SUBORDINATION AGREEMENT
THIS
SUBORDINATION AGREEMENT (this “Agreement”) made
as of May ______, 2005, is entered into by and between the parties identified on
Schedule A attached hereto (collectively and solely in their capacity as lenders
and not as equityholders, the “Junior
Creditor”),
------------------------------------------------Quest Oil Corporation
(“Credit
Party”), a
Nevada corporation, and Xxxxxxx X. Xxxxxxx, acting on behalf of certain obligees
of ________ (“Collateral
Agent”),
namely __________________________________________ (collectively with Collateral
Agent, “Senior
Creditor”), who
have been issued from Credit Party certain secured convertible Notes issued as
of April 5, 2005, pursuant to a Subscription Agreement dated as of April 5, 2005
(“the Senior Credit Agent”).
RECITALS
WHEREAS,
CREDIT PARTY has entered into with the Senior Creditor those certain Secured
Promissory Notes in the aggregate principal amount of $1,100,000 issued as of
April 5, 2005, all of which may be amended, supplemented, refinanced or
otherwise modified from time to time; and
WHEREAS,
CREDIT PARTY and Junior Creditor are parties to a Promissory Note dated as of
March 31, 2004 (as heretofore amended, restated, supplemented and modified, the
“Junior
Credit Documents”);
and
WHEREAS,
CREDIT PARTY and Senior Creditor have entered into (i) that certain Security
Agreement dated as of Xxxxx 0, 0000, (xx) that certain Debenture dated April 5,
2005, and (v) that certain Subscription Agreement and ancillary documents among
Credit Party and Senior Creditor dated at or about the date of this Agreement
(collectively, as heretofore amended and supplemented at or prior to the date
hereof, the “Senior
Credit Documents”).
WHEREAS,
the Credit Party has requested that the Senior Creditor enter into the Senior
Credit Documents, and in order to induce the Senior Creditor to enter into the
Senior Credit Documents, the Collateral Agent and the Junior Creditor have
agreed to execute and deliver this Agreement to the Senior Creditor;
and
WHEREAS,
the Senior Indebtedness will be secured by a first priority continuing Lien on
all Collateral. Following the execution of this Agreement, the Junior
Indebtedness will be secured by a second priority continuing Lien on all
Collateral, (the “Junior
Collateral”);
and
WHEREAS,
the Senior Creditor and the Junior Creditor desire to enter into this Agreement
in order to set forth, among other things, the relative priority of their
respective Liens on the Collateral between the Senior Creditor and the Junior
Creditor with respect to the Senior Indebtedness and the Junior
Indebtedness.
NOW,
THEREFORE, in consideration of the foregoing, together with other good and
valuable consideration, the receipt and sufficiency of which are each hereby
acknowledged, the Senior Creditor and the Junior Creditor hereby agree as
follows:
SECTION
1. Certain
Definitions. The
following terms shall have the following meanings for purposes of this Agreement
(including the premises and background recitals hereof):
“Bankruptcy
Code” means
Chapter 11 of Title 11 of the United States Code (11 U.S.C. § 101
et seq.), as
amended from time to time, and any successor statute, and all rules and
regulations promulgated thereunder. References to specific Sections of the
Bankruptcy Code includes references to successor sections.
“Collateral” means
any and all property pledged by the Credit Party to either the Senior Creditor
or the Junior Creditor under both the Senior Credit Documents and/or the Junior
Credit Documents, together will all accessions, attachments, proceeds and
products thereunder.
“Credit
Party” means
Credit Party and its successors and assigns.
“Junior
Credit Documents”
includes the Junior Creditor Note and all security agreements, guaranties,
pledge agreements and all other agreements, documents and instruments now or at
any time hereafter entered into or delivered by the Credit Party or other Person
pursuant thereto and relating to any indebtedness, or evidencing any
replacement, substitution, refunding, renewal or refinancing of or for all or
any part of, the Junior Indebtedness in each case as amended, restated,
supplemented or otherwise modified and in effect from time to time, to the
extent permitted pursuant to the terms hereof.
“Junior
Enforcement Action” means
any of the following: (a) acceleration by the Junior Creditor of all or any part
of the Junior Indebtedness; (b) commencement of any Proceeding with respect to
the Credit Party; (c) initiation of any suit or action, including any
Proceeding, against or with respect to the Credit Party or other Person to
enforce payment of or to collect the whole or any part of the Junior
Indebtedness, or to enforce any other rights, powers, privileges or remedies
under the Junior Credit Documents; or (d) the taking by the Junior Creditor of
any action under the provisions of any state or federal or local law, including,
without limitation, the Bankruptcy Code or the UCC, to enforce, foreclose upon,
take possession of or appoint a Receiver in respect of or sell any Property of
the Credit Party or any other Person on account of all or any part of the Junior
Indebtedness, including, without limitation, any Collateral.
“Junior
Indebtedness” means
all Indebtedness now existing or hereafter arising, contingent or otherwise, of
the Credit Party to the Junior Creditor under, in connection with, or evidenced
by or secured by any Junior Credit Documents, in each case including, without
limitation, obligations to pay (i) principal, (ii) interest or premium
(including interest accruing after the commencement of any Proceeding, whether
or not constituting an allowed claim in such Proceeding), (iii) fees, (iv)
costs, expenses and other amounts related to any indemnity against loss, damage
or liability and (v) any other monetary obligation.
