Exhibit 10.7
 
 
SUBORDINATION AGREEMENT
among
RENEGY HOLDINGS, INC.
a Delaware corporation
(Junior Claimant)
and
SNOWFLAKE WHITE MOUNTAIN
POWER, LLC,
an Arizona limited liability company
(Borrower)
and
COBANK, ACB
(Administrative Agent)
Dated as of January 1, 2009
 
 

 

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TABLE OF CONTENTS

                              Page  
 
                ARTICLE I. DEFINITIONS     2  
 
  1.1   Agreement Definitions     2  
 
  1.2   Credit Agreement Definitions     2  
 
  1.3   Rules of Interpretation     2  
 
                ARTICLE II. CERTAIN SUBORDINATION TERMS     2  
 
  2.1   Making of Payments     2  
 
  2.2   Legend     3  
 
  2.3   Proceeding Against Borrower; Proof of Claim     3  
 
      2.3.1   Proceeding Against SWMP     3  
 
      2.3.2   Proof of Claim     4  
 
  2.4   Time of Filing     4  
 
  2.5   Wrongful Collections     4  
 
               
ARTICLE III. OWNERSHIP OF SUBORDINATED AMOUNTS; AMENDMENT OF LLC AGREEMENT;
CREDIT DOCUMENTS
    4  
 
  3.1   Ownership of Subordinated Amounts     4  
 
  3.2   Amendment of LLC Agreement     4  
 
  3.3   Credit Documents     4  
 
                ARTICLE IV. WAIVERS     5  
 
                ARTICLE V. REINSTATEMENT     5  
 
                ARTICLE VI. BANKRUPTCY     5  
 
                ARTICLE VII. FURTHER ASSURANCES     5  
 
                ARTICLE VIII. MISCELLANEOUS     6  
 
  8.1   Notices     6  
 
  8.2   Benefit of Agreement     7  
 
  8.3   Delay and Waiver     7  
 
  8.4   Amendments     7  
 
  8.5   Governing Law     7  
 
  8.6   Consent to Jurisdiction     7  
 
  8.7   WAIVER OF JURY TRIAL     8  
 
  8.8   Severability     8  
 
  8.9   Headings     8  
 
  8.10   Successors and Assigns     8  
 
  8.11   Entire Agreement     8  
 
  8.12   Survival of Agreements     8  
 
  8.13   Counterparts     9  

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          This SUBORDINATION AGREEMENT, dated as of January 1, 2009 (as amended,
amended and restated, supplemented or otherwise modified from time to time, this
“Agreement”), is entered into among RENEGY HOLDINGS, INC., a Delaware
corporation (“Junior Claimant”), SNOWFLAKE WHