[Letterhead of Fortune Natural Resources Corporation]
November 2, 1998
Ronald Nowak
President and Chief Executive Officer
3DX Technologies Inc.
12012 Wickchester, Suite 250
Houston, TX 77079
Dear Ron:
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
Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR"), and the approval
of this transaction by the shareholders of Fortune and 3DX.
Mr. Ronald Nowak
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.
Mr. Ronald Nowak
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,
Mr. Ronald Nowak
November 2, 1998
Page 4 of 4
following 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.
Fortune 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 Fortune, please date, sign, and return one copy
of it to the undersigned immediately.
Very truly yours,
/s/ Tyrone J. Fairbanks
- -------------------------------------
Tyrone J. Fairbanks
President and Chief Executive Officer
ACCEPTED AND AGREED TO
this 2nd day of November, 1998
3DX TECHNOLOGIES INC.
By: /s/ Ronald Nowak
--------------------------------
Ronald Nowak
President and Chief Executive Officer