DEBENTURE (QUEST CANADA CORP.)
Exhibit
10.12
(QUEST
CANADA CORP.)
QUEST
CANADA CORP., a
corporation existing under the laws of the Province of Alberta and having an
office and carrying on business in Calgary, Alberta.
| 1. |
Quest
Canada Corp. (the "Corporation"),
for value received, acknowledges that it is or may become indebted
to the
lenders, as more particularly described in Schedule "B" hereto (the
"Lenders")
up to the principal amount of FIFTEEN MILLION UNITED STATES DOLLARS
(US$15,000,000.00) (the "Principal
Sum")
and covenants and agrees to and with the Lenders that it will pay
to the
Lenders the Principal Sum in lawful money of Canada, on demand, and
further covenants and agrees with the Lenders that it will pay to
the
Lenders interest on the Principal Sum or so much thereof remaining
from
time to time owing, and interest thereon, at such rate or rates per
annum
as may be provided for in agreements made between the Lenders and
the
Corporation from time to time, such rates to not be less than fifteen
percent (15%) in any event, and such interest to be calculated on
the
portion or portions of the Principal Sum and interest thereon as
shall
from time to time remain unpaid. All payments of principal and interest
are to be made at the addresses of the Lenders shown in Schedule
"B"
attached hereto. Interest payable hereunder shall be payable both
before
and after maturity and before and after judgment until all monies
payable
hereunder, with interest as aforesaid, shall have been fully paid
and
satisfied. This Debenture secures payment by the Corporation to the
Lenders of all debts and liabilities, present and future, direct
and
indirect, absolute and contingent, matured or not at any time owing
by the
Corporation to the Lenders, whether arising from dealings between
the
Lenders and the Corporation or from any other dealings or proceedings
by
which the Lenders may be or become in any manner whatsoever creditors
of
the Corporation, and whenever incurred, and whether incurred by the
Corporation alone or with another or others and whether as principal
or
surety, including without limitation all interest, commissions, legal
and
other expenses and charges (hereinafter collectively called the
"Indebtedness").
|
For
the
purposes of this Debenture, “Note
and Warrant Purchase Agreement" means
the
note and warrant purchase and sale agreement dated the _____ day of September,
2005 between the Lenders and Quest Oil Corporation.
| 2. |
Neither
the execution,
delivery nor registration of this Debenture nor the advance in part
of the
Principal Sum hereby secured shall bind the Lenders to advance the
Principal Sum or any un-advanced portion thereof but nevertheless
the lien
and charge hereby created shall take effect forthwith on the execution
hereof and shall be a continuous charge notwithstanding that the
balance
owing hereunder may fluctuate and may be from time to time and at
any time
reduced to a nil balance and further notwithstanding that the advance
of
monies hereunder may be repaid and further advanced, it being understood
that such continuous charge shall be security for any balance of
any and
all of the Indebtedness at any time and from time to time payable
under
the provisions of this Debenture.
|
| 3. |
The
Indebtedness
shall be paid without regard to any equities between the Corporation
and
the original or intermediate holder hereof or any set-off or cross-claims
and the receipt of the Lenders for the payment of the Indebtedness
will be
a good discharge to the Corporation in respect
thereof.
|
| 4. |
As
security for
the due payment of the Indebtedness and the performance of the obligations
of the Corporation herein
contained:
|
| (a) |
the
Corporation mortgages, charges, grants and assigns to and in favour
of the
Lenders as and by way of a first fixed and specific mortgage, charge
and
security interest all of its present and after-acquired right, title,
estate and interest in and to that property as may be described and
referred to in Schedule "A" hereto, including proceeds thereof, together
with any and all accretions and accessions thereto, substitutions
therefor
and any and all fixtures and attachments and other property at any
time or
times placed upon or associated with, or as may be necessary for
the
effective use and operation of the property as may be described in
the
Schedule "A" and which forms part thereof, all of which, together
with any
other property subsequently acquired and specifically mortgaged and
charged as herein provided for, is hereinafter collectively referred
to as
the "Specifically
Mortgaged Property";
|
| (b) |
the
Corporation mortgages, charges, grants and assigns to and in favour
of the
Lenders as and by way of a first floating mortgage, charge and security
interest all of its present and after-acquired right, title, estate
and
interest in and to all real property that is not subject to the fixed
and
specific mortgage, charge and security interest provided for in clause
4(a), including proceeds thereof together with any and all accretions
and
accessions thereto, substitutions therefor and any and all fixtures
and
attachments and other property at any time or times placed upon or
associated with, or as may be necessary for the effective use and
operation of, such property; and
|
| (c) |
the
Corporation mortgages, charges, grants, creates and assigns to and
in
favour of the Lenders as and by way of a first mortgage, charge and
continuing security interest, and the Lenders hereby take a continuing
security interest, in all of the Corporation's present and after-acquired
personal property of whatsoever nature and kind and wheresoever situate
including, without limitation, its goods, chattel paper, securities,
documents of title, instruments, money and intangibles, as those
terms are
defined in the Personal
Property Security Act
(Alberta), together with any and all other property and undertakings
not
included in clause 4(a) or (b)
above.
|
|
For
all purposes of this Debenture, the words "Mortgaged
Property"
mean and include all present, after-acquired and future undertakings,
property and assets of the Corporation, all as described in subclauses
(a), (b) and (c) of this clause 4.
