Exhibit 10.7


 





Capital Group, Inc.


Members NASD, SIPC                                        Investment
Bankers / Brokers                                            tcoffin@sourcegrp.com


 


 


W. Todd Coffin - Managing
Director


 


December 11, 2007


 


Mr. Rocky V. Emery — Chairman and
CEO


10375 Richmond


Suite 2100


Houston, TX 77042


 


Dear Mr. Emery:


 


The
purpose of this letter is to confirm the understanding and agreement (the “Agreement”)
between Source Capital Group, Inc., (“SCG”) and Rock Energy Partners and
the new company Rock Energy Resources and its affiliates (or the “Company”),
regarding the retention of SCG by the Company as its exclusive financial
advisor for the purposes set forth herein.


 


This
agreement supersedes all other agreements.


 


Under
this Agreement, SCG will provide financial advisory services to the Company as
follows:


 


A)          Raising of Capital. SCG shall use
its best efforts to provide up to but not limited to $175,000,000.00 financing
for the Company or acquisition of company stock.


 


B)            Fees, Commissions & Expenses. 
The Company agrees to pay the following fees to SCG for its services.


 


1.               SCG shall be compensated 8%
cash and 8% cashless warrants on any Equity monies raised (this includes
convertible preferred or convertible debt). 
SCG shall receive 4% cash fee and 2% cashless warrant coverage on any Debt
financing. The exercise price of the warrants shall be equal to the price of
the stock at the time of the sale and will be subject to adjustment in
accordance with the terms of any adjustment provided for in the Financing
document.  Said warrants shall be
exercisable for five (5) years from date of issuance. The terms of said
warrants shall include such piggyback registration rights, anti-dilution
rights, and “cashless” exercise provisions in the event of exercise by
SCG.  Such fees shall be paid at the
closing from an escrow account at the same time any new investment is dispersed
to the company.  The parties have agreed
to three carve out investors listed below whereby if those investors should
make a direct investment in Rock Energy Partners or the new company Rock Energy
Resources the compensation would be 4% cash and 4% cashless warrants on any
Equity monies raised (this includes convertible preferred or convertible
debt).  SCG shall receive


 


276 Post West ·  Westport, CT
06880    ·  203 341-3500 ·  800 882-2889 ·  Fax 203 341-3515


 

















 


2% cash and 1% cashless warrants on any Debt
financing.  The warrants shall carry the
same terms as above.


 


Carve Out Investors:


 


a)              Ying Wang


 


b)             Macquarie Bank


 


c)              Trust Company of the West
(TCW)


 


2.               SCG will receive a $0
non-refundable, non-accountable retainer upon signing of this agreement.


 


3.               Expenses.  In addition to any fees that may be payable
to SCG under this Agreement, the Company agrees to reimburse SCG for its
reasonable out-of-pocket expenses incurred in connection with the services
rendered by SCG hereunder (including, without limitation, travel and lodging,
data and word processing, graphics and communication charges, research costs,
and courier services and fees). SCG will, on a monthly basis, provide the
Company with reasonable report regarding the expenses incurred.  Compensation for any additional professional
services (e.g. legal or consulting) contracted for by SCG, to be performed for
the benefit of the Company by outside parties, is the responsibility of the
Company and will be paid directly by the Company to such party.  SCG will not contract for such services
without the prior written approval of the Company with regard to both the
nature of the service and a reasonable estimate of the cost of such service.


 


4.               All cash payments under this
Agreement shall be made in U.S. dollars and without withholding or deduction of
any tax, assessment or other governmental charges unless required by law.  At closing any and all fees associated with
this transaction are to be settled. Fees and retainers should be made payable
and wired to:


 


Source
Capital Group, Inc.


Bank of
America


Westport, CT


ABA# 026009593


Acct# 93618 82644


 


C) Mergers, Acquisitions & Joint
Ventures (“MA&JV”).  The Company may
at its discretion and on a case-by-case basis engage SCG to assist it in its
discussions with potential MA&JV candidates, which may include directly
negotiating on the Company’s behalf and the rendering independent opinions as
to valuation and formulae, among other things. 
Upon SCG’s acceptance of any such assignment, the Company will pay SCG a
closing fee equal to 3.00% of the amount paid or received in kind (PIK) in any
transaction by and or between the Company, the MA&JV candidate and or the
surviving company (the “M&A Fee”). 
Any potential MA&JV candidate introduced by SCG with which the
Company enters into a letter of intent, will fall under the M&A
engagement.  This fee shall apply to any
strategic partnerships as well.


