MANAGEMENT SERVICES AGREEMENT
This
Management Services Agreement (this “Agreement”)
is
made effective as of the 11th
day of
May, 2007, by and among Tekoil & Gas Corporation, a Delaware corporation
(“Manager”)
and
Tekoil and Gas Gulf Coast, LLC, a Delaware limited liability company
(“Company”).
WHEREAS,
Company wishes for Manager to provide management and general and administrative
support services to Company and Manager wishes to provide such management and
services to Company as provided herein; and
WHEREAS,
Manager is an affiliate of the Company.
NOW,
THEREFORE, in consideration of the mutual covenants of the parties herein it
is
agreed as follows:
Section
1. Definitions.
Capitalized terms used but not defined herein shall have the meanings given
them
in the Credit Agreement described below. The following terms shall have the
following meaning when used herein:
“Agent”
means
the Person who, at the time in question, is the “Administrative Agent” under the
Credit Agreement.
“Credit
Agreement”
means
that certain Credit and Guaranty Agreement of even date herewith by and among
Company, Agent and Lenders, as from time to time amended, supplemented or
restated.
“JOA”
means
any joint operating agreement to which any of the Properties is
subject.
“Lenders”
means
all Persons who at any time are “Lenders” under the Credit
Agreement.
“Operating
Payables”
means
the following costs and expenses of or attributable to Company for the ownership
and operation of the Properties: (a) all leasehold operating expenses, capital
expenditures, and other charges directly for operations on the Properties,
(b)
all charges and expenses for gathering, processing and transporting production
from the Properties to the point of sale, (c) all severance and ad valorem
taxes
relating to Company’s interests in the Properties or in the production
therefrom, (d) all costs and expenses of maintaining in connection with the
Properties any bonds required by the Transaction Documents, by the terms of
any
laws, rules, or regulations or by the terms of any oil, gas or other mineral
leases and other contracts and agreements forming a part of or pertaining to
the
Properties, (e) all delay rentals and royalties payable with respect to the
Properties, (f) all costs or expenses necessary for the repair or replacement
of
the Properties resulting from damages or losses incurred, except those resulting
from Manager’s gross negligence or willful misconduct, and (g) all costs
incurred for the plugging and abandonment of any Property.
“Properties”
means,
collectively, those undivided interests in oil and gas properties and interests
in other real and personal property which are, at the time in question, owned
by
Company or any of its Subsidiaries.
“Service
Fee”
means
$250,000 for each calendar month (“Subject Month”) beginning June 1, 2007;
provided that if a “Default” or “Event of Default” (as those terms are defined
in the senior credit facility of the Company in effect from time to time) exists
or existed in such Subject Month, then such amount shall be reduced to $125,000
for such Subject Month.
“Services”
has
the
meaning given to such term in Section 2.
“Subordinated
Liabilities”
has
the
meaning given to such term in Section 7.
“Third
Party Beneficiaries”
has
the
meaning given to such term in Section 11.
As
used
in this Agreement: the word “or” is not exclusive; the word “including” (in its
various forms) means “including without limitation”; pronouns in masculine,
feminine and neuter genders shall be construed to include any other gender;
and
words in the singular form shall be construed to include the plural and vice
versa, unless the context otherwise requires. References herein to any Section,
Appendix, Schedule or Exhibit shall be to a Section, an Appendix, a Schedule
or
an Exhibit, as the case may be, hereof unless otherwise specifically provided.
This Agreement is the result of negotiations between, and has been reviewed
by,
Manager, General Partner and Agent and their respective counsel. Accordingly,
this Agreement shall be deemed to be the joint product of the parties hereto,
and no ambiguity shall be construed in favor of or against any party hereto
or
beneficiary hereof.
Section
2. Management
Services.
