**Exhibit 10.1**

 

**BAYTEX ACQUISITION CORP.**

** **

 

**NOTE INDENTURE**

** **

 

**September 2, 2003**

** **

** **

**Providing for theissue of 12% Unsecured, Subordinated**

** **

**Promissory Notes ofBaytex Acquisition Corp.**

 

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**TABLE OF CONTENTS**

 
| Article 1  INTERPRETATION               |                                                             |
|----------------------------------------------|------------------------------------------------------------------|
| 1.1                                          | Definitions                                                      |   |
| 1.2                                          | Meaning of “Outstanding”                               |   |
| 1.3                                          | Headings                                                         |   |
| 1.4                                          | Gender and Number                                                |   |
| 1.5                                          | Currency                                                         |   |
| 1.6                                          | Governing Law                                                    |   |
| 1.7                                          | Day Not a Business Day                                           |   |
| 1.8                                          | Invalidity, Etc.                                                 |   |
| 1.9                                          | Accounting Principles                                            |   |
| 1.10                                         | Per Annum Calculations                                           |   |
| 1.11                                         | Interest Calculation                                             |   |
|                                         |                                                             |   |
| Article 2 THE NOTES                     |                                                             |
| 2.1                                          | Terms of Notes                                                   |   |
| 2.2                                          | Form and Signatures of  Notes                                    |   |
| 2.3                                          | Issue of Notes                                                   |   |
| 2.4                                          | Certification                                                    |   |
| 2.5                                          | *Notes to Rank Pari Passu*                                       |   |
| 2.6                                          | Commencement of Interest                                         |   |
| 2.7                                          | Registration and  Transfer of Notes                              |   |
| 2.8                                          | Persons Entitled to Payment                                      |   |
| 2.9                                          | Mutilation,  Loss, Theft or Destruction                          |   |
| 2.10                                         | Exchanges of Notes                                               |   |
| 2.11                                         | Transfer                                                         |   |
| 2.12                                         | Option of  Holder as to Place of Payment                         |   |
| 2.13                                         | Trustee Not Bound  to Make Enquiries                             |   |
| 2.14                                         | Extension                                                        |   |
| 2.15                                         | Redemption                                                       |   |
| 2.16                                         | Prepayment                                                       |   |
| 2.17                                         | No Other  Prepayment, Repurchase or Redemption                   |   |
|                                         |                                                             |   |
| Article 3  SUBORDINATION OF NOTES       |                                                             |
| 3.1                                          | Subordination                                                    |   |
| 3.2                                          | Definition                                                       |   |
| 3.3                                          | Distribution on  Creditor Proceedings                            |   |
| 3.4                                          | No Payment  to Noteholders In Certain Events                     |   |
| 3.5                                          | Payment of Notes Permitted                                       |   |
| 3.6                                          | Subordination not to  be Impaired                                |   |
| 3.7                                          | Authorization  of Noteholders to Trustee to Effect Subordination |   |
| 3.8                                          | Notice of Default  under Senior Debt                             |   |
| 3.9                                          | Inapplicability  in Certain Circumstances                        |   |
| 3.10                                         | Actual Notice Required                                           |   |
| 3.11                                         | No  Impairment Between Corporation and Holders                   |   |
| 3.12                                         | Procedural Matters  - Classification                             |   |
| 3.13                                         | Payment of Trustee’s  Fees, etc.                            |   |
|                                         |                                                             |   |
| Article 4  COVENANTS OF THE CORPORATION |                                                             |

 

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| 4.1                                                    | Positive Covenants                               |   |
|--------------------------------------------------------|--------------------------------------------------|--------|
| 4.2                                                    | Trustee May Perform  Covenants                   |   |
| 4.3                                                    | To Pay Trustee’s  Remuneration              |   |
| 4.4                                                    | Negative Covenant                                |   |
|                                                   |                                             |   |
| Article 5 DEFAULT                                 |                                             |
| 5.1                                                    | Events of Default                                |   |
| 5.2                                                    | Special Waiver by the Trust                      |   |
| 5.3                                                    | Acceleration of Maturity                         |   |
| 5.4                                                    | Remedies                                         |   |
| 5.5                                                    | Remedies not Exclusive                           |   |
| 5.6                                                    | Costs                                            |   |
| 5.7                                                    | Delay                                            |   |
| 5.8                                                    | No Recourse Against  Other Parties               |   |
| 5.9                                                    | Notice of Events of Default                      |   |
| 5.10                                                   | Waiver of Default                                |   |
| 5.11                                                   | Enforcement by the Trustee                       |   |
| 5.12                                                   | No Suits by Holders                              |   |
| 5.13                                                   | Application of Monies  by Trustee                |   |
| 5.14                                                   | Distribution of Proceeds                         |   |
| 5.15                                                   | Judgment Against the  Corporation                |   |
|                                                   |                                             |   |
| Article 6 SATISFACTION, DISCHARGE  AND REDEMPTION |                                             |
| 6.1                                                    | Payment of Principal Amount                      |   |
| 6.2                                                    | Non-Presentation of Notes                        |   |
| 6.3                                                    | Repayment of Unclaimed  Monies                   |   |
| 6.4                                                    | Discharge                                        |   |
|                                                   |                                             |   |
| Article 7  SUCCESSOR COMPANIES                    |                                             |
| 7.1                                                    | Successor Companies                              |   |
| 7.2                                                    | Vesting of  Powers In Successor Corporation      |   |
| 7.3                                                    | Notice of  Completion of Arrangement             |   |
|                                                   |                                             |   |
| Article 8  MEETINGS OF HOLDERS                    |                                             |
| 8.1                                                    | Right to Convene Meeting                         |   |
| 8.2                                                    | Notice of Meetings                               |   |
| 8.3                                                    | Chairman                                         |   |
| 8.4                                                    | Quorum                                           |   |
| 8.5                                                    | Power to Adjourn                                 |   |
| 8.6                                                    | Show of Hands                                    |   |
| 8.7                                                    | Poll                                             |   |
| 8.8                                                    | Voting                                           |   |
| 8.9                                                    | Regulations                                      |   |
| 8.10                                                   | Persons Entitled to  Attend Meetings             |   |
| 8.11                                                   | Powers  Exercisable by Extraordinary Resolution  |   |
| 8.12                                                   | Meaning of  “Extraordinary Resolution” |   |
| 8.13                                                   | Powers Cumulative                                |   |
| 8.14                                                   | Minutes                                          |   |
| 8.15                                                   | Instrument In Writing                            |   |
| 8.16                                                   | Binding Effect of  Resolutions                   |   |
| 8.17                                                   | Evidence of Rights of  Holders                   |   |

 

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| Article 9 NOTICES                     |                                                                 |
|--------------------------------------------|----------------------------------------------------------------------|
| 9.1                                        | Notice                                                               |   |
|                                       |                                                                 |   |
| Article 10  CONCERNING THE TRUSTEE    |                                                                 |
| 10.1                                       | No Conflict of Interest                                              |   |
| 10.2                                       | Replacement of Trustee                                               |   |
| 10.3                                       | Duties of Trustee                                                    |   |
| 10.4                                       | Reliance Upon Declarations                                           |   |
| 10.5                                       | Evidence and  Authority to Trustee                                   |   |
| 10.6                                       | Certificate  of the Corporation as Evidence                          |   |
| 10.7                                       | Experts, Advisers and  Agents                                        |   |
| 10.8                                       | Trustee May Deal In Notes                                            |   |
| 10.9                                       | Investment of  Monies Held by Trustee                                |   |
| 10.10                                      | Trustee Not Ordinarily  Bound                                        |   |
| 10.11                                      | Trustee Not  Required to Give Security                               |   |
| 10.12                                      | Trustee Not to Be  Appointed Receiver                                |   |
| 10.13                                      | Trustee  Not Bound to Act                                            |   |
| 10.14                                      | Conditions  Precedent to Trustee’s Obligations to Act Hereunder |   |
| 10.15                                      | Survival  of Indemnities                                             |   |
| 10.16                                      | Authority to Carry on  Business                                      |   |
| 10.17                                      | Acceptance  of Trust                                                 |   |
|                                       |                                                                 |   |
| Article 11  SUPPLEMENTAL INDENTURES   |                                                                 |
| 11.1                                       | Supplemental Indentures                                              |   |
| 11.2                                       | Indenture  Confirming or Evidencing Subordination                    |   |
|                                       |                                                                 |   |
| Article 12 FORM OF  NOTE              |                                                                 |
| 12.1                                       | Form of Note                                                         |   |
|                                       |                                                                 |   |
| Article 13  EXECUTION AND FORMAL DATE |                                                                 |
| 13.1                                       | Execution                                                            |   |
| 13.2                                       | Formal Date                                                          |   |

 

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**NOTE INDENTURE**

** **

**September 2, 2003**

** **

BETWEEN:

 

**BAYTEX ACQUISITION CORP.**, a corporation incorporated pursuant to the*Business Corporations Act* (Alberta) withan office in the City of Calgary, in the Province of Alberta (the**“Corporation”**)

 

AND:

 

**VALIANT TRUST COMPANY**, a trust company incorporated under the laws of the Province ofAlberta having an office in the City of Calgary, in the Province of Alberta(the **“Trustee”**)

 

RECITALS:

 

A.                            The Corporation is duly authorized to create and issue the Notes asherein provided;

 

B.                            All necessary corporate proceedings have been taken and conditionscomplied with to make the creation and issue of the Notes proposed to be issuedhereunder and this Note Indenture legal, valid and binding on the Corporationin accordance with the laws relating to the Corporation; and

 

C.                            The foregoing recitals are made as representations and statements offact by the Corporation and not by the Trustee.

 

NOW THEREFORE THIS NOTE INDENTURE WITNESSETHand it is hereby covenanted, agreed and declared as set forth below:

 

**ARTICLE 1INTERPRETATION**

** **

**1.1**                                                                               Definitions

** **

In this Note Indenture (including therecitals hereto) and in the Notes, unless there is something in the subjectmatter or context inconsistent therewith:

 

(a)                                  **“Act”** means the *Business Corporations Act* (Alberta) R.S.A.2000, c. B-9, as amended, including the regulations thereunder;

 

(b)                                 **“Arrangement”** means the plan of arrangementpursuant to Section 193 of the Act as provided for in an agreement datedJuly 24, 2003, among Baytex Petroleum Ltd., Crew Energy Inc., the Corporation,Baytex ExchangeCo Ltd., Baytex Exploration Ltd., Baytex Resources Ltd. and theTrust;

 

(c)                                  **“BankBorrowings”** means the Corporation’s indebtedness, obligations and liabilities tothe Banks or any of them;

 

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(d)                                 **“Banks”** means any bank or financialinstitution or any affiliate thereofwhich from time to time may be providingloans, advances or other extensions of credit to the Corporation including,without limitation, all obligations under or pursuant to any Swaps;

 

(e)                                  **“BorrowedMoney”**means, in respect of any Person, all the Person’s indebtedness, obligations andliabilities in respect of (i) borrowed money; (ii) bonds, debentures,notes or other similar instruments; (iii) the purchase price of anyproperty or services which is not due within ninety (90) days of delivery orinstallation of such property or delivery of an invoice or account in respectof such services; (iv) reimbursement obligations with respect to lettersof credit, bankers’ acceptances or similar facilities issued for its account;(v) Swaps; and (vi) guarantees, indemnities and other assurances inrespect of Borrowed Money (as hereinbefore defined);

 

(f)                                    **“BusinessDay”**means any day except Saturdays, Sundays, statutory holidays and days in Albertaand other days when the principal offices of the Trustee in the City of Calgaryare not generally open to the public for the transaction of business;

 

(g)                                 **“Certificateof the Corporation”**, **“Order of theCorporation”**, **“Request of theCorporation”**, **“Written Direction ofthe Corporation”** and **“Consent ofthe Corporation”** mean, respectively, a written Certificate, order,request, direction and consent signed in the name of the Corporation by thePresident or any other senior officer of the Corporation, and may consist of oneor more instruments so executed.  ACertificate of the Corporation shall be in the form of a statutory declarationif and when required under the provisions of this Note Indenture or by theTrustee;

 

(h)                                 **“CertifiedResolution”** means a copy of a resolution of the Corporation certified by thePresident or any other senior officer of the Corporation to have been dulypassed by the Directors and to be in full force and effect on the day of suchcertification unless otherwise noted therein;

 

(i)                                     **“Common Shares”** means the common shares inthe capital of the Corporation, as such shares were constituted on the date ofexecution and delivery of this Note Indenture or as subsequently consolidatedor subdivided or any other shares or securities resulting from a reclassificationor change of such common shares or as subsequently consolidated or subdividedor any other shares or securities resulting from a reclassification or changeof such common shares;

 

(j)                                     **“Corporation”** means Baytex AcquisitionCorp., incorporated under the Act, and includes any successor company to or ofthe Corporation provided that the provisions of Article 7 shall have beencomplied with in respect thereof;

 

(k)                                  **“Corporation’sAuditors”**or**“Auditors of the Corporation”**means an independent firm of chartered accountants duly appointed as auditorsof the Corporation;

 

(l)                                     **“Counsel”** means a barrister orsolicitor or firm of barristers or solicitors, who may be counsel for theCorporation, retained, employed, engaged or appointed by the Trustee or retained,employed, engaged or appointed by the Corporation and acceptable to the Trusteewhere the context so indicates;

 

(m)                               **“CreditorProceedings”** means any dissolution, winding-up, total or partial liquidation,adjustment or readjustment of debt, reorganization, compromise, arrangementwith creditors,

 

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plan of arrangement under the *Bankruptcy and Insolvency Act* (Canada),the *Companies’ Creditors Arrangement Act*(Canada) or arrangement provisions of applicable corporate law, or similarproceedings of or with respect to the Corporation or its property orliabilities, or any bankruptcy, insolvency, receivership, assignment for thebenefit of creditors, marshalling of assets and liabilities of the Corporation,or any bulk sale of assets by the Corporation, or proceedings in relation toany of the foregoing;

 

(n)                                 **“Default”** means any event or conditionwhich, with the giving of notice, lapse of time or upon a declaration ordetermination being made (or any combination thereof), would constitute anEvent of Default;

 

(o)                                 **“Director”** means a member of the boardof directors of the Corporation for the time being and **“Directors”**, **“Board of Directors”**or **“Board”**means the board of directors of the Corporation or, if duly constituted andwhenever duly elected or empowered, the executive committee of the Board ofDirectors of the Corporation for the time being, and reference to “action bythe Directors” means action by the directors of the Corporation as a board or, wheneverduly empowered, action by the said executive committee as such committee;

 

(p)                                 **“EarlyRedemption Date”** means the date that any Notes or portion thereof areto be redeemed or prepaid pursuant to Section 2.14 or Section 2.15;

 

(q)                                 **“EffectiveDate”**means the date shown on the certificate or proof of filing to be issued by theRegistrar of Corporations pursuant to subsection 193(11) or subsection 193(12)of the Act in respect of the Arrangement;

 

(r)                                    **“Event ofDefault”**means any of the events of default referred to in Section 5.1;

 

(s)                                  **“ExtraordinaryResolution”** has the meaning attributed thereof in Section 8.12;

 

(t)                                    **“Fund Trustee”** mean Valiant Trust Company,the trustee under the Trust Indenture and such other persons which may becometrustee thereunder from time to time;

 

(u)                                 **“Holders”** means the person(s) from timeto time being entered in the Registers hereinafter mentioned as Holders ofNotes (which shall include any transferee of a Holder);

 

(v)                                 **“InitialNote”**has the meaning ascribed thereto in Section 2.3;

 

(w)                               **“InterestPayment Date”**means the 10th day of the month following the month in which anInterest Period ends, unless such day is not a Business Day, in which case itshall be the next following Business Day;

 

(x)                                   **“InterestPeriod”**means (i) the period beginning on (and including) the Issue Date andending on (and including) September 31, 2003, and (ii) thereafter,successive periods beginning on (and including) the first day of the calendarmonth next following the end of each Interest Period and ending on (andincluding) the last day of such calendar month, and the Maturity Date, providedthat in the event any Note shall be partially or totally redeemed at any timeother than on an Interest Payment Date, then the date upon which such partial ortotal redemption occurs shall be an Interest Payment Date in respect of theamount of such Note so redeemed;

 

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(y)                                 **“InterestRate”**means twelve****percent (12%) perannum;

 

(z)                                   **“Issue Date”** means, in respect of anyNotes, the date of issuance of such Notes;

 

(aa)                            **“MaturityDate”**means September 1, 2033, subject to extension pursuant toSection 2.13;

 

(bb)                          **“Non-TrustHolders”**means Holders other than the Trust, provided that if at any time the Trust ownsall Notes other than those having an aggregate principal amount of FifteenMillion ($15,000,000) Dollars or less, there shall be deemed conclusively forall purposes to be no Non-Trust Holders;

 

(cc)                            **“NoteIndenture”**,**“Indenture”**, **“hereto”**, **“herein”**,**“hereby”**, **“hereunder”**, **“hereof”** and similar expressions refer to this Note Indentureand not to any particular Article, Section, subsection, clause, subdivision orother portion hereof and include any and every instrument supplemental orancillary hereto;

