SECURITY AGREEMENT
THIS AGREEMENT made effective October 26, 1998.
BETWEEN:
EUROGAS, INC., a corporation incorporated under the laws of
the State of Utah (hereinafter referred to as the
"Creditor")
-and-
BIG HORN RESOURCES LTD., a corporation incorporated under
the laws of Canada (hereinafter referred to as the "Debtor")
WHEREAS the Debtor is indebted to the Creditor in the amount of
$2,500,000 as evidenced by a promissory note given by the Debtor to the Creditor
dated October 26, 1998 (the "Promissory Note");
AND WHEREAS pursuant to such indebtedness, the Debtor wishes to grant
a security interest in and to all of its assets to the Creditor;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
payment of certain good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged by each of the parties hereto, the parties
hereto hereby agree as follows:
1. GRANT OF SECURITY INTEREST: As continuing and collateral security for
payment and performance of all existing obligations, indebtedness and
liabilities of the Debtor to the Creditor pursuant to the Promissory Note and
for value received, the receipt and sufficiency of which is hereby acknowledged,
the Debtor hereby grants to the Creditor, by way of mortgage, charge, assignment
and transfer, a continuing security interest (the "Security Interest") in all of
the Debtor's present and after acquired personal property and in all Proceeds
and renewals, replacements, additions, substitutions thereof, parts,
accessories, attachments and Accessions thereto (hereinafter collectively called
the "Collateral").
2. DEFINITIONS AND INTERPRETATIONS: In this Security Agreement:
(a) the defined terms used herein shall be interpreted pursuant to their
respective meanings as defined herein and in the Personal Property
Security Act of the Province of Alberta, as amended from time to time,
which Act, including amendments thereto and any Act substituted
therefor and amendments thereto is herein called the "P.P.S.A.";
(b) the term "Collateral" shall, unless the context otherwise requires, be
deemed a reference to "Collateral or any part thereof"; and
(c) the term "this Security Agreement" shall mean this Security Agreement
including any schedules hereto and the terms "herein", "hereto",
"hereof", "hereby", "hereunder" and similar terms refer to this
Security Agreement so defined and any reference to a particular
Section shall mean the appropriate Section of this Security Agreement.
3. OBLIGATIONS SECURED: The Security Interest granted by this Security
Agreement secures payment and performance of any and all obligations,
indebtedness and liability of the Debtor to the Creditor (including interest
thereon) pursuant to the Promissory Note and any unpaid amounts in respect
thereof (hereinafter called the "Indebtedness"). The grant by the Debtor of the
Security Interest in the Collateral to the Creditor in no way shall limit or
restrict the rights and remedies of the Creditor to collect and enforce
collection from the Debtor of any of the Indebtedness, and the Creditor shall
not be required or obligated to enforce its rights or remedies under this
Security Agreement before enforcing collection. When the Indebtedness and the
granting of a Security Interest by the Debtor gives rise to a purchase-money
security interest (as defined by law) in and for the Collateral (or any part
thereof), the Debtor does, without limitation, grant to the Creditor a purchase-
money security interest in the Collateral in accordance with relevant law in
force in the Province of Alberta.
4. EXCLUSION: The Security Interest granted hereby shall not extend or apply
to and the Collateral shall not include any personal property held in trust by
the Debtor and lawfully belonging to others.
5. REPRESENTATIONS AND WARRANTIES OF DEBTOR: Debtor represents and warrants
and so long as this Security Agreement remains in force and effect shall be
deemed to continuously represent and warrant that:
(a) the Collateral is genuine and owned by the Debtor free of all security
interests, mortgages, liens, claims, taxes, assessments, charges or
other encumbrances (hereinafter collectively called "Encumbrances"),
except for the Security Interest and those Encumbrances shown on
Schedule "A" or hereafter approved in writing by the Creditor, prior
to their creation or assumption;
(b) the Collateral is located in the Provinces of Alberta and Saskatchewan
unless otherwise indicated on Schedule "A"; and
(c) there is no litigation, action, suit, claim, proceeding or dispute
threatened or pending against or affecting the Debtor or the
Collateral that will materially and adversely affect the Debtor's
financial condition or affairs or impair the Debtor's ability to
perform its obligations hereunder or to pay the Indebtedness.
6. COVENANTS OF DEBTOR: The Debtor covenants and agrees that at all times the
Debtor shall:
(a) pay all costs, charges and expenses, including without limitation
legal fees on a solicitor and its own client basis of the Creditor
incurred with respect to the preparation and execution of this
Security Agreement and the taking, recovering, possessing or disposing
of the Collateral or in any other proceedings taken for the purpose of
enforcing the remedies provided herein, or otherwise in relation to
the Collateral or by reason of non-payment of the Indebtedness hereby
secured and all such costs and expenses shall bear interest at the
highest rate borne by any of the Indebtedness and shall be payable on
demand and shall be secured hereby;
(b) defend the Collateral against the claims and demands of all other
parties claiming the same or an interest therein; keep the Collateral
free from all Encumbrances, except for the Security Interest and those
shown on Schedule "A" or hereafter approved in writing by the Creditor
prior to their creation or assumption, and not sell, exchange,
transfer, assign, lease, or otherwise dispose of the Collateral or any
interest therein without the prior written consent of the Creditor;
(c) notify the Creditor immediately of:
(i) any change in the information contained and provided herein or
in the Schedule hereto relating to the Debtor, the Debtor's
affairs or the Collateral;
(ii) the details of any claims or litigation affecting the Debtor
or the Collateral;
(iii) any loss or damage to the Collateral; and
(iv) the return to, or repossession by the Debtor of any of the
Collateral;
(d) keep the Collateral in good order, condition and repair and shall
comply with and not use the Collateral in violation of the provisions
of this Security Agreement or any other agreement relating to the
Collateral or any policy insuring the Collateral or any applicable
statute, law, by-law, rule, regulation or ordinance;
(e) do, execute, acknowledge and deliver such financing statements,
financing change statements and further assignments, transfers,
documents, acts, matters and things (including further schedules
hereto) as may be reasonably requested by the Creditor of or with
respect to the Collateral in order to give effect to this Security
Agreement and to pay all costs for searches and filings in connection
therewith;
(f) pay all obligations and other charges of every nature which may be
lawfully levied, assessed or imposed against or in respect of the
Debtor or the Collateral as and when they become due and payable;
(g) permit a representative of the Creditor at any time to inspect the
Collateral and shall permit entrance into any location where the
Collateral may be situated and the Debtor shall pay the Creditor's
expenses incurred in this regard;
(h) prevent the Collateral from being or becoming an Accession or fixture
to other property not covered by this Security Agreement;
(i) deliver to the Creditor from time to time promptly upon request:
(i) any Documents of Title, Instruments, Securities and Chattel
Paper constituting, representing or relating to the
Collateral;
(ii) all files, books and all records, reports, correspondence,
schedules, documents, statements, lists and other writings
relating to the Collateral or copies thereof for the purpose
of inspecting, auditing or copying the same;
(iii) all policies and certificates of insurance relating to the
Collateral; and
(iv) such other information concerning the Collateral, the Debtor
and the Debtor's affairs as the Creditor may reasonably
request;
(j) pay duly and punctually all the Indebtedness due to the Creditor and
perform all other obligations on its part to be performed under this
Security Agreement.
7. SECURITIES: The Debtor irrevocably authorizes and appoints the Creditor as
its attorney and agent to transfer the Collateral including without limitation
Securities or any part thereof into its own name or that of its nominee(s) so
that the Creditor or its nominee(s) may appear of record as the sole owner
thereof; provided that the Creditor shall, in respect of any Securities of which
it is the owner of record and until default, deliver promptly to the Debtor all
notices or other communications received by it or its nominee(s) as such
registered owner and, upon demand and receipt of payment of any necessary
expenses thereof, shall issue to the Debtor or its order a proxy to vote and
take all action with respect to such Securities. After default, the Debtor
waives all rights to receive any notices or communications received by the
Creditor or its nominee(s) as such registered owner and agrees that no proxy
issued by the Creditor to the Debtor or its order as aforesaid shall thereafter
be effective.
8. INCOME AND INTEREST:
(a) Until default, the Debtor may receive any Money constituting income
from or interest on the Collateral and if the Creditor receives any
such Money prior to default, the Creditor may either credit such Money
against the Indebtedness or pay same promptly to the Debtor; and
(b) After default, the Debtor will not request or receive any Money
constituting income from or interest on the Collateral and if the
Debtor receives any such Money, the Debtor shall receive such Money in
trust for and shall pay the Money promptly to the Creditor.
9. ADDITIONAL INCOME:
(a) Whether or not default has occurred, the Debtor authorizes the
Creditor:
(i) to receive any increase in or profits on the Collateral
(other than Money) and to hold the same as part of the
Collateral. Money so received shall be treated as income
for the purposes of Section 8 hereof and dealt with
accordingly; and
(ii) to receive any payment or distribution upon redemption or
retirement or upon dissolution and liquidation of the issuer
of the Collateral; to surrender such Collateral in exchange
therefor; and to hold any such payment or distribution as
part of the Collateral;
(b) If the Debtor receives any such increase or profits (other than Money)
or payments or distributions, the Debtor shall receive same in trust
for and shall deliver same promptly to the Creditor to be held by the
Creditor as herein provided.
10. APPLICATION OF MONEY: Subject to any applicable requirements of the
P.P.S.A., all Money collected or received by the Creditor pursuant to or in
exercise of any right it possesses with respect to the Collateral shall be
applied on account of Indebtedness in such manner as the Creditor deems best or,
at the option of the Creditor, may be released to the Debtor, all without
prejudice to the liability of the Debtor or the rights of the Creditor
hereunder, and any surplus shall be accounted for as required by law.
11. EVENTS OF DEFAULT: The occurrence of any of the following events or
conditions shall constitute default hereunder which is herein called a
"default":
(a) the nonpayment when due, whether by acceleration or otherwise, of any
principal or interest forming part of Indebtedness or the failure of
the Debtor to observe or perform any obligation, covenant, term,
provision or condition contained in this Security Agreement or any
other agreement between the Debtor and the Creditor or any breach of
warranty or misrepresentation made by the Debtor in this Security
Agreement;
(b) the bankruptcy or insolvency of the Debtor; the filing against the
Debtor of a petition in bankruptcy; the making of an authorized
assignment for the benefit of creditors by the Debtor; the appointment
of a receiver or trustee for the Debtor or for any assets of the
Debtor or the institution by or against the Debtor of any other type
of insolvency proceedings under the Bankruptcy and Insolvency Act as
amended or replaced or otherwise;
(c) if any Encumbrance affecting the Collateral becomes enforceable
against the Collateral;
(d) if the Debtor commits or threatens to commit an act of bankruptcy;
(e) if any judgment, execution, sequestration, extent or other process of
any court becomes enforceable against the Debtor or if a distress or
analogous process is levied upon the assets of the Debtor or any part
thereof; or
(f) if any statement, representation or warranty heretofore or hereafter
furnished by or on behalf of the Debtor pursuant to or in connection
with this Security Agreement, or otherwise (including, without
limitation, the representations and warranties contained herein) or as
an inducement to the Creditor to advance any funds to or to enter into
this or any other agreement with the Debtor, proves to have been false
in any material respect at the time as of which the facts therein set
forth were stated or certified, or proves to have omitted any
substantial, contingent or unliquidated liability or claim against the
Debtor; or if upon the date of execution of this Security Agreement,
there shall have been any material adverse change in any of the facts
disclosed by any such representation, statement or warranty, which
change shall not have been disclosed to the Creditor at or prior to
the time of such execution.
12. ACCELERATION: The Creditor, in its sole discretion, may declare all or any
part of Indebtedness which is not by its terms payable on demand to be
immediately due and payable, without demand or notice of any kind, in the event
of default, or, if the Creditor, in good faith, believes and has commercially
reasonable grounds to believe that the prospect of payment of the Indebtedness
or performance of this Security Agreement is or is about to be impaired or that
the Collateral is or is about to be placed in jeopardy. The provisions of this
Section are not intended in any way to affect any rights of the Creditor with
respect to any Indebtedness which may now or hereafter be payable on demand.