 


2

















 


D)
Information.  The Company will
furnish or cause to be furnished to SCG, such information, as SCG believes
appropriate to its assignment (all such information so furnished being the “Information”).  The Company recognizes and confirms that SCG (a) will
use and rely primarily on the Information and on information available from
generally recognized public sources in performing the services contemplated by
this Agreement without having independently verified the same, (b) does
not assume responsibility for the accuracy or completeness of the Information
and such other information, (c) is entitled to rely upon the Information
without independent verification and (d) will not make an appraisal of any
assets in connection with its assignment


 


E)
Exclusivity.  The Company’s relationship
with SCG will be exclusive for 60 days upon signing of this agreement.  However, upon successful completion of $20
million aggregate gross financing within 100 days, SCG shall retain the “right
of first refusal” on any additional equity financing or debt financing within
18 months from the termination of the Agreement (“the Refusal Right Period”).  However, if the Company enters into a Firm
Commitment Engagement with an underwriter, then the Refusal Right Period will
automatically terminate.


 


F)
Confidentiality.  Except as
contemplated by the terms hereof or as required by applicable law or legal
process, SCG shall keep confidential all non-public information provided to it
by or at the request of the Company, and shall not disclose such information to
any third party or to any of its employees or advisors except to those persons
who have a need to know such information in connection with SCG’s performance
of its responsibilities hereunder.  The
Company understands that any documents, presentations or analyses prepared by
SCG are proprietary and SCG is under no obligation to provide (by e-mail,
floppy disk or otherwise) either the Company or its assigns with the computer
files of such work product.  Except as required
by applicable law, any advice to be provided by SCG under this Agreement shall
not be disclosed publicly or made available to third parties without the prior
written consent of SCG.  In addition, SCG
may not be otherwise publicly referred to without its prior written
consent.  All services, advice and
information and reports provided by SCG to the Company in connection with this
assignment shall be for the sole benefit of the Company and shall not be relied
upon by any other person.


 


G)
Indemnity.  The Company
acknowledges and agrees that SCG has been retained to act solely as financial
advisor to the Company.  In such
capacity, SCG shall act as an independent contractor, and any duties of SCG
arising out of its engagement pursuant to this Agreement shall be owed solely
to the Company.  The Company agrees to
indemnify SCG in accordance with the indemnification agreement attached as Exhibit A.


 


H)
Arbitration. Any and all disputes, demands, claims or controversies hereto
arising out of or relating to this agreement or the breach thereof, shall be
settled by binding arbitration in accordance with the rules of the
American Arbitration Association (“AAA”). The arbitration shall be conducted in
New York City under the rules of the AAA. 
Any judgment upon the award rendered by the arbitrator may be entered
into any court or administrative tribunal having jurisdiction thereof. Costs
associated with the arbitration, including reasonable attorney’s fees, shall be
borne by whichever parties the arbitrators shall deem just and fair.”


 


I)
Term & Termination.  The
term of SCG’s engagement hereunder shall extend from the date hereof through February 15,
2008 (the “Expiration Date”) and will be automatically renewed on a monthly
basis until canceled in writing by either party.  SCG’s engagement hereunder may be terminated
upon 10 days written notice without cause by either the Company or SCG at any
time before the Expiration Date. 
Notwithstanding the foregoing, the provisions relating to the payment of
fees and


 


3

















 


expenses
accrued through the date of termination, the status of SCG as an independent
contractor and the limitation on to whom SCG shall owe any duties will survive
any such termination, and any such termination shall not affect the Company’s
obligations under the indemnification agreement.


 


SCG
will be entitled to the fees set forth above in the event that at any time
prior to the earlier of the termination of this letter and the expiration of
SCG’s engagement hereunder a Financing is consummated and the investor is on a
list of potential investors provided to the Company by SCG at the time of
termination or expiration and SCG had made efforts that led to an investment on
behalf of the Company with respect to such investor(s) prior to
termination or expiration, as appropriate. 
Further, in the event that a Financing or M&A transaction is
completed with an investor, on the list described above, with respect to which
SCG had made efforts that led directly to an investment or other substantive
effort before such termination or expiration, whichever is earlier, SCG will be
entitled to fees on those investors (but only for the amount purchased by such
investors) for a period of 18 months after the termination or expiration date,
as applicable, calculated in accordance with Section B of this Agreement.
On the termination or expiration date, as applicable, SCG will provide the
Company an updated Exhibit B for purposes of this paragraph. If a
term sheet is produced during the engagement period and SCG is terminated prior
to the Expiration Date than SCG shall be entitled to a 1% break-up fee of the
total amount of any financing.