|
1
| 5. |
The
Corporation
hereby covenants and agrees that if at any time during the currency
of
this Debenture it shall acquire any property which is in addition
to or
incremental to the Specifically Mortgaged Property that has a value
in
excess of $100,000.00 it shall, forthwith upon such acquisition,
give
notice thereof to the Lenders, and the Corporation does hereby further
covenant and agree to forthwith execute and deliver such deeds, documents,
instruments and assurances as the Lenders may require to subject
such
property to the specific mortgage and charge created by clause 4(a)
of
this Debenture. Further, the Lenders are hereby granted the right
to
attach to the Debenture from time to time a land schedule setting
forth
those of the Corporation's properties and assets as the Lenders may
determine in their sole discretion, and to revise from time to time
such
land schedule as the Lenders may determine in their sole discretion,
and
the Corporation hereby authorizes the Lenders to do so as its duly
appointed attorneys. The Corporation ratifies and confirms any and
all
such actions so taken by the Lenders from time to
time.
|
| 6. |
The
lien,
charge and security interest hereby created shall be a continuous
charge
notwithstanding that Schedule "A" hereto may be amended from time
to time
and further notwithstanding that Schedule "A" may not set forth or
describe any properties from time to
time.
|
| 7. |
This
Debenture shall
also operate as security for the due observance and performance of
all
obligations of the Corporation under all guarantees made by the
Corporation in favour of the Lenders whether the same are made prior
to,
concurrent with or after the date hereof, and for the due payment
of all
monies that at any time and from time to time become payable by the
Corporation to the Lenders pursuant to any and all such
guarantees.
|
| 8. |
The
Corporation represents,
warrants and undertakes to and with the Lenders
that:
|
| (a) |
the
Corporation has good right and lawful authority to grant a security
interest in, convey, assign, transfer, mortgage and charge the Mortgaged
Property according to the true intent and meaning of this
Debenture;
|
| (b) |
this
Debenture constitutes legal, valid and binding obligations of the
Corporation, enforceable in accordance with the terms hereof, subject
to
applicable bankruptcy, insolvency or similar laws affecting creditor’s
rights generally and to the availability of equitable remedies;
and
|
| (c) |
the
Mortgaged Property is, and will continue to be, free and clear of
all
adverse claims, mortgages, liens and charges of any nature whatsoever
other than those in favour of the Lenders and those described
below:
|
| (i) |
liens
for taxes, assessments or governmental charges not yet due or
delinquent;
|
| (ii) |
builder's,
carrier's, warehouseman's, mechanic's or other similar liens incidental
to
construction or operations which have not been filed pursuant to
law and
relate to obligations not due or
delinquent;
|
| (iii) |
liens
in favour of a public utility or any municipality or governmental
or other
authority when required by such public utility or municipality or
other
authority in connection with the operations of the Corporation in
the
ordinary course of business of the Corporation, which in the aggregate
do
not detract materially from the value of any part of the Mortgaged
Property or its use in the operations of the Corporation;
and
|
| (iv) |
liens
(not filed pursuant to law) incurred or created in the ordinary course
of
business of the Corporation and in accordance with sound industry
practice
in respect of any of the Mortgaged Property as security in favour
of any
other person who is conducting the exploration, development or operation
of the property to which such liens relate, as to the Corporation's
proportionate share of the costs and expenses of such exploration,
development or operation; and provided the payment of such costs
and
expenses are not due or delinquent;
|
(Items
(i) to (iv) above are collectively referred to hereinafter as the "Permitted
Encumbrances").
| (d) |
the
Corporation has complied in all material respects with applicable
legislation governing the Corporation and the Mortgaged Property,
including without limitation all environmental
legislation;
|
| (e) |
the
Corporation is not aware of any material environmental damage, pollution
or contamination whatsoever relating to the Mortgaged Property, whether
arising from or relating to the drilling of xxxxx or conduct of
operations, the production of petroleum substances or otherwise;
and
|
| (f) |
the
Corporation is not aware of any investigation, order, notification,
request or other proceedings issued or commenced under any federal,
provincial, or local environmental pollution law, regulation or ordinance
respecting the Mortgaged Property or the Corporation, or any
non-compliance with or violation of such notice, proceedings or
laws.
|
| 9. |
Notwithstanding
anything
in
this Debenture, it is understood and agreed that the security interest
created hereby shall not extend or apply to the last day of the term
of
any lease or any agreement therefor but upon the enforcement of this
Debenture the Corporation shall stand possessed of such last day
in trust
to assign the same to any person, firm or corporation acquiring such
term.
|
| 10. |
The
Corporation shall not,
without the prior express written consent of the Lenders, not to
be
unreasonably withheld:
|
| (a) |
grant,
create or assume any mortgage, pledge, charge or other encumbrance
of
whatsoever nature or kind charging the whole or any part of the Mortgaged
Property, whether specifically, by way of floating charge, by way
of
security interest, or otherwise, other than the Permitted
Encumbrances;
|
| (b) |
suffer
or permit any lien or encumbrance not expressly permitted by this
Debenture to rank in priority to or pari passu with this Debenture
or to
arise or exist against the Mortgaged Property or any part thereof;
or
|
| (c) |
do
anything which from time to time the Corporation has agreed not to
do
under the provisions of any other agreement or instrument with the
Lenders.
