Exhibit 10.7
 
SUBORDINATION AGREEMENT
 
This Subordination Agreement (this “Agreement”) is entered into as of the 18th
day of September, 2007, by EH&P INVESTMENTS AG, a Swiss company (the
“Subordinated Lender” and VALENS U.S. SPV I, LLC, a Delaware corporation, as
agent for the Purchasers under the Securities Purchase Agreement referred to
below (the “Senior Agent”). Unless otherwise defined herein, capitalized terms
used herein shall have the meaning provided such terms in the Securities
Purchase Agreement.
 
BACKGROUND
 
WHEREAS, it is a condition to the Purchasers’ making an investment in ICF Energy
Corporation, a Texas corporation (“ICF”) and True North Energy Corporation, a
Nevada corporation, (“TNEC”) and together with ICF, the “Companies” and each a
“Company”) pursuant to, and in accordance with, (i) that certain Securities
Purchase Agreement to be dated on or about September 18, 2007 by and among the
Companies, the Senior Agent and the other Purchasers (as amended, modified or
supplemented from time to time, the “Securities Purchase Agreement”) and (ii)
the Related Agreements referred to in the Securities Purchase Agreement, that
the Subordinated Lender enter into this Agreement.
 
WHEREAS, the Purchasers have made or will make loans to either or both of the
Companies.
 
NOW, THEREFORE, the Subordinated Lender and the Senior Agent agree as follows:
 
TERMS
 
1. All obligations of the Companies and/or any of their Subsidiaries to the
Creditor Parties, howsoever created, arising or evidenced, whether direct or
indirect, absolute or contingent or now or hereafter existing, or due or to
become due are referred to as “Senior Liabilities.” Any and all loans made by
the Subordinated Lender to either Company and/or any of their respective
Subsidiaries, together with all other obligations (whether monetary or
otherwise) of such Company and/or any such Subsidiary to the Subordinated Lender
(in each case, including any interest, fees or penalties related thereto),
howsoever created, arising or evidenced, whether direct or indirect, absolute or
contingent or now or hereafter existing, or due or to become due are referred to
as “Junior Liabilities.” It is expressly understood and agreed that the term
“Senior Liabilities”, as used in this Agreement, shall include, without
limitation, any and all interest, fees and penalties accruing on any of the
Senior Liabilities after the commencement of any proceedings referred to in
paragraph 4 of this Agreement, notwithstanding any provision or rule of law
which might restrict the rights of any Creditor Party, as against either
Company, and their Subsidiaries or anyone else, to collect such interest, fees
or penalties, as the case may be.
 
2. Except as expressly otherwise provided in this Agreement or as the Senior
Agent may otherwise expressly consent in writing, the payment of the Junior
Liabilities shall be postponed and subordinated in right of payment and priority
to the payment in full of all Senior Liabilities. Furthermore, whether directly
or indirectly, no payments or other distributions whatsoever in respect of any
Junior Liabilities shall be made (whether at stated maturity, by acceleration or
otherwise), nor shall any property or assets of either Company or any of their
respective Subsidiaries be applied to the purchase or other acquisition or
retirement of any Junior Liability until such time as the Senior Liabilities
have been indefeasibly paid in full. Notwithstanding anything to the contrary
contained in this paragraph 2 or elsewhere in this Agreement, each Company and
its Subsidiaries may make regularly scheduled principal and interest payments,
as the case may be, to the Subordinated Lenders with respect to the Junior
Liabilities, so long as (i) no Event of Default (as defined in each Note) has
occurred and is continuing at the time of any such payment and (ii) the amount
of such regularly scheduled principal payments and the rate of interest, in each
case, with respect to the Junior Liabilities is not increased from that in
effect on the date hereof.
 

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3. The Subordinated Lender hereby subordinates all claims and security interests
it may have against, or with respect to, any of the assets of either Company
and/or any of their respective Subsidiaries (the “Subordinated Lender Liens”),
to the security interests granted by such Company and/or any of its Subsidiaries
to the Senior Agent, for the ratable benefit of the Creditor Parties, in respect
of the Senior Liabilities. Neither the Senior Agent nor any Purchaser shall owe
any duty to the Subordinated Lender as a result of or in connection with the
Subordinated Lender Liens, including without limitation any marshalling of
assets or protection of the rights or interests of the Subordinated Lender. The
Senior Agent shall have the exclusive right to manage, perform and enforce the
underlying terms of the Securities Purchase Agreement, the Related Agreements
and each other document, instrument and agreement executed from time to time in
connection therewith (collectively, the “Security Agreements”) relating to the
assets of either Company and any of their respective Subsidiaries and to
exercise and enforce its rights according to its discretion. The Subordinated
Lender waives all rights to affect the method or challenge the appropriateness
of any action taken by the Senior Agent in connection with the Senior Agent’s
enforcement of its rights under the Security Agreements. Only the Senior Agent
shall have the right to restrict permit, approve or disapprove the sale,
transfer or other disposition of the assets of either Company or any of their
respective Subsidiaries. As between the Senior Agent and the Subordinated
Lender, the terms of this Agreement shall govern even if all or part of the
Senior Agent’s liens are avoided, disallowed, set aside or otherwise
invalidated.
 
4. In the event of any dissolution, winding up, liquidation, readjustment,
reorganization or other similar proceedings relating to either Company and/or
any of their respective Subsidiaries or to its creditors, as such, or to its
property (whether voluntary or involuntary, partial or complete, and whether in
bankruptcy, insolvency or receivership, or upon an assignment for the benefit of
creditors, or any other marshalling of the assets and liabilities either Company
and/or any of their respective Subsidiaries, or any sale of all or substantially
all of the assets of either Company and/or any of their respective Subsidiaries,
or otherwise), the Senior Liabilities shall first be paid in full before the
Subordinated Lender shall be entitled to receive and to retain any payment,
distribution, other rights or benefits in respect of any Junior Liability. In
order to enable the Senior Agent to enforce its rights hereunder, in any such
action or proceeding, the Senior Agent is hereby irrevocably authorized and
empowered in its discretion as attorney in fact for the Subordinated Lender to
make and present for and on behalf of the Subordinated Lender such proofs of
claims against either Company and/or any of their respective Subsidiaries as the
Senior Agent may deem expedient or proper and to vote such proofs of claims in
any such proceeding and to receive and collect any and all dividends or other
payments or disbursements made thereon in whatever form the same may be paid or
issued and to apply same on account of any the Senior Liabilities. In the event,
prior to indefeasible payment in full of the Senior Liabilities, the
Subordinated Lender shall receive any payment in respect of the Junior
Liabilities and/or in connection with the enforcement of the Subordinated
Lender’s rights and remedies against either Company and/or any of their
respective Subsidiaries, whether arising in connection with the Junior
Liabilities or otherwise, then the Subordinated Lender shall forthwith deliver,
or cause to be delivered, the same to the Senior Agent in precisely the form
held by the Subordinated Lender (except for any necessary endorsement) and until
so delivered the same shall be held in trust by the Subordinated Lender as the
property of the Senior Agent.
 
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5. The Subordinated Lender will mark its books and records so as to clearly
indicate that its Junior Liabilities are subordinated in accordance with the
terms of this Agreement. The Subordinated Lender will execute such further
documents or instruments and take such further action as the Senior Agent may
reasonably request from time to time to carry out the intent of this Agreement.
 
6. The Subordinated Lender hereby waives all diligence in collection or
protection of or realization upon the Senior Liabilities or any security for the
Senior Liabilities.
 
7. Until such time as the Senior Liabilities have been indefeasibly paid in
full, the Subordinated Lender will not, except as otherwise provided in this
Agreement, without the prior written consent of the Senior Agent: (a) attempt to
enforce or collect any Junior Liability or any rights in respect of any Junior
Liability or any other rights or remedies of any kind or nature whatsoever
against either Company and/or any of their respective Subsidiaries whether in
respect of the Junior Liabilities or otherwise (each an “Enforcement Action”);
unless, in each case (i) an event of default shall have occurred and be
continuing under any one or more agreements between and among the Subordinated
Lender, such Company and/or any such Subsidiary which would entitle the
Subordinated Lender to take such action (each, a “Subordinated Lender Default”),
(ii) the Subordinated Lender shall have provided the Senior Agent written notice
of the occurrence of each such Subordinated Lender Default and that it intends
to take an Enforcement Action (each, a “Subordinated Lender Enforcement Action
Notice”), and (iii) a period of at least one hundred and eighty (180) days shall
have elapsed after the receipt by the Senior Agent of the respective
Subordinated Lender Enforcement Action Notice; provided that, notwithstanding
the foregoing, the Subordinated Lender shall only be permitted to provide the
Senior Agent with one (1) Subordinated Lender Enforcement Action Notice in any
three hundred and sixty five (365) day period; or (b) commence, or join with any
other creditor in commencing, any bankruptcy, reorganization or insolvency
proceedings with respect to either Company and/or any of their respective
Subsidiaries.
 
8. The Senior Agent may, from time to time, at its sole discretion and without
notice to the Subordinated Lender, take any or all of the following actions: (a)
retain or obtain a security interest in any property to secure any of the Senior
Liabilities; (b) retain or obtain the primary or secondary obligation of any
other obligor or obligors with respect to any of the Senior Liabilities; (c)
extend or renew for one or more periods (whether or not longer than the original
period), alter, increase or exchange any of the Senior Liabilities, or release
or compromise any obligation of any nature of any obligor with respect to any of
the Senior Liabilities; and (d) release its security interest in, or surrender,
release or permit any substitution or exchange for, all or any part of any
property securing any of the Senior Liabilities, or extend or renew for one or
more periods (whether or not longer than the original period) or release,
compromise, alter or exchange any obligations of any nature of any obligor with
respect to any such property.
 
