Exhibit 10.7

 
SECURITY AGREEMENT
 
SECURITY AGREEMENT (as amended, restated, supplemented or otherwise modified
from time to time in accordance herewith and including all attachments, exhibits
and schedules hereto, the “Agreement”), dated as of September 30, 2005, made by
Quest Oil Corporation, a Nevada corporation (“Quest”), and its wholly owned
subsidiaries, Quest Canada Corp., a Canadian company (“Quest Canada”), Wallstin
Petroleum, LLC, a Texas limited liability company (“Wallstin”), and Petrostar
Oil Services, Inc. , a Texas corporation (“Petrostar” and, together with Quest,
Quest Canada and Wallstin, the “Grantor”), in favor of the secured parties
listed on Exhibit A to this Agreement and their permitted successors and assigns
(collectively, the “Secured Parties”).
 
WHEREAS, Quest has issued or will issue separate senior secured convertible
promissory notes to the Secured Parties (the“Notes”) pursuant to a Note and
Warrant Purchase Agreement, dated as of September 30, 2005 (the “Purchase
Agreement”), by and among Quest and the Secured Parties; and
 
WHEREAS, the Secured Parties and the Grantor agree that the Grantor execute and
deliver to the Secured Parties a security agreement providing for the grant to
the Secured Parties of a continuing security interest in all personal property
and assets of the Grantor, all in substantially the form hereof to secure all
Obligations (hereinafter defined).
 
NOW, THEREFORE, the parties agree as follows:
 
ARTICLE I.   Definitions
 
Section 1.1.  Definition of Terms Used Herein. All capitalized terms used herein
and not defined herein have the respective meanings provided therefor in the
Purchase Agreement or the Notes, as applicable. All terms defined in the Uniform
Commercial Code (hereinafter defined) as in effect from time to time and used
herein and not otherwise defined herein (whether or not such terms are
capitalized) have the same definitions herein as specified therein.
 
Section 1.2.  Definition of Certain Terms Used Herein. As used herein, the
following terms have the following meanings:
 
"Collateral" means all accounts receivable of the Grantor and all personal and
fixed property of every kind and nature, including, without limitation, all
furniture, fixtures, equipment, raw materials, inventory, as extracted
collateral, or other goods, accounts, contract rights, rights to the payment of
money, insurance refund claims and all other insurance claims and proceeds, tort
claims, chattel paper, documents, instruments, securities and other investment
property, deposit accounts, rights to proceeds of letters of credit and all
general intangibles including, without limitation, all tax refund claims,
license fees, patents, patent licenses, patent applications, trademarks,
trademark licenses, trademark applications, trade names, copyrights, copyright
licenses, copyright applications, rights to sue and recover for past
infringement of patents, trademarks and copyrights, computer programs, computer
software, engineering drawings, service marks, customer lists, goodwill, and all
licenses, permits, agreements of any kind or nature pursuant to which the
Grantor possesses, uses or has authority to possess or use property (whether
tangible or intangible) of others or others possess, use or have authority to
possess or use property (whether tangible or intangible) of the Grantor, and all
recorded data of any kind or nature, regardless of the medium of recording
including, without limitation, all books and records, software, writings, plans,
specifications and schematics, whether now owned or hereinafter acquired by the
Grantor; and all proceeds and products of each of the foregoing.
 
“Default” means any event or circumstance which, with the giving of notice, the
lapse of time, or both, would (if not cured, waived, or otherwise remedied
during such time) constitute an Event of Default.
 
“Event of Default” has the meaning specified in the Notes. 
 
“Indemnitees” has the meaning specified in Section 7.5(b).
 
“Lien” means: (i) any interest in property securing an obligation owed to, or a
claim by, a Person other than the owner of the property, whether such interest
is based on the common law, statute, or contract, and including a security
interest, charge, claim, or lien arising from a mortgage, deed of trust,
encumbrance, pledge, hypothecation, assignment, deposit arrangement, agreement,
security agreement, conditional sale or trust receipt or a lease, consignment or
bailment for security purposes; (ii) to the extent not included under
clause (i), any reservation, exception, encroachment, easement, right-of-way,
covenant, condition, restriction, lease or other title exception or encumbrance
affecting property; and (iii) any contingent or other agreement to provide any
of the foregoing.
 
"Notes" has the meaning assigned to such term in the first recital of this
Agreement.
 
"Obligations" means all indebtedness, liabilities, obligations, covenants and
duties of the Grantor to the Secured Parties of every kind, nature and
description, direct or indirect, absolute or contingent, due or not due,
contractual or tortious, liquidated or unliquidated, arising by operation of law
or otherwise, now existing of hereafter arising under or in connection with the
Notes, this Agreement or the other Transaction Documents.
 
“Registered Organization”means an entity formed by filing a registration
document with a United States Governmental Authority, such as a corporation,
limited partnership or limited liability company.
 
"Security Interest" has the meaning specified in Section 2.1 of this Agreement.
 
“Uniform Commercial Code” means the Uniform Commercial Code from time to time in
effect in the State of New York.
 
 
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ARTICLE II.   Security Interest
 
Section 2.1.  Security Interest. As security for the payment and performance, in
full of the Obligations, and any extensions, renewals, modifications or
refinancings of the Obligations, the Grantor hereby bargains, sells, conveys,
assigns, sets over, mortgages, pledges, hypothecates and transfers to the
Secured Parties, and hereby grants to the Secured Parties, their successors and
assigns, a security interest in, all of such Grantor's right, title and interest
in, to and under the Collateral and all hereinafter acquired Collateral (the
"Security Interest").
 
