Document:

ex10_9.htm

Exhibit 10.9

 

PLEDGE AGREEMENT

 

THIS PLEDGE AGREEMENT (this “Agreement”), dated January 12, 2015, is made by Sefton Resources, Inc., a British Virgin Islands corporation (“Sefton”), in favor of Hawker Energy, Inc., a Nevada corporation (“Hawker”).

 

RECITALS

 

A.           Pursuant to a Secured Subordinated Note Due December 31, 2015, dated the date hereof (the “Note”), Lender has loaned or committed to loan to TEG Oil & Gas U.S.A., Inc., a Colorado corporation (“Borrower”), up to $2,100,000 (the “Loan”).

 

B.           Sefton owns 100% of the outstanding capital stock of Borrower, and has guaranteed repayment of the Loan pursuant to a Limited Recourse Guarantee dated the date hereof (the “Guarantee”).

 

C.           Borrower’s obligations under the Note are secured by a Fourth Amended and Restated Security Agreement dated the date hereof (the “Security Agreement”)

 

D.           Hawker has required, as a condition to the Loan, that Sefton execute and deliver this Agreement to Hawker.

 

E.           Hawker’s rights under the Note, the Security Agreement, the Guarantee and this Pledge Agreement are subordinated to the rights of Bank of the West (“BOTW”) and its assignees pursuant to the terms of an Amended and Restated Subordination and Intercreditor Agreement dated as of January 1, 2015 among Sefton, Hawker, BOTW and the other parties named therein (the “Intercreditor Agreement”).

 

F.           Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Note, in the Security Agreement or in the Guarantee.

 

AGREEMENT

 

In consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Hawker and Sefton agree as follows:

 

1.             Pledge. As security for the prompt and complete payment and performance of the obligations of Hawker hereunder and under the Note (collectively, the “Obligations”), Sefton pledges to Hawker, and grants a security interest to Hawker in, the following:

 

(a)           100,000 shares of Common Stock of Borrower, represented by stock certificate no. 001, which comprise 100% of the issued and outstanding shares of capital stock of Borrower (the “Pledged Shares”); and

 

(b)           All dividends and other distributions received by Sefton from Borrower with respect to the Pledged Shares, subject to the provisions of Section 6.

 

  

 

  

 

The Pledged Shares and any dividends or distributions with respect thereto are hereinafter collectively referred to as the “Collateral.” Sefton hereby appoints Hawker as its attorney-in-fact to arrange at Hawker’ option for the transfer, subject to Section 4, upon or at any time after the occurrence and during the continuance of an Event of Default, of the Collateral on the books of Borrower to the name of Hawker or to the name of Hawker’ nominee.

 

2.             Delivery of Collateral; Financing Statements. Sefton shall deliver stock certificate no. 001, representing the Pledged Shares, simultaneously with the execution hereof, to Hawker, duly endorsed in blank. In addition, Sefton hereby authorizes Hawker to file financing statements in the State of California, the District of Columbia, the British Virgin Islands and in any other jurisdictions Hawker deems necessary in order to perfect its security interest in the Collateral, and agrees that a carbon, photographic, photostatic or other reproduction of this Agreement or of a financing statement is sufficient as a financing statement to the extent complying with applicable law.

 

3.             Voting Rights. During the term of this Agreement, and so long as there does not occur or exist an Event of Default, Sefton shall have the right to vote the Pledged Shares on all matters on which the Pledged Shares are entitled to vote; provided, however, that no vote shall be cast, or consent, waiver or ratification given, or any action taken, that would materially impair the value of the Collateral or be inconsistent with or violate any provision of this Agreement or the Note. Upon the occurrence and during the continuance of an Event of Default, subject to Section 4, Hawker shall thereafter be entitled to exercise all voting powers pertaining to the Collateral, and Sefton shall not be entitled to vote the Pledged Shares at any time after an Event of Default has occurred, including, without limitation, upon the taking of any action described in clause (vii) of the definition of “Event of Default” in the Security Agreement.