|
2
| 11. |
The
Corporation shall:
|
| (a) |
carry
on and continuously conduct its business in a manner consistent with
generally accepted industry practices; to the extent it is able,
maintain,
repair and keep in good working order and condition in accordance
with
generally accepted industry practices the Mortgaged Property; pay
all
rents and royalties and observe all material covenants reserved by
and
contained in all leases through which the Corporation holds an interest
in
any Mortgaged Property other than those leases respecting lands that
are
to be abandoned and reclaimed in the ordinary course of the Corporation's
business; and carry on business and operate those oil and gas assets
which
it is operator of in accordance with good oilfield practices, accepted
industry standards and all applicable agreements, regulations and
laws;
|
| (b) |
insure
and keep insured such of the Mortgaged Property as is of a nature
usually
insured against loss or damage by fire or other causes to its full
insurable value in a company or companies acceptable to the Lenders
and at
the request of the Lenders assign to the Lenders all monies payable
in
respect of any and all such
insurance;
|
| (c) |
maintain
adequate and appropriate insurance, including insurance for public
liability, blow-outs, and all-risk perils in a company or companies
acceptable to the Lenders and at the request of the Lenders assign
to the
Lenders all monies payable in respect of any and all such
insurance;
|
| (d) |
defend
title to the Mortgaged Property against the claims and demands of
all
persons, firms or corporations
whomsoever;
|
| (e) |
if
requested, provide to the Lenders from time to time such information
about
the Mortgaged Property and the Corporation as the Lenders may reasonably
request;
|
| (f) |
abide
by, observe and perform the terms and covenants of all agreements
entered
into from time to time with the
Lenders;
|
| (g) |
upon
reasonable notice by the Lenders, allow the Lenders access to visit
and
inspect the Mortgaged Property;
|
| (h) |
notify
the Lenders in writing immediately in the event that a contaminant
spill,
emission or any other environmental damage
whatsoever:
|
| (i) |
occurs
or is discovered on any property in which the Corporation holds an
interest, or on any property adjacent to such property;
or
|
| (ii) |
results
from, directly or indirectly, any operation conducted by or on behalf
of
the Corporation,
|
that
may
have a material adverse effect on the Corporation or the Mortgaged
Property;
| (i) |
notify
the Lenders in writing immediately upon receiving any notice, order
or
decree, or being subject to any fine, under any environmental law,
regulation, rule, order, procedure or control that may have, singly
or in
the aggregate, a material adverse effect on the Corporation or the
Mortgaged Property; and
|
| (j) |
provide
to the Lenders, at the Corporation’s expense, immediately upon receiving a
request therefor from the Lenders, any and all reports, studies,
information and documents the Lenders may require or request respecting
the environmental condition of any of the Mortgaged Property or any
liability the Corporation may have for environmental damage, including
without limitation any studies or reports which the Lenders request
be
prepared, such studies or reports to be prepared by a firm acceptable
to
the Lenders; in the event these studies or reports disclose that
all
applicable environmental laws, regulations, orders, procedures and
controls have not been or are not being complied with, the Corporation
shall take all action necessary to ensure that compliance is effected
by
the date stipulated by the Lenders.
|
| 12. |
In
the event of a loss under
any of the insurance maintained by the Corporation, the Lenders,
at its
option, may apply the insurance proceeds on account of the Principal
Sum
and interest secured hereby or may apply the same to rebuilding,
repairing
and restoring the Mortgaged Property, or may apply the same partly
for one
purpose and partly for the other
purpose.
|
3
| 13. |
The
Indebtedness shall
immediately become due and payable, whether with or without prior
demand
therefor, and the security hereby constituted shall become immediately
enforceable:
|
| (a) |
if
the Corporation makes default in payment when due of any indebtedness
or
liability to the Lenders whether secured hereby or
not;
|
| (b) |
if
and when the Corporation shall make default in payment of any part
of the
Indebtedness on the days appointed for payment under this Debenture
or
otherwise or, in the case of the Principal Sum, upon demand being
made for
payment thereof;
|
| (c) |
if
and when there is any breach of, or there exists a default under,
any of
the covenants contained in clause 11 hereof, and such breach or default
remains unrectified thirty (30) days after the Lenders have given
notice
thereof to the Corporation, the Corporation acknowledging that this
curative period does not alter the demand nature of the Indebtedness
and
that the Lenders may demand payment in full of the Indebtedness at
any
time, and that if such demand is made the security hereby constituted
shall become immediately enforceable without prejudice to the Lenders'
other rights and remedies;
|
| (d) |
a
representation or warranty contained herein is or becomes untrue
in any
material respect, or if the Corporation shall commit any breach of,
or
there exists a default under, any of the covenants contained in clause
10
hereof;
|
| (e) |
if
the Corporation shall become in breach or default in the observance
or
performance of any term, condition, covenant, agreement, representation
or
warranty contained in any present or future agreement between the
Lenders
and the Corporation and the breach or default is not remedied within
the
grace period (if any) set forth in such
agreement;
|
| (f) |
if
the Corporation threatens to commit or commits any act or acts of
bankruptcy; if a petition in bankruptcy is filed or presented against
the
Corporation; if the Corporation makes any assignment for the benefit
of
its creditors or if the Corporation enters into any arrangement with
its
creditors; if the Corporation becomes bankrupt or insolvent, or makes
an
authorized assignment pursuant to the Bankruptcy
and Insolvency Act or
any substitute or replacement legislation therefor; if proceedings
are
commenced to appoint a receiver, receiver/manager, or trustee in
respect
of the assets of the Corporation; if the Corporation is party to
any
transaction which is or falls within the contemplation of any fraudulent
preferences legislation; if a petition is filed, an order made, a
resolution passed or any proceedings are taken for the dissolution,
liquidation or winding-up of the Corporation; if the Corporation
ceases or
threatens to cease to carry on its business; if proceedings are commenced
for the suspension of the business of the Corporation; if the Corporation
sells or disposes of its assets other than as expressly permitted
in this
Debenture; if any judgment against the Corporation shall remain
unsatisfied for a period in excess of thirty (30) days; if any proceedings
are commenced against the Corporation under the Companies
Creditors Arrangement Act
or
the Bankruptcy
and Insolvency Act
or
any substitute or replacement legislation therefor;
|
For
the
purposes of this Debenture, "Events
of Default"
means
the events described in any of the subclauses in this Clause 13.
