INDEMNITY AGREEMENT
Exhibit
10.42
EXECUTION
COPY
INDEMNITY AGREEMENT
This
INDEMNITY AGREEMENT (herein so called) dated as of May 11, 2007 (the
“Effective
Date”)
is
made by MASTERS
RESOURCES, L.L.C., MASTERS OIL & GAS, L.L.C., and MASTERS PIPELINE,
L.L.C.,
all
Texas limited liability companies (collectively, “Masters”),
and
TEKOIL
& GAS GULF COAST, LLC, a
Delaware limited liability company (“Tekoil”).
In
this Indemnity Agreement, Masters, collectively or individually, and Tekoil,
individually, are sometimes called the “Party”,
and
Masters and Tekoil are collectively sometimes called the “Parties”).
RECITALS
Masters
Resources, L.L.C. and Masters Oil & Gas, L.L.C. (collectively, “Sellers”)
and Tekoil have entered into a Purchase and Sale Agreement dated effective
as
of
October
1,
2006,
as
amended (collectively, the “Purchase
Agreement”),
pursuant to which Sellers have agreed to sell, and Tekoil has agreed to
purchase, on terms acceptable to both, certain properties covering lands in
Galveston Bay, Xxxxxxxx and Galveston Counties, Texas (the “Subject
Properties”).
In
the Purchase Agreement, inter
alia,
Tekoil
agreed to allow Sellers to reserve an overriding royalty interest in portions
of
the Subject Properties and Masters agreed to indemnify and hold harmless Tekoil
from the “Claims”
(defined herein). Sellers have requested that the overriding royalty that was
to
be reserved by the Sellers be granted instead to Masters Pipeline, L.L.C. Tekoil
has agreed to that request upon the conditions, inter
alia,
that
(a) Masters Pipeline, L.L.C. join in the indemnity of Tekoil required by the
Purchase Agreement, (b) that the overriding royalty interest to be granted
to
Masters Pipeline, L.L.C. be made the subject of a lien and security interest
securing to secure those indemnity obligations, and (c) that the indemnity
obligations of Masters also be secured by a security interest covering one
or
more certificates of deposit in the original principal amount of not less than
One Million and No\100 Dollars ($1,000,000.00). Contemporaneously with the
execution and delivery of this Indemnity Agreement, the transaction contemplated
by the Purchase Agreement will close and, as a condition to and as a portion
of
the consideration for, Tekoil’s purchase of the Subject Properties, the Parties
agree as set out in this Indemnity Agreement.
1. Claims.
As used
in this Indemnity Agreement the term “Claims”
means
any and all (a) liabilities or claims, or fines, penalties or assessments by
any
“Person”
(defined herein) (insofar as not prohibited by law), or losses, damages costs
or
expenses (including costs of defense, settlement and reasonable attorneys’
fees), which directly or indirectly arise out of or by virtue of either or
both
of the following causes of action listed below, AND
SHALL INCLUDE WITHOUT LIMITATION ANY INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE,
EXEMPLARY, OR CONSEQUENTIAL DAMAGE, COST, EXPENSE OR OTHER LIABILITY, OR LOSS
OF
REVENUE OR OPPORTUNITY, LOSS OF GOODWILL, DOWN TIME COSTS OR SIMILAR CLAIMS
OR
SUCH CLAIMS BY THIRD PARTIES AGAINST TEKOIL, WHETHER ARISING OUT OF CONTRACT,
TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY, OR ANY OTHER CAUSE OF OR FORM
OF
ACTION WHATSOEVER, and
(b)
any threat to bring any action or the bringing of an action seeking to assert
against, or collect from, or impose upon, Tekoil, or assets purchased by Tekoil
from Masters, any such liabilities or claims, or fines, penalties or assessments
by any Person, or losses, damages costs or expenses (including costs of defense,
settlement and reasonable attorneys’ fees):
|
1.
|
Xxxxxxx
Energy Partners II, X.X. x. Xxxxxxx Resources L.L.C.,
Case No. 2007-15466, pending in the 55th
Judicial District Court of Xxxxxx County, Texas,
or
|
|
2.
|
Jiva
International, Inc. v. Ashi Energy Services LLC,
Cause No. 221687, pending in 151st
Judicial District Court of Xxxxxx County,
Texas.
|
As
used
in this Indemnity Agreement, “Person”
means
any natural person, corporation, limited or general partnership, joint venture,
association, limited liability company, trust, bank, trust company, land trust,
business trust, other entity or organization, including, without limitation,
any
“Governmental
Authority”,
where
“Governmental
Authority”
means
any nation or government, any state or political subdivision thereof, any
Federal, state, municipal, local, territorial or other governmental department,
commission, board, bureau, agency, regulatory authority, instrumentality,
judicial or administrative body, domestic or foreign, exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
2. Indemnity.
2.1. Masters
jointly and severally agrees
to
indemnify Tekoil against, and to save Tekoil harmless from, any and all
Claims.
