DUSSAULT JEANS INC.

56 Powell Street

Vancouver, BC

Canada V6A 1E7

 

June 25, 2007

 

Dussault Apparel Inc.

3742 West 10th Avenue

Vancouver, British Columbia

Canada, V6R 2G4

 

Attention:

Jason Dussault,

 

President

 

 

Dear Mr. Dussault;

Letter of Intent for the combination of

Dussault Jeans Inc. (“Dussault Jeans”) and

Dussault Apparel Inc. (“Dussault Apparel”)

 

This letter confirms our mutual intention to enter into negotiations to effect a
business combination (the “Transaction”) on the terms set forth below. This
letter is not intended to create legally binding obligations except as set out
in paragraphs 4 and 6 below but will serve as the basis for negotiating a
definitive agreement leading to the completion of the Transaction.

 

1.

The Transaction

 

1.1          Structure: The Transaction may be effected in one of several
different ways, including a merger of Dussault Jeans and Dussault Apparel, or a
share exchange whereby Dussault Apparel purchases the shares of Dussault Jeans
from its shareholders in exchange for shares of Dussault Apparel.

 

The parties will jointly determine the optimum structure for the Transaction in
order to best satisfy tax planning, regulatory and other considerations,
including mutually agreed upon performance based milestones.

 

1.2          Exchange ratio: Notwithstanding how the Transaction is structured,
on the closing of the Transaction, the shareholders of Dussault Jeans will hold
up to 25% of the issued shares of Dussault Apparel.

 

1.3          Terms and conditions: The definitive agreement under which the
parties will agree to carry out the Transaction (the "Transaction Agreement")
will contain provisions that are customary for a transaction of this nature, and
will include (but not be limited to) representations and warranties of both
Dussault Jeans and Dussault Apparel (and their principal shareholders),
including Dussault Apparel’s status as a reporting issuer with the U.S.
Securities and Exchange Commission Exchange (the “SEC”). The closing conditions
in favour of both Dussault Apparel and Dussault Jeans will include the
following:

 

 

(a)

receipt of all required regulatory approvals to the carrying out of the
Transaction;

 

 

(b)

approvals of the boards of directors of Dussault Jeans and Dussault Apparel and
shareholders of Dussault Jeans;

 

 

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(c)

obtaining all required consents of third parties;

 

 

(d)

completion of all required audited and unaudited financial statements of
Dussault Jeans, prepared in accordance with US GAAP and audited and by a PCAOB
registered audit firm;

 

 

(e)

completion, to their respective sole satisfaction, of due diligence by Dussault
Jeans and Dussault Apparel of each other;

 

 

(f)

no material change in the employment agreements of either party without the
prior consent of the other party;

 

 

(g)

all representations in the Transaction Agreement being accurate as of the
closing of the Transaction;

 

 

(h)

no adverse material change in the business or financial condition of Dussault
Jeans or Dussault Apparel since the execution of the Transaction Agreement;

 

 

(i)

Dussault Apparel shall invest US$1.2 million by way of a short-term bridge loan
to Dussault Jeans;

 

 

(j)

closing of the transaction to be completed on a best efforts basis by both
parties within the following parameters:

 

 

i.

notice of completion of substantial due diligence and board approval by both
parties by November 1, 2007;

 

 

ii.

execution of Transaction Agreement by November 1, 2007;

 

iii.

receipt of all required shareholder approvals from Dussault Jeans by December
31, 2007; and

 

 

iv.

closing of Transaction by December 31, 2007.

 

Both parties will work diligently during this period but recognize that
regulatory and other market delays may require adjustments to this timetable.

 

2.

Due Diligence

 

Once all parties have signed this letter and a mutually acceptable
confidentiality agreement, the due diligence teams of Dussault Jeans and
Dussault Apparel will commence due diligence investigations on the other entity.
Dussault Jeans and Dussault Apparel will give the other full access to all of
its (i) books, records, financial and operating data and all other information;
(ii) assets and operations; and (iii) personnel. Such information will be kept
strictly confidential pursuant to the confidentiality agreement signed by
Dussault Apparel and Dussault Jeans contemporaneously with this Letter of
Intent.

 

In the event that each of Dussault Apparel and Dussault Jeans do not notify the
other in writing prior to 5:00 p.m. (Vancouver time) on November 1, 2007 (or
such later date as the parties may mutually agree upon) that the results of
their investigations are satisfactory and they are willing to negotiate and
enter into the Transaction Agreement, this letter agreement shall terminate and
be of no further force or effect.

 

 

 

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3.

Definitive Agreement

 

Upon the satisfactory completion of diligence by Dussault Jeans and Dussault
Apparel, the parties shall negotiate the terms of the Transaction Agreement,
acting reasonably and in good faith, with a view to executing the agreement on
or before November 1, 2007.

 

4.

Standstill

 

During the period from the satisfactory completion of diligence until this
letter agreement is either superseded by the Transaction Agreement or terminated
pursuant to section 2, each of Dussault Apparel and Dussault Jeans agrees that
they will:

 

 

(a)

conduct its business only in, and not take any action except in, the usual,
ordinary and regular course of business consistent with past practice, and

 

 

(b)

not pay any dividends engage in non-arms length transactions with their
shareholders, or redeem in excess of 1% of their respective currently
outstanding shares.

 

5.

Transaction Costs

 

In the event that this Transaction does not close, each of the parties will be
responsible for all costs (including, but not limited to, financial advisory,
accounting, legal and other professional or consulting fees and expenses)
incurred by it in connection with the transactions contemplated hereby.

 

6.

Publicity

 

Neither party will make any announcement, issue any press release or otherwise
disclose the existence of this letter, without the prior written consent of the
other party.

 

Dussault Jeans acknowledges that, as a reporting issuer, Dussault Apparel will
be required to give public disclosure about the Transaction if and when it
enters into the Transaction Agreement.

 

7.

General

 

This letter will be governed by and construed in accordance with the laws of
British Columbia, Canada. Dussault Apparel and Dussault Jeans submit to the
jurisdiction of the courts of British Columbia with respect to any matters
arising out of this letter.

 

This letter will not constitute an offer capable of acceptance. Upon the written
confirmation of the general terms and conditions set out in this letter by the
parties to whom it is addressed, it will constitute a non-legally binding
memorandum of understanding (except for paragraphs 4 and 6) between us with
respect to the principal terms and conditions to be included in a definitive
agreement.

 

If you are in agreement with the foregoing, please confirm that this letter
accurately sets forth your understanding of the terms of the proposed
Transaction and the other matters set forth herein, by signing a copy of this
letter below and returning it to us prior to 5:00 p.m. (Vancouver time) on June
28, 2007, failing which this letter shall be null and void.

 

 

 

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This letter may be executed in any number of counterparts, each of when executed
and delivered (including by way of facsimile) is an original but all of which
taken together shall constitute one and the same instrument.

 

We look forward to working together.

 

Yours very truly,

 

 

Dussault Jeans Inc.

 

 

By: /s/ Robert Mintak

 

 

Robert Mintak, President

 

Agreed and confirmed this 27 day of June, 2007.

 

Dussault Apparel Inc.

 

By:

/s/ Terry Fitzgerald

 

 

Terry Fitzgerald, President