“Proceeding” means,
with respect to any Person, any (a) insolvency, bankruptcy, receivership,
liquidation, reorganization, readjustment, composition, or other similar
proceeding relating to such person or its Property or creditors in such
capacity, (b) proceeding for any liquidation, dissolution or other winding-up of
such Person, voluntary or involuntary, whether or not involving insolvency or
proceedings under the Bankruptcy Code, whether partial or complete and whether
by operation of law or otherwise, (c) assignment for the benefit of
creditors of such Person or (d) other marshalling of the assets of such
Person.
“Property” means,
with respect to any Person, all property and interests in property of such
Person, whether real, personal or mixed, whether now owned or existing or
hereafter acquired or arising and wheresoever located.
“Receiver”
means any receiver, manager, administrator or administrative receiver which
either the Senior Creditor or the Junior Creditor may have the right to appoint
pursuant to the Senior Security Documents or the Junior Security Documents (as
the case may be).
“Senior
Credit Documents” means
and includes the Senior Credit Agreement, the note issued thereunder or in
connection therewith and all security agreements, guaranties, pledge agreements
and other agreements, documents and instruments now or at any time hereafter
entered into or delivered by the Credit Party or other Person pursuant thereto,
or evidencing any replacement, substitution, refunding, renewal or refinancing
of or for all or any part of, the Senior Indebtedness, in each case as amended,
restated, supplemented or otherwise modified and in effect from time to time, to
the extent permitted pursuant to the terms hereof.
“Senior
Enforcement Action” means
any of the following: (a) acceleration by the Senior Creditor of all or any part
of the Senior Indebtedness; (b) commencement of any Proceeding with respect to
the Credit Party; (c) initiation of any suit or action, including any
Proceeding, against or with respect to the Credit Party or other Person to
enforce payment of or to collect the whole or any part of the Senior
Indebtedness, or to enforce any other rights, powers, privileges or remedies
under the Senior Credit Documents; or (d) the taking by the Senior Creditor of
any action under the provisions of any state or federal or local law, including,
without limitation, the Bankruptcy Code or the UCC, to enforce, foreclose upon,
take possession of or appoint a Receiver in respect of or sell any Property of
the Credit Party or any other Person on account of all or any part of the Senior
Indebtedness, including, without limitation, any Collateral.
“Senior
Indebtedness” means
all Indebtedness now existing or hereafter arising, contingent or otherwise, of
the Credit Party to the Senior Creditor under, in connection with, or evidenced
or secured by the Senior Credit Agreement and the other Senior Credit Documents
to the Senior Creditor, in each case including, without limitation, obligations
to pay (i) principal, (ii) interest or premium (including interest accruing
after the commencement of any Proceeding, whether or not constituting an allowed
claim in such Proceeding), (iii) fees, (iv) costs, expenses and other amounts
related to any indemnity against loss, damage or liability and (v) any other
monetary obligation; provided that in no event shall the principal amount of
Senior Indebtedness exceed $3,000,000.
“UCC” means
the Uniform Commercial Code, as in effect from time to time in any applicable
jurisdiction.
All terms
used but not otherwise defined herein but defined in the UCC shall have the
respective meanings provided in the UCC. Other capitalized terms used herein
without definition shall have the meanings given to such terms in the Senior
Credit Agreement.
SECTION
2. Payment
Priorities.
2.1 Interests. The
Junior Creditor hereby agrees that the Junior Indebtedness shall at all times be
wholly subordinate and junior in right of payment to any and all Senior
Indebtedness in the manner set forth herein.
2.2 Payment
Blockage. Until
the Senior Indebtedness shall have been paid in full in cash, stock or property
acceptable to Senior Creditor and the Senior Indebtedness shall have been
terminated pursuant to the respective terms and provisions thereof, no payments
(in cash, other property, by set-off or otherwise) or other distributions
whatsoever in respect of any Junior Indebtedness shall be made.
SECTION
3. Lien
Priorities.
3.1 Acknowledgment
of Liens; Subordination.
(a) The
Junior Creditor hereby acknowledges that the Senior Creditor has been granted
Liens upon the Collateral pursuant to the Senior Credit Documents. The Senior
Creditor hereby acknowledges that the Junior Creditor has been granted Liens
upon the Junior Collateral pursuant to the Junior Credit Documents.
(b) Notwithstanding
the date, manner or order of grant, attachment or perfection of the Liens on all
or any part of the Collateral granted to the Senior Creditor and the Junior
Creditor, and notwithstanding the provisions of the UCC or any other applicable
law or decision, or any other circumstance whatsoever, the Junior Creditor
hereby agrees that (i) the Senior Creditor shall have a first, prior, senior and
continuing Lien on all of the Collateral to secure the prompt and complete
payment, performance and observance of all Senior Indebtedness and (ii) any Lien
on all or any part of the Collateral hereafter held by or on behalf of the
Junior Creditor, regardless of when or how acquired, whether by grant, statute,
operation of law, subrogation or otherwise, shall be in all respects and for all
purposes subject to, junior to and subordinate to all Liens on all or any part
of the Collateral granted to or held by the Senior Creditor to secure the Senior
Indebtedness.
(c) The
relative priorities of the respective Liens described in this Section 3.1 shall
not be altered or otherwise affected by any amendment, modification, supplement,
extension, renewal, restatement, replacement or refinancing of the Senior
Indebtedness or Junior Indebtedness, respectively, or by any action or inaction
which either the Senior Creditor or Junior Creditor may take or fail to take in
respect of the Collateral.
(d) So long
as the Senior Indebtedness remains outstanding, all decisions with respect to
the Collateral, including the time and method of disposition, will be made by
the Senior Creditor.