Section 2.2.  No Assumption of Liability. The Security Interest is granted as
security only and shall not subject the Secured Parties to, or in any way alter
or modify, any obligation or liability of the Grantor with respect to or arising
out of the Collateral.
 
ARTICLE III.   Representations and Warranties
 
The Grantor represents and warrants to the Secured Parties that:
 
Section 3.1.  Title and Authority. The Grantor has good and valid rights in and
title to the Collateral with respect to which it has purported to grant a
security interest hereunder and has full power and authority to grant to the
Secured Parties the Security Interest and to execute, deliver and perform its
obligations in accordance with the terms of this Agreement, without the consent
or approval of any other Person other than any consent or approval which has
been obtained.
 
Section 3.2.  Filings; Actions to Achieve Perfection. Fully executed Uniform
Commercial Code financing statements (including fixture filings, as applicable)
or other appropriate filings, recordings or registrations containing a
description of the Collateral have been delivered to the Secured Parties for
filing in each United States governmental, municipal or other office specified
in Schedule A, which are all the filings, recordings and registrations that are
necessary to publish notice of and protect the validity of and to establish a
legal, valid and first priority perfected security interest in favor of the
Secured Parties in respect of all Collateral in which the Security Interest may
be perfected by filing, recording or registration in the United States (or any
political subdivision thereof) and its territories and possessions, and no
further or subsequent filing, refiling, recording, rerecording, registration or
reregistration is necessary in any such jurisdiction, except as provided under
applicable law with respect to the filing of continuation statements or with
respect to the filing of amendments or new filings to reflect the change of the
Grantor's name, location, identity or corporate structure. The Grantor’s name is
listed in the preamble of this Agreement identically to how it appears on its
articles of incorporation or other organizational documents.
 
Section 3.3.  Validity and Priority of Security Interest. The Security Interest
constitutes (a) a legal and valid first priority security interest in all the
Collateral securing the payment and performance of the Obligations, (b) subject
only to the filings described in Section 3.2 above and other previously
perfected security interests in the Collateral listed on Schedule 3.3 to this
Agreement (“Existing Liens”), a perfected first priority security interest in
all Collateral in which a security interest may be perfected by filing,
recording or registration in the United States pursuant to the Uniform
Commercial Code or other applicable law in the United States (or any political
subdivision thereof) and its territories and possessions or any other country,
state or nation (or any political subdivision thereof). The Security Interest is
and shall be subordinate to any other Existing Lien on any of the Collateral.
 
Section 3.4.  Absence of Other Liens. The Grantor's Collateral is owned by the
Grantor free and clear of any Lien other than Existing Liens. Without limiting
the foregoing and except as set forth on Schedule 3.4 to this Agreement, the
Grantor has not filed or consented to any filing of any financing statement or
similar filing in favor of any Person other than the Secured Parties, nor
permitted the granting or assignment of a security interest or permitted
perfection of any security interest in the Collateral in favor of any Person
other than the Secured Parties. The Grantor’s having possession of all
instruments, certificates and cash constituting Collateral from time to time and
the filing of financing statements in the offices referred to in Schedule A
hereto results in the perfection of such security interest. Such Security
Interest is, or in the case of Collateral in which the Grantor obtain rights
after the date hereof, will be, a perfected, first priority security interest.
Such notices, filings and all other action necessary or desirable to perfect and
protect such security interest have been duly taken.
 
Section 3.5.  Valid and Binding Obligation. This Agreement constitutes the
legal, valid and binding obligation of the Grantor, enforceable against the
Grantor in accordance with its terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, and (iii) to the extent the indemnification
provisions contained in this Agreement may be limited by applicable federal or
state securities laws.
 
 
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ARTICLE IV.   Covenants
 
Section 4.1.  Change of Name; Location of Collateral; Place of Business, State
of Formation or Organization.
 
  The Grantor shall notify the Secured Parties in writing at least eleven (11)
days prior to any change (i) in its corporate name or in any trade name used to
identify it in the conduct of its business or in the ownership of its
properties, (ii) in the location of its chief executive office, its principal
place of business, any office in which it maintains books or records relating to
Collateral owned by it (including the establishment of any such new office or
facility), (iii) in its identity or corporate structure such that a filed filing
made under the Uniform Commercial Code becomes misleading or (iv) in its Federal
Taxpayer Identification Number. Furthermore, the Grantor shall not effect or
permit any change referred to in the preceding sentence unless all filings have
been made under the Uniform Commercial Code or otherwise that are required in
order for the Secured Parties to continue at all times following such change to
have a valid, legal and perfected first priority security interest in all the
Collateral.
 
  Without limiting Section 4.1(a), without the prior written consent of the
Secured Parties in each instance, the Grantor shall not change its (i) principal
residence, if it is an individual, (ii) place of business, if it has only one
place of business and is not a Registered Organization, (iii) principal place of
business, if it has more than one place of business and is not a Registered
Organization, or (iv) state of incorporation, formation or organization, if it
is a Registered Organization.
 