 

(dd)                          **“Noteholders’Request”**means:

 

(i)                                     an instrument signed in one ormore counterparts either:

 

(A)                              at any time when there are noNon-Trust Holders, or there are Non-Trust Holders but the Trust is the holderof at least Ninety percent (90%) of the principal amount of the Notes thenoutstanding, by the Trust; or

 

(B)                                at any time when (A) does notapply, by Holder(s) holding in the aggregate at least Fifty percent (50%) ofthe principal amount of the Notes outstanding,

 

or

 

(ii)                                  a resolution of the Holderspassed at a meeting of the Holders at any time when there are Non-Trust Holdersbut the Trust is not the holder of at least Ninety percent (90%) of theprincipal amount of the Notes then outstanding, by Holder(s) holding in theaggregate at leas Fifty percent (50%) of the principal amount of the Notesoutstanding which are represented at the meeting;

 

requesting the Trustee to take some action orproceeding which this Note Indenture authorizes to be taken by a Noteholders’Request or resolution, provided that, in either (i) or (ii) where the approvalof the Trust is required, the taking of such action or proceeding has beenapproved as required by the Trust Indenture;

 

(ee)                            **“Notes”** means the 12% unsecured,subordinated, promissory notes maturing on the Maturity Date, issued or to beissued hereunder and entitled to the benefits hereof;

 

(ff)                                **“Outstanding”** has the meaning ascribedthereto in Section 1.2;

 

(gg)                          **“Person”**means an individual, firm,trust, trustee, syndicate, company, partnership, association, government orgovernmental agency;

 

(hh)                          **“Register”** has the meaning ascribedthereto in Section 2.6;

 

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(ii)                                  **“SecurityDocuments”** shall mean and include any and all collateral or security documentssecuring the Corporation’s indebtedness, obligations and liabilities for or inrespect of Senior Debt;

 

(jj)                                  **“Senior Debt”**means(a) all indebtedness, obligations and liabilities of the Corporation inrespect of Borrowed Money excluding (i) the indebtedness, obligations or liabilitycreated under or evidenced by the Notes or this Note Indenture; and(ii) any indebtedness that by its terms or by the terms of the instrumentevidencing or creating it ranks or in respect of which the holders thereof haveagreed that it shall rank pari passu with or subordinate to the Notes; and(b) from and after the commencement of, and during the continuance of, anyCreditor Proceedings, all indebtedness, obligations and liabilities of theCorporation other than indebtedness obligations and liabilities to the Holdersof Notes; for certainty, Senior Debt shall at all times include allindebtedness, obligations and liabilities of the Corporation in respect of BankBorrowings, including all indebtedness, obligations and liabilities of theCorporation under the Senior Debt Documents and Swaps and under the 9 5/8% U.S.Dollar Senior Subordinated Notes due in 2010 and the 10 1⁄2% U.S. Dollar SeniorSubordinated Notes due 2011;

 

(kk)                            **“Senior DebtDefault”**shall mean and include any event of default under any Senior Debt and any eventor circumstance which, with the passage of time or the giving of notice, orboth, would constitute an event of default under Senior Debt;

 

(ll)                                  **“Senior DebtDocuments”** means and includes all documents, instruments and agreements,including all Security Documents, evidencing, creating, authorizing,guaranteeing or securing Senior Debt outstanding under or pursuant to the BankBorrowings and including any Subordination Agreements;

 

(mm)                      **“Swaps”**swap, hedging, derivativestransactions and other arrangements made by the Corporation (including anyassumed by the Corporation by contract, operation of law or otherwise), fromtime to time, in respect of commodity prices, interest rates or rates ofexchange of currencies the purpose of which is to mitigate or eliminateexposure to fluctuations in prices of commodities, interest rates, rates ofexchange of one currency for another and includes guarantees, either direct orindirect, by the Corporation of any swap, hedging and other arrangements madeby Persons wholly-owned, directly or indirectly, by the Corporation or theTrust;

 

(nn)                          **“SubordinationAgreement”** has the meaning attributed to it in Section 3.7(a);

 

(oo)                          **“Shareholders”** means holders of commonshares of Baytex Energy Ltd.;

 

(pp)                          **“Subsidiary”** or **“Subsidiary Company”** means any company or partnership of whichmore than Fifty percent (50%) of the outstanding Voting Shares or (in the caseof a partnership) capital or income interests are beneficially owned, directlyor indirectly, by or for the Corporation or one or more Subsidiaries or theCorporation and one or more Subsidiaries; provided that the ownership of suchshares or partnership interests confers the right to elect at least a majorityof the board of directors of such company or partnership, or Persons managingthe business and affairs of such company or partnership, and includes anycompany or partnership in like relation to a Subsidiary;

 

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(qq)                          **“successorcompany”**hasthe meaning attributed to it in Section 7.1;

 

(rr)                                **“Time ofExpiry”**means 4:30 p.m. (Calgary time) on the Maturity Date;

 

(ss)                            **“Transfer”** means a transfer in the formand substance of the transfer attached to the Notes;

 

(tt)                                **“Trust”**means Baytex Energy Trust, anunincorporated, open-ended, unit and mutual fund trust established under thelaws of the Province of Alberta;

 

(uu)                          **“TrustIndenture”** means the amended and restated trust indenture dated as of September2, 2003 constituting the Trust and made between the Fund Trustee and BaytexEnergy Ltd., as may be amended from time to time;

 

(vv)                          **“Trust Units”** means a unit of the Trust,each such unit representing an equal undivided beneficial interest therein;

 

(ww)                      **“Trustee”** means Valiant Trust Companyor its successor or successors for the time being in the trusts createdhereunder;

 

(xx)                              **“TrusteeExpenses”**means, at any time and from time to time, any fees or expense reimbursementsthen due and payable by the Trust or the Corporation to the Trustee withrespect to the performance and discharge of its duties pursuant to this NoteIndenture or the Trust Indenture, and any fees or expenses which have accruedat that time pursuant to such services rendered in the performance of suchduties since the last regularly scheduled billing of such fees or expenses bythe Trustee but which have not at such time been billed or collected.  For clarification, such fees shall notinclude fees and expenses incurred by the Trustee, for itself or in itscapacity as the Trustee under this Note Indenture or the Trust Indenture inconnection with the realization or enforcement of any of the rights andremedies afforded the Trustee under such indentures; and

 

(yy)                          **“VotingShares”**means shares of the capital stock of any class of any company carrying votingrights under all circumstances, provided that, for the purposes of suchdefinition, shares which only carry the right to vote conditionally on thehappening of an event shall not be considered Voting Shares, whether or notsuch event shall have occurred, nor shall any shares be deemed to cease to beVoting Shares solely by reason of a right to vote accruing to shares of anotherclass or classes by reason of the happening of any such event.

 

**1.2**                                                                               Meaning of “Outstanding”

** **

(a)                                  Every Note certified anddelivered by the Trustee hereunder shall be deemed to be outstanding until:

 

(i)                                     it shall be cancelled; or

 

(ii)                                  it shall be delivered to theTrustee for cancellation; or

 

(iii)                               monies or securities(including equity shares), as the case may be for the payment of Notes shallhave been set aside by the Corporation and held by the Trustee for that purposein accordance with the provisions of Section 6.1 of this Note Indenture.

 

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(b)                                 Notes which have beenpartially redeemed or purchased by the Corporation shall be deemed to beoutstanding only to the extent of the unredeemed or unpurchased part of theprincipal amount thereof.

 

(c)                                  When a new Note has beenissued in substitution for a Note pursuant to Section 2.8, only one ofsuch Notes shall be counted for the purpose of determining the aggregateprincipal amount of Notes outstanding.

 

(d)                                 For the purposes of anyprovision of this Note Indenture entitling Holders of outstanding Notes tovote, sign consents, requisitions or other instruments or to take any otheraction under this Note Indenture, Notes owned directly or indirectly, legallyor equitably, by the Corporation or any Subsidiary shall be disregarded exceptthat:

 

(i)                                     for the purpose of determiningwhether the Trustee shall be protected in relying on any such vote, consent,requisition, instrument or other action only the Notes which the Trustee, afterreasonable inquiry, knows are so owned shall be so disregarded; and

 

(ii)                                  Notes so owned which have beenpledged in good faith other than to the Corporation or a Subsidiary shall notbe so disregarded if the pledgee shall establish to the satisfaction of theTrustee the pledgee’s right to vote such Notes in its discretion free from thecontrol of the Corporation or any Subsidiary.

 

**1.3**                                                                               Headings

** **

The division of this Note Indenture intoArticles and Sections and the insertion of headings are for the convenience ofreference only and shall not affect the construction or interpretation of thisNote Indenture or the Notes.  Unlesssomething in the subject matter or context is inconsistent therewith,references herein to Articles or Sections are to Articles or Sections of thisNote Indenture.

 

**1.4**                                                                               Gender and Number

** **

In this Note Indenture and in the Notes, wordsimporting the singular number only shall include the plural and vice versa,words importing the masculine gender shall include the feminine and neutergenders and vice versa and words importing persons shall include individuals,partnerships, associations, trusts, unincorporated organizations andcorporations and vice versa.

 

**1.5**                                                                               Currency

** **

All payments contemplated herein and in theNotes shall be paid in Canadian funds, in cash, by bankers’ draft or by chequeand all references herein and in the Notes to dollar amounts are references todollars in the lawful currency of Canada.

 

**1.6**                                                                               Governing Law

** **

This Note Indenture and the Notes shall begoverned by and construed in accordance with the laws of the Province ofAlberta and the federal laws of Canada applicable therein and shall be treatedin all respects as Alberta contracts.

 

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**1.7**                                                                               Day Not a Business Day

** **

In the event that any day on or before whichany action is required to be taken hereunder is not a Business Day, then suchaction shall be required to be taken on or before the requisite time on thenext succeeding day that is a Business Day.

 

**1.8**                                                                               Invalidity, Etc.

** **

Any provision hereof which is prohibited orunenforceable shall be ineffective only to the extent of such prohibition orunenforceability, without invalidating the remaining provisions hereof.

 

**1.9**                                                                               Accounting Principles

** **

Wherever in this Agreement reference is madeto “generally accepted accounting principles”, such reference shall be deemedto be to the recommendations at the relevant time of the Canadian Institute ofChartered Accountants, or any successor institute, applicable on a consolidatedbasis (unless otherwise specifically provided or contemplated herein to beapplicable on an unconsolidated basis) as at the date on which such calculationis made or required to be made in accordance with generally accepted accountingprinciples.  Where the character oramount of any asset or liability or item of revenue or expense or amount ofequity is required to be determined, or any consolidation or other accountingcomputation is required to be made for the purpose of this Note Indenture, suchdetermination or calculation shall, to the extent applicable and except asotherwise specified herein or as otherwise agreed in writing by the parties, bemade in accordance with generally accepted accounting principles applied on aconsistent basis.

 

**1.10**                                                                        Per Annum Calculations

** **

Unless otherwise stated, whenever in thisNote Indenture reference is made to a rate “per annum” or a similar expressionis used, such rate shall be calculated on the basis of calendar year of threehundred and sixty-five (365) days or three hundred and sixty-six (366) days, asthe case may be.

 

**1.11**                                                                        Interest Calculation

** **

Interest payable in respect of any InterestPeriod shall be deemed to have accrued from day to day for the number of dayscomprising the Interest Period.

 

**ARTICLE 2THE NOTES**

** **

**2.1**                                                                               Terms of Notes

** **

(a)                                  The aggregate principal amountof Notes authorized to be issued under this Note Indenture shall be limited toOne Billion and Five Hundred Million ($1,500,000,000) Dollars in lawful moneyof Canada. 

 

(b)                                 The Notes shall be designatedthe **“12% Unsecured, Subordinated PromissoryNotes”** of the Corporation; shall be dated as of their respectiveIssue Dates; shall mature at the Time of Expiry; shall rank equally in right ofpayment without discrimination or preference in the case of any CreditorProceedings; and shall bear interest from and including their respective IssueDates at the Interest Rate, payable after as well as before maturity and afteras well as before default and

 

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judgment, with interest on amounts indefault at the same rate, on each Interest Payment Date for the applicableInterest Period.  The record date fordetermining the Holders to receive payments of interest on any Interest PaymentDate shall be the last day of the month in which such Interest Payment Dateoccurs (unless such day is not a Business Day, in which case the record dateshall be the next following Business Day except that, if such Business Day isin the next succeeding calendar year, then such record date shall be theimmediately preceding Business Day).

 

**2.2**                                                                               Form and Signatures of Notes

** **

(a)                                  The Notes shall be issued onlyas fully registered Notes in the minimum denomination of One Hundred ($100)Dollars and for amounts above such minimum only in integral multiples of One($1.00) Dollar.  The Notes (includingthe Certificate of the Trustee endorsed thereon) shall be, substantially in theform set forth in Schedule “A” hereto. The Notes shall bear such distinguishing letters and numbers as theTrustee may approve and may include a translation into the French language.

 

(b)                                 The Notes may be typewritten,electronically reproduced, engraved, printed or lithographed, or partly in oneform and partly in another, as the Corporation may determine.

 

(c)                                  The Notes shall be under theseal of the Corporation (or a reproduction thereof which shall be deemed to bethe seal of the Corporation) and shall be signed (either manually or byfacsimile signature) by the Chairman of the Board or the President.  A facsimile signature upon any of the Notesshall for all purposes of this Note Indenture be deemed to be the signature ofthe person whose signature it purports to be and to have been signed at thetime such facsimile signature is reproduced; provided, however, that thecertification of the Trustee shall not be by facsimile signature.  Notwithstanding that any person whosesignature, either manual or in facsimile, may appear on the Notes is no longer,at the date of this Note Indenture or at the date of the Notes or at the dateof the certification and delivery thereof, the holder of the office indicated,any such Note shall be valid and binding upon the Corporation and entitled tothe benefits of this Note Indenture.

 

**2.3**                                                                               Issue of Notes

** **

Notes in an aggregate principal amount of OneBillion and Five Hundred Million ($1,500,000,000) Dollars may be executed bythe Corporation from time to time and, forthwith after such execution, shall bedelivered to the Trustee and shall be certified by the Trustee and delivered toor to the order of the Corporation pursuant to a written direction of theCorporation.  It is acknowledged thatthe first Notes to be issued hereunder (the **“InitialNote”**) shall be issued pursuant to the Arrangement to the Trust andto former Shareholders.  Notes issued toformer Shareholders are to be transferred pursuant to the Arrangement by suchholders to the Trust in exchange for Trust Units.  The Initial Note certificates will be issued to the Trustee intrust for the Trust and the Shareholders. The Trustee shall then on behalf of such Shareholders record thetransfer of the Notes represented by such Initial Note certificates to theTrust pursuant to the Arrangement, without recourse to the Trust, and shallreceive certificates representing Trust Units for delivery to suchShareholders, all as contemplated by the Arrangement.  Upon receipt of the certificates representing the Trust Units,the Trustee shall provide a receipt and distribute such certificates to suchShareholders, in accordance with Article 5 of the Arrangement.

 

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**2.4**                                                                               Certification

** **

(a)                                  No Note shall be issued or, ifissued, shall be obligatory or shall entitle the Holder to the benefits of thisNote Indenture, until it has been certified by or on behalf of the Trusteesubstantially in the form set out in Schedule “A” hereto (or in some other formapproved by the Trustee).  Suchcertification on any Note shall be conclusive evidence that such Note is dulyissued, is a valid obligation of the Corporation and the Holder is entitled tothe benefits hereof.

 

(b)                                 The Certificate of the Trusteesigned on the Notes shall not be construed as a representation or warranty bythe Trustee as to the validity of this Note Indenture or of the Notes or as tothe issuance of the Notes and the Trustee shall in no respect be liable oranswerable for the use made of the Notes or any of them or the proceedsthereof.  The Certificate of the Trusteesigned on the Notes shall, however, be a representation and warranty by theTrustee that the Notes have been duly certified by or on behalf of the Trusteepursuant to the provisions of this Note Indenture.

 

**2.5**                                                                               Notes to Rank *Pari Passu*

** **

The Notes may be issued in such amounts, tosuch persons and on such terms not inconsistent with the provisions of thisNote Indenture as the Corporation by written direction directs, pursuant toSection 2.3, at par.  Each Note assoon as issued or negotiated, subject to the terms hereof, shall rank *pari passu* and shall be equally andproportionately entitled to the benefits hereof, without discrimination,preference or priority whatever, as if all of the Notes had been issued andnegotiated simultaneously.

 

**2.6**                                                                               Commencement of Interest

** **

All Notes issued hereunder shall, if issuedor exchanged before the first Interest Payment Date, bear interest form theiroriginal issue date or, if issued after the first Interest Payment Date, bearinterest from the last Interest Payment Date on which interest shall have beenpaid or made available for payment on the outstanding Notes.