3.2 Prohibition
on Contesting Liens. The
Junior Creditor agrees not to seek to challenge, to avoid, to subordinate or to
contest or directly or indirectly to support any other Person in challenging,
avoiding, subordinating or contesting in any judicial or other proceeding,
including, without limitation, any Proceeding, the priority, validity, extent,
perfection or enforceability of any Lien held by the Senior Creditor to secure
the Senior Indebtedness, in all or any part of the Collateral. As between the
Senior Creditor and the Junior Creditor, the terms of this Agreement shall
govern even if part or all of the Junior Indebtedness or Senior Indebtedness, as
the case may be or the respective Liens securing payment, observance and
performance thereof are avoided, disallowed, set aside or otherwise invalidated
in any judicial proceeding or otherwise.
SECTION
4. Enforcement.
4.1 No
Exercise of Remedies. Unless
and until the Senior Creditor shall have received payment in full in cash, stock
or property acceptable to the Senior Creditor of all Senior Indebtedness and the
Senior Indebtedness shall have terminated pursuant to the respective terms and
provisions thereof, the Junior Creditor shall not (a) accelerate the maturity of
the Junior Indebtedness or exercise any of its default remedies or otherwise
take any Junior Enforcement Action or (b) ask, demand or xxx for any right or
remedy in respect of all or any part of the Junior Indebtedness or the
Collateral, and the Junior Creditor agrees not to take or receive from the
Credit Party, directly or indirectly, in cash or other Property or by set-off or
in any other manner, whether pursuant to any enforcement, collection, execution,
levy or foreclosure proceeding or otherwise, any part of the Collateral. Without
limiting the generality of the foregoing, unless and until the Senior Creditor
shall have received payment in full in cash, stock or property acceptable to the
Senior Creditor of all Senior Indebtedness and the Senior Indebtedness shall
have terminated pursuant to the respective terms and provisions thereof: (i) the
Junior Creditor shall not exercise or otherwise assert any right or remedy in
respect of any part of the Collateral or the Lien of the Senior Creditor
thereon; (ii) the sole right of the Junior Creditor with respect to the
Collateral shall be to hold a Lien thereon to the extent granted pursuant to the
Junior Credit Documents (as subordinated herein) and to receive proceeds thereof
remaining after such payment and termination and (iii) without the prior written
consent of the Senior Creditor, the Junior Creditor shall not exercise any right
the Junior Creditor may have under the Junior Credit Documents under the UCC or
other applicable law to deliver any notice to account debtors informing them of
the Junior Creditor’s interest in any accounts of the Credit Party or directing
such account debtors to make payments in any particular manner of amounts due in
respect of any such account.
4.2 Cooperation. The
Junior Creditor agrees that, unless and until the Senior Creditor shall have
received payment in full in cash, stock or property acceptable to the Senior
Creditor of all Senior Indebtedness and the Senior Indebtedness shall have
terminated pursuant to the respective terms and provisions thereof, the Junior
Creditor will not commence, or join with any creditor other than the Senior
Creditor in commencing, any enforcement, collection, execution, levy or
foreclosure proceeding with respect to any Lien held by it in, or otherwise with
respect to, all or any part of the Collateral, including, without limitation,
petitioning, filing or joining in any involuntary Proceeding pursuant to
Section 303 of the Bankruptcy Code or pursuant to any other applicable law
or appointing or purporting to appoint any Receiver.
4.3 Certain
Exercises. The
provisions of this Section 4 are
intended to limit the enforcement of the Junior Creditor’s rights and remedies
with respect to the Credit Party and the Collateral or any Lien thereon for so
long and to the extent set forth in Sections 4.1 and
4.2
hereof.
SECTION
5. Liquidation;
Dissolution; Bankruptcy. In the
event of any Proceeding involving the Credit Party, or any sale, transfer or
other disposition of all or substantially all of the assets of the Credit
Party:
(a) The
Junior Creditor agrees that the Senior Creditor may consent to the use of cash
collateral or the provision of financing by the Senior Creditor to the Credit
Party on such terms and conditions and in such amounts as the Senior Creditor,
in its sole discretion, may decide and that, in connection with such use of cash
collateral or such financing, as the case may be, the Credit Party (or a trustee
appointed for the estate of the Credit Party) may grant to the Senior Creditor,
Liens on all of such Credit Party’s Property, which Liens: (i) shall secure
payment, performance and observance of all Senior Indebtedness (whether such
Senior Indebtedness arose prior to the commencement of any Proceeding or at
anytime thereafter); and (ii) shall be superior in priority to the Liens in
favor of the Junior Creditor on any Property of the Credit Party. Each Junior
Creditor agrees that it will not object to or oppose a sale or other disposition
of any Property of any Credit Party securing all or any part of the Senior
Indebtedness free and clear of Liens or other claims of the Junior Creditor
under Section 363 of the Bankruptcy Code or any other provision of the
Bankruptcy Code or other applicable law if the Senior Creditor has consented to
such sale or disposition and the respective interests of the Senior Creditor and
the Junior Creditor attach to the proceeds thereof, subject in any event to the
provisions hereof. The Junior Creditor agrees that to the extent it receives any
“adequate protection” for any interest it may have in any Collateral in any
Proceeding, it will (A) if such “adequate protection” is in the form of cash or
cash equivalents, deliver such “adequate protection” to the Senior Creditor to
be applied to, or held as collateral for (and, if liquidated, applied against),
the Senior Indebtedness and (B) if such “adequate protection” is in any other
form, assign such “adequate protection” to the Senior Creditor to be held as
collateral for (and, if liquidated, applied against) the Senior Indebtedness, in
each case until all Senior Indebtedness has been fully satisfied or is no longer
outstanding. The Junior Creditor agrees that it will not seek to have the
automatic stay lifted with respect to any Collateral, to appoint a
Chapter 11 trustee under Section 1104 of the Bankruptcy Code or to
convert or dismiss such Proceeding under Section 1112 of the Bankruptcy
Code, in each case without the prior written consent of the Senior Creditor.
(b) The
Senior Creditor and the Junior Creditor agree not to, directly or indirectly,
take any action or vote in any way that would be in violation of, or
inconsistent with, or result in a breach of, this Agreement or challenge or
contest (i) the validity, perfection, priority or enforceability of any Lien
held by the Senior Creditor, or by the Junior Creditor as the case may be, to
secure the payment, performance or observance of all or any part of the Senior
Indebtedness or Junior Indebtedness, respectively, (ii) the rights of the Senior
Creditor, or the Junior Creditor as the case may be, set forth in this Agreement
with respect to any such Lien, or (iii) the validity or enforceability of any of
the Senior Credit Documents or Junior Credit Documents or any term, condition or
provision of this Agreement; provided, that nothing in this Section 5(b) is
intended or shall be deemed or construed to limit in any way the ability of the
Senior Creditor or the Junior Creditor, as the case may be, to enforce all of
the terms and provisions of this Agreement.
(c) The
Senior Indebtedness shall first be paid in full in cash, stock or property
acceptable to the Senior Creditor before the Junior Creditor shall be entitled
to receive and to retain any payment or distribution in respect of the Junior
Indebtedness, and, in order to implement the foregoing, all payments and
distributions of any kind or character in respect of the Junior Indebtedness to
which the Junior Creditor would otherwise be entitled if the Junior Indebtedness
were not subordinated pursuant to this Agreement shall be made directly to the
Senior Creditor. Subject to the limitation set forth in the next sentence, the
Junior Creditor may be permitted to file proofs of claim. The Junior Creditor
agrees to and hereby irrevocably authorizes, empowers and appoints the Senior
Creditor as its agent and attorney-in-fact to (i) execute, verify, deliver and
file all proofs of claim (upon the failure of the Junior Creditor to do so prior
to 15 days before the expiration of time to file such proof of claim) and other
pleadings and motions with respect to the Credit Party and the Collateral in any
Proceeding for the full outstanding amount of the Junior Indebtedness; (ii) vote
any such claim in any such Proceeding that adversely affects the Senior
Creditor; and (iii) execute and deliver any document or instrument that the
Junior Creditor is required to deliver pursuant to this Section 5(c). In the
event that the Senior Creditor votes any claim in accordance with the authority
granted hereby, the Junior Creditor shall not be entitled to change or withdraw
such vote. The Junior Creditor also agrees that it shall at no time hereunder
authorize the formation, become a member or participate in the activities,
either directly or indirectly, of any creditor’s committee in the
Proceeding.
(d) The
Junior Creditor agrees that it shall not commence, file or cause to be filed or
otherwise support any insolvency proceeding (which shall include the appointment
of any Receiver) under the provisions of any local, state or federal law or in
the jurisdiction of any domestic or foreign court against or with respect to the
Credit Party until ninety (90) days have lapsed from the date the Senior
Indebtedness is paid in full in cash, stock or
property acceptable to the Senior Creditor. Nothing
contained herein shall be construed to prohibit Junior Creditor from filing
proofs of claim or participating in an insolvency proceeding commenced by the
Credit Party or other creditors of the Credit Party. In the event the Junior
Creditor violates this provision and files or causes to be filed or otherwise
supports or becomes involved in any such insolvency proceeding prior to the
ninety-first (91) day after the Senior Indebtedness is paid in full, the Junior
Creditor agrees to indemnify the Senior Creditor for any liability or damage
incurred as a result of such Proceeding.
(e) The
Junior Creditor shall execute and deliver to the Senior Creditor all such
instruments and other documentation confirming the above authorizations and all
such proofs of claim, assignments of claim and other instruments and
documentation, and shall take all such other action as may be reasonably
requested by the Senior Creditor to enforce such claims and carry out the intent
of this Section 5.
SECTION
6. Insurance
and Condemnation. Unless
and until the Senior Creditor shall have received payment in full in cash, stock
or property acceptable to the Senior Creditor of all Senior Indebtedness and the
Senior Indebtedness shall have terminated pursuant to the respective terms and
provisions thereof, (i) as between the Junior Creditor and the Senior Creditor,
the Junior Creditor agrees that the Senior Creditor shall have the sole and
exclusive right to adjust settlement with respect to any insurance coverage for
any Collateral and (ii) all proceeds of any insurance policy, and proceeds of
any condemnation or similar proceeding, covering all or any part of the
Collateral shall be paid to the Senior Creditor for application to the Senior
Indebtedness pursuant to the Senior Credit Documents. If the Senior Creditor
allows any portion of any proceeds of any insurance, condemnation or similar
award with respect to any Collateral to be used by any Credit Party to repair or
replace the Collateral affected, the Junior Creditor agrees to take promptly all
action reasonably requested by the Senior Creditor to permit such
use.
SECTION
7. When
Proceeds Must Be Paid Over.
