Fellows Energy Ltd. Broomfield, Colorado 80021
Exhibit
10.7
000
Xxxxxxxxxxx Xxxx. Xxxxx 000
Xxxxxxxxxx,
Xxxxxxxx 00000
(303)
327-1525
March
1,
2005
Xx.
Xxxx
Xxxxx
Quaneco,
LLC
00000
Xxxxxxx Xxxx
Xxxxx
000
Xxxxxxxxxx
Xxxxx, XX 00000
SENT
BY
FAX TO: (000) 000-0000
RE:
Letter
Agreement for Purchase of Interests in the Castle Rock and Xxxxx CBNG
Projects
Castle Rock Project: T3S-T8S, R45W and R47W-R49W Powder River County,
Montana
Xxxxx Project; T6S-T8S and R38E-R42E Big Horn and Xxxxxx Counties,
Montana
Dear
Xxxx,
Fellows
Energy Ltd. ("Fellows") hereby offers to purchase a 12.5% working interest
in
the Castle Rock and Xxxxx Coal Bed Natural Gas Projects, inclusive of said
working interest in 18 xxxxx previously drilled in the Xxxxx Project (the
"Properties"), on the terms and conditions listed in the attached Exhibit 1
and
within this Letter Agreement.
This
Letter Agreement and the offer made herein are based upon the terms and subject
to the conditions set forth below. This offer has been made without the benefit
of reviewing certain title and other information in your possession. We have
prepared this offer using publicly available information and information
provided by you. We hope to expeditiously review any additional information
you
may make available to us in order to remove certain of the conditions to which
this Letter Agreement is subject. Other than such conditions, upon execution,
this Letter Agreement is binding and sets forth the basic business terms and
conditions under which the parties will proceed to formalize a definitive
agreement for the purchase described above and close said purchase.
Upon
the
execution of this Letter Agreement and for a period of 30 days thereafter (or
such longer period as may be provided for in a definitive agreement) Quaneco
will not entertain, solicit or encourage any inquiry or proposal, from any
third
party concerning the acquisition of the Properties.
This
offer shall expire at 5:00 p.m. Mountain Time on Friday, March 4, 2005. Once
executed by all parties, this Letter Agreement shall expire on April 10, 2005
unless extended by the parties or superceded by a definitive
agreement.
This
Letter Agreement may be superseded and replaced by a definitive purchase
agreement incorporating all of the material terms hereof and such other terms
as
are customary in transactions of the type contemplated herein.
PURCHASE
PRICE:
Subject
to the completion of due diligence and analyses of valuation, it is anticipated
that the purchase price will be $4,850,000. The timing of, and form of,
consideration paid will be in cash and stock of Fellows as described in Exhibit
1 and as set forth below:
1
|
1.
|
Fellows
shall pay $4,850,000 in cash and stock for 12.5% working interest
in the
235,000 acres comprising the Properties, inclusive of a 12.5% working
interest in 18 xxxxx already drilled and completed in the Xxxxx Project.
This purchase price includes $4,406,250 in consideration for lease
rights
and $443,750 in consideration for the 18 xxxxx in the Xxxxx Project.
It is
agreed that Quaneco shall be responsible for paying all costs of
drilling,
completion and gathering infrastructure relating to the 12.5% working
interest in the existing 18 xxxxx in the Xxxxx Project.
|
|
2.
|
Of
the total purchase price $3,850,000 shall be in the form of cash.
Of this
amount, $2,880,000 shall be due on April 10, 2005, and the balance
of
$970,000 shall be due on July 1, 2005.
|
|
3.
|
The
balance of consideration due on April 10, 2005 of $1,000,000 shall
be in
the form of Fellows stock valued at $1.00 per share, or 1,000,000
shares
of Fellows stock.
|
|
4.
|
If
Fellows makes the payment of $2,880,000 in cash plus 1,000,000 shares
of
Fellows stock on April 10, but fails to make the payment of $1,000,000
on
or before July 1, 2005, it shall be deemed to have earned a 10% working
interest in the Properties and the Xxxxx
xxxxx.
|
|
5.
|
Assignment
of the 12.5% working interest in the properties from Quaneco to Fellows
will be made within five business days of receipt of the final cash
payment due July 1, 2005.
|
CONDITIONS
TO THE PURCHASE:
The
following are the conditions to which our offer is subject:
|
1.
