Exhibit 10.4

 

MANEK ENERGY PRESSURE PUMPING JOINT VENTURE, LLC

FORMATION AGREEMENT

 

THIS MANEK ENERGY PRESSURE PUMPING JOINT VENTURE, LLC FORMATION AGREEMENT
(“Agreement”) is made effective as of June 18, 2012 (the “Effective Date”) by
and between Manek Energy Holdings, a Delaware corporation, with offices at 2255
Ridge Road, Suite 100, Rockwall, TX 75087 (“Holdings”), Amerril Energy, LLC, an
Oklahoma limited liability company with offices at 3721 Briarpark Dr., Suite
155, Houston, TX 77042 (“Amerril”) and Cope Services, Inc., a Texas corporation
with offices at 2306 Highway 100, Centerville, TN 37033 (“Cope”).

 

WHEREAS, Holdings, Amerril and Cope desire to create a joint venture to operate
a hydraulic fracturing business serving the oil and gas industry, and to carry
out the purpose of the Joint Venture; and

 

WHEREAS, “Joint Venture” shall refer to Manek Energy Pressure Pumping, LLC, a
Delaware limited liability company organized or to be organized pursuant to the
Certificate of Formation and this Agreement whose sole members are Holdings,
Amerril and Cope (the “Members”).

 

NOW, THEREFORE, Holdings, Amerril and Cope do hereby agree to the following
terms and conditions, as of the Effective Date:

 

ARTICLE I.

FORMATION OF JOINT VENTURE; OWNERSHIP STRUCTURE

 

1.1           This Agreement constitutes a binding agreement with regard to the
various matters set forth herein.

 

1.2           Name of Joint Venture.  The name of the Joint Venture shall be
“Manek Energy Pressure Pumping, LLC” or such other name as the Members hereafter
may adopt upon: (i) causing an appropriate amendment to the Certificate of
Formation to be filed in accordance with the Delaware Act; and (ii) sending
notice thereof to each Member.

 

1.3           Formation.  Holdings is hereby designated as the authorized
person, within the meaning of the Delaware Act, to execute, deliver and file all
certificates (and any amendments and/or restatements thereof) which: (i) are
required or permitted by the Delaware Act to be filed in the office of the
Secretary of State of the State of Delaware; and (ii) this Agreement authorizes
the Joint Venture to execute, deliver and file.  Holdings shall cause to be
executed and filed with applicable governmental authorities any other
instruments, documents and certificates which, in the opinion of the Joint
Venture’s legal counsel, may from time to time be required by the laws of the
United States of America, the State of Delaware or any other jurisdiction in
which the Joint Venture shall determine to do business, or any political
subdivision or agency thereof, or which such legal counsel may deem necessary or
appropriate to effectuate, implement and continue the valid existence and
business of the Joint Venture.

 

1.4           Operating Agreement. On or before July 13, 2012, the parties
hereto agree that they will enter into a mutually acceptable operating agreement
with respect to the Joint Venture governing its management, governance,
accounting matters, capital accounts, reports, allocations and distributions,
tax matters, termination and winding up, such and other matters as are deemed
necessary or desirable by the Members, (the “Operating Agreement”). If an
Operating Agreement is not agreed to by such date, any Member may elect to
withdraw from the Joint Venture and receive reimbursement of its capital
contribution.

 

1.5           Purposes of Joint Venture.  Unless and until otherwise provided in
or pursuant to the Operating Agreement, the purposes of this Joint Venture shall
be to:

 

1.5.1           Provide hydraulic fracturing services to the oil and gas
industry;

 

 

 

 

1.5.2           Engage in all activities and transactions as may, , be necessary
or advisable to carry out the administration of the Joint Venture’s business,
all without any further act, vote or approval of any other person,
notwithstanding any other provision of this Agreement.

 

1.6           Principal and Registered Office.  The Joint Venture shall have its
principal executive office at the principal executive office of Holdings, or at
such other place designated from time to time by a super-majority in interest of
the Members (defined to be 66.67% or more of the issued and outstanding
membership interests).  The Joint Venture shall have its registered office and
registered agent in the State of Delaware the address and person identified in
the certificate of Formation of the Joint Venture, unless a different registered
office or agent is designated from time to time in accordance with the Delaware
Act.