Nothing
in this clause or elsewhere in this Debenture shall in any way alter the demand
nature of the Indebtedness or any part thereof, and the Lenders may, if they
deem advisable, in their sole and absolute discretion, demand payment in full
of
the Indebtedness (and of all other indebtedness and obligations secured hereby)
at any time, and if such demand is made the security hereby constituted shall
become immediately enforceable without prejudice to the Lenders' other rights
and remedies.
| 14. |
If
the Indebtedness
or
any portion thereof is not paid by the Corporation upon demand made
by the
Lenders, whether before or after an Event of Default, or if an Event
of
Default occurs, all of the Indebtedness shall automatically become
immediately due and payable and the Corporation shall immediately
pay to
the Lenders all amounts owing in respect of the Indebtedness. Without
restricting anything herein contained, it is the intent and purpose
hereof
that the Indebtedness shall become payable and be paid on demand
or upon
the occurrence of an Event of Default without any requirement of
time or
further notice of any kind, all of which are expressly waived by
the
Corporation.
|
4
| 15. |
If
the security hereby
constituted shall become enforceable pursuant to the terms hereof,
and the
Corporation acknowledges to and agrees with the Lenders that the
Lenders
may enter into possession of all or any part of the Mortgaged Property,
or
the Lenders may commence such legal action or other proceedings
(including, without limitation, actions or proceedings seeking foreclosure
and/or sale and the appointment of a receiver, which term as used
in this
Debenture includes a receiver-manager) as it in its sole and absolute
discretion may deem expedient and realize upon any security granted
in
favour of the Lenders, all without the obligation to marshal its
security
and without any additional notice, presentation, demand or protest,
all of
which the Corporation hereby expressly waives. Upon the security
hereby
constituted becoming enforceable pursuant to the terms hereof, the
Corporation shall be deemed thereupon to have irrevocably appointed
the
Lenders as its true and lawful attorney, for and in its name, place
and
stead, to execute and deliver for and on behalf of the Corporation
all
such transfers, leases, mortgages, grants, pledges, deeds, documents,
instruments and assurances and do and perform all such acts and things
as
may be necessary or advisable to carry out the rights, remedies and
powers
hereby granted to the Lenders. The rights and remedies of the Lenders
hereunder are cumulative, are in addition to and are not in substitution
for any rights or remedies provided by law or contained in any other
agreement, instrument, or security heretofore or hereafter granted
by the
Corporation in favour of the Lenders, and any and all such rights
or
remedies may be exercised independently or concurrently by the
Lenders.
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| 16. |
The
Lenders may,
at any time after the security hereby constituted shall have become
enforceable, appoint any person, firm or corporation, whether an
officer
or employee of the Lenders or not, to be a receiver of all or any
part of
the Mortgaged Property and may from time to time remove any receiver
so
appointed and appoint another in its stead and the Lenders shall
not in
any way be responsible for any misconduct or negligence on the part
of any
such receiver.
|
| 17. |
A
receiver so appointed shall,
for the purposes of responsibility for his acts, be deemed to be
the agent
of the Corporation and not of the Lenders, and shall (unless limited
by
applicable legislation) have power:
|
| (a) |
to
take possession of, collect and otherwise assume control all or such
part
of the Mortgaged Property as the receiver deems appropriate from
time to
time and for that purpose take any proceedings in the name of the
Corporation or otherwise;
|
| (b) |
to
carry on or to concur in the carrying on of the business of the
Corporation;
|
| (c) |
to
sell or lease or concur in selling or leasing all or any part of
the
Mortgaged Property;
|
| (d) |
to
make any arrangement or compromise which the receiver may consider
expedient;
|
| (e) |
to
prosecute and defend all suits, proceedings and actions which the
receiver
considers necessary or advisable for the proper protection of the
Mortgaged Property; and
|
| (f) |
for
any one or more of the above purposes, to borrow money and grant
security
for the repayment thereof and all amounts so borrowed, together with
interest thereon, may form a first fixed charge upon the Mortgaged
Property,
|
and
for
the purposes aforesaid, the Corporation hereby authorizes a receiver so
appointed (and by these presents does so appoint such receiver its true and
lawful attorney for and in its name, place and stead) to execute and deliver
for
and on behalf of the Corporation all such transfers, leases, mortgages, deeds,
documents, instruments and assurances and do and perform all such acts and
things as may be necessary or advisable to carry out the powers hereby granted,
subject to applicable law. Further, the receiver shall be vested with such
other
discretions and powers as may be granted in the instrument of appointment and
any supplement thereto. The aforesaid authorization and appointment shall in
no
way limit, restrict or derogate from, in any manner whatsoever, those powers
and
authorities which such receiver shall otherwise have and enjoy.
The
net profits
of
carrying on the business of the Corporation and the net proceeds of sale of
the
Mortgaged Property, or any part or parts thereof, shall be applied by the
receiver, subject to the claim of all secured and unsecured creditors (if any),
ranking in priority to this Debenture:
|
Firstly:
|
in
payment of all costs and expenses of and incidental to the appointment
of
the receiver and the exercise by him of all or any of the aforesaid
powers, including the reasonable remuneration of the receiver and
all
other costs and expenses properly paid or payable by the
receiver;
|
|
Secondly:
|
in
and towards payment to the Lenders of the Indebtedness to be applied
by
the Lenders thereto at their discretion to any interest or principal
remaining payable or due on or under this Debenture;
and
|
Thirdly:
any
surplus shall be paid to the Corporation.
The
Lenders shall have no liability to the receiver for the receiver's remuneration,
costs, charges or expenses.