13. REMEDIES: In addition to those rights granted herein and in any other
agreement now or hereafter in effect between the Debtor and the Creditor and in
addition to any other rights the Creditor may have at law or in equity, the
Creditor shall have, both before and after default, all rights and remedies of a
secured party under the P.P.S.A. and the Debtor hereby grants to the Creditor
all remedies permitted to be granted to a secured party under the P.P.S.A.
including without limitation, the right to appoint a receiver or a receiver-
manager ("Receiver") and to prescribe his rights and duties and the right to
dispose of any or all of the Collateral by lease or deferred payment. The
Creditor or any Receiver appointed by it may take possession of the Collateral
wherever it may be located and by any method permitted by law and the Debtor
agrees upon request from the Creditor or any such Receiver to assemble and
deliver possession of the Collateral at such place or places as directed. The
Debtor agrees to pay all costs, charges and expenses reasonably incurred by the
Creditor or any Receiver appointed by it, whether directly or for services
rendered (including reasonable solicitors' (on a solicitor and its own client
basis) and auditors' costs and other legal expenses and Receiver remuneration),
in preparing or enforcing this Security Agreement, taking and maintaining
custody of, preserving, repairing, processing, preparing for disposition and
disposing of the Collateral and in enforcing or collecting Indebtedness and all
such costs, charges and expenses, together with any amounts owing as a result of
any borrowing by the Creditor or any Receiver appointed by it, as permitted
hereby, shall be a first charge on the Proceeds of realization, collection or
disposition of the Collateral and shall be secured hereby. The Creditor will
give the Debtor such notice, if any, of the date, time and place of any public
sale or of the date after which any private disposition of the Collateral is to
be made, as may be required by the P.P.S.A.
14. DEFICIENCY: Subject to the laws in force in the Province of Alberta, the
Debtor hereby covenants, promises and agrees to and with the Creditor that in
the event that the sum of money realized upon any disposition of the Collateral
shall not be sufficient to pay the whole of the Indebtedness of the Debtor to
the Creditor under or pursuant to this Security Agreement, the Debtor shall and
will forthwith pay or cause to be paid to the Creditor an amount equal to the
deficiency between the amount of the said Indebtedness and the sum of money
realized upon the disposition of the Collateral (the "Deficiency"). The Debtor
acknowledges and agrees that the Creditor may bring an action against the Debtor
for payment of the Deficiency. Notwithstanding any defects or irregularities of
the Creditor in enforcing its rights hereunder, the Creditor may bring an action
against the Debtor for the Indebtedness.
15. AUTHORIZATION: The Debtor hereby authorizes the Creditor to file such
financing statements, financing change statements and other documents and do
such acts, matters and things (including completing and adding schedules hereto
identifying the Collateral or any permitted Encumbrances affecting the
Collateral or identifying the locations at which the Collateral and records
relating thereto are situate) as the Creditor may deem appropriate to perfect on
an ongoing basis and continue the Security Interest, to protect and preserve the
Collateral and to realize upon the Security Interest and the Debtor hereby
irrevocably constitutes and appoints the Creditor the true and lawful attorney
and agent of the Debtor, with full power of substitution, to do any of the
foregoing in the name of the Debtor whenever and wherever it may be deemed
necessary or expedient.
16. SET OFF: Without limiting any other right of the Creditor, upon a default
or whenever Indebtedness is or is declared to be immediately due and payable,
the Creditor may, in its sole discretion, set off against Indebtedness any and
all amounts then owed to the Debtor by the Creditor in any capacity, whether or
not due, and the Creditor shall be deemed to have exercised such right to set
off immediately at the time of making its decision to do so even though any
charge therefor is made or entered on the Creditor's records subsequent thereto.
17. PERFORMANCE: Upon the Debtor's failure to perform any of its covenants,
duties and obligations hereunder, the Creditor may, but shall not be obligated
to, perform any or all of such covenants, duties and obligations, and the Debtor
shall pay to the Creditor, forthwith upon written demand therefor, an amount
equal to the expense incurred by the Creditor in so doing plus interest thereon
from the date such expense is incurred until it is paid at the highest rate
borne by any of the Indebtedness and such amounts shall form part of the
Indebtedness and constitute a charge upon the Collateral in favour of the
Creditor prior to all claims subsequent to this Security Agreement.
