AMENDMENT NO. 1 AND WAIVER
 
This Amendment No. 1 and Waiver (this "Agreement") dated as of July 3, 2007 (the
"Effective Date"), is by and among Tekoil and Gas Gulf Coast, LLC, a Delaware
limited liability company (the "Company"), Tekoil & Gas Corporation, a Delaware
corporation, as guarantor (the "Guarantor"), the lenders party to the Credit
Agreement described below ("Lenders"), J. Aron & Company, as Lead Arranger and
as Syndication Agent (in such capacities, "Syndication Agent"), and J. Aron &
Company, as Administrative Agent for such Lenders (together with its permitted
successors in such capacity, the "Administrative Agent").
 
RECITALS
 
A.  Reference is made to that certain Credit and Guaranty Agreement dated as of
May 11, 2007 among the Company, the Guarantor, the Lenders, the Syndication
Agent and the Administrative Agent (the "Credit Agreement").
 
B.  Subject to the terms and conditions of this Agreement, the Company, the
Guarantor, the Lenders, the Syndication Agent and the Administrative Agent, wish
to (i) make certain amendments to the Credit Agreement as provided herein and
(ii) provide a waiver for the Waiver Defaults, as defined below.
 
NOW THEREFORE, in consideration of their mutual undertakings, the Company, the
Guarantor, the Lenders, the Syndication Agent and the Administrative Agent
hereby agree as follows:
 
Section 1.  Definitions and Interpretations. As used in this Agreement, each of
the terms defined in the opening paragraph and the Recitals above shall have the
meanings assigned to such terms therein. Each term defined in the Credit
Agreement and used herein without definition shall have the meaning assigned to
such term in the Credit Agreement, unless expressly provided to the contrary.
Article, Section, Schedule, and Exhibit references are to this Agreement, unless
otherwise specified. Paragraph headings have been inserted in this Agreement as
a matter of convenience for reference only and it is agreed that such paragraph
headings are not a part of this Agreement and shall not be used in the
interpretation of any provision of this Agreement.
 
Section 2.  Waiver.
 
(a)  The Company hereby acknowledges the existence of the following Events of
Default (the "Waiver Defaults"): (i) the Company did not furnish the title
opinions required by the Credit Agreement (the "Post-Closing Title Opinions") on
or before June 23, 2007 and (ii) the bonds and/or letters of credit in lieu of
bonds maintained by Sellers with respect to the Properties for the Railroad
Commission of Texas ceased to be in full force and effect prior to June 11, 2007
without Company first providing all such bonds and/or letters of credit in lieu
of bonds with respect to the Properties.
 
(b)  Subject to the terms and conditions of this Agreement, the Lenders hereby
waive the Waiver Defaults. The waiver by the Lenders described in this Section 2
is contingent upon the satisfaction of the conditions precedent set forth below
in this Agreement and is limited to the Waiver Defaults. Such waiver shall not
be construed to be a consent to or a permanent waiver of any Section covered by
either of the Waiver Defaults or any other terms, provisions, covenants,
warranties or agreements contained in the Credit Agreement or in any of the
other Transaction Documents. The Lenders reserve the right to exercise any
rights and remedies available to them in connection with any other present or
future defaults with respect to the Credit Agreement or any other provision of
any Transaction Document. The description herein of the Waiver Defaults is based
upon the information available to the Lenders on the date hereof and shall not
be deemed to exclude the existence of any other Events of Default. The failure
of the Lenders to give notice to any Credit Party of any such other Events of
Default is not intended to be nor shall be a waiver thereof. The Company and the
Guarantor hereby agree and acknowledge that the Lenders require and will require
strict performance by the Company and the Guarantor of all of their respective
obligations, agreements and covenants contained in the Credit Agreement and the
other Transaction Documents, as amended hereby, and no inaction or action
regarding any Event of Default is intended to be or shall be a waiver thereof.
 
