PROMISSORY NOTE
$1,500,000 September 23, 2005
FOR VALUE RECEIVED, CONSOLIDATED ENERGY, INC., a Wyoming corporation
("Maker"), promises to pay to the order of Cordillera Fund L.P., a Texas limited
partnership ("Payee"), pursuant to the terms and conditions contained in this
promissory note (this "Note") the principal sum of One Million, Five Hundred
Thousand and No/100 Dollars ($1,500,000.00), or such lesser amount as is
advanced and outstanding under this Note, together with interest on the unpaid
principal balance from the date hereof until paid in full, at the rate and on
the terms provided herein.
1. Disbursements. Within three (3) Business Days (as hereinafter defined)
following delivery of Maker's written request, Payee shall advance to Maker
under this Note an amount up to the principal sum of $1,500,000; provided,
however, Payee is not required to advance any amount under this Note, or may
advance an amount that is less than Maker requests, if, at the time an advance
is requested by Maker, Payee has determined in its sole discretion that (a) any
contingency described in Paragraph 2 has not been or is not reasonably likely to
be satisfied, (b) the financial circumstances of Maker are such that the timely
repayment of such advance is uncertain, (c) such other circumstance exists or is
reasonably anticipated, that makes the timely repayment of such advance
uncertain, or (d) an Event of Default (as hereinafter defined) has occurred or
Payee reasonably determines that an Event of Default is going to occur.
2. Contingency. In addition to the limitations set forth in Paragraphs 1(b)
and (c), Payee is not obligated to advance amounts under this Note if at the
time an advance is requested (a) the September 23, 2005 Consent and Waiver (a
copy of which is attached as Exhibit "A" to this Note) has not been executed and
delivered to Payee by each and every person or entity shown as a signatory to
such document, (b) the September 23, 2005 Bridge Forbearance (a copy of which is
attached as Exhibit "B" to this Note) has not been executed and delivered to
Payee by each and every person or entity shown as a signatory to such document,
(c) the Additional Financing Forbearance Agreement has not been executed and
delivered to Payee by each and every person or entity shown as a signatory to
such document.
3. Term and Payment. Principal and interest of this Note shall be payable
as follows:
(a) The entire unpaid principal balance of this Note shall be due and
payable in full, in cash, upon the earliest to occur of (i) December 16,
2005, (ii) the first Business Day following Maker's receipt of $2,500,000
or more in proceeds from its issuance or sale of any promissory note,
capital stock or other security of any nature, or (iii) the occurrence of
an Event of Default (the earliest of (i), (ii) and (iii) is referred to as
the "Maturity Date").
(b) Interest shall be computed on the unpaid principal balance of this
Note as if the highest amount of principal actually advanced under this
Note was advanced in full on the date of this Note, irrespective of the
date it is actually advanced. Thus, for example, if an aggregate of
$600,000 is actually advanced under this Note in three installments of
September 23, October 1 and October 15, interest shall be calculated as if
$600,000 was advanced in its entirety on September 23.
(c) Interest shall be due and payable by Maker to Payee in cash or
Stock (as hereinafter defined), at Payee's election as follows:
(i) if Payee elects to have Maker pay the accrued but unpaid
interest in cash, then the accrued and unpaid interest payable on this
Note shall be calculated in accordance with Paragraphs 3(b) and 4, and
must be paid in full within seven Business Days following the date
Payee delivers notice to Maker of its desire to have Maker pay the
interest in cash. Such notice shall be delivered by Payee to Maker on
or anytime after the Maturity Date; or
(ii) if, Payee elects to have Maker pay the accrued but unpaid
interest in Stock, then the accrued and unpaid interest payable on
this Note shall be calculated in accordance with Paragraph 3(b) and
considered paid, in full, upon Maker's issuance and delivery of eight
hundred eighty-two thousand, three hundred fifty-three (882,353)
shares of Maker's common capital stock (the "Stock"), pro rated if
less than the entire $1,500,000 principal amount is advanced under
this Note, based upon the amount actually advanced. The Stock shall be
(A) considered Registrable Securities, Common Stock, as defined in and
governed by the February 24, 2005 Registration Rights Agreement
executed by, among others, Maker and Payee (the "Registration Rights
Agreement"), and thus included in any registration statement that is
filed by Maker to satisfy the terms of the Registration Rights
Agreement, and (B) delivered within seven Business Days following the
date Payee delivers notice to Maker of its desire to have Maker pay
the interest in Stock. Such notice shall be delivered by Payee to
Maker on or anytime after the Maturity Date. If, for any reason, the
shares of Stock delivered to Payee hereunder cannot be included in the
registration statement filed by Maker pursuant to the Registration
Rights Agreement, then Payee may (Y) demand such shares be registered
upon terms materially the same as the Registration Rights Agreement
and Maker will cause a registration statement for the Stock to be
filed with the Securities and Exchange Commission within thirty (30)
days thereafter, and will use its best efforts to cause such
registration statement to become effective, and (Z) exchange the Stock
at any time with Maker for shares of registered common capital stock.