|
The
transaction is subject to the completion of an offering in connection
with
the transaction of at least an amount sufficient to pay the cash
portion
of the purchase price prior to April 10,
2005.
|
|
2.
|
Any
purchase rights or rights of refusal to which the Properties are
subject
are waived; standard confidentiality and announcement procedures
shall
apply, as agreed by the parties and in accordance with normal industry
practice.
|
|
3.
|
Satisfactory
legal due diligence verifying title interest in and to the
Properties.
|
|
4.
|
Satisfactory
completion of an analysis of the value of the Properties by Fellows
or an
independent and qualified third party appointed by Fellows showing
that
the value thereof is substantially equivalent to the market value
of
Fellows.
|
|
5.
|
Completion
of the contemplated offering by Fellows in connection with the transaction
in an. amount at least enabling the payment of the cash portion xxx.xx
purchase price,
|
|
6.
|
Formal
corporate and regulatory approvals as required by the
parties.
|
|
7.
|
Closing
to occur within five business days of completion of Fellows' offering,
with the parties cooperating in good faith to engage investment bankers
and brokers to complete the financing as soon as
possible.
|
If
the
foregoing meets with your approval, and you desire to proceed with the sale
of
your interest as described above, and as provided herein, please so indicate
and
affirm by executing a copy of this Letter Agreement and returning a copy to
Xxxxxx X Xxxxx at Fellows Energy.
Sincerely,
| /s/ Xxxxxx X. Xxxxx |
|
Xxxxxx
X. Xxxxx
|
|
President
& CEO
|
AGREED
AND ACCEPTED THIS _____ DAY OF MARCH, 2005
| By: /s/ Xxxx Xxxxx |
|
Xxxx Xxxxx |
|
Quaneco,
LLC
|
2
Exhibit
1 to Letter Agreement Dated March 1, 2005
between
Fellows
Energy Ltd. and Quaneco, LLC
| Castle Rock | |
| Counter Party: | Quaneco, L.L.C., an Oklahoma limited liability company |
| Acreage: | 140,000 acres, more or less (to be confirmed through due diligence) |
| Purchase Price: | $150 per net mineral acre or a total of $2,625,000 |
| Payment: | Stock Portion: 541,237 shares for $541,237 in consideration |
|
Cash
Portion: $2,083,763
|
|
| Location: | T3S-T8S, R45W and R47W-R49W Powder River County, Montana |
| Principal Coals: | Pawnee, Xxxxxx. and Xxxxxxx-Xxxxxxx coals |
| Other Coals: | Xxxx, Lower Xxxx, Xxxxxxxx-Xxxxxx, Knobloch, Terret, and Stag coals. |
| Planned Drilling: | Four or five pilot projects of 16 xxxxx each are planned for the Castle Rock block in 2005 |
| Drilling Budget: | $562,000 for 12.5% working interest in 48 xxxxx |
|
Xxxxx
|
|
| Counter Party: | Quaneco, L.L.C., an Oklahoma limited liability company |
| Acreage: | 95,000 acres, more or less (to be confirmed through due diligence) |
| Purchase Price: |
$150 per net mineral acre (or a total of
$1,781,250),
plus
$443,750 for 12.5% working interest in 18 existing xxxxx,
or
a total of $2,225,000
|
| Payment: |
Stock Portion: 458,763
shares for $458,763 in consideration
|
|
Cash
Portion: $1,766,237
|
|
| Location: | T6S-T8S and R38E-R42E Big Horn and Xxxxxx Counties, Montana |
| Principal Coals: | Wall, Xxxxxxxx-Xxxxxx, Xxxxxx and Xxxxxxx-Xxxxxxx coals |
| Planned Drilling: | 48 are planned for the Xxxxx block in 2005 |
| Drilling Budget: | $562,000 for 12.5% working interest in 48 xxxxx |
|
Total
Cash Budget
|
|
|
$2,083,763
for Castle Rock Purchase
|
|
|
$1,766,237
for Xxxxx Purchase
|
|
|
$3,850,000
Total acquisition cost
|
|
|
$562,000
for Castle Rock Drilling
|
|
|
$562,000
for Xxxxx Drilling
$1,124,000
Total drilling cost
|
$4,974,000
cash required for acquisition of 12.5 working interest in properties, inclusive
of interest in 18 existing xxxxx, and development of 12.5% working interest
in
96 xxxxx
Total
Stock Portion of Transaction
1,000,000
shares issued as consideration for $1,000,000 of purchase
price.
