Exhibit 10.5
INTERCREDITOR AGREEMENT
THIS
INTERCREDITOR AGREEMENT (this "Agreement") is entered into as of
the
5th day of August, 2005, by and between
Quest Resource Corporation, a Nevada
corporation ("QRC"), and Cherokee Energy
Partners LLC, a Delaware limited
liability company ("CEP"), with respect to
certain financial arrangements with
Quest Cherokee, LLC, a Delaware limited
liability company ("Borrower").
RECITALS:
---------
A. QRC has made
to Borrower loans in the aggregate principal amount of up
to $3,000,000 pursuant to the terms of a
Promissory Note dated as of July 20,
2005 (together with any subsequent advances
of monies to Borrower from QRC, the
"QRC Loans"). All monies, liabilities and
obligations, of any and every kind and
nature, owed to ORC from Borrower under the
QRC Loans are referred to herein as
the "QRC Obligations."
B. Concurrent
with the execution of this Agreement, CEP desires to loan to
Borrower up to $3,000,000, in the form of a
15% Promissory Note (the "CEP Loan"
and, together with the QRC Loans, the
"Loans"). All monies, liabilities and
obligations, of any and every kind and
nature, owed to CEP from Borrower under
the CEP Loan is included in the definition
of "CEP Obligations."
The parties
hereto wish to agree upon the relative rights of interest of
CEP and QRC with respect to payments
received from Borrower on or in respect of
the Loans.
AGREEMENT
---------
NOW THEREFORE,
in consideration of these premises, the terms and conditions
set forth herein, and other good and
valuable consideration, the receipt and
sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as
follows:
Section 1.
Recitals. The recitals specified above in this Agreement are
hereby incorporated into this
Agreement.
Section 2.
Definitions. When used in this Agreement, the following terms
shall have the meanings set forth as
definitions in this Section. The singular
use of any defined term shall include the
plural and the plural use shall
include the singular.
"Enforcement Action" shall mean
(a) to demand, sue for, take or receive
from or on behalf of Borrower, by set-off
or in any other manner, the whole or
any part of any monies which may now or
hereafter be owing by Borrower with
respect to the Obligations, (b) to initiate
or participate with others in any
suit, action or proceeding against Borrower
to (i) enforce payment of or to
collect the whole or any part of the
Obligations or (ii) commence judicial
enforcement of any of the rights and
remedies under the Obligations, or (c) to
accelerate any Obligations.
<PAGE>
"Proceeding"
shall mean any voluntary or involuntary insolvency,
bankruptcy, receivership, custodianship,
liquidation, dissolution,
reorganization, assignment for the benefit
of creditors, appointment of a
custodian, receiver, trustee or other
officer with similar powers or any other
proceeding for the liquidation, dissolution
or other winding up of Borrower.
"Obligations"
shall mean the CEP Obligations and the QRC Obligations.
Section 3.
Priority of Indebtedness. The indebtedness and payment
obligations of Borrower with respect to the
QRC Obligations and the CEP
Obligations shall be of equal priority, and
none shall have a priority of
payment over or be subordinate to the
other. The parties agree that these
amounts shall be repaid prior to any other
indebtedness owed to QRC or CEP being
repaid
Section 4. Pro
Rata Sharing of Payments and Enforcement Action Proceeds.
QRC and CEP shall share pro rata any
payments made by the Borrower on any of the
Obligations and the proceeds of any
Enforcement Action based upon the following
percentages: (1) QRC shall have a 40% pro
rata interest in any payments made by
the Borrower on any of the Obligations and
in the proceeds of any Enforcement
Action, and (2) CEP shall have a 60% pro
rata interest in any payments made by
the Borrower on any of the Obligations and
in the proceeds of any Enforcement
Action. Each party that receives any
payments from the Borrower on any of the
Obligations or proceeds from any
Enforcement Action shall promptly pay to the
other party its pro rata share of such
amounts.
Section 5. Pro
Rata Funding of Advances to Borrower. If Borrower requests
and qualifies for an Advance of funds under
the terms of the Loans, QRC and CEP
agree to fund the requested Advance
according to the following pro rata share:
(1) QRC shall fund 40% of the Advance, and
(2) CEP shall fund 60% of the
Advance. QRC and CEP must provide their pro
rata share regardless of whether
Borrower requests and advance from QRC or
CEP. QRC agrees that it will not fund
more than $2,000,000 to Borrower under the
QRC Loans without the consent of CEP.
Section 6.
Default. Each party hereto shall provide prior written notice
to
the other parties hereto (other than
Borrower) of any Event of Default of which
it is aware under the Loans. If an Event of
Default occurs on either the CEP
Loans or the QRC Loans, such default shall
be deemed to be an Event of Default
with respect to all Loans. CEP shall have
the right to control the exercise of
remedies related to such Event of Default
in accordance with Section 7 hereof.
Section 7. No
Third Party Beneficiaries. This Agreement and the terms and
provisions hereof are solely for the
benefit of CEP and QRC and shall not
benefit in any way any other person,
including, but not limited to, Borrower.
The parties hereto specifically reserve any
and all of their respective rights
against Borrower and any third parties.