 
 

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(c)  Without limitation of the foregoing, any failure to deliver the
Post-Closing Title Opinions by the date set forth in Section 8.1(s) of the
Credit Agreement (as amended hereby), or any failure of Company to maintain
hereafter all bonds and/or letters of credit in lieu of bonds required with
respect to the Properties for the Railroad Commission of Texas, shall constitute
an Event of Default.
 
Section 3.  Amendments to the Credit Agreement.
 
(a)  Section 1.1 of the Credit Agreement is amended by adding the following new
terms in alphabetical order:
 
"July 2007 Uncommitted Loan" means the $6,752,200 Uncommitted Loan made pursuant
to the Amendment No. 1 and Waiver dated as of July 3, 2007.
 
"July 2007 Uncommitted Loan Maturity Date" means, with respect to the July 2007
Uncommitted Loan, the earlier of (a) July 3, 2008, and (b) the date that all
Loans shall become due and payable in full hereunder, whether by acceleration or
otherwise.
 
(b)  Section 2.1(b) of the Credit Agreement is amended by deleting the reference
to "Maturity Date" and replacing it with the phrase "July 2007 Uncommitted Loan
Maturity Date."
 
(c)  Section 2.6(c) of the Credit Agreement is amended by deleting clause (iv)
thereof and replacing it with the following clause (iv):
 
(iv) at maturity, including the July 2007 Uncommitted Loan Maturity Date and the
Maturity Date, as applicable.
 
(d)  Section 2.4 of the Credit Agreement is amended by deleting the second
sentence thereof and replacing such second sentence with the following two
sentences:
 
The proceeds of the Loans made after the Closing Date (other than the July 2007
Uncommitted Loan) shall be applied by Company (a) to implement the Approved Plan
of Development, (b) to make other expenditures from time to time approved by
Required Lenders, (c) subject to the requirements of Section 6.3, to purchase
crude oil puts / natural gas floors, and (d) for Company's working capital. The
proceeds of the July 2007 Uncommitted Loan shall be applied by Company (a) to
provide as cash collateral to Amegy Bank National Association in connection with
the issuance by such bank of a letter of credit (the "Letter of Credit") in the
amount of $6,370,000 in favor of the Texas Railroad Commission with respect to
the Properties and (b) to pay related expenses, costs and fees.
 
 
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(e)  Section 2.11 of the Credit Agreement is hereby deleted in its entirety and
replaced with the following:
 
2.11 ANCF Payment of Principal. On each Quarterly Payment Date, Company will pay
(or prepay) the principal of the Loans, without premium or penalty, in an amount
equal to 100% of ANCF (or such lesser percentage of ANCF, not to be less than
50%, as may be selected by Agent in its sole discretion) for the immediately
preceding Calculation Quarter. Such amount shall be applied first to pay (or
prepay) the principal of Loans other than the July 2007 Uncommitted Loan and
second to pay (or prepay) the principal of the July 2007 Uncommitted Loan.
 
(f)  Section 2.13 of the Credit Agreement is hereby amended by adding the
following clause (b) in appropriate alphabetical order:
 
2.13 Mandatory Prepayments.
 
(b) In the event that any cash collateral or other funds held by Amegy Bank
National Association with respect to the Letter of Credit are returned to
Company or otherwise released (other than for reimbursement of the issuer for
any draws under such Letter of Credit or payment of usual and customary fees
with respect thereto), Company shall immediately prepay outstanding principal
amount of the July 2007 Uncommitted Loan by an amount equal to the amount so
released. No Make-Whole Amount shall be payable with respect to any such
prepayment of the July 2007 Uncommitted Loan unless the outstanding principal
amount of the Loans made pursuant to Section 2.1(a) has been or is prepaid
contemporaneously or otherwise in connection with such prepayment of the July
2007 Uncommitted Loan.
 