 


J)
Rights of  First Refusal.  Upon successful completion of $20 million
financing, SCG shall retain the right of first refusal for any additional
financing.  If an investor introduced by
SCG participates in an equity financing, that investor will have the right of
first refusal on any future financings be it Equity or Debt.


 


K)
Advertisements.  The Company
acknowledges that SCG may, at its option and expense, place an announcement in
such newspapers and periodicals as it may choose, stating that SCG has acted as
the financial advisor to the Company. 
SCG agrees that the Company will have the right to approve the form of
such announcement.


 


This
Agreement (including the attached indemnification) embodies the entire
agreement and understanding between the parties hereto and supersedes all prior
agreements and understandings relating to the subject matter hereof.  If any provision of this Agreement is
determined to be invalid or unenforceable in any respect, such determination
will not affect such provision in any other respect, which will remain in full
force and effect.  No waiver, amendment
or other modification of this Agreement shall be effective unless in writing
and signed by each party to be bound thereby. 
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York applicable to contracts executed in and to be
performed in that state.


 


This
Agreement sets forth the entire agreement with respect to the engagement of SCG
by the Company, including the fees and warrants payable as a result of such
engagement.


 


Please
confirm that the foregoing correctly sets forth our agreement by signing and
returning to SCG the duplicate copy of this Agreement, the indemnification
agreement attached hereto as Exhibit A.


 


4

















 


	
  By:

  	
  /s/ Rocky V. Emery

  	
   

  	
  By:

  	
  /s/ Russ Newton

  	
   

  
	
  Mr. Rocky V. Emery

  	
  Russ Newton

  
	
  Rock Energy Partners

  	
  CFO

  
	
   

  	
  Source Capital Group

  



 


 


	
  By:

  	
  /s/ W. Todd
  Coffin

  	
   

  	
  By:

  	
  /s/
  William F. Butler

  	
   

  
	
  W.
  Todd Coffin

  	
  William
  F. Butler

  
	
  Managing
  Director

  	
  Managing
  Director

  
	
  Source
  Capital Group

  	
  Source
  Capital Group

  



 


 


This
Exhibit A is a part of and is
incorporated into that certain letter agreement, December 10, 2007 (the “Agreement”),
by and between Rock Energy Partners LLC a
                                  
LLC (State of Incorporation) and Source Capital Group, Inc. (the “Placement
Agent”). Capitalized terms used herein and not otherwise defined shall have the
respective meanings provided in the Agreement.


 


The
Company agrees to indemnify and hold harmless the Placement Agent, its
affiliates and each person controlling the Placement Agent and the Placement
Agent agrees to indemnify and hold harmless The Company (within the
meaning of Section 15 of the Securities Act), and the directors, officers,
agents and employees of the Placement Agent, its affiliates and each such
controlling person (the Placement Agent, and each such entity or person. an “Indemnified
Person”) from and against any losses, claims, damages, judgments, assessments,
costs and other liabilities (collectively, the “Liabilities”), and shall
reimburse each Indemnified Person for all fees and expenses (including the
reasonable fees and expenses of one counsel for all Indemnified Persons, except
as otherwise expressly provided herein) (collectively, the “Expenses”) as they
are incurred by an Indemnified Person in investigating, preparing, pursuing or
defending any claim, action, proceeding or investigation, whether or not any
Indemnified Person is a party thereto (collectively, the “Actions”), (i) caused
by, or arising out of or in connection with, any untrue statement or alleged
untrue statement of a material fact contained in any offering documents
prepared by the Company (including any amendments thereof and supplements
thereto) (the “Offer Documents”) or by any omission or alleged omission to
state therein a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading (other
than untrue statements or alleged untrue statements in, or omissions or alleged
omissions from, information relating to an Indemnified Person furnished in
writing by or on behalf of such Indemnified Person expressly for use in the
Offer Documents) or (ii) otherwise arising out of or in connection with
advice or services rendered or to be rendered by any Indemnified Person
pursuant to the Agreement, the transactions contemplated thereby or any
Indemnified Person’s actions or inactions in connection with any such advice,
services or transactions; provided, however, that, in the case of clause
(ii) only, the Company shall not be responsible for any Liabilities or
Expenses of any Indemnified Person that have resulted primarily from such
Indemnified Person’s (x) gross negligence, bad faith or willful misconduct
in connection with any of the advice, actions, inactions or services referred
to above or (y) use of any offering materials or information concerning
the Company in connection with the offer or sale of the Securities in the
Transaction which were not authorized for such use by the Company and which use
constitutes negligence, bad faith or willful misconduct. The Company also
agrees to reimburse each Indemnified Person for all Expenses as they are
incurred in connection with enforcing such Indemnified Person’s rights under
the Agreement, which includes this Exhibit A.