During
the term hereof, Manager shall (i) advise and consult with Company
regarding all aspects of Company’s development, operations and expansion,
(ii) provide management expertise and consulting services for the
development and implementation of operational and financial plans of Company
and
for strategic planning and decisions of Company, and (iii) provide
administrative support services to Company as needed for the daily operations
of
the business of Company (collectively, the “Services”), including the following
specific Services:
(a) Overhead
Services.
Manager
will provide, at its own cost, all general and administrative overhead services
and other general and administrative services reasonably required by
Company.
(b) Reports
and Information.
Manager
will provide, at its own cost, all assistance (both from Manager’s own staff and
from outside accountants, engineers, attorneys, consultants and other service
providers) required by Company in order to furnish to the Agent the reports
and
other information required to be furnished by Company under the Transaction
Documents, including with respect to (i) the audit of the Company’s financial
statements, (ii) environmental compliance, audit or reporting, (iii) land and
title issues (including, without limitation, title opinions, title reports
and
curative matters), (iv) preparation of the Company’s tax returns and any audits
or other responses or actions required in connection with such tax returns,
(v)
regulatory issues, including compliance matters, and (vi) engineering analysis
and reporting;
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(c) Funds
in Trust.
To the
extent ever received by Manager, Manager will handle, account for, and pay
over
to Company all proceeds of production from the Properties, all other proceeds
of
the Properties, and all other funds in any way accruing to the Properties or
otherwise belonging to Company, all in accordance with the requirements of
the
Transaction Documents. Pending such payments, Manager will hold all such funds
in trust for Company and Lender and will keep such funds separate from Manager’s
own funds.
(d) Lease
and Land Administration.
Manager
will administer all leases and division orders, and maintain all land, lease
and
other related records, and provide associated services;
(e) Marketing.
Manager
will provide marketing, gas control, and contract administration services
necessary to sell the hydrocarbons produced from the Properties;
(f) Accounting.
Manager
will perform all revenue and joint interest accounting functions attributable
to
the Properties, including but not limited to:
(i) royalty
and other lease payments,
(ii) payment
of accounts payable,
(iii) collection
of accounts receivable,
(iv) computation
and payment of severance and other taxes based on production,
(v) gas
balancing, and
(vi) general
ledger and financial reporting activities.
(g) Operations.
To the
extent any Properties are not subject to a JOA, or are subject to a JOA under
which Company is named as operator, Manager will provide all operation functions
attributable to the Properties that would be provided by a reasonable and
prudent operator.
(h) Information
and Data Systems.
Manager
will provide computer use and/or facilities necessary to manage and operate
the
Properties and maintain the records of Company, and will provide applicable
data
services and licenses.
(i) Tax
Returns.
Manager
will prepare or cause to be prepared all federal, state and local tax returns
required of Company.
(j) Operating
Payables.
Manager
will pay the Operating Payables using Company’s funds and in accordance with the
requirements of the Credit Agreement.
(k) Budgets
& Forecasts.
Manager
will establish operating and capital budgets and forecasts for Company and
monitor the receipts, income and expenditures of Company.
-3-
(l) Compliance.
Manager
will use reasonable efforts to take all actions, and file all reports and
notices, to cause Company’s operations to be in compliance with all applicable
laws, rules and regulations. Manager will monitor the compliance by Company
with
covenants required by Company’s lenders.
(m) Insurance.
Manager
will arrange for insurance policies as required under the Credit
Agreement.
(n) Accounting.
Manager
will maintain or cause to be maintained a general ledger with respect to
Company’s business and attendant accounting matters.
(o) Outside
Professionals.
Manager
will manage and supervise the outside accountants, attorneys and financial
consultants of Company and coordinate the annual audit of Company’s books and
records and any capital raising efforts of Company.
Section
3. Performance
and Authority.
(a) Standard
of Care.
Manager
shall provide the Services in a timely and current manner, consistent with
management and administrative practices that it would provide for itself in
the
performance of services similar to the Services.
(b) Independent
Contractor Relationship.