(g)  Section 5.8 of the Credit Agreement is amended by deleting the 6th sentence
thereof in its entirety and replacing such 6th sentence with the following:
 
Company agrees to be insured by insurers with a financial strength rating of
"A-" or better and financial size category of "VII" or better from AM Best, "A-"
or better by Standard & Poor's or an equivalent rating from a recognized rating
agency; provided that Company may be insured by Southern County Mutual Insurance
Company as Administrative Agent deems reasonable.
 
(h)  Section 8.1(s) of the Credit Agreement is hereby deleted in its entirety
and replaced with the following:
 
 
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(s) Borrower shall fail to (i) furnish, on or before July 23, 2007, title
opinions, in form and substance reasonably satisfactory to Administrative Agent,
covering Texas State Lease MF030085 (State Tract 5-8A), Texas State Lease
MF062790 (State Tract 343), and any lease pooled or unitized therewith,
specifically addressing, without limitation, the interests of Borrower in and to
the following wells and non-producing reserves: (a) State Tract 5-8A #02, (b)
State Tract 5-8A #01, State Tract 5-8 #01(BP01), State Tract 5-8A #01(BP02),
State Tract 343#014, State Tract 343 #009, State Tract 343 #018 (BP01), State
Tract 343 #014 (BP03), or (ii) comply with all reasonable requirements made by
Administrative Agent pursuant to such title opinions; or
 
(j) Section 8.1 of the Credit Agreement is amended by adding the following
clause (t) in appropriate alphabetical order:
 
(t) Any drawing shall be made or requested under the Letter of Credit.
 
Section 4.  July 2007 Loan. Subject to the terms and conditions of this
Agreement, the Credit Agreement and the other Transaction Documents, the Lenders
and the Company hereby agree that as of the Effective Date the Lenders have
agreed to provide Uncommitted Loans pursuant to Section 2.1(b) of the Credit
Agreement in an aggregate amount equal to $6,752,200. Such Uncommitted Loan
shall be made in a single advance on the Effective Date. In addition to the
Funding Notice required by Section 2.2 of the Credit Agreement, the Company
shall deliver all such information in connection with such Uncommitted Loan as
the Administrative Agent may reasonably request. The Uncommitted Loan of each
Lender shall constitute a "Loan" as provided in the Credit Agreement. The
determination of the Lenders to provide Uncommitted Loans in the amount set
forth above was discretionary as provided in Section 2.1(b) of the Credit
Agreement, and the Company acknowledges that the Lenders are not required to
provide any Loans.
 
Section 5.  Additional Agreement of the Parties. In order to avoid including the
July 2007 Uncommitted Loan and the Letter of Credit obtained therewith on a
duplicative basis in calculating the financial covenants set forth in the Credit
Agreement, and in order to make certain conforming changes in connection
therewith, the parties hereto agree and acknowledge the following: (i) solely
for the purpose of calculating the Debt to EBITDA ratio in Section 6.11 and
determining the PDP Collateral Coverage Ratio and the Proved Collateral Coverage
ratio in Section 6.12, "Indebtedness" shall not include the amount of the
Company's Liabilities with respect to the Letter of Credit, (ii) solely for the
purpose of calculating the Current Ratio in Section 6.10, "Consolidated Current
Liabilities" shall not include the amount of the Company's Liabilities with
respect to the Letter of Credit, and (iii) solely for the purpose of calculating
the Current Ratio in Section 6.10, "Consolidated Current Assets" shall not
include the amount of the cash collateral held by the issuing bank with respect
to the Letter of Credit.
 
Section 6.  Representations and Warranties.
 