Section 4.2.  Records. The Grantor shall maintain, at its own cost and expense,
such complete and accurate records with respect to the Collateral owned by it as
is consistent with its current practices and in accordance with such prudent and
standard practices used in industries that are the same as or similar to those
in which the Grantor is engaged, but in any event to include complete accounting
records indicating all payments and proceeds received with respect to any part
of the Collateral, and, at such time or times as the Secured Parties may
reasonably request, promptly to prepare and deliver to the Secured Parties a
duly certified schedule or schedules in form and detail satisfactory to the
Secured Parties showing the identity, amount and location of any and all
Collateral.
 
Section 4.3.  Periodic Certification; Notice of Changes.In the event there
should at any time be any change in the information represented and warranted
herein or in the documents and instruments executed and delivered in connection
herewith, the Grantor shall immediately notify the Secured Parties in writing of
such change (this notice requirement shall be in extension of and shall not
limit or relieve the Grantor of any other covenants hereunder).
 
Section 4.4.  Protection of Security.The Grantor shall, at its own cost and
expense, take any and all actions necessary to defend title to the Collateral
against all persons and to defend the Security Interest of the Secured Parties
in the Collateral and the priority thereof against any Lien.
 
Section 4.5.  Inspection and Verification. The Secured Parties and such persons
as the Secured Parties may reasonably designate shall have the right to inspect
the Collateral, all records related thereto (and to make extracts and copies
from such records) and the premises upon which any of the Collateral is located,
to discuss the Grantor's affairs with the officers of the Grantor and its
independent accountants and to verify under reasonable procedures the validity,
amount, quality, quantity, value, condition and status of, or any other matter
relating to, the Collateral, including, in the case of collateral in the
possession of any third Person, by contacting any account debtor or third Person
possessing such Collateral for the purpose of making such a verification.
Out-of-pocket expenses in connection with any inspections by representatives of
the Secured Parties shall be (a) the obligations of the Grantor with respect to
any inspection after the Secured Parties’ demand payment of the Notes or (b) the
obligation of the Secured Parties in any other case.
 
Section 4.6.  Taxes; Encumbrances. At their option, the Secured Parties may
discharge, Liens other than Existing Liens at any time levied or placed on the
Collateral and may pay for the maintenance and preservation of the Collateral to
the extent the Grantor fails to do so and the Grantor shall reimburse the
Secured Parties on demand for any payment made or any expense incurred by the
Secured Parties pursuant to the foregoing authorization; provided, however, that
nothing in this Section shall be interpreted as excusing the Grantor from the
performance of, or imposing any obligation on the Secured Parties to cure or
perform, any covenants or other obligation of the Grantor with respect to any
Lien or maintenance or preservation of Collateral as set forth herein.
 
Section 4.7.  Use and Disposition of Collateral. The Grantor shall not make or
permit to be made an assignment, pledge or hypothecation of any Collateral or
shall grant any other Lien in respect of the Collateral without the prior
written consent of the Secured Parties. The Grantor shall not make or permit to
be made any transfer of any Collateral other than with respect to Existing Liens
and other liens approved by the Secured Parties and the Grantor shall remain at
all times in possession of the Collateral owned by it.
 
Section 4.8.  Insurance/Notice of Loss. Within a reasonable period of time
following the date of this Agreement, Grantor, at its own expense, shall
maintain or cause to be maintained insurance covering physical loss or damage to
the Collateral as described on Schedule 4.8 to this Agreement. In extension of
the foregoing and without limitation, such insurance shall be payable to the
Secured Parties as loss payee under a “standard” loss payee clause, and the
Secured Parties shall be listed as an “additional insured” on Grantor’s general
liability insurance. Such insurance shall not be terminated, cancelled or not
renewed for any reason, including non-payment of insurance premiums, unless the
insurer shall have provided the Secured Parties at least 30 days prior written
notice. Grantor irrevocably makes, constitutes and appoints the Secured Parties
(and all officers, employees or agents designated by the Secured Parties) as its
true and lawful agent and attorney-in-fact for the purpose, at any time
following the Secured Parties’ demand for payment of the Notes, of making,
settling and adjusting claims in respect of Collateral under policies of
insurance, endorsing the name of Grantor on any check, draft, instrument or
other item of payment for the proceeds of such policies of insurance and for
making all determinations and decisions with respect thereto. In the event that
Grantor at any time or times shall fail to obtain or maintain any of the
policies of insurance required hereby or to pay any premium in whole or part
relating thereto, the Secured Parties may, without waiving or releasing any
obligation or liability of Grantor hereunder, in their sole discretion, obtain
and maintain such policies of insurance and pay such premium and take any other
actions with respect thereto as the Secured Parties deem advisable. All sums
disbursed by the Secured Parties in connection and in accordance with this
Section, including reasonable attorneys' fees, court costs, expenses and other
charges relating thereto, shall be payable upon demand, by Grantor to the
Secured Parties and shall be additional Obligations secured hereby. Grantor
shall promptly notify the Secured Parties if any material portion of the
Collateral owned or held by Grantor is damaged or destroyed. The proceeds of any
casualty insurance in respect of any casualty loss of any of the Collateral
shall (i) so long as the Secured Parties have not demanded payment of the Notes,
be disbursed to Grantor for direct application by Grantor solely to the repair
or replacement of Grantor’s property so damaged or destroyed, and (ii) in all
other circumstances, be held by the Secured Parties as cash collateral for the
Obligations. The Secured Parties may, at their sole option, disburse from time
to time all or any part of such proceeds so held as cash collateral, upon such
terms and conditions as the Secured Parties may reasonably prescribe, for direct
application by the Secured Parties solely to the repair or replacement of
Grantor’s property so damaged or destroyed, or Grantor may apply all or any part
of such proceeds to the Obligations.
 