 

1.7           Duration.  The term of the Joint Venture shall commence on the
filing of the Certificate of Formation with the Secretary of State of the State
of Delaware and shall continue until the Joint Venture is dissolved or as may be
otherwise provided in the Operating Agreement.

 

1.8           Limited Liability.  Except as otherwise required under applicable
law, neither of the Members shall be liable personally for the Joint Venture’s
debts, obligations or liabilities, whether arising in contract, tort or
otherwise, solely by reason of being a Member.

 

ARTICLE II.

CAPITAL STRUCTURE, CONTRIBUTIONS AND DISTRIBUTIONS

 

2.1           Capital Structure.  The capital structure of the Joint Venture
shall consist of the membership interests purchased by the initial
members.  Except as otherwise provided in this Agreement, all Interests shall
have the same relative rights, powers and duties.

 

2.2           Initial Capital Contributions.  On the Effective Date, and on such
dates thereafter as are appropriate per Sections 3.2.1 and 3.2.2, each Member
shall make the following capital contributions in consideration for their
respective membership interests. Anticipated initial capital contributions shall
total approximately $44,444,444.00 in value.

 

2.2.1           In consideration for the receipt of membership interests in the
Joint Venture, Holdings shall contribute the entire infrastructure of the Joint
Venture as a Capital Contribution, including operating, financial and
administrative personnel, two hydraulic frac fleets and other fixed assets. A
specific list of equipment and other fixed assets to be contributed by Holdings
is attached hereto as Schedule 2.2.1. The aggregate value of assets to be
contributed by Holdings will be approximately Thirty Six Million ($36,000,000).
Following receipt by the Joint Venture of its initial capital contributions
defined herein, Holdings shall receive a reimbursement of cash bringing its net
capital contribution in the Joint Venture to Twenty Two Million, Six Hundred
Sixty Six Thousand, Six Hundred Sixty Six Dollars ($22,666,666.). Such
contribution of capital assets to the Joint Venture by Holdings shall be made as
follows: (a) one frac fleet and all its related equipment shall be contributed
on or before June 30, 2012; and (b) the balance of such contribution shall be
made on or before August 31, 2012; Holdings agrees to provide copies of paid
invoices reflecting the purchase of equipment and related assets contributed to
the Joint Venture; Amerril and Cope shall have the right to review such purchase
and transfer records to confirm the value of the assets contributed.

 

2.2.2           In consideration for the receipt of membership interests in the
Joint Venture, Amerril shall contribute cash in the aggregate amount of
Seventeen Million Seven Hundred Seventy Seven Thousand Seventy Eight Dollars
($17,777,778), payable in installments of (a) One Million Dollars ($1,000,000)
on or before June 19, 2012; (b) Three Million Dollars ($3,000,000), on or before
July 16, 2012; and (c) Thirteen Million, Seven Hundred Seventy Seven Thousand,
Seven Hundred Seventy Eight Dollars ($13,777,778) on or before July 30, 2012;
and

 

2.2.3           In consideration for the receipt of membership interests in the
Joint Venture, Cope shall contribute (i) cash in the sum of Four Million Dollars
($4,000,000), payable in installments of (a) Two Hundred Fifty Thousand Dollars
($250,000), on or before June 4, 2012; (b) One Million Seven Hundred Fifty
Thousand Dollars ($1,750,000), on or before June 18, 2012; (c) Two Hundred Fifty
Thousand Dollars ($250,000), on or before July 2, 2012; and (d) One Million
Seven Hundred Fifty Thousand Dollars ($1,750,000), on or before July 30, 2012.

 

2

 

 

Following such initial Capital Contributions, the membership interests of the
Members shall be fully paid and non-assessable, and the ownership of the
membership interests for each Member shall be as set forth on Schedule I annexed
hereto.  Schedule I shall be amended from time to time to appropriately reflect
any additional capital contributions and ownership of the membership interests
in the Joint Venture, whether by new or existing Members.

 

 2.3           Maintenance of Capital Accounts.  A capital account (the “Capital
Account”) shall be established for each Member and such account shall be
adjusted as provided in the Operating Agreement.

