Intercreditor Agreement between Quest Resource Corporation and Cherokee Energy Partners LLC regarding Quest Cherokee, LLC Loans (July 20, 2005)

Summary

Quest Resource Corporation and Cherokee Energy Partners LLC entered into this agreement to set the terms for how they will share payments and rights related to loans made to Quest Cherokee, LLC. Both lenders agree that their loans have equal priority, and any payments or recoveries from Quest Cherokee will be shared proportionally. If there is a default, Cherokee Energy Partners has the right to control enforcement actions, while both parties must notify each other of any defaults. The agreement clarifies that it benefits only the two lenders and not Quest Cherokee or other third parties.

EX-10.2 3 qr-ex102_6635044v2.txt INTERCREDITOR AGREEMENT JULY 20, 2005 Exhibit 10.2 INTERCREDITOR AGREEMENT THIS INTERCREDITOR AGREEMENT (this "Agreement") is entered into as of the 20th day of July, 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. CEP has made to Borrower loans in the aggregate principal amount of $63,000,000 pursuant to the terms of an Amended and Restated Note Purchase Agreement dated as of February 11, 2005 (together with any subsequent advances of monies to Borrower from CEP, the "CEP Loans"). All monies, liabilities and obligations, of any and every kind and nature, owed to CEP from Borrower under the CEP Loans are referred to herein as the "CEP Obligations." B. Concurrent with the execution of this Agreement, QRC desires to loan to Borrower up to $3,000,000, in the form of a 15% Promissory Note (the "QRC Loans" and, together with the CEP Loans, the "Loans"). All monies, liabilities and obligations, of any and every kind and nature, owed to QRC from Borrower under the QRC Loans are referred to herein as the "QRC 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. "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. Any payments made by the Borrower on any of the Obligations and the proceeds of any Enforcement Action shall be shared pro rata by QRC and CEP based upon percentages determined by dividing the outstanding principal amount and accrued and unpaid interest owed to each of QRC on the QRC Loans and CEP on the CEP Loans, respectively, by the outstanding principal amount of, and accrued and unpaid interest on, all Loans. 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 4. 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 5. 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. Section 6. Termination, Recision or Modification. The agreements set forth in this Agreement shall remain in full force and effect regardless of whether either party hereto in the future seeks to rescind, amend, terminate or reform its respective agreements with Borrower. Section 7. Remedies. CEP shall have the right to control the exercise of any remedies (including the commencement and prosecution of any Enforcement Action) against the Borrower with respect to an Event of Default under the Loans. In the event of the commencement of any Enforcement Action by CEP against the Borrower, QRC agrees to cooperate with CEP in the exercise of the remedies that are set forth in any written instrument evidencing any of the Obligations, including without limitation any promissory notes executed by Borrower in favor of CEP or QRC (all such written instruments are referred herein to as "Financing Documents"). Section 8. Waiver of Marshalling. Each party to this Agreement hereby waives any right to require the other party to marshal any security or collateral or otherwise to compel the other party to seek recourse against or satisfaction of the indebtedness owed to it from one source before seeking recourse or satisfaction from another source. 2 Section 9. Relation of Parties. This Agreement is entered into solely for the purposes set forth in the Recitals above, and, except as is expressly provided otherwise herein, no party to this Agreement assumes any responsibility to the other party to advise such other party of information known to such party regarding the financial condition of Borrower or of any other circumstances bearing upon the risk of nonpayment of the Obligations of Borrower to the parties hereto. Each party shall be responsible for managing its relation with Borrower and neither party shall be deemed the agent of the other party for any purpose. Each of the parties hereto may alter, amend, supplement, release, discharge or otherwise modify any terms of the documents evidencing and embodying their respective Obligations without notice to or consent of the other. Section 10. Notices. Any notice required or permitted in connection with this Agreement shall be in writing and shall be made by hand delivery, by Federal Express, or other similar overnight delivery service, or by certified mail, return receipt requested, postage prepaid, addressed to the party at the appropriate address set forth below or to such other address as may be hereafter specified by written notice by such party pursuant to notice to the other parties hereto and shall be considered given as of the date of hand delivery, one (1) calendar day after delivery to Federal Express or similar overnight delivery service, or