Section 4.9.  Legend. Grantor shall legend, in form and manner satisfactory to
the Secured Parties, its accounts and its books, records and documents
evidencing or pertaining thereto with an appropriate reference to the fact that
such accounts have been assigned to the Secured Parties and that the Secured
Parties have a security interest therein.
 
 
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ARTICLE V.   Further Assurances; Power of Attorney
 
Section 5.1.  Further Assurances. Grantor shall, at its own expense, execute,
acknowledge, deliver and cause to be duly filed all such further instruments and
documents and take all such actions as the Secured Parties may from time to time
reasonably request to better assure, preserve, protect and perfect the Security
Interest and the rights and remedies created hereby, including the payment of
any fees and taxes required in connection with the execution and delivery of
this Agreement, the granting of the Security Interest and the filing of any
financing statements (including fixture filings) or other documents in
connection herewith or therewith. If any amount payable under or in connection
with any of the Collateral shall be or become evidenced by any promissory note
or other instrument, such note or instrument shall be immediately pledged and
delivered to the Secured Parties, duly endorsed in a manner satisfactory to the
Secured Parties.
 
Section 5.2.  Power of Attorney.
 
  Grantor hereby irrevocably (as a power coupled with an interest) constitutes
and appoints the Secured Parties (and all officers, employees or agents
designated by the Secured Parties), its attorney-in-fact with full power of
substitution, for the benefit of the Secured Parties,
 
(i)   to take all appropriate action and to execute all documents and
instruments that may be necessary or desirable to accomplish the purposes of
this Agreement, and without limiting the generality of the foregoing, Grantor
hereby grants the power to file one or more financing statements (including
fixture filings), continuation statements, filings with the United States Patent
and Trademark Office or United States Copyright Office (or any successor office
or any similar office in any other country) or other documents for the purpose
of perfecting, confirming, continuing, enforcing or protecting the Security
Interest granted by Grantor, without the signature of Grantor, and naming
Grantor as debtor and the Secured Parties as secured party; and
 
(ii)   at any time following the Secured Parties’ demand for payment of the
Notes (i) to receive, endorse, assign and/or deliver any and all notes,
acceptances, checks, drafts, money orders or other evidences of payment relating
to the Collateral or any part thereof; (ii) to demand, collect, receive payment
of, give receipt for and give discharges and releases of all or any of the
Collateral; (iii) to sign the name of Grantor on any invoice or bill of lading
relating to any of the Collateral; (iv) to send verifications of accounts to any
account debtor or any other Person liable for an account; (v) to commence and
prosecute any and all suits, actions or proceedings at law or in equity in any
court of competent jurisdiction to collect or otherwise realize on all or any of
the Collateral or to enforce any rights in respect of any Collateral; (vi) to
settle, compromise, compound, adjust or defend any actions, suits or proceeding
relating to all or any of the Collateral; and (vii) to use, sell, assign,
transfer, pledge, make any agreement with respect to or otherwise deal with all
or any of the Collateral, and to do all other acts and things necessary to carry
out the purposes of this Agree-ment, as fully and completely as though the
Secured Parties were the absolute owner of the Collateral for all purposes;
provided, however, that nothing herein contained shall be construed as requiring
or obligating the Secured Parties to make any commitment or to make any inquiry
as to the nature or sufficiency of any payment received by the Secured Parties,
or to present or file any claim or notice, or to take any action with respect to
the Collateral or any part thereof or the moneys due or to become due in respect
thereof or any property covered thereby, and no action taken or omitted to be
taken by the Secured Parties with respect to the Collateral or any part thereof
shall give rise to any defense, counterclaim or offset in favor of Grantor or to
any claim or action against the Secured Parties.
 
  The provisions of this Article shall in no event relieve Grantor of any of its
obligations hereunder with respect to the Collateral or any part thereof or
impose any obligation on the Secured Parties to proceed in any particular manner
with respect to the Collateral or any part thereof, or in any way limit the
exercise by the Secured Parties of any other or further right which it may have
on the date of this Agreement or hereafter, whether hereunder, by law or
otherwise.
 
 
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ARTICLE VI.   Remedies
 
Section 6.1.  Remedies upon Default.
 
  Upon the occurrence and during the continuance of an Event of Default, Grantor
agrees to deliver each item of its Collateral to the Secured Parties on demand,
and it is agreed that the Secured Parties shall have the right to take any of or
all the following actions at the same or different times (but at all times
subject to any Existing Liens): with or without legal process and with or
without prior notice or demand for performance, to take possession of the
Collateral and without liability for trespass to enter any premises where the
Collateral may be located for the purpose of taking possession of or removing
the Collateral, exercise Grantor's right to bill and receive payment for
completed work and, generally, to exercise any and all rights afforded to a
secured party under the Uniform Commercial Code or other applicable law. Without
limiting the generality of the foregoing, Grantor agrees that the Secured
Parties shall have the right, subject to the mandatory requirements of
applicable law, to sell or otherwise dispose of all or any part of the
Collateral, at public or private sale or at any broker's board or on any
securities exchange, for cash, upon credit or for future delivery as the Secured
Parties shall deem appropriate. The Secured Parties shall be authorized at any
such sale (if it deems it advisable to do so) to restrict the prospective
bidders or purchasers to persons who will represent and agree that they are
purchasing the Collateral for their own account for investment and not with a
view to the distribution or sale thereof, and upon consum-mation of any such
sale the Secured Parties shall have the right to assign, transfer and deliver to
the purchaser or purchasers thereof the Collateral so sold. Each such purchaser
at any such sale shall hold the property sold absolutely, free from any claim or
right on the part of Grantor, and Grantor hereby waives (to the extent permitted
by law) all rights of redemption, stay and appraisal which Grantor now has or
may at any time in the future have under any rule of law or statute now existing
or hereafter enacted.
 