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9. Neither the Senior Agent nor any Purchaser may, from time to time, whether
before or after any discontinuance of this Agreement, without notice to the
Subordinated Lender, assign or transfer any or all of the Senior Liabilities or
any interest in the Senior Liabilities; and, notwithstanding any such assignment
or transfer or any subsequent assignment or transfer of the Senior Liabilities,
such Senior Liabilities shall be and remain Senior Liabilities for the purposes
of this Agreement, and every immediate and successive assignee or transferee of
any of the Senior Liabilities or of any interest in the Senior Liabilities
shall, to the extent of the interest of such assignee or transferee in the
Senior Liabilities, be entitled to the benefits of this Agreement to the same
extent as if such assignee or transferee were the Senior Agent and/or such
Purchaser, as applicable; provided, however, that, unless the Senior Agent shall
otherwise consent in writing, the Senior Agent shall have an unimpaired right,
prior and superior to that of any such assignee or transferee, to enforce this
Agreement, for the benefit of the Senior Agent and the Purchasers, as to those
of the Senior Liabilities which the Senior Agent and/or the Purchasers have not
assigned or transferred.
 
10. The Senior Agent shall not be prejudiced in its rights under this Agreement
by any act or failure to act of the Subordinated Lender, or any noncompliance of
the Subordinated Lender with any agreement or obligation, regardless of any
knowledge thereof which the Senior Agent may have or with which the Senior Agent
may be charged; and no action of the Senior Agent permitted under this Agreement
shall in any way affect or impair the rights of the Senior Agent, or any
Purchaser, and the obligations of the Subordinated Lender under this Agreement.
 
11. No delay on the part of the Senior Agent in the exercise of any right or
remedy shall operate as a waiver of such right or remedy, and no single or
partial exercise by the Senior Agent of any right or remedy shall preclude other
or further exercise of such right or remedy or the exercise of any other right
or remedy; nor shall any modification or waiver of any of the provisions of this
Agreement be binding upon the Senior Agent except as expressly set forth in a
writing duly signed and delivered on behalf of the Senior Agent. For the
purposes of this Agreement, Senior Liabilities shall have the meaning set forth
in Section 1 above, notwithstanding any right or power of the Subordinated
Lender or anyone else to assert any claim or defense as to the invalidity or
unenforceability of any such obligation, and no such claim or defense shall
affect or impair the agreements and obligations of the Subordinated Lender under
this Agreement.
 
12. This Agreement shall continue in full force and effect after the filing of
any petition (“Petition”) by or against either Company and/or any of their
respective Subsidiaries under the United States Bankruptcy Code (the “Code”) and
all converted or succeeding cases in respect thereof. All references herein to
either Company and/or any of their respective Subsidiaries shall be deemed to
apply to such Company and any such Subsidiary as debtor-in-possession and to a
trustee for such Company and/or any such Subsidiary. If either Company or any of
their respective Subsidiaries shall become subject to a proceeding under the
Code, and if the Senior Agent shall desire to permit the use of cash collateral
or to provide post-Petition financing from the Senior Agent to such Company or
any such Subsidiary under the Code, the Subordinated Lender agrees as follows:
(a) adequate notice to the Subordinated Lender shall be deemed to have been
provided for such consent or post-Petition financing if the Subordinated Lender
receives notice thereof three (3) business days (or such shorter notice as is
given to the Senior Agent) prior to the earlier of (i) any hearing on a request
to approve such post-petition financing or (ii) the date of entry of an order
approving same and (b) no objection will be raised by the Subordinated Lender to
any such use of cash collateral or such post-Petition financing from the Senior
Agent, or any Purchaser.
 
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13. This Agreement shall be binding upon the Subordinated Lender and upon the
heirs, legal representatives, successors and assigns of the Subordinated Lender
and the successors and assigns of the Subordinated Lender.
 
14. This Agreement shall be construed in accordance with and governed by the
laws of New York without regard to conflict of laws provisions. Wherever
possible each provision of this Agreement shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under such law, such provision shall
be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
 
15. This Agreement shall terminate upon the indefeasible payment in full of the
Senior Liabilities.
 
[Signature appears on the following page.]
 
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IN WITNESS WHEREOF, this Agreement has been made and delivered this 18th day of
September, 2007.
 

        EH&P INVESTMENTS AG  
   
   
    By:     /s/ Ingrid Weibel  

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Name:   Title:

 

        VALENS U.S. SPV I, LLC, as Agent  
   
   
   
By: Valens Capital Management, LLC,
its investment manager
        By:  /s/ Eugene Grin  

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Name: Eugene Grin   Title: Authorized Signatory

 
Acknowledged and Agreed to by:
 
TRUE NORTH ENERGY CORPORATION

        By: /s/ John I. Folnovic    

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Name: John I. Folnovic
Title: President and Chief Executive Officer
   

 
 
ICF ENERGY CORPORATION

        By: /s/ John I. Folnovic      

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Name: John I. Folnovic
Title: President and Chief Executive Officer
   

 

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