 

4.             Representations and Warranties. Sefton represents, warrants and agrees as follows:

 

(a)           Sefton is the beneficial owner of the Pledged Shares;

 

(b)           Sefton has full power and authority to enter into this Agreement;

 

(c)           There are no restrictions upon the voting rights associated with, or upon the transfer of, any of the Collateral except as set forth in the governing documents of Tapia; and

 

(d)           Sefton has the unrestricted right to vote, pledge and grant a security interest in or otherwise transfer the Collateral free of any liens, claims and encumbrances.

 

5.             Limitation on Liens and Dispositions. Sefton will not create, permit or permit to exist, and will defend the Collateral against and take such other action as is necessary to remove, any lien on the Collateral (other than liens in favor of Hawker) and will defend the right, title and interest of Hawker in and to any of Sefton’s right, title and interest in and to the Collateral against the claims and demands of all other persons. Except for liens in favor of Hawker, Sefton will not, without the prior written consent of Hawker, sell, assign, exchange, grant a security interest in, transfer, encumber or otherwise dispose of any of the Collateral, or attempt or contract to do so.

 

  

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6.             Subsequent Changes Affecting Collateral. Hawker represents to Sefton that it has made its own arrangements for keeping informed of changes or potential changes affecting the Collateral (including, but not limited to, rights to convert, rights to subscribe, payment of distributions, reorganization or other exchanges, tender offers and voting rights), and Hawker agrees that Sefton shall not have any responsibility or liability for informing Hawker of any changes or potential changes or for taking any action or omitting to take any action with respect thereto. Hawker may, upon or at any time after the occurrence and during the continuance of an Event of Default, without notice and at its option, transfer or register the Collateral or any part thereof into its or its nominee’s name with or without any indication that the Collateral is subject to the security interest hereunder.

 

7.             Distributions.

 

(a)           Unless and until Sefton has received written notice from Hawker that an Event of Default has occurred and is continuing, Sefton shall be entitled to receive all cash distributions paid with respect to any Pledged Shares, free of any security interest in favor of Sefton hereunder. Upon the occurrence and during the continuance of any Event of Default, Hawker shall be entitled to receive any and all cash distributions, and Sefton, upon learning of the Event of Default, shall immediately deliver to Hawker any cash dividends that it receives. Hawker shall hold any cash distributions as Collateral pursuant to this Agreement or, at Holding’s election, may apply any cash distributions to the reduction of any Obligations.

 

(b)           Nothing contained in this Section 6 or elsewhere in this Agreement shall be deemed to restrict the right of Sefton to receive distributions on account of its or its members’ income taxes.

 

8.             Power of Attorney. Sefton irrevocably constitutes and appoints Hawker its true and lawful attorney-in-fact, subject to its compliance with all other terms and conditions hereof, with full power of substitution, for it and in its name, place and stead, upon the occurrence and during the continuance of an Event of Default, to ask, demand, collect, receive, receipt for, sue for, compound and give acquittance for any and all sums or properties which may be or become due, payable or distributable on or in respect of the Collateral or which constitute a part thereof, with full power to settle, adjust or compromise any claim thereunder or therefor as fully as Sefton could itself do, and to endorse or sign the name of Sefton on all commercial paper given in payment or in part payment thereof and on all documents of satisfaction, discharge or receipt required or requested in connection therewith, and in its discretion, to file any claim or take any other action or proceeding, either in its own name or in the name of Sefton, or otherwise, that Hawker may deem necessary or appropriate (subject to Section 8(a)) to collect or otherwise realize upon any and all of the Collateral, or effect a transfer thereof, or which may be necessary or appropriate to protect and preserve the right, title and interest of Hawker in and to the Collateral and the security intended to be afforded hereby.