(a)  The Guarantor represents and warrants that (i) after giving effect to this
Agreement, the representations and warranties set forth in the Credit Agreement
and the representations and warranties contained in the other Transaction
Documents to which the Guarantor is a party are true and correct in all material
respects on and as of the Effective Date as if made on and as of such date; (ii)
other than the Waiver Defaults, no Default or Event of Default has occurred and
is continuing; (iii) the execution, delivery and performance of this Agreement
and the other documents, instruments, certificates and agreements required to be
delivered by this Agreement ("Other Documents") and to which the Guarantor is a
party are within the corporate power and authority of the Guarantor and have
been duly authorized by appropriate corporate action and proceedings; (iv) this
Agreement and the Other Documents to which the Guarantor is a party constitute
legal, valid, and binding obligations of the Guarantor enforceable in accordance
with their respective terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting the rights of
creditors generally and general principles of equity; (v) there are no
governmental or other third party consents, licenses and approvals required in
connection with the execution, delivery, performance, validity and
enforceability of this Agreement or any of the Other Documents to which the
Guarantor is a party; and (vi) the Liens under the Security Documents are valid
and subsisting and secure the Company's and the Guarantor's obligations under
the Transaction Documents.
 
 
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(b)  The Company represents and warrants that: (i) after giving effect to this
Agreement, the representations and warranties contained in the Credit Agreement
and the representations and warranties contained in the other Transaction
Documents to which the Company is a party are true and correct in all material
respects on and as of the Effective Date as if made on and as of such date; (i)
other than the Waiver Defaults, no Default or Event of Default has occurred and
is continuing; (ii) the execution, delivery and performance of this Agreement
and the Other Documents to which the Company is a party are within the limited
liability company power and authority of the Company and have been duly
authorized by appropriate limited liability company action and proceedings; (iv)
this Agreement and the Other Documents to which the Company is a party
constitute legal, valid, and binding obligations of the Company enforceable in
accordance with their respective terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting
the rights of creditors generally and general principles of equity; (v) there
are no governmental or other third party consents, licenses and approvals
required in connection with the execution, delivery, performance, validity and
enforceability of this Agreement or any of the Other Documents to which the
Company is a party; and (vi) the Liens under the Security Documents are valid
and subsisting and secure Company's obligations under the Transaction Documents.
 
Section 7.  Conditions to Effectiveness. This Agreement shall become effective
and enforceable against the parties hereto, the Credit Agreement shall be
amended as provided herein, upon the occurrence of the following conditions
precedent on or before the Effective Date:
 
(a)  Agreement. The Administrative Agent shall have received multiple original
counterparts of this Agreement duly and validly executed and delivered by duly
authorized officers of the Company, the Guarantor, the Administrative Agent, and
the Lenders;
 
(b)  Cash Collateral Agreement. The Company shall have executed a cash
collateral agreement with Amegy Bank National Association ("Amegy") and the
Company, Amegy, and the Administrative Agent shall have executed a letter
agreement in connection therewith (i) providing, in the case of the letter
agreement, that any funds returned to Company or otherwise released by Amegy
(other than for reimbursement of Amegy for any draws under such Letter of Credit
or payment of usual and customary fees with respect thereto) shall be paid
directly to the Administrative Agent and (ii) in the case of both such
agreements, otherwise on terms acceptable to the Administrative Agent.
 
 
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(c)  Closing Documents List. The Administrative Agent shall have received, and
shall be satisfied in its sole discretion with, the other items listed on the
Closing Documents List attached hereto as Exhibit A (other than any items noted
as being deliverable post-closing).
 
(d)  No Default; Representations. Other than the Waiver Defaults, no Default or
Event of Default shall have occurred and be continuing as of the Effective Date.
The representations and warranties in this Agreement, and in the Credit
Agreement, shall be true and correct in all material respects.
 
(e)  Fees. The Company shall have paid (i) a waiver and amendment fee equal to
$334,425, (ii) a funding fee of $47,775, and (ii) all fees and expenses of the
Administrative Agent's outside legal counsel and other consultants pursuant to
all invoices presented for payment on or prior to the Effective Date.
 
Section 8.  Effect on Transaction Documents; Acknowledgments.
 
(a)  The Company and the Guarantor each acknowledges that on the date hereof all
Obligations are payable without defense, offset, counterclaim or recoupment.
 