  The Secured Parties shall give Grantor ten (10) days' written notice (which
Grantor agrees is reasonable notice within the meaning of Section 9-504(3) of
the Uniform Commercial Code) of the Secured Parties’ intention to make any sale
of Collateral. Such notice, in the case of a public sale, shall state the time
and place for such sale and, in the case of a sale at a broker's board or on a
securities exchange, shall state the board or exchange at which such sale is to
be made and the day on which the Collateral, or portion thereof, will first be
offered for sale at such board or exchange. Any such public sale shall be held
at such time or times within ordinary business hours and at such place or places
as the Secured Parties may fix and state in the notice (if any) of such sale. At
any such sale, the Collateral, or portion thereof, to be sold may be sold in one
lot as an entirety or in separate parcels, as the Secured Parties may (in their
sole and absolute discretion) determine. The Secured Parties shall not be
obligated to make any sale of any Collateral if it shall determine not to do so,
regardless of the fact that notice of sale of such Collateral shall have been
given. The Secured Parties may, without notice or publication, adjourn any
public or private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for sale, and such sale may, without
further notice, be made at the time and place to which the same was so
adjourned. In case any sale of all or any part of the Collateral is made on
credit or for future delivery, the Collateral so sold may be retained by the
Secured Parties until the sale price is paid by the purchaser or purchasers
thereof, but the Secured Parties shall not incur any liability in case any such
purchaser or purchasers shall fail to take up and pay for the Collateral so sold
and, in case of any such failure, such Collateral may be sold again upon like
notice. At any public (or, to the extent permitted by law, private) sale made
pursuant to this Section, the Secured Parties may bid for or purchase, free (to
the extent permitted by law) from any right of redemption, stay, valuation or
appraisal on the part of Grantor (all said rights being also hereby waived and
released to the extent permitted by law), the Collateral or any part thereof
offered for sale and may make payment on account thereof by using any claim then
due and payable to the Secured Parties from Grantor as a credit against the
purchase price, and the Secured Parties may, upon compliance with the terms of
sale, hold, retain and dispose of such property without further accountability
to Grantor therefor. For purposes hereof, a written agreement to purchase the
Collateral or any portion thereof shall be treated as a sale thereof; the
Secured Parties shall be free to carry out such sale pursuant to such agreement
and Grantor shall not be entitled to the return of the Collateral or any portion
thereof subject thereto, notwithstanding the fact that after the Secured Parties
shall have entered into such an agreement all Obligations have been paid in
full. As an alternative to exercising the power of sale herein conferred upon
it, the Secured Parties may proceed by a suit or suits at law or in equity to
foreclose this Agreement and to sell the Collateral or any portion thereof
pursuant to a judgment or decree of a court or courts having competent
jurisdiction or pursuant to a proceeding by a court-appointed receiver.
 
Section 6.2.  Application of Proceeds. The Secured Parties shall apply the
proceeds of any collection or sale of the Collateral, as well as any Collateral
consisting of cash, as follows:
 
  FIRST, to the payment of all costs and expenses incurred by the Secured
Parties in connection with such collection or sale or otherwise in connection
with this Agreement or any of the Obligations, including all court costs and the
fees and expenses of its agents and legal counsel, and any other costs or
expenses incurred in connection with the exercise of any right or remedy
hereunder, under the Purchase Agreement, the Notes and the other Transaction
Documents;
 
  SECOND, to the payment in full of the Obligations; and
 
  THIRD, to Grantor, its successors or assigns, or to whomsoever may be lawfully
entitled to receive the same, or as a court of competent jurisdiction may
otherwise direct.
 
Subject to the foregoing, the Secured Parties shall have absolute discretion as
to the time of application of such proceeds, moneys or balances in accordance
with this Agreement. Upon any sale of the Collateral by the Secured Parties
(including pursuant to a power of sale granted by statute or under a judicial
proceeding), the receipt of any such proceeds, moneys or balances by the Secured
Parties or of the officer making the sale shall be a sufficient discharge to the
purchaser or purchasers of the Collateral so sold and such purchaser or
purchasers shall not be obligated to see to the application of any part of the
purchase money paid over to the Secured Parties or such officer or be answerable
in any way for the misapplication thereof.
 
