EXHIBIT 10.1
VTEX ENERGY, INC.
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July 13, 2004
Mr. Brent A. Kovach
Chief Financial Officer
CLK Energy, Inc.
1615 Poydras St.
5th Floor
New Orleans, LA 70112
Re: Bayou Choctaw Field - West Baton Rouge and Iberville Parishes, Louisiana
Dear Brent:
This letter is to evidence the agreement by and between CLK Energy, Inc., a
Delaware corporation ("CLK"), and VTEX Energy, Inc., a Nevada corporation
("VTEX"), with respect to those certain working interests (an undivided 67%
interest in certain leases with an undivided 33% interest in certain leases
insofar as they cover a certain tract of land) in the Bayou Choctaw Field,
located in the Parishes of Iberville and West Baton Rouge, Louisiana, acquired
by CLK pursuant to that certain Purchase and Sale Agreement ("PSA") dated
effective as of 11:59 p.m. (CDT) on June 30, 2004 (the "Effective Time") by and
between CLK , as Buyer, and Icon Oil U.S., LLC ("Icon"), Bligh Petroleum, Inc.
and Bligh PNG Limited ("Bligh PNG"). The entirety of the interests acquired by
CLK pursuant to the PSA are hereinafter referred to as "Bayou Choctaw".
Subject to the following terms and conditions, for $10.00 and other good and
valuable consideration, the sufficiency of which is hereby acknowledged, CLK
does hereby grant an exclusive option to VTEX to purchase from CLK and undivided
fifty percent (50%) of Bayou Choctaw. The terms and conditions of this option
are as follows:
1. The "Option Period" is defined as that certain time period from June 26, 2004
through and including August 10, 2004. In order to exercise this option, VTEX
must notify CLK in writing (the "Notice") of its election to exercise this
option during the Option Period and satisfy each other provision of this
agreement. Such Notice shall include evidence, satisfactory to CLK in its sole
discretion, that VTEX has available at that time funds to cover the amounts to
be paid by VTEX set forth in sections 2(i) and (ii) below and that VTEX will
also have available in the future a minimum of $3,000,000 for its purchase of
its interest in Bayou Choctaw and the payment of the Capital Expenditures as set
forth in Paragraph 6 below.
2. The cash purchase price to be paid by VTEX to CLK at closing (as hereinafter
defined) for an undivided fifty (50%) of Bayou Choctaw shall be the sum of (i)
the cash portion of the purchase price as set forth in the PSA, being
$1,250,000.00, and (ii) all costs and expenses (including but not limited to
capital costs) incurred by CLK in the acquisition and/or ownership, operation,
and maintenance of Bayou Choctaw, as further adjusted for any net revenue
received by CLK from operations of Bayou Choctaw prior to the Closing (as
hereinafter defined) (such amounts are collectively sometimes referred to
hereinafter as the "Price"). As additional consideration for CLK's transfer to
VTEX of an undivided fifty (50%) interest in Bayou Choctaw, VTEX and/or Stephen
Noser ("Noser"), as the case may be, shall, at or prior to Closing, as may be
necessary, take the following actions (i) VTEX shall assume its proportionate
share (50%) of all obligations, covenants, and liabilities of CLK under the PSA;
the Assignment executed in connection therewith which was recorded in the
records of West Baton Rouge Parish at COB 450, Entry No. 15 and in the records
of Iberville Parish at COB 561, Entry No. 65 ("Assignment"), and the Production
Payment, as defined below, (ii) VTEX shall redeem all of its 500,000 shares of
Class B Preferred Stock currently outstanding, for no more that 1,000,000 shares
of VTEX common stock, (iii) Noser shall obtain the resignation of Mr. McDonald
from the Board of Directors, increase the size of the Board of Directors from 2
members to 7, and cause the vacancies left by such resignation and increase in
size to be filled by Richard J. Gardner, Rolland R. Londot, Brent A. Kovach, and
Robert E. McKee and two other investors in VTEX to be identified by VTEX, (iv)
Noser shall take all necessary action to have the individual listed on Exhibit
"A" attached hereto elected to the offices and management positions indicated on
Exhibit "A" and shall obtain any and all resignations necessary to place such
persons in such offices and management positions, (v) VTEX shall enter into
employment and compensation agreements with each of the newly elected Board