 

9.             Remedies. Subject in all respects to BOTW’s (and its assignees’) rights and Hawker’s obligations under the Intercreditor Agreement, Hawker shall have the following rights and be entitled to the following remedies as a junior secured creditor:

 

  

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(a)           Upon the occurrence or existence of an Event of Default, subject to Section 4, Hawker shall have, in addition to any other rights given by law or hereunder, all of the rights and remedies with respect to the Collateral of a secured party under the Uniform Commercial Code as it may from time to time be in effect in the State of California (“Code”), including, without limitation, the rights set forth in Section 9620 of the Code. In addition, with respect to the Collateral, or any part thereof, which shall then be or shall thereafter come into the possession or custody of Hawker, Hawker may in its sole discretion, without notice except as specified below, sell or cause the Collateral to be sold at any exchange, broker’s board or at public or private sale, in one or more sales or lots, at such price as Hawker may deem best, and for cash or on credit or for future delivery, without assumption of any credit risk, and the purchaser of any or all of the Collateral so sold shall thereafter hold the Collateral, absolutely free from any claim, encumbrance or right of any kind whatsoever. Hawker may, in its own name, or in the name of an assignee or nominee, buy the Collateral at any public sale and, if permitted by applicable law, buy the Collateral at any private sale. Sefton hereby waives all of its rights of redemption from any sale or other disposition of the Collateral. Sefton will pay to Hawker all expenses (including, without limitation, court costs and reasonable attorneys’ and paralegals’ fees and expenses) of, or incident to, the enforcement of any of the provisions hereof. Neither Hawker nor any party acting as its attorney shall be liable for any acts or omissions or for any error of judgment or mistake of fact or law other than their gross negligence or willful misconduct. Hawker agrees to return to Sefton (or to the Persons legally entitled thereto) any proceeds of the sale of the Collateral that exceed the then outstanding balance of the Obligations and the expenses described above.

 

(b)           Unless any of the Collateral threatens to decline speedily in value or is or becomes of a type sold on a recognized market, Hawker will give Sefton reasonable notice of the time and place of any public sale thereof, or of the time after which any private sale or other intended disposition is to be made. Any sale of the Collateral conducted in conformity with reasonable commercial practices of banks, commercial finance companies, insurance companies or other financial institutions disposing of property similar to the Collateral shall be deemed to be commercially reasonable. Notwithstanding any provisions to the contrary contained herein, any requirements of reasonable notice shall be met if the notice is received by Sefton as provided in Section 18, at least seven days before the time of the sale of disposition. Any other requirement of notice, demand or advertisement for sale is, to the extent permitted by law, waived.

 

(c)           In view of the fact that federal and state securities laws may impose certain restrictions on the method by which a sale of the Collateral may be effected after an Event of Default, Sefton agrees that, upon the occurrence and during the continuance of an Event of Default, Hawker may, from time to time, attempt to sell all or any part of the Collateral by means of a private placement restricting the bidder and prospective purchasers to those who will represent and agree that they are purchasing for investment only and not for distribution. In so doing, Hawker may solicit offers to buy the Collateral, or any part of it, for cash, from a limited number of investors deemed by Hawker, in its reasonable judgment, to be respectable parties who might be interested in purchasing the Collateral, and if Hawker solicits such offers from not less than three such investors, and from Sefton (if permitted by applicable law and so long as Sefton does not unreasonably delay any such sale by withholding or conditioning its offer or otherwise), then the acceptance by Hawker of the highest offer obtained therefrom shall be deemed to be a commercially reasonable method of disposition of Collateral.

 

  

