EXHIBIT 10.33
MEMORANDUM OF UNDERSTANDING
THIS MEMORANDUM OF UNDERSTANDING ("MOU") is made as of the ___ day of
May 2001
BETWEEN:
EPIC ENERGY INC.
0000, 000 - 0xx Xxxxxx, XX
Xxxxxxx, Xxxxxxx X0X 0X0
(Hereinafter referred to as "Epic")
OF THE FIRST PART
AND:
EUROGAS, INC.,
Kartnerring 0-0/Xxx 0X
0000 Xxxxxx
Xxxxxxx
(Hereinafter referred to as "Eurogas")
OF THE SECOND PART
WHEREAS:
A. Epic possesses oil and gas operations in Ukraine and has
established the legal framework, operating procedures and
governmental relationships in that young country necessary to
manage the rapidly evolving regulations, politics, and
socioeconomic conditions;
B. Eurogas is an established international natural resource
company with mineral interests in Canada, Poland, Slovakia,
Ukraine and Russia and seeks a qualified partner to provide
operations services for its Ukraine interests;
C. Epic has exploration and development projects in Ukraine
that have the technical and economic potential for near-term
positive cash flow;
D. Eurogas desires to participate in certain projects owned by
Epic in Ukraine through a joint-venture agreement and through an
equity interest in Epic;
E. Eurogas desires to acquire up to 19.9% ownership interest in
Epic and Eurogas understands that this process requires two
stages of approval from the Canadian Venture Stock Exchange
("CDNX"), with the first stage being less than or equal to 5%
ownership and the second stage being the difference of
approximately 14.9%;
F. Epic and Eurogas both understand that if the CDNX approves
the first stage this in no way infers or guarantees CDNX approval
of the second stage;
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G. Epic desires to raise additional capital for its Ukraine
projects and believes that this can be accomplished with a
combination of cash plus Eurogas shares in exchange for Epic
shares and an interest in certain of Epic's Ukraine projects,
held by its wholly-owned subsidiary, HHO Ltd.;
H. The basic terms of this MOU were negotiated by the legal
representatives of HHO and Eurogas in Vienna, Austria during a
series of meetings in February, 2001;
I. The parties have entered into this legally-binding MOU to
confirm their commitment to the achievement of stated objectives,
all of which is contingent upon initially obtaining approval from
the CDNX;
J. The parties intend that the MOU will result in several final
Agreements between the parties and/or their subsidiaries or
affiliates relating to exchange of equity interests ("stock
swap"), joint-ventures on Epic's Ukrainian projects; and
operations services on Eurogas' Ukrainian projects.
NOW THEREFORE the parties hereto acknowledge and agree as
follows:
ARTICLE 1 - STAGE ONE EQUITY PARTICIPATION BETWEEN THE PARTIES
1.1. Eurogas shall acquire a 5% equity ownership interest in Epic
by purchasing freetrading Epic common shares from 783233 Alberta
Ltd. ("783233"), a privately held company, with cash at a price
of C$0.10 per share. Based upon the current outstanding shares of
Epic, this would equal 3,287,219 shares for an aggregate purchase
price of C$328,722.
1.2. This transaction would close concurrently with the
transactions described in Article 2 below.
ARTICLE 2 - JOINT VENTURE IN CERTAIN UKRAINIAN PROJECTS
2.1. Eurogas shall provide a $1 million project loan @ 15% Annual
Percentage Rate ("APR") to HHO Ltd. ("HHO"), a wholly-owned
subsidiary of Epic, to enhance its Ukraine shallow oil projects
and improve cash flow.
2.2. HHO shall provide Eurogas with a lien on HHO's hard
assets (drilling rigs, equipment) and shall make monthly payments
of $35,000 for a 3-year payback.
2.3. HHO and Eurogas shall structure this "investment" so that
Eurogas can announce participation in the cash flow from the
Ukraine projects.
2.4. Eurogas shall invest $1,000,000 cash (placed initially in a
trust account prior to drilling) in the Uzunlarskaya drilling
prospect (the "Project"), earning 50% of HHO's interest in the
first well.
2.4.1. Eurogas shall earn the right to continue to
participate in the Project, and its oil and gas trend play if it
is so determined to exist, on a 60% for 50% basis until
hydrocarbon production, thereafter on a 50:50 basis.
2.4.2. If, in the event that, Eurogas chooses to go "non-
consent" in HHO's cntinuing development of the Project, Eurogas'
interest shall be diluted proportionately with additional
financial expenditures on the Project.
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2.4.3. In the event of non-consent, Eurogas shall have 12
months from the date of non-consent to "back-in" at a 300%
penalty.