 

2.4           Distributions. Until otherwise provided in the Operating Agreement
or except with the consent of a super-majority in interest of all Members, there
shall be no distributions by the Joint Venture to the Members.

 

ARTICLE III.

MANAGEMENT

 

3.1           Management.  The business and affairs of the Joint Venture will be
managed under the direction of the Managers (collectively, as a unit, the “Board
of Managers”), whose composition, duties and function shall be specified in the
Operating Agreement. Until the adoption of an Operating Agreement, the business
and affairs of the Joint Venture shall be managed under the direction of the
Members.  Management of the day-to-day operation of the business of the Joint
Venture shall be conducted by Holdings without the direction of and approval by
a super-majority in interest of the Members except as stated herein or in the
joint operating agreement.  

 

Until the adoption of an Operating Agreement, the actions requiring approval of
Managers shall require the approval of a super-majority in interest of all
Members: In addition, the following actions shall require the consent of all
Members:

 

• transactions outside the ordinary course of business as defined under Section
1.5 above

• change of name

• change in scope of the business

• admission of new members

• any issuance, sale or transfer of membership interests

• incurring debt, granting security or guarantees unless contemplated in annual
business plan and budget

• payment of any distributions

• commencement of bankruptcy proceedings

• adoption of annual business plan

▪ adoption of annual budget

▪ capital expenditures not contemplated in annual business plan or budget

• acquisitions, investments in third parties, strategic alliances or
partnerships outside the ordinary course of business

• disposal of assets;

• if not in ordinary course of business, commencing or making any significant
decision relating to litigation, administrative or investigative proceeding

▪ adoption of an Operating Agreement

▪ contracts with value in excess of $10 Million

▪ service contracts with affiliated companies

 

3.2           Liability and Indemnification.

 

3.2.1 Except as otherwise provided by law, no Member, Manager or officer or
agent of any Member, Manager or officer shall be liable, responsible, or
accountable in any way for damages or otherwise to the Joint Venture or to any
of the Members for any act or failure to act pursuant to this Agreement or
otherwise unless there is a final, non-appealable judicial determination that:
(i) such Person acted in bad faith; (ii) the conduct of such Person constituted
intentional misconduct or a knowing violation of law; (iii) such Person gained a
financial benefit to which such Person was not legally entitled; or (iv) such
Person failed to perform his or her duties with respect to distributions under
Section 18-607 of the Delaware Act, in good faith and with that degree of care
that an ordinarily prudent person in a like position would use under similar
circumstances.

 

3

 

 

3.2.2           The Joint Venture shall indemnify, defend, and hold harmless
each of the Members, Managers, officers and each agent of a Member, Manager or
officer against third parties (severally, the “Indemnitee” and collectively, the
“Indemnitees”), from and against any claims, losses, liabilities, damages,
fines, penalties, costs, and expenses (including, without limitation, reasonable
fees and disbursements of counsel and other professionals) arising out of or in
connection with: (a) such Indemnitee’s status as a Member, Manager or officer of
the Joint Venture; (b) any act or failure to act by an Indemnitee pursuant to
this Agreement; or (c) any claims, damages, liabilities, costs or expenses
incurred by the Indemnitee in connection with past or present services to the
Joint Venture to the fullest extent permitted by law, except for gross
negligence, bad faith, willful misfeasance, reckless disregard of duties or
willful violation of law having a material adverse effect on the Joint Venture
by such Indemnitee; provided, further, that an Indemnitee shall not be entitled
to indemnification hereunder if there is a judicial determination that such
Person’s actions or omissions to act is set forth in clauses (i), (ii), (iii) or
(iv) of Section 3.2.1 above.

 

ARTICLE IV.

RESTRICTIONS ON TRANSFER OF INTERESTS; ADMISSION OF ADDITIONAL MEMBERS

 

4.1           Transfers.          Except as provided in Section 4.2, no Member
may Transfer all or any portion of its Interest without the prior written
consent of all the Members, which consent may be granted or withheld for any or
no reason.  Any Transfer of all or any portion of an Interest by any Member not
made in compliance with this Section 4.1 shall be void and of no effect.