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10.           Security Interest, etc. The pledge and security interests herein created and provided for stand as direct and primary security for all of the Obligations. No application of any sums received by Hawker in respect of the Collateral or any disposition thereof to the reduction of the Obligations or any part thereof shall in any manner entitle Sefton to any right, title or interest in or to the Obligations or any collateral security therefor unless and until all Obligations have been fully paid and satisfied. Sefton acknowledges and agrees that the pledge and security interests hereby created are absolute and unconditional and shall not in any manner be affected or impaired by any acts or omissions whatsoever of Hawker or any other holder of any of the Obligations (other than their gross negligence or willful misconduct), and without limiting the generality of the foregoing, the pledge and security hereof shall not be impaired by any acceptance by Hawker or any other holder of any of the Obligations of any other security for or guarantors upon any of the Obligations or by any failure, neglect or omission on the part of Hawker or any other holder of any of the Obligations to realize upon or protect any of the Obligations (except as otherwise provided herein) or any collateral security therefor (except as provided herein or in any other agreement with respect to any such collateral security). The pledge and security hereof shall not in any manner be impaired or affected by (and Hawker, without notice to anyone is hereby authorized to make from time to time) any sale, pledge, surrender, compromise, settlement, release, renewal, extension, indulgence, alteration, substitution, exchange, change in, modification or disposition of any of the Obligations, or of any collateral security therefor, or of any guarantee thereof, or of any loan agreement executed in connection therewith; provided, however, that nothing herein shall result in or effectuate an increase in the amount of the Obligations for which Sefton shall be responsible beyond which is contemplated by this Agreement and the Note.

 

11.           Waivers and Consents. Except as otherwise provided herein, upon the occurrence and during the continuance of an Event of Default, Hawker may enforce this Agreement independently of any other remedy or security Hawker at any time may have or hold in connection with the Obligations, and it shall not be necessary for Hawker to proceed upon or against and/or exhaust any other security or remedy before proceeding to enforce this Agreement. Sefton expressly waives any right to require Hawker to proceed against any other person or entity or any collateral provided by any other person or entity. Hawker may proceed against Sefton and/or any other person or entity and/or the Collateral in whatever order it determines in its sole and absolute discretion. Hawker may file a separate action or separate actions against Sefton, whether brought or prosecuted with respect to any other security or against any other person or entity, or whether any other person or entity is joined in any action or actions. Hawker and any affiliate of Hawker, and Sefton and any affiliate of Sefton, may deal with each other in connection with the Obligations or otherwise, or alter any contracts or agreements now or hereafter existing between any of them, in any manner whatsoever, all without in any way altering or affecting the liens created or granted under this Agreement. Holdings’ rights hereunder shall be reinstated and revived, and the enforceability of this agreement shall continue, with respect to any amount at any time paid on account of the Obligations which thereafter shall be required to be restored or returned by Hawker (whether as a “voidable preference,” “fraudulent conveyance,” or otherwise) upon the bankruptcy, insolvency or reorganization of Sefton, or otherwise, all as though the amount had not been paid. Sefton expressly waives any and all defenses now or hereafter arising or asserted by reason of (i) any failure of Hawker to give notice of sale or other disposition of Collateral to any person or entity (except Sefton) or any defect in any notice that may be given to any person or entity (except Sefton) in connection with any sale or disposition of Collateral, (ii) any failure of Hawker to file or enforce a claim in any bankruptcy or other proceeding with respect to any person or entity, (iii) the election by Hawker, in any bankruptcy proceeding of any person or entity, of the application or non-application of Section 1111(b)(2) of the United States Bankruptcy Code, (iv) any extension of credit or the grant of any lien under Section 364 of the United States Bankruptcy Code, (v) any use of cash collateral under Section 363 of the United States Bankruptcy Code, (vi) any agreement or stipulation with respect to the provision of adequate protection in any bankruptcy proceeding of any parson or entity, (vii) any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, liquidation or dissolution proceeding commenced by or against any person or entity, including any discharge of, or bar or stay against collecting, all or any of the Obligations (or any interest thereon) in or as a result of any such proceeding or (viii) any action taken by Hawker that is authorized by this Section 11 or any other provision of this Agreement or the Note, except to the extent any action taken by Hawker constitutes gross negligence or willful misconduct. Sefton expressly waives all presentments, demands for payment or performance, notices of nonpayment or nonperformance, protests, notices of protest, notices of dishonor and all other notices or demands of any kind or nature whatsoever with respect to the Obligations (except as otherwise required by Section 9(b) or elsewhere herein), and all notices of acceptance of this Agreement.

