SUBORDINATION AGREEMENT
This Subordination Agreement (this "Agreement") is entered into as of the
23rd day of September, 2005, by and among Cordillera Fund, L.P., a Texas limited
partnership ("Cordillera"), and those persons who are named as "Purchasers"
pursuant to the Securities Purchase Agreement (as defined below) (the
"Purchasers"). It is understood and agreed that for the purposes of this
Agreement, Cordillera shall include any other person or entity to whom all or a
portion of the Note is transferred, in such person's or entity's capacity as a
holder of all or such portion of the Note. It is further understood and agreed
that the "Purchasers" and each "Purchaser" shall be deemed to be any successors,
assigns or transferees of any Purchaser existing on the date hereof.
BACKGROUND:
WHEREAS, Consolidated Energy, Inc., a Wyoming corporation ("Maker"), has
issued the 6% Senior Secured Convertible Notes Due 2008 (the "Senior Notes") to
the Purchasers pursuant to that certain Securities Purchase Agreement dated as
of February 22, 2005 (the "Securities Purchase Agreement") among Maker and the
Purchasers; and
WHEREAS, Maker has issued a Promissory Note dated September 23, 2005 to
Cordillera in the principal amount of $1,500,000 (the "Note"; defined terms used
herein that are not otherwise defined herein shall have the meanings assigned to
such terms in the Note):
NOW, THEREFORE, Cordillera and the Purchasers agree as follows:
TERMS:
1. The payment of the principal of and interest and any other amount
(including fees and expenses) due on the Note, to the extent and in the manner
herein set forth, shall be subordinated and subject in right of payment to the
prior payment in full in cash of all Senior Indebtedness (including interest
accruing after the filing of a petition by or against the Maker under Title 11,
United States Code, or any similar federal or state law for the relief of
debtors, whether or not allowed as a claim), whether outstanding at the date
hereof or hereafter incurred.
"Senior Indebtedness" shall mean the principal amount of the Senior Notes
as of the date hereof and any interest and any fees or expenses owing under the
Senior Notes and all obligations of the Maker under the Securities Purchase
Agreement, including any interest accruing under such Senior Notes subsequent to
the filing of a petition of bankruptcy, whether or not such interest is an
allowed claim under applicable law.
2. In the event and during the continuation of any default in the payment
of principal of, premium, if any, or interest or any other payment (including
fees and expenses) due under the Senior Indebtedness, then, unless and until
such default shall have been cured or waived, no payment or distribution shall
be made by or on behalf of the Maker with respect to the principal of or
interest or any other payment (including fees and expenses) with respect to the
Note. If no such payment default exists and continues or if such payment default
is cured or waived, Maker shall make all payments or distributions owing to
Cordillera in accordance with the terms of the Note.
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3. In the event and during the continuation of any default (other than a
default of any payment due) with respect to the Senior Indebtedness permitting
any Purchaser thereunder to accelerate the maturity thereof, then, unless and
until such default shall have been cured or waived, no payment or distribution
shall be made by or on behalf of the Maker with respect to the principal of or
premium, if any, interest or any other payment due with respect to the Note if
written notice of such default shall have been given to the Maker by a
Purchaser. For purposes of the preceding sentence, "default" shall mean any
default or failure to observe or perform any provision of the Securities
Purchase Agreement or the Senior Notes after the giving of notice, the
expiration of any grace period, or both, so that the Purchasers are entitled to
accelerate the maturity thereof.
4. Upon any payment by the Maker, or distribution of assets or securities
of the Maker of any kind or character, whether in cash, property or securities,
to creditors upon any dissolution, winding-up, total or partial liquidation or
reorganization of the Maker or its property, assets and liabilities, or in
bankruptcy, insolvency, receivership or other proceedings, all amounts due or to
become due upon all Senior Indebtedness shall first be paid in full in cash, or
payment thereof provided for in cash in accordance with its terms, before any
payment is made on account of the principal of or interest or any other amount
(including fees and expenses) due on or with respect to the Note; and upon any
dissolution, winding-up, liquidation, reorganization, assignment, marshaling or
proceedings:
(a) the Purchasers shall be entitled to receive payment in full in
cash of all Senior Indebtedness before Cordillera shall be entitled to
receive any payment of principal or interest or any other amounts
(including fees and expenses) payable with respect to the Note; and
(b) any payment by the Maker, or distribution of assets or securities
of the Maker of any kind or character, whether in cash, property or
securities to which Cordillera would be entitled except for the provisions
of this Agreement, shall be paid by Cordillera or any custodian, agent or
other person making such payment or distribution, or by any payee, any
paying agent or any depositary if received by it on behalf of Cordillera,
directly to the Purchasers or their representative or representatives, or
the trustee or trustees under any indenture pursuant to which any
instruments evidencing any such Senior Indebtedness may have been issued,
as their respective interests may appear, to the extent necessary to pay
all such Senior Indebtedness in full in cash, after giving effect to any
concurrent payment or distribution to or for the Purchasers.