members, officers and managers on terms consistent with industry standards or
current VTEX compensation packages, which ever is greater, (vi) VTEX shall issue
stock purchase warrants (the "Closing Warrants") to CLK, or its assign(s),
providing for the purchase of 1,500,000 shares of newly issued common shares of
VTEX at an exercise price of $.50 per share (these warrants shall be exercisable
over a five-year period and contain provisions customary to transaction of this
type, including piggyback registration rights), (vii) VTEX shall issue in favor
of CLK or its assign(s) such number of shares of common stock of VTEX as are
necessary to insure that after issuance of the shares of common stock referred
to in (ii) above and after the issuance of any shares with respect to any
investor equity positions that CLK is the holder at Closing of at least 10% of
the fully diluted outstanding shares of common stock of VTEX and would remain
the holder of at least 10% of the outstanding shares of common stock of VTEX
(other than the Closing Warrants and the Execution Warrants) even if on the day
after Closing all outstanding warrants and options (other than the Closing
Warrants and the Execution Warrants) were exercised, (viii) VTEX will not spend
or commit in excess of $750,000 in capital expenditures in its Bateman Lake
Property or undertake any other material capital expenditures prior to Closing
without the consent of CLK and (ix) VTEX shall obtain Directors' & Officers'
insurance coverage for each of the members of the Board of Directors, officers,
and managers in amounts and with such coverages as are satisfactory to each of
such directors, officers and managers.
3. At Closing (as hereinafter defined), VTEX shall also pay to CLK an interest
factor equivalent to 12% per annum, computed on a 365 day basis on the Price
from June 25, 2004 until the date of the Closing (the "Interest" and together
with the Price shall be hereinafter referred to as "Cash Option Price").
4. Immediately upon the execution of this agreement by all parties hereto, VTEX
shall issue stock purchase warrants (the "Execution Warrants") to CLK, or its
assign(s), providing for the purchase of 500,000 shares of newly issued common
shares of VTEX at an exercise price of $.50 per share. These warrants shall be
exercisable over a five-year period and contain provisions customary to
transactions of this type, including piggyback registration rights.
5. If VTEX exercises this option, the closing shall occur at CLK's offices at
9am on the fifth business day after CLK receives the Notice ("Closing"). At
Closing, (i) VTEX shall deliver to CLK the Cash Option Price (ii) VTEX and CLK
shall execute and deliver an assignment ("VTEX Assignment") by which CLK shall
assign to VTEX an undivided fifty percent interest in Bayou Choctaw effective as
of the Effective Time, subject to the terms and conditions of the PSA (such
Assignment shall be without any representations of warranties except that CLK
shall warrant title to the interests being conveyed against any lawful claim of
a third party by, through or under CLK, but not otherwise, with the exception
that the interest assigned to VTEX shall be specifically and proportionately
subject to and burdened by that certain Assignment of Production Payment
executed by CLK in favor of Icon Oil U.S., LLC and Bligh PNG Limited recorded in
the records of West Baton Rouge Parish at COB 450, Entry No. 18 and in the
records of Iberville Parish at COB 561, Entry No. 68 ("Production Payment") and
the overriding royalty interest conveyed to _________, recorded in the records
of West Baton Rouge at COB __, Entry No. ____ and the overriding royalty
interest to be conveyed in favor of ___ covering the leases on the Victory
tract, recorded at COB___ Entry Nos. __________, (iii) VTEX shall execute and
deliver any instruments necessary to evidence VTEX's assumption of obligations
under the PSA, Assignment and Production Payment and their ratification of the
Operating Agreement by and between CLK, Icon, and Bligh PNG ("OA") and (iv) VTEX
and Noser shall execute and cause to be executed all documents, agreements,
certificates, resolutions, agreements or other documentation necessary to
evidence compliance with and satisfaction of all VTEX's and Noser's obligations
hereunder, including but not limited to those set forth in subsections
2(ii)-(ix) above.