2.2. Upon
obtaining knowledge of any effort or intent by a Person to assert a Claim,
or
the assertion of a Claim, Tekoil shall, within ten (10) days of obtaining such
knowledge, deliver a written notice of Claim to Masters; provided, however,
the
failure to provide (or timely provide) a written notice of Claim shall not
affect Tekoil’s rights to indemnification except that Masters is not obligated
to indemnify Tekoil for the increased amount of any damages which would
otherwise have been payable to the extent that the increase resulted from
Tekoil’s failure to deliver timely a notice of Claim.
2.3. Masters
shall have the right to control the defense of and shall defend, in good faith
and at its own expense, any Claim set forth in a notice of Claim. Tekoil may
participate in the defense, at its expense, except that Tekoil’s participation
shall not be at Tekoil’s expense if (a) Masters chooses counsel not reasonably
acceptable to Tekoil, (b) Masters does not use “Commercially
Reasonable Efforts”
(defined herein) to pursue such defense, or (c) both Masters and Tekoil are
defendants in a Claim and Tekoil shall reasonably conclude that (i) there may
be
legal defenses available to it which are inconsistent with those available
to
Masters or (ii) there may be additional or inconsistent non-monetary
consequences to it in such Claim. Tekoil shall have a right to notice of any
settlement, and Masters shall not execute or otherwise agree to any settlement
or consent decree which requires the payment of money or imposes any obligations
or restrictions on Tekoil’s operations or the Subject Properties without
Tekoil’s prior written consent, which consent shall not be unreasonably
withheld, conditioned or delayed. Notwithstanding the foregoing, Tekoil shall
have the right to pay or settle any such Claim, so long as in such event Tekoil
shall waive any right to indemnity therefor by Masters. However, if Masters
elects not to defend or settle any Claim and Tekoil defends, settles or
otherwise deals with any Claim, (x) Tekoil shall provide fifteen (15) days’
advance written notice to Masters of any settlement, which settlement may be
without the consent of Masters, and shall act reasonably and in accordance
with
its good faith business judgment; and (y) Masters shall pay such settlement
in
accordance with the terms thereof and reimburse Tekoil for its costs and
expenses and reasonable attorneys fees incurred in connection therewith within
ten (10) days of Tekoil’s demand for same. The Parties shall cooperate fully
with each other in connection with the defense, negotiation or settlement of
any
Claim. As used in this Indemnity Agreement “Commercially
Reasonable Efforts”
means,
when used with reference to either Party, such prompt, substantial and
persistent efforts of the Party as are commercially reasonable under the
circumstances in the industry of such Party; however, “Commercially Reasonable
Efforts shall not require a Party to expend unlimited resources or amounts
of
money, but only such amounts as are commercially reasonable in the applicable
circumstances.
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2.4. If
any
Claim is asserted or pursued by a Person against Tekoil, Tekoil shall use its
Commercially Reasonable Efforts to make available to Masters’ counsel those
Persons under Tekoil’s control whose assistance, testimony or presence is
necessary to assist Masters’ counsel in evaluating and in defending such Claim;
provided, however, that any such access shall be conducted in such a manner
as
not to interfere unreasonably with the operations of the business of Tekoil
and
failure to use Commercially Reasonable Efforts to provide such necessary
witnesses or access to information shall not excuse Master’s performance of its
obligations under this Indemnity Agreement.
2.5. The
provisions of this Indemnity Agreement provide the exclusive remedy of the
Parties and their respective “Related
Persons”
with
respect to all Claims.
As used
in this Indemnity Agreement, “Related
Person”
means,
as regards either Party, any officer, director, shareholder, member, partner,
agent, employee, contractor, subcontractor, licensee or invitee of such Party
or
any of such Party’s “Affiliates”;
and
“Affiliate”
means
any Person that directly or indirectly (through one or more intermediaries)
controls or is controlled by or is under common “control”
with
the Person specified; and “control”
of
a
Person means the power, direct or indirect, to cause or determine the direction
of the management and policies of such Person (whether by contract or
otherwise).