(a) In the
event the Junior Creditor receives any payment or other distribution of any kind
or character from the Credit Party or from any other source whatsoever in
respect of the Junior Indebtedness in contravention of this Agreement or in the
event any proceeds of Collateral are received by the Junior Creditor for
application to the Junior Indebtedness other than as expressly permitted by the
terms of this Agreement, such proceeds shall be received by the Junior Creditor
in trust for the benefit of the Senior Creditor and the Junior Creditor shall
promptly turn over such proceeds to the Senior Creditor (in the same form as
received, with any necessary endorsement), for application (in the case of cash)
to, or as Collateral (in the case of non-cash Property or securities) for, the
payment or prepayment of the Senior Indebtedness remaining unpaid to the extent
necessary to pay such Senior Indebtedness in full in cash in accordance with its
terms. In the event the Junior Creditor fails to provide any endorsement, as
contemplated by the immediately preceding sentence, the Senior Creditor, or any
of its officers or employees, is hereby irrevocably authorized to make the same
(which authorization, being coupled with an interest, is
irrevocable).
(b) Following
the payment in full in cash, stock or property acceptable to the Senior Creditor
of the Senior Indebtedness, in the event the Senior Creditor receives any
payment or other distribution of any kind or character from the Credit Party or
from any other source whatsoever or in the event any proceeds of Collateral are
received by the Senior Creditor for application to the Senior Indebtedness in
excess of the Senior Indebtedness, such proceeds shall be received by the Senior
Creditor in trust for the benefit of the Junior Creditor and the Senior Creditor
shall promptly turn over such proceeds to the Junior Creditor (in the same form
as received, with any necessary endorsement), for application (in the case of
cash) to, or as Collateral (in the case of non-cash Property or securities) for,
the payment or prepayment of the Junior Indebtedness remaining unpaid to the
extent necessary to pay such Junior Indebtedness in full in cash in accordance
with its terms. In the event the Senior Creditor fails to provide any
endorsement, as contemplated by the immediate preceding sentences, the Junior
Creditor, or any of its officers or employees, is hereby irrevocably authorized
to make the same (which authorization, being coupled with an interest, is
irrevocable).
SECTION
8. Subrogation. The
Junior Creditor hereby waives all rights of subrogation to the claims of the
Senior Creditor against any Credit Party, and waives all rights of recourse to
any security for any Senior Indebtedness, until such time as all Senior
Indebtedness shall have been paid in full in cash, stock or property acceptable
to the Senior Creditor and the Senior Indebtedness shall have terminated
pursuant to the respective terms and provisions thereof; provided, that if any
payment to the Senior Creditor is rescinded as a result of a Proceeding or
otherwise, the subrogation of the Junior Creditor as provided herein shall
likewise be rescinded until all of the Senior Indebtedness is indefeasibly paid
in full in cash, stock or property acceptable to the Senior Creditor and the
Senior Indebtedness shall have terminated.
SECTION
9. No
Impairment of Subordination. No
right of the Senior Creditor to enforce the subordination of the Liens on
Collateral securing all or any part of the Junior Indebtedness shall be impaired
by any act or failure to act by any Credit Party or by its failure to comply
with this Agreement. Without limiting the generality of the foregoing, the
rights of the Senior Creditor under this Agreement shall remain in full force
and effect without regard to, and shall not be impaired by: (i) any act or
failure to act of the Credit Party or the Junior Creditor, or any noncompliance
by any Credit Party or the Junior Creditor with any agreement or obligation,
regardless of any knowledge thereof which the Senior Creditor may have or with
which any Senior Creditor may be charged, (ii) the validity or enforceability of
any of the Senior Credit Documents, (iii) any extension or indulgence in respect
of any payment or prepayment of the Senior Indebtedness or any part thereof or
in respect of any other amount payable to the Senior Creditor, (iv) any
amendment, modification or waiver of any of the terms of the Senior Credit
Documents or the Junior Credit Documents, consistent with the respective
applicable terms of such documents and this Agreement, (v) any exercise, delayed
exercise or non-exercise by the Senior Creditor of any right, power, privilege
or remedy under or in respect of any Senior Indebtedness, the Collateral or this
Agreement, (vi) any other action of the Senior Creditor permitted under the
Senior Credit Documents and this Agreement or (vii) the absence of any notice
to, or knowledge by, the Junior Creditor of the existence, creation or
non-payment of all or any part of the Senior Indebtedness, or the occurrence of
any of the matters or events set forth in the foregoing clauses
(i) through
(vi), except
such notice as shall be specifically required pursuant to the terms
hereof.
SECTION
10. Waivers
and Consents of Junior Creditor.
(a) All of
the Senior Indebtedness shall be deemed to have been made or incurred in
reliance upon this Agreement and the Junior Creditor expressly waives, to the
extent permitted by applicable law but subject to the terms of this Agreement,
(i) notice of acceptance by the Senior Creditor of this Agreement, (ii) notice
of the existence or creation or non-payment of all or any part of the Senior
Indebtedness, (iii) all diligence in collection or protection of or realization
upon all or any part of the Senior Indebtedness or any security therefore and
any requirement that the Senior Creditor protect, secure, perfect or insure any
Lien or any Property subject thereto or exhaust any right or take any action
against any Credit Party or any other Person or any such Property and (iv)
promptness, diligence, notice of acceptance and any other notice with respect to
any of the Senior Indebtedness (except such notice as shall be specifically
required pursuant to the terms hereof).