 


Upon
receipt by an Indemnified Person of actual notice of an Action against such
Indemnified Person with respect to which indemnity may be sought under the
Agreement, such Indemnified Person shall promptly notify the Company in
writing; provided that failure by any Indemnified Person so to notify the
Company shall not relieve the Company from any liability which the Company may
have on account of this indemnity or otherwise to such Indemnified Person,
except to the extent the Company shall have been prejudiced by such failure.
The Company shall, if requested by the Placement Agent, assume the defense of
any such Action including the employment of counsel reasonably satisfactory to
the Placement Agent, which counsel may also be counsel to the Company. Any
Indemnified Person shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such


 


5

















 


Indemnified
Person unless: (i) the Company has failed promptly to assume the defense
and employ counsel or (ii) the named parties to any such Action (including
any impeded parties) include such Indemnified Person and the Company, and such
Indemnified Person shall have been advised in the reasonable opinion of counsel
that there is an actual conflict of interest that prevents the counsel selected
by the Company from representing both the Company (or another client of such
counsel) and any Indemnified Person; provided that the Company shall not in
such event be responsible hereunder for the fees and expenses of more than one
firm of separate counsel for all Indemnified Persons in connection with any
Action or related Actions, in addition to any local counsel. The Company shall
not be liable for any settlement of any Action effected without its written
consent (which shall not be unreasonably withheld). In addition, the Company
shall not, without the prior written consent of the Placement Agent (which
shall not be unreasonably withheld), settle, compromise or consent to the entry
of any judgment in or otherwise seek to terminate any pending or threatened
Action in respect of which indemnification or contribution may be sought
hereunder (whether or not such Indemnified Person is a party thereto) unless
such settlement, compromise, consent or termination includes an unconditional
release of each Indemnified Person from all Liabilities arising out of such
Action for which indemnification or contribution may be sought hereunder. The
indemnification required hereby shall be made by periodic payments of the
amount thereof during the course of the investigation or defense, as such
expense, loss, damage or liability is incurred and is due and payable.


 


In the event that the foregoing indemnity is unavailable to an
Indemnified Person other than in accordance with the Agreement, the Company
shall contribute to the Liabilities and Expenses paid or payable by such
Indemnified Person in such proportion as is appropriate to reflect (i) the
relative benefits to the Company, on the one hand, and to the Placement Agent
and any other Indemnified Person, on the other hand, of the matters
contemplated by the Agreement or (ii) if the allocation provided by the
immediately preceding clause is not permitted by applicable law, not only such
relative benefits but also the relative fault of the Company, on the one hand,
and the Placement Agent and any other Indemnified Person, on the other hand, in
connection with the matters as to which such Liabilities or Expenses relate, as
well as any other relevant equitable considerations; provided that in no event
shall the Company contribute less than the amount necessary to ensure that all
Indemnified Persons, in the aggregate, are not liable for any Liabilities and
Expenses in excess of the amount of fees actually received by the Placement
Agent pursuant to the Agreement. For purposes of this paragraph, the relative
benefits to the Company, on the one hand, and to the Placement Agent on the
other hand, of the matters contemplated by the Agreement shall be deemed to be
in the same proportion as (a) the total value paid or contemplated to be
paid to or received or contemplated to be received by the Company in the
transaction or transactions that are within the scope of the Agreement, whether
or not any such transaction is consummated, bears to (b) the fees paid to
the Placement Agent under the Agreement. Notwithstanding the above, no person
guilty of fraudulent misrepresentation within the meaning of Section 11(f) of
the Securities Act of 1933, as amended, shall be entitled to contribution from
a party who was not guilty of fraudulent misrepresentation.


 


The
Company also agrees that no Indemnified Person shall have any liability
(whether direct or indirect, in contract or tort or otherwise) to the Company
for or in connection with advice or services rendered or to be rendered by any
Indemnified Person pursuant to the Agreement, the transactions contemplated
thereby or any Indemnified Person’s actions or inactions in connection with any
such advice, services or transactions except for Liabilities (and related
Expenses) of the Company that have resulted primarily from such Indemnified
Person’s gross negligence, bad faith or willful misconduct in connection with
any such advice, actions, inactions or services.


 


The reimbursement, indemnity and contribution obligations of the
Company set forth herein shall apply to any modification of the Agreement and
shall remain in full force and effect regardless of any termination of, or the
completion of any Indemnified Person’s services under or in connection with,
the Agreement.


 


6