upon prior to the date of closing, following a detailed physical inventory count by a joint team of representatives from XYZ and ABC, such Inventory count to be conducted and completed at least three (3) days prior to the closing. XYZ shall pay ABC for inventory that the parties agree will be purchased by XYZ as such Inventory is sold by XYZ, as more particularly set forth in the Asset Purchase Agreement. 4. Lease of Facility. XYZ's obligation to close the transaction intended in this letter of intent and execute the Asset Purchase Agreement are conditioned upon XYZ entering into a lease agreement with the landlord of the Facility acceptable to XYZ by January 31, 2005 for a term to begin upon the termination of the ABC lease (which is expected to terminate at the end of January 2005). ABC shall pay rent on the Facility up to and including January 31, 2005 pursuant to its current lease agreement with the landlord of the Facility. 5. AS IS PURCHASE. The purchase of the Assets and any Inventory from ABC by XYZ shall be on an “As Is” basis. There shall be no express or implied warranties or representations with respect to the Assets or such Inventory. 6. Access. Upon execution of this letter of intent, so long as the parties are actively pursuing the transaction contemplated hereby, ABC will allow XYZ management to enter the Facility at reasonable times for planning purposes. An escort may be provided. 7. FGH Agreement. XYZ's obligation to close the transaction intended in this letter of intent and execute the Asset Purchase Agreement are conditioned upon FGH (UK) entering into (i) a Preferred Sub Contractor Production Licensing Agreement with XYZ acceptable to XYZ by January 31, 2005 allowing XYZ to use proprietary ABC and FGH drawings and patents for producing ABC or FGH products, including widgets, and all related spare parts associated with products listed above, and (ii) an agreement acceptable to XYZ by January 31, 2005 for XYZ to be the exclusive North American service center for ABC and FGH products. 8. Accounts Receivable. ABC will retain possession of all of the accounts receivables associated with the shipment of ABC product lines that exist prior to the closing date. ABC and XYZ Systems agree to reconcile and pay to each other amounts remitted by customers incorrectly to the other party following sale of the assets. XYZ Systems will invoice FGH (UK) in US$ for payment and expects payment to be wired from IJK within thirty (30) days.
ABC Corporation
Page 3 of 4
December 23, 2004
9. Assumed Liabilities. ABC will indemnify and hold XYZ harmless from any and all obligations or liabilities related to pre-closing matters, including but not limited to ABC's operations at the Facility and any claims of or liability to employees of ABC. Furthermore, except for any liabilities expressly assumed by XYZ in the Asset Purchase Agreement, XYZ will not assume any liabilities of ABC, including but not limited to amounts due and payable by ABC for warranty issues on products produced and/or shipped by ABC, or for issues associated with the Assets or Inventory prior to the closing. 10. Transition. The Asset Purchase Agreement shall provide for post-closing cooperation between the parties as is agreed upon by the parties. ABC shall be reasonably compensated for the time of its management personnel spent assisting XYZ with administrative and other transition issues as set forth in the Asset Purchase Agreement. To the extent that ABC has made any prepayment relating to utilities, business services, taxes, insurance or other similar items beyond closing date which XYZ benefits from as a result of occupying the Facility, XYZ shall reimburse ABC by netting the pro-rated amount against the purchase price to be paid on the closing date. ABC shall provide XYZ Systems with a schedule of such prepaid items at least three (3) days prior to closing. 11. Time is of the Essence. Based on the mutual understanding set forth in this letter of intent and considering the efforts and costs that XYZ would invest in pursuing this transaction, we request exclusive opportunity to acquire the Assets and Inventory from the date hereof to January 31, 2005, so long both parties are proceeding in good faith. XYZ further requests to receive written confirmation of ABC's agreement to the terms of this letter of intent by their execution of the enclosed copy of this letter and delivery of it as directed via FAX or overnight courier to KLM or XYZ headquarters by Wednesday, December 29, 2004. 12. Purchase Agreement and Closing. Upon execution of this letter of intent by ABC, XYZ will immediately have its corporate counsel commence drafting the Asset Purchase Agreement for the transactions contemplated herein. Both parties will employ best efforts in good faith to agree to the terms of the Asset Purchase Agreement in order to effect a closing of the transactions contemplated herein in Charlotte, North Carolina at the offices of XYZ's legal counsel on an agreed date, but in no event later than Monday, January 31, 2005 (except as may be extended below). XYZ must have concluded its due diligence review by such date. If there should be some unforeseen delays that cause the closing to occur beyond January 31, 2005 and the Asset Purchase Agreement for the transaction has been executed, then ABC will allow XYZ the exclusive opportunity to extend the closing an additional thirty (30) days. 13. Approvals. Each party represents and warrants that it has the authority to enter into this letter of intent and the Asset Purchase Agreement and that no further or other authority is required to enter into this letter of intent and the Asset Purchase Agreement.
ABC Corporation
Page 4 of 4
December 23, 2004
Yours very truly, ABC Corporation d/b/a XYZ SYSTEMS By: John Doe, President
Agreed to this _____ day of December, 2004. ABC Corporation By: ________________________ Title: _______________________