(b) Subject
to the terms of this Agreement, the Junior Creditor agrees that the Senior
Creditor may, at any time and from time to time, in its sole discretion, without
the consent of or notice to the Junior Creditor, without incurring
responsibility to the Junior Creditor, and without impairing or releasing the
subordination provided for herein or the obligations of the Junior Creditor to
the Senior Creditor hereunder, amend, restate, supplement or otherwise modify
the Senior Credit Agreement or any of the other Senior Credit Documents (in
accordance with the respective terms of such documents) in any way whatsoever,
including, without limitation, the following: (i) shorten the final maturity of
all or any part of the Senior Indebtedness, (ii) modify the amortization of the
principal amount of all or any part of the Senior Indebtedness, (iii) increase
the principal amount of Senior Indebtedness, or otherwise provide for additional
advances, in an amount not to exceed $3,000,000, (iv) raise the standard or
default per annum interest rates applicable to all or any part of the Senior
Indebtedness, (v) impose any additional fee or penalty upon any Credit Party or
increase the amount of or rate for any fee or penalty provided for in the Senior
Credit Documents, (vi) retain or obtain a Lien on any Property to secure any of
the Senior Indebtedness, (vii) enter into new Senior Credit Documents with any
Credit Party or any of its direct or indirect subsidiaries, (viii) change the
manner, place or terms of payment or extend the time of payment of, or renew or
alter, all or any of the Senior Indebtedness or otherwise amend, restate,
supplement or otherwise modify in any manner, or grant any waiver or release
with respect to, all or any part of the Senior Indebtedness or any of the Senior
Credit Documents, (ix) retain or obtain the primary or secondary obligation
of any other Person with respect to any of the Senior Indebtedness, (x) release
any Person liable in any manner under or in respect of Senior Indebtedness or
release or compromise any obligation of any nature of any Person with respect to
any of the Senior Indebtedness, (xi) sell, exchange, not perfect or otherwise
deal with any Property at any time pledged, assigned or mortgaged to secure or
otherwise securing all or any part of the Senior Indebtedness, (xii) release its
security interest in, or surrender, release or permit any substitution or
exchange for, all or any part of any Property securing any Senior Indebtedness,
or release, compromise, alter or exchange any obligations of any nature of any
Person with respect to any such Property, (xiii) amend, or grant any waiver or
release with respect to, or consent to any departure from, any guaranty for all
or any of the Senior Indebtedness, (xiv) exercise or refrain from exercising any
rights against, and release from obligations of any type, any Credit Party or
any other Person, (xv) apply any sums from time to time received to the Senior
Indebtedness in such manner such as the Senior Creditor shall determine and
(xvi) otherwise manage and supervise the Senior Indebtedness in accordance with
the Senior Creditor’s usual practices, modified from time to time as the Senior
Creditor deems appropriate under the circumstances.
(c) In the
event the Senior Creditor releases or agrees to release any of its Liens on all
or any part of the Collateral (i) in connection with the sale thereof, provided
Junior Creditor receives any proceeds thereof following payment in full of the
Senior Indebtedness or (ii) pursuant to any Senior Enforcement Action, the
Senior Creditor agrees to notify the Junior Creditor in advance in writing
thereof with such notice stating the portion of the Collateral to be released
and further stating that such Collateral will be sold or financed free and clear
of the Liens of the Senior Creditor and the Junior Creditor (“Release
Notice”). Each
Junior Creditor acknowledges, confirms and agrees that upon the Senior Creditor
giving such a Release Notice to the Junior Creditor, the Junior Creditor shall
be deemed to consent to such sale or other disposition and the Lien of the
Junior Creditor on such Collateral shall be deemed to be, and shall be,
automatically released and terminated contemporaneously with the release by the
Senior Creditor of its Lien thereon; provided that nothing in this Section shall
limit the right of the Junior Creditor to receive excess proceeds of Collateral
after the repayment of the Senior Indebtedness in full in cash, stock or
property acceptable to the Senior Creditor. The Junior Creditor agrees that no
further act or documentation shall be necessary to evidence the release and
termination by the Junior Creditor of such Lien and the delivery of the Release
Notice to the Junior Creditor and the release by the Senior Creditor of its Lien
on the Collateral shall be prima facie evidence
of the Junior Creditor’s release and termination of its Lien upon such
Collateral. In the event that the Senior Creditor gives a Release Notice to the
Junior Creditor and requests the Junior Creditor to execute and deliver any
formal release or termination of its Lien upon such Collateral, the Junior
Creditor agrees to execute the same forthwith. In furtherance of the foregoing,
the Junior Creditor hereby appoints the Senior Creditor as its attorney-in-fact,
with full authority in the place and stead of the Junior Creditor and full power
of substitution and in the name of the Junior Creditor or otherwise, to execute
and deliver any document or instrument which the Junior Creditor is required to
deliver pursuant to this Section
10(c), such
appointment being coupled with an interest and irrevocable.
(d) The
Junior Creditor and the Senior Creditor hereby agree to use their commercially
reasonable efforts to give written notice to the other of any event of default
declared in writing by it or, in the case of the Senior Creditor, (i)
declaration of acceleration and (ii) commencement of any Senior Enforcement
Action under the Senior Credit Documents; provided, that failure to give any
such notice shall not result in liability to the Junior Creditor or the Senior
Creditor, as the case may be, or modify in any way the terms and provisions of
this Agreement and the obligations of the respective parties hereunder. No party
hereto shall have any obligation to cure any such default and any payment made
or act done by any such party to cure any such default shall not constitute an
assumption of any of the obligations thereunder.
(e) Notwithstanding
anything to the contrary contained herein, in the event that the Senior Creditor
releases its Liens on the Collateral as a result of the prior or concurrent
payment in full in cash, stock or property acceptable to the Senior Creditor of
the Senior Indebtedness and termination of the Senior Indebtedness thereunder,
the Junior Creditor shall not be obligated to release its Liens (nor be deemed
to release its Liens as contemplated in Section
10(c)) on any
Collateral remaining after giving effect to such payment and termination (and
any sale, transfer or other disposition of Collateral occurring in connection
therewith).
