Document:

January 4, 2011

 

MOSAIC ENERGY LTD. 

2000, 7000 – 6th Avenue SW.

Calgary, AB

T2P 0T8

Attention:         Steve Fagan, President

 

Offer to Purchase Assets

Mosaic Energy Ltd.

Package 1: Alderson, Etzicom, Grand Forks, Knappen, Long Coulee, Milo and Vauxhaul Areas

     

Edge Resources Inc. ("EDGE") offers to purchase the assets of Mosaic Energy Ltd. (“MOSAIC”) as outlined in 2010 Divestment Offering Package #1 in the Alderson, Etzicom, Grand Forks, Knappen, Long Coulee, Milo and Vauxhaul areas, as outlined in Data Books and Discs provided by Western Divestments. This letter of intent (“LOI”) confirms the terms and conditions upon which Edge will purchase the Mosaic Assets.

 

The valuation the Edge has assigned to the Mosaic Assets takes into account the mature nature of the assets, the recent production of 138 boe/d and the liabilities associated with the assets. Edge is prepared to work with Mosaic to negotiate a mutually satisfactory Purchase and Sale Agreement with the aim of closing the transaction in early 2011.

 

Edge offers to purchase the Mosaic Assets on the following terms and conditions:

 

	
  

	
1.

	
Edge will acquire from Mosaic its entire right, title and interest in and to the Leases and Lands more particularly described on Schedule ‘“A” attached hereto, all wells, well sites, equipment, plants, facilities and other tangible property situated on the Lands or used in connection therewith, all books, records, documents, contracts and agreements relating to the petroleum and natural gas rights and the tangibles (the “Mosaic Assets”).

 

	
  

	
2.

	
Consideration will be tendered by Edge to Mosaic at the closing of the purchase of the Mosaic Assets in the amount of $ 5,100,000.00 (Canadian), subject to adjustments.

   

  

Page 1 of 3

  

  

	
  

	
3.

	
This letter of intent and its contents are to be held confidential. There shall be no release of information of any kind by Mosaic, its successor in the Mosaic Assets or Edge with respect to this transaction unless mutually agreed in writing.

 

	
  

	
4.

	
The effective date of the purchase of the Mosaic Assets for accounting purposes and all adjustments of operating costs, expenses and revenues will be as at October 1, 2010 (the "Reference Date").

 

	
  

	
5.

	
The closing of this transaction will be on January 31, 2011 or such earlier or later date as the parties may agree (the "Closing Date").

 

	
  

	
6.

	
The value of the Mosaic Assets shall be allocated 80% petroleum and natural gas rights, and 20% to tangibles and one dollar for miscellaneous interests.

 

	
  

	
7.

	
Mosaic shall be liable for and bear all costs associated with registering the discharging of its encumbrances.

 

	
  

	
8.

	
The agreement resulting from your acceptance of this offer shall be subject to the following conditions:

 

	
  

	
(a)

	
On or before January 31, 2011, execution by Edge and Mosaic of a formal Purchase and Sale Agreement (the “Agreement”) , to be prepared by Mosaic and first draft provided to Edge prior to the execution of this LOI. Such Agreement will incorporate the foregoing terms and shall include all representations, warranties, indemnities and conditions normally contained in a sale transaction of this nature.

 

	
  

	
(b)

	
The parties acknowledge that certain of the Mosaic Assets may be subject to Rights of First Refusal, Preferential Rights of Purchase or similar rights in favour of third parties ("ROFR's"). The parties shall endeavour to obtain waivers of such rights from the applicable third parties following execution of a formal agreement. If required, Edge will provide Mosaic, as soon as practicable, with reasonable allocations of the value relative to the Mosaic Assets that are subject to ROFR’s for the purposes of allowing Mosaic to prepare all appropriate notices relating to ROFR's. The parties agree to purchase those Mosaic Assets (i) where ROFR’s were not exercised and (ii) were not subject to ROFR's; in such event, the purchase consideration will be adjusted to reflect the affect of ROFR elections.

 

	
  

	
(c)

	
Edge will have received on or prior to closing, an opinion from its representative, satisfactory to Edge, as to the title of the Mosaic's Assets to be received by the Edge upon closing of the transaction. Access will be provided to such files, agreements, information and documents as may be reasonably required for the purposes of examining such title;

 

	
  

	
(d)

	
The Board of Directors of Mosaic shall have 5 business days from the date of execution of this LOI to approve the transaction described herein. Approval by Edge’s Directors to enter into this transaction shall be obtained within 5 business days from execution of this LOI;

 

	
  

	
(e)

	
Prior to execution of the Agreement, Edge or its representatives conducting an environmental audit on the Assets;

 

	
  

	
(f)

	
Prior to the execution of the Agreement, Edge securing financing for the acquisition.

   

  

Page 2 of 3

  

   

This letter of intent sets forth the business understanding of the parties hereto and does not constitute a binding legal agreement. The parties intend to continue negotiations with a view to concluding a formal Agreement but until such time as such Agreement is executed and delivered, there shall be no binding legal relationship between the parties.

 

If you agree with the terms of this letter, please execute and return the duplicate copy provided to the undersigned on or before 4:00 p.m. (Calgary time) on January 7, 2011 (the "Acceptance Date"). Should you have questions, please contact Jesse Griffith at 403-767-9905.

