FORTUNE NATURAL RESOURCES CORPORATION
November 2, 1998
Xxxxxx Xxxxx
President and Chief Executive Officer
3DX Technologies Inc.
00000 Xxxxxxxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Dear Xxx:
This letter of intent shall set forth the current understandings and
initial agreements which have been reached between our respective companies,
pursuant to which Fortune will acquire 3DX via a tax-free merger transaction.
We have agreed that, in consideration for the acquisition of 3DX,
Fortune will, at the closing of the transaction contemplated herein, (i) issue
to the shareholders of 3DX three-quarters (0.75) of a share of the $.01 par
value common stock of Fortune (the "Fortune Common") for each share of the
outstanding common stock of 3DX, not to exceed 6,865,431 shares of Fortune
common stock plus an additional 100,000 shares of Fortune common stock to be
issued for obligations undertaken by 3DX in the normal course of business prior
to the date of this agreement, (ii) reserve an additional 923,778 shares of
Fortune common stock to be issued upon the exercise of outstanding 3DX options
and warrants and (iii) provide for an incentive, up to a maximum aggregate
additional 3,862,605 shares of Fortune Common, to be earned and distributed on
or about two years from closing, if certain disproportionate contributions to
Fortune's proved reserves are made in future years, as established by its
independent petroleum engineers, in accordance with the following formula.
In the event that proved reserves attributable to the exploration
properties acquired by Fortune from 3DX are booked by Fortune during or at the
end of the two-year period and such proved reserves exceed proved reserves
booked by Fortune and attributable to exploration properties other than those
exploration properties acquired from 3DX, the difference (the "3DX Exploration
Reserves") will be used to calculate the number of additional shares to be
issued. Such shares shall be issued at the rate of one (1) share for every nine
(9) MCFE of 3DX Exploration Reserves. No such shares, however, will be issued in
the event the closing price of Fortune Common averages $3.50 for any consecutive
thirty-day period prior to December 31, 2000.
In addition to the additional contingencies discussed below, such
merger shall be subject to approval by the boards of directors of both Fortune
and 3DX, the filing by Fortune and effectiveness of a registration statement
under the Securities Act of 1933, clearance for the transaction under the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976 ("HSR"), and the approval
of this transaction by the shareholders of Fortune and 3DX.
One Commercial Green - 000 X. Xxxxx Xx. Suite 720 - Houston, TX 77067 -
000.000.0000 - FAX 000.000.0000
American Stock Exchange Symbol FPX
E-mail: XxxxxxxXxxxxxx-XXX-XxxxxxxxXxxxxxxxx@xxxxxxxx.xxx.xxx
Xx. Xxxxxx Xxxxx
November 2, 1998
Page 2 of 4
Concurrently with the execution of the definitive merger agreement
contemplated hereby, all officers and directors of 3DX and any entities which
such officers and directors control or represent shall execute (i) stock voting
agreements binding each to vote in favor of this proposal and (ii) a "lock-up"
agreement, whereby the ability of each to trade the Fortune common stock
received by each in consideration of this merger shall be restricted during the
six-month period following the closing of the transaction contemplated hereby.
All such stock shall bear appropriate legends regarding the terms of the
lock-up.
The parties hereto contemplate that, following approval of this letter
of intent, they will enter in good faith into a period of completing due
diligence reviews and will commence the preparation of the documents,
agreements, applications, proxies, and other documents necessary to implement
their mutual intent hereunder. The parties contemplate that this transaction
will require the approval of the shareholders of both Fortune and 3DX pursuant
to proxy statements calling special meetings of shareholders. Such proxy
statements will be included in the registration statement to be filed with the
Securities and Exchange Commission covering the shares of Fortune common stock
to be issued in connection with this transaction. Each party will bear and pay
its own costs and expenses incurred by it in connection with this transaction,
including the preparation of all documents and agreements associated therewith.
The parties further contemplate that each will move forward in good
faith toward finalizing their respective due diligence, preparing the definitive
merger agreement and other necessary closing documents, obtaining HSR clearance,
and obtaining the approval of their respective boards of directors and
shareholders. Upon approval of the transaction contemplated hereby by each board
of directors, the parties shall endeavor, not later than December 1, 1998, to
enter into the definitive merger agreement and, as quickly thereafter as
possible, file the proposed registration statement with the SEC. The
registration statement shall include the recommendation of each board of
directors to their respective shareholders for approval of the transaction
contemplated hereby. It is anticipated that the shareholders of each party will
be asked on or before February 1, 1999 to approve this transaction.
The definitive merger agreement covering the transaction contemplated
hereby will include standard form representations and warranties, substantially
alike for Fortune and 3DX in those instances where necessary or required,
appropriate for transactions of a similar nature, including, but not limited to,
disclosure of all material liabilities and existence of good title to all
assets. 3DX recognizes, however, that the nature of the merger transaction
contemplated hereby may dictate that not all provisions of the definitive merger
agreement be reciprocal. The definitive merger agreement shall also provide for
the integration into Fortune's benefit plans of all 3DX employees retained by
Fortune, counting the tenure of such employees with 3DX as tenure with Fortune.