With
respect to its performance of the Services, Manager is an independent
contractor, with the authority to control, oversee and direct the performance
of
the details of the Services.
(c) No
Joint Venture or Partnership.
This
Agreement is not intended to and shall not be construed as creating a joint
venture, partnership, agency or other association within the meaning of the
common law or under the laws of any state.
Section
4. Compensation.
For the
Services provided hereunder by Manager to Company, Company shall pay to Manager
the Service Fee, payable in advance on the first day of each Subject Month.
In
addition, Company agrees to reimburse Manager for any Operating Payables that
may be paid with funds of Manager rather than funds of Company. The foregoing
Service Fee and reimbursements shall be the only amounts payable by Company
to
Manager pursuant to this Agreement.
Section
5. Term.
The
respective rights, duties, and obligations of the parties hereunder shall
commence on the effective date hereof and (a) shall continue initially
until the earlier to occur of (i) the fourth anniversary of the effective date
hereof, and (ii) the date the Obligations have been paid in full in cash and
the
Credit Agreement obligations have been terminated (other than those obligations
which expressly survive termination), and (b) shall be renewed and shall
continue automatically thereafter for additional one (1) year terms on such
fourth anniversary and on each subsequent anniversary of the effective date
hereof; provided that either party hereto may, once the Credit Agreement has
been terminated, terminate this Agreement by giving written notice of
termination to the other party at least thirty (30) days prior to the date
such
termination is to be effective. In addition, upon the occurrence and during
the
continuance of an “Event of Default” under the Credit Agreement, Agent may, in
its discretion, elect to terminate this Agreement at any time, and in such
event
(x) Company’s only payment obligations to Manager will be for Services rendered
prior to the date of such termination and reimbursement of any Operating
Payables paid by the Manager on behalf of the Company, and (y) Manager will
have
no right or obligation hereunder to perform Services after the date of such
termination. Finally, notwithstanding the foregoing, if the Company defaults
on
its required payment of the Services Fees or otherwise fails to reimburse the
Manager for any Operating Payables paid by the Manager on the Company’s behalf,
the Manager may elect to terminate this Agreement, such termination to be
effective upon 30 days’ notice to the Company (it being understood that the
Company shall still be liable to the Manager for any such unpaid Service Fees
or
other amounts accrued prior to termination).
-4-
Section
6. Covenants
Relating to Company & Performance.
(a) Manager
agrees to cause the Services to be performed as and when required by this
Agreement and to provide all funds, personnel and assistance necessary or
appropriate to cause such performance (it being understood, however, that in
no
event shall the Manager be required to provide funds for, or otherwise pay
for,
any Operating Payables), without any charge to Company in addition to the
Service Fee.
(b) Manager
hereby agrees not to take any action that would prevent or delay Company from
performing its obligations under the Transaction Documents.
Section
7. Subordination.
As used
herein, “Subordinated Liabilities” means any and all Liabilities (as defined in
the Credit Agreement), other than the Service Fee and the reimbursements of
Operating Payables described in Section 4, that are at any time owed by Company
to Manager. Manager hereby subordinates and makes inferior to the Obligations
(as defined in the Credit Agreement) any and all Subordinated Liabilities which
now or at any time hereafter may be owed to it by Company. Manager agrees
that:
(a) it
will
never permit Company to pay any Subordinated Liabilities or any part thereof
or
accept payment from Company of any Subordinated Liabilities or any part thereof
without the prior written consent of Agent, and
(b) it
will
never accept or retain any Distributions (as defined in the Credit Agreement)
except as permitted under the Credit Agreement or accept any other payments
from
Company other than the Service Fee and reimbursements of Operating Payables
described in Section 4.
