You need to have a Letter of Intent in place, and you should talk to an attourney as others have suggested. It's disproportionately expensive for your company in this process, so there should be a monetary component which protects your company if any kind of deal goes south. For a 3-person startup, I'm sure you guys are getting absolutely nothing done right now, so if they're serious about talking to you, they shouldn't have any problems putting some cash on the line.