5
| 18. |
The
Corporation
acknowledges that if a stay of proceedings is issued against the
Corporation pursuant to the Bankruptcy
and Insolvency Act,
the Companies’
Creditors Arrangements Act or
otherwise, the Lenders would be irreparably harmed and materially
prejudiced if any proceeds of the Mortgaged Property were used for
any
purpose other than the repayment of the debts secured hereby, and
the
Corporation hereby acknowledges and agrees that any proceeds of the
Mortgaged Property received by the Corporation while such stay is
in
effect shall be received and held in trust for the
Lenders.
|
| 19. |
If
the security
hereby constituted shall become enforceable, the Lenders may, either
before or after any entry, and to the extent permitted by law, sell
and
dispose of the Mortgaged Property, either as a whole or in separate
parcels, at a public auction or by tender or by private sale at such
time
or times as the Lenders may determine, with or without notice to
the
Corporation, and may make any such sale, either for cash or credit
or part
cash and part credit or any other arrangement providing for deferred
payment, and with or without advertisement, and with or without a
reserve
bid as the Lenders may see fit, and the Lenders may also rescind
or vary
any contract of sale that may have been entered into and resell with
or
under any of the powers conferred hereunder and adjourn any such
sale from
time to time and may execute and deliver to the purchaser or purchasers
of
the Mortgaged Property or any part thereof a good and sufficient
deed or
conveyance or deeds or conveyances for the same, the Lenders being
hereby
constituted the irrevocable attorney of the Corporation for the purpose
of
making such sale and executing such deeds or conveyances, and any
such
sale made as aforesaid shall be a perpetual bar both in law and in
equity
against the Corporation and all other persons claiming all or any
part of
the Mortgaged Property by, from, through or under the
Corporation.
|
| 20. |
Notwithstanding
the terms
of
this Debenture, the Corporation shall remain liable to perform all
of its
duties and obligations in regard to the Mortgaged Property (including
without limitation all of its duties and obligations arising under
any
leases, licenses, permits, reservations, contracts, agreements,
instruments, contractual rights and governmental orders and authorizations
now or hereafter pertaining thereto) to the same extent as if this
Debenture had not been executed, and the exercise by the Lenders
of their
rights and remedies under or in regard to this Debenture shall not
release
the Corporation from such duties, the Lenders having no liability
for such
duties and obligations by reason only of the execution and delivery
of
this Debenture.
|
| 21. |
The
Lenders may
(at any time and from time to time) pay or satisfy any lien, charge
or
encumbrance now existing or hereafter created or claimed upon the
Mortgaged Property, or any part thereof, and all amounts so paid
shall be
added to the debt hereby secured and the same shall be payable forthwith
with interest at the rate provided for herein and all amounts so
paid,
with interest thereon as aforesaid, shall be charged upon the Mortgaged
Property.
|
| 22. |
The
Corporation
hereby indemnifies and agrees to hold harmless the Lenders and their
successors and assigns from and against all liabilities, actions,
claims,
demands, judgments, costs (including all reasonable legal fees and
expenses whatsoever), charges and reasonable legal fees that may
be made
against or incurred by the Lenders arising directly or indirectly
by
reason of any claim, action or charge that the Lenders have received
funds
that are or may be the property of or be claimed by a third person,
either
before or after the payment in full of the Principal Sum, interest
and
other monies secured hereby and either before or after the release
either
wholly or partially of the mortgage, charge and security interest
created
hereby; and the Lenders shall have the right to defend against any
such
claims, actions and charges, and claim from the Corporation all expenses
incurred by the Lenders in connection therewith, including without
limitation all reasonable legal fees and expenses whatsoever that
may be
paid by the Lenders in connection therewith. This covenant and indemnity
shall survive the repayment of the Indebtedness and shall remain
in full
force and effect for the benefit of the Lenders notwithstanding the
full
or partial release of the mortgage, charge and security interest
created
hereby, or any foreclosure in respect thereof. If any such claim,
action
or charge as aforesaid is made after the full or partial release
of the
mortgage, charge and security interest created hereby, or any foreclosure
in respect thereof, such mortgage, charge and security interest shall
automatically be reinstated without any further action by the Corporation
or the Lenders, as if and as though such security interest had never
been
released or foreclosed, and shall constitute security for all such
amounts
claimed by the Lenders pursuant to this
indemnity.
|
| 23. |
The
Corporation
hereby indemnifies and agrees to hold harmless the Lenders from and
against any and all liabilities, actions, claims, demands, judgments,
costs (including all reasonable legal fees and expenses whatsoever),
charges, fines, penal or administrative sanctions suffered by the
Lenders,
to the extent same are not caused by the gross negligence or willful
misconduct of the Lenders, relating directly or indirectly to the
Corporation or the Mortgaged Property and arising directly or indirectly
out of: (a) any breach of or claim under federal, provincial, or
local
environmental laws or regulations, including: (i) all costs of any
required or necessary repair, clean-up, detoxification, or other
compliance with any federal, provincial, or local environmental laws
or
regulations (whether such action is required or necessary) and; (ii)
all
costs of determining whether any of the Corporation’s activities are in
compliance and causing such activities to be in compliance with all
federal, provincial, or local environmental laws or regulations and;
(b)
damages to persons or property, and the Lenders' reasonable legal
and
consultant’s fees and expenses and court costs in respect thereof. This
covenant and indemnity shall survive the repayment of the Indebtedness
and
shall continue in full force and effect for the benefit of the Lenders
notwithstanding the full or partial release of the mortgage, charge
and
security interest created hereby, or any foreclosure in respect thereof.
