Document:

ex10_2.htm

EXHIBIT 10.2

 

AMENDED AND RESTATED SECURITY AGREEMENT

 

This AMENDED AND RESTATED SECURITY AGREEMENT, dated as of June 2, 2014 (as amended, supplemented or otherwise modified from time to time in accordance with the provisions hereof, this “Agreement”), made by and among TEG Oil & Gas USA, Inc., a Colorado corporation (the “Debtor”), in favor of Tapia Holdings, LLC, a Delaware limited liability company, (the “Secured Party”).

 

WHEREAS, the Debtor and the Secured Party are parties to a Security Agreement dated April 18, 2014, as amended by a First Amendment thereto dated May 1, 2014 (as amended, the “Original Security Agreement”);

 

WHEREAS, the Debtor has requested that the Secured Party advance additional funds to the Debtor; and

 

WHEREAS, the Secured Party is willing to advance additional funds on condition that the Debtor execute and deliver this Agreement, which shall supersede in its entirety the Original Security Agreement.

 

NOW, THEREFORE, in consideration of the mutual covenants, terms and conditions set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

 

1.             Definitions.

 

(a)           Unless otherwise specified herein, all references to Sections are to Sections of this Agreement.

 

(b)           Unless otherwise defined in this Agreement, terms that are defined in the UCC shall have the meanings assigned to them in the UCC. However, if a term is defined in Article 9 of the UCC differently than in another Article of the UCC, the term has the meaning specified in Article 9.

 

(c)           For purposes of this Agreement, the following terms have the following meanings:

 

“Acquisition Proposal” means any offer or proposal, including any proposal made under Section 363 of the Bankruptcy Code or as part of a Plan of Reorganization under the Bankruptcy Code, concerning any (i) merger, joint venture, partnership, consolidation, dissolution, liquidation, tender offer, recapitalization, reorganization, share exchange, business combination or similar transaction involving Sefton or the Debtor, (ii) sale, lease or other disposition of assets of Sefton or the Debtor representing 50% or more of the assets of Sefton or the Debtor, (iii) issuance or sale by Sefton or the Debtor of equity interests representing 50% or more of the voting power (or 50% or more of the aggregate number of all outstanding shares or capital stock) of Sefton or the Debtor, (iv) transaction in which any Person will acquire beneficial ownership or the right to acquire beneficial ownership or any group has been formed which beneficially owns or has the right to acquire beneficial ownership of, equity interests representing 50% or more of the voting power (or 50% or more of the aggregate number of all outstanding shares of capital stock) of Sefton or the Debtor or (v) any combination of the foregoing (in each case, other than by the Secured Party or an affiliate of the Secured Party).

 

  

  

  

 

“Alternative Acquisition Agreement” has the meaning set forth in Section 7(a)(ii).

 

“Bankruptcy Code” means the United States Bankruptcy Code (11 U.S.C. § 101 et seq.), as amended, and any successor or similar foreign statute or law pertaining to the relief of debtors.

 

“Collateral” has the meaning set forth in Section 2.

 

“Event of Default” means any of the following:

 

(i)           the failure of the Debtor to pay any part of the principal of, or interest on, the Note, when due, whether at stated maturity, by acceleration or otherwise;

 

(ii)         a breach by the Debtor of any representation, warranty or covenant made by the Debtor under this Agreement;

 

(iii)        any default under, breach of any provisions pertaining to, or acceleration of any Superior Indebtedness;

 

(iv)         all or substantially all of the assets of the Debtor, or the Collateral or any material portion thereof, is attached, seized, subject to a writ of distress warrant, or levied upon, or comes into the possession of any receiver, trustee, custodian or assignee for the benefit of creditors without being vacated, stayed, dismissed or set aside within 30 days after the occurrence thereof;

 

(v)         Sefton ceases to own at least 51% of the outstanding equity securities and voting power of the Debtor;

 

(vi)        The Debtor or Sefton (A) applies for or consents to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property, (B) makes a general assignment for the benefit of its creditors, (C) commences a voluntary case under the Bankruptcy Code (as now or hereafter in effect), (D) files a petition seeking to take advantage of any other law providing for the relief of debtors, (E) fails to controvert in a timely or appropriate manner, or acquiesces in writing to, any petition filed against it in an involuntary case under the Bankruptcy Code, (F) takes any action under the laws of its jurisdiction of organization analogous to any of the foregoing or (G) takes any requisite action for the purpose of effecting any of the foregoing; or

 

(vii)       a proceeding or case is commenced, without the application or consent of the Debtor or Sefton in any court of competent jurisdiction, seeking (A) the liquidation, reorganization, dissolution, winding up, or composition or readjustment of its debts, (B) the appointment of a trustee, receiver, custodian, liquidator or the like of it or of all or any substantial part of its assets or (C) similar relief in respect of it, under any law providing for the relief of debtors, and the proceeding or case continues undismissed, or unstayed and in effect, for a period of 45 days against the Debtor or Sefton; or action under the laws of the jurisdiction of organization of the Debtor or Sefton analogous to any of the foregoing is taken with respect to the Debtor or Sefton and continues undismissed, or unstayed and in effect, for a period of 45 days.

 

  

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“Loans” means all advances under the Note and any other loans or extensions of credit made by the Secured Party to the Debtors, including any loans or advances that may be made after the date hereof.

 

“Note” means the Secured Subordinated Note Due July 31, 2014, dated June 2, 2014 made by the Debtor in favor of the Secured Party.

 

“Notice Period” has the meaning set forth in Section 7(a)(iv)(A).

 

“Other Interested Party” has the meaning set forth in Section 7(a)(iii).

 

“Person” means an individual, corporation, limited liability company, partnership, association, trust, unincorporated organization or other entity.

 

“Proceeds” means “proceeds” as that term is defined in Section 9102 of the UCC and, in any event, includes, without limitation, all dividends or other income from the Collateral, collections thereon or distributions with respect thereto.

 

“Representatives” means a party’s directors, officers, employees, accountants, consultants, legal counsel, advisors, agents and other representatives.

 

“Secured Obligations” has the meaning set forth in Section 3.

 

“Secured Party’s Proposal” means the proposal by the Secured Party to acquire the assets of the Debtor as evidenced by the letter of intent dated April 8, 2014 between the Debtor and the Secured Party, as it may be revised to reflect structuring changes due to tax, accounting or other concerns, but reflecting similar economics.

 

“Sefton” means Sefton Resources, Inc., a British Virgin Islands corporation and the parent company of the Debtor.

 

“Superior Indebtedness” has the meaning set forth in the Note.

 

“Superior Proposal” means a written and bona fide Acquisition Proposal made by a third party that Sefton’s board of directors has determined in its good faith judgment, after consultation with its outside legal counsel and with its financial advisors, is reasonably likely to be consummated in accordance with its terms, taking into account all legal, financial (including the availability of committed financing) and regulatory aspects of the proposal and the Person making the proposal and would, if consummated, result in a transaction that is more favorable to Sefton’s shareholders, from a financial point of view, than the Secured Party’s Proposal (after giving effect to all adjustments to the terms thereof that may be irrevocably offered by the Secured Party).

 

  

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“UCC” means the Uniform Commercial Code as in effect from time to time in the State of California or, when the laws of any other state govern the method or manner of the perfection or enforcement of any security interest in any of the Collateral, the Uniform Commercial Code as in effect from time to time in that state.

 

2.             Grant of Security Interest. The Debtor hereby reaffirms its pledge and grant of a security interest under the Original Security Agreement, and pledges and grants to the Secured Party, and hereby creates a continuing lien and security interest in favor of the Secured Party in and to all of its right, title and interest in and to the following, wherever located, whether now existing or hereafter from time to time arising or acquired (collectively, the “Collateral”):

 

(a)           all fixtures and personal property of every kind and nature including all accounts, goods (including inventory and equipment), documents (including, if applicable, electronic documents), instruments, promissory notes, chattel paper (whether tangible or electronic), letters of credit, letter-of-credit rights (whether or not the letter of credit is evidenced by a writing), securities and all other investment property, general intangibles (including all payment intangibles), money, deposit accounts, and any other contract rights or rights to the payment of money; and

 

(b)           all Proceeds and products of each of the foregoing, all books and records relating to the foregoing, all supporting obligations related thereto, and all accessions to, substitutions and replacements for, and rents, profits and products of, each of the foregoing, and any and all Proceeds of any insurance, indemnity, warranty or guaranty payable to the Debtor from time to time with respect to any of the foregoing.