 

**2.7**                                                                               Registration andTransfer of Notes

** **

(a)                                  The Corporation shall, at alltimes while any Notes are outstanding, cause to be kept by the Trustee or otherregistrars at the principal office of the Trustee in the City of Calgary and insuch other place or places and by the Trustee or such other registrars, if any,as the Corporation with the approval of the Trustee may designate, registers (**“Register(s)”**) in which shall be enteredthe names and addresses of the Holders and particulars of the Notes held bythem respectively and of all transfers of Notes.  No transfer of a Note shall be valid unless made by the Holder orhis executors or administrators or other legal representatives or his or theirattorney duly appointed by an instrument in writing in form and executionsatisfactory to the Trustee, upon compliance with such requirements as theTrustee may prescribe, and unless such transfer shall have been duly entered onone of the appropriate Registers or noted on such Note by the Trustee or otherregistrar.

 

(b)                                 The Registers hereinbeforereferred to shall at all reasonable times be open for inspection by theCorporation, the Trustee or any Holder. Every registrar (including the Trustee) shall from time to time whenrequested to do so by the Corporation or the Trustee furnish the Corporation orTrustee with a list of the names and addresses of Holders entered on theRegister or Registers kept by

 

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such registrar and showing the principalamount and Certificate numbers of the Notes held by each such Holder.

 

(c)                                  The Holder of a Note may atany time and from time to time have such Note transferred at any of the placesat which a Register is kept pursuant to the provisions of this Section, inaccordance with such reasonable requirements as the Trustee and/or otherregistrar may prescribe and subject to payment of the costs referred to inSection 2.9(b) hereof.  Neither theCorporation nor the Trustee shall be required (i) to transfer or exchange anyNotes on any Interest Payment Date or during a period of ten Business Daysimmediately preceding any such date; or (ii) to transfer or exchange any Noteson the day of any selection by the Trustee of any Notes to be redeemed orpurchased or during the fifteen Business Days immediately preceding such dateor thereafter until after the mailing of any notice of redemption or purchase;or (iii) to transfer or exchange any Notes selected or called for redemption inwhole or in part unless upon due presentation thereof such Notes or partthereof called redemption shall not be redeemed.

 

(d)                                 Neither the Trustee nor anyother registrar or the Corporation shall be charged with notice of or be boundto see to the execution of any trust, whether expressed, implied orconstructive, with respect to any Note, and the Trustee or any other registrar orthe Corporation may transfer any Note on the direction of the Holder thereof,whether named as trustee or otherwise, as though that person were thebeneficial owner thereof.

 

(e)                                  Except in the case of theRegister required to be kept at the Trustee’s principal office in the City ofCalgary, the Corporation, with the approval of the Trustee, may at any timeclose any Register upon which the registration of any Note appears and transferthe records thereof to another existing Register or to a new Register andthereafter such Notes shall be deemed to be registered on such existing or newRegister, as the case may be.  Notice ofsuch transfer shall be given to the Holders of such Notes prior to suchtransfer.

 

**2.8**                                                                               Persons Entitled to Payment

** **

(a)                                  The Person in whose name anyNote shall be registered shall be deemed and regarded as the owner thereof forall purposes of this Note Indenture and payment of or on account of theprincipal of such Note shall be made only to or upon the order in writing ofsuch Holder thereof and such payment shall be a good and sufficient dischargeto the Trustee and any registrar and to the Corporation and any paying agentfor the amounts so paid.

 

(b)                                 As interest becomes due on theNotes, the Corporation shall cause to be sent by prepaid ordinary mail a chequeor by other transfer of funds by such means as may be considered appropriate bythe Trustee for such interest (less any tax required by law to be withheldtherefrom) payable to the order of the Holder and addressed to it at its lastaddress or account, as the case may be, appearing on the Register, unless theHolder otherwise directs.  In the caseof joint Holders, the cheque or other such transfer of funds, as the case maybe, shall be payable or issued to the order of all such joint Holders andaddressed to them at the last address or account, as the case may be, appearingon the Register, unless such joint Holders otherwise direct.  If more than one address or account appearson the Register in respect of such joint Holders, the cheque or other suchtransfer of funds, as the case may be, shall be mailed or delivered, as thecase may be, to the first address or account so appearing.  In the event of non-receipt of any cheque orfunds for interest by the Holder, the Corporation will cause to be issued tothe Holder a replacement cheque or

 

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replacement transfer of funds for likeamount upon being furnished with such evidence of non-receipt as it shallreasonably require and upon being indemnified to its satisfaction, actingreasonably.

 

(c)                                  The Holder for the time beingof any Note shall be entitled to the principal monies, and interest evidencedby such Note, free from all equities or rights of set-off or counterclaimbetween the Corporation and the original or any intermediate Holder thereof andall persons may act accordingly and a transferee of a Note shall, after anappropriate form of Transfer is lodged with the Trustee or other registrar andupon compliance with all other conditions in that behalf required by this NoteIndenture or by any conditions contained in such Note or by law, be entitled tobe entered on any of the appropriate Registers as the owner of such Note freefrom all equities or rights of set-off or counterclaim between the Corporationand his transferor or any previous Holder thereof, save with respect toequities of which the Corporation is required to take notice by statute or byorder of a court of competent jurisdiction.

 

(d)                                 Delivery to the Trustee by aHolder of a Note or the receipt of such Holder for the principal monies andinterest evidenced by such Note shall be a good discharge to the Corporation,which shall not be bound to enquire into the title of such Holder, save asordered by a court of competent jurisdiction or as required by statute.  Neither the Corporation, the Trustee nor anyregistrar shall be bound to see to the execution of any trust affecting theownership of any Note nor be affected by notice of any equity that may besubsisting with respect thereto.

 

(e)                                  In the case of the death ofone or more joint Holders, the principal monies of, and interest on any Notesmay be paid or delivered to the survivor or survivors of such Holders whosereceipt thereof shall constitute a valid discharge to the Trustee, anyregistrar, the Corporation and any paying agent.

 

**2.9**                                                                               Mutilation, Loss,Theft or Destruction

** **

In case any of the Notes issued hereundershall be mutilated, lost, stolen or destroyed, the Corporation, upon beingfurnished with the mutilated Note or evidence of such event (as applicable) andindemnity as hereinafter provided, shall issue, and thereupon the Trustee shallcertify, a new Note upon surrender and cancellation of the mutilated Note, orin the case of a lost, stolen or destroyed Note, in lieu of and in substitutionfor the same, and the substituted Note shall be in a form approved by theTrustee and shall be entitled to the benefits of this Note Indenture equallywith all other Notes issued or to be issued thereunder without preference orpriority one over another.  In case ofloss, theft or destruction the applicant for a substituted Note shall furnishto the Corporation and the Trustee such evidence of such loss, theft ordestruction as shall be satisfactory to them in their discretion and shall alsofurnish indemnity and security satisfactory to them in their discretion.  The applicant shall pay all expensesincidental to the issuance of any substituted Note.

 

**2.10**                                                                        Exchanges of Notes

** **

(a)                                  Notes of any denomination maybe exchanged for Notes of any other authorized denomination or denominations,any such exchange to be for Notes of an equivalent aggregate principalamount.  Any exchange of Notes may bemade at the offices of the Trustee or at the offices of any registrar whereRegisters are maintained for the Notes pursuant to the provisions ofSection 2.6. Any

 

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Notes tendered for exchange shall besurrendered to the Trustee or appropriate registrar and shall be cancelled.

 

(b)                                 Notes issued in exchange forNotes which at the time of such issue have been selected or called forredemption at a later date shall be deemed to have been selected or called forredemption in the same manner and shall have noted thereon a statement to thateffect.

 

(c)                                  Except as herein otherwiseprovided, upon any exchange of Notes of any denomination for other Notes andupon any transfer of Notes, the Trustee or other registrar may make asufficient charge to reimburse it for any stamp or security transfer taxes orother governmental charge required to be paid and, in addition, a reasonablecharge for its services and payment of the said charge shall be made by theparty requesting such exchange or transfer as a condition precedent thereto.

 

**2.11**                                                                        Transfer

** **

The Notes may be resold, distributed ortransferred by the Holder at any time prior to the Maturity Date subject alwaysto the provisions contained in the Notes and any applicable laws and requiredregulatory approvals, including, without limitation, applicable securities lawswhich restrict the sale and distribution of the Notes.

 

**2.12**                                                                        Option of Holder asto Place of Payment

** **

Except as herein otherwise provided, all sumswhich may at any time become payable, whether at maturity or on a declarationor otherwise, on account of any Note or any interest shall be payable at theoption of the Holder at any of the places at which the principal of andinterest on such Note are payable.

 

**2.13**                                                                        Trustee Not Bound toMake Enquiries

** **

The Trustee, prior to the certification anddelivery of any Notes, under any of the provisions of this Article 2, shall notbe bound to make any enquiry or investigation as to the correctness of thematters set out in any of the resolutions, opinions, certificates or otherdocuments required by the provisions of this Note Indenture, but shall beentitled to accept and act upon the said resolutions, opinions, certificatesand other documents.  The Trustee maynevertheless, in its discretion, require further proof in cases where it deemsfurther proof desirable.

 

**2.14**                                                                        Extension

** **

On or about June 30, 2033, the Board ofDirectors of the Corporation shall review the Corporation’s business and theCorporation’s business prospects. If this review, in the opinion of the Boardof Directors of the Corporation, indicates that it is likely that theindebtedness of the Corporation evidenced by all but not less than all theNotes could be refinanced upon the Maturity Date on the same terms andconditions as herein contained, other than the interest rate to be applicable,for the period from September 2, 2033 to September 1, 2043 (the **“Extension Term”**), then provided suchextension is requested by the Corporation and, if there are then any Non-TrustHolders, such extension and the interest rate to be applicable for theExtension Term (the **“Renewal Rate”**)are approved by a resolution of the Holders on or before June 30, 2033, theMaturity Date shall be extended to September 1, 2043 and the interest rateapplicable to the Notes for the Extension Term shall be adjusted to the RenewalRate, failing which the Maturity Date shall not be so extended. If the MaturityDate is to be so extended, the Trustee and the

 

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Corporation shall make arrangements toexchange Notes which are outstanding for Notes bearing the new Maturity Dateand the interest rate applicable.

 

**2.15**                                                                        Redemption

** **

Subject to the terms and conditions of anySenior Debt Documents, from time to time and in any event not less frequentlythan each second anniversary of the date hereof, the board of directors of theCorporation shall review the Corporation’s business and business prospects. Ifthis review, in the opinion of the Board of Directors of the Corporation,indicates that it is unlikely that the indebtedness of the Corporationevidenced by the Notes could be refinanced upon maturity of the Notes, then theCorporation may, provided there are then any Non-Trust Holders, such prepaymentis approved by a resolution of the Holders, commence principal repayments onthe Notes such that, in the opinion of the board of directors of theCorporation, the Notes will be fully repaid on or before the Maturity Date. Inthe events described in the preceding sentence, the Corporation’s availablecash shall be utilized to the extent required to fund such repayments in lieuof dividends, redemptions, reduction of capital or other distributions on or inrespect of the Common Shares or any other shares of the Corporation. Accruedand unpaid interest shall be paid on any Notes concurrently with any principalrepayments pursuant to this Section 2.14. In the event that the Corporation isto commence principal repayments on the Notes pursuant to this Section 2.14 andthere is more than one holder thereof, the Notes shall be redeemed as near asmay be pro rata as between the Holders and without discrimination orpreference, based upon the aggregate principal amount of Notes held by them(rounded, if necessary, to the nearest One ($1.00) Dollar).

 

**2.16**                                                                        Prepayment

** **

Subject to the terms and conditions of anySenior Debt Documents, from time to time the Corporation may prepay all or anyportion of the Notes and in that case the Corporation shall pay any accrued andunpaid interest on the Notes to be prepaid to the date of prepayment. In the eventthat the Corporation is to commence principal repayments on the Notes pursuantto this Section 2.15 and there is more than one Holder thereof, the Notes shallbe prepaid as near as may be pro rata as between the Holders withoutdiscrimination or preference, based upon the aggregate principal amount ofNotes held by them (rounded, if necessary, to the nearest One ($1.00) Dollar).

 

**2.17**                                                                        No OtherPrepayment, Repurchase or Redemption

** **

Except as provided in this Article 2, or uponthe occurrence of an Event of Default, the Notes will not be purchased by theCorporation, repaid or redeemable at the option of the Corporation or by theHolders thereof prior to the Maturity Date.

 

**ARTICLE 3SUBORDINATION OF NOTES**

** **

**3.1**                                                                               Subordination

** **

Each of the the Corporation and the Trusteecovenants and agrees, and each Holder of a Note, by such Holder’s acceptancethereof, likewise covenants and agrees, that the payment of the principal of,any interest on, and all other indebtedness, obligations and liabilitiesevidenced by each and all of the Notes and all other obligations of theCorporation hereunder (other than ordinary and regularly scheduled fees andout-of-pocket expenses of the Trustee) shall be and is hereby expresslysubordinated, to the extent

 

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and in the manner hereinafter set forth, inright of payment to the prior indefeasible payment in full and in cash of allSenior Debt now outstanding or hereafter incurred and whether or not suchsubordination is specifically evidenced by a subordination agreement enteredinto by the Trustee on behalf of the Holders; provided that the Corporationshall not be precluded hereby from paying regularly scheduled interest on theNotes as long as at the relevant Interest Payment Date and immediately afterthe making of such payment no Senior Debt Default has occurred and iscontinuing.  In the event that,notwithstanding the foregoing, and provided the Trustee has received actualnotice thereof, including pursuant to Section 3.8, any payment or distributionof assets of the Corporation of any kind or character, whether in cash,property or securities, is paid or distributed by the Corporation under theterms hereof after the occurrence of and during the continuance of a SeniorDebt Default and before all Senior Debt is indefeasibly paid in full and incash, such payment or distribution will be held in trust for the benefit of andwill be paid over to the holders of such Senior Debt or their agent or otherrepresentative or to the trustee under any indenture under which anyinstruments evidencing any of such Senior Debt may have been issued, as theirrespective interests may appear, for application to the payment of all SeniorDebt remaining unpaid until (taking into account any concurrent payment ordistribution to the holders of such Senior Debt) all such Senior Debt has beenpaid indefeasibly in full and in cash. The provisions of this Article3 are intended to be enforceable directly by each Person from time to timeentitled to enforce any Senior Debt. The Corporation hereby declares itself tohold the benefits of this Article 3 in trust for each Person entitled toenforce any Senior Debt from time to time and will do and execute all suchdocuments and things as may be necessary to enable any such Person to enforcethe provisions of this Article 3.

 

**3.2**                                                                               Definition

** **

For purposes of this Article 3:

 

(a)                                  the words **“cash, property or securities”** will bedeemed to include shares of the Corporation as reorganized or readjusted, orsecurities of the Corporation or any other corporation provided for by a planof reorganization, arrangement or readjustment of indebtedness; and

 

(b)                                 any reference to the **“indefeasible payment in full and in cash”**(or words to like effect) of Senior Debt means receipt by the holders of SeniorDebt of indefeasible payment in cash of the full amount of such Senior Debt andall obligations of the Corporation in respect thereof; provided that if theholders of Senior Debt are entitled to and do receive any property or securitiesby virtue of the provisions hereof then, to the extent that they are able todispose of such property or securities in a reasonable period after receipt (ifthe same are readily marketable) and do so in their discretion, the netproceeds of such disposition shall be considered (as between the holders ofsuch Senior Debt and the Holders) to have been paid by the Holders hereunder tosuch holders of Senior Debt and to reduce the amount of such Senior Debt.

 

**3.3**                                                                               Distribution onCreditor Proceedings

** **

(a)                                  In the event of any CreditorProceedings:

 

(i)                                     the holders of all Senior Debtwill be entitled to receive payment in full in cash of the principal thereof,premium (if any), interest due thereon and all other indebtedness, obligationsand liabilities relating thereto or comprising Senior Debt before the Trusteeor the Holders of Notes will be entitled to receive any payment hereunder orupon or in respect of the Notes or distribution of any kind or character,whether in cash, property or

 

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securities, that may be payable ordeliverable in any such event hereunder or in respect of any of the Notes;

 

(ii)                                  any payment or distribution ofassets of the Corporation of any kind or character, whether in cash, propertyor securities, to which the Holders of Notes or the Trustee would be entitled,except for the provisions of this Article 3, will be paid by the liquidatingtrustee or agent or other person making such payment or distribution, whether atrustee in bankruptcy, a receiver or liquidating trustee or otherwise, directlyto the holders of Senior Debt or their agent or other representative or to thetrustee under any indenture under which any instruments evidencing any of suchSenior Debt may have been issued, as their respective interests may appear, tothe extent necessary to indefeasibly pay in full and in cash all Senior Debtremaining unpaid after giving effect to any concurrent payment or distributionto the holders of such Senior Debt; and

 

(iii)                               in the event that,notwithstanding the foregoing, any payment or distribution of assets of theCorporation of any kind or character, whether in cash, property or securitiesis received by the Trustee or the Holders of Notes during the continuance of aSenior Debt Default and before all Senior Debt is indefeasibly paid in full andin cash, such payment or distribution will be held in trust for the benefit ofand will be paid over to the holders of such Senior Debt or their agent orother representative or to the trustee under any indenture under which anyinstruments evidencing any of such Senior Debt may have been issued, as theirrespective interests may appear, for application to the payment of all SeniorDebt remaining unpaid until (taking into account any concurrent payment ordistribution to the holders of such Senior Debt) all such Senior Debt has beenindefeasibly paid in full and in cash after giving effect to any concurrentpayment or distribution to the holders of such Senior Debt.