If any amount becomes payable pursuant to this indemnity after the
full or
partial release of the mortgage, charge and security interest created
hereby, or any foreclosure in respect thereof, such mortgage, charge
and
security interest shall automatically be reinstated without any further
action by the Corporation or the Lenders, as if and as though such
security interest had never been released or foreclosed, and shall
constitute security for all such amounts claimed by the Lenders pursuant
to this indemnity.
|
6
| 24. |
Unless
caused by the gross negligence or willful misconduct of the Lenders,
any
receiver or any agent of the Lenders, neither the
Lenders
nor any receiver nor any agent of the Lenders shall: (i) be responsible
or
liable for any debts contracted by it, for damages to persons or
property,
for salaries or for non-fulfillment of contracts during any period
when
the Lenders or any receiver shall manage or be in possession of any
security interest created hereby; (ii) be liable to account as mortgagee
in possession or for anything except actual receipts or be liable
for any
loss on realization or for any default or omission for which a mortgagee
in possession may be liable; (iii) nor be bound to do, observe or
perform
or to see to the observance or performance by the Corporation of
any
obligations or covenants imposed upon the Corporation; (iv) nor in
the
case of any chattel paper, security or instrument, be obligated to
preserve rights against any other persons. The Corporation hereby
waives
any law permitted to be waived by it which imposes higher or greater
obligations upon the Lenders or any receiver than
aforesaid.
|
| 25. |
The
Corporation
hereby indemnifies and agrees to save harmless the Lenders and every
receiver from and against any and all any and all liabilities, actions,
claims, demands, judgments, costs (including all reasonable legal
fees and
expenses whatsoever), charges, fines, penal or administrative sanctions
made against, suffered or incurred by the Lenders or any receiver
and
relating directly or indirectly to the taking of this Debenture,
unless
the foregoing is suffered or incurred due to the gross negligence
or
willful misconduct of the Lenders or such receiver; and the Lenders
and
every receiver shall have the right to defend against any such
liabilities, actions, claims, demands, charges and sanctions and
to claim
from the Corporation all expenses incurred in connection therewith
(including all reasonable legal fees and expenses whatsoever). It
is
understood and agreed that the covenants and conditions of this clause
shall remain in full force and effect notwithstanding the payment
or
release, either partially or wholly, of the mortgage, charge and
security
interest created hereby, or any foreclosure in respect thereof. If
any
amount becomes payable pursuant to this indemnity after the full
or
partial release of the mortgage, charge and security interest created
hereby, or any foreclosure in respect thereof, such mortgage, charge
and
security interest shall automatically be reinstated without any further
action by the Corporation or the Lenders, as if and as though such
security interest had never been released or foreclosed, and shall
constitute security for all such amounts claimed by the Lenders pursuant
to this indemnity.
|
| 26. |
The
Indebtedness will be paid
in
lawful money of the United States in favour of the Lenders payable
at the
addresses of the Lenders shown in Schedule "B" attached hereto, as
the
same shall become due and payable hereunder.
|
| 27. |
(a)No
postponement
or
partial release or discharge of the mortgages and charges created
by this
Debenture shall in any way operate or be construed to release or
discharge
the security hereby constituted except as therein specified, or to
release
or discharge the Corporation from any obligation or liability to
the
Lenders under this Debenture.
|
| (b) |
The
Lenders may
waive any breach or default by the Corporation of any of the provisions
contained in this Debenture or any breach or default by the Corporation
in
the observance or performance of any covenant or condition required
to be
observed or performed by the Corporation under the terms of this
Debenture; provided that any such waiver shall apply only to the
particular breach or default waived and shall not operate as a waiver
of
any other or future breach or default. Further, no delay or omission
upon
the part of the Lenders to exercise any right or power hereunder
shall
impair such right or power or be considered to be a waiver of any
breach
or default or any acquiescence
thereunder.
|
| (c) |
The
taking of
a
judgment or judgments by the Lenders on any of the covenants herein
contained or on any of the covenants contained in any further or
associated security documentation taken pursuant hereto shall not
operate
as a merger of the said covenants nor affect the right of the Lenders
to
interest at the applicable rates and times as provided for
herein.
|
| (d) |
Nothing
in this
Debenture shall be construed as a subordination by the Lenders of
the
mortgages, charges and security interests created hereby to any of
the
Permitted Encumbrances, it being the intent that all such mortgages,
charges and security interests shall be a first mortgage, charge
and
security interest.
|
| 28. |
The
security
hereby created is in addition to and not in substitution for any
other
security or securities which the Lenders may now or from time to
time hold
or take from the Corporation.
|
| 29. |
Each
Lender agrees
and acknowledges that this Debenture is being held by the Lenders
to
secure the Indebtedness on a pari
passu
basis. Each of the Lenders hereby acknowledges that to the extent
permitted by law, the Mortgaged Property and the remedies provided
under
this Debenture to the Lenders are for the benefit of the Lenders
collectively and acting together and not severally and further
acknowledges that its rights hereunder and under any Mortgaged Property
are to be exercised not severally, but by an agent upon the decision
of a
majority of Lenders, where a majority of Lenders means a group of
Lenders
who collectively represent 51% of the value of the indebtedness owing
to
the Lenders under the senior secured convertible promissory notes
issued
under the Note and Warrant Purchase Agreement (the "Majority
Lenders").
The Majority Lenders shall appoint such agent (the "Agent").
Accordingly, notwithstanding any of the provisions contained herein,
each
of the Lenders hereby covenants and agrees that it shall not be entitled
to take any action hereunder but that such action shall be taken
only by
the Agent with the prior written agreement of the Majority Lenders.