SECTION
11. Marshalling. The
Junior Creditor hereby waives, to the fullest extent permitted by applicable
law, any rights it may have under applicable law to assert the doctrine of
marshalling or otherwise to require the Senior Creditor to marshal any Property
of any Credit Party for the benefit of the Junior Creditor.
SECTION
12. Expenses. The
Credit Party agrees to reimburse the Senior Creditor and Junior Creditor for its
expenses incurred in complying with this Agreement.
SECTION
13. Waiver
of Rights. The
Junior Creditor hereby waives, to the fullest extent permitted by applicable
law, any rights it may have to enjoin or otherwise obtain a judicial or
administrative order preventing the Senior Creditor from taking, or refraining
from taking, any action with respect to all or any part of the Collateral to the
extent consistent with the terms of this Agreement.
SECTION
14. Continuation
of Subordination; Termination of Agreement. This
Agreement shall in all respects be a continuing agreement and shall remain in
full force and effect until the Senior Creditor shall have received payment in
full in cash, stock or property acceptable to the Senior Creditor of all Senior
Indebtedness and the Senior Indebtedness shall have terminated pursuant to the
respective terms and provisions thereof; provided that this Agreement shall
continue to be effective or be reinstated, as the case may be, if at any time
any payment of any Senior Indebtedness is rescinded, avoided or must otherwise
be returned by the Senior Creditor upon the insolvency, bankruptcy or
reorganization of the Credit Party, all as though such payment had not been
made.
SECTION
15. Specific
Performance. The
Senior Creditor, on the one hand, and the Junior Creditor, on the other hand,
are hereby authorized to demand specific performance of the provisions of this
Agreement, at any time when the Junior Creditor, on the one hand, or the Senior
Creditor, on the other hand, shall have failed to comply with any term or
provision hereof. The Senior Creditor and the Junior Creditor hereby irrevocably
waive any defense based on the adequacy of a remedy at law that might be
asserted as a bar to such remedy of specific performance.
SECTION
16. Further
Assurances. Each
party hereto will, upon the written request of the other party, from time to
time execute and deliver or cause to be executed and delivered such further
instruments and agreements and do or cause to be done such further acts as may
be reasonably necessary or proper to carry out more effectively the provisions
of this Agreement and to effectuate the terms of the Lien subordination and
other provisions contemplated hereby. Without limiting the generality of the
foregoing, the Junior Creditor will xxxx its books and records, so as to clearly
indicate that the Junior Indebtedness is subordinated in accordance with the
terms of this Agreement, and will cause to be clearly inserted in any documents,
instruments or agreements evidencing the Junior Indebtedness a statement to the
effect that the payment thereof, and the liens on the Collateral securing the
Junior Indebtedness are subordinated in accordance with the terms of this
Agreement.
SECTION
17. Notices. All
notices or other communications under or in respect of this Agreement to any
party to it shall be in writing (including by fax) and shall be deemed to have
been duly given or made when delivered (including by courier), or in the case of
fax notice, when received, addressed as follows:
(a) in the
case of the Senior Creditor: Xxxxxxx
X. Xxxxxxx, Esq.
|
Grushko
& Xxxxxxx, P.C. |
|
000
Xxxxx Xxxxxx, Xxxxx 0000 |
|
Xxx
Xxxx, XX 00000 |
|
Telephone:
(000) 000-0000 |
|
Facsimile:
(000) 000-0000 |
(b) in the
case of the Junior Creditor: Xxxx
Xxxxxxxx
Karlsson
Law Corp.
000 Xxxx
Xxxxxx
Xxxxx
000
Xxxxxxxxx,
XX
X0X
0X0
T604-762-8283
F604-608-3562
(c) in the
case of Credit Party: Quest Oil
Corporation
0000 Xxxx
Xxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxxx,
Xxxxx 00000
Attn:
Xxxxxxx Xxxx
Fax:
(000) 000-0000
With a
copy by telecopier only to:
The Xxxx
Law Firm
000 0xx
Xxxxxx, Xxxxx 000
Xxxx:
Xxxx X. Xxxx, Esq.
Fax:
000-000-0000
or to
such other address as may be hereafter designated in writing by the respective
parties hereto. A notice or other communication received on a non-business day
in the place of receipt or after business hours in the place of receipt shall be
deemed to be served on the next following business day in such
place.
SECTION
18. CHOICE
OF LAW; SUBMISSION TO JURISDICTION.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ITS CONFLICTS OF LAW
PRINCIPLES (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW).
IN RELATION TO ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT,
AND FOR THE EXCLUSIVE BENEFIT OF THE SENIOR CREDITOR, AND THE JUNIOR CREDITOR,
EACH OF THE SENIOR CREDITOR AND THE JUNIOR CREDITOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT OR
FEDERAL COURT OF THE UNITED STATES SITTING IN NEW YORK CITY, AND ANY APPELLATE
COURT THEREOF. EACH OF THE SENIOR CREDITOR AND THE JUNIOR CREDITOR HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT, ANY CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND ANY
OBJECTION BASED ON PLACE OF RESIDENCE OR DOMICILE. EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY RIGHT IT MAY HAVE TO TRIAL BY JURY.
SECTION
19. Successors
and Assigns.
(a) This
Agreement shall be binding upon and inure to the benefit of the Senior Creditor,
the Junior Creditor and each of their respective successors and permitted
assigns.