 

3.             Secured Obligations. The Collateral secures the payment and performance of:

 

(a)           the obligations of the Debtor from time to time arising under the Note, this Agreement or otherwise with respect to the due and punctual payment of (i) the principal of and premium, if any, and interest on the Loans (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise and (ii) all other monetary obligations, including fees, costs, attorneys’ fees and disbursements, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of the Debtor under the Loan Agreement and this Agreement; and

 

(b)           the due and punctual performance of all covenants, agreements, duties, debts, obligations and liabilities of the Debtor under or pursuant to the Note and this Agreement (all such obligations, liabilities, sums and expenses set forth in Section 3 being herein collectively called the “Secured Obligations”).

 

  

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4.             Perfection of Security Interest and Further Assurances.

 

(a)           The Debtor shall, from time to time, as may be required by the Secured Party with respect to all Collateral, immediately take all actions as may be requested by the Secured Party to perfect the security interest of the Secured Party in the Collateral, including, with respect to all Collateral over which control may be obtained within the meaning of Sections 8106, 9104, 9105, 9106 and 9107 of the UCC, as applicable, the Debtor shall, upon the request of the Secured Party, take all actions as may be requested from time to time by the Secured Party so that control of such Collateral is obtained and at all times held by the Secured Party. All of the foregoing shall be at the sole cost and expense of the Debtor.

 

(b)           The Debtor hereby irrevocably authorizes the Secured Party at any time and from time to time to file in any relevant jurisdiction any financing statements and amendments thereto that contain the information required by Article 9 of the UCC of each applicable jurisdiction for the filing of any financing statement or amendment relating to the Collateral, including any financing or continuation statements or other documents for the purpose of perfecting, confirming, continuing, enforcing or protecting the security interest granted by the Debtor hereunder, without the signature of the Debtor where permitted by law, including the filing of a financing statement describing the Collateral as all assets now owned or hereafter acquired by the Debtor, or words of similar effect. The Debtor shall provide all information required by the Secured Party pursuant to this Section 4(b) promptly to the Secured Party upon request.

 

(c)           If the Debtor at any time holds or acquires any certificated securities, promissory notes, tangible chattel paper, negotiable documents or warehouse receipts relating to the Collateral, the Debtor shall endorse, assign and deliver those documents or instruments to the Secured Party, accompanied by such instruments of transfer or assignment duly executed in blank as the Secured Party may from time to time specify.

 

(d)           If any Collateral is at any time in the possession of a bailee, the Debtor shall promptly notify the Secured Party and, at the Secured Party’s request and option, shall promptly obtain an acknowledgment from the bailee, in form and substance satisfactory to the Secured Party, that the bailee holds that Collateral for the benefit of the Secured Party and the bailee agrees to comply, without further consent of the Debtor, at any time with instructions of the Secured Party as to that Collateral.

 

(e)           The Debtor shall, at any time and from time to time, at the expense of the Debtor, promptly execute and deliver all further instruments and documents, obtain such agreements from third parties, and take all further action, that may be necessary or desirable, or that the Secured Party may reasonably request, in order to perfect and protect any security interest granted hereby or to enable the Secured Party to exercise and enforce its rights and remedies hereunder or under any other agreement with respect to any Collateral.

 

5.             Representations and Warranties. The Debtor represents and warrants as follows:

 

(a)           (i) the Debtor’s exact legal name is that indicated on the signature page, (ii) the Debtor is a Colorado corporation, and (iii) the Debtor’s place of business (or, if more than one, its chief executive office), and its mailing address are as set forth on the signature page.

 

(b)           None of the account debtors or other persons obligated on any of the Collateral is a governmental authority covered by the Federal Assignment of Claims Act or like federal, state or local statute or rule in respect of the Collateral.

 

  

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(c)           The Debtor has at all times operated its business in compliance with all applicable provisions of the federal Fair Labor Standards Act, as amended, and with all applicable provisions of federal, state and local statutes and ordinances dealing with the control, shipment, storage or disposal of hazardous materials or substances.

 

(d)           At the time the Collateral becomes subject to the lien and security interest created by this Agreement, the Debtor will be the sole, direct, legal and beneficial owner thereof, free and clear of any lien, security interest, option, adverse claim, setoff, default, defense, condition precedent or other encumbrance except for the security interest created by this Agreement and liens securing Superior Indebtedness.

 

(e)           The pledge of the Collateral pursuant to this Agreement creates a valid and perfected security interest in the Collateral, securing the payment and performance when due of the Secured Obligations.

 

(f)           It has full power, authority and legal right to borrow the Loans and pledge the Collateral pursuant to this Agreement.

 

(g)           Each of this Agreement and the Note has been duly authorized, executed and delivered by the Debtor and constitutes a legal, valid and binding obligation of the Debtor enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and subject to equitable principles (regardless of whether enforcement is sought in equity or at law).

 

(h)           No authorization, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the borrowing of the Loans and the pledge by the Debtor of the Collateral pursuant to this Agreement or for the execution and delivery of the Note and this Agreement by the Debtor or the performance by the Debtor of its obligations thereunder.

 

(i)           The execution and delivery of the Note and this Agreement by the Debtor and the performance by the Debtor of its obligations under the Note and this Agreement will not violate any provision of any applicable law or regulation or any order, judgment, writ, award or decree of any court, arbitrator or governmental authority, domestic or foreign, applicable to the Debtor or any of its property, or the organizational or governing documents of the Debtor or any agreement or instrument to which the Debtor is party or by which it or its property is bound.

 

6.             Receivables. If any Event of Default has occurred and is on-going, the Secured Party may, or at the request and option of the Secured Party the Debtor shall, notify account debtors and other persons obligated on any of the Collateral of the security interest of the Secured Party in any account, chattel paper, general intangible, instrument or other Collateral and that payment thereof is to be made directly to the Secured Party.

 

7.             Covenants. The Debtor covenants as follows:

   

(a)           The Debtor acknowledges that the Loans are being made in contemplation of, and as partial consideration for, the Secured Party’s Proposal. Except as permitted by this Section 7(a), the Debtor will, and it will cause its Representatives to:

 

  

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(i)           (A) immediately cease and cause to be terminated any solicitation, encouragement, activities, discussions or negotiations with any Persons that may be ongoing with respect to any Acquisition Proposal, (B) take the necessary steps to promptly inform such Persons of the obligations set forth in this Section 7(a), (C) immediately instruct each Person that has previously executed a confidentiality agreement in connection with that Person’s consideration of an Acquisition Proposal to return to the Debtor or destroy any non-public information previously furnished to such Person or to any Person’s Representatives by or on behalf of the Debtor, and (D) enforce (and not release, waive, amend or modify the provisions of) any confidentiality, non-solicit, non-use or standstill agreements entered into with any Person; and

 

(ii)           not, directly or indirectly: (A) solicit, initiate, seek or knowingly encourage or facilitate or take any action to solicit, initiate or seek or knowingly encourage or facilitate any inquiry, expression of interest, proposal or offer that constitutes or would reasonably be expected to lead to an Acquisition Proposal, (B) enter into, participate in, maintain or continue any discussions or negotiations relating to, any Acquisition Proposal with any Person other than the Secured Party, (C) furnish to any Person other than the Secured Party any information that the Debtor believes or should reasonably expect would be used in connection with, or for the purposes of formulating, any Acquisition Proposal, (D) enter into any agreement, letter of intent, memorandum of understanding, agreement in principle or contract providing for or otherwise relating to any Acquisition Proposal (each, an “Alternative Acquisition Agreement”) or (E) submit any Acquisition Proposal or any matter related thereto to the vote of the stockholders of the Company.

 

(iii)           From and after the date of this Agreement, the Debtor will promptly (and in any event within 24 hours) provide the Secured Party with: (A) a written description of any inquiry, expression of interest, proposal or offer relating to an Acquisition Proposal (including any modification thereto), or any request for information that would reasonably be expected to lead to an Acquisition Proposal, that is received by the Debtor or any of its Representatives from any Person (other than the Secured Party) including in the description the identity of the Person from which the inquiry, expression of interest, proposal, offer or request for information was received (the “Other Interested Party”); and (B) a copy of each material written communication and a summary of each material oral communication transmitted by or on behalf of the Other Interested Party or any of its Representatives to the Debtor or any of its Representatives or transmitted on behalf of the Debtor or any of its Representatives to the Other Interested Party or any of its Representatives. Without limiting the foregoing, the Debtor will promptly (and in any event within 24 hours) notify the Secured Party orally and in writing if the Debtor determines to begin providing information or to engage in discussions or negotiations concerning an Acquisition Proposal.

