UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 12, 2006
CONSOLIDATED ENERGY INC.
(Exact name of registrant as specified in its charter)
Wyoming 3630 86-0852222
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
76 GEORGE ROAD
BETSY LAYNE, KENTUCKY 41605
(Address of principal executive offices) (zip code)
(859) 488-0070
(Registrant's telephone number, including area code)
Copies to:
Richard A. Friedman, Esq.
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas
New York, New York 10018
Phone: (212) 930-9700
Fax: (212) 930-9725
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
On July 12, 2006 (the "Closing Date"), Consolidated Energy, Inc. (the
"Company") completed the transactions contemplated by a Securities Purchase
Agreement, effective as of June 30, 2006 (the "Purchase Agreement"). Under the
terms of the Purchase Agreement, the Company issued to four institutional
investors (the "Senior Investors") $4,444,444 in face amount of Variable Rate
Original Issue Discount Convertible Secured Debentures (the "Secured
Debentures"). The Company realized gross proceeds of $4,000,000 from the
issuance. The Secured Debentures bear interest at the annual rate of the higher
of 12% or prime plus 4%, and may be convertible into common stock of the Company
at a fixed conversion price of $1.36. The Secured Debentures are secured by a
first priority security interest in equipment to be purchased with the proceeds
from the Secured Debentures (the "Equipment") and a subordinated security
interest in all assets of the Company as well as certain of the Company's real
estate located in Martin County, Kentucky. In addition, the Secured Debentures
are guaranteed by the Company's subsidiaries.
Of the amount raised, $3,750,000 was deposited into a blocked account and
will be released upon the purchase by the Company of the Equipment. The balance
of the funds was deposited into a control account and will be released when the
Company issues one or more widely disseminated press releases reporting that it
has produced and sold at least 70,000 tons of coal during each of three
consecutive calendar months.
On the same date, pursuant to an Unsecured Debt Securities Purchase
Agreement, effective as of June 30, 2006 (the "Unsecured Purchase Agreement,"
together with the Purchase Agreement, the "Agreements"), the Company also issued
to six institutional investors (the "Junior Investors," together with the Senior
Investors, the "Investors") unsecured convertible debentures in the principal
amount of $1,750,000 (the "Unsecured Debentures"). The Unsecured Debentures are
due in July 2008, accrue interest at the annual rate of 15% and may be converted
into shares of common stock at a fixed conversion price of $0.90.
Under the terms of the Agreements, the Company also issued to the Investors
an aggregate of 4,000,000 shares of common stock and five-year warrants to
purchase up to 5,875, 000 shares at $0.01 per share (the "Warrants"). The sale
and issuance of all securities pursuant to the Agreements was exempt from
registration requirements pursuant to Section 4(2) of the Securities Act of
1933, as amended, and Rule 506 promulgated thereunder.
Pursuant to the terms of a registration rights agreement, the Company
agreed to file a registration statement with the Securities and Exchange
Commission (the "Commission") registering the resale of the shares of common
stock issuable upon conversion of the Secured Debentures and the Unsecured
Debentures and exercise of the Warrants on the earlier of (i) the 60th calendar
day following the Closing Date, or (ii) the 20th calendar day following the date
on which the Company's registration statement currently on file with the
Commission is declared effective and cause such registration statement to be
declared effective no later than 60 days after the filing thereof.
In connection with the execution of the Agreements and as a condition to
the completion thereof, the holders of (i) an aggregate of $7,000,000 in
principal amount of the Company's 6% Senior Secured Convertible Notes due 2008
dated February 24, 2005 and (ii) an aggregate of $6,750,000 in principal amount
of the Company's 6% Senior Secured Convertible Notes due 2008 dated March 18,
2005, June 8, 2005 and June 30, 2005 and certain other of the Company's
creditors have agreed to subordinate their security interests in the Company's
assets to liens granted to the holders of the Secured Debentures in the
Equipment. They also agreed to waive, until November 30, 2006, certain penalties
due to them and agreed to allow the Company to pay some of the accrued interest
on their existing notes in shares of common stock.
As a further condition to the completion of the Agreements, approximately
$707,000 of outstanding debentures and approximately $500,000 of accrued
salaries were converted into shares of common stock at a $0.90 conversion price.
In connection with the transactions contemplated under the Agreement, the
Company paid as a fee $262,000 in cash and issued five-year warrants to purchase
100,000 shares of common stock at $0.01 per share to Stonegate Securities and
its principals Jesse Shelmire and Scott Griffith, each a director of the
Company. In addition, as an inducement to one of the Junior Investors to
purchase the Unsecured Debentures, Messrs. Shelmire and Griffith sold to that
Junior Investor Company securities owned by them, consisting of $300,000 face
amount of promissory notes issued by the Company, warrants to purchase 150,000
of the Company's common stock, and 300,000 shares of the Company's common stock
for a total purchase price of $300,000.
2
ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN
OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT.
See Item 1.01 above.
ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES.
See Item 1.01 above.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
Exhibit Number Description
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4.1 Form Variable Rate Original Issue Discount Convertible Secured
Debentures
4.2 Form of Unsecured Convertible Debenture
4.3 Form of Warrant
10.1 Securities Purchase Agreement dated as of June 30, 2006 by and
among Consolidated Energy, Inc. and the investors signatory
thereto
10.2 Unsecured Debt Securities Purchase Agreement dated as of June 30,
2006 by and among Consolidated Energy, Inc. and the investors
signatory thereto
10.3 Registration Rights Agreement dated as of June 30, 2006 by and
among Consolidated Energy, Inc. and the Purchasers signatory
thereto
10.4 Security Agreement dated as of June 30, 2006 by and among
Consolidated Energy, Inc., and the Senior Investors.
10.5 Subsidiary Guaranty dated as of June 30, 2006 by and among
Eastern Consolidated Energy, Inc., CEI Holdings, Inc., Morgan
Mining, Inc., Warfield Processing, Inc. and Eastern Coal
Energies, Inc.
10.6 Intercreditor Agreement dated as of June 30, 2006, among
Consolidated Energy, Inc. and the parties listed on the signature
page thereto
10.7 Subordination Agreement dated as of June 30, 2006, among
Consolidated Energy, Inc. and the parties listed on the signature
page thereto
10.8 Blocked Account Agreement dated as of June 30, 2006, by and among
Consolidated Energy, Inc. and Community Trust and Investment
Company
10.9 Control Account Agreement dated as of June 30, 2006, by and among
Consolidated Energy, Inc. Atoll Asset Management, LLC, Community
Trust and Investment Company and the purchasers set forth on the
signature page thereto
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CONSOLIDATED ENERGY, INC.
Dated: July 14, 2006 By: /s/ David Guthrie
----------------------
Name: David Guthrie
Title: Chief Executive Officer