two (2) calendar days after the date of mailing, independent of the date of mail delivery or whether mail delivery is ever in fact accomplished, as the case may be: If to Borrower, to: Quest Cherokee, LLC 9520 North May Ave. Suite 300 Oklahoma City, Oklahoma 73120 Attention: Chief Executive Officer If to CEP, to: Cherokee Energy Partners LLC 200 Clarendon Street, 55th Fl. Boston, MA 02117 Attn: General Counsel If to QRC, to: Quest Resource Corporation 9520 North May Ave. Suite 300 Oklahoma City, Oklahoma 73120 Attention: Chief Executive Officer Section 11. Binding Nature. This Agreement shall be binding upon the parties and their respective successors and assigns. Section 12. Effective Date. This Agreement shall be effective as of the date on which it is designated as being executed, independent of the actual date each party hereto executes this Agreement. Section 13. Term of Agreement. This Agreement shall continue in full force and effect and shall be irrevocable by either party hereto until the earlier to occur of the following: 3 (a) The parties mutually agree in writing to terminate this Agreement; or (b) All of the obligations owed by Borrower to the parties hereto are fully paid and satisfied. Section 14. Section Titles. The section titles contained in this Agreement are for convenience only and are without substantive meaning or content of any kind and shall not be considered part of this Agreement. Section 15. Governing Law. This Agreement shall be governed by and construed under the laws of the State of New York, all rights and remedies being governed by such laws. Section 16. Continued Effectiveness of this Agreement. The terms of this Agreement, the relationship of CEP and QRC governed hereby, and the rights and the obligations of the parties arising hereunder, shall not be affected, modified or impaired in any manner or to any extent by: (a) any amendment or modification of or supplement to any of the Financing Documents; (b) the validity or enforceability of any of the Financing Documents; or (c) any exercise or non-exercise of any right, power or remedy under or in respect of the Obligations or any of the Financing Documents. The parties hereto hereby acknowledge that the provisions of this Agreement are intended to be enforceable at all times, whether before the commencement of, after the commencement of, in connection with or premised on the occurrence of a Proceeding. Section 17. Cumulative Rights, No Waivers. Each and every right, remedy and power granted to CEP or QRC hereunder shall be cumulative and in addition to any other right, remedy or power specifically granted herein, in the Financing Documents, or now or hereafter existing in equity, at law, by virtue of statute or otherwise, and may be exercised by CEP or QRC, from time to time, concurrently or independently and as often and in such order as CEP or QRC may deem expedient. Any failure or delay on the part of CEP or QRC in exercising any such right, remedy or power, or abandonment or discontinuance of steps to enforce the same, shall not operate as a waiver thereof or affect the rights of CEP or QRC thereafter to exercise the same, and any single or partial exercise of any such right, remedy or power shall not preclude any other or further exercise thereof or the exercise of any other right, remedy or power, and no such failure, delay, abandonment or single or partial exercise of the rights of CEP or QRC hereunder shall be deemed to establish a custom or course of dealing or performance among the parties hereto. Section 18. Modification. Any modification or waiver of any provision of this Agreement, or any consent to any departure by any party therefrom, shall not be effective in any event unless the same is in writing and signed by all of the parties hereto (other than Borrower), and then such modification, waiver or consent shall be effective only in the specific instance and for the specific purpose given. Section 19. Severability. In the event that any provision of this Agreement is deemed to be invalid, illegal or unenforceable by reason of the operation of any law or by reason of the interpretation placed thereon by any court or governmental authority, the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby, and the affected provision shall be modified to the minimum extent permitted by law so as most fully to achieve the intention of this Agreement. 4 Section 20. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which taken together shall be one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. CHEROKEE ENERGY PARTNERS LLC, a Delaware limited liability company /s/ Daniel R. Revers --------------------------------- Name: Daniel R. Revers Title: President QUEST RESOURCE CORPORATION, a Nevada corporation /s/ Jerry D. Cash --------------------------------- Name: Jerry D. Cash Title: Chairman and CEO ACKNOWLEDGEMENT: The undersigned, referred to as "Borrower" in the foregoing Agreement, hereby acknowledges the terms and provisions thereof and agrees to recognize the priorities and the agreements between CEP and QRC set forth therein. QUEST CHEROKEE, LLC By: /s/ Jerry D. Cash -------------------------- Name: Jerry D. Cash Title: Chief Executive Officer 5