(d) If a payment of interest or principal is due on a day that is not
a Business Day, such payment shall be made on the first Business Day
following such payment date. For purposes of this Note, "Business Day"
means any day other than Saturday, Sunday or any other day on which
national banking associations in the State of Kentucky generally are closed
for commercial banking business. Both principal, and interest if payable in
cash, are payable as provided in this Note in lawful money of the United
States of America.
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4. Interest Rate. If interest under this Note is payable in cash, then the
principal amount outstanding under this Note (as calculated in the manner set
forth in Paragraph 3(b)) shall bear interest at a per annum rate equal to
fifteen percent (15%), compounded annually. Notwithstanding the foregoing,
following the occurrence of an Event of Default and continuing until such Event
of Default shall have been cured, principal outstanding under this Note (as
calculated in the manner set forth in Paragraph 3(b)) shall bear interest at a
per annum rate equal to eighteen percent (18%), compounded annually.
5. Event of Default.
(a) For purposes of this Note, the following events shall constitute
an "Event of Default:"
(i) the default by Maker in any required payment of principal of
or interest on this Note, and the failure to make such required
payment within thirty (30) days of the required payment date; or
(ii) the Maker breaches or otherwise fails to perform or observe
any covenant or agreement that is set forth in this Note which is not
cured by Maker or waived in writing by Payee within 30 days after
notice to Maker by Payee, including, for example, Maker's failure to
include the Stock in a registration statement in accordance with
Paragraph 3(c)(ii); or
(iii) the entry of a decree or order for relief by a court having
jurisdiction in respect of Maker in an involuntary case under the
federal bankruptcy laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or other similar
law, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of Maker or for any
substantial part of its property, or ordering the winding up or
liquidation of its affairs; or
(iv) the commencement by Maker or any affiliate thereof of a
voluntary case under the federal bankruptcy laws, as now constituted
or hereafter amended, or any other applicable federal or state
bankruptcy, insolvency or other similar law, or the consent by it to
the appointment to or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator (or other similar official)
of Maker or for any substantial part of its property, or the making by
it of any assignment for the benefit of creditors, or the admission by
it in writing of its inability to pay its debts generally as they
become due; or
(v) if Maker disposes of a material portion of its assets and
this Note is not paid in full within five Business Days following such
disposition.
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(b) Upon the occurrence of an Event of Default, then and in every such
case the Payee of this Note may (i) declare the principal and accrued but
unpaid interest of this Note to be due and payable immediately, and the
same shall become and be due and payable, without presentment, demand,
protest, notice of intent to accelerate or other notice of any kind all of
which are expressly waived and Payee may exercise all remedies available at
law, in equity or hereunder, and (ii) cause Maker to secure the
indebtedness evidenced by this Note with a perfected security interest and
lien upon the Collateral (as defined in the Security Agreement referred to
below) subordinate to the Gryphon Lien (defined below). Payee acknowledges
that, pursuant to that certain Security Agreement dated February 24, 2005
(the "Security Agreement"), among Maker, Gryphon Master Fund, L.P., as
collateral agent (including its successors as such collateral agent,
"Gryphon") for the Secured Parties named and defined in the Security
Agreement, Maker has granted to Gryphon, for the ratable benefit of the
Secured Parties, a first priority security interest in the Collateral (as
defined in the Security Agreement) (the "Gryphon Lien"). In such event,
Payee hereby agrees to enter into intercreditor arrangements reasonably
satisfactory to the Security Parties whereby Payee shall subordinate
Payee's security interest, lien and other rights in the Collateral to the
Gryphon Lien and other rights of the Secured Parties. Subject to the
foregoing, by execution of this Note, Maker hereby grants to Payee an
irrevocable power of attorney, coupled with an interest, to execute,
deliver and file in Maker's name and on its behalf, any and all documents
and instruments necessary to evidence and secure this security interest,
including mortgages, security agreements and similar documents, and Maker
grants Payee all rights and remedies available to a secured party under the
Kentucky Uniform Commercial Code, including foreclosure.