 

(iv)           Notwithstanding anything to the contrary contained in this Section 7(a), if the Debtor has received a bona fide written Acquisition Proposal from a third party that was not solicited, initiated, encouraged or facilitated in material breach of the provisions of this Agreement and that Sefton’s board of directors determines in good faith, after consultation with outside counsel and its financial advisors, constitutes a Superior Proposal, after giving effect to all of the adjustments to the terms and conditions of this Agreement that have been delivered to the Debtor by the Secured Party in writing during the Notice Period provided pursuant to this Section 7(a)(iv), that are binding and have been irrevocably committed to by the Secured Party in writing, then the Debtor may accept the Superior Proposal; provided that:

 

  

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(A)           the Debtor has provided prior written notice to the Secured Party, at least ten days in advance (the “Notice Period”), of the Debtor’s intention to take action with respect to the Superior Proposal, which notice will specify the material terms and conditions of the Superior Proposal, (including the identity of the party making the Superior Proposal) and the Debtor has contemporaneously provided a copy of the relevant proposed transaction agreements with the party making the Superior Proposal, including any definitive agreement with respect to the Superior Proposal; and

 

(B)           prior to entering into an Alternative Acquisition Agreement with respect to the Superior Proposal, the Debtor negotiates, and causes its Representatives to negotiate, with the Secured Party in good faith (to the extent the Secured Party desires to negotiate) to make such adjustments in the terms and conditions of Secured Party’s Proposal so that the Acquisition Proposal ceases to constitute a Superior Proposal;

 

(C)           after the expiration of the Notice Period, Sefton’s board of directors determines in good faith, after consultation with its financial advisors and its outside counsel, and after taking into account any amendments to the Secured Party’s Proposal that the Secured Party has irrevocably agreed in writing to make, that (x) the Acquisition Proposal constitutes a Superior Proposal and (y) causing the Debtor to enter into a definitive agreement with respect to the Superior Proposal is necessary in order for the members of Sefton’s board of directors to comply with their fiduciary duties under applicable law; and

 

(D)           at or prior to the Closing of the transaction constituting the Superior Proposal, the Debtor shall pay or cause to be paid to the Secured Party an amount in cash equal to the sum of (i) the full amount of Secured Obligations outstanding (which amount shall be applied to and shall retire the Note) and (ii) all reasonable out-of-pocket costs and expenses (including reasonable out-of-pocket legal fees, reserve engineering fees and other consulting fees) incurred by the Secured Party in connection with the Secured Party’s Proposal, including costs incurred in connection with due diligence, negotiation and preparation of all documents contemplated by the Secured Party’s Proposal.

 

(v)           The provisions of this Section 7(a) shall survive payment or prepayment in full of the Note and termination of any other provisions of this Agreement until July 31, 2014.

 

(b)           At the consummation of the acquisition transaction reflected in the Secured Party’s Proposal, the Secured Party shall be permitted to apply any or all of the then outstanding principal of and accrued interest on the Note towards the consideration for the acquisition transaction.

 

  

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(c)           The Secured Party shall have the right and option, exercisable at any time prior to June 2, 2015, to cause the Debtor to sell to the Secured Party LLC membership interests in the Secured Party’s subsidiary, Tapia, LLC, a California limited liability company (“Tapia”), at the rate of $59,171.60 for each 1.0% of LLC membership interest in Tapia, in exchange for any combination of the following: (i) cancellation, in whole or in part, of outstanding principal of or accrued interest on this Note, (ii) cash payment (which, in the Secured Party’s sole and absolute discretion, may be paid directly to the holder(s) of Superior Indebtedness to reduce the amount of the Superior Indebtedness and (iii) delivery of the Secured Party’s 42 month promissory note bearing interest at 6.0% per annum (provided that the combination shall always be in the following ratio: one-third of the payment shall consist of Note cancellation and/or cash, and two-thirds of the payment shall consist of the 42 month promissory note). In connection with any transaction described above, the Debtor shall cause all of its assets to be contributed to Tapia immediately prior to the LLC membership interest purchase by the Secured Party. Notwithstanding the foregoing, the Secured Party shall not be permitted to acquire more than 49.9% of Tapia until Sefton has obtained the affirmative vote of its shareholders approving the Secured Party’s Proposal. If the affirmative shareholder vote is not obtained within 90 days after notice from the Secured Party that it intends to acquire more than 49.9% of Tapia, then no later than the 91st day after that notice, TEG shall or, if TEG’s assets have been contributed to Tapia as described above, shall cause Tapia to, file a petition for relief under the Bankruptcy Code, which filing shall contemplate a pre-packaged plan of reorganization acceptable to the Secured Party that provides for, among other things, Bankruptcy Court approval of the acquisition by the Secured Party of 80% of the equity ownership and voting power of either TEG or Tapia (as applicable) in accordance with the terms of the Secured Party’s Proposal. The parties will cooperate with each other to implement the transactions or plan of reorganization described above with the goal of completing the broader transaction contemplated by the Secured Party’s Proposal.

 

(d)           The Debtor will not, without providing at least 30 days’ prior written notice to the Secured Party, change its legal name, identity, type of organization, jurisdiction of organization, corporate structure, location of its chief executive office or its principal place of business or its organizational identification number. The Debtor will, prior to any change described in the preceding sentence, take all actions required by the Secured Party to maintain the perfection of the Secured Party’s security interest in the Collateral.

 

(e)           The Debtor shall, at its own cost and expense, defend title to the Collateral and the lien and security interest of the Secured Party therein against the claim of any person claiming against or through the Debtor and shall maintain and preserve such perfected security interest for so long as this Agreement remains in effect.

 

(f)           The Debtor will not sell, offer to sell, dispose of, convey, assign or otherwise transfer, grant any option with respect to, restrict, or grant, create, permit or suffer to exist any mortgage, pledge, lien, security interest, option, right of first offer, encumbrance or other restriction or limitation of any nature whatsoever on, any of the Collateral or any interest therein.

 

(g)           The Debtor will keep the Collateral in good order and repair and will not use the Collateral in violation of law or any policy of insurance thereon. The Debtor will permit the Secured Party, or its designee, to inspect the Collateral at any reasonable time, wherever located.

 

(h)           The Debtor will pay promptly when due all taxes, assessments, governmental charges, and levies upon the Collateral or incurred in connection with the use or operation of the Collateral or incurred in connection with this Agreement.

 

  

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(i)           The Debtor will continue to operate its business in compliance with all applicable provisions of the federal Fair Labor Standards Act, as amended, and with all applicable provisions of federal, state and local statutes and ordinances dealing with the control, shipment, storage or disposal of hazardous materials or substances.

 

8.             Secured Party Appointed Attorney-in-Fact. The Debtor hereby appoints the Secured Party the Debtor’s attorney-in-fact, with full authority in the place and stead of the Debtor and in the name of the Debtor or otherwise, from time to time during the continuance of an Event of Default in the Secured Party’s discretion to take any action and to execute any instrument that the Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement (but the Secured Party shall not be obligated to and shall have no liability to the Debtor or any third party for failure to do so or take action). This appointment, being coupled with an interest, shall be irrevocable. The Debtor hereby ratifies all that the attorneys-in-fact shall lawfully do or cause to be done by virtue of this appointment.

 

9.             Secured Party May Perform. If the Debtor fails to perform any obligation contained in this Agreement, the Secured Party may itself perform, or cause performance of, such obligation, and the expenses of the Secured Party incurred in connection therewith shall be payable by the Debtor; provided that the Secured Party shall not be required to perform or discharge any obligation of the Debtor.

 

10.           Reasonable Care. The Secured Party shall have no duty with respect to the care and preservation of the Collateral beyond the exercise of reasonable care. The Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which the Secured Party accords its own property, it being understood that the Secured Party shall not have any responsibility for (a) ascertaining or taking action with respect to any claims, the nature or sufficiency of any payment or performance by any party under or pursuant to any agreement relating to the Collateral or other matters relative to any Collateral, whether or not the Secured Party has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against any parties with respect to any Collateral. Nothing set forth in this Agreement, nor the exercise by the Secured Party of any of the rights and remedies hereunder, shall relieve the Debtor from the performance of any obligation on the Debtor’s part to be performed or observed in respect of any of the Collateral.