If
Manager receives any such payment or any such Distribution without the prior
written consent of Agent, the amount so paid shall be held in trust for the
benefit of Lenders, shall be segregated from the other funds of Manager and
shall forthwith be paid over to Agent. Manager hereby further subordinates
and
makes inferior to the liens and security interests from time to time granted
under the Transaction Documents any liens or security interests in favor of
Manager which burden or encumber any of the Properties or assets of Company,
and
each agrees that it will, immediately upon request from Agent, release any
such
lien or security interest.
Section
8. Notices.
Any
notice which may be given hereunder shall be ineffective unless in writing
and
either delivered by registered or certified mail with return receipt requested
to the addresses set out below or delivered by hand with written acknowledgment
of receipt. The addresses for notice are as follows:
| For Company: | Tekoil and Gas Gulf Coast, LLC | |
| 00000 X-00 Xxxxx, Xxxxx 000 | ||
| Xxx Xxxxxxxxx, Xxxxx 00000 | ||
| Attention: Xxxx X. Western | ||
| Telecopier: (000) 000-0000 |
-5-
Any
such
address may be changed at any time by written notice in accordance herewith.
Each notice hereunder shall be deemed to have been given when delivered in
person or by courier service and signed for against receipt thereof, or three
business days after depositing it in the United States mail with postage prepaid
and properly addressed.
Section
9. Construction.
This
Agreement shall be construed and interpreted in accordance with the laws of
the
State of Texas. Captions herein are inserted for convenience only and shall
have
no effect upon interpretation. Whenever the context requires, the singular
shall
include the plural and vice versa and the masculine or neuter shall include
the
masculine, neuter, or feminine.
Section
10. Assigns.
This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns; provided that
(a)
Company may not assign its rights hereunder without the written consent of
Manager, and (b) Manager may not assign its rights and obligations hereunder
without the written consent of Company and the Third Party Beneficiaries (as
defined below).
Section
11. Express
Beneficiaries. Manager agrees that Agent, each Lender, and each Lender
Counterparty (collectively, the “Third Party Beneficiaries”) (i) is an express
and intended third party beneficiary of the covenants and agreements made in
this Agreement by Manager (which benefits are immediate and not incidental),
and
(ii) has acted in reliance upon its status as a third party beneficiary as
set
forth above (including entering into the loan documents to which it is a
party).
Section
12. Amendment.
No
amendment of any provision of this Agreement shall be effective unless it is
in
writing and signed by all parties hereto and the Third Party Beneficiaries,
and
no waiver of any provision of this Agreement, and no consent to any departure
by
any party hereto therefrom, shall be effective unless it is in writing and
signed by the other parties hereto and the Third Party Beneficiaries, and then
such waiver or consent shall be effective only in the specific instance and
for
the specific purpose for which given.
Section
13. Entire
Agreement.
This
Agreement sets forth the entire agreement of the parties with respect to the
subject matter hereof and any prior agreements, written or oral, relating
thereto are hereby superseded.
Section
14. Counterparts,
Facsimile, Electronic Transmission.
This
Agreement may be executed in any number of counterparts, all of which shall
constitute one and the same instrument, and any party hereto may execute this
Agreement by signing and delivering one or more counterparts. This Agreement
may
be executed by facsimile signature or by electronic transmission and all such
signatures shall be effective as originals.
[Remainder
of page intentionally left blank.]
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.
| MANAGER: | ||
|
TEKOIL
& GAS CORPORATION,
a
Delaware corporation
|
||
| |
|
|
| By: | /s/ Xxxx Xxxxxxx | |
|
Name: Xxxx Xxxxxxx |
||
| Title: CEO and Chairman of the Board of Directors | ||
| COMPANY: | ||
| Tekoil and Gas Gulf Coast, LLC, a Delaware limited liability company | ||
| By: | Tekoil & Gas Corporation, its Managing Member | |
|
|
||
| By: | /s/ Xxxx Xxxxxxx | |
|
Name: Xxxx Xxxxxxx |
||
| Title: CEO and Chairman of the Board of Directors | ||
Signature Page to Management Services Agreement