(c) Maker expressly waives all notices, demands for payment,
presentations for payment, notices of payment default, notices of intention
to accelerate maturity, protest and notice of protest, and any other
notices of any acceleration of any kind as to this Note and as to each,
every and all installments or part payments thereof, and consents that the
Payee or other holder of this Note may at any time and from time to time,
upon request of or by agreement with the Maker, extend the date of maturity
hereof or change the time or method of payments hereof without notice to
any of the other makers, sureties or endorsers, who shall remain bound for
the payment hereof.
6. Right of Prepayment. The Maker shall have the right to prepay all, but
not less than all, of the amounts due and payable under this Note. However, if
the Note is prepaid, the accrued but unpaid interest due and owing at the time
of such payment shall be calculated as if such balance was outstanding until
December 16, 2005.
7. No Right of Setoff. THE MAKER HAS NO RIGHTS OF SETOFF AGAINST ANY
PAYMENT DUE UNDER THIS NOTE AND THEREFORE SHALL NOT WITHHOLD OR REDUCE ANY
PAYMENT ON THIS NOTE BY ANY AMOUNTS DUE FROM THE PAYEE TO THE MAKER.
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8. No Usury Intended; Usury Savings Clause. In no event shall interest
contracted for, charged or received hereunder, plus any other charges in
connection herewith which constitute interest, exceed the maximum interest
permitted by applicable law. The amounts of such interest or other charges
previously paid to the holder of the Note in excess of the amounts permitted by
applicable law shall be applied by the holder of the Note to reduce the
principal of the indebtedness evidenced by the Note, or, at the option of the
holder of the Note, be refunded. To the extent permitted by applicable law,
determination of the legal maximum amount of interest shall at all times be made
by amortizing, prorating, allocating and spreading in equal parts during the
period of the full stated term of the loan and indebtedness, all interest at any
time contracted for, charged or received from the Maker hereof in connection
with the loan and indebtedness evidenced hereby, so that the actual rate of
interest on account of such indebtedness is uniform throughout the term hereof.
9. Transferability. Payee may transfer, sell, assign, pledge, hypothecate,
bequeath, gift, create a lien on, place in trust, assign, sell participations in
or otherwise convey or dispose of all or a portion of this Note or the
obligations represented hereby or any beneficial interest in this Note at
anytime without the consent of Maker.
10. Waivers. Maker hereby waives presentment, protest, demand for payment,
notice of dishonor and all other notices of any kind. No waiver by Payee of any
default shall operate as a waiver of any other default or of the same default on
any future occasion, and no action to enforce payment hereunder nor any
indulgences or other arrangements granted to Maker, including any extension of
time for payment due thereon, shall release, waive or otherwise affect any right
of the owner or holder hereof.
11. Severability. The provisions of this Note are severable and, if any
court of competent jurisdiction shall determine that any one or more of the
provisions or part of the provisions contained in this Note shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
or part of a provision of this Note, and this Note shall be reformed and
construed as if such invalid or illegal or unenforceable provision, or part of
such provision, would be valid, legal and enforceable to the maximum extent
possible.