 

4.2           Permitted Transfers.   Notwithstanding the provisions of Section
4.1, either party shall be permitted to Transfer its Interest to any Affiliate,
provided that such Affiliate complies with the provisions of Section 4.3 below
(except that the other parties consent shall not be required), after which all
references in this Agreement to the transferring party shall be deemed to
include such transferee. In addition, Amerril shall be permitted to transfer its
membership interest to Qingdao Kingking Applied Chemistry Co., Ltd. without the
necessity of additional consent from the other Members, and such entity will be
admitted as a Member of the Joint Venture on its compliance with the terms of
Section 4.3 below.

 

4.3           Admission of Additional Members.   No Person shall have any right
as a member of the Joint Venture unless and until such Person is admitted as a
Member after such approval as is required by, and in compliance with the other
conditions set forth in, this Section 4.3.  A new Member may be admitted to the
Joint Venture only with the consent of all of the Members and only if such
person shall have executed an appropriate supplement to this Agreement agreeing
to be bound by its terms, as such terms may be modified by such supplement.  Any
person so admitted shall have all the rights and obligations of a Member
hereunder effective on and after the date of admission as a Member of the Joint
Venture.

 

ARTICLE V.

BANK ACCOUNTS; BOOKS AND RECORDS

 

5.1           Banking.  One or more bank accounts shall be established in the
name of the Joint Venture.

 

5.2           Books and Records.  Until otherwise provided in the Operating
Agreement, Holdings shall have physical possession of the books and records of
the Joint Venture and shall give such notices, reports and advice to the Members
as may, from time to time, be required or deemed advisable, and shall perform
the necessary ministerial functions of the Joint Venture.  Upon not less than
five(5) days advance written notice, each Member shall have the right, during
ordinary business hours, to inspect and copy the Joint Venture documents held in
accordance with the confidentiality provisions contained herein at the
requesting Member’s expense, provided, however, that the Managers shall not
provide any information which they reasonably consider to be a trade secret or
similar confidential information.  The Joint Venture may, at its option, require
any Member who has access to the books or records of the Joint Venture to
execute and deliver a nondisclosure agreement in a form reasonably prescribed by
the Joint Venture.

 

4

 

 

ARTICLE VI.

TERMINATION AND WINDING UP OF THE JOINT VENTURE

 

6.1           Termination.  This Joint Venture shall commence on execution of
this Agreement and shall continue until the first of any of the following events
occur:

 

   6.1.1      Termination on Occurrence of Stated Events: This Agreement and the
Joint Venture will terminate automatically on the occurrence of any of the
following events:

 

(i)          To the extent required by the Delaware Act; or

 

(ii)         Dissolution, termination of existence, insolvency, business
failure, appointment of a receiver, assignment for the benefit of creditors, or
the commencement of any proceeding under any bankruptcy or insolvency law by or
against either Party to this Agreement.

 

   6.1.2           Mutual Termination.  The Parties may, at any time, mutually
agree to terminate this Agreement and the Joint Venture.

 

6.2           Winding Up.

 

   6.2.1Upon termination of the Joint Venture, the assets of the Joint Venture
shall be liquidated and the affairs of the Joint Venture shall be wound up and
terminated under a plan approved by and adopted by all of the Members.  Upon
completion of such liquidation and winding up, but not later than two (2) years
after the end of the Fiscal Year during which termination occurs, the assets of
the Joint Venture shall be liquidated and disposed of as follows:

 

(i)          First, to the payment of debts and liabilities of the Joint Venture
and expenses of the liquidation and winding up;

 

(ii)         Second, to the setting up of any reserves (to be held in a special
interest-bearing account) which the liquidating trustee may deem reasonably
necessary for any contingent or unforeseen liabilities or obligations of the
Joint Venture; provided, however, that at the expiration of such time as such
trustee shall deem advisable (not to exceed two (2) years after the end of the
Fiscal Year during which termination occurs, except in the case of any
litigation matter where the length of time such reserves are maintained shall be
determined by the liquidating trustee in its sole discretion), the balance of
such reserves remaining after the payment of such contingent liabilities shall
be distributed in the manner set forth in Section 6.2.1(iii) below; and

 

(iii)         Third, to all Members, in accordance with their Percentage
Interest.