Each
of the Lenders hereby further covenants and agrees that upon any
such
written agreement being given, it shall co-operate fully with the
Agent to
the extent requested by the Agent. Notwithstanding the foregoing,
in the
absence of instructions from the Lenders and where in the sole opinion
of
the Agent, acting reasonably and in good faith, the exigencies of
the
situation warrant such action, the Agent may without notice to or
consent
of the Lenders take such action on behalf of the Lenders as it deems
appropriate or desirable in the interest of the Lenders.
|
| 30. |
The
Corporation
hereby agrees to pay to the Lenders, forthwith upon demand, all reasonable
costs, charges and expenses (including all legal fees and expenses)
which
the Lenders suffer or incur in connection with the preparation, execution,
delivery, registration, administration, defending, amendment and
enforcement of this Debenture together with interest thereon at the
rate
provided for herein from the date the Lenders make demand for payment
of
such costs, charges and expenses so suffered or
incurred.
|
| 31. |
The
Corporation,
by executing this Debenture, hereby acknowledges and agrees
that:
|
| (a) |
value
has been given by the Lenders;
|
| (b) |
the
Corporation has rights in the Mortgaged
Property;
|
| (c) |
there
is no agreement to postpone the attachment of the security interest
hereby
created;
|
| (d) |
the
Corporation has received a duplicate original of this
Debenture;
|
| (e) |
notwithstanding
that the mortgage, charge and security interest created pursuant
to clause
4(b) is stated to be a floating charge, the time for attachment of
the
mortgage, charge and security interest created pursuant to this Debenture
has not been postponed and is intended to attach when this Debenture
is
signed by the Corporation, and attaches at that time to property
in which
the Corporation then has any right, title or interest and attaches
to
property in which the Corporation subsequently acquires any right,
title
or interest at the time when the Corporation first acquires such
right,
title or interest; and
|
| (f) |
the
Corporation hereby waives its right to receive a copy of any financing
statement or financing change statement or notice registered by the
Lenders in connection with this Debenture and any statement issued
with
respect thereto where such waiver is not otherwise
prohibited.
|
7
| 32. |
Any
notice, direction or other instrument required or permitted to be
given
under this Debenture by the Lenders to the Corporation, or by the
Corporation to the Lenders, will be in writing and may be given by
delivering same or by fax to the following
address:
|
If
to the
Corporation:
Quest
Canada Corp.·
Calgary,
AB ·
Attention: ·
Facsimile: ·
If
to the
Lenders:
See
names
and addresses shown on Schedule "B" attached hereto.
Any
communication aforesaid will:
|
(a)
|
if
delivered, be deemed to have been given or made at the time of delivery;
and
|
|
(b)
|
if
sent by electronic communication, be deemed to have been given or
made on
the day it was sent if confirmation of receipt is obtained during
normal
business hours on that day, or on the next day if confirmation is
received
after normal business hours.
|
The
Lenders
and the
Corporation may change their respective addresses for service as set forth
in
this clause by giving notice thereof to the other as herein provided
for.
| 33. |
The
Corporation
shall execute and deliver to the Lenders such further and other deeds,
documents, instruments and assurances and do or cause to be done
all such
other acts and things as may be required by the Lenders from time
to time
to give full force and effect to this Debenture and the mortgages,
charges
and security interests created
hereby.
|
| 34. |
The
Corporation
hereby authorizes the Lenders to file or register such financing
statements, financing change statements and other documents as the
Lenders
may deem appropriate to perfect on an ongoing basis and continue
the
mortgage, charge and security interest created hereby and to protect
and
preserve the Mortgaged Property.
|
| 35. |
This
Debenture
shall enure to the benefit of the Lenders and their successors and
assigns
and shall be binding upon the Corporation and its successors and
assigns.
|
| 36. |
This
Debenture
shall be interpreted and governed by the laws in force in the Province
of
Alberta, except as and to the extent that the laws of any jurisdiction
may
otherwise validly require, and the Corporation irrevocably submits
to the
jurisdiction of the Courts of the Province of
Alberta.
|
| 37. |
To
the extent
that any of the Mortgaged Property is in the Province of Saskatchewan
or
this Debenture is governed by the laws of Saskatchewan, the Corporation
agrees that the Limitation of Civil Rights Act, the Land Contracts
(Actions) Act and Part IV (excepting only section 46) of the Saskatchewan
Farm Security Act do not apply insofar as they relate to actions
as
defined in those Acts, or insofar as they relate to or affect this
Debenture, the rights of the Lender under this Debenture or any
instrument, mortgage, charge, pledge, hypothecation, lien (statutory
or
otherwise), assignment, financial lease, title retention agreement
or
arrangement, security interest or other encumbrance of any nature
however
arising, security agreement or other document of any nature that
renews,
extends or is collateral to this
Debenture.
|
| 38. |
Time
shall be
of
the essence hereof.
|
| 39. |
The
Corporation acknowledges and agrees
that in the event that it amalgamates or merges with any other corporation
or corporations, it is the intention of the Corporation and the Lenders
that the term "Corporation" when used herein shall apply to each
of the
amalgamating corporations and to the resulting amalgamated corporation,
such that the mortgage, charge and security interest created hereby
shall
secure all present and future Indebtedness to the Lenders of each
of the
amalgamating corporations and the amalgamated corporation. The mortgage,
charge and security interest created hereby will attach to all of
the
Mortgaged Property owned by each corporation amalgamating with the
Corporation and by the amalgamated corporation at the time of the
amalgamation, and shall attach to any Mortgaged Property thereafter
owned
or acquired by the amalgamated
corporation.
|
| 40. |
The
provisions
of
the Note and Warrant Purchase Agreement are not superseded by or
merged in
the execution or registration of this Debenture, and the provisions
of the
Note and Warrant Purchase Agreement shall remain in full force and
effect
until all of the conditions thereof to be observed and performed
by the
Corporation have been fully paid and satisfied, provided however
that in
the event of a conflict between the terms of the Note and Warrant
Purchase
Agreement and the terms of this Debenture, the terms of the Note
and
Warrant Purchase Agreement shall prevail. Notwithstanding the foregoing,
if there is any right or remedy of the Lenders set forth in this
Debenture
which is not set forth in the Note and Warrant Purchase Agreement,
such
right or remedy shall not constitute a
conflict.