Section 6.3.  Grant of License to Use Intellectual Property. For the purpose of
enabling the Secured Parties to exercise rights and remedies under this Article
at such time as the Secured Parties shall be lawfully entitled to exercise such
rights and remedies, Grantor hereby grants to the Secured Parties an
irrevocable, non-exclusive license (exercisable without payment of royalty or
other compensation to Grantor) to use, license or sub-license any of the
Collateral consisting of intellectual property now owned or hereafter acquired
by Grantor, and wherever the same may be located, and including in such license
reasonable access to all media in which any of the licensed items may be
recorded or stored and to all computer software and programs used for the
compilation or printout thereof. The use of such license by the Secured Parties
may be exercised, at the option of the Secured Parties, only following the
Secured Parties’ demand for payment of the Notes.
 
 
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ARTICLE VII.   Miscellaneous
 
Section 7.1.  Notices. All communications and notices hereunder to the Grantor
and to the Secured Parties shall (except as otherwise expressly permitted
herein) be in writing and delivered to the Grantor or the Secured Parties, as
the case may be, as provided in the Purchase Agreement.
 
Section 7.2.  Security Interest Absolute. All rights of the Secured Parties
hereunder, the Security Interest and all obligations of Grantor hereunder shall
be absolute and unconditional irrespective of (a) any lack of validity or
enforceability of the Purchase Agreement, the Notes, any Transaction Document or
any agreement with respect to any of the Obligations or any other agreement or
instrument relating to any of the foregoing, (b) any change in the time, manner
or place of payment of, or in any other term of, all or any of the Obligations,
or any other amendment or waiver of or any consent to any departure from the
Purchase Agreement, the Notes, any Transaction Document or any other agreement
or instrument, (c) any exchange, release or non-perfection of any Lien on other
collateral, or any release or amendment or waiver of or consent under or
departure from any guarantee, securing or guaranteeing all or any of the
Obligations, or (d) any other circumstance that might otherwise constitute a
defense available to, or a discharge of, Grantor in respect of the Obligations
or this Agreement.
 
Section 7.3.  Survival of Agreement. All covenants, agreements, representations
and warranties made by Grantor herein and in the certificates or other
instruments prepared or delivered in connection with or pursuant to this
Agreement shall be considered to have been relied upon by the Secured Parties
and shall survive the making of the loan and the execution and delivery to the
Secured Parties of the Notes, regardless of any investigation made by the
Secured Parties or on their behalf; and shall continue in full force and effect
until this Agreement shall terminate.
 
Section 7.4.  Binding Effect; Several Agreement; Successors and Assigns. This
Agreement shall become effective as to Grantor when a counterpart hereof
executed on behalf of Grantor shall have been delivered to the Secured Parties
and a counterpart hereof shall have been executed on behalf of the Secured
Parties, and thereafter shall be binding upon Grantor and the Secured Parties
and their respective successors and assigns, and shall inure to the benefit of
Grantor, the Secured Parties and their respective successors and assigns, except
that Grantor shall not have the right to assign or transfer its rights or
obligations hereunder or any interest herein or in the Collateral (and any such
assignment or transfer shall be void) except as expressly contemplated by this
Agreement, the Purchase Agreement, the Notes or the other Transaction Documents.

Section 7.5.  Secured Parties’ Fees and Expense; Indemnification.
 
  Grantor agrees to pay upon demand to the Secured Parties the amount of any and
all reasonable expenses, including all reasonable fees, disbursements and other
charges of its counsel and of any experts or agents, which the Secured Parties
may incur in connection with (i) the administration of this Agreement (including
the customary fees and charges of the Secured Parties for any audits conducted
by them or on their behalf with respect to the accounts inventory), (ii) the
custody or preservation of, or the sale of, collection from or other realization
upon any of the Collateral, (iii) the exercise, enforcement or protection of any
of the rights of the Secured Parties hereunder or (iv) the failure of Grantor to
perform or observe any of the provisions hereof.
 
  Grantor agrees to indemnify the Secured Parties and the agent, contractors and
employees of the Secured Parties (collectively, the “Indemnitees”) against, and
hold each of them harmless from, any and all losses, claims, damages,
liabilities and related expenses, including reasonable fees, disbursements and
other charges of counsel, incurred by or asserted against any of them arising
out of, in any way connected with, or as a result of, the execution, delivery,
or performance of this Agreement or any agreement or instrument contemplated
hereby or any claim, litigation, investigation or proceeding relating hereto or
to the Collateral, whether or not any Indemnitee is a party thereto; provided
that such indemnity shall not, as to any Indemnitee, be available to the extent
that such losses, claims, damages, liabilities or related expenses are
determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or willful misconduct of
such Indemnitee.
 
  Any such amounts payable as provided hereunder shall be additional Obligations
secured hereby. The provisions of this Section shall remain operative and in
full force and effect regardless of the termination of this Agreement, the
Purchase Agreement, the Notes or the other Transaction Documents, the
consummation of the transactions contemplated hereby, the repayment of any of
the Obligations, the invalidity or unenforceability of any term or provision of
this Agreement, the Purchase Agreement, the Notes or the other Transaction
Documents, or any investigation made by or on behalf of the Secured Parties. All
amounts due under this Section shall be payable on written demand therefor.
 
Section 7.6.  GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO ANY OF THE CONFLICTS OF LAW PRINCIPLES WHICH WOULD RESULT IN THE
APPLICATION OF THE SUBSTANTIVE LAW OF ANOTHER JURISDICTION. THIS AGREEMENT SHALL
NOT BE INTERPRETED OR CONSTRUED WITH ANY PRESUMPTION AGAINST THE PARTY CAUSING
THIS AGREEMENT TO BE DRAFTED.
 