 

  

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11.           Remedies Upon Default. If any Event of Default has occurred and is on-going:

 

(a)           The Secured Party, without any other notice to or demand upon the Debtor, may assert all rights and remedies of a secured party under the UCC or other applicable law, including, without limitation, the right to take possession of, hold, collect, sell, lease, deliver, grant options to purchase or otherwise retain, liquidate or dispose of all or any portion of the Collateral. If notice prior to disposition of the Collateral or any portion thereof is necessary under applicable law, written notice mailed to the Debtor at its notice address as provided in Section 15 ten days prior to the date of such disposition shall constitute reasonable notice, but notice given in any other reasonable manner shall be sufficient. So long as the sale of the Collateral is made in a commercially reasonable manner, the Secured Party may sell such Collateral on such terms and to such purchaser(s) as the Secured Party in its absolute discretion may choose, without assuming any credit risk and without any obligation to advertise or give notice of any kind other than that necessary under applicable law. Without precluding any other methods of sale, the sale of the Collateral or any portion thereof shall have been made in a commercially reasonable manner if conducted in conformity with reasonable commercial practices of creditors disposing of similar property. At any sale of the Collateral, if permitted by applicable law, the Secured Party may be the purchaser, licensee, assignee or recipient of the Collateral or any part thereof and shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold, assigned or licensed at such sale, to use and apply any of the Secured Obligations as a credit on account of the purchase price of the Collateral or any part thereof payable at such sale. To the extent permitted by applicable law, the Debtor waives all claims, damages and demands it may acquire against the Secured Party arising out of the exercise by it of any rights hereunder. The Debtor hereby waives and releases to the fullest extent permitted by law any right or equity of redemption with respect to the Collateral, whether before or after sale hereunder, and all rights, if any, of marshalling the Collateral and any other security for the Secured Obligations or otherwise. At any such sale, unless prohibited by applicable law, the Secured Party or any custodian may bid for and purchase all or any part of the Collateral so sold free from any such right or equity of redemption. Neither the Secured Party nor any custodian shall be liable for failure to collect or realize upon any or all of the Collateral or for any delay in so doing, nor shall it be under any obligation to take any action whatsoever with regard thereto.

 

(b)           Any cash held by the Secured Party as Collateral and all cash Proceeds received by the Secured Party in respect of any sale of, collection from, or other realization upon all or any part of the Collateral shall be applied in whole or in part by the Secured Party to the payment of expenses incurred by the Secured Party in connection with the foregoing, including reasonable attorneys’ fees, and the balance of such proceeds shall be applied or set off against all or any part of the Secured Obligations in such order as the Secured Party elects. Any surplus of cash or cash Proceeds held by the Secured Party and remaining after payment in full of all the Secured Obligations shall be paid over to the Debtor or to whomsoever may be lawfully entitled to receive the surplus. The Debtor shall remain liable for any deficiency if the cash and cash Proceeds of any sale or other realization of the Collateral are insufficient to pay the Secured Obligations and the fees and other charges of any attorneys employed by the Secured Party to collect such deficiency.

 

(c)           If the Secured Party decides to exercise its rights to sell all or any of the Collateral pursuant to this Section 11, the Debtor will, upon request of the Secured Party and at its own expense, do or cause to be done all such acts and things as may be necessary to make the sale of the Collateral or any part thereof valid and binding and in compliance with applicable law.

 

12.           No Waiver and Cumulative Remedies. The Secured Party shall not by any act (except by a written instrument pursuant to Section 14), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default. All rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies provided by law.

 

  

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13.           Security Interest Absolute. All rights of the Secured Party and liens and security interests hereunder, and all Secured Obligations of the Debtor hereunder, shall be absolute and unconditional irrespective of:

 

(a)           any illegality or lack of validity or enforceability of any Secured Obligation or any related agreement or instrument;

 

(b)           any change in the time, place or manner of payment of, or in any other term of, the Secured Obligations, or any rescission, waiver, amendment or other modification of the Note, this Agreement or any other agreement, including any increase in the Secured Obligations resulting from any extension of additional credit or otherwise;

 

(c)           any taking, exchange, substitution, release, impairment or non-perfection of any Collateral or any other collateral, or any taking, release, impairment, amendment, waiver or other modification of any guaranty, for all or any of the Secured Obligations;

 

(d)           any manner of sale, disposition or application of proceeds of any Collateral or any other collateral or other assets to all or part of the Secured Obligations;

 

(e)           any default, failure or delay, wilful or otherwise, in the performance of the Secured Obligations;

 

(f)            any defense, set-off or counterclaim (other than a defense of payment or performance) that may at any time be available to, or be asserted by, the Debtor against the Secured Party; or

 

(g)           any other circumstance (including, without limitation, any statute of limitations) or manner of administering the Loans or any existence of or reliance on any representation by the Secured Party that might vary the risk of the Debtor or otherwise operate as a defense available to, or a legal or equitable discharge of, the Debtor or any other grantor, guarantor or surety.

 

14.           Amendments. None of the terms or provisions of this Agreement may be amended, modified, supplemented, terminated or waived, and no consent to any departure by the Debtor therefrom shall be effective unless the same shall be in writing and signed by the Secured Party and the Debtor, and then such amendment, modification, supplement, waiver or consent shall be effective only in the specific instance and for the specific purpose for which made or given.

 

15.           Addresses For Notices. All notices and other communications provided for in this Agreement shall be in writing and shall be given in the manner and become effective as set forth in the Note, and addressed to the respective parties at their addresses as specified on the signature page or as to either party at such other address as shall be designated by that party in a written notice to the other party.

 

16.           Continuing Security Interest; Further Actions. This Agreement shall create a continuing lien and security interest in the Collateral and shall (a) subject to Section 17, remain in full force and effect until payment and performance in full of the Secured Obligations, (b) be binding upon the Debtor, its successors and assigns, and (c) inure to the benefit of the Secured Party and its successors, transferees and assigns; provided that the Debtor may not assign or otherwise transfer any of its rights or obligations under this Agreement without the prior written consent of the Secured Party. Without limiting the generality of the foregoing clause (c), any assignee of the Secured Party’s interest in any agreement or document which includes all or any of the Secured Obligations shall, upon assignment become vested with all the benefits granted to the Secured Party with respect to the Secured Obligations.

 

  

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17.           Termination; Release. On the date on which all Secured Obligations have been paid and performed in full, the Secured Party will, at the request and sole expense of the Debtor, (a) duly assign, transfer and deliver to or at the direction of the Debtor (without recourse and without any representation or warranty) such of the Collateral as may then remain in the possession of the Secured Party, together with any monies at the time held by the Secured Party hereunder, and (b) execute and deliver to the Debtor a proper instrument or instruments acknowledging the satisfaction and termination of this Agreement.

 

18.           Original Security Agreement. Effective upon full execution and delivery of this Agreement by the Secured Party and the Debtor, the Original Security Agreement shall be superseded in its entirety by this Agreement, at and after which time the Original Security Agreement shall cease to have any force and effect.

 

19.           Governing Law. This Agreement and any claim, controversy, dispute or cause of action (whether in contract or tort or otherwise) based upon, arising out of or relating to this Agreement and the transactions contemplated hereby shall be governed by, and construed in accordance with, the internal laws of the State of California.

 

20.           Counterparts. This Agreement and any amendments, waivers, consents or supplements hereto may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or in electronic (i.e., “pdf” or “tif”) format shall be effective as delivery of a manually executed counterpart of this Agreement. This Agreement and the Note constitute the entire contract among the parties with respect to the subject matter hereof and supersede all previous agreements and understandings, oral or written, with respect thereto.

 

 

 

[SIGNATURES ON FOLLOWING PAGE]

 

  

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

 

	  	
TEG Oil & Gas USA, Inc., a 

Colorado corporation, as the Debtor

 

 

 

	 
	  	By: 	/s/ Tom Milne	 
	 	 	Tom Milne, Director 

Sefton Resources Inc.

100% owner of TEG Oil & Gas 

USA, Inc.

	 
	 	
Address for Notices:

 

21 S. California St., #305

Ventura, California 93001

	 
	 	 	 
	  	
With a copy to: 

 

Kris Short, Business Manager 

Sefton Resources, Inc. 

2050 S. Oneida St., Suite 102 

Denver, Colorado 80224

	 

 

 

	  	
Tapia Holdings, LLC, a Delaware 

limited liability company

	 	 
	  	
By: Sara Creek Gold Corp., its sole member

	 	 	 	 	 
	 	 	By: 	/s/ Darren Katic	 
	 	 	 	
Darren Katic, President

	 

	 	
 

Address for Notices:

 

326 S. Pacific Coast Hwy, Suite 102

Redondo Beach, CA 90277

 

 

 14ex10_3.htm

EXHIBIT 10.3

 

SUBORDINATION AND INTERCREDITOR AGREEMENT

 

THIS SUBORDINATION AND INTERCREDITOR AGREEMENT (this “Agreement”) is entered into as of this 2nd day of June 2014, by and among TAPIA HOLDINGS, LLC, a Delaware limited liability company (the “Subordinated Obligee”), TEG OIL & GAS USA, INC., a Colorado corporation (“TEG”), SEFTON RESOURCES, INC., a British Virgin Islands corporation (“Parent”), TEG MIDCONTINENT, INC., a Colorado corporation (“TEGMC”, and, together with Parent and TEG, “Borrowers”) and BANK OF THE WEST, a California corporation (“BOTW”), or such then present holder or holders of the Senior Loan (as hereinafter defined) as may from time to time exist (collectively with BOTW, the “Senior Lenders”).