6. If the Closing occurs, VTEX shall pay 100% of the expenses and liabilities
associated with Bayou Choctaw, including but not limited to 100% of the
leasehold operating expenses as defined in paragraph 2.2(c) of the PSA and 100%
of the Capital Expenditures (as defined in the PSA in paragraph 2.2(d)) within
the time frame provide for such expenditures in the PSA and any payments, if
any, required to be made under the Production Payment before Payout (defined
below), and shall be entitled to receive 100% of the proceeds attributable to
Bayou Choctaw until such time as the "net proceeds" attributable to Bayou
Choctaw received by VTEX equal the sum of (i) 110% of the Option Price and (ii)
110% of the Capital Expenditures (as defined in the PSA) actually paid for by
VTEX but which cannot exceed $5,000,000 ("Payout"). "Net Proceeds" are defined
for purposes of this provision as the total compensation received by VTEX for
the gross sale of Hydrocarbons from Bayou Choctaw less the Louisiana Production
Taxes, lease royalties, overriding royalties, other lease burdens and lease
operating expenses applicable to Bayou Choctaw, but not any costs comprising
Capital Expenditures. After Payout, CLK and VTEX shall each be entitled to 100%
of the proceeds attributable to their respective working interests. The
provisions of this Section shall survive the Closing.
7. CLK is currently named Operator under the OA. Upon execution of the VTEX
Assignment, CLK shall resign as Operator and CLK and VTEX shall vote under the
OA to have VTEX elected as the Operator. Therefore, VTEX shall perform all
duties of the Operator under such OA. It is agreed, however, that only CLK shall
propose drilling or reworking operations and VTEX shall concur with CLK's
proposals unless it reasonably deems such operation imprudent, impracticable, or
uneconomic. Before any work is commenced on any well, CLK shall submit to VTEX
written procedures for such work together with estimates of all costs. VTEX
shall commence such work in a timely manner unless it reasonably deems such work
to be imprudent, impracticable, or uneconomic or VTEX's Control of Well
Insurance Carrier rejects coverage for such work. Both parties shall receive
daily drilling reports and shall confer daily regarding work to be performed.
The provisions of this Section shall survive the Closing.
8. The provisions of Section 6 are qualified as follows. In the event that after
the expending of funds sufficient to fulfill CLK's obligations pursuant to
Section 2.2(a) of PSA but prior to the expenditure of $5,000,000 in Capital
Expenditures by VTEX, VTEX elects that it no longer desires to make any further
expenditures, it may relieve itself of its obligation to pay for the Capital
Expenditures required under the PSA by notifying CLK immediately of such
decision, but in no event later than June 25, 2005 and contemporaneously with
the giving of such notice VTEX shall immediately re-assign to CLK all of the
interests that it acquired from CLK or that it otherwise acquired covering lands
in the Area of Mutual Interest created by the OA effective as of the first day
of the first calendar month following the date of such election (the
"Re-Assignment"); provided, however that VTEX shall except from such
Re-Assignment and shall be permitted to retain fifty (50%) of the Applicable
Percentage (as defined in the PSA) in each well then producing that was drilled
or reworked by VTEX and that portion of the Leases (as defined in the PSA)
insofar and only insofar as a Lease or Leases cover any acreage within a square
surrounding each such producing well, comprising 5 acres, and then as to each
such well and leasehold interest only to horizons from the surface down to 100
ft. below the stratigraphic equivalent of the deepest depth drilled in each such
well (the "Retained Wells") Upon the Reassignment, VTEX shall have no further
rights regarding the reassigned interests and shall resign as Operator as to all
wells with the exception of the Retained Wells. Until Payout has occurred, VTEX
shall be entitled to receive 100% of the proceeds attributable to its interests
in the Retained Wells together with the interest of CLK in the Retained Wells
and shall pay 100% of the expenses and liabilities associated with such
interests. After Payout, VTEX shall only be entitled to the net proceeds
attributable to fifty (50%) of the Applicable Percentage (as defined in the PSA)
in the Retained Wells and CLK shall be entitled to the proceeds form 50% of the
Applicable Percentage (as defined in the PSA) in the Retained Wells and 100% of
the proceeds from the rest of Bayou Choctaw. The provisions of this Section
shall survive the Closing.
9. VTEX at Closing will reimburse CLK for overhead costs of $50,000 accrued
during the option period. After Closing, VTEX overhead expenditures in Houston
and New Orleans will be determined by the Board of Directors.
Very Truly Yours,
VTEX Energy, Inc.
By: /s/ Stephen Noser
Its: President
Accepted and Agreed to this 13th day of July, 2004
CLK Energy, Inc.
By: /s/ R. J. Gardner
Its: President