Section 7.7.  Waivers; Amendment.
 
  No failure or delay of the Secured Parties in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. The rights and remedies of
the Secured Parties hereunder and under the Purchase Agreement are cumulative
and are not exclusive of any rights or remedies that they would otherwise have.
No waiver of any provisions of this Agreement, the Purchase Agreement, the Notes
or the other Transaction Documents or consent to any departure by Grantor
therefrom shall in any event be effective unless the same shall be permitted by
paragraph (b) below, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No notice to or
demand on Grantor in any case shall entitle Grantor to any other or further
notice or demand in similar or other circumstances.
 
  Neither this Agreement nor any provision hereof may be waived, amended or
modified except pursuant to an agreement or agreements, in writing entered into
by the Secured Parties and Grantor.
 
Section 7.8.  WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT, THE PURCHASE AGREEMENT OR THE NOTES. EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT, THE PURCHASE AGREEMENT AND THE NOTES, AS APPLICABLE, BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
 
Section 7.9.  Severability. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired thereby
(it being understood that the invalidity of a particular provision in a
particular jurisdiction shall not in and of itself affect the validity of such
provision in any other jurisdiction). The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
 
Section 7.10.  Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute but one contract. Each party shall be entitled
to rely on a facsimile signature of any other party hereunder as if it were an
original.
 
Section 7.11.  Jurisdiction; Consent to Service of Process.
 
  Grantor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement, the Purchase Agreement or the Notes, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such New York State or,
to the extent permitted by law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Agreement shall affect any
right that the Secured Parties may otherwise have to bring any action or
proceeding relating to this Agreement, the Purchase Agreement, the Notes or the
other Transaction Documents against Grantor or its properties in the courts of
any jurisdiction.
 
  Grantor hereby irrevocably and unconditionally waives, to the fullest extent
it may legally and effectively do so, any objection which it may now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Agreement, the Purchase Agreement, the Notes or the
other Transaction Documents in any New York State or Federal court. Each of the
parties hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
 
  Each party to this Agreement irrevocably consents to service of process in the
manner provided for notices in Section 7.1. Nothing in this Agreement will
affect the right of any party to this Agreement to process in any other manner
permitted by law.
 
Section 7.12.  Termination. This Agreement and the Security Interest shall
terminate when all the Obligations have been paid in full, at which time the
Secured Parties shall execute and deliver to Grantor, at Grantor’s expense, all
Uniform Commercial Code termination statements and similar documents which
Grantor shall reasonably request to evidence such termination. Any execution and
delivery of termination statements or documents pursuant to this Section shall
be without recourse to or warranty by the Secured Parties.
 
Section 7.13.  Prejudgment Remedy Waiver. Grantor acknowledges that this
Agreement, the Purchase Agreement, the Notes and the other Transaction Documents
evidence a commercial transaction and that it could, under certain circumstances
have the right, to notice of and hearing on the right of the Secured Parties to
obtain a prejudgment remedy, such as attachment, garnishment and/or replevin,
upon commencing any litigation against Grantor. Notwithstanding, Grantor hereby
waives all rights to notice, judicial hearing or prior court order to which it
might otherwise have the right under any state or federal statute or
constitution in connection with the obtaining by the Secured Parties of any
prejudgment remedy by reason of this Agreement, the Purchase Agreement, the
Notes, the other Transaction Documents or by reason of the Obligations or any
renewals or extensions of the same. Grantor also waives any and all objection
which it might otherwise assert, now or in the future, to the exercise or use by
the Secured Parties of any right of setoff, repossession or self help as may
presently exist under statute or common law.
 
 
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Section 7.14. Collateral Agent.
 
(a)  Each Secured Party hereby appoints [________________] as the Collateral
Agent hereunder and each Secured Party authorizes the Collateral Agent to take
such action as agent on its behalf and to exercise such powers under this
Agreement and the other Transaction Documents as are delegated to the Collateral
Agent under such agreements and to exercise such powers as are reasonably
incidental thereto. Without limiting the foregoing, each Secured Party hereby
authorizes the Collateral Agent to execute and deliver, and to perform its
obligations under, each of the documents to which the Collateral Agent is a
party relating to security for the obligations under the Notes, to exercise all
rights, powers and remedies that the Collateral Agent may have under such
Transaction Documents and, in the case of the Transaction Documents, to act as
agent for the Secured Parties under such Transaction Documents.
 
(b)  As to any matters not expressly provided for by this Agreement and the
other document relating thereto (including enforcement or collection), the
Collateral Agent shall not be required to exercise any discretion or take any
action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Secured Parties, and such instructions shall be binding upon all Secured
Parties; provided, however, that the Collateral Agent shall not be required to
take any action that (i) the Collateral Agent in good faith believes exposes it
to personal liability unless the Collateral Agent receives an indemnification
satisfactory to it from the Secured Parties with respect to such action or (ii)
is contrary to this Agreement or applicable law. The Collateral Agent agrees to
give to each Secured Party prompt notice of each notice given to it by the
Company pursuant to the terms of this Agreement or the other Transaction
Documents.
 