 

RECITALS

 

A.           Borrowers and the Senior Lenders have entered into an Amended and Restated Credit Agreement dated as of October 21, 2008 (as amended and hereafter as the same may be amended, supplemented or otherwise modified from time to time, the “Senior Loan Agreement”) and a Forbearance Agreement  made as of April 30, 2014 and a First Amendment to Forbearance Agreement made as of June 2, 2014 (“Forbearance Agreement”) pursuant to which, among other things, Senior Lenders have agreed, subject to the terms and conditions set forth in the Senior Loan Agreement, to make certain loans and financial accommodations to Borrowers and the other Loan Parties. All of Borrowers’ obligations to the Senior Lenders under the Senior Loan Agreement and the other Senior Loan Documents (as hereinafter defined) are secured by liens on and security interests in substantially all of the now existing and hereafter acquired personal property of Borrowers (all collateral, real and personal, now or hereafter encumbered by the lien of any Senior Loan Document is herein referred to collectively as the “Collateral”). Borrowers and any other Obligated Person (as defined in the Senior Loan Agreement) may each be referred to herein as a “Loan Party” and collectively as “Loan Parties”. All other capitalized terms used but not defined herein shall have the meanings set forth in the Senior Loan Agreement.

 

B.           TEG and the Subordinated Obligee have entered into that certain Secured Subordinated Note Due July 31, 2014 dated as of June 2, 2014 (the “Subordinated Note”), pursuant to which the Subordinated Obligee has loaned to TEG an aggregate of $552,305.69, and may lend to TEG an additional $447,694.31.

 

C.           The Senior Lenders have required the execution and delivery of this Agreement by the Subordinated Obligee and Borrowers in order to set forth the relative rights and priorities of the Senior Lenders and the Subordinated Obligee under the Senior Loan Documents and the Subordinated Note Documents (as hereinafter defined).

 

AGREEMENT

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto hereby covenant and agree as follows:

 

1.           Definitions. In addition to the terms defined elsewhere in this Agreement or in the recitals hereto, the following terms shall have the following meanings in this Agreement:

 

  

 

  

 

“Bankruptcy Code” means Title 11 of the United States Code, as amended from time to time, and any successor statute and all rules and regulations promulgated thereunder.

 

“Business Day” means any day on which commercial banks are open for commercial banking business in New York, New York and San Francisco, California.

 

“Distribution” means, with respect to any indebtedness, (a) any payment or distribution by any Person of cash, securities or other property, by set-off or otherwise, on account, or as a payment or reduction of such indebtedness or obligation, including, without limitation, at maturity of such indebtedness or obligation or (b) any redemption, purchase or other acquisition of such indebtedness or obligation by any Person.

 

“Enforcement Action” means to (a) take from or for the account of any Loan Party or any guarantor of the Subordinated Obligations, by set-off or in any other manner, the whole or any part of any moneys which may now or hereafter be owing by any Loan Party or any such guarantor with respect to the Subordinated Obligations; (b) sue for payment of, or to initiate or participate with others in any suit, action or proceeding against any Loan Party or any such guarantor to (i) enforce payment of or to collect the whole or any part of the Subordinated Obligations (which shall include, for the avoidance of doubt, any demand or collection of payment at maturity), or (ii) commence judicial enforcement of any of the rights and remedies under the Subordinated Note Documents or applicable law with respect to the Subordinated Obligations; (c) accelerate the Subordinated Obligations; (d) exercise any put option or to cause any Loan Party or any such guarantor to honor any redemption or mandatory prepayment obligation under any Subordinated Note Document; (e) notify account debtors or directly collect accounts receivable or other payment rights of any Loan Party or any such guarantor; or (f) take any action under the provisions of any state or federal law, including, without limitation, the Uniform Commercial Code, or under any contract or agreement, to enforce, foreclose upon, take possession of or sell any property or assets of any Loan Party or any such guarantor including the Collateral.

 

“Paid in Full” or “Payment in Full” means, with respect to the Senior Loans, the full and indefeasible payment in cash and satisfaction in full of all of the obligations under the Senior Loan Documents (other than inchoate indemnity obligations for which a claim has not yet been made in writing and any other obligations which, by their terms, are to survive the termination of the Senior Loan Documents), and the termination of all obligations of BOTW and Senior Lenders under the Senior Loan Documents (including, without limitation, any commitment to lend), and the termination of the Senior Loan Documents.

 

“Permitted Subordinated Obligation Payments” means (a) payments of regularly scheduled payments of interest on the Subordinated Notes due and payable on a non-accelerated basis in accordance with the terms of Subordinated Notes as in effect as of the date hereof and (b) payments of Subordinated Costs and Expenses.

 

“Person” means any natural person, corporation, general or limited partnership, limited liability company, firm, trust, association, government, governmental agency or other entity, whether acting in an individual, fiduciary or other capacity.

 

  

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“Proceeding” means any voluntary or involuntary insolvency, bankruptcy, receivership, custodianship, liquidation, dissolution, reorganization, assignment for the benefit of creditors, appointment of a custodian, receiver, trustee or other officer with similar powers or any other proceeding for the liquidation, dissolution or other winding up of a Person.

 

“Senior Loan(s)” means all obligations, liabilities and indebtedness of every nature of any Loan Party from time to time owed to the Senior Lenders under the Senior Loan Documents, whether now existing or hereafter created, including, without limitation, the principal amount of all debts, claims and indebtedness, accrued and unpaid interest and all fees, costs and expenses, whether primary, secondary, direct, contingent, fixed or otherwise, heretofore, now and from time to time hereafter owing, due or payable, whether before or after the filing of a Proceeding under the Bankruptcy Code, together with (a) any amendments, modifications, renewals or extensions thereof, and (b) any interest accruing thereon after the commencement of a Proceeding, without regard to whether or not such interest is an allowed claim.

 

“Senior Loan Documents” means the promissory note or other instruments evidencing the Senior Loan or the obligation to pay the Senior Loan, any guaranty with respect to the Senior Loan, any security agreement or other collateral document securing the Senior Loan (including, without limitation, the Senior Loan Agreement) and all other documents, agreements and instruments now existing or hereafter entered into evidencing or pertaining to all or any portion of the Senior Loan including but not limited to those documents and agreements identified in the Forbearance Agreement and those documents and exhibits attached as exhibits and referenced in that certain lawsuit now pending in the Superior Court for the County of Ventura between BOTW and Borrowers Case Number 56-2014-00451934-CU-BC-VTA (the “Action”).

 

“Subordinated Costs and Expenses” means reasonable out-of-pocket costs and expenses payable by the Borrower to the Subordinated Obligee pursuant to the terms of the Subordinated Note Documents as in effect on the date of this Agreement or as modified in accordance with the terms of this Agreement.

 

“Subordinated Note Documents” means the Subordinated Notes and any other agreement, promissory note or other instrument evidencing the Subordinated Obligation or the obligation to pay the Subordinated Obligation, any guaranty or security agreement with respect to the Subordinated Obligation and all other documents, agreements and instruments now existing or hereafter entered into evidencing or pertaining to all or any portion of the Subordinated Obligations, including, without limitation, the Subordinated Notes.

 

“Subordinated Obligation(s)” means all obligations, liabilities and indebtedness of every nature of any Loan Party from time to time owed to the Subordinated Obligee, whether now existing or hereafter created, including, without limitation, the principal amount of all debts, claims (including, without limitation, indemnification rights arising in Subordinated Obligee’s capacity as a shareholder, officer, director, member and/or partner of any Loan Party and any right of the Subordinated Obligee to a return of any capital contributed to any Loan Party) and indebtedness, accrued and unpaid interest and all fees, costs and expenses, whether primary, secondary, direct, contingent, fixed or otherwise, heretofore, now and from time to time hereafter owing, due or payable, whether before or after the filing of a Proceeding under the Bankruptcy Code together with any amendments, modifications, renewals or extensions thereof.

 

  

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2.             Subordination.

 

2.1.           Subordination of Subordinated Obligations to Senior Loans. Each Loan Party covenants and agrees, and the Subordinated Obligee likewise covenants and agrees, notwithstanding anything to the contrary contained in any of the Subordinated Note Documents, that the payment of any and all of the Subordinated Obligations shall be subordinate and subject in right and time of payment, to the extent and in the manner hereinafter set forth, to the Payment in Full of all Senior Loans. Each holder of the Senior Loans, whether now outstanding or hereafter created, incurred, assumed or guaranteed, shall be deemed to have acquired the Senior Loans in reliance upon the provisions contained in this Agreement. Except as otherwise permitted under subsection 2.2 below, until the date that the Senior Loan has been Paid in Full, TEG shall not make and the Subordinated Obligee shall not accept any Distribution, whether in cash, securities or other property, on account of any Subordinated Obligation. In addition, each Loan Party and the Subordinated Obligee acknowledges and agrees that the Senior Loans constitute “Superior Indebtedness” under and as such terms are used in the Subordinated Note Documents.