Xx. Xxxxxx Xxxxx
November 2, 1998
Page 3 of 4
As an inducement to Fortune to proceed with the preparation of
definitive agreements to implement the arrangements contemplated by this letter
of intent, 3DX will not, directly or indirectly, through any employee, officer,
director, agent or otherwise, (i) solicit or initiate, or encourage submission
of, inquiries, proposals or offers from any potential acquiror relating to any
sale of all or substantially all of the assets of 3DX or any merger,
consolidation or other similar transaction involving 3DX, or (ii) participate in
any discussions or negotiations regarding, or furnish to any person or entity
any information with respect to, any such transaction. In the event that 3DX, at
any time after the execution of this letter of intent and its approval by the
board of 3DX, breaches the provisions of the preceding sentence or is
involuntarily acquired by a third party, then Fortune shall be entitled to the
payment, within five (5) days, of the sum of $1,000,000 as liquidated damages.
If, following the execution of the definitive merger agreement, the merger
contemplated hereby is not consummated due to the failure or inability of either
party to proceed (except as provided in the preceding portion of this
paragraph), the failure of the representations or warranties made by either
party, or the breach by either party of any of the terms or provisions of the
agreement between the parties, the non-breaching party shall be entitled to the
immediate payment by the breaching party of the sum of $500,000 as liquidated
damages.
Each party agrees that it remains bound by the terms of the
confidentiality agreements previously entered into by each. Each party will
issue a press release acceptable in form and substance to the other upon
approval of this letter of intent by their respective boards of directors.
Further, each party shall file a Form 8-K with the SEC disclosing the material
terms of this transaction.
The parties will each continue to operate their businesses and
operations from the date hereof through the closing of the transaction
contemplated hereby in a reasonable and prudent manner so as to not cause or
allow a material loss or decline in the value, use, or contemplated benefit of
their respective assets or any portion thereof. Further, neither party shall
take any action to enter into any agreement prior to the closing of the
transaction contemplated hereby for the issuance of a significant number of
additional shares of stock or securities convertible into stock or otherwise
take steps to alter their capital structure without the prior written consent of
the other. 3DX shall not sell or encumber, or enter into any agreement to sell
or encumber, any of its properties, leases, prospects, or other assets without
the prior written approval of Fortune. Fortune shall, prior to the sale,
acquisition, or encumbrance of any assets, advise 3DX of its intention and shall
provide it with the details of the transaction.
This letter of intent may be terminated either by the mutual consent of
3DX and Fortune or by either party if a definitive merger agreement has not been
entered into prior to December 31, 1998 (unless extended by mutual agreement)
and the failure to do so was not the result of the terminating party's failure
to negotiate in good faith. In the event the failure to reach such agreement is
the result of bad faith by one party hereto, the non-breaching party shall be
entitled to recover from the breaching party as liquidated damages, following
Xx. Xxxxxx Xxxxx
November 2, 1998
Page 4 of 4
termination of this letter of intent, the greater of $100,000 or the actual
costs incurred by the non-breaching party in attempting to negotiate the terms
of the definitive merger agreement.
The parties understand that the merger agreement to be prepared will be
the definitive agreement and hereby stipulate that this letter is not intended
to be and shall not be construed as a binding agreement between the parties.
Notwithstanding the foregoing, the parties acknowledge that each, by entering
into this letter of intent, will begin to expend considerable sums in commencing
due diligence, preparing and negotiating the definitive merger agreement, and
preparing and filing appropriate documents with the SEC. The terms of this
letter of intent shall not survive the execution of the definitive merger
agreement and, except for the specific provisions concerning confidentiality and
the payment of liquidated damages, neither party hereto shall be bound to any of
the terms or provisions herein set forth until the formal agreements reflecting
this transaction are prepared and are duly approved by each party's respective
board of directors and shareholders, as necessary.
Xxxxxxx has received a commitment from a third party investor for funds
to be used by Fortune for the acquisition of 3DX and to facilitate the
exploration and development of the acquired 3DX properties. However, Fortune and
3DX acknowledge that Fortune, after the merger, shall exercise prudence in all
decisions concerning the acquisition of properties and their subsequent
exploration and development.
If this letter correctly sets forth our discussions to date and you
accept the offer which has presented by Xxxxxxx, please date, sign, and return
one copy of it to the undersigned immediately.
Very truly yours,
/s/ Xxxxxx X. Xxxxxxxxx
Xxxxxx X. Xxxxxxxxx
President and Chief Executive Officer
ACCEPTED AND AGREED TO
this 2nd day of November, 1998
3DX TECHNOLOGIES INC.
By: /s/ Xxxxxx Xxxxx
Xxxxxx Xxxxx
President and Chief Executive Officer
