UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Date of report (Date of earliest event reported)
August 7, 2006
VTEX Energy, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Nevada
(State or Other Jurisdiction of Incorporation)
000-22661 76-0582614
(Commission File Number) (IRS Employer Identification No.)
8303 Southwest Freeway, Suite 950
Houston, Texas 77074
(Address of Principal Executive Offices and Zip code)
(713) 773-3284
(Registrant's Telephone Number, Including Area Code)
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2 below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 1.01 Entry into a Material Definitive Agreement
Background
On October 7, 2005, VTEX Energy, Inc. (the "Company") and its wholly owned
subsidiary, Viking International Petroleum, PLC, ("Viking International")
entered into an agreement with Marathon Capital, LLC and U.S. Energy Systems,
Inc. ("USEY") pursuant to the joint acquisition of certain energy assets in the
United Kingdom. On August 7, 2006, the acquisition and related financing (the
"UK Transaction") was completed. The assets (the "UK Assets") acquired include
(i) gas licenses for approximately 100,000 acres of onshore natural gas
properties and mineral rights in North Yorkshire, England (the "Gas Licenses"),
containing approximately 62.4 bcf (P2) of proved and probable reserves
(consisting of approximately 46 bcf (P1) of proved reserves and approximately
16.4 bcf of probable reserves), (ii) the Knapton Generating Station, a 42 MW
gas-fired power plant associated with and located in the vicinity of the natural
gas reserves in North Yorkshire, England, (iii) and certain related gas
gathering and processing assets. As part of the UK Transaction, a power purchase
agreement and a gas sales agreement with Scottish Power Energy Management
("Scottish Power") was entered into under which Scottish Power is required to
take all of the electricity generated by the Knapton Generating Station and all
of the natural gas produced from the associated reserves up to 100 bcf for a
term of up to 12 years. The financing of the UK Transaction provided
approximately $167,000,000 for the acquisition of the UK Assets, for certain
reserves required by the terms of the financing and for working capital to be
used by for the operation and upgrading of the UK Assets and the proposed
increased production of natural gas from the reserves covered by the Gas
Licenses.
Acquisition of Asets
The Gas Licenses and certain related gas gathering and processing assets were
owned (directly and indirectly) by Viking Petroleum UK Limited ("Viking
Petroleum") and by Scottish Power Generation Limited ("Scottish Power
Generation"), an affiliate of Scottish Power. The Company, through Viking
International, owned an approximate 25% equity interest in Viking Petroleum. The
Knapton Generating Station and the other related assets were owned by Scottish
Power Generation. As part of the UK Transaction, the Gas Licenses and related
assets owned by Viking Petroleum and the Knapton Generating Station were
acquired, both directly and indirectly, by UK Energy Systems Limited ("UK
Energy"), an English company which is a wholly-owned subsidiary of GBGH, LLC
("GBGH"), a Delaware limited liability company. GBGH is 79% owned by US Energy
Overseas Investments, LLC ("Overseas"), and 21% owned by Marathon Capital
Holdings (UK), LLC.
Operating Agreement
On May 22, 2006, the Company and USEY entered into an amended and restated
limited liability company agreement (the "Overseas Operating Agreement") with
respect to Overseas. The Overseas Operating Agreement provides that at the
closing of the transaction:
o The Company contributed to Overseas all the outstanding share capital
of Viking International, which was valued as a $350,000 contribution
of capital,
o Overseas issued its Class B membership units to us,
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o USEY issued the Company warrants to acquire up to 500,000 shares of
its common stock and
o USEY made an additional capital contribution of approximately $7
million to Overseas (USEY had made previous capital contributions of
$350,000).
Overseas' Operating Agreement: Distribution of Net Cash Flow; Allocation of
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Income and Losses
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Overseas' Operating Agreement provides that to the extent Overseas' Board of
Managers determines that net cash flow is to be distributed, it is to be
distributed in the following descending order of priority:
o Pro rata based on the Company's and USEY's capital contributions until
each has received distributions equal to their capital contribution
and a preferred return of 12% per year on such contributions;
o 50% to each party until such party has received total distributions of
net cash flow equal to $350,000 plus 12% per annum thereon; and
thereafter,
o 90% to USEY and 10% to the Company.
Gain on a sale of all or substantially all of the assets of Overseas or the
liquidation or dissolution of Overseas is to be allocated in the following order
of priority:
o Pro rata, to the Company and USEY until both entity's capital account
is equal to such member's unrecovered capital and a preferred return
thereon of 12% per year ;
o 99% to the Company and 1% to USEY, until we have been allocated an
amount equal to $20,900,000; and thereafter
o 100% to USEY.
Generally, income and losses are to be allocated in the same manner as net cash
flow is distributed.
Voting
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Representatives of USEY constitute Overseas' Board of Managers. With limited
exceptions, they hold all the voting rights with respect to Overseas.
Terms and Conditions of Conversion of Class B Membership Units and Exercise
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of Series D, E and F Common Stock Purchase Warrants
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The Class B membership units that Overseas issued to us are convertible into up
to 1,900,000 shares of USEY common stock beginning, subject to USEY stockholder
approval as described below, on the earlier to occur of the third anniversary of
the closing or the date on which the average market price of USEY common stock
exceeds $11.00 per share for 20 consecutive trading days. In addition, they have
the right to cause the Class B membership units that Overseas issued to us to be
converted into USEY common stock if the average market price, determined as
described in the previous sentence, exceeds $14.30. The right to convert the
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Class B membership units that Overseas issued to us ends on or about August 7,
2012.
The warrants issued to us (the "Warrants") are exercisable, subject to USEY
stockholder approval, until August 7, 2011, for the number of shares of USEY
common stock and at the exercise prices set forth below:
Number Exercise
Title of shares Price
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Series D Common Stock Purchase Warrants 166,667 $8.00
Series E Common Stock Purchase Warrants 166,667 $9.00
Series F Common Stock Purchase Warrants 166,666 $10.00
Notwithstanding the foregoing, the Class B membership units and the Warrants are
not convertible into, or exercisable for, common stock, until the USEY
stockholders have approved the issuance of the underlying shares. In the event
shareholder approval is not obtained by November 6, 2006, subject to an
additional 59 days in specified circumstances, the Warrants will terminate and
the Class B Membership Units may only be converted into up to 900,000 shares of
common stock. The conversion ratio of the Class B membership units is fixed, and
in the event that we do not, or are unable to, convert any of our Class B
membership units into common stock of USEY, we retain such membership units and
the resulting interest in Overseas.
The issuance of the Class B Membership Units and the Warrants and the VTEX
Shares are exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) promulgated thereunder.
We are entitled, under specified circumstances, to have the resale of the shares
of common stock issuable upon conversion of the Class B Membership Units and
upon exercise of the Warrants registered under the Securities Act of 1933, as
amended (the "Securities Act").
SIGNATURE
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VTEX ENERGY, INC.
Date: August 7, 2006 By: /s/ Randal B. McDonald, Jr.
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Randal B. McDonald, Jr.
Chief Financial Officer
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