 

2.2.           Permitted Subordinated Obligation Payments Restrictions. Notwithstanding the provisions of subsection 2.1 hereinabove, Permitted Subordinated Obligation Payments may be made by TEG and accepted by the Subordinated Obligee, but only if, at the time of such payment, (i) the Senior Loan has been Paid in Full and (ii) such payment shall be made in accordance with the terms and conditions of the Subordinated Note Documents as in effect as of the date hereof.

 

2.3.           Subordinated Obligation Standstill. Until the Senior Loans are Paid in Full, the Subordinated Obligee shall not, without the prior written consent of BOTW, take any Enforcement Action with respect to the Subordinated Obligations.

 

2.4.           Incorrect Payments. If any Distribution on account of the Subordinated Obligations not permitted to be made by any Loan Party or accepted by the Subordinated Obligee under this Agreement is made and received by the Subordinated Obligee, such Distribution shall not be commingled with any of the assets of the Subordinated Obligee, shall be held in trust by the Subordinated Obligee for the benefit of Senior Lenders and shall be promptly paid over to the Senior Lenders for application in accordance with the Senior Loan Documents to the payment of the Senior Loans then remaining unpaid, until the Senior Loans are Paid in Full.

 

2.5.           Subordination of Liens and Security Interests; Agreement Not to Contest; Agreement to Release any Liens. Until the Senior Loans have been Paid in Full, all liens and security interests of the Subordinated Obligee in the Collateral, if any, shall be and hereby are subordinated for all purposes and in all respects to the liens and security interests of the Senior Lenders in the Collateral, regardless of the time, manner or order of perfection of any such liens and security interests and regardless of any failure, whether intervening or continuing, of the Senior Lenders’ liens and security interests to be perfected. The Subordinated Obligee agrees that it will not at any time contest the validity, perfection, priority or enforceability of the Senior Loans, the Senior Loan Documents, or the liens and security interests of Senior Lenders in the Collateral securing the Senior Loans.

 

  

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2.6.          Application of Proceeds from Sale or other Disposition of the Collateral. In the event of any sale, transfer or other disposition (including a casualty loss or taking through eminent domain) of the Collateral, which may occur only subject to the prior written agreement of Senior Lenders, the proceeds resulting therefrom (including insurance proceeds) shall be applied in accordance with the terms of the Senior Loan Documents or as otherwise consented to by BOTW until after the Senior Loans are Paid in Full.

 

2.7.          Sale, Transfer or other Disposition of Subordinated Obligation.

 

(a)           The Subordinated Obligee shall not sell, assign, pledge, dispose of or otherwise transfer all or any portion of the Subordinated Obligation or any Subordinated Note Document, unless, prior to the consummation of any such action, the transferee thereof or holder of such security interest or participation shall execute and deliver to the Senior Lenders a joinder to this Agreement in the form of Annex I hereto or an agreement substantially identical to this Agreement, providing for the continued subordination of the Subordinated Obligations to the Senior Loans as provided herein and for the continued effectiveness of all of the rights of the Senior Lenders arising under this Agreement.

 

(b)           Notwithstanding the failure of any transferee to execute or deliver a joinder or agreement substantially identical to this Agreement, the subordination effected hereby shall survive any sale, assignment, pledge, disposition or other transfer of all or any portion of the Subordinated Obligation, and the terms of this Agreement shall be binding upon the successors and assigns of the Subordinated Obligee, as provided in Section 11.

 

2.8.          No Disposition of Collateral.

 

Until such time as the Senior Loans are Paid in Full, the Subordinated Obligee will not consent to or take any steps to further encumber, sell, move, transfer or otherwise encumber the Collateral or exercise any of its rights as Subordinated Obligee.

 

2.9.          Liquidation, Dissolution, Bankruptcy. In the event of any Proceeding involving TEG:

 

(a)           The parties expressly acknowledge the enforceability of this Agreement in an insolvency proceeding to the same extent that this Agreement is enforceable under applicable nonbankruptcy law as is provided in Section 510(a) of the Bankruptcy Code.  Further, this Agreement shall be effective before, during and after the commencement of a Proceeding.

 

(b)           Any Distribution, whether in cash, securities or other property which would otherwise, but for the terms hereof, be payable or deliverable in respect of the Subordinated Obligation shall be paid or delivered directly to BOTW (to be held and/or applied by Senior Lenders in accordance with the terms of the Senior Loan Documents) until after the Senior Loans are Paid in Full. The Subordinated Obligee irrevocably authorizes, empowers and directs any debtor, debtor in possession, receiver, trustee, liquidator, custodian, conservator or other Person having authority, to pay or otherwise deliver all such Distributions to BOTW. The Subordinated Obligee also irrevocably authorizes and empowers BOTW, in the name of the Subordinated Obligee, to demand, sue for, collect and receive any and all such Distributions.

 

  

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(c)           The Subordinated Obligee agrees that BOTW may consent to the use of cash collateral or provide financing to any Loan Party on such terms and conditions and in such amounts as BOTW, in its sole discretion, may decide and, in connection therewith, any Loan Party may grant to BOTW for the benefit of Senior Lenders liens and security interests upon all of the property of any Loan Party, which liens and security interests (i) shall secure payment of the Senior Loans (whether such Senior Loans arose prior to the commencement of any Proceeding or at any time thereafter) and all other financing provided by Senior Lenders during the Proceeding, and (ii) shall be superior in priority to the liens and security interests, if any, in favor of the Subordinated Obligee on the property of any Loan Party. The Subordinated Obligee shall not, directly or indirectly, assert or support the assertion of, and hereby waives any right that it may assert or support the assertion of any claim under Section 506(c) or “equities of the case” exception of Section 552(b) of the Bankruptcy Code as against Senior Lenders or any of the Collateral.

 

(d)           The Subordinated Obligee agrees that it will not provide, or offer to provide any debtor in possession financing to Borrowers without the prior written consent of BOTW unless the debtor in possession is expressly junior in all respects to the Senior Loan.  The Subordinated Obligee agrees not to assert any right it may have to “adequate protection” of the Subordinated Obligee’s interest in any Collateral in any Proceeding and agrees that it will not seek to have the automatic stay lifted with respect to any Collateral without the prior written consent of BOTW. The Subordinated Obligee waives any claim it may now or hereafter have arising out of BOTW’s election, in any Proceeding instituted under the Bankruptcy Code, of the application of Section 1111(b)(2) of the Bankruptcy Code, and/or any borrowing or grant of a security interest under Section 364 of the Bankruptcy Code by TEG, as debtor in possession. The Subordinated Obligee further agrees that it will not seek to participate or participate on any creditor’s committee without BOTW’s prior written consent, and waives any right it may now or hereafter may have to object to a motion for relief from stay by Senior Lenders or to the sale or other disposition of the Collateral.

 

(e)           Notwithstanding anything contained herein to the contrary, the Subordinated Obligee may file proofs of claim against the Borrower in any Proceeding involving TEG. The Subordinated Obligee agrees to execute, verify, deliver and file any proofs of claim in respect of the Subordinated Obligations requested by BOTW in connection with any such Proceeding and hereby irrevocably authorizes, empowers and appoints BOTW its agent and attorney-in-fact to (i) execute, verify, deliver and file such proofs of claim upon the failure of the Subordinated Obligee promptly to do so prior to thirty (30) days before the expiration of the time to file any such proof of claim, and (ii) vote such claim in any such Proceeding upon the failure of the Subordinated Obligee to do so prior to fifteen (15) days before the expiration of the time to vote any such claim; provided, however, that BOTW shall have no obligation to execute, verify, deliver, file and/or vote any such proof of claim. In the event that BOTW votes any claim in accordance with the authority granted hereby, the Subordinated Obligee shall not be entitled to change or withdraw such vote. The Subordinated Obligee hereby assigns to BOTW or its nominee (and will, upon request of BOTW, reconfirm in writing the assignment to BOTW or its nominee of) all rights of the Subordinated Obligee under such claims.

 

  

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(f)           The Senior Loans shall continue to be treated as the Senior Loans and the provisions of this Agreement shall continue to govern the relative rights and priorities of Senior Lenders and the Subordinated Obligee even if all or part of the Senior Loans or the security interests securing the Senior Loans are subordinated, set aside, avoided, invalidated or disallowed in connection with any such Proceeding, and this Agreement shall be reinstated if at any time any payment of any of the Senior Loans is rescinded or must otherwise be returned by any holder of the Senior Loans or any representative of such holder.