3. Security
Interest.
In order
to secure the obligations of Masters arising out of this Indemnity Agreement,
Masters shall deposit the sum of ONE MILLION AND NO/100 DOLLARS ($1,000,000.00)
into an account pursuant to the terms and provisions of a Pledge and Security
Agreement of even date herewith, copy of which marked Exhibit A is attached
hereto and made a part hereof for all purposes. In addition to the foregoing,
Masters Pipeline, L.L.C. shall, contemporaneously herewith, execute and deliver
to Tekoil Deed
of
Trust, Mortgage, Assignment, Security Agreement, Fixture Filing, and Financing
Statement substantially
in the form of Exhibit B attached hereto and made part hereof for all purposes.
The liens and security interests created by both said documents shall remain
in
full force and effect , until this Indemnity Agreement is terminated by the
Parties in accordance with the provisions hereof.
4. Term
of Indemnity Agreement.
This
rights and obligations of the Parties under this Indemnity Agreement shall
commence on the Effective Date and shall continue until terminated by the
written agreement of the Parties, which termination shall not be granted unless
and until, as to each of the proceedings described in Section 1 of this
Indemnity Agreement, (a) a final non-appealable judgment in favor of Masters
has
been rendered, or (b) the proceedings are dismissed and such dismissal is final
and not appealable, or (c) execution and delivery of written settlement
agreement containing releases of liability and covenants not to xxx in favor
of
Tekoil that have been approved in writing by Tekoil prior to the execution
and
delivery thereof, together with an agreed order of dismissal with prejudice
to
re-filing, and an Order of the Court to that effect signed and entered in
accordance with the applicable Rules of Civil Procedure.
3
5. Reliance.
This
Indemnity Agreement is made for the purpose of inducing Tekoil to close the
transaction contemplated by the Purchase Agreement. Masters recognizes that
Tekoil is relying upon this Indemnity Agreement in its election to close the
transaction contemplated by the Purchase Agreement and that but for the
obligations and undertakings of Masters herein, Tekoil would not close the
transaction contemplated by the Purchase Agreement.
6. Governing
Law.
THIS
INDEMNITY AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO CONFLICTS OF LAW
PRINCIPLES.
7. Miscellaneous.
This
Indemnity Agreement embodies the entire agreement between the Parties with
respect to the joint and several obligations of Masters to indemnify and hold
harmless Tekoil. THIS
WRITTEN INDEMNITY AGREEMENT REPRESENTS THE FINAL INDEMNITY AGREEMENT REGARDING
CLAIMS BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Except
as set out in Section 2.5 above, this Indemnity Agreement, and Tekoil’s rights
hereunder, are in addition to, and not in lieu of, other rights and remedies
of
Tekoil under applicable law.
8. Assignment.
Tekoil’s
rights under this Indemnity Agreement may be assigned in connection with any
assignment or transfer of the Subject Properties.
9. Waiver.
No
course of dealing between Masters and Tekoil, nor any failure to exercise,
nor
any delay in exercising, any right, power or privilege of, Tekoil hereunder
or
under any other document relating to this transaction shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or thereunder preclude any other or further exercise thereof
or the exercise of any other right, power or privilege.
[Remainder
of page intentionally blank. Signatures are on next page.]
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EXECUTED
as of the Effective Date.
| MASTERS RESOURCES, LLC, a Texas limited liability company | TEKOIL & GAS GULF COAST, LLC, a Delaware limited liability company | |||
| By: |
/s/
Xxxx X. Xxxxxx
|
By: | Tekoil & Gas Corporation, Its Managing Member | |
|
Xxxx
X. Xxxxxx, Managing Member
|
||||
| By: | /s/ Xxxx X. Western | |||
|
Xxxx X. Western, CEO & Chairman of the Board of Directors |
||||
| MASTERS OIL & GAS, LLC, a Texas limited liability company | ||||
| By: | /s/ Xxxx X. Xxxxxx | |||
|
Xxxx
X. Xxxxxx, Managing Member
|
||||
|
MASTERS
PIPELINE, L.L.C.,
a
Texas limited liability company
|
||||
| By: | /s/ Xxxx X. Xxxxxx | |||
|
Xxxx
X. Xxxxxx, Managing Member
|
||||
|
Exhibit
A
|
Pledge
and Security Agreement
|
|
|
Exhibit
B
|
Deed
of Trust, Mortgage, Assignment, Security Agreement, Fixture Filing
and
Financing Statement
|
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