Unassociated Document


    
      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, Chambers 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.

            	
              Erskine
                Energy Partners II, L.P. v. Masters Resources L.L.C.,
                Case No. 2007-15466, pending in the 55th
                Judicial District Court of Harris County, Texas,
                or

            


    

    


    
      	 	
              2.

            	
              Jiva
                International, Inc. v. Ashi Energy Services LLC,
                Cause No. 221687, pending in 151st
                Judicial District Court of Harris 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.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    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 sue 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.

     

    
      
        
        

      

      
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    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/
                John W. Barton

            	 	By:	Tekoil & Gas Corporation, Its Managing
              Member
	 	
              

              John
                W. Barton, Managing Member

            	 	 	
            
	 	 	 	By:	/s/ Mark S. Western
	 	 	 	 	
              
Mark
              S. Western, CEO & Chairman of the Board of Directors
	 	 	 	 	 


    

     

    
      	MASTERS
              OIL & GAS, LLC,
              a
              Texas limited liability company	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	By:	/s/
              John W. Barton	 	 	
            
	 	
              

              John
                W. Barton, Managing Member

            	 	 	
            
	 	
            	 	 	
            
	 	 	 	 	 
	
              MASTERS
                PIPELINE, L.L.C.,
                a
                Texas limited liability company

            	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	By:	/s/ John W. Barton	 	 	 
	 	
              

              John
                W. Barton, 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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