 

(b)                                 Upon any distribution ofassets of the Corporation referred to in this Article 3, the Trustee and theHolders of Notes will be entitled to rely upon a Certificate of the liquidatingtrustee or agent or other person making any distribution to the Trustee or tothe Holders of the Notes for the purpose of ascertaining the persons entitledto participate in such distribution, the holders of Senior Debt and otherindebtedness, obligations and liabilities of the Corporation, the amountthereof or payable thereon, the amount paid or distributed thereon and allother facts pertinent thereto or to this Article.

 

**3.4**                                                                               No Payment toNoteholders In Certain Events

** **

(a)                                  Upon the maturity of anySenior Debt for any reason, including by lapse of time, acceleration orotherwise, all principal of, premium (if any) and interest on, and all otherindebtedness, obligations and liabilities in respect of all such matured SeniorDebt will first be indefeasibly paid in full and in cash before any payment onaccount of the Notes (whether principal, interest or otherwise) is made.

 

(b)                                 Upon the happening of a SeniorDebt Default, then, unless and until such Senior Debt Default has been cured orwaived or has ceased to exist, no payment (by purchase of Notes or otherwise)will be made by the Corporation with respect to the principal of, any intereston or other amount owing under or in respect of the Notes unless the SeniorDebt Default has been cured or waived as evidenced by a certificate of theholder of the applicable Senior Debt or an agent or trustee

 

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thereof or the Senior Debt has beenindefeasibly paid in full and in cash. In the event that, notwithstanding the foregoing, the Corporation makesany payment with respect to the Notes, then, unless and until such Senior DebtDefault has been cured or waived or has ceased to exist as evidenced by acertificate of the holder of the applicable Senior Debt or an agent or trusteethereof, such payments will be held in trust for the benefit of, and, if andwhen such Senior Debt becomes due and payable, will be paid over to, theholders of the Senior Debt or their agent or other representative or to thetrustee under any indenture under which any instruments evidencing any of theSenior Debt may have been issued, as their respective interests may appear, forapplication to the payment of all Senior Debt remaining unpaid until all suchSenior Debt has been indefeasibly paid in full and in cash, after giving effectto any concurrent payment or distribution to the holders of such Senior Debt.

 

(c)                                  The fact that any paymenthereunder is prohibited by this Section will not prevent the failure to makesuch payment from being an Event of Default or Default hereunder.

 

(d)                                 If, pursuant to this NoteIndenture, the Trustee shall declare the principal and interest of all Notes atany time outstanding to be due and payable because of the occurrence of anEvent of Default (under circumstances when the provisions of the foregoingclauses (a) and (b) shall not be applicable) the Holders of the Notes shall beentitled to payment only after there shall first have been indefeasibly paid infull and in cash the Senior Debt outstanding at the time such Notes become dueand payable because of such Event of Default.

 

(e)                                  The Corporation shall not, solong as any Senior Debt is outstanding, pay, prepay, redeem, purchase orprovide any cash, property or securities for any payment of or in respect ofany of the Notes or any interest therein except, so long as no Senior DebtDefault has occurred and is continuing, for regularly scheduled payments ofinterest on the Notes and the repayment of principal at the Maturity Date.

 

**3.5**                                                                               Payment of Notes Permitted

** **

If the Trustee:

 

(a)                                  receives a Certificate of theCorporation certifying that the Corporation is entitled to make a payment withrespect to the Notes pursuant to the provisions hereof; and

 

(b)                                 has not received writtennotice from or on behalf of any holder of any Senior Debt, notifying theTrustee of the happening of a Senior Debt Default or of the existence of anyother facts that would result in the making of any payment with respect toNotes in contravention of the provisions of this Article 3 or, if it hasreceived such written notice, it has subsequently received a certificate of suchholder of Senior Debt confirming that such Senior Debt Default has been curedor waived or such facts no longer exist,

 

then the Trustee will be entitled to assumethat such payment may be made, that no such Senior Debt Default has occurredand that no such facts exist and the Trustee may apply any money that may bereceived by the Trustee at such time pursuant to any provisions of this NoteIndenture to the purposes for which the same were so received.  Notwithstanding the foregoing, any suchpayment is subject to disgorgement if made contrary to this Article 3.

 

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**3.6**                                                                               Subordination not to beImpaired

** **

(a)                                  The provisions of this Article3, including without limitation the subordination provided in this Article 3,shall apply in all events and circumstances and notwithstanding any CreditorProceedings.

 

(b)                                 No right of any present orfuture holder of any Senior Debt of the Corporation to enforce thesubordination as herein provided will at any time in any way be prejudiced orimpaired by any act or failure to act in good faith, by any such holder, or byany non-compliance by the Corporation with the terms, provisions and covenantsof this Note Indenture, regardless of any knowledge thereof which any such holdermay have or be otherwise charged with.

 

**3.7**                                                                               Authorization ofNoteholders to Trustee to Effect Subordination

** **

(a)                                  Each Holder of Notes by suchHolder’s acceptance thereof authorizes and directs the Trustee on such Holder’sbehalf to take such action as may be necessary or appropriate to enter intocontractual subordination agreements (**“SubordinationAgreements”**) with one or more holders of Senior Debt or a trustee oragent for it or them which may include terms in implementation of and/or inaddition to the provisions of this Article 3, the grant of a power of attorneyto a holder of Senior Debt to be exercised in any Creditor Proceedings toenforce the terms thereof, or provisions to bind any transferee of the Notes tothe terms thereof.

 

(b)                                 Without limiting orrestricting the provisions of Section 3.7(a), each Holder, by suchHolder’s acceptance of a Note or Notes (i) specifically authorizes anddirects the Trustee to, and specifically acknowledges, understands and agreesthat the Trustee may, execute and deliver Subordination Agreements between theTrustee and the Banks; and (ii) acknowledges and agrees to be bound by theprovisions of the Subordination Agreements including, without limitation, theSubordination Agreement to be dated September 3, 2003 between Baytex EnergyLtd., Baytex Energy Trust, as the Holder of the Notes, and The Toronto-DomioionBank, notwithstanding the terms thereof are different from, and in addition to,those herein, subject always to the limitation that no provision of any suchSubordination Agreement and no security interest therefor or judgment inrespect thereof may be exercised or enforced against any property of the Holderother than any cash, property or securities distributed or paid to such Holdercontrary to the provisions hereof.

 

**3.8**                                                                               Notice of Default underSenior Debt

** **

The Corporation shall give the Trustee promptwritten notice of the happening of any Senior Debt Default, and of any cure,waiver or withdrawal thereof, of which notice has been given to the Corporation.

 

**3.9**                                                                               Inapplicabilityin Certain Circumstances

** **

The provisions of this Article 3 shall not beapplicable to any cash, properties or securities received by the Trustee or theHolder of any Note as a holder of Senior Debt or a trustee or agent for anysuch Holder.

 

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**3.10**                                                                        Actual Notice Required

** **

Notwithstanding the provisions of thisArticle 3 or any other provisions of this Note Indenture, the Trustee shall notbe charged with knowledge of the existence of any facts which would prohibitthe making of any payment of moneys to the Holders, or the application of suchmoneys by the Trustee in accordance with the terms hereof, unless and until theTrustee shall have received written notice thereof.

 

**3.11**                                                                        No ImpairmentBetween Corporation and Holders

** **

Nothing herein shall impair, as between theCorporation and the Holder of any Note, the obligation of the Corporation,which is unconditional and absolute, to pay the Holder the principal, premium,if any, and interest thereon in accordance with its terms, nor shall anythingtherein or herein prevent the Trustee or the Holder of any Note from exercisingall the remedies otherwise permitted by applicable law or hereunder upon theoccurrence of any Event of Default hereunder, subject to any contraryprovisions of the Subordination Agreements and to the rights, if any, underthis Article 3 of holders of Senior Debt to receive cash, property orsecurities otherwise payable or deliverable to the Trustee or the Holders of theNotes, and subject to the provisions of Section 3.12.

 

**3.12**                                                                        Procedural Matters -Classification

** **

Notwithstanding anything to the contraryherein or by applicable law provided, in the event of any classification ofcreditors of the Corporation on the commencement of or during any CreditorProceedings, the indebtedness, obligations and liabilities represented by theNotes shall not, whether for purposes of voting or other procedural matters ordistribution, be classified with any Senior Debt.  For these purposes, **“voting”**includes any manner of expressing assent or dissent, including voting at ameeting in person or by proxy, written resolution or consent instrument orotherwise.

 

**3.13**                                                                        Payment of Trustee’s Fees,etc.

** **

Notwithstanding anything to the contrarycontained in this Article 3 or in any Subordination Agreement, the Trusteeshall be entitled to be paid by the Corporation or the Trust the TrusteeExpenses in priority to any Senior Debt and the Trustee shall be entitled toretain out of any Current Proceeds held by the Trustee any Trustee Expensesthen due and owing prior to disbursing such funds in accordance with the termsof this Note Indenture or the Trust Indenture.

 

**ARTICLE 4COVENANTS OF THE CORPORATION**

** **

**4.1**                                                                               Positive Covenants

** **

The Corporation hereby covenants and agreeswith the Trustee for the benefit of the Trustee and the Holders that so long asany Notes remain outstanding it will:

 

(a)                                  duly and punctually pay andcause to be paid to the Holders (either directly or through the Trustee or anagent of the Trustee) the principal and any interest accrued thereunder at thedates and places, in the currency and in the manner prescribed herein and forsuch purpose, where payment is made through the Trustee or an agent of theTrustee, put the Trustee in funds adequate to effect such payments no laterthan 10:00 a.m. (Calgary time) on the due date or three days prior theretowhere the Trustee is required to mail a cheque;

 

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(b)                                 maintain its corporate existenceand carry on and conduct its business in a proper, efficient and business-likemanner and in accordance with good business practice and will do or cause to bedone all things necessary to preserve and keep in full force and effect itscorporate existence and rights;

 

(c)                                  keep proper books of accountin accordance with generally accepted accounting principles;

 

(d)                                 furnish the Trustee withcopies of, and will provide directly to each Holder of Notes requesting same,all interim financial statements and annual audited (consolidated, ifapplicable) financial statements, and the report, if any, of the Corporation’sauditors thereon;

 

(e)                                  notify the Trustee immediatelyupon becoming aware of any Default or Event of Default hereunder;

 

(f)                                    give to the Trustee notice,including reasonable particulars, of any action, suit or proceeding, to theknowledge of the Corporation, pending against or affecting the Corporationbefore any court or before any governmental department, commission or agency orarbitrator in Canada or elsewhere, which could result in any material adversechange in the business, or the operations, prospects or assets or in thecondition, financial or otherwise, of the Corporation; and

 

(g)                                 do, observe and perform orcause to be done, observed or performed all of the material obligations of theCorporation under all material agreements, leases, contracts and indentures andall material matters necessary to be done, observed or performed whether underany law or regulation of Canada, any province thereof, or any foreign country,or any municipality therein, or otherwise, in each case where non-compliancemight give rise to a material adverse effect on the business or financialcondition of the Corporation.

 

**4.2**                                                                               Trustee May PerformCovenants

** **

If the Corporation fails to perform anycovenant on its part herein contained, the Trustee may in its discretion, but(subject to Section 5.9) need not, notify the Holders of such failure oritself may but need not perform any of said covenants capable of beingperformed by it and, if any such covenant requires the payment or expenditureof money, it may but need not make such payment or expenditure with its ownfunds, or with money borrowed by or advanced to it for such purposes, but shallbe under no obligation to do so and all sums so expended or advanced shall berepayable by the Corporation in the manner provided in Section 4.3, but nosuch performance or payment by the Trustee shall be deemed to relieve theCorporation from default hereunder.

 

**4.3**                                                                               To Pay Trustee’s Remuneration

** **

The Corporation will, from time to time, paythe Trustee’s reasonable remuneration for its services hereunder together withall costs incurred by the Trustee pursuant to Section 10.7 and will repayto the Trustee on demand all monies which shall have been paid by the Trusteein and about the execution of the trusts hereby created including, withoutlimitation, legal fees and expenses on a solicitor and his own client basis andall costs incurred by the Trustee in complying with any laws applicable to itas a result of its duties as Trustee hereunder, with interest at a rate to beagreed upon between the Trustee and the Corporation, from thirty (30) daysafter the date of receipt of the invoice from the Trustee to the Corporationwith respect to such expenditure until repayment, and such monies and theinterest thereon,

 

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including the Trustee’s remuneration, shallbe payable out of any funds coming into the possession of the Trustee in priorityto any payment in respect of any of the Notes or interest thereon.  The said remuneration shall continue to bepayable until the trusts hereof shall be finally wound up and whether or notthe trusts of this Note Indenture shall be in the course of administration byor under the direction of the court.

 

**4.4**                                                                               Negative Covenant

** **

The Corporation shall not, nor shall itpermit any of its Subsidiaries to sell or dispose of all or substantially allof its assets, except as permitted by and in compliance with Section 7.1 orsubsection 8.11(c).

 

**ARTICLE 5DEFAULT**

** **

**5.1**                                                                               Events of Default

** **

It shall be an Event of Default if:

 

(a)                                  the Corporation makes defaultin repayment of the principal amount of the Notes or of any Note due andpayable at maturity, upon acceleration or otherwise;

 

(b)                                 the Corporation makes defaultin payment of any accrued and unpaid interest due on the Notes on an InterestPayment Date and the Corporation has failed to pay all such accrued interest(and interest thereon as set out in subsection 2.1(b)) in full within twelve(12) months of such Interest Payment Date;

 

(c)                                  the Corporation makes defaultand demand for payment has been made under the provisions of any instrument,indenture or document evidencing Senior Debt having a principal amountoutstanding in excess of Five Hundred Million ($500,000,000) Dollars and failsto remedy the same within the curative period provided for therein or dischargethe same or unless such default is waived and any acceleration is rescindedbefore the acceleration of the Notes;

 

(d)                                 a decree or order of a courthaving jurisdiction is entered adjudging the Corporation a bankrupt orinsolvent under the *Bankruptcy andInsolvency Act* (Canada) or any other bankruptcy, insolvency oranalogous laws, or issuing sequestration or process of execution against, oragainst any substantial part of the property of, the Corporation, or appointinga receiver of, or of any substantial part of the property of, the Corporationor ordering the winding-up or liquidation of its affairs, and any such decreeor order continues un-stayed and in effect for a period of thirty (30) days;

 

(e)                                  a resolution is passed for thewinding-up or liquidation of the Corporation or if the Corporation institutesproceedings to be adjudicated a bankrupt or insolvent, or consents to theinstitution of bankruptcy or insolvency proceedings against it under the*Bankruptcy and Insolvency Act* (Canada) orany other bankruptcy, insolvency or analogous laws, or consents to the filingof any such petition or to the appointment of a receiver of or of anysubstantial part of the property of the Corporation or makes a generalassignment for the benefit of creditors;

 

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(f)                                    the Corporation shall neglectto observe or perform any other covenant or condition herein contained on itspart to be observed or performed and, after notice in writing has been given bythe Trustee to the Corporation specifying such default and requiring theCorporation to put an end to the same (which said notice may be given by theTrustee, in its discretion, and shall be given by the Trustee upon receipt of aNoteholders’ Request) the Corporation shall fail to make good such defaultwithin a period of thirty (30) days, unless the Trustee (having regard to thesubject matter of the default) shall have agreed to a longer period, and insuch event, within the period agreed to by the Trustee;

 

(g)                                 any proceedings concerning theCorporation are taken with respect to a compromise or arrangement under the *Companies’ Creditors Arrangement Act* (orany act substituted therefor) or similar legislation of any other jurisdiction;or

 

(h)                                 any encumbrancer takespossession of property of the Corporation having a fair market value in excessof $250,000,000 or if a distress or execution or any similar process isenforced against such property and remains unsatisfied for so long as wouldpermit any part of such property to be sold thereunder, or if a custodian orsequestrator or a receiver or receiver and manager or any other officer withsimilar powers is appointed for the Corporation or for all or substantially allof the Corporation’s property.

 

**5.2**                                                                               Special Waiver by the Trust

** **

If, at any time when the Trust is the Holderof all outstanding Notes, the Corporation is unable or unwilling to payinterest or principal payment on all Notes as required by this Note Indenture,the Corporation may request the Trust to delay immediate payment of all or partof the interest or principal payable on the Notes held by the Trust. If theTrust agrees to a delay, interest, principal and interest on overdue interestand principal shall continue to accrue and shall be payable by the Corporationfive days after demand by the Trust. Failure to pay on or before the fifth dayshall constitute an Event of Default. The Trust shall have, in respect of anydelayed interest, principal or overdue interest and all other sums owed underthe Notes held by it, equal priority with all other holders of Notes in respectof all sums owed under those Notes but for clarity shall have no preference orpriority for delayed interest, principal or overdue interest.