 

3.             Modifications.

 

3.1.           Modifications to Senior Loan Documents. The Senior Lenders may at any time and from time to time without the consent of or notice to the Subordinated Obligee, without incurring liability to the Subordinated Obligee and without impairing or releasing the obligations of the Subordinated Obligee under this Agreement, change the manner or place of payment or extend the time of payment of or renew or alter any of the terms of the Senior Loans, or amend in any manner any agreement, note, guaranty or other instrument evidencing or securing or otherwise relating to the Senior Loans; provided, however, that no such modification may increase the aggregate principal amount of the Senior Loans or commitments therefor to an amount in excess of the amount owing on the date of this Agreement without the written consent of the Subordinated Obligee.

 

3.2.           Modifications to Subordinated Note Documents. Until the Senior Loans have been Paid in Full, and notwithstanding anything to the contrary contained in the Subordinated Note Documents, the Subordinated Obligee shall not, without the prior written consent of BOTW, agree to any amendment, modification or supplement to the Subordinated Note Documents that is adverse to the interests of the Borrowers or Senior Lenders, including, without limitation, any amendment, modification or supplement which would(A) increase the principal amount of the Subordinated Notes (except as a result of the addition to principal of accrued interest), (B) increase the interest rate applicable to the Subordinated Notes in effect on the date hereof, except in connection with the imposition of a default rate of interest in accordance with the terms of the Subordinated Note Documents as in effect on the date hereof, (C) change (to earlier dates) any dates upon which payments of principal or interest are due thereon, (D) modify any event of default (other than to eliminate any such event of default or increase any grace period related thereto), or add any event of default, (E) modify or add any new financial maintenance, negative or affirmative covenant, (F) modify the prepayment or redemption provisions of the Subordinated Notes or any Subordinated Note Document or add any mandatory prepayments or redemptions thereto, (G) subordinate any Subordinated Obligations to any other indebtedness or obligation or (H) obtain any guaranties or credit support from any Person other than the Loan Parties unless a corresponding guaranty or credit support is offered to the Senior Lenders. Nothing herein shall be construed to imply BOTW’s or the Senior Lenders’ consent to the making of any other loans or other advances by the Subordinated Obligee (other than the Subordinated Obligations made pursuant to the Subordinated Note Documents).

 

  

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4.             Waiver of Certain Rights by Subordinated Obligee.

 

4.1.           Marshaling. The Subordinated Obligee hereby waives any rights it may have under applicable law to assert the doctrine of marshaling or to otherwise require BOTW or the Senior Lenders to marshal any property of any Loan Party or any guarantor of the Senior Loans for the benefit of the Subordinated Obligee.

 

4.2.           Rights Relating to BOTW’s Actions with respect to the Collateral. The Subordinated Obligee hereby waives, to the extent permitted by applicable law, any rights which it may have to enjoin or otherwise obtain a judicial or administrative order preventing BOTW from taking, or refraining from taking, any action with respect to all or any part of the Collateral. Without limitation of the foregoing, the Subordinated Obligee hereby agrees (a) that it has no right to direct or object to the manner in which BOTW enforces its rights and remedies with respect to, or applies the proceeds of, the Collateral resulting from the exercise by BOTW of rights and remedies under the Senior Loan Documents to the Senior Loans, and (b) that BOTW has not assumed any obligation to act as the agent for the Subordinated Obligee with respect to the Collateral.

 

4.3.           Rights Relating to Disclosures. The Subordinated Obligee hereby agrees that the Senior Lenders have not assumed any obligation or duty to disclose information regarding any Loan Party or the Senior Loans to the Subordinated Obligee, and the Senior Lenders shall have no special or fiduciary relationship to the Subordinated Obligee. The Subordinated Obligee hereby fully waives and releases Senior Lenders from any affirmative disclosures which may be required of Senior Lenders under applicable law.

 

5.            Senior Lenders Remedies. Except for the any motion or other application to the Court in the Action seeking the appointment of a Receiver or the continued prosecution of the pending Action, in either case, in accordance with the provisions of the Forbearance Agreement, prior to the Senior Lenders exercising any other rights and remedies under the Senior Loan Agreement, Senior Lenders agree to provide the Subordinated Obligee notice of the Senior Lenders’ intention to exercise rights or remedies, and the Subordinated Obligee shall have the right to (a) cause the Borrowers to cure in the case of a non-payment default or (b) purchase the Senior Loans from the Senior Lenders for an amount equal to that which would constitute Payment in Full if paid by Borrowers, in either case within five (5) Business Days of such notice.

 

6.            Construction. The terms of this Agreement were negotiated among business persons sophisticated in the area of business finance, and accordingly, in construing the terms of this Agreement, no rule or law which would require that this instrument be construed against the party who drafted this instrument shall be given any force or effect.

 

7.            Modification of this Agreement. Any modification or waiver of any provision of this Agreement, or any consent to any departure by any party from the terms hereof, shall not be effective in any event unless the same is in writing and signed by BOTW and the Subordinated Obligee, and then such modification, waiver or consent shall be effective only in the specific instance and for the specific purpose given. Any notice to or demand on any party hereto in any event not specifically required hereunder shall not entitle the party receiving such notice or demand to any other or further notice or demand in the same, similar or other circumstances unless specifically required hereunder. For the avoidance of doubt, Borrower’s signature shall not be required to amend or otherwise modify this Agreement.

 

  

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8.             Additional Subordinated Obligees; Further Assurances. To the extent requested by BOTW, the Subordinated Obligee and any Loan Party shall cause each shareholder, director, officer, member or partner in any Loan Party to join in and execute this Agreement. Each party to this Agreement promptly will execute and deliver such further instruments and agreements and do such further acts and things as may be reasonably requested in writing by any other party hereto that may be necessary or desirable in order to effect fully the purposes of this Agreement.

 

9.             Continuing Agreement. This is a continuing agreement and will remain in full force and effect until after all of the obligations under the Senior Loan Documents have been Paid in Full. This Agreement will continue to be effective or will be reinstated, as the case may be, if at any time payment of all or any part of the Senior Loan Documents or the obligations thereunder is rescinded or must otherwise be returned by BOTW and/or the Senior Lenders upon insolvency, bankruptcy, or reorganization of any Loan Party or otherwise, all as though such payment had not been made.

 

10.           Notices. Any notice or other communication required or permitted under this Agreement shall be in writing and personally delivered, mailed by registered or certified mail (return receipt requested and postage prepaid), sent by electronic mail (with a confirming copy sent by regular mail), or sent by prepaid overnight courier service, and addressed to the relevant party at its address set forth below, or at such other address as such party may, by written notice, designate as its address for purposes of notice under this Agreement:

 

If to Senior Lenders, to BOTW at:

 

Bank of the West

Attention: Angie Coro, Vice Predident SAD Portfolio

300 South Grand

Los Angeles, CA 90071

Telephone: 213-972-0415

E-mail:angeles.coroWbankofthewest.com

 

With copy to:

 

Mark Williams, Esq.

Sherman & Howard, LLC

633 17th Street

Denver, CO 80202

Telephone: 303-299-8211

E-Mail: mwilliams@shermanhoward.com

  

-9-

  

 

If to Borrowers or any other Loan Party, at:

 

Sefton Resources, Inc.

2050 S. Oneida St., Suite 102

Denver, CO  80224

Attention: Kris Short

Telephone: 303.759.2700

E-mail: kshort@seftonresources.com

 

If to the Subordinated Obligee:

 

Tapia Holdings, LLC

c/o Hawker Energy, LLC

326 S. Pacific Coast Highway, Suite 102

Redondo Beach, CA 90277

Attention: Darren Katic

Telephone: (310) 316-3623

E-mail: dkatic@hawkerenergyllc.com

 

If mailed, notice shall be deemed to be given five (5) days after being sent, and if sent by personal delivery, electronic mail or prepaid courier, notice shall be deemed to be given when delivered.

 

11.           Successors and Assigns. This Agreement shall inure to the benefit of, and shall be binding upon, the respective successors and assigns of the Senior Lenders, the Subordinated Obligee and the Loan Parties; provided, however, that neither the Subordinated Obligee nor any Loan Party may assign this Agreement or the Subordinated Note Documents in whole or in part without the prior written consent of BOTW. The Senior Lenders may, from time to time, without notice to the Subordinated Obligee, assign or transfer any or all of the Senior Loans or any interest therein to any Person and, notwithstanding any such assignment or transfer, or any subsequent assignment or transfer, the Senior Loans shall, subject to the terms hereof, be and remain the Senior Loans for purposes of this Agreement, and every permitted assignee or transferee of any of the Senior Loans or of any interest therein shall, to the extent of the interest of such permitted assignee or transferee in the Senior Loans, be entitled to rely upon the subordination provided under this Agreement and shall be entitled to enforce the terms and provisions hereof to the same extent as if such assignee or transferee were initially a party hereto.