 

  

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12.           Understanding With Respect To Waivers And Consents. Each of the waivers and consents set forth in this Agreement are made after consultation with legal counsel and with full knowledge of their significance and consequences, with the understanding that events giving rise to any defense or right waived may diminish, destroy or otherwise adversely affect rights that Sefton otherwise may have against Hawker or others or against the Collateral, and that, under the circumstances, the waivers and consents given are reasonable and not contrary to public policy or law. These waivers and consents shall be effective to the maximum extent permitted by law.

 

13.           Term. This Agreement shall remain in full force and effect throughout the term of the Note and until all of the Obligations have been fully paid and satisfied and the Note has been terminated. Upon the termination of this Agreement as provided above (other than as a result of the sale of the Collateral), Hawker will release the security interest and lien created hereunder.

 

14.           Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Hawker, Sefton and their respective successors and assigns. Sefton’s successors and assigns shall include, without limitation, a receiver, trustee or debtor in possession of or for Sefton.

 

15.           Further Assurances. Sefton will cooperate with Hawker and will execute and deliver, or cause to be executed and delivered, all stock powers, proxies, instruments and documents, and will take all other action, including, without limitation, the filing of financing statements, as Hawker may reasonably request from time to time in order to carry out the provisions and purposes of this Agreement.

 

  

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16.           Governing Law; Consent to Jurisdiction. This Agreement is entered into in Orange County, California and shall be governed by, and construed in accordance with, the internal laws of the State of California without regard to conflict of law principles that would result in the application of any law other than the law of the State of California. Each party acknowledges and consents to the personal jurisdiction of the State and Federal courts in the State of California with respect to any action or proceeding arising out of or in connection with any provision of this Agreement.

 

17.           Forum and Venue. The State of California shall be the sole and exclusive forum for any claim or suit between or among the parties involving this Agreement or any transactions contemplated hereby. All claims or suits shall be filed only in Orange County, California, which shall be the sole and exclusive venue for all such matters.

 

18.           No Obligation. Hawker shall not be under any obligation to take any steps necessary to preserve rights in the Collateral against any other parties but may do so at its option, and all expenses incurred in connection therewith shall be for the sole account of Hawker.

 

19.           Notices. Except as otherwise provided for herein, all notices and other communications provided for hereunder shall be in writing (including electronic mail) and mailed (via registered or certified mail), e-mailed or delivered:

 

	
if to Hawker, at:

	
c/o Hawker Energy

	  	
326 S. Pacific Coast Highway, Suite 102

	  	
Redondo Beach, California 90277

	  	
Attention: Darren Katic

	  	
E-mail: dkatic@hawkerenergyllc.com

	  	  
	
with a copy to:

	
Rutan & Tucker, LLP

	  	
611 Anton Boulevard, 14th Floor

	  	
Costa Mesa, California  92626

	  	
Attention: Gregg Amber

	  	
E-mail: gamber@rutan.com

	  	  
	
and if to Sefton, at

	
Sefton Resources, Inc.

	  	
2050 S. Oneida Street, Suite 102

	  	
Denver, Colorado 80224

	  	
Attention: Kris Short

	  	
E-mail: kshort@seftonresources.com

 

or, as to each party, at such other address as designated by that party in a written notice to the other party. All notices and communications shall be deemed to have been validly served, given or delivered (i) if personally delivered, upon receipt or refusal to accept delivery, (ii) if sent by a commercial overnight courier for delivery on the next business day, on the first business day after deposit with such courier service (or the second business day if sent to an address not in the United States), (iii) if sent by registered or certified mail, three days after deposit thereof in the United States mail, or (iv) if sent by electronic mail, one business day after transmission when directed to the appropriate e-mail address (provided that the party giving notice must verify the e-mail address of the recipient prior to transmission).

 

  

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20.           Section Headings. The section headings herein are for convenience of reference only, and shall not affect in any way the interpretation of any of the provisions of this Agreement.