 

**5.3**                                                                               Acceleration of Maturity

** **

Upon the occurrence of an Event of Default,the Trustee may in its discretion and shall upon receipt of a Noteholders’Request, by notice in writing to the Corporation, declare the principal of andinterest on all Notes then outstanding and all other monies outstandingthereunder to be due and payable and the same shall forthwith becomeimmediately due and payable to the Trustee provided, that, notwithstanding theforegoing, upon the occurrence of an Event of Default described in subsections5.1(d), 5.1(e) or 5.1(g), the principal and interest on all Notes thenoutstanding shall forthwith become immediately due and payable to the Trustee,anything therein or herein to the contrary notwithstanding and the Corporationshall, subject (as between the Holders and the Trustee on the one hand and anyPersons entitled to enforce any Senior Debt on the other) to the terms of Article 3hereof, forthwith pay to the Trustee for the benefit of the Holders suchprincipal, accrued and unpaid interest and all other monies outstandingthereunder, together with interest at the Interest Rate on such principal,interest and such other monies until payment is received by the Trustee.  Such payment when made shall be deemed tohave been made in discharge of

 

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the Corporation’s obligations under the Notesand any monies so received by the Trustee shall be applied in the mannerprovided in Section 5.13.

 

**5.4**                                                                               Remedies

** **

Whenever an Event of Default has occurred theHolder(s) may, by Noteholders’ Request, cause the Trustee to proceed to enforcetheir rights by any action, suit, remedy or proceeding authorized or permittedby law or by equity and to file such proofs of claim and other papers ordocuments as may be necessary or advisable in order to have their claim lodgedin any winding-up or other proceedings relative to the Corporation, providedhowever, that (as between the Holders and the Trustee on the one hand and anyPersons entitled to enforce any Senior Debt on the other) the Trustee’s rightto proceed may be limited by the provisions of any Subordination Agreemententered into by the Trustee pursuant to Article 3 hereof.

 

**5.5**                                                                               Remedies not Exclusive

** **

No remedy for the enforcement of rights ofthe Holder(s) under this Article 5 shall be exclusive of or dependent on anyother such remedy but any one or more of such remedies may from time to time beexercised independently or in combination.

 

**5.6**                                                                               Costs

** **

The Corporation shall be liable to theTrustee for all costs incurred by the Trustee in connection with theenforcement of rights under this Note Indenture together with interest thereon,at a rate agreed upon between the Trustee and the Corporation but not less thanthe Interest Rate, from thirty (30) days after the date of receipt of theinvoice from the Trustee to the Corporation with respect to such costs untilthe date payment thereof is received by the Trustee.

 

**5.7**                                                                               Delay

** **

No delay or omission of the Trustee or anyHolder to exercise any remedy shall impair any such remedy or be construed tobe a waiver of default hereunder or acquiescence herein.

 

**5.8**                                                                               No Recourse AgainstOther Parties

** **

Neither the Trustee nor the Holder(s) shallhave any right, cause of action or remedy now or hereafter existing in anyjurisdiction against any past, present or future incorporator, shareholder,director or officer of the Corporation for the payment of the principal orinterest under any or all of the Notes or on any covenant, agreement,representation or warranty of the Corporation contained herein or in the Notes.

 

**5.9**                                                                               Notice of Events of Default

** **

If an Event of Default shall occur and becontinuing, the Trustee shall, within five (5) days after it becomes aware ofthe occurrence of such Event of Default give notice of such Event of Default tothe Holders in the manner provided in Section 9.1; provided that,notwithstanding the foregoing, unless the Trustee shall have been requested todo so by a Noteholders’ Request, the Trustee shall not be required to give suchnotice if the Trustee in good faith shall have determined that the withholdingof such notice is in the best interests of the Holders and shall have so advisedthe Corporation in writing.

 

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**5.10**                                                                        Waiver of Default

** **

Upon the happening of any Event of Defaulthereunder:

 

(a)                                  the Holders shall have thepower (in addition to the powers exercisable by Extraordinary Resolution ashereinafter provided) by Noteholders’ Request, to instruct the Trustee to waiveany Event of Default and the Trustee shall thereupon waive the Event of Defaultupon such terms and conditions as shall be prescribed in such requisition; and

 

(b)                                 the Trustee, so long as it hasnot become bound to declare the principal and interest on the Notes outstandingto be due and payable, or to obtain or enforce payment of the same, shall havethe power to waive any Event of Default if, in the Trustee’s reasonableopinion, the same shall have been cured or adequate satisfaction made therefor,and in such event to cancel any such declaration theretofore made by theTrustee in the exercise of its discretion, upon such terms and conditions asthe Trustee may deem advisable;

 

provided that no act or omission either ofthe Trustee or of the Holders shall extend to or be taken in any mannerwhatsoever to affect any subsequent Event of Default or the rights resultingtherefrom.

 

**5.11**                                                                        Enforcement by the Trustee

** **

(a)                                  Subject to the provisions ofSection 5.9 and to the provisions of any Extraordinary Resolution that maybe passed by the Holders, in the event the Corporation shall fail to pay to theTrustee, forthwith after the same shall become due and payable in accordancewith Section 5.3, the principal and interest on all Notes outstanding,together with any other amounts due hereunder, the Trustee, may, in itsdiscretion and shall upon receipt of a Noteholders’ Request, and upon beingindemnified to its reasonable satisfaction against all costs, expenses andliabilities to be incurred, but subject (as between the Holders and the Trusteeon the one hand and any Persons entitled to enforce any Senior Debt on theother), to Article 3, proceed in its name as Trustee hereunder to obtainor enforce payment of the principal and interest on all Notes then outstandingtogether with any other amounts due thereunder, by such proceedings authorizedby this Note Indenture or by law or equity as the Trustee in such request shallhave been directed to take, or if such request contains no such direction, orif the Trustee shall act without such request, then by such proceedingsauthorized by this Note Indenture or by suit at law or in equity as the Trusteeshall deem expedient.

 

(b)                                 The Trustee shall be entitledand empowered, either in its own name or as trustee of an express trust, or asattorney-in-fact for the Holders, or in any one or more of such capacities, butsubject (as between the Holders and the Trustee on the one hand and any Personsentitled to enforce any Senior Debt on the other) to Article 3, to filesuch proof of debt, amendment of proof of debt, claim, petition or otherdocument as may be necessary or advisable in order to have the claims of theTrustee and of the Holders allowed in any Creditor Proceedings relative to theCorporation or its creditors or relative to or affecting its property.  The Trustee is hereby irrevocably appointed(and the successive respective Holders by taking and holding Notes shall beconclusively deemed to have so appointed the Trustee), but subject (as betweenthe Holders and the Trustee on the one hand and any Persons entitled to enforceany Senior Debt on the other) to Article 3, the true and lawfulattorney-in-fact of the respective Holders with authority to make and file inthe respective names of the Holders or on behalf of the Holders as a class,subject to deduction from any such

 

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claims of the amounts of any claims filedby any of the Holders themselves, any proof of debt, amendment of proof ofdebt, claim, petition or other document in any such proceedings and to receivepayment of any sums becoming distributable on account thereof, and to executeany such acts and things for and on behalf of such Holders, as may be necessaryor advisable in the opinion of the Trustee, in order to have the respectiveclaims of the Trustee and of the Holders against the Corporation or itsproperty allowed in any such proceeding, and to receive payment of or onaccount of such claims, provided, however, that (i) nothing contained inthis Note Indenture shall be deemed to give to the Trustee, unless soauthorized by Extraordinary Resolution, any right to accept or consent to anyplan of reorganization or otherwise by action of any character in suchproceeding to waive or change in any way any right of the Holder, and(ii) all such rights shall be subject to Article 3.

 

(c)                                  The Trustee shall also havepower at any time and from time to time, but subject (as between the Holdersand the Trustee on the one hand and any Persons entitled to enforce any SeniorDebt on the other) to Article 3, to institute and to maintain such suitsand proceedings as it may be advised shall be necessary or advisable to preserveand protect its interests and the interests of the Holders.

 

(d)                                 All rights of action hereundermay be enforced by the Trustee without the possession of any of the Notes orthe production thereof on the trial or other proceedings relative thereto.  Any such suit or proceeding instituted bythe Trustee shall be brought in the name of the Trustee as trustee of anexpress trust, and any recovery of judgment shall be for the rateable benefitof the Holders subject to the provisions of this Note Indenture.  In any proceeding brought by the Trustee(and also any proceeding in which a declaratory judgment of a court may besought as to the interpretation or construction of any provision of this NoteIndenture, to which the Trustee shall be a party) the Trustee shall be held torepresent all of the Holders, and it shall not be necessary to make any Holdersparty to any such proceeding.

 

**5.12**                                                                        No Suits by Holders

** **

No Holder of any Note shall have any right toinstitute any action, suit or proceeding at law or in equity for the purposesof enforcing payment of the principal or interest on the Notes or for theexecution of any trust or power hereunder or for the appointment of aliquidator or receiver or for a receiving order under the *Bankruptcy and Insolvency Act* (Canada) orto have the Corporation wound up or to file or prove a claim in any CreditorProceeding or for any other remedy hereunder, unless: (i) such Holdershall previously have given to the Trustee written notice of the happening ofan Event of Default hereunder; (ii) the Holders by Noteholders’ Requestshall have made a request to the Trustee and the Trustee shall have beenafforded reasonable opportunity either itself to proceed to exercise the powershereinbefore granted or to institute an action, suit or proceeding in its namefor such purpose; (iii) the Holders or any of them shall have furnished tothe Trustee, when so requested by the Trustee, sufficient funds or securitytherefor and an indemnity satisfactory to the Trustee to cover the costs, expensesand liabilities to be incurred therein or thereby; (iv) the Trustee shallhave failed to act within a reasonable time of receipt of such notification,request and offer of indemnity; and such notification, request and offer ofindemnity are hereby declared in every such case, at the option of the Trustee,to be conditions precedent to any such proceedings, and (v) the bringingof any such action, suit or proceeding would not be contrary to Article 3.

 

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**5.13**                        Application of Monies byTrustee

** **

Except as herein otherwise expresslyprovided, but subject (as between the Holders and the Trustee on the one handand any Persons entitled to enforce any Senior Debt on the other) toArticle 3, any money received by the Trustee from the Corporation pursuantto the foregoing provisions of this Article 5, or as a result of legal or otherproceedings or from any trustee in bankruptcy or liquidator of the Corporationor in any other manner, shall be applied, together with any other monies in thehands of the Trustee available for such purpose as follows:

 

(a)           first, in payment or in reimbursement ofthe Trustee of its compensation, costs, charges, expenses, borrowings, advancesor other monies furnished or provided by or at the instance of the Trustee inor about the execution of its trusts under, or otherwise in lawful relation to,this Note Indenture, with interest thereon as herein provided;

 

(b)           second, but subject as hereinafter in thisSection 5.13 provided, in payment, rateably and proportionately to theHolders in the following priority namely: first, accrued and unpaid interestand interest on amounts in default; thereafter, principal; unless otherwisedirected by Extraordinary Resolution and in that case in such order or priorityas between principal and interest as may be directed by such resolution; and

 

(c)           third, in payment of the surplus, if any,of such monies to the Corporation or its assigns;

 

provided, however, that no payment shall bemade pursuant to subsection 5.13(b) above contrary to Article 3 or withrespect to the principal or interest of any Note held, directly or indirectly,by or for the benefit of the Corporation or any Subsidiary (other than any Notepledged for value and in good faith to a person other than the Corporation orany Subsidiary but only to the extent of such person’s interest therein) exceptsubject to the prior payment in full of the principal and interest of all Noteswhich are not so held.

 

**5.14**                        Distribution of Proceeds

** **

Payments to Holders of Notes pursuant tosubsection 5.13(b) shall be made as follows:

 

(a)           at least fifteen (15) days’ notice of everysuch payment shall be given in the manner provided in Section 9.1specifying the time when and the place or places where the Notes are to bepresented and the amount of the payment and the application thereof as betweenprincipal and interest;

 

(b)           payment of any Note shall be made uponpresentation thereof at any one of the places specified in such notice and anysuch Note thereby paid in full shall be surrendered, otherwise a memorandum ofsuch payment shall be endorsed thereon; but the Trustee may in its discretiondispense with presentation and surrender or endorsement in any special caseupon such indemnity being given to it as it shall deem sufficient;

 

(c)           from and after the date of paymentspecified in the notice, interest shall accrue only on the amount owing on eachNote after giving credit for the amount of the payment specified in such noticeunless the Note with respect to which such amount is owing is duly presented onor after the date so specified and payment of such amount is not made; and

 

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(d)           the Trustee shall not be bound to apply ormake any partial or interim payment of any monies coming into its hands if theamount so received by it, after reserving thereout such amount as the Trusteemay think necessary to provide for the payments mentioned insubsection 5.13(a), would be insufficient to make a distribution of atleast five percent (5%) of the aggregate principal amount of the outstandingNotes, but it may retain the money so received by it and invest or deposit thesame as provided in Section 10.9 until the money or the investmentsrepresenting the same, with the income derived therefrom, together with anyother monies for the time being under its control shall be sufficient for thesaid purpose or until it shall consider it advisable to apply the same in themanner hereinbefore set forth.  Theforegoing shall not apply to a final payment or distribution hereunder.

 

**5.15**                        Judgment Against theCorporation

** **

The Corporation covenants and agrees with theTrustee that, in case of any judicial or other proceedings to enforce therights of the Holders, judgment may be rendered against it in favour of theHolders or in favour of the Trustee, as trustee for the Holders, for any amountwhich may be proved to remain due with respect to the Notes and the interestthereon and any other monies owing hereunder.

 

**ARTICLE 6**SATISFACTION, DISCHARGE AND REDEMPTION

** **

**6.1**                          Payment of Principal Amount

** **

Subject to the provisions of Article 3, theprincipal amount and any interest due upon maturity of any Note outstandingshall be paid by the Corporation to the Trustee on the Maturity Date forpayment to the Holder upon presentation and surrender of the Note by the Holderto the Trustee at the office of the Trustee in the City of Calgary.  Upon payment of the principal amounttogether with any accrued and unpaid interest, the Note shall be cancelled bythe Trustee.

 

**6.2**                          Non-Presentation of Notes

** **

In case the holder of any Note shall fail topresent the same for payment on the date on which the principal thereof or theinterest thereon or represented thereby becomes payable either at maturity orotherwise or shall not accept payment on account thereof and give such receipttherefor, if any, as the Trustee may require:

 

(a)           the Corporation shall be entitled to pay tothe Trustee and direct it to set aside; or

 

(b)           in respect of moneys in the hands of theTrustee which may or should be applied to the payment of the Notes, theCorporation shall be entitled to direct the Trustee to set aside; or

 

(c)           if the redemption was pursuant to noticegiven by the Trustee, the Trustee may itself set aside;

 

the principal moneys or the interest, as thecase may be, in trust to be paid to the holder of such Note upon duepresentation or surrender thereof in accordance with the provisions of thisNote Indenture; and thereupon the principal moneys or the interest payable onor represented by each Note in respect whereof such moneys have been set asideshall be deemed to have been paid and the holder thereof shall thereafter haveno right in respect thereof except that of receiving delivery and payment ofthe moneys so set aside

 

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by the Trustee upon due presentation andsurrender thereof, subject always to the provisions of Section 6.3.

 

**6.3**                          Repayment of UnclaimedMonies

** **

Any monies set aside under Section 6.2and not claimed by and paid or delivered to Holders as provided inSection 6.2 within six (6) years after the date of such setting asideshall be repaid or returned to the Corporation by the Trustee on demand andthereupon the Trustee shall be released from all further liability with respectto such monies and thereafter the Holders with respect to which such monieswere so repaid to the Corporation shall have no rights with respect theretoexcept to obtain payment or delivery of the monies due thereon from theCorporation up to such time as the right to proceed against the Corporation forrecovery of such monies has become statute barred under the laws of theProvince of Alberta.

 

**6.4**                          Discharge

** **

The Trustee shall at the request of theCorporation release and discharge this Note Indenture and execute and deliversuch instruments as it shall be advised by Counsel are requisite for thatpurpose and to release the Corporation from its covenants herein contained(other than the provisions relating to the indemnification of the Trustee) uponproof being given to the reasonable satisfaction of the Trustee that theprincipal of and interest (including interest on amounts in default, if any) onall the Notes and all other monies or other consideration payable hereunder havebeen paid or satisfied or that, all the Notes having matured, payment of theprincipal of and interest (including interest on amounts in default, if any) onsuch Notes and on all other monies or other consideration payable hereunder hasbeen duly and effectually provided for in accordance with the provisionshereof.

