Mogul Energy International, Inc. Seattle, Washington
000
Xxxx
Xxxxxx, Xxxxx #0000
Seattle,
Washington
U.S.A 98101
NAEEM
TYAB
President
(000)
000-0000
xxxxx@xxxxxxxxxxx.xxx
July
30,
2007
Sea
Dragon Energy Inc.
Suite
1112 - 000 Xxxx Xxxxxxxx Xxxxxx
Vancouver,
BC V6B 1H7
Canada
Attention: Xxxxx
Xxxxxxxx, President
Dear
Sirs:
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Re:
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Proposed
Business Combination of Mogul Energy International, Inc.,
and Sea Dragon Energy,
Inc.
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Subject
to and in accordance with the terms and conditions hereinafter contained, this
letter agreement is intended to set forth the basic terms and conditions of
a
proposed business combination (the “Business Combination”) of
Mogul Energy International,
Inc. (“Mogul”) and Sea Dragon Energy,
Inc. (“Sea Dragon”). This letter agreement is
further intended to govern the parties’ conduct until such time as the parties
determine to proceed with the Business Combination and execute a binding
definitive agreement (the “Definitive Agreement”), or this
letter agreement has been terminated in accordance with its
terms. This letter agreement shall be superseded in its entirety by
the Definitive Agreement.
The
parties hereto hereby represent, warrant, acknowledge and agree as
follows:
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1.
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Mogul
Energy International, Inc., is a company existing under the laws
of
Delaware, with its principal place of business in Seattle,
Washington. Mogul is a reporting issuer in the United States of
America, and the common shares of Mogul are listed on the NASD Over
The
Counter Bulletin Board (OTCBB) system (the “Exchange”)
and the Frankfurt Stock Exchange
(FSE).
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2.
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Mogul
currently has 38,561,810 common shares (the “Mogul
Shares”) outstanding and 625,000 shares reserved for issuance
upon the exercise of warrants.
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3.
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Mogul
intends to grant stock options (the “Mogul Options”) to
Mogul management and directors to acquire an aggregate of
2,300,000 additional common shares in the capital of
Mogul at a price to be determined by the Board of Directors. It
is anticipated that the following individuals will be granted Mogul
Options in the amounts indicated below, and further detailed in Schedule
A, attached hereto:
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·
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Xxxxx Xxxx
– 1,000,000;
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·
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Xxxx Xxxxxxx
– 650,000;
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·
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Xxxxx Xxxxx
– 250,000;
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·
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Xxxx Xxxxxxxxx
– 200,000; and
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·
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Xxxxxxxx Xxxxx
– 200,000.
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4.
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Other
than the Mogul Options and the reservation for warrants, no other
securities of Mogul, convertible or exchangeable into shares of Mogul,
are
outstanding.
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5.
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Sea
Dragon is a company existing under the federal laws of
Canada.
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6.
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Sea
Dragon currently has 40,497,500 common shares (the “Sea Dragon
Shares”) outstanding. Sea Dragon has also issued
warrants to acquire an aggregate of 3,873,750 common shares in the
capital
of Sea Dragon at a price of $0.30 per share (the “Sea Dragon
Warrants”). Sea Dragon has granted compensation options to
acquire an aggregate of 529,000 common shares in the capital of Sea
Dragon
at a price of $0.20 per share (the
“Sea Dragon Finder’s
Options”) as part of a finder’s fee in connection with a
non-brokered private placement completed by Sea
Dragon.
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7.
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Sea
Dragon has agreed to grant stock options to acquire up to an aggregate
of
2,100,000 common shares in the capital of Sea Dragon at a price of
$0.20
per share (the “Sea Dragon Options”), to the following
individuals:
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·
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Xxxxx Xxxxxxxx
– 500,000;
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·
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Xxxxxx Xxxx
– 500,000;
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·
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Xxxxx Xxxxx Xxxxx Xxxxx
– 500,000;
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·
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Xxxxx X.X. Xxxx
– 500,000; and
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·
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Xxxx Xxxxxxxxx
– 100,000.
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Other
than the Sea Dragon Shares, the Sea Dragon Finder’s Options, the Sea Dragon
Warrants, and the Sea Dragon Options, no other securities of Sea Dragon,
convertible or exchangeable into shares of Sea Dragon, are outstanding on the
date hereof.
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8.
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Sea
Dragon has a 40% working interest in the concession known as the
East Wadi
Araba located in the Gulf of Suez,
Egypt.
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9.