 

Yours truly,

EDGE RESOURCES INC.

 

Brad Nichol

President and Chief Executive Officer

 

cc:

 

Accepted and agreed to this _____ day of

_____________, 2011.

 

MOSAIC ENERGY LTD.

 

Steve Fagan

President

    

  

Page 3 of 3PROMISSORY NOTE

	
TO:

	
M PIDHERNEY'S TRUCKING LTD

	  	
5133 - 49 Street

	  	
Rocky Mountain House, AB

	  	
T4T 1B8 (the "Lender")

	 	 
	
DATED:

	
February 4, 2011

 

WHEREAS the Lender has provided EDGE RESOURCES INC. (the "Borrower") with a loan in a principal amount of Five Hundred Thousand ($500,000) Dollars (Cdn.) on the terms and conditions set out in this Promissory Note. The "Principal Amount" outstanding under this Promissory Note from time to time shall mean all principal advanced to the Borrower by the Lender, less all principal repaid.

 

NOW THEREFORE, FOR VALUE RECEIVED, the Borrower hereby promises to pay to the Lender, at the above address, the Principal Amount outstanding from time to time, on the terms and conditions set out below:

 

	
  

	
1.

	
PRINCIPAL REPAYMENT: The Principal Amount shall be repaid by the Borrower in full on or before the date that is four (4) months from the date of this Promissory Note (the "Maturity Date").

 

	
  

	
2.

	
INTEREST: The Borrower will pay interest to the Lender, after payment is due and before and after default, judgment and execution, on the Principal Amount and any unpaid interest outstanding from time to time until paid, at the Interest Rate, calculated and payable on the Maturity Date. In the event of default in payment of any amount of interest under this Promissory Note, the entire remaining Principal Amount and all interest accrued shall, at the option of the Lender, become immediately due and payable without notice or demand.

 

For the purposes of this Promissory Note, the "Interest Rate" shall be the rate of twelve percent (12%) per annum

 

	
  

	
3.

	
PREPAYMENT OF LOAN: The Borrower may prepay the Principal Amount, along with any accrued and unpaid interest, in whole or in part at any time, without notice or penalty.

 

	
  

	
4.

	
LOCATION AND METHOD OF PAYMENT. All payments to be made by the Borrower to the Lender pursuant to this Promissory Note shall be made in a manner acceptable to both parties acting reasonably and delivered to the address specified on page 1 of this Promissory Note (or such other address as may be specified in writing by the Lender from time to time) on or before 4:00 p.m. (Calgary time) on the date such payments are due.

 

	
  

	
5.

	
MAXIMUM RATE OF RETURN: Notwithstanding any provision to the contrary contained in this Promissory Note, in no event shall the aggregate "interest" (as defined in section 347 of the Criminal Code, RSC, 1985, C-46) payable under this Promissory Note exceed the effective annual rate of interest on the "credit advanced" (as defined in that section) under this Promissory Note lawfully permitted under that section and, if any payment, collection or demand pursuant to this Promissory Note in respect of "interest" (as defined in that section) is determined to be contrary to the provisions of that section, such payment, collection or demand shall be deemed to have been made by mutual mistake of the Borrower and the Lender and the amount of such payment or collection shall be refunded to the Borrower. For purposes of this Agreement the effective annual rate of interest shall be determined in accordance with generally accepted actuarial practices and principles over the term of the loan on the basis of annual compounding of the lawfully permitted rate of interest and, in the event of dispute, a certificate of a Fellow of the Canadian Institute of Actuaries appointed by the Lender will be conclusive for the purposes of such determination.

  

  

  

 

This Promissory Note is secured by the liens and security interests created in favour of the Lender under the general security agreement executed contemporaneously herewith (the "Lender's Security"). The Lender's Security is incorporated herein by this reference. In the event of any conflict or inconsistency between the terms hereof and the Lender's Security, the terms hereof shall govern.

 

This Promissory Note has been executed, delivered and accepted in the Province of Alberta and shall be construed in accordance with and governed by the laws of the Province of Alberta (without giving effect to the conflicts of law rules and principles of such province) and of Canada.

 

Whenever any interest or fee under this Promissory Note is calculated using a rate based on a year of 360 or 365 days, such rate determined pursuant to such calculation, when expressed as an annual rate, is equivalent to (x) the applicable rate based on a year of 360 days or 365 days, as the case may be, (y) multiplied by the actual number of days in the calendar year in which the period for which such interest or fee is payable (or compounded) ends, and (z) divided by 360 or 365 as the case may be.

 

The principle of deemed reinvestment of interest shall not apply to any interest calculation under this Promissory Note, and the rates of interest stipulated in this Promissory Note are intended to be nominal rates and not effective rates or yields.

 

The Borrower expressly waives demand and presentment for payment, notice of nonpayment, protest, notice of protest, notice of dishonour, notice of intent to accelerate the maturity hereof a notice of the acceleration of the maturity hereof.

	  	
EDGE RESOURCES INC.

	  	  
	  	
By:

	
/s/ Brad Nichol

	  	  	
Name: Brad Nichol

	  	  
	  	
Title: President and Chief Executive Officer

 

  

2

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