12. Fees. If any person or entity elects to participate in this Note by
exercising rights granted to such person or entity by prior covenants or
agreements, then the Cordillera Fund, L.P. shall have the sole and absolute
right, on behalf of any or all Payees, participants or other holders of an
interest in this Note, to do any one or more of the following: (i) voluntarily
reduce the principal amount and/or the interest due under this Note, (ii)
require that a fee of $100,000 be paid to Andrew Carter Capital, Inc. by the
Payees, participants or other holders of an interest in this Note, pro rata
based upon their economic interest, for services provided in conjunction with
the preparation and funding of this Note, and (iii) waive on behalf of the
Payee, participants and other holders of an interest in this Note, the right to
receive accrued but unpaid interest under this Note in Stock.
13. Entire Agreement; Amendment. This Note contains the entire
understanding and agreement of the parties with respect to the matters covered
hereby and, except as specifically set forth herein, neither the Maker nor Payee
may make any representation, warranty, covenant or undertaking with respect to
such matters. No provision of this Note may be waived or amended other than by a
written instrument signed by the Maker and Payee.
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14. Governing Law. This Note will be governed by the laws of the State of
Kentucky without giving effect to any choice or conflict of law principles of
any jurisdiction.
15. Expenses. Maker shall pay $12,000 to Payee upon demand as reimbursement
for expenses incurred by Payee in connection with the preparation of the
documentation evidencing this loan. Payee may advance these amounts under the
Note to satisfy payment. If an Event of Default occurs, then Maker shall pay
upon demand, in addition to interest and principal, an amount equal to twenty
percent (20%) of the unpaid principal amount then outstanding under this Note to
reimburse Payee for all costs and expenses of collection, including legal fees.
16. Notices. All notices, demands, requests or other communications that
may be or are required to be given, served or sent by either party to the other
party pursuant to this Note shall be in writing and shall be mailed by
first-class, registered or certified mail, return receipt requested, postage
prepaid, or transmitted by hand delivery, telegram or facsimile transmission
addressed as set forth on the signature pages hereof. Each party may designate
by notice in writing a new address to which any notice, demand, request or
communication may thereafter be so given, served or sent. Each notice, demand,
request or communication that is mailed, delivered or transmitted in the manner
described above shall be deemed sufficiently given, served, sent and received
for all purposes at such time as it is delivered to the addressee with the
return receipt, the delivery receipt, the affidavit of messenger or (with
respect to a facsimile transmission) the answer back being deemed conclusive
evidence of such delivery or at such time as delivery is refused by the
addressee upon presentation.
17. Survival. The provisions of Paragraph 3(c) shall survive the payment in
full of this Note.
18. SUBORDINATION. THE PARTIES HERETO AGREE THAT THIS NOTE IS SUBJECT TO
THE PROVISIONS OF THE SUBORDINATION AGREEMENT DATED AS OF THE DATE HEREOF AMONG
PAYEE AND THE PURCHASERS NAMED IN SUCH SUBORDINATION AGREEMENT (THE
"PURCHASERS"). IT IS HEREBY AGREED THAT NO PROVISION OF THIS NOTE OR ANY
DOCUMENT EXECUTED HEREWITH THAT CONTRADICTS THE SUBORDINATION AGREEMENT OR
OTHERWISE ADVERSELY AFFECTS THE PURCHASERS SHALL BE AMENDED MODIFIED OR WAIVED
WITHOUT THE PRIOR WRITTEN CONSENT OF THE PURCHASERS. FURTHERMORE, NO AMOUNT
UNDER THIS NOTE MAY BE PAID PRIOR TO THE MATURITY DATE WITHOUT THE PRIOR WRITTEN
CONSENT OF THE PURCHASERS, UNLESS SUCH PAYMENT IS EXPRESSLY AUTHORIZED UNDER THE
SUBORDINATION AGREEMENT.
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IN WITNESS WHEREOF, Maker and Payee have caused this Note to be executed as
of the day and year first above written.
CONSOLIDATED ENERGY, INC.
By:
----------------------------------------
Name: David Guthrie
Title: Chairman/CEO
CORDILLERA FUND L.P.
By:
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Name: James P. Andrew
Title: Co-CEO of Andrew Carter Capital,
Inc. the General Partner of ACCF Gen Par,
L.P. the General Partner of the
Cordillera Fund L.P.
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EXHIBIT "A"
Consent and Waiver
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EXHIBIT "B"
Bridge Forbearance Agreement
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EXHIBIT "C"
Additional Financing Forbearance Agreement
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