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Mogul
and Sea Dragon will combine pursuant to an amalgamation agreement,
share
exchange agreement, or such other agreement, in order to complete
the
proposed Business Combination on a tax preferred basis to the parties
hereto. Pursuant to the terms of the Business Combination, the
current holders of Sea Dragon Shares will receive up to a maximum
of
40,497,500 shares in the capital of Mogul (being approximately 1
share in
the capital of Mogul for each Sea Dragon Share currently
held). The Sea Dragon Warrants, the Sea Dragon Finder’s
Options, and the Sea Dragon Options will be exchanged for warrants
and
options respectively exercisable to acquire common shares in the
capital
of Mogul on the same basis, on economically equivalent
terms. However, the exercise (strike) price of the Sea Dragon
Options will be amended to conform to the exercise price that is
set on
the Mogul Options.
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-2-
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10.
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The
United States Securities and Exchange Commission (SEC) may require
some
(or all) of the common shares in the capital of Mogul (or shares
of the
resulting issuer, as applicable) issued or issuable pursuant to paragraph
9 hereof to be restricted pursuant to the
requirements of U.S. securities laws. In particular, securities
of the directors and senior officers of Mogul or the resulting issuer,
as
applicable, will be subject to restrictions in accordance with the
foregoing.
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11.
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Each
of Mogul and Sea Dragon may, depending on the structure of the Business
Combination, be required to call a meeting of its respective shareholders
(the “Shareholders’ Meetings”) to
approve, among other matters, the Business Combination, if required
as
detailed below, and certain other matters ancillary or relating thereto.
However a Shareholders’ Meeting may still otherwise be required by Mogul
depending on the structure of the Business Combination, for example,
to
approve an amalgamation (if by amalgamation) or to change Mogul’s name, or
to change auditors.
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12.
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Mogul
and Sea Dragon shall use their best efforts to negotiate in good
faith the
Definitive Agreement by September 1, 2007, or such later date as
the
parties mutually agree to, such agreement to be in form and substance
satisfactory to the parties, including representations and warranties
of
each party customary in transactions of this
nature.
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13.
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The
parties agree that the date of closing of the Business Combination
(the
“Closing Date”) will occur within five (5) business days
following receipt of shareholder approval by the shareholders of
Mogul and
Sea Dragon of the Business Combination at the Shareholders’ Meeting, or in
writing, if required. The Closing Date shall, in any event,
occur not later than September 10, 2007, or such other date as the
parties
may mutually agree to. If the Closing Date does not occur by
September 30, 2007, or such other date as the parties may mutually
agree
to, either party may terminate its obligations with respect to the
completion of the Business Combination contemplated herein without
further
obligation by either party, save and except as provided for in section
23
hereof.
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14.
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Other
than as described below, each of Mogul and Sea Dragon will pay for
their
respective costs incurred pursuant to the transaction contemplated
herein,
including legal and accounting costs, whether or not the Business
Combination contemplated herein is
completed.
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15.
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For
the purposes of allowing Xxxxx and Sea Dragon to review the business
and
affairs of each other so as to enable each to determine if there
are any
facts relating to which, if known to the other party, would cause
it to
elect not to proceed with the Business Combination, Mogul and Sea
Dragon
hereby permit each other and their auditors, legal counsel and other
advisors to conduct, upon execution hereof, up to and including the
Closing Date, such investigations of financial conditions, contractual
obligations, business affairs and corporate affairs as each party
may deem
reasonably necessary or advisable in order to ensure that each of
the
representations, warranties, covenants and agreements as are required
by
each party.
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-3-
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16.
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Following
the completion of the Business Combination, the board of directors
of
Mogul shall initially be comprised of up to seven (7)
directors. It is anticipated that the following individuals
will be directors or officers of Mogul following completion of the
Business Combination:
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·
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Xxxxx X. Xxxxxxxx,
CEO /
Director;
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·
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Xxxxx Xxxx,
President /
Director;
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·
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Xxxxx Xxxxx,
Director;
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·
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Xxxx Xxxxxxxxx,
Treasurer;
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·
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Xxxx X. Xxxxxxx,
Secretary / Director;
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·
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Xxxxx Xxxxx Xxxxx Xxxxx,
Director;
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·
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Xxxxx X.X. Xxxx,
Director.
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The
remainder of the directors will be determined at a later date.
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17.
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The
Board of Directors of Mogul will determine who to appoint as auditors
following completion of the Business
Combination.
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18.