|
| 41. |
Any
provision
of
this Debenture which is prohibited or unenforceable in any jurisdiction
will, as to that jurisdiction, be ineffective to the extent of such
prohibition or unenforceability and will be severed from the balance
of
this Debenture, all without affecting the remaining provisions of
this
Debenture or affecting the validity or enforceability of such provision
in
any other jurisdiction.
|
| 42. |
To
the full
extent that it may lawfully do so, the Corporation
hereby:
|
| (a) |
waives
and disclaims any benefit of, and shall not have or assert any right
under
any statute or rule of law pertaining to the marshalling of assets;
and
|
| (b) |
agrees
that it shall not have or assert any right or equity of redemption
or any
right under any statute or otherwise to redeem the Mortgaged Property
or
any part thereof after the sale hereunder to any person whether such
sale
is by the Lenders, any receiver or otherwise, notwithstanding, if
such
should be the case, that the Lenders may have purchased
same.
|
| 43. |
This
Debenture may
be executed in separate counterparts and by facsimile. Each counterpart,
when so executed and delivered, shall be deemed to be an original,
and all
such counterparts taken together shall constitute one and the same
instrument.
|
677965.v5
8
-
-
In
witness whereof the Corporation and the Lenders have attested by the signature
of their proper officer or officers, or persons duly authorized in that behalf,
this ______ day of September, 2005.
|
QUEST
CANADA CORP.
|
LENDERS
|
|
|
Per:___________________________
Name: Xxxxxxx
Xxxx
Title: President
and Chief Executive Officer
|
Per:______________________________
Name:
Title:
|
|
|
Per:______________________________
Name:
Title:
|
||
|
Per:______________________________
Name:
Title:
|
||
|
Per:______________________________
Name:
Title:
|
677965.v5
9
- -
SCHEDULE
"A" ATTACHED TO AND FORMING PART OF THE DEBENTURE GRANTED BY QUEST CANADA CORP.
TO THE LENDERS AND DATED THE ____ DAY OF SEPTEMBER, 2005
Specifically
Mortgaged Property
The
Specifically Mortgaged Property referred to in clause 4(a) to the Debenture
to
which this Schedule "A" forms part consists of all of the present and
after-acquired right, title and interest of the Corporation in and
to:
|
(a)
|
all
petroleum, natural gas and related hydrocarbons or minerals in place
or in
storage within, upon or under the lands set forth in Exhibit "1"
hereunto
annexed and made part of this Schedule "A" (the interest of the
Corporation therein being represented to be not less than that set
forth
in Exhibit "1") and all lands now or hereafter pooled, unitized,
grouped
or otherwise combined for production or other purposes with said
lands;
and
|
|
(b)
|
all
rights, licences, agreements, leases, permits, servitudes, easements,
rights of way, rights of entry and other surface rights, governmental
or
administrative authorizations, licenses, permits and consents and
other
rights now owned or hereafter acquired by the Corporation under which
the
Corporation derives or holds the right to enter upon and use the
lands in
Exhibit 1 (and any lands with which said lands are now or hereafter
pooled, unitized, grouped or otherwise combined) including without
limitation the right to drill for, produce, store, gather, treat,
process,
ship, or transport hydrocarbons now or hereafter produced or allocated
to
the lands in Exhibit 1 (and all lands with which said lands
are now
or are hereafter pooled, unitized, grouped or otherwise combined);
and
|
|
(c)
|
all
the estate or interest of the Corporation in or to any of the said
hydrocarbons or minerals, rights, licences, permits and lands;
and
|
|
(d)
|
all
the right, title and interest of the Corporation in and to all surface
and
subsurface machinery, apparatus, equipment, field facilities and
other
property and assets of whatsoever nature and kind (including without
limitation all xxxxx, casing, tubing, rods, pumps and pumping equipment,
Christmas trees and other wellhead equipment, separators, flow lines,
pipelines, tanks, treaters, heaters, plans and systems to gather,
treat
and/or compress hydrocarbons, plants and systems to treat, dispose
of or
inject water or other substances, power plants, poles, lines,
transformers, starters, controllers, machine shops, tools, spare
parts and
spare equipment, telephone, radio and other communication equipment,
racks
and storage facilities) used, useful, or intended to be used in connection
with operations on or relating to the lands set forth in Exhibit "1"
(and lands with which said lands are now or hereafter pooled, unitized,
grouped or otherwise combined), including with respect to the production,
injection, compression, treatment, storage, measuring, gathering
or
transportation of hydrocarbons therefrom or allocated thereto;
and
|
|
(e)
|
all
buildings, structures, improvements, expansions, erections, works
and
fixtures now or hereafter brought, built, erected, constructed, placed
or
|
|
otherwise
situate on the lands in Exhibit 1 (or lands with which said
lands are
now or hereafter pooled, unitized, grouped or otherwise
combined);
|
and
in
particular, but without limitation, the rights and interests of the Corporation
referred to in Exhibit "1" hereto.
677965.v5
10
EXHIBIT
"1" TO SCHEDULE "A" TO THAT $____________________ DEBENTURE DATED SEPTEMBER
______, 2005 GRANTED BY QUEST CANADA CORP.
LAND
SCHEDULE
[Intentionally
Left Blank]
677965.v5
11
- -
SCHEDULE
"B" ATTACHED TO AND FORMING PART OF THE DEBENTURE GRANTED BY QUEST CANADA CORP.
TO THE LENDERS AND DATED THE ____ DAY OF SEPTEMBER, 2005
|
Names
of
Lenders
|
Addresses
of
Lenders
|
12