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In the event that, notwithstanding the foregoing, any payment by or
distribution of assets or securities of the Maker of any kind or character,
whether in cash , property or securities, prohibited by the foregoing, shall be
received by Cordillera before all such Senior Indebtedness is paid in full in
cash, such payment or distribution shall be in held in trust for the benefit of
and shall be paid over or delivered to the Purchasers or their representative or
representatives, or to the trustee or the trustees under any indenture pursuant
to which any instrument evidencing any such Senior Indebtedness may have been
issued, as their respective interest may appear, for application to the payment
of all such Senior Indebtedness remaining unpaid to the extent necessary to pay
all such Senior Indebtedness in full in cash in accordance with its terms, after
giving effect to any concurrent payment or distribution to or for the benefit of
the Purchasers.
5. The Purchasers, at any time and from time to time, without the consent
of or notice to Cordillera, without incurring responsibility to Cordillera and
without impairing or releasing the obligation of Cordillera hereunder to the
Purchasers, may: (a) change the manner, place or terms of payment or change or
extend the time of payment of, or renew or alter, the Senior Indebtedness, or
otherwise amend in any manner Senior Indebtedness or any instrument evidencing
the same or any agreement under which the Senior Indebtedness is outstanding
other than increasing the principal amount outstanding under the Senior
Indebtedness (which is not permitted without Cordillera's consent); provided
that the accrual or accretion of interest and the accrual of fees and expenses
in respect of the Senior Indebtedness shall not be considered an increase in the
principal amount of the Senior Indebtedness for purposes of this clause 5(a);
(b) sell, exchange, release or otherwise deal with any property pledged,
mortgaged or otherwise securing the Senior Indebtedness; (c) release any person
liable in any manner of the collection or payment of the Senior Indebtedness;
and (d) exercise or refrain from exercising any rights against the Maker or any
other person.
6. For the purposes of this Agreement, "payment" of or with respect to the
Note includes any payment, redemption, acquisition, deposit, segregation,
retirement, sinking fund payment and defeasance of or with respect to the Note.
7. No right of any present or future Purchaser to enforce subordination as
herein provided at any time in any way shall be prejudiced or impaired by any
act on the part of the Maker or by any act or failure to act, in good faith, by
any Purchaser, or by any noncompliance by the Maker with the terms, provisions
and covenants of the Note, regardless of any knowledge thereof which any such
Purchaser may have or otherwise be charged with.
8. The foregoing provisions constitute a continuing offer to all persons
who become, or continue to be, Purchasers; and such provisions are made for the
benefit of the Purchasers, and such Purchasers are hereby made obligees
hereunder the same as if their names were written herein as such, and they
and/or each of them may proceed to enforce such provisions and need not prove
reliance thereon.
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9. Notwithstanding anything contained in this Agreement to the contrary,
(i) if Maker receives $2,500,000 or more in proceeds from its issuance or sale
of any promissory note, capital stock or other security of any nature, whether
in one or more issuances or sales, and the Maker pays or has paid all interest
that has accrued and is then due and owing under the Senior Indebtedness, then
Maker may, and shall, pay in full all amounts owing to Cordillera in accordance
with the terms of the Note, irrespective of any other defaults or events of
default under the Senior Indebtedness, and (ii) Maker may pay to Cordillera upon
demand by Cordillera, the $12,000 provided for in the Note to reimburse
Cordillera for its expenses incurred in connection with the negotiation and
preparation of the Note and related documents.