 

21.           Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same instrument, respectively. This Agreement may be transmitted for reproduction and execution by any means now known or hereafter devised, including facsimile or electronic file transmission, may be converted from its original software program to another and/or printed on different paper formats or in different fonts, any or all of which may result in variations to the pagination and appearance of the counterpart versions of this Agreement. The execution and delivery of counterparts of this Agreement, by facsimile or by original manual signature, regardless of the means or any such variation in pagination or appearance, shall be binding upon the parties executing this Agreement. Any party delivering an executed counterpart of this Agreement by facsimile shall also deliver a manually executed counterpart of this Agreement to each other party, but failure to do so shall not affect the validity, enforceability or binding effect of this Agreement.

 

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

 

	
Hawker:

	
Hawker Energy, Inc., a Nevada corporation

	  	  
	  	  
	  	
By:

	
/s/ D. Katic

	  	  	
Darren Katic, President

	  	  	  
	  	  
	  	  
	
Sefton:

	
Sefton Resources, Inc., a British Virgin Islands corporation

	  	  
	  	  
	  	
By:

	
/s/ T. Milne

	  	  	
Tom Milne, Director

 

-8-ex10_10.htm

Exhibit 10.10

  

FOURTH AMENDED AND RESTATED SECURITY AGREEMENT

 

This FOURTH AMENDED AND RESTATED SECURITY AGREEMENT, dated as of January 12, 2015 (as amended, supplemented or otherwise modified from time to time in accordance with the provisions hereof, this “Agreement”), made by TEG Oil & Gas U.S.A., Inc., a Colorado corporation (the “Debtor”), in favor of Hawker Energy, Inc., a Nevada corporation, (the “Secured Party”).

 

WHEREAS, the Debtor and the Secured Party’s subsidiary, Tapia Holdings, LLC, a Delaware limited liability company (“Holdings”), are parties to a Third Amended and Restated Security Agreement dated August 29, 2014 (as amended, the “Original Security Agreement”);

 

WHEREAS, Holdings assigned its rights under the Original Security Agreement to the Secured Party;

 

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 100% of the outstanding equity securities and voting power of the Debtor except through sale of those securities to the Secured Party or an affiliate of the Secured Party;

 

(vi)         Sefton fails to obtain the requisite approval of shareholders as required by the Share Purchase Agreement and consummate the transactions contemplated thereby by January 31, 2015;

 

(vii)        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, (G) takes any requisite action for the purpose of effecting any of the foregoing, or (H) fails to notify the Secured Party in writing at least 72 hours prior to the occurrence of any of the foregoing; or

 

  

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(viii)       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.

 

“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 December 31, 2015, dated January 12, 2015 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 outstanding shares of the Debtor pursuant to a Share Purchase Agreement dated January 6, 2015 among the Secured Party, the Debtor and Sefton.

 

“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.

 

  

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“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).

 

“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 that 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 that proceeding), of the Debtor under the Loan Agreement and this Agreement; and

 

  

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(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”).

 

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.

 

  

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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.

 

(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.

 

  

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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:

 

(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.

 

  

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(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:

 

(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.

 

  

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(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 December 31, 2015.

 

(b)           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.

 

(c)           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.

 

(d)           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.

 

(e)           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.

 

(f)            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.

 

(g)           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.

 

(h)           The Debtor shall not enter into (or renew or amend), directly or indirectly, or permit any subsidiary (if any) to enter into (or renew or amend), directly or indirectly, any transaction with any officer, director, employee, shareholder or affiliate (including Sefton) of the Debtor, or any relative of any officer, director, shareholder or affiliate of the Debtor, except transactions made in the ordinary course of business and upon fair and reasonable terms which are no less favorable to the Debtor than would be obtained in a comparable arm’s-length transaction with a person not an affiliate of the Debtor and are fully disclosed to Lender in advance; or pay, or permit any subsidiary to pay, compensation or fees (including, without limitation, management fees) to any shareholder or affiliate of the Debtor.