 

**ARTICLE 7SUCCESSOR COMPANIES**

** **

**7.1**                          Successor Companies

** **

The Corporation shall not, except assanctioned by subsection 8.11(c), enter into any transaction (whether by way ofreconstruction, reorganization, consolidation, arrangement, amalgamation,merger, transfer, sale, lease or otherwise), other than the Arrangement,whereby all or substantially all of its undertaking, property and assets wouldbecome the property of any other person or, in the case of such amalgamation ormerger, of the continuing company resulting therefrom unless:

 

(a)           such other person or continuing company isa company (herein called the**“successorcompany”**) incorporated under the laws of Canada or any provincethereof;

 

(b)           the successor company shall execute, priorto, contemporaneously with or forthwith after the consummation of suchtransaction, such instruments (if any) as are satisfactory to the Trustee andin the opinion of Counsel are necessary or advisable to evidence the assumptionby the successor company of the liability for the due and punctual payment ofall the Notes and interest thereon and all other monies payable hereunder andthe covenant of the successor company to pay the same and its agreement to observeand perform all the covenants and obligations of the Corporation under thisNote Indenture;

 

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(c)           such transaction shall, in the reasonableopinion of the board of directors of the Corporation, be upon such terms assubstantially preserve and do not impair in any material respect the rights orpowers of the Trustee or the Holders hereunder and upon terms as are in no wayprejudicial to the interests of the Holders; and

 

(d)           no condition or state of facts shall existas to the Corporation or the successor company either after the consummation ofany such transaction and after giving full effect thereto or immediately afterthe successor company complying with the provisions of subsection 7.1(b) abovewhich constitutes or would constitute, after notice or lapse of time or both,an Event of Default.

 

**7.2**                          Vesting of PowersIn Successor Corporation

** **

Whenever the conditions of Section 7.1have been duly observed and performed, the successor company shall be bound bythe covenants and obligations of the Corporation under this Note Indenture andshall possess and from time to time may exercise each and every right and powerof the Corporation under this Note Indenture in the name of the Corporation orotherwise and any act or proceeding by any provision of this Note Indenturerequired to be done or performed by any Directors or officers of theCorporation may be done and performed with like force and effect by thedirector’s or officers of such successor company.

 

**7.3**                          Notice of Completionof Arrangement

** **

Upon the completion of the Arrangement by thefiling of the court order approving the Arrangement and the articles ofarrangement with the Registrar of Corporations, the Corporation shall providenotice in writing thereof to the Trustee confirming the completion of theArrangement.

 

**ARTICLE 8MEETINGS OF HOLDERS**

** **

**8.1**                          Right to Convene Meeting

** **

The Trustee or the Corporation may at anytime and from time to time and the Trustee shall on receipt of a request of theCorporation or a Noteholders’ Request and upon being indemnified to itsreasonable satisfaction by the Corporation or by the Holders signing suchrequest against the costs which may be incurred in connection with the callingand holding of such meeting, convene a meeting of the Holders.  In the event of the Trustee failing withinten (10) days after receipt of any such request and such indemnity to givenotice convening a meeting, the Corporation or such Holders, as the case maybe, may convene such meeting.  Everysuch meeting shall be held in the City of Calgary, or at such other place asmay be approved or determined by the Trustee.

 

**8.2**                          Notice of Meetings

** **

At least twenty-one (21) days’ notice of anymeeting shall be given to the Holders by the Corporation or the Trustee, as thecase may be, in the manner provided in Section 9.1 and a copy thereofshall be sent by courier to the Trustee, unless the meeting has been called byit.  Such notice shall state the timeand place the meeting is to be held and shall state briefly the general natureof the business to be transacted thereat. The accidental omission to give notice of a meeting to any Holder shallnot invalidate any resolution passed at any such meeting.

 

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**8.3**                          Chairman

** **

A person, who need not be a Holder, nominatedin writing by the Trustee shall be chairman of the meeting and if no person isso nominated, or if the person so nominated is not present within fifteen (15)minutes from the time fixed for the holding of the meeting, the Holders presentin person or by proxy shall choose a person present to be chairman.

 

**8.4**                          Quorum

** **

Subject to the provisions ofSection 8.12, at any meeting of the Holders a quorum shall consist ofHolders present in person or by proxy and representing a majority in aggregateprincipal amount of the Notes outstanding. If a quorum of the Holders shall not be present within thirty (30)minutes from the time fixed for holding any meeting, the meeting, if summonedpursuant to a Noteholders’ Request, shall be dissolved; but in any other casethe meeting shall be adjourned to the same day in the next week (unless suchday is not a Business Day in which case it shall be adjourned to the firstBusiness Day thereafter) at the same time and place and no notice shall berequired to be given with respect to such adjourned meeting.  At the adjourned meeting the Holders presentin person or by proxy shall form a quorum and may transact the business for whichthe meeting was originally convened notwithstanding that they may not representa majority of the aggregate principal amount of the Notes outstanding.  Any business may be brought before or dealtwith at an adjourned meeting which might have been brought before or dealt withat the original meeting in accordance with the notice calling the same.  No business shall be transacted at anymeeting other than an adjourned meeting unless the required quorum is presentat the commencement of business.

 

**8.5**                          Power to Adjourn

** **

The chairman of any meeting at which a quorumof the Holders is present may with the consent of the Holders of a majority inaggregate principal amount of the Notes represented thereat adjourn any suchmeeting and no notice of such adjournment need be given except such notice, if any,as the meeting may prescribe.

 

**8.6**                          Show of Hands

** **

Every question submitted to a meeting shall,subject to Section 8.7, be decided in the first instance by a majority ofthe votes given on a show of hands.  Atany such meeting, unless a poll is duly demanded as herein provided, adeclaration by the chairman that a resolution has been carried or carriedunanimously or by a particular majority or lost or not carried by a particularmajority shall be conclusive evidence of the fact.  The chairman of any meeting shall be entitled, both on a show ofhands and on a poll, to vote with respect to the Notes, if any, held by him orthe Holder whose proxy he holds.

 

**8.7**                          Poll

** **

On every Extraordinary Resolution, and on anyother question submitted to a meeting, when demanded by the chairman or by oneor more Holders or proxies for Holders, a poll shall be taken in such mannerand either at once or after an adjournment as the chairman shall direct.  Resolutions or matters other than those tobe decided by Extraordinary Resolution shall, if a poll is taken, be decided bythe votes of the Holders of a majority in aggregate principal amount of theNotes represented at the meeting and voted on the poll.

 

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**8.8**                          Voting

** **

On a show of hands every person who ispresent and entitled to vote, whether as a Holder or as proxy for one or moreHolders or both, shall have one vote. On a poll each Holder present in person or represented by a proxy dulyappointed by an instrument in writing shall be entitled to one vote withrespect to each One ($1.00) Dollar principal amount of Notes of which he shallthen be the Holder.  A proxy need not bea Holder.  In the case of jointregistered Holders, any one of them present in person or by proxy at themeeting may vote in the absence of the other or others; but in case more thanone of them shall be present in person or by proxy, they shall vote togetherwith respect to the Notes of which they are joint registered Holders.

 

**8.9**                          Regulations

** **

The Trustee, or the Corporation with theapproval of the Trustee, may from time to time make and from time to time varyor revoke such regulations as it shall from time to time think fit providingfor and governing:

 

(a)           the form of the instrument appointing a proxy,which shall be in writing, and the manner in which the same shall be executedand for the production of the authority of any person signing on behalf of aHolder;

 

(b)           the deposit of instruments appointingproxies at such place as the Trustee, the Corporation or the Holder conveningthe meeting, as the case may be, may, in the notice convening the meeting,direct, and the time, if any, before the holding of the meeting or anyadjournment thereof by which the same shall be deposited; and

 

(c)           the deposit of instruments appointingproxies at some approved place or places other than the place at which themeeting is to be held and enabling particulars of such instruments appointingproxies to be delivered, mailed or telecopied before the meeting to the Corporationor to the Trustee at the place where the same is to be held and for the votingof proxies so deposited as though the instruments themselves were produced atthe meeting.

 

Any regulations so made shall be binding andeffective and the votes given in accordance therewith shall be valid and shallbe counted.  Save as such regulationsmay provide, the only persons who shall be recognized at any meeting as theHolders, or as entitled to vote or be present at the meeting with respectthereto, shall be Holders and persons whom Holders have by instrument inwriting duly appointed as their proxies.

 

**8.10**                        Persons Entitled toAttend Meetings

** **

The Corporation and the Trustee (by theirrespective employees, officers and directors) and the legal advisers of theCorporation, the Trustee and any Holder, and any other Person permitted by thechairman to attend, may attend any meeting of the Holders, but such partiesshall, unless otherwise entitled to do so, not be entitled to vote at suchmeeting.

 

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**8.11**                        PowersExercisable by Extraordinary Resolution

** **

In addition to the powers conferred upon themby any other provisions of this Note Indenture or by law, a meeting of theHolders shall have the following powers exercisable from time to time only byExtraordinary Resolution, and subject (where applicable) to Section 3.12:

 

(a)           power to consent to any modification,abrogation, alteration, compromise or arrangement of the rights of the Holdersor the Trustee (with the prior written consent of the Trustee) against theCorporation, or against its property, whether such rights arise under this NoteIndenture or the Notes or otherwise;

 

(b)           power to consent to any modification of orchange in or addition to or omission from the provisions contained in this NoteIndenture or any Note which shall be requested by or agreed to by theCorporation and to authorize the Trustee to concur in and give effect to sameby executing an indenture supplemental hereto embodying any modification,change, addition or omission;

 

(c)           power to sanction any scheme for thereconstruction or reorganization of the Corporation or for the consolidation,amalgamation or merger of the Corporation with any other company or for thesale, lease, transfer or other disposition of the undertaking, property andassets of the Corporation or any part thereof, provided that no such sanctionshall be necessary with respect to any such transaction if the provisions ofSection 7.1 shall have been complied with;

 

(d)           power to direct or authorize the Trustee toexercise any power, right, remedy or authority given to it by this NoteIndenture in any manner specified in any such Extraordinary Resolution or torefrain from exercising any such power, right, remedy or authority;

 

(e)           power to waive and direct the Trustee towaive any Default or Event of Default hereunder or cancel any declaration madeby the Trustee pursuant to Section 5.2 either unconditionally or upon anycondition specified in such Extraordinary Resolution;

 

(f)            power to restrain any Holder from taking orinstituting any suit, action or proceeding for the purpose of enforcing paymentof the principal of or interest on the Notes, or for the execution of any trustor power hereunder;

 

(g)           power to direct any Holder who has broughtany action, suit or proceeding to stay or discontinue or otherwise deal withthe same, upon payment of the costs, charges and expenses reasonably andproperly incurred by such Holder in connection therewith if the taking of suchsuit, action or proceeding shall have been permitted by Section 5.11;

 

(h)           power to consent to any compromise orarrangement with any creditor or creditors or any class or classes ofcreditors, whether secured or otherwise, and with holders of any shares orother securities of the Corporation;

 

(i)            power to appoint a committee with power andauthority (subject to such limitations, if any, as may be prescribed in anysuch Extraordinary Resolution) to exercise, and to direct the Trustee toexercise, on behalf of the Holders, such of the powers of the Holders as areexercisable by extraordinary or other resolution as shall be included in theresolution appointing the committee. The Extraordinary Resolution making such appointment may provide forpayment of the

 

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expenses and disbursements of andcompensation to such committee.  Suchcommittee shall consist of such number of persons as shall be prescribed in theresolution appointing it and the members need not be Holders.  Every such committee may elect its chairmanand may make regulations respecting its quorum, the calling of its meetings,the filling of vacancies occurring in its number and its procedure generally.  Such regulations may provide that thecommittee may act at a meeting at which a quorum is present or may act byminutes signed by the number of members thereof necessary to constitute aquorum.  All acts of any such committeewithin the authority delegated to it shall be binding upon all Holders.  Neither the committee nor any member thereofshall be liable for any loss arising from or in connection with any actiontaken or omitted to be taken by them in good faith;

 

(j)            power to authorize the distribution inspecie of any shares, bonds, notes or other securities or obligations or cashor other consideration received hereunder or the use or disposal of the wholeor any part of such shares, bonds, notes or other securities or obligations orcash or other consideration in such manner and for such purpose as may bedeemed advisable and specified in such Extraordinary Resolution;

 

(k)           power to authorize the Trustee or any otherperson or persons to (i) bid at any sale of the Corporation’s propertiesor assets or any part thereof, (ii) to borrow the monies required to makeany deposit at said sale or pay the balance of the purchase price and tohypothecate, mortgage, pledge, charge, cede and transfer the property or assetsso purchased as security for the repayment of the monies so borrowed andinterest thereon, or itself, himself or themselves, as the case may be, toadvance such monies (in which event it, he or they shall have a lien upon theproperty or assets so purchased for the amount so advanced and interestthereon), (iii) to hold any property or assets so purchased (subject toany hypothec, mortgage, pledge, charge or lien to secure any monies so borrowedor advanced) in trust for all the Holders of the Notes outstanding at the timeof such sale pro rata in proportion to the amounts due to them thereon respectivelyfor principal and interest before such sale, and to sell, transfer and conveythe whole or any part or parts of the property or assets so purchased for suchconsideration in cash or in the shares, bonds, notes or other securities orobligations of any company formed or to be formed, or partly in cash and partlyin such securities or obligations, and upon such terms and conditions as may bedetermined by such Extraordinary Resolutions of the Holders and, subject tosuch terms and conditions, to dispose of such cash, shares, bonds, notes orother securities or obligations not distributed pursuant to the provisions ofsubsection 8.11(j), (iv) until the sale, transfer or conveyance ofthe whole of such property or assets so purchased to maintain and operate suchpart of said property and assets as has not been disposed of, and for suchpurposes to borrow monies and to hypothecate, mortgage, pledge, charge, cedeand transfer the property or assets so purchased, or any part thereof, assecurity for the repayment of the monies so borrowed and interest thereon, oritself, himself or themselves, as the case may be, to advance such monies (inwhich event it, he or they shall have a lien upon the property or assets sopurchased for the amount so advanced and interest thereon), and (v) otherwise deal with such property and assets and the proceeds of any sale,transfer of conveyance thereof as the Holders may by such ExtraordinaryResolution direct;

 

(l)            power to remove the Trustee from office andto appoint a new trustee or trustees;

 

(m)          power to sanction the exchange of the Notesfor or the conversion thereof into shares, bonds, notes or other securities orobligations of the Corporation or of any company formed or to be formed;

 

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(n)           power to authorize the Corporation and theTrustee to grant extensions of time for payment of interest on any of the Noteswhether or not the interest, the payment with respect to which is extended, isat the time due or overdue; and

 

(o)           power to amend, alter or repeal anyExtraordinary Resolution previously passed or sanctioned by the Holders or byany committee appointed pursuant to subsection 8.11(i).

 

**8.12**                        Meaning of“Extraordinary Resolution”

** **

(a)           The expression **“Extraordinary Resolution”** when used in this Note Indenturemeans, subject as hereinafter in this Article provided, a resolution proposedto be passed as an Extraordinary Resolution at a meeting of Holders (includingan adjourned meeting) duly convened for the purpose and held in accordance withthe provisions of this Article 8 at which the Holders of a majority inprincipal amount of the Notes outstanding are present in person or by proxy andpassed by the affirmative votes of the Holders of not less than seventy-five percent(75%) of the aggregate principal amount of Notes represented at the meeting andvoted on a poll upon such resolution.

 

(b)           If, at any meeting referred to insubsection 8.12(a), the Holders of a majority in aggregate principalamount of the Notes outstanding are not present in person or by proxy withinthirty (30) minutes after the time appointed for the meeting, then the meeting,if summoned by a Noteholders’ Request, shall be dissolved; but in any othercase it shall stand adjourned to such date, being not less than ten (10) daysnor more than twenty (20) days later, and to such place and time, all as may bedetermined by the chairman.  Not lessthan five (5) days’ notice shall be given of the time and place of suchadjourned meeting to the Holders in the manner provided in Section 9.1.Such notice shall state that at the adjourned meeting the Holders present inperson or by proxy shall form a quorum but it shall not be necessary to setforth the purposes for which the meeting was originally called or any otherparticulars.  At the adjourned meetingthe Holders present in person or by proxy shall form a quorum and may transactthe business for which the meeting was originally convened and a resolutionproposed at such adjourned meeting and passed by the requisite vote as providedin subsection 8.12(a) shall be an Extraordinary Resolution within themeaning of this Note Indenture.

 

(c)           Votes on an Extraordinary Resolution shallalways be given on a poll and no demand for a poll on an Extraordinary Resolutionshall be necessary.

 

**8.13**                        Powers Cumulative

** **

It is hereby declared and agreed that any oneor more of the powers of this Note Indenture stated to be exercisable by theHolders by Extraordinary Resolution or otherwise may be exercised from time totime and the exercise of any one or more of such powers from time to time shallnot be deemed to exhaust the rights of the Holders to exercise the same or anyother such power or powers thereafter from time to time.

 

**8.14**                        Minutes

** **

Minutes of all resolutions and proceedings atevery meeting as aforesaid shall be made and duly entered in books to be fromtime to time provided for that purpose by the Trustee at the expense of theCorporation, and any such minutes as aforesaid, if signed by the chairman ofthe meeting at which such

 

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resolutions were passed or proceedings had,or by the chairman of the next succeeding meeting of the Holders, shall beprima facie evidence of the matters therein stated and, until the contrary isproved, every such meeting, with respect to the proceedings of which minutesshall have been made, shall be deemed to have been duly held and convened, andall resolutions passed thereat or proceedings taken thereat to have been dulypassed and taken.