 

   6.2.2       Notwithstanding any termination of the Joint Venture, prior to
such time as all of the assets of the Joint Venture shall be liquidated and
distributed pursuant to Section 6.2, the Joint Venture’s business and the
affairs of the Members, as such, shall continue to be governed by this
Agreement.

 

The provisions of this section shall survive the termination of any other
provisions of this Agreement.

 

6.3           Final Accounting.       Holdings or the liquidating trustee shall
provide to each Member a financial statement setting forth the assets and
liabilities of the Joint Venture as of the date of termination and all income,
gains, losses and deductions realized by the Joint Venture upon completion of
the liquidation of the assets of the Joint Venture.  Upon compliance by Holdings
or the liquidating trustee, as applicable, with the foregoing distribution plan,
Holdings or the liquidating trustee shall take such steps as are required to
cancel the Certificate of Formation, upon the completion of which the Joint
Venture shall terminate and the Members shall cease to be such.

 

5

 

 

The Joint Venture agrees to indemnify each Member against any and all debts,
liabilities, obligations and legal actions against such Member should the
occurrence of one of the events of termination set forth in Section 6.1.1 above
occur due not to any fault of such Member.

 

ARTICLE VII.

GENERAL PROVISIONS

 

7.1           Confidentiality. Any Member may obtain from the Joint Venture, for
any purpose reasonably related to the Member’s Interest, such information
regarding the affairs of the Joint Venture as is just and reasonable under the
Delaware Act, subject to reasonable standards (including standards governing
what information and documents are to be furnished, at what time and location
and at whose expense) established by a super-majority in interest of the
Members.

 

7.1.1           Each Member covenants that, except as required by applicable
law, judicial proceeding or any regulatory body, it will not divulge, furnish or
make accessible to any other Person information regarding the affairs of the
Joint Venture, its Managers and their Affiliates, including, but not limited to,
the terms of material contractual arrangements, financial performance, whether
historical in nature, or relating to plans and prospects, projections and
estimates, in each case as such Member may have received in their position as a
Member during in the course of the operation of the Joint Venture (collectively,
“Confidential Information”) without the prior written consent of the other
Members, which consent may be withheld in its sole discretion.

 

7.1.2           Each Member recognizes that in the event that this Section 7.2
is breached by any Member or any of its principals, partners, members,
directors, officers, employees or agents or any of its Affiliates, including any
of such Affiliates’ principals, partners, members, directors, officers,
employees or agents, irreparable injury may result to the non-breaching Members
and the Joint Venture.  Accordingly, in addition to any and all other remedies
at law or in equity to which the non-breaching Members and the Joint Venture may
be entitled, such Member and the Joint Venture also shall have the right to
obtain equitable relief, including, without limitation, injunctive relief, to
prevent any disclosure of Confidential Information, plus reasonable attorneys’
fees and other litigation expenses incurred in connection therewith.

 

7.2           Members Not Agents.  This Agreement does not constitute any Member
as the agent or legal representative of the other Member for any purpose
whatsoever.  No Member is granted any express or implied right or authority by
any other Member to assume or to create any obligation or responsibility on
behalf of, or in the name of, the other Member, or to bind the other Member in
any manner or thing whatsoever.

 

7.3           Choice of Law.  This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, including the Delaware
Act, without regard to conflict of law provisions of such State.

 

7.4           Attorneys’ Fees. Following any legal proceeding between any of the
Parties hereto regarding the operation or enforcement of this Agreement, the
prevailing Party shall be entitled to recover from the non-prevailing party
court costs, necessary disbursements (including without limitation expert
witnesses’ fees) and reasonable attorneys’ fees, in addition to any other relief
such Party may be entitled.  This provision shall be construed as applicable to
the entire contract.

 

7.5           Injunctive Relief. The Members hereby agree the subject matter of
this Agreement is unique, unusual and extraordinary in nature such that it has a
peculiar value, the loss of which cannot be reasonably or adequately compensated
in damages in an action at Law.  Each Member, therefore, expressly agrees that
the other Member, in addition to any other rights or remedies which the other
Member may possess, shall be entitled to injunctive and other equitable relief
to prevent or remedy a breach of this Agreement by a Member.