18. SUBORDINATION: Provided the Debtor is not in default hereunder, the
Creditor agrees, notwithstanding anything to the contrary contained in this
Agreement or any other agreement, document or instrument between the parties,
that it will agree to postpone and subordinate its Security Interest and all
obligations, debts and liabilities, present or future of the Debtor to the
Creditor in favour of Alberta Treasury Branches or any other lending institution
acting as the Debtor's principal banker from time to time.
19. EXTENSIONS: The Creditor may grant extensions of time and other
indulgences, take and give up security, accept compositions, compound,
compromise, settle, grant releases and discharges and otherwise deal with the
Debtor, debtors of the Debtor, sureties and others and with the Collateral and
other security as the Creditor may see fit without prejudice to the liability of
the Debtor or the Creditor's right to hold and realize the Security Interest.
Furthermore, the Creditor may demand, collect and ▇▇▇ on the Collateral in
either the Debtor's or the Creditor's name, at the Creditor's option, and may
endorse the Debtor's name on any and all cheques, commercial paper, and any
other Instruments pertaining to or constituting the Collateral.
20. WAIVER AND REMEDIES: No delay or omission by the Creditor in exercising
any right or remedy hereunder or with respect to any Indebtedness shall operate
as a waiver thereof or of any other right or remedy, and no single or partial
exercise thereof shall preclude any other or further exercise thereof or the
exercise of any other right or remedy. Furthermore, the Creditor may waive or
remedy any default by the Debtor hereunder or with respect to any Indebtedness
in any reasonable manner without waiving the default remedied or waived and
without waiving any other prior or subsequent default by the Debtor. All rights
and remedies of the Creditor granted or recognized herein are cumulative and may
be exercised at any time and from time to time independently or in combination.
21. PROTEST: The Debtor waives protest of any Instrument constituting the
Collateral at any time held by the Creditor on which the Debtor is in any way
liable and notice of any other action taken by the Creditor.
22. ASSIGNMENT: The Creditor may, without notice to the Debtor and without any
rights or equities in favour of the Debtor, at any time, mortgage, charge,
assign or grant a security interest in this Security Agreement and the Security
Interest constituted hereby. The Debtor agrees that any assignee, transferee or
secured party of the Creditor, as the case may be, shall have all of the
Creditor's rights and remedies under this Security Agreement. In any action
brought by an assignee of this Security Agreement and the Security Interest or
any part thereof to enforce any rights hereunder, the Debtor shall not assert
against the assignee any claim or defence which the Debtor now has or hereafter
may have against the Creditor.
23. ENUREMENT: This Security Agreement shall enure to the benefit of and be
binding upon the parties hereto and their respective administrators, successors,
assigns and permitted assigns in the case of the Debtor.
24. MODIFICATION: Except as hereinbefore provided and for any schedules which
may be added hereto pursuant to the provisions hereof, no modification,
variation or amendment of any provision of this Security Agreement shall be made
except by a written Agreement, executed by the parties hereto and no waiver of
any provision hereof shall be effective unless in writing.
25. NOTICE: Subject to the requirements of Section 25 hereof, whenever either
party hereto is required or entitled to notify or direct the other or to make a
demand or request upon the other, such notice, direction, demand or request
shall be in writing and shall be sufficiently given if sent by prepaid
registered mail addressed to the address serving as the Registered Office of the
party as provided by the records of the Alberta Department of Consumer and
Corporate Affairs (Corporate Registry).
26. CONTINUING SECURITY: This Security Agreement and the security afforded
hereby is in addition to and not in substitution for any other security now or
hereafter held by the Creditor and is intended to be a continuing Security
Agreement and shall remain in full force and effect until the Creditor shall
actually receive written notice of its discontinuance; and, notwithstanding such
notice, shall remain in full force and effect thereafter until all Indebtedness
contracted for or created before the receipt of such notice by the Creditor, and
any extensions or renewals thereof (whether made before or after receipt of such
notice) together with interest accruing thereon after such notice, shall be paid
and satisfied in full subject to Section 31 hereof.