ARTICLE 3 - OPERATIONS SERVICES
3.1. HHO shall provide, under a service contract, operations
services for Eurogas' Ukraine projects.
3.2. After approval of an operations services budget Eurogas
shall establish a special bank account maintaining 3 months'
payments as retainer of services.
3.3. Services shall include negotiations of extensions to
existing licenses and possible re-instatement where licenses may
have expired; exploration, development and production operations
as agreed; and, coordination with participating Ukrainian
entities.
ARTICLE 4 - STAGE TWO EQUITY PARTICIPATION BETWEEN THE PARTIES
4.1. The transaction will involve a series of intermediate
steps concerning 783233, a privately held company in which is
held a large block of escrowed Epic shares.
4.2. Subsequent to final due-diligence by both parties and final
approval from CDNX, which cannot be guaranteed, Eurogas shall
purchase such number of shares of783233 determined by 4.3 below
in exchange for Eurogas shares in thenumbers determined by 4.3
below and shall concurrently sell its shares of 783233 to Epic in
exchange for an equal number of newly issued treasury shares of
Epic, such that Eurogas shall own 19.9% of Epic's common shares.
4.3. Eurogas' share value (10-day moving average preceding the
date of closing) and Epic's share value (10-day moving average
preceding the date of closing or minimum 10 cents CDN) will be
used to calculate the stock-swap according to CDNX rules.
4.4. Eurogas' principals and Epic's principals shall sign a
shareholders' pooling agreement to jointly vote their shares,
according to the relevant securities commissions' rules.
4.5. Epic, with assistance from certain Eurogas principals, shall
immediately apply for listing on the German stock exchanges where
there is much closer interest in Ukrainian oil and gas project.
ARTICLE 5 - TIMETABLE
5.1. The parties agree that time is of the essence and each party
hereby confirms and acknowledges that they desire each objective
of this MOU to proceed as expeditiously as is possible.
5.2. Correspondingly, each party agrees to complete its due
diligence concerning the other party as part of its fiduciary
responsibility to its shareholders within thirty (30) days of the
signing of this MOU.
5.3. Both parties acknowledge that the final agreements
identified and proposed under this MOU will require the
ratification by the respective Boards of Directors of each party.
ARTICLE 6 - COSTS
6.1. Whether the process contemplated by this MOU proceeds or is
terminated by Epic or Eurogas, each party will be responsible for
its own costs and expenses.
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ARTICLE 7 - GENERAL
7.1. Notice: All notices required or permitted by this MOU
shall be in writing and delivered or sent by telecopier
(facsimile) to:
(a) in the case of Epic, to it at:
Address:
Epic Energy Inc.
1410, 000 - 0xx Xxxxxx, XX
Xxxxxxx, XX X0X 0X0
Xxxxxx
Attention: Xx. Xxxxxx X. Xxxxxxx, CEO & President
Fax No.: x0-000-000-0000
(b) in the case of Eurogas, Inc., to it at:
Address:
Eurogas, Inc.
Kartnerring 0-0/Xxx 0X
0000 Xxxxxx
Xxxxxxx
Attention: Xx. Xxxxxxxx Rauball, Chairman
Fax No.: x00-0-000-0000
or at such other address or fax numbers of which the addressee
may from time to time have notified the addressor. A notice shall
be deemed to have been sent and received on the day it is
delivered or on the day on which transmission is confirmed, if
telecopier. If such day is not a business day or if the notice is
received after ordinary office hours (time of place of receipt),
the notice shall be deemed to have been sent and received on the
next business day.
7.2. Counterparts This MOU may be executed in several
counterparts, each of which when so executed shall be deemed to
be an original, and such counterparts together shall constitute
one and the same instrument, and notwithstanding the date of
execution shall be deemed to bear date as of the date first
written above on this MOU.
7.3. Entirety This MOU is the entire agreement of the Parties
with respect to the subject matter contained herein and
supersedes all prior understandings and negotiations of the
Parties.
7.4. Currency All amounts expressed in this MOU are in U.S.
currency except where otherwise stated.
7.5. Assignment No party hereto shall assign its rights or
obligations hereunder without the prior written consent of all
parties hereto, such consent shall not be unreasonably withheld.
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7.6. Originals Any fully executed copy of this MOU transmitted by
telefax between the parties hereto shall be deemed an original
document for all purposes.
IN WITNESS WHEREOF the parties hereto have each executed this
Memorandum of Understanding by persons properly authorized in
that behalf as of the date first above mentioned.
EPIC ENERGY INC.
Per:
_______________________________C/S
Xxxxxx X. Xxxxxxx, CEO & President
EUROGAS, INC.
Per:
_______________________________C/S
Wolfgang Rauball, Chairman