10. If any action is brought for breach of this Agreement or to enforce any
provision of this Agreement, the prevailing party shall be entitled to recover
court costs, expenses and reasonable attorneys' fees from the non-prevailing
party.
11. This Agreement (i) may be executed in any number of counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument, (ii) contains the entire understanding of
Cordillera and the Purchasers in respect of the subject matter contained in this
Agreement, (iii) shall be governed by and construed in accordance with the laws
of the State of Kentucky without giving effect to the choice of law provisions
thereof, (iv) nor any of the rights, interests or obligations hereunder, can be
assigned by any party to this Agreement without the prior written consent of the
other parties, and (v) shall be binding upon and inure to the benefit of the
parties to this Agreement and their respective legal representatives,
successors, heirs and assigns.
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IN WITNESS WHEREOF, this Agreement has been made and delivered this 22nd
day of September, 2005.
CORDILLERA:
CORDILLERA FUND L.P.
By: ACCF Gen Par, L.P.
Its: General Partner
By: Andrew Carter Capital, Inc.
Its: General Partner
By:
------------------------------------
James P. Andrew
Its: Co-CEO
Acknowledged and Agreed to by:
CONSOLIDATED ENERGY, INC.
By:
------------------------------------
David Guthrie
Its: Chairman/CEO
Agreed and accepted by the following persons that have executed the attached
signature pages:
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PURCHASERS:
GRYPHON MASTER FUND, L.P.
By: Gryphon Partners, L.P., its General Partner
By: Gryphon Management Partners, L.P., its General Partner
By: Gryphon Advisors, L.L.C., its General Partner
By:
-------------------------------------------------
E.B. Lyon, IV, Authorized Agent
GSSF MASTER FUND, LP
By: Gryphon Special Situations Fund, LP, its General Partner
By: GSSF Management Partners, LP, its General Partner
By: GSSF, LLC, its General Partner
By:
-------------------------------------------------
E.B. Lyon, IV, Authorized Agent
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LONESTAR PARTNERS, L.P.
By: Lonestar Capital Management, LLC, its General Partner
By:
-------------------------------------------------------
________________, Manager
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WS OPPORTUNITY INTERNATIONAL FUND, LTD.
By: WS Ventures Management, L.P., as agent and attorney-in-fact
By: WSV Management, LLC, its General Partner
By:
-----------------------------------------------------------
Reid S. Walker, Member
WS OPPORTUNITY FUND (QP), L.P.
By: WS Ventures Management, L.P., its General Partner
By: WSV Management, LLC, its General Partner
By:
---------------------------------------------
Reid S. Walker, Member
WS OPPORTUNITY FUND, L.P.
By: WS Ventures Management, L.P., its General Partne
By: WSV Management, LLC, its General Partner
By:
---------------------------------------------
Reid S. Walker, Member
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RENAISSANCE US GROWTH INVESTMENT TRUST PLC
By:
--------------------------------------------------
Russell Cleveland, Director
BFS US SPECIAL OPPORTUNITIES TRUST PLC
By:
-----------------------------------------------------
Russell Cleveland, Director
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ENABLE GROWTH PARTNERS, L.P.
By: ___________________________, its General Partner
By:
-----------------------------------------------------
Brendan O'Neil, Principal
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ENABLE OPPORTUNITY PARTNERS, L.P.
By: ___________________________, its General Partner
By:
-----------------------------------------------------
Brendan O'Neil, Principal
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GAMMA OPPORTUNITY CAPITAL PARTNERS, L.P.
By: ___________________________, its General Partner
By:
-----------------------------------------------------
Jonathan P. Knight, President/Director
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BUSHIDO CAPITAL MASTER FUND, L.P.
By: Bushido Capital Partners, Ltd.,
its General Partner
By:
-----------------------------------------------------
Christopher Rossman, Managing Director
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CORDILLERA FUND, L.P.
By: ACCF GenPar, L.P, its General Partner
By: Andrew Carter Capital, Inc., its General Partner
By:
-----------------------------------------------------
James P. Andrew, Co-CEO of Andrew Carter
Capital, Inc.
NEWGRANGE PARTNERS, L.P.
By: ___________________________, its General Partner
By:
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Michael Scholten, Managing Partner