[LETTERHEAD OF FORTUNE NATURAL RESOURCES CORPORATION]
November 3, 1998
Xx. Xxxxx X. Xxxxxxxx, III
Xxxxx-Guard Company, Inc.
Petro-Guard Production LLC
0000 Xxxxxxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Dear Xxxxx:
This letter of intent is intended to set forth the understandings and
agreements which have been reached between Fortune Natural Resources Corporation
("Fortune") and Xxxxx X. Xxxxxxxx, III, Petro-Guard Company, Inc., and
Petro-Guard Production LLC (the later two entities are hereinafter collectively
referred to as "Petro-Guard") pursuant to which Petro-Guard and Fortune
contemplate entering into a transaction, more fully discussed below, in which
Petro-Guard and all its assets, subject to existing and disclosed liabilities,
will be acquired through a merger with Fortune.
Through our mutual discussions, we have agreed that in consideration for
the acquisition of Xxxxx-Xxxxx and the assets owned individually by Xx. Xxxxxxxx
listed on Exhibit "A" hereto, Fortune will, at the closing of the transaction
contemplated herein.
1. Fortune will issue to the shareholders of record of common stock of
Petro-Guard three million shares of the $.01 par value common stock of
Fortune (the "Fortune Stock") in exchange for 100% of the ownership
and voting rights of Xxxxx-Xxxxx and 100% of Xx. Xxxxxxxx'x interest
in such other assets.
2. The consideration payable by Fortune herein is conditional upon Xx.
Xxxxxxxx withdrawing no more than $2,000,000 in cash from Petro-Guard
prior to closing this transaction.
3. The Fortune Stock will be issued by Fortune pursuant to a private
placement upon the approval of this transaction by the board of
directors of Fortune.
4. Upon closing, Xxxxxxx agrees to file a Registration Statement under
the Securities Act of 1933 to register all shares issued.
5. Prior to the closing of the transaction contemplated hereby, Xx.
Xxxxxxxx and Xxxx Xxxxxxx shall enter into "lock-up" agreements,
whereby their ability to trade the Fortune Stock shall be restricted
upon mutually-acceptable terms and for not more than two years. All
such stock shall bear appropriate legend regarding the terms of the
lock-up agreement.
6. Additionally, Xx. Xxxxxxxx will enter into a mutually acceptable
voting agreement with Xxxxxxx, in a customary form, providing for him
to vote a declining percentage of his shares in accordance with the
directions of the board of directors of Fortune each year for five
years.
Xx. Xxxxx Xxxxxxxx
November 3, 1998
Page 2 of 3
The parties hereto contemplate that, following their mutual approval of
this letter, they will, in good faith, enter into a period of completing any
final due diligence reviews and will commence the drafting and preparation of
the documents, agreements and applications necessary for carrying out their
mutual intent hereunder. Each party will bear and pay its costs and expenses
which may be incurred in connection with this transaction and the preparation of
the documents and agreements associated with it.
The definitive merger agreement covering the transaction contemplated
hereby will include standard forms of representations and warranties appropriate
for transactions of a similar nature, including, but not limited to, disclosure
of all material liabilities and good title to the assets of Petro-Guard.
The parties contemplate that this transaction will also require the
approval of the shareholders of Fortune pursuant to a proxy statement calling
for a meeting of shareholders for the issuance of the Fortune Stock. Once such
approval has been obtained, Fortune shall use its best efforts to promptly
obtain a listing of the Fortune Shares on the American Stock Exchange.
The parties contemplate that each will move forward in good faith toward
conducting their respective remaining due diligence, preparing the definitive
merger agreement and other necessary closing documents, and obtaining all
necessary approvals. Upon approval of the transaction contemplated hereby by
Xxxxxxx's board of directors, the parties will enter into a definitive merger
agreement and associated closing documents. Immediately thereafter the
transaction shall be closed and the Fortune Shares and other consideration shall
be distributed to the shareholders of the Petro-Guard common stock. As quickly
thereafter as possible, Fortune shall file the proposed registration statement
referred to herein with the Securities and Exchange Commission and the listing
agreement referred to herein with the American Stock Exchange.
Each party agrees to maintain the confidentiality of any and all
documentation, records, data, and all other information provided by one to the
other in the course of completing the transaction contemplated hereby. Neither
party shall disclose any portion of such information to any third party except
for those individuals who have a need to know such information or with the
express written consent of the other. Each party further agrees to disclose only
such portion of such information to such of its employees, officers, directors,
and consultants as are necessary to carry out such party's due diligence and to
carry forward the transaction contemplated hereby. Each party agrees that it
will neither use nor allow to be used any portion of information learned during
the course hereof for any purpose other than the good-faith consideration and
pursuit of this transaction.
Xxxxx-Xxxxx recognizes that Xxxxxxx is publicly held and agrees to refrain
from, and to instruct its owners, officers, directors, employees and consultants
to refrain from, engaging in any transaction in the publicly-traded securities
of Fortune. Each party further agrees that, considering Fortune is a publicly
held corporation, an event may occur which would require Fortune to disclose
information regarding the merger during the course of this transaction. The
parties agree that, notwithstanding anything else contained herein to the
contrary, Fortune may make such disclosure as is required under applicable law,
rule, or regulation. Should Fortune determine that it is required to make such a
disclosure, it agrees to use its best efforts to advise Petro-Guard thereof,
including the matters requiring disclosure, prior to making such disclosure.
Xx. Xxxxx Xxxxxxxx
November 3, 1998
Page 3 of 3
The parties understand that the merger agreement 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 regarding the
transaction contemplated hereby, except that this letter shall be binding with
regard to the provisions concerning confidentiality, above. Except for such
specific provisions, 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. The parties will each continue to
operate their business and operations from the date hereof through the closing
of the transaction contemplated hereby in a reasonable and prudent manner and
that there is no other material adverse loss or decline in the value, use, or
contemplated benefit of their respective assets or any portion thereof.
If this letter correctly sets forth our discussions to date, 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 CEO
TJF:mjk
AGREED AND ACCEPTED
this 4th day of November, 1998
XXXXX X. XXXXXXXX, III
By: /s/ Xxxxx X. Xxxxxxxx, III
---------------------------------
PETRO-GUARD COMPANY, INC.
By: /s/ Xxxxx X. Xxxxxxxx, III
---------------------------------
PETRO-GUARD PRODUCTION LLC
By: /s/ Xxxxx X. Xxxxxxxx, III
---------------------------------