27. HEADINGS: The headings used in this Security Agreement are for convenience
only and are not to be considered a part of this Security Agreement and do not
in any way limit or amplify the terms and provisions of this Security Agreement.
28. NUMBER AND GENDER: When the context so requires, the singular number
shall be read as if the plural were expressed and the provisions hereof shall be
read with all grammatical changes necessary dependent upon the person referred
to being a male, female, firm or corporation.
29. SEVERABILITY: In the event any provisions of this Security Agreement, as
amended from time to time, shall be deemed invalid or void, in whole or in part,
by any court of competent jurisdiction, the remaining terms and provisions of
this Security Agreement shall remain in full force and effect.
30. INDEMNITY: The Debtor shall indemnify and hold harmless the Creditor from
and against any and all claims, costs, losses, demands, actions, causes of
action, suits, damages, penalties, judgments and liabilities of whatsoever
nature and kind including without limitation costs and expenses on a solicitor
and his own client basis in connection with or arising out of any representation
or warranty given by the Debtor being untrue, the breach of any term, condition,
proviso, agreement or covenant by the Debtor to the Creditor, or the exercise of
any of the rights and remedies of the Creditor, or any transaction contemplated
by this Security Agreement.
31. ACKNOWLEDGEMENT: The Debtor acknowledges that value has been given and
that the Debtor has rights in the Collateral and the Security Interest created
hereby is intended to attach and be enforceable when this Security Agreement is
signed by the Debtor and delivered to the Creditor or in the case of after
acquired property when the Debtor acquires rights therein.
32. MERGER: This Security Agreement shall not operate so as to create any
merger or discharge of any of the Indebtedness, or any assignment, transfer,
guarantee, lien, contract, promissory note, ▇▇▇▇ of exchange or security in any
form held or which may hereafter be held by the Creditor from the Debtor or from
any other person whomsoever. The taking of a judgment with respect to any of
the Indebtedness will not operate as a merger of any of the terms, conditions,
covenants, agreements or provisos contained in this Security Agreement. The
release and discharge of the Security Interest constituted by this Security
Agreement by the Creditor shall not operate as a release or discharge of any
right of the Creditor to be indemnified or held harmless by the Debtor pursuant
to this Security Agreement or of any other right of the Creditor against the
Debtor arising under this Security Agreement prior to such release and discharge
nor shall it operate as a release of any unpaid Indebtedness.
33. LAW AND ATTORNMENT: This Security Agreement and the transactions evidenced
hereby shall be governed by and construed in accordance with the laws of the
Province of Alberta. For the purpose of legal proceedings, this Security
Agreement shall be deemed to have been made in the Province of Alberta and to be
performed there and the courts of the Province of Alberta shall have
jurisdiction over all disputes that may arise under this Security Agreement and
the Debtor hereby irrevocably and unconditionally submits and attorns to the
non-exclusive jurisdiction of such courts, provided that nothing herein
contained shall prevent the Creditor from proceeding at its election against the
Debtor in the courts of any other province, country or jurisdiction whatsoever.
34. SCHEDULE: Schedule "A" attached to this Security Agreement is incorporated
herein and shall form part hereof.
35. ENTIRE AGREEMENT: This Security Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and all prior
negotiations in respect thereof are superseded and there are no collateral
understandings or agreements with respect to the subject matter of this Security
Agreement and the rights of the parties hereunder except such other security
granted or issued by the Debtor in favour of the Creditor with respect hereto or
in conjunction herewith.
36. COPY OF AGREEMENT: The Debtor hereby acknowledges receipt of a copy of
this Security Agreement and the Debtor waives its right to receive a copy of any
financing statement or financing change statement registered by the Creditor or
any other statement in respect thereof filed at any time or from time to time by
or on behalf of the Creditor.
IN WITNESS WHEREOF the parties hereto have executed this Security Agreement
as of the day and year first above written.
EUROGAS, INC. BIG HORN RESOURCES LTD.
Per: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ Per: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