 

12.           No Waiver or Novation. No waiver shall be deemed to have been made by any party to this Agreement of any of its rights under this Agreement unless the same shall be in writing and duly signed by its duly authorized officers, and each waiver, if any, shall be a waiver only with respect to the specific instance involved and shall in no way impair the rights of any party to this Agreement in any other respect at any time. No executory agreement shall be effective to change, modify or to discharge, in whole or in part, this Agreement, unless such executory agreement is in writing and duly signed by the duly authorized officers of each party to this Agreement.

 

  

-10-

  

 

13.           CONSENT TO JURISDICTION. EACH OF THE LOAN PARTIES AND THE SUBORDINATED OBLIGEE HEREBY CONSENTS TO THE JURISDICTION OF THE COURT THEN HANDLING THE ACTION OR SHOULD THAT ACTION NO LONGER BE PENDING, ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF VENTURA, STATE OF CALIFORNIA, AND IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE LITIGATED IN SUCH COURTS. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH PARTY, FOR ITSELF, IN CONNECTION WITH ITS PROPERTIES AND ON BEHALF OF THE RESPECTIVE PARTIES IT REPRESENTS, IRREVOCABLY (A) ACCEPTS GENERALLY AND UNCONDITIONALLY THE JURISDICTION AND VENUE OF THE AFORESAID COURTS; (B) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (C) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE APPLICABLE PARTY AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 10; AND (D) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (C) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE APPLICABLE PARTY IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT.

 

14.           Miscellaneous.

 

14.1.           Conflict. In the event of any conflict between any term, covenant or condition of this Agreement and any term, covenant or condition of any of the Subordinated Note Documents, the provisions of this Agreement shall control and govern.

 

14.2.           Headings. The paragraph headings used in this Agreement are for convenience only and shall not affect the interpretation of any of the provisions hereof.

 

14.3.           Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument, but in making proof hereof, it shall only be necessary to produce one such counterpart containing signatures pages signed by each party.

 

14.4.           Severability. If any provision of this Agreement is deemed to be invalid, illegal or unenforceable by reason of the operation of any law or by reason of the interpretation placed thereon by any court or governmental authority, the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby, and the affected provision shall be modified to the minimum extent permitted by law so as most fully to achieve the intention of this Agreement.

 

14.5.           Governing Law. THIS AGREEMENT SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.

 

  

-11-

  

 

14.6.           Relative Rights. This Agreement shall define the relative rights of the Senior Lenders and the Subordinated Obligee. Nothing in this Agreement shall (a) impair, as between the Loan Parties and the Senior Lenders, the obligation of the Loan Parties with respect to the payment of the Senior Loans and the Subordinated Obligations in accordance with their respective terms, or (b) affect the relative rights of the Senior Lenders or the Subordinated Obligee with respect to any other creditors of the Loan Parties.

 

14.7.           Subrogation. Subject to the Payment in Full of all Senior Loans, the Subordinated Obligee shall be subrogated to the rights of BOTW and Senior Lenders to receive Distributions with respect to the Senior Loans until the Subordinated Obligations are paid in full. The Subordinated Obligee agrees that if all or any part of a payment made with respect to the Senior Debt is recovered from the holders of the Senior Loans in a Proceeding or otherwise, any Distribution received by the Subordinated Obligee with respect to the Subordinated Obligations at any time after the date on which the Subordinated Obligee is notified by BOTW that such payment has been recovered, whether pursuant to the right of subrogation provided for in this Agreement or otherwise, shall be deemed to have been received by the Subordinated Obligee in trust as property of BOTW and the Senior Loans and the Subordinated Obligee shall promptly upon receipt of such notice by the Subordinated Obligee deliver the same to BOTW for the benefit of the Senior Lenders for application to the Senior Loans until the Senior Loans are Paid in Full. A Distribution made pursuant to this Agreement to BOTW or the Senior Lenders which otherwise would have been made to a Subordinated Obligee is not, as between the Borrowers and the Subordinated Obligee, a payment by the Borrowers to or on account of the Senior Loans.

 

14.8.           Entire Agreement. This Agreement (including the documents and instruments referred to herein) constitutes the entire agreement and supersedes all other prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof.

 

 

 

[SIGNATURES APPEAR ON FOLLOWING PAGE]

 

  

-12-

  

 

IN WITNESS WHEREOF, intending to be legally bound, and intending that this Agreement constitute an instrument executed and delivered under seal, the parties have caused this Agreement to be executed under seal as of the date first written above.

 

 

	  	
SENIOR LENDER:

	 	 
	  	
BANK OF THE WEST

	 	 
	  	
By:

	/s/ Angeles Coro
	  	
Name:

	ANGELES CORO
	  	
Title:

	VICE PRESIDENT
	  	  	  
	 	 	 
	  	
BORROWERS:

	 	 
	  	
TEG OIL & GAS USA, INC.

	 	 
	  	
By:

	/s/ T.G. Milne
	  	
Name:

	T.G. MILNE
	  	
Title:

	DIRECTOR
	  	  	  
	  	
SEFTON RESOURCES, INC.

	 	 
	  	
By:

	/s/ T.G. Milne
	  	
Name:

	T.G. MILNE
	  	
Title:

	DIRECTOR
	 	 	 
	  	
TEG MIDCONTINENT, INC.

	 	 
	  	
By:

	/s/ T.G. Milne
	  	
Name:

	T.G. MILNE
	  	
Title:

	DIRECTOR
	  	  	  
	  	
SUBORDINATED OBLIGEE:

	 	 
	  	
TAPIA HOLDINGS, LLC

	 	 
	  	
By:

	/s/ Darren Katic
	  	
Name:

	DARREN KATIC
	  	
Title:

	PRESIDENT OF SARA CREEK GOLD CORP., ITS SOLE MEMBER

 

[Signature page to Subordination and Intercreditor Agreement]

  

  

  

 

ANNEX I

 

FORM OF JOINDER AGREEMENT

 

This JOINDER AGREEMENT (this “Joinder Agreement”) dated as of [______] is executed by the [             ] 2014, by and among TAPIA HOLDINGS, LLC, a Delaware limited liability company (the “Subordinated Obligee”), TEG OIL & GAS USA, INC., a Colorado corporation (“TEG”), SEFTON RESOURCES, INC., a British Virgin Islands corporation (“Parent”), TEG MIDCONTINENT, INC., a Colorado corporation (“TEGMC”, and, together with Parent and TEG, “Borrowers”) and BANK OF THE WEST, a California corporation (“BOTW”), or such then present holder or holders of the Senior Loan (as hereinafter defined) as may from time to time exist (collectively with BOTW, the “Senior Lenders”). Capitalized terms not otherwise defined herein are being used herein as defined in the Agreement.

 

The signatories hereto are the transferor (the “Transferor Subordinated Obligee”) and the transferee (the “Transferee Subordinated Obligee”) of certain Subordinated Obligations (the “Transfer”) and are required to execute this Joinder Agreement pursuant to Section 2.7 of the Agreement.

 

In consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each signatory hereby agrees as follows:

 

1.           The Transferee Subordinated Obligee assumes all the rights and obligations of a Subordinated Obligee under the Agreement and agrees that it shall be bound as a Subordinated Obligee under the terms of the Agreement as if it had been an original signatory to such agreement.

 

2.           The Transferee Subordinated Obligee’s address for notices under the Agreement shall be as set forth beneath its signature hereto (or such other address as such signatory may designate in writing from time to time pursuant to Section 10 of the Agreement).

 

3.           Giving effect to the Transfer, the Transferor Subordinated Obligee [will/will not] hold any Subordinated Obligations. Consequently, the Transferor [will/will not] continue to be bound by the provisions of the Agreement.

 

4.           The signatories hereto hereby waive notice of acceptance of this Joinder Agreement by the other parties to the Agreement.

 

 

 

[SIGNATURES APPEAR ON FOLLOWING PAGE]

 

  

Annex I-1

  

 

IN WITNESS WHEREOF, the parties have caused this Joinder Agreement to be executed under seal as of the date first written above.

 

	 	
Transferee Subordinated Obligee:

	 	 
	 	
[                     ]

	 	 
	 	By:	 
	 	 	Name:
	 	 	
Title:

	 	 	 
	 	
Address:

	 	

Attention:[                     ]

	 	
Facsimile Number: [                     ]”

	 	
E-mail address: [                     ]

	 	 	 
	 	 	 
	 	 	 
	 	
Transferor Subordinated Obligee:

	 	 	 
	 	
[                     ]

	 	 	 
	 	
By:

	 
	 	 	
Name:

	 	 	
Title:

	 	 	 
	 	
Address:

	 	
Attention:[                     ]

	 	
Facsimile Number: [                     ]

	 	
E-mail address: [                     ]

 

 

Annex I-2

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