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The
respective obligations of the parties to consummate the Business
Combination contemplated herein shall be subject to the fulfillment
of all
of the following conditions on or before the Closing
Date:
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(a)
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the
receipt of all necessary regulatory and Exchange
approvals;
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(b)
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there
shall be no adverse material change in the business, affairs or operations
of either Sea Dragon or Mogul between the date of the latest available
financial statements (prepared in accordance with U.S. Generally
Accepted
Accounting Principles (GAAP) consistently applied) and the Closing
Date;
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(c)
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the
review, to the sole satisfaction of Mogul, of the financial condition,
business, properties, title, assets and affairs of Sea
Dragon;
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(d)
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the
review, to the sole satisfaction of Sea Dragon, of the financial
condition, business, properties, title, assets and affairs of
Mogul;
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(e)
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the
approval of the Business Combination and the matters herein provided
by
the board of directors of each of Xxxxx and Sea
Dragon;
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(f)
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the
requisite approval of the shareholders of Mogul and Sea Dragon of
the
Business Combination and the other matters provided for in the Disclosure
Document at the Shareholders’ Meetings;
and
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-4-
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(g)
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the
entering into of the Definitive
Agreement.
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19.
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Each
of Mogul and Sea Dragon will provide such information as to its financial
condition, business, properties, title, assets and affairs (including
any
material contracts) as may reasonably be requested by the other party,
including information contemplated by paragraph 15 which has not
become
generally available to the public, was not available to a party or
its
representatives on a non-confidential basis before the date of this
letter
agreement or does not become available to a party or its representatives
on a non-confidential basis from a person who is not, to the knowledge
of
the party or its representatives, otherwise bound by confidentiality
obligations to the provider of such information or otherwise prohibited
from transmitting the information to the party or its representatives,
will be kept confidential by each party (the “confidential
information”). Prior to releasing any confidential
information, Mogul or Sea Dragon, as applicable, may require the
recipient
of the confidential information to enter into a mutually acceptable
confidentiality agreement. No confidential information may be
released to third parties without the consent of the provider thereof,
except that the parties hereto agree that they will not unreasonably
withhold such consent to the extent that such confidential information
is
compelled to be released by legal process or must be released to
regulatory bodies and/or included in public
documents.
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20.
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(a)
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Mogul
will not, without the prior written consent of Sea Dragon (which
consent
will not be unreasonably delayed, conditioned or withheld), prior
to the
Closing Date:
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(i)
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issue
any securities, other than pursuant to the exercise of the Mogul
Options,
or in relation to the 625,000 shares reserved for issuance upon the
exercise of warrants;
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(ii)
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incur
or commit to incur any debt;
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(iii)
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make
any expenditures out of the ordinary course of business, other than
in
connection with its ongoing public filing requirements, due diligence
investigations with respect to the Business Combination and the completion
of the Business Combination contemplated
herein;
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(iv)
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declare
or pay any dividends or distribute any of its properties or assets
to
shareholders;
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(v)
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enter
into any material contracts, other than in the ordinary course of
business
or in connection with the Business
Combination;
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(vi)
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alter
or amend its articles or by-laws, other than in connection with the
transactions contemplated herein (if
required);
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(vii)
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sell,
pledge, lease, dispose of, grant any interest in, encumber or agree
to
sell, pledge, lease, dispose of, grant any interest in or encumber
any of
its assets;
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-5-
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(viii)
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redeem,
purchase or offer to purchase any of its common shares or other
securities; or
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(ix)
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acquire,
directly or indirectly, any assets, including but not limited to
securities of other companies, other than in the normal course of
business.
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(b)
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Sea
Dragon will not, without the prior written consent of Mogul (which
consent
will not be unreasonably delayed, conditioned or withheld), prior
to the
Closing Date:
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(i)
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issue
any securities, other than securities issued pursuant to the exercise
of
the Sea Dragon Warrants, the Sea Dragon Finder’s Options or the Sea Dragon
Options;
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(ii)
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incur
or commit to incur any debt, except in the ordinary course of business,
or
to finance its working capital requirements, or as otherwise contemplated
herein;
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(iii)
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make
any expenditures out of the ordinary course of business, other than
due
diligence investigations with respect to the Business Combination
and the
completion of the Business Combination contemplated
herein;
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(iv)
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declare
or pay any dividends or distribute any of its properties or assets
to
shareholders;
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(v)
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enter
into any material contracts, other than in the ordinary course of
business
or in connection with the Business
Combination;
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(vi)
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alter
or amend its articles or by-laws, other than as contemplated herein,
other
than in connection with the transactions contemplated
herein;
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(vii)
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engage
in any business enterprise or other activity different from that
carried
on or contemplated as of the date
hereof;
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(viii)
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sell,
pledge, lease, dispose of, grant any interest in, encumber or agree
to
sell, pledge, lease, dispose of, grant any interest in or encumber
any of
its assets;
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(ix)
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redeem,
purchase or offer to purchase any of its common shares or other
securities; or
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(x)
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acquire,
directly or indirectly, any assets, including but not limited to
securities of other companies, other than in the normal course of
business.
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21.