 

**8.15**                        Instrument In Writing

** **

All actions which may be taken and all powersthat may be exercised by the Holders at a meeting held as hereinbefore in thisArticle 8 provided may also be taken and exercised by the Holders ofseventy-five percent (75%) of the aggregate principal amount of all theoutstanding Notes, by an instrument in writing signed in one or morecounterparts and the expression **“ExtraordinaryResolution”** when used in this Note Indenture shall include aninstrument so signed.

 

**8.16**                        Binding Effect ofResolutions

** **

Every resolution and every ExtraordinaryResolution passed in accordance with the provisions of this Article 8 at ameeting of Holders shall be binding upon all the Holders, whether present at orabsent from such meeting, and every instrument in writing signed by Holders inaccordance with Section 8.15 shall be binding upon all Holders, whethersignatories thereto or not, and each and every Holder and the Trustee (subjectto the provisions for its indemnity herein contained) shall be bound to giveeffect accordingly to every such resolution, Extraordinary Resolution andinstrument in writing.

 

**8.17**                        Evidence of Rights ofHolders

** **

Any request, direction, notice, consent orother instrument which this Note Indenture may require or permit to be signedor executed by the Holders may be in any number of concurrent instruments ofsimilar tenor and may be signed or executed by such Holders in person or byattorney duly appointed in writing. Proof of the execution of any such request or other instrument or of awriting appointing any such attorney or (subject to the provisions of thisArticle 8 with regard to voting at meetings of Holders) of the holding by anyperson of Notes shall be sufficient for any purpose of this Note Indenture if madein the following manner, namely, the fact and date of execution by any personof such request or other instrument or writing may be proved by the Certificateof any notary public, or other officer authorized to take acknowledgments ofdeeds to be recorded at the place where such Certificate is made that theperson signing such request or other instrument in writing acknowledged to himthe execution thereof or by affidavit of a witness of such execution or in anyother manner which the Trustee may consider adequate.

 

The Trustee may, nevertheless, in itsdiscretion require further proof in cases where it deems further proofdesirable or may accept such other proof as it shall consider proper.

 

**ARTICLE 9NOTICES**

** **

**9.1**                          Notice

** **

Any notice required or permitted to be givenhereunder shall be in writing and given by delivering, by post or courier, orby transmitting by telecopier (in the case of Corporation or the Trustee):

 

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(a)           to the Corporation, at:

 

2200, 205 -5th Avenue S.W.

Calgary, Alberta  T2P 2V7 Canada

 

Attention: President and Chief ExecutiveOfficer

Facsimile: (403) 205-3845

 

(b)           to the Holder at the address appearing onthe Register, and if, in the case of joint Holders, more than one address appearsin the Register in respect of such joint holding, notice shall be addressed tothe first address so appearing; or at the option of such party giving notice,such notice may be given by publication twice in the Report on Business sectionof the National Edition of the Globe and Mail or similar section of anynewspaper having national circulation in Canada; provided further that if thereis no newspaper having national circulation, then by publishing twice in thebusiness section of a newspaper in each city where the Register or Registersare maintained;

 

(c)           to the Trustee at its principal office inthe City of Calgary at:

 

Valiant Trust Company

Suite 510, 550 – 6th Avenue S.W.

Calgary, Alberta  T2P 0S2

 

Attention: Manager, Corporate TrustDepartment

Facsimile: (403) 233-2857

 

Any notice given as aforesaid shall be deemedto have been given at the time delivered or telecopied (provided completetransmission is confirmed) if delivered or facsimile to the recipient on aBusiness Day (in the city in which the addressee is located) and before 4:30p.m. (local time in the city in which the addressee is located) on suchBusiness Day, and otherwise shall be deemed to be given at 9:00 a.m. (localtime in the city in which the addressee is located) on the next followingBusiness Day (in the city in which the addressee is located) or, in the case ofnotice being given by publication, on the next following Business Day, afterpublishing such notice twice in the designated newspaper or newspapers.  Any party may change its address for noticeby notice to the other parties hereto given in the manner herein provided.

 

**ARTICLE 10CONCERNING THE TRUSTEE**

** **

**10.1**                        No Conflict of Interest

** **

The Trustee represents to the Corporationthat at the date of execution and delivery by it of this Note Indenture thereexists no material conflict of interest in the role of the Trustee as afiduciary hereunder but if, notwithstanding the provisions of thisSection 10.1, such a material conflict of interest exists, the validityand enforceability of this Note Indenture, and the Notes issued hereunder shallnot be affected in any manner whatsoever by reason only that such materialconflict of interest exists but the Trustee shall, within ninety (90) daysafter ascertaining that it has a material conflict of interest, eithereliminate such material conflict of interest or resign in the manner and withthe effect specified in Section 10.2. However, the Corporation hereby acknowledges that a material conflict ofinterest in the role of the Trustee as a fiduciary hereunder may arise inconnection with the Trustee’s role as a fiduciary under the Trust Indenture andas the holder of the Notes as contemplated under the Arrangement.  In such

 

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circumstances, the Corporation confirms thatif the Trustee, acting reasonably, determines that such a material conflict ofinterest exists that prevents the Trustee from fulfilling its obligationshereunder or that such a conflict of interest is imminent, the Trustee shall beentitled to resign in the manner and with the effect specified in Section 10.2by giving to the Corporation seven (7) days’ notice in writing, such notice tobe accepted by the Corporation as sufficient notice pursuant to Section 10.2hereof.

** **

**10.2**                        Replacement of Trustee

** **

(a)           The Trustee may resign its trust and bedischarged from all further duties and liabilities hereunder by giving to theCorporation three (3) months’ notice in writing or such shorter notice as theCorporation may accept as sufficient. In the event of the Trustee resigning or being removed or beingdissolved, becoming bankrupt, going into liquidation or otherwise becomingincapable of acting hereunder, the Corporation shall forthwith appoint a newTrustee unless a new trustee has already been appointed by the Holders; failingsuch appointment by the Corporation, the retiring Trustee or any Holder mayapply to a justice of the Court of Queen’s Bench of Alberta, on such notice assuch Justice may direct for the appointment of a new Trustee; but any newtrustee so appointed by the Corporation or by the Court shall be subject toremoval as herein provided by the Holders. Any new Trustee appointed under any provision of this Section shall be acompany authorized to carry on the business of a trust company in all Provincesof Canada.  On any new appointment thenew trustee shall be vested with the same powers, rights, duties andresponsibilities as if it had been originally named herein as Trustee.

 

(b)           Any company into which the Trustee may bemerged or with which it may be consolidated or amalgamated or any companyresulting from any merger, consolidation or amalgamation to which the Trusteeshall be a party, shall be the successor Trustee under this Note Indenturewithout the execution of any instrument or any further act.  Nevertheless, upon the written request ofthe successor Trustee or of the Corporation, the Trustee ceasing to act shallexecute and deliver an instrument assigning and transferring to such successorTrustee, upon the trusts herein expressed, all the rights, powers and trusts ofthe Trustee so ceasing to act, and shall duly assign, transfer and deliver allproperty and money held by such Trustee to the successor Trustee so appointedin its place.  Should any deed, conveyanceor instrument in writing from the Corporation be required by any new trusteefor more fully and effectively vesting in and confirming to it such estates,properties, rights, powers and trusts, then any and all such deeds, conveyancesand instruments in writing shall on request of said new trustee, be made,executed, acknowledged and delivered by the Corporation.

 

**10.3**                        Duties of Trustee

** **

(a)           In the exercise of the rights, duties andobligations prescribed or conferred by the terms of this Note Indenture, theTrustee shall exercise that degree of care, diligence and skill that areasonably prudent trustee would exercise in comparable circumstances.

 

(b)           In addition to all other duties of theTrustee set forth herein, at all times while any Notes are outstanding, theTrustee shall, in addition, have the following responsibilities hereunder:

 

(i)            to keep the Corporation’s Note ledgers,Registers and branch Registers of transfers and unissued Notes and, subject tosuch general and particular instructions as may from time

 

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to time be given to it by or under theauthority of the Board of Directors (which shall be in the form of a WrittenDirection of the Corporation), the Trustee shall:

 

(A)          record the particulars of all transfers ofNotes upon the appropriate Register of transfers or branch Register(s) oftransfers;

 

(B)           certify and issue Notes to the Holdersentitled thereto, representing Notes held by or transferred to them,respectively;

 

(C)           maintain the Registers of Holders and makesuch entries from time to time in the Registers as may be necessary in orderthat the account of each Holder of the Corporation may be properly andaccurately maintained; and

 

(D)          furnish to the Corporation, but at the Corporation’sexpense, at any time such statements, lists, entries, information and materialconcerning transfers and other matters prepared and undertaken by it asTrustee, including all documents, papers, information and material as it mayhave and the Corporation may require;

 

(ii)           forthwith upon receipt of sufficient moniesfrom the Corporation, to forward cheques or other transfer of funds by suchmeans as considered appropriate by the Trustee representing payments ofinterest upon the Notes to the Holders thereof in accordance with theprovisions of subsection 2.1(c) hereof;

 

(iii)          upon receipt of sufficient monies upon thestated or accelerated maturity of the Notes, and subject to Article 3, to makeall payments of principal or interest on the Notes to the Holders thereof asprovided in this Note Indenture; and

 

(iv)          promptly as and when due to make suchrecordings and filings as may be required to satisfy any statutory orregulatory duty imposed upon the Trustee and to provide the Holders with anysuch statements and records as they may require to comply with any statutory orregulatory duties imposed upon the Holders in their capacity as Holders.

 

(c)           All Notes shall be effectively andinterchangeably transferable on the appropriate principal Register of transfersor on any appropriate branch Register(s) of transfers, regardless of where orwhen the Notes shall have been issued, and entry of the transfer of any Notesin the appropriate Register of transfers or in any one appropriate branchRegister of transfers shall for all purposes be a complete and valid transfer.

 

(d)           The Trustee may use its own judgment in theperformance of its duties as trustee for the Corporation, but at any time itmay apply to the Board of Directors of the Corporation or an officer of theCorporation or to such Counsel as the Corporation may from time to timedetermine at the expense of the Corporation, for instructions or advice, andthe Corporation will fully protect and hold the Trustee harmless from allliability for any action taken, or not taken, by the Trustee in accordance withor pursuant to such instructions or advice that may be given to it.

 

(e)           Subject to subsection 10.3(a) and theprovisions of any applicable laws, except for its acts or omissionsconstituting fraud, gross negligence or wilful misconduct, the Trustee shallnot be liable for any act done or step taken or omitted by it in good faith, orfor any mistake of fact or

 

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law and the Corporation agrees, at alltimes, to indemnify and save harmless the Trustee and its agents from andagainst all liability, claims, demands, action, suits or other proceedings bywhomsoever made, prosecuted or brought and from all loss, costs, damages andexpenses in any manner based upon, occasioned by or attributable to any act ofthe Trustee in the execution of its duties hereunder.

 

(f)            The Trustee shall not incur any liabilityby refusing in good faith to effect any transfer of any Notes which, in itsjudgment is improper or unauthorized.

 

(g)           The Trustee agrees to faithfully carry outand perform its duties hereunder and, on termination hereof and upon payment bythe Corporation to the Trustee of all monies owing to the Trustee hereunder, todeliver over to the Corporation the Registers and branch Registers maintainedby it and any documents connected therewith or with the Corporation transactedhereunder, and a receipt signed by an officer of the Corporation shall be avalid discharge of the Trustee.

 

**10.4**                        Reliance Upon Declarations

** **

In the exercise of its rights, duties andobligations hereunder the Trustee may, if acting in good faith, rely, as to thetruth of the statements and accuracy of the opinions expressed therein, uponstatutory declarations, opinions, reports or certificates furnished pursuant toand in accordance with any covenants, conditions and requirements of this NoteIndenture.  The Trustee shall not beliable for or by reason of any statements of fact or recitals in this NoteIndenture or in the Notes (except in the Certificate of the Trustee thereon) orbe required to verify the same, but all such statements or recitals are andshall be deemed to be made by the Corporation. The Trustee shall not in any way be responsible for the consequence ofany breach on the part of the Corporation or any of the Corporation’s covenantscontained herein.

 

**10.5**                        Evidence and Authority toTrustee

** **

(a)           The Corporation shall furnish to theTrustee evidence of compliance with the conditions precedent provided for inthis Note Indenture relating to any action or step required or permitted to betaken by the Corporation or the Trustee under this Note Indenture or as aresult of any obligation imposed under this Note Indenture, including withoutlimitation, the certification and delivery of Notes hereunder, the satisfactionand discharge of this Note Indenture and the taking of any other action to betaken by the Trustee at the request of or on the application of theCorporation, forthwith if and when: (i) such evidence is required by anyother Section of this Note Indenture to be furnished by the Trustee inaccordance with the terms of this Section 10.5; or (ii) the Trustee,in the exercise of its rights and duties under this Note Indenture, gives theCorporation written notice requiring it to furnish such evidence in relation toany particular action or obligation specified in such notice.

 

(b)           Such evidence shall consist of:

 

(i)            a Certificate of the Corporation statingthat any such condition precedent has been complied with in accordance with theterms of this Note Indenture;

 

(ii)           in the case of a condition precedent forwhich compliance with is, by the terms of this Note Indenture, made subject toreview or examination by a solicitor, an opinion of

 

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Counsel that such condition precedent hasbeen complied with in accordance with the terms of this Note Indenture; and

 

(iii)          in the case of any such condition precedentfor which compliance is subject to review or examination by auditors oraccountants, an opinion or report of the auditors of the Corporation whom theTrustee for such purposes hereby approves, that such condition precedent hasbeen complied with in accordance with the terms of this Note Indenture.

 

(c)           Whenever such evidence relates to a matterother than the certification and delivery of Notes and the satisfaction anddischarge of this Note Indenture, and except as otherwise specifically providedherein, such evidence may consist of a report or opinion of any solicitor,auditor, accountant, valuator, engineer, surveyor, appraiser or other expertwhose qualifications give authority to a statement made by him, provided thatif such report or opinion is furnished by a director, officer or employee ofthe Corporation it shall be in the form of a statutory declaration.

 

(d)           Each statutory declaration, Certificate,opinion or report with respect to compliance with a condition precedentprovided for in this Note Indenture shall include: (i) a statement by theperson giving the evidence that he has read and is familiar with thoseprovisions of this Note Indenture relating to the condition precedent inquestion; (ii) a brief statement of the nature and scope of theexamination or investigation upon which the statements or opinions contained insuch evidence are based; (iii) a statement that in the belief of theperson giving such evidence, he has made such examination or investigation asis necessary to enable him to make the statements or give the opinionscontained or expressed therein; and (iv) a statement whether in theopinion of such person the conditions precedent in question have been compliedwith or satisfied.

 

(e)           The Corporation shall furnish to theTrustee annually, on the anniversary date of this Note Indenture and at anyother reasonable time if the Trustee so requires, its Certificate that theCorporation has complied with all covenants, conditions or other requirementscontained in this Note Indenture, the non-compliance with which would, with thegiving of notice or the lapse of time, or both, or otherwise, constitute anEvent of Default, or if such is not the case, specifying the covenant,condition or other requirement which has not been complied with and givingparticulars of such non-compliance.  TheCorporation shall, whenever the Trustee so requires, furnish the Trustee withevidence by way of statutory declaration, opinion, report or Certificate asspecified by the Trustee as to any action or step required or permitted to betaken by the Corporation or as a result of any obligation imposed by this NoteIndenture.

 

**10.6**                        Certificate of theCorporation as Evidence

** **

Except as otherwise specifically provided orprescribed by this Note Indenture, whenever in the administration of theprovisions of this Note Indenture the Trustee shall deem it necessary ordesirable that a matter be proved or established prior to taking or omittingany action hereunder, the Trustee, if acting in good faith, may rely upon aCertificate of the Corporation.

 

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**10.7**                        Experts, Advisers and Agents

** **

The Trustee may:

 

(a)           in relation to this Note Indenture, employor retain and act on the opinion or advice of or information obtained from anysolicitor, auditor, accountant, valuator, engineer, surveyor, appraiser orother expert, whether obtained by the Trustee or by the Corporation, orotherwise, and shall not be liable for acting in good faith on any such opinionand advice and may pay proper and reasonable compensation for all such legaland other advice or assistance as aforesaid; and

 

(b)           employ such agents and other assistants asit may reasonably require for the proper discharge of its duties hereunder, andmay pay reasonable remuneration for all services performed for it (and shall beentitled to receive reasonable remuneration for all services performed by it)in the discharge of the trusts hereof and compensation for all disbursements,costs and expenses made or incurred by it in the discharge of its dutieshereunder and in the management of the trusts hereof.  Any solicitors employed or consulted by the Trustee as Counselmay be, but need not be, solicitors for the Corporation.

 

**10.8**                        Trustee May Deal In Notes

** **

Subject to Section 10.1, the Trusteemay, in its personal or other capacity, buy, sell, lend upon and deal in theNotes and generally contract and enter into financial transactions with theCorporation or otherwise, without being liable to account for any profits madethereby.