 

7.6           Binding on Heirs. This Agreement shall be binding on and shall
inure to the benefit of the heirs, executors, administrators, successors, and
assigns of the Members.

 

6

 

 

7.7           Entire Agreement/Modification or Amendment.  This Agreement
supersedes any and all other agreements, either oral or in writing, between the
Parties hereto with respect to the subject matter hereof, and no other
agreement, statement, or promise relating to the subject matter of this
Agreement, which is not contained herein shall be valid or binding; with the
express exception, however, of the Operating Agreement, once negotiated and
entered into by the Members and/or Managers.  Any modification or amendment of
this Agreement will be effective only if it is in writing and executed by all
Members.

 

7.8           Non-Competition. No Party shall have the right to usurp Joint
Venture opportunities for the benefit of itself or others as delineated in the
scope of work and geographical locations then currently served by the Joint
Venture or as further defined herein or in the Joint Operating agreement. . Such
prohibition shall include the ownership, management (as a principal or partner),
or other investment in any competing business or enterprise.

 

7.9           Severability.  If any provision in this Agreement is held by a
court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force without being
impaired or invalidated in any way.

 

7.10         Waiver.  The waiver by any Party of any breach of a provision of
this Agreement by the other Party shall not constitute a continuing waiver or a
waiver of any subsequent breach of the same or of a different provision of this
Agreement.  Except as otherwise specifically provided in this Agreement, nothing
contained herein shall be deemed to restrict or prevent any Party from
exercising legal or equitable rights or from pursuing legal or equitable
remedies in connection herewith.

 

7.11         Notices and Requests.  All notices, requests, demands and other
communications required or permitted under this Agreement shall be in writing
and shall be deemed to have been duly given, made and received: (x) when
delivered, if made by hand delivery; (y) two days following the day when
deposited with an overnight courier service such as Federal Express, for the
delivery to the intended addressee; or (z) two days following the day when
deposited in the United States mails, first class postage prepaid, addressed as
set forth below:

 

If to the Joint Venture, to the attention of Holdings at 2255 Ridge Road, Suite
100, Rockwall, TX 75087.

 

If given to any Member, at the address thereof set forth in the Joint Venture’s
books and records.

 

7.12         Section Headings.  The headings of the paragraphs of this Agreement
have been set forth for convenience only and are not intended to influence the
interpretation of this Agreement.

 

7.13         Construction.  Each Party cooperated in the drafting of this
Agreement.  If any construction is to be made of any provision of this
Agreement, it shall not be construed against either Party on the ground such
Party was the drafter of the Agreement or any particular provision.

 

7.14         Entity Authorization.  Each signatory of this Agreement represents
and warrants that this Agreement and the undersigned’s execution of this
Agreement has been duly authorized and approved by such signatory, if
necessary.  The undersigned officers and representatives of the entities
executing this Agreement on behalf of the entities represent and warrant they
possess full authority to execute this Agreement on behalf of the entities.

 

7.15         Fiscal Year.  The fiscal year shall be designated in the Definitive
Operating Agreement.

 

7.16         Execution By Facsimile.  This Agreement may be executed by the
Parties and transmitted by facsimile, or by an electronic scan sent by e-mail. A
facsimile or scanned and emailed signature of a Party shall be binding as an
original.  If a Party sends a copy of the Agreement or part thereof with that
Party’s signature by facsimile or email, that Party shall promptly send the
original by first class mail.  This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.

 

7

 

 

[The remainder of this page intentionally left blank.]

 

8

 

 

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date first written above.

 

MEMBERS:

 

Each person who has signed or has had signed on its behalf a Member Signature
Page, which shall constitute a counterpart hereof.

 

MANEK ENERGY HOLDINGS, INC.       /s/ Ken Goggans   By:  Kenneth A. Goggans  
Title: Chief Executive Officer       AMERRIL ENERGY LLC       /s/ Ping He   By:
Ping He   Title: President       COPE SERVICES, INC.       /s Ron Cope   By: Ron
Cope   Title: President      

9

 

 

SCHEDULE I

 

Percentage Interests of Members%

 

 

Member

  Percentage
Interest        Manek Energy Holdings, Inc.   51.0% Amerril Energy LLC   40.0%
Cope Services, Inc.   9.0%

 

10