(b) Subject
to the terms of the Senior Creditor Agreement, the Senior Creditor may, from
time to time, without notice to or consent of the Junior Creditor, assign or
transfer to any Person any or all of the Senior Indebtedness or any interest
therein, and notwithstanding any such assignment or transfer, or any subsequent
assignment or transfer thereof, the Senior Indebtedness shall be and remain
Senior Indebtedness for purposes of this Agreement, and every immediate and
successive assignee or transferee of any of the Senior Indebtedness or of any
interest therein shall, to the extent of the interest of such assignee or
transferee in the Senior Indebtedness, be entitled to the benefits of this
Agreement to the same extent as if such assignee or transferee were an original
party to the Senior Credit Agreement provided that such assignee agrees in
writing, reasonably satisfactory to the Junior Creditor, to be bound by this
Agreement.
(c) Subject
to the terms of the Junior Creditor Agreement, the Junior Creditor may, from
time to time, upon ten business days prior written notice to Senior Creditor,
assign or transfer to any Person any or all of the Junior Indebtedness or any
interest therein, and notwithstanding any such assignment or transfer, or any
subsequent assignment or transfer thereof, the Junior Indebtedness shall be and
remain Junior Indebtedness for purposes of this Agreement, and every immediate
and successive assignee or transferee of any of the Junior Indebtedness or any
interest therein shall, to the extent of the interest of such assignee or
transferee in the Junior Indebtedness, be entitled to the benefits of this
Agreement to the same extent as if such assignee or transferee were an original
party to the Junior Credit Agreement; provided that such assignee agrees in a
writing, reasonably satisfactory to the Senior Creditor, to be bound by this
Agreement.
SECTION
20. Entire
Agreement; Amendments and Waivers. This
Agreement constitutes the entire agreement between the parties hereto pertaining
to the subject matter hereof. There are no other agreements between the parties
hereto in connection with the subject matter hereof except as specifically set
forth herein or contemplated hereby. No amendment, modification or waiver of any
of the provisions of this Agreement shall be binding unless in writing and
executed by the Collateral Agent and the Junior Creditor. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided. No delay on
the part of the Senior Creditor in the exercise of any right or remedy shall
operate as a waiver thereof, and no single or partial exercise by the Senior
Creditor of any right or remedy shall preclude other or further exercise thereof
or the exercise of any other right or remedy. For the purposes of this
Agreement, Senior Indebtedness shall include all obligations of Credit Party,
their successors and assigns to the Senior Creditor under the Senior Credit
Documents, notwithstanding any right or power of any Credit Party or other
Person to assert any claim or defense as to the invalidity or unenforceability
of all or any part of the Senior Indebtedness, and no such claim or defense
shall affect or impair the agreements and obligations of the respective parties
hereto. For the purposes of this Agreement, Junior Indebtedness shal include all
obligations of Credit Party, their successors and assigns to the Junior Creditor
under the Junior Credit Documents, notwithstanding any right or power of any
Credit Party or other Person to assert any claim or defense as to the invalidity
or unenforceability of all or any part of the Junior Indebtedness, and no such
claim or defense shall affect or impair the agreements and obligations of the
respective parties hereto.
SECTION
21. Counterparts. This
Agreement may be executed in any number of counterparts and by the different
parties hereto on separate counterparts, and each such counterpart shall be
deemed to be an original, but all such counterparts shall together constitute
one and the same Agreement. Delivery of an executed counterpart of a signature
page to this Agreement by facsimile shall be effective as delivery of a manually
executed counterpart of this Agreement.
SECTION
22. Severable
Provisions.
Whenever possible each provision of this Agreement shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Agreement shall be prohibited or invalid under such law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
SECTION
23. Headings. The
headings of the several sections herein are inserted for convenience of
reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
SECTION
24. Representation. The
Junior Creditor represents and warrants to the Collateral Agent that the Junior
Creditor has all necessary power and authority to enter into and perform this
Agreement, that its execution, delivery and performance of this Agreement have
been duly and validly authorized by all required corporate action and do not
contravene or breach any applicable law or contract binding on the Junior
Creditor and that this Agreement is binding on the Junior Creditor in accordance
with its terms. The Collateral Agent represents and warrants to the Junior
Creditor that the Collateral Agent has all necessary power and authority to
enter into and perform this Agreement, that its execution, delivery and
performance of this Agreement have been duly and validly authorized by all
required corporate action and do not contravene or breach any applicable law or
contract binding on the Collateral Agent and that this Agreement is binding on
the Collateral Agent in accordance with its terms.
[SIGNATURE
PAGES FOLLOW]
IN
WITNESS WHEREOF, the Senior Creditor, the Credit Party and the Junior Creditor
have caused this Subordination Agreement to be duly executed and delivered by
its respective officers thereunto duly authorized as of the date first above
written.
As Junior
Creditor
By:_________________________________________
Name:
Title:
QUEST OIL
CORPORATION
By:__________________________________________
Name:
Title:
XXXXXXX
X. XXXXXXX
as
Collateral Agent
___________________________________________
The
Senior Creditor agrees and acknowledges to the terms hereof and authorizes the
Collateral Agent to execute this Agreement on their behalf as their Collateral
Agent:
|
SENIOR
CREDITOR |
|
|
Xxxxxxx
X. Xxxxxxx, as Collateral Agent
|
By:______________________________________
Its:______________________________________
_________________________________________
By:______________________________________ By:____________________________________
Its:______________________________________ Its:____________________________________
SCHEDULE
A
Junior
Creditor Amount
of Junior Debt