 

**10.9**                        Investment of MoniesHeld by Trustee

** **

(a)           Any securities, documents of title or otherinstruments that may at any time be held by the Trustee subject to the trustshereof may be placed in the deposit vaults of the Trustee or of any Canadianchartered bank listed in Schedule I of the *BankAct* (Canada) or deposited for safekeeping with any such bank.

 

(b)           Unless otherwise provided in this NoteIndenture, any monies held by the Trustee which under the trusts of this NoteIndenture may or ought to be invested or which may be on deposit with theTrustee or which may be in the hands of the Trustee may be invested andreinvested in the name or under the control of the Trustee in securities issuedor guaranteed by the Government of Canada or a province thereof, any Canadianchartered bank listed in Schedule I of the *BankAct* (Canada) or the Trustee, provided that the security shall nothave a maturity date of more than sixty (60) days from the date ofinvestment.  Unless the Corporationshall be in default hereunder or unless otherwise specifically provided herein,all interest or other income received by the Trustee in respect of suchdeposits and investments shall belong to the Corporation.  Unless and until the Trustee shall havedeclared the principal of and interest on the Notes to be due and payable, theTrustee shall so invest such monies at the request of the Corporation.

 

(c)           Pending the investment of any monies ashereinbefore provided, such monies may be deposited in the name of the Trusteein any chartered bank of Canada or, with the written consent of the Corporation,in the deposit department of the Trustee or any other loan or trust companyauthorized to accept deposits under the laws of Canada or any province thereofat the rate of interest then current on similar deposits.

 

(d)           Unless and until the Trustee shall havedeclared the principal of and interest on the Notes to be due and payable, andsubject to Article 3, the Trustee shall pay over to the Corporation allinterest

 

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received by the Trustee with respect to anyinvestments or deposits made pursuant to the provisions of this Section.

 

**10.10**                      Trustee Not Ordinarily Bound

** **

Except as provided in Section 5.9 and asotherwise specifically provided herein, the Trustee shall not, subject toSection 10.3, be bound to give notice to any person of the executionhereof, nor to do, observe or perform or see to the observance or performanceby the Corporation of any of the obligations herein imposed upon theCorporation or of the covenants on the part of the Corporation hereincontained, nor in any way to supervise or interfere with the conduct of theCorporation’s business, unless the Trustee shall have been required to do so bya Noteholders’ Request or by an Extraordinary Resolution of the Holders passedin accordance with the provisions contained in Article 8, and then only afterit shall have been indemnified to its satisfaction against all actions,proceedings, claims and demands to which it may render itself liable and allcosts, charges, damages and expenses which it may incur by so doing, nor in anyway or at any time or on any conditions to supervise or interfere with theconduct of the Corporation’s business.

 

**10.11**                      Trustee Not Requiredto Give Security

** **

The Trustee shall not be required to give anybonds or security with respect to the execution of the trusts and powers ofthis Note Indenture or otherwise in respect of this Note Indenture.

 

**10.12**                      Trustee Not to BeAppointed Receiver

** **

The Trustee and any person related to theTrustee shall not be appointed a receiver or receiver and manager or liquidatorof all or any part of the assets or undertakings of the Corporation.

 

**10.13**                      Trustee Not Bound to Act

** **

Except as in this Note Indenture otherwisespecifically provided, the Trustee shall not be bound to act in accordance withany direction or request of the Corporation or of the Directors until a dulyauthenticated copy of the instrument or resolution containing such direction orrequest shall have been delivered to the Trustee, and the Trustee shall beempowered to act upon any such copy purporting to be authenticated and believedby the Trustee to be genuine.

 

**10.14**                      ConditionsPrecedent to Trustee’s Obligations to Act Hereunder

** **

(a)           The obligation of the Trustee to commenceor continue any act, action or proceeding for the purpose of enforcing therights of the Trustee and of the Holders hereunder shall be conditional uponthe Holders furnishing, when required by notice in writing by the Trustee,sufficient funds to commence or continue such act, action or proceeding and anindemnity reasonably satisfactory to the Trustee to protect and hold harmlessthe Trustee against the costs, charges and expenses and liabilities to beincurred thereby and any loss and damage it may suffer by reason thereof.

 

(b)           None of the provisions contained in thisNote Indenture shall require the Trustee to expend or risk its own funds orotherwise incur financial liability in the performance of any of its duties orin the exercise of any of its rights or powers unless indemnified as aforesaid.

 

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(c)           The Trustee may, before commencing or atany time during the continuance of any such act, action or proceeding requirethe Holders at whose instance it is acting to deposit with the Trustee theNotes held by them for which Notes the Trustee shall issue receipts.

 

**10.15**                      Survival of Indemnities

** **

All indemnities, all limitations of liabilityand all other provisions for the protection of the Trustee provided for in thisNote Indenture shall survive the removal or resignation of the Trustee underArticle 10 and the termination of this Note Indenture.

 

**10.16**                      Authority to Carry onBusiness

** **

The Trustee represents to the Corporationthat at the date of execution and delivery by it of this Note Indenture it isauthorized to carry on the business of a trust company in the Province ofAlberta.  If the Trustee ceases to be soauthorized to carry on business, the validity and enforceability of this NoteIndenture and the Notes shall not be affected in any manner whatsoever byreason only of such event but the Trustee shall, within ninety (90) days afterceasing to be authorized to carry on the business of a trust company in theProvince of Alberta either become so authorized or resign in the manner and withthe effect specified in Section 10.2.

 

**10.17**                      Acceptance of Trust

** **

The Trustee hereby accepts the trusts in thisNote Indenture declared and provided for and agrees to perform the same uponthe terms and conditions herein set forth and to hold all rights, privilegesand benefits conferred hereby and by law in trust for the various persons whoshall from time to time be Holders, subject to all the terms and conditionsherein set forth.

 

**ARTICLE 11SUPPLEMENTAL INDENTURES**

** **

**11.1**                        Supplemental Indentures

** **

From time to time the Trustee and, whenauthorized by a resolution of the Directors, the Corporation, may, and theyshall when required by this Note Indenture, but subject to obtaining anyconsent which may be required under the terms of any agreement (including anySubordination Agreement referred to in Section 3.7), execute, acknowledge anddeliver by their proper officers, deeds or indentures supplemental hereto,which thereafter shall form part hereof, for any one or more of the followingpurposes:

 

(a)           adding to the covenants of the Corporationherein contained for the protection of the Holders or providing for Events ofDefault in addition to those herein specified;

 

(b)           making such provisions not inconsistentwith this Note Indenture as may be necessary or desirable with respect tomatters or questions arising hereunder, including the making of anymodifications in the form of the Notes which do not affect the substancethereof, provided that the Trustee shall be of the opinion that such provisionsand modifications will not be prejudicial to the interests of the Holders;

 

(c)           giving effect to any ExtraordinaryResolution passed as provided in Article 8, and where any such ExtraordinaryResolution relates to an amendment of this Note Indenture, such amendment shall

 

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not be effective or binding until thesupplemental indenture giving effect thereto has been executed and delivered byboth the Corporation and the Trustee;

 

(d)           giving effect to an extension of theMaturity Date pursuant to Section 2.13; and

 

(e)           for any other purpose not inconsistent withthe terms of this Note Indenture.

 

The Trustee may also, without the consent orconcurrence of the Holders, by supplemental indenture or otherwise, concur withthe Corporation in making any changes or corrections in this Note Indenturewhich it shall have been advised by Counsel are required for the purpose ofcuring or correcting any ambiguity or defective or inconsistent provisions orclerical omissions or mistakes or manifest errors contained herein or in anydeed or indenture supplemental or ancillary hereto, provided that in theopinion of Counsel the rights of the Trustee and the Holders are in no wayprejudiced thereby.

 

**11.2**                        IndentureConfirming or Evidencing Subordination

** **

From time to time the Trustee may, and shallwhen requested by a Holder of Senior Debt, execute, acknowledge and deliver byits proper officers, such deeds, documents, instruments or indentures as may bereasonably required by such Holder of Senior Debt, to confirm, evidence or giveeffect to any of the provisions of Article 3 or to ensure that any Holders ofSenior Debt receive the full benefit of Article 3 including, without limitingthe generality of the foregoing, the provision of proxies by the Trustee to aHolder of Senior Debt for the purposes of Section 3.12.

 

**ARTICLE 12FORM OF NOTE**

** **

**12.1**                        Form of Note

** **

The form for all Notes to be issued pursuantto the Arrangement, the Certificate of the Trustee in respect thereof and thetransfer panel thereon shall be as set forth in Schedule “A”.

 

**ARTICLE 13EXECUTION AND FORMAL DATE**

** **

**13.1**                        Execution

** **

This Note Indenture may be simultaneouslyexecuted in several counterparts, each of which when so executed shall bedeemed to be an original and such counterparts together shall constitute oneand the same instrument.

 

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**13.2**                        Formal Date

** **

For the purpose of convenience this NoteIndenture may be referred to as bearing formal date as set out on the firstpage hereof irrespective of the actual date of execution hereof.

 

IN WITNESS WHEREOF the parties hereto haveexecuted these presents under their respective corporate seals and the hands oftheir proper officers in that behalf.

 
|   | **BAYTEX ACQUISITION  CORP.** |
|--------|-------------------------------|
|   |                          |
|   |                          |
|   | Per:                          | *(signed) “Raymond  T. Chan”* |
|   |                          |   |
|   | Per:                          | *(signed) “Shannon  M. Gangl”* |
|   |                          |   |
|   |                          |   |
|   | **VALIANT TRUST  COMPANY**    |
|   |                          |
|   |                          |   |
|   | Per:                          | *(signed)**“Jenny Hart”* |
|   |                          |   |
|   | Per:                          | *(signed)* “*Cheryl Dahlager*” |

 

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**SCHEDULE “A”**

** **

**FORM OF NOTE**

** **

The form for the Notes, the Certificate ofthe Trustee and the registration and transfer panel thereon shall be in theEnglish language substantially as follows:

 

(Form of Note)

 

**Baytex Acquisition Corp.**

** **

(incorporated pursuant to the laws of theProvince of Alberta)

 

**12% UNSECURED, SUBORDINATEDPROMISSORY NOTE**

** **
| **Certificate  Number:                             ** |   | **$                               ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

DUE: September 1, 2033

 

Baytex Acquisition Corp. (herein referred toas the **“Corporation”**), for valuereceived, hereby promises to pay to the registered holderhereof,       ,

 

on September 1, 2033, or on such earlierdate as the principal amount hereof may become payable in accordance with theconditions herein set out and with the provisions of the Note Indenturehereinafter mentioned, on presentation and surrender of this Note, the sum of$                  in lawful money of Canada, at the corporate trust office of the Trustee inCalgary, Alberta at the option of the registered holder, and to pay interestthereon from and including the Issue Date at the Interest Rate, payable afteras well as before maturity and after as well as before default and judgment,with interest on amounts in default at the same rate, on each Interest PaymentDate.

 

As interest becomes due on this Note, butsubject to the subordination provisions of the Note Indenture hereinafterdescribed, the Corporation shall cause to be sent by prepaid ordinary mail acheque or by other transfer of funds by such means as may be consideredappropriate by the Trustee for such interest (less any tax required by law tobe withheld therefrom) payable to the order of the Holder and addressed to itat its last address or account, as the case may be, appearing on the Register,unless the Holder otherwise directs.  Inthe case of joint Holders, the cheque or other transfer of funds, as the casemay be, shall be payable or issued to the order of all such joint Holders andaddressed to them at the last address or account, as the case may be, appearingon the Register, unless such joint Holders otherwise direct.  If more than one address or account appearson the Register in respect of such joint Holders, the cheque or other transferof funds, as the case may be, shall be mailed or delivered, as the case may be,to the first address or account so appearing. In the event of non-receipt of any cheque or funds for interest by theHolder, the Corporation will cause to be issued to the Holder a replacementcheque or replacement transfer of funds for like amount upon being furnishedwith such evidence of non-receipt as it shall reasonably require and upon beingindemnified to its satisfaction, acting reasonably.

 

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This Note is one of the Notes in lawful moneyof Canada issued under a Note Indenture (herein referred to as the **“Note Indenture”**) dated as ofSeptember 2, 2003 between the Corporation and Valiant Trust Company, asTrustee.  The aggregate principal amountof Notes which may be authorized under the Note Indenture is limited to OneBillion and Five Hundred Million ($1,500,000,000) Dollars. Reference is herebymade to the Note Indenture and any instruments supplemental thereto for astatement and description of the terms and conditions upon which this Note isissued and the rights and remedies of the Holders of any of the Notes, theCorporation and the Trustee with respect thereto, all to the same effect as ifthe provisions of the Note Indenture and of any instruments supplementalthereto were herein set forth, to all of which provisions the registered Holderof this Note, by acceptance hereof, assents.

 

The Notes are issuable as fully registeredNotes in a minimum dominations of One Hundred ($100) Dollars and integralmultiples of One ($1.00) Dollar thereafter. Upon compliance with the provisions of the Note Indenture, Notes of anyauthorized denomination may be exchanged for an equal aggregate principalamount of Notes in any other authorized denomination or denominations.

 

All Notes issued under the Note Indenturerank equally and rateably without priority or preference.  This Note is a direct obligation of theCorporation but is not secured by any mortgage, hypothec, charge or pledge.

 

All Notes issued under the Note Indenture aresubordinated to Senior Debt on the terms and conditions set forth in the NoteIndenture and the terms and conditions of any Subordination Agreement referredto in the Note Indenture.

 

Except to the limited extent set forth in theNote Indenture, the Corporation may not redeem, purchase or prepay thisNote.  The Holder hereof does not havethe right to require the Corporation to redeem this Note at any time.

 

The principal amount hereof may become or bedeclared due before stated maturity on the conditions, in the manner, with theeffect and at the times set forth in the Note Indenture.

 

This Note may only be transferred uponcompliance with the conditions prescribed in the Note Indenture on theRegisters to be kept at the principal office of the Trustee in the City ofCalgary, and in such other place or places (if any) and/or by such otherregistrar or registrars (if any) as the Corporation with the approval of theTrustee and Trustee may designate, by the registered holder hereof or hisexecutors or administrators or other legal representatives, or his or theirattorney duly appointed by an instrument in writing in form and executionsatisfactory to the Trustee and/or other registrar (it any) and upon compliancewith such reasonable requirements as the Trustee and/or other registrar mayprescribe, and then, only if such transfer shall have been duly entered on oneof the appropriate Registers or noted on this Note by a proper registrar.

 

The Note Indenture contains provisions makingbinding upon all Holders of Notes outstanding thereunder resolutions passed atmeetings of such Holders held in accordance with such provisions andinstruments in writing signed by the Holders of a specified percentage of theaggregate principal amount of the Notes outstanding.

 

This Note shall not become obligatory for anypurpose until it shall have been certified by the Trustee for the time beingunder the Note Indenture.

 

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Unless otherwise defined, all initiallycapitalized terms used herein shall have the meanings ascribed to such terms inthe Note Indenture.

 

In witness whereof Baytex Acquisition Corp.has caused this Note to be signed by its duly authorized officers as of the         day of                        ,20   .

 
|   | **BAYTEX ACQUISITION  CORP.** |
|--------|-------------------------------|
|   |                          |
|   |                          |
|   | Per:                          |   |

 

 

**THIS NOTE IS NOT VALID UNTILCERTIFIED BY THE TRUSTEE.**

** **

**TRUSTEE’S CERTIFICATE**

** **

This Note is one of the Notes referred to inthe Note Indenture within mentioned.

 
|   | **VALIANT TRUST  COMPANY, Trustee** |
|--------|-------------------------------------|
|   |                                |
|   |                                |
|   | Per:                                |   |
|   |                                | (Authorized Signature) |

 

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**(Form of TransferPanel)**

** **

**Transfer Form**

** **

FOR VALUE RECEIVED the undersigned sells,assigns and transfers, without recourse, unto:

 

(Please print or typewrite name and addressof assignee)

 

the within Note of Baytex Acquisition Corp.and hereby irrevocably constitutes and appoints                               as the attorney of the undersigned to transfer the said Note on the Registersof the Notes due of the said Corporation, with full power of substitution inthe premises.

 
| **Date:** |                                                                                                                                                                                  |   |   |
|-----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|      | **(Signature of  Transferor)**                                                                                                                                                        |
|      |                                                                                                                                                                                  |
|      | The signature of the Transferor must  correspond with the name written upon the face of this Certificate in every  particular without alteration or enlargement or change whatsoever. |

 

The signature of the registered holder of thewithin Note to the foregoing assignment must be guaranteed by a Schedule Imajor chartered bank, or trust company, or a member of an acceptable medallionguarantee program.  The guarantor mustaffix a stamp bearing the actual words “Signature Guaranteed”.

 
|   |   |                          |
|--------|--------|-------------------------------|
|   |   |                          |
|   |   | **(Signature of  Guarantor)** |

 

 

**Name of Assignee:**

** **

**Address of Assignee:**

** **

**Social Insurance No. of Assignee:**

 

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