DEREK RESOURCES CORPORATION
Suite 1730 - 355 Burrard Street
Vancouver, B.C.
V6C 2G8
October 30, 2001
Mr. Dave Aldrich
Western Industrial, Inc.
P.O. Box 40139
Grand Junction, CO 81504
Tel. 719-784-3191
Two Pages By Fax: 505-632-0487
Dear Mr. Aldrich:
Re LAK Ranch Project, Wyoming, U.S.A.
When countersigned by each of the parties, the following will
set forth the terms and conditions pursuant to which Derek
Resources Corporation ("Derek") and Western Industrial, Inc.
("Western") have mutually agreed to defer payment of amounts
currently owing by Derek to Western:
1. Western will agree to defer payment of
US$89,838.35 (the "Debt") in amounts currently payable by
Derek to Western until August 31, 2002. Any amounts
incurred by Derek for work by Western in excess of this
amount (US$89,838.35) will be due and payable in the
normal course of business.
2. Western will receive, and Derek will pay,
interest on the principal amount deferred at a rate of
ten per cent (10%) per annum, such interest to be accrued
commencing August 1, 2001.
3. There are no fixed repayment terms;
however all interest and principal is fully due and
payable by no later than August 31, 2002. Derek may make
interim payments of principal and interest at any time,
and may repay all amounts due at any time, without
penalty for early repayment. Subsequent interest
calculations will then be made on the remaining principal
outstanding. Payments by Derek will be made by certified
cheque and will be considered effective at the date and
time upon which Derek completes the certification
process.
4. In addition to the above detailed interest
payments and in consideration for the deferral, Derek
will grant a permanent, gross overriding royalty on the
LAK Ranch Property to Western in the amount of
US$0.0089838 per barrel of oil produced net to Derek's
interest.
-2-
5. As security for the amount deferred, Derek
will grant a lien in favour of Western, first on the
surface equipment owned by Derek and located on the
property and, secondly, if required to satisfy amounts
outstanding, on the property itself.
6. Derek agrees that it will endeavour to pay
off all amounts due to Western and any other debtors
before committing any available capital to plant
expansion, new projects or other unnecessary
expenditures.
7. Derek agrees that it will not enter into
any agreement or arrangement with any other of its
creditors on terms more favourable than those set forth
in this agreement with Western. However, Derek may make
subsequent financial arrangements as they see fit, so
long as the proceeds of any significant financial
arrangements result in the payment to Western of all
principal and interest amounts due.
8. Western may at any time and from time to
time convert, in whole or in part, the amounts payable to
Western by Derek into common shares of Derek at a price
of Cdn$0.75 per share. In order to exercise the right of
conversion, Western shall deliver to Derek, at Derek's
address shown above, notice of the amount of the Debt
being convened. Derek will deliver to Western within five
business days thereafter a share certificate or
certificates representing the number of shares so
converted. The right to convert the Debt to shares shall
expire on the earlier of the date that the Debt is repaid
or August 31, 2002 unless extended by the parties. It is
acknowledged that any shares, which may be issued on
conversion of the Debt, will be subject to applicable
hold periods in accordance with the rules of the Canadian
Venture Exchange.
9. This Agreement will be subject to the
prior approval of the Canadian Venture Exchange.
If you are in agreement with the foregoing, please sign this
letter where indicated below and return same to us and we will
instruct our solicitors to make the required filings for
Canadian Venture Exchange approval.
Yours truly,
DEREK RESOURCES CORPORATION
PER: /s/ Frank Hallam
---------------
Frank R. Hallam
ACKNOWLEDGED AND AGREED BY
WESTERN INDUSTRIAL, INC.
PER: /s/ Dave Aldrich
------------
Dave Aldrich