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(a)
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Sea
Dragon covenants and agrees with Mogul that, until the Termination
Date
(as defined below), it will not, without prior written consent of
Mogul,
directly or indirectly: (i) initiate, solicit, cause, facilitate
or
participate in any offer (confidential or otherwise) or expression
of
interest to acquire any assets of Sea Dragon outside of the ordinary
course of business of Sea Dragon or any of its issued or unissued
securities; (ii) except with regard to the Business Combination,
pursue
any other material amalgamation, merger, arrangement or sale of assets
or
make any other material change to the business, capital or affairs
of Sea
Dragon; or (iii) conduct any activity otherwise materially detrimental
to
the Business Combination.
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-6-
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(b)
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Mogul
covenants and agrees with Sea Dragon that, until the Termination
Date (as
defined below), it will not, without prior written consent of Sea
Dragon,
directly or indirectly: (i) initiate, solicit, cause, facilitate
or
participate in any offer (confidential or otherwise) or expression
of
interest to acquire any issued or unissued securities of Mogul or
any
shares or assets of a third party; (ii) except with regard to the
Business
Combination, pursue any other material amalgamation, merger, arrangement
or make any other material change to the business, capital or affairs
of
Mogul; or (iii) conduct any activity otherwise materially detrimental
to
the Business Combination.
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22.
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The
parties will advise each other, in advance, of any public statement
which
they propose to make in respect of the transaction contemplated herein,
provided that no party shall be prevented from making any disclosure
statement which is required to be made by law or any rule of a stock
exchange or similar organization to which it is bound. Upon the
execution of this letter of intent, Xxxxx will issue a press release
and
Sea Dragon shall have the ability to review, comment on and approve
the
content of such press release prior to its
issuance.
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23.
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This
letter agreement shall terminate: (i) upon mutual agreement in writing
of
all the parties hereto; (ii) upon execution of the Definitive Agreement;
(iii) upon notice by a party hereto of termination of this Agreement
due
to a breach of the terms of this Agreement by the other party hereto,
provided such breach has not been cured to the reasonable satisfaction
of
the other party within five (5) days of receiving written notice
thereof;
(iv) upon written notice by one party to the other party that on
having
completed its due diligence review in good faith, the terminating
party is
not prepared to complete the Business Combination as a result of
its due
diligence review; or (v) as provided in paragraph 13, September 30,
2007
(in each case, a “Termination
Date”).
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In
the
event of termination by any of the parties as provided for in this section
23,
this letter agreement shall become void and of no effect, without any liability
or obligation on the part of the parties hereto, other than sections 13 and
18 (as to the confidentiality of previously disclosed
information) hereof.
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24.
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It
is the parties’ intention that paragraphs 14, 15, 18, 19, 20, 21, 22, 23
and this paragraph 24 shall be legally binding on the parties when
they or
their representatives have executed this letter or an instrument
expressing the parties’ wish to be bound hereby, the consideration for
which shall be the mutual covenants of the parties contained
herein. The other provisions of this letter are not intended to
be legally binding. The invalidity or unenforceability of any
particular provision of this letter agreement shall not affect or
limit
the validity or enforceability of the remaining provisions of this
letter
agreement.
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-7-
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25.
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The
laws of the State of Washington and the United States of America
applicable therein shall govern this
letter.
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[Remainder
of Page Left Blank Intentionally]
-8-
This
letter may be signed in counterparts, which together shall be deemed to
constitute one (1) letter of intent, and delivery of the counterparts may be
effected by means of telecopier from us to you and from you to us.
Yours
truly,
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Per:
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/s/ Xxxxx Xxxx
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Name:
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Xxxxx Xxxx
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Title:
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President
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ACCEPTED
this 30th
day of July, 2007.
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SEA
DRAGON ENERGY INC.
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Per:
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/s/ Xxxxx Xxxxxxxx
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Name:
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Xxxxx Xxxxxxxx
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Title:
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President
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[Signature
Page to Letter of Intent dated July 30, 2007]
-9-
SCHEDULE
“A”
Details
of Mogul Options
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Name
of Optionee
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Number
of Common
Shares
issuable on
exercise
of Option
|
Exercise
Price
|
Term
|
|||
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Naeem Tyab
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1,000,000
|
TBD
|
10
years
|
|||
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President
|
||||||
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Xxxx Xxxxxxx
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650,000
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TBD
|
10
years
|
|||
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General
Counsel
|
||||||
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VP
Business Development
|
||||||
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Xxxxx Xxxxx
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250,000
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TBD
|
10
years
|
|||
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Director
|
||||||
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Xxxxxxx Xxxxxxxxx
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200,000
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TBD
|
10
years
|
|||
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Treasurer
|
||||||
| Xxxxxxxx Xxxxx |
200,000
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TBD
|
10
years
|
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Total
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2,300,000
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-10-