(b)  Except as set forth in Section 2 above, the Lenders and Administrative
Agent hereby expressly reserve all of their respective rights, remedies, and
claims under the Transaction Documents. Nothing in this Agreement shall
constitute a waiver or relinquishment of (i) any Default or Event of Default
under any of the Transaction Documents other than as expressly set forth in
Section 2 above, (ii) any of the agreements, terms or conditions contained in
any of the Transaction Documents, (iii) any rights or remedies of the Lenders or
Administrative Agent with respect to the Transaction Documents, or (iv) the
rights of Lenders and Administrative Agent to collect the full amounts owing to
it under the Transaction Documents.
 
(c)  The Company, the Guarantor, the Lenders and Administrative Agent, each
hereby adopts, ratifies, and confirms the Credit Agreement, as amended hereby,
and acknowledges and agrees that the Credit Agreement, as amended hereby, and
the other Transaction Documents are and remain in full force and effect, and the
Company and the Guarantor each acknowledges and agrees that its liabilities
under the Credit Agreement and the other Transaction Documents are not impaired
in any respect by this Agreement.
 
(d)  From and after the Effective Date, all references to the Credit Agreement
and the Transaction Documents shall mean such Credit Agreement and such
Transaction Documents as amended by this Agreement.
 
(e)  This Agreement and each of the Other Documents is a Transaction Document
for the purposes of the provisions of the other Transaction Documents. Without
limiting the foregoing, any breach of representations, warranties, and covenants
under this Agreement shall be a Default or Event of Default, as applicable,
under the Credit Agreement.
 
 
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Section 9.  Reaffirmation of the Guaranty. The Guarantor hereby ratifies,
confirms, and acknowledges that its obligations under the Guaranty are in full
force and effect and that the Guarantor continues to unconditionally and
irrevocably guarantee the full and punctual payment, when due, whether at stated
maturity or earlier by acceleration or otherwise, all of the Guaranteed
Obligations as such Guaranteed Obligations have been increased and amended by
this Agreement. The Guarantor hereby acknowledges that its execution and
delivery of this Agreement does not indicate or establish an approval or consent
requirement by the Guarantor under the Credit Agreement in connection with the
execution and delivery of amendments to the Credit Agreement, the Notes or any
of the other Loan Documents.
 
Section 10.  Miscellaneous.
 
(a)  Counterparts. This Agreement may be signed in any number of counterparts,
each of which shall be an original and all of which, taken together, constitute
a single instrument. This Agreement may be executed by facsimile signature and
all such signatures shall be effective as originals.
 
(b)  Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns
permitted pursuant to the Credit Agreement.
 
(c)  Invalidity. In the event that any one or more of the provisions contained
in this Agreement shall for any reason be held invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement.
 
(d)  Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF
LAWS PRINCIPLES THEREOF.
 
THIS AGREEMENT, THE CREDIT AGREEMENT AS AMENDED BY THIS AGREEMENT, THE NOTES,
AND THE OTHER TRANSACTION DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG
THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY
PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO.
 
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
 
[Remainder of this page intentionally left blank. Signature pages to follow.]
 
 
 
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
 

        COMPANY       TEKOIL AND GAS GULF COAST, LLC       By: Tekoil & Gas
Corporation, its Managing Member  
   
   
          By:   /s/ Mark Western  

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Mark Western   CEO and Chairman of the Board of Directors

 

            GUARANTOR       TEKOIL & GAS CORPORATION  
   
   
          By:   /s/ Mark Western  

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Mark Western   CEO and Chairman of the Board of Directors

           
J. ARON & COMPANY,
as Lead Arranger, Syndication Agent,
Administrative Agent and a Lender
 
   
   
    By:      

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Authorized Signatory

 
 
 
Signature Page to Amendment No. 1 and Waiver

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EXHIBIT A
TO AMENDMENT NO. 1 AND WAIVER

[CLOSING DOCUMENT LIST]

 
 
 
 
 
Exhibit A to Amendment No. 1 and Waiver
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