 

(i)           The Debtor shall not, and shall not permit any subsidiary (if any) to, directly or indirectly, declare or pay any dividends or otherwise upstream any funds in any manner, purchase or otherwise acquire for value any of its equity interests now or hereafter outstanding, or make any distribution of assets to its equityholders (including Sefton) prior to the repayment in full of the Note, except that any wholly-owned subsidiary of the Debtor may pay dividends and make distributions to, or purchase its outstanding equity interests from, the Debtor or any other wholly-owned subsidiary of the Debtor.

 

  

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(j)            The Debtor shall not enter into, or permit any subsidiary to enter into, any transaction of merger or consolidation, and will not, and will not cause or permit any subsidiary to, liquidate, wind up or dissolve itself (or permit any liquidation or dissolution), or convey, sell, lease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business, property or assets (including, without limitation, sale and leaseback arrangements and the sale or discount of its accounts receivable), whether now owned or hereafter acquired, or acquire by purchase or otherwise all or substantially all of the business, property or assets of, or any shares or other evidence of beneficial interest in, any Person; provided that the Debtor and its subsidiaries (if any) may sell or otherwise dispose of obsolete or worn-out property in the ordinary course of business and fixtures and furnishings of the Debtor’s offices which may be closed in the ordinary course of business. If any such transaction is permitted by Lender, all cash proceeds of the transaction shall be immediately paid to Lender and applied to the Note, and any non-cash proceeds of the transaction shall be immediately pledged to Lender as additional Collateral.

 

(k)           The Debtor shall not make or permit to exist, or permit any subsidiary to make or permit to exist, loans to any person or entity (including Sefton) or investments in any person or entity (including Sefton), except investments in (i) direct obligations of the United States Government maturing not more than six months after acquisition thereof, (ii) certificates of deposit, bankers acceptances and other obligations, each maturing not more than one year after acquisition thereof, issued by a domestic bank which is a member of the Federal Reserve System and has total capital and surplus and undivided profits in excess of $500,000,000 or (iii) commercial paper maturing not more than one year after the date of acquisition thereof assigned the highest credit rating by Moody’s Investors Service, Inc. or Standard and Poor’s Corporation.

 

(l)            The Debtor will pay its lease royalty payments and lease operating expenses currently and in the ordinary course out of cash revenues collected for hydrocarbon sales. Any remaining cash balances will be used to the extent required to reserve for or make the next contractual payment for both current interest and principal reduction to Bank of the West pursuant to the Second Stipulation to Extend Time dated July 14, 2014.

 

(m)           At any time that any Secured Obligations remain outstanding, upon the request of the Secured Party, the Debtor shall execute, notarize and deliver to the Secured Party, in form and substance suitable for recording in the appropriate jurisdictions, Deeds of Trust covering the Debtor’s oil and gas leases and the production therefrom (including as extracted collateral) as additional collateral security for repayment of the Secured Obligations.

 

(n)           From and after the date of this Agreement, all Loan advances under the Note and all revenues from hydrocarbon sales shall be deposited into a bank account established by the Debtor with Wells Fargo Bank in the State of California approved in writing by the Secured Party, and the Debtor shall notify Plains and any other production purchasers in writing to make payments directly to that account. The authorized signatory(ies) for that account must be approved in writing by the Secured Party, and shall initially be Darren Katic.

 

  

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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.

 

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 the 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.

 

  

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(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.

 

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;

 

  

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(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 U.S.A., Inc., a 

Colorado corporation, as the Debtor

	  
	 
	
By:

	
/s/ T. Milne

	  	
Tom Milne, Director

	  	
Sefton Resources Inc.

	  	
100% owner of TEG Oil & Gas U.S.A., 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

 

 

 

	
Hawker Energy, Inc., a Nevada 

corporation, as the Secured Party

	  
	 
	
By:

	
       /s/ D. Katic

	      	
       Darren Katic, President

	 
	
Address for Notices:

	 
	
326 S. Pacific Coast Hwy, Suite 102

	
Redondo Beach, CA 90277

 

 

 15

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