(c)  In performing its functions and duties hereunder and under the Transaction
Documents and the other documents required to be executed or delivered in
connection therewith, the Collateral Agent is acting solely on behalf of the
Secured Parties and its duties are entirely administrative in nature. The
Collateral Agent does not assume and shall not be deemed to have assumed any
obligation other than as expressly set forth herein, in the Transaction
Documents and any other documents required to be executed or delivered in
connection therewith related hereto or any other relationship as the agent,
fiduciary or trustee of or for any Secured Party or holder of any other
obligation under this Agreement or the Notes. The Collateral Agent may perform
any of its duties under any Transaction Document by or through its agents or
employees.
 
(d)  None of the Collateral Agent, any of its affiliates or any of their
respective directors, officers, agents or employees shall be liable for any
action taken or omitted to be taken by it, him, her or them under or in
connection with this Agreement or the other Transaction Documents, except for
its, his, her or their own gross negligence or willful misconduct.
 
(e)  Each Secured Party acknowledges that it shall, independently and without
reliance upon the Collateral Agent or any other Secured Party conduct its own
independent investigation of the financial condition and affairs of the Company
and its Subsidiaries in connection with the issuance of the Securities. Each
Secured Party also acknowledges that it shall, independently and without
reliance upon the Collateral Agent or any other Secured Party and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement and other Transaction Documents.
 
(f)  Each Secured Party agrees to indemnify the Collateral Agent and each of its
affiliates, and each of their respective directors, officers, employees, agents
and advisors (to the extent not reimbursed by the Borrower), from any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses and disbursements (including fees, expenses and disbursements of
financial and legal advisors) of any kind or nature whatsoever that may be
imposed on, incurred by, or asserted against, the Collateral Agent or any of its
affiliates, directors, officers, employees, agents and advisors in any way
relating to or arising out of this Agreement or the other Transaction Documents
or any action taken or omitted by the Collateral Agent under this Agreement or
the document related thereto; provided, however, that no Secured Party shall be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the Collateral Agent’s or such Affiliate’s gross negligence or willful
misconduct.
 
(g)  The Collateral Agent may resign at any time by giving written notice
thereof to the Secured Parties and the Company. Upon any such resignation, the
Secured Parties shall have the right to appoint a successor Collateral Agent. If
no successor Collateral Agent shall have been so appointed by the Secured
Parties, and shall have accepted such appointment, within 30 days after the
retiring Collateral Agent’s giving of notice of resignation, then the retiring
Collateral Agent may, on behalf of the Secured Parties, appoint a successor
Collateral Agent, selected from among the Secured Parties. Upon the acceptance
of any appointment as Collateral Agent by a successor Collateral Agent, such
successor Collateral Agent shall succeed to, and become vested with, all the
rights, powers, privileges and duties of the retiring Collateral Agent, and the
retiring Collateral Agent shall be discharged from its duties and obligations
under this Agreement, the Transaction Documents and any other documents required
to be executed or delivered in connection therewith. Prior to any retiring
Collateral Agent’s resignation hereunder as Collateral Agent, the retiring
Collateral Agent shall take such action as may be reasonably necessary to assign
to the successor Collateral Agent its rights as Collateral Agent under the
Transaction Documents. After such resignation, the retiring Collateral Agent
shall continue to have the benefit of this Agreement as to any actions taken or
omitted to be taken by it while it was Collateral Agent under this Agreement,
the Transaction Documents and any other documents required to be executed or
delivered in connection therewith.
 
(h)  Each Secured Party agrees that any action taken by the Collateral Agent in
accordance with the provisions of this Agreement or of the other document
relating thereto, and the exercise by the Collateral Agent or the Secured
Parties of the powers set forth herein or therein, together with such other
powers as are reasonably incidental thereto, shall be authorized and binding
upon all of the Secured Parties.
 
(i)  Each of the Secured Parties hereby directs, in accordance with the terms
hereof, the Collateral Agent to release (or in the case of clause (ii) below,
release or subordinate) any Lien held by the Collateral Agent for the benefit of
the Secured Parties against any of the following: (i) all of the Collateral upon
payment and satisfaction in full of all obligations under the Notes and all
other obligations under the Transaction Documents that the Collateral Agent has
been notified in writing are then due and payable; (ii) any assets that are
subject to a Lien permitted by Section 3.2); and (iii) any part of the
Collateral sold or disposed of by the Company or any Subsidiary if such sale or
disposition is permitted by this Agreement and the Notes (or permitted pursuant
to a waiver or consent of a transaction otherwise prohibited by this Agreement
and the Notes). Each of the Secured Parties hereby directs the Collateral Agent
to execute and deliver or file such termination and partial release statements
and do such other things as are necessary to release Liens to be released
pursuant to this Section 7.14 promptly upon the effectiveness of any such
release.
 

 
[SIGNATURE PAGES FOLLOW]
 

KL2:2407596.4
 

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IN WITNESS WHEREOF, the parties have duly executed this Security Agreement as of
the day and year first written above.
 
QUEST OIL CORPORATION
 

 
By:_____________________________________       
Name:
Title:
 

 
QUEST CANADA CORP.
 

 
By:_____________________________________        
Name:
Title:
 

 
WALLSTIN PETROLEUM, LLC
 

 
By:_____________________________________        
Name:
Title:

 
PETROSTAR OIL SERVICES, INC.
 

 
By:_____________________________________        
Name:
Title:

 
SECURED PARTY:
 

 
By:_____________________________________        
 Name:
Title:

KL2:2407596.4
 

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18
 

    Acknowledged and agreed:

    Collateral Agent:

By:_____________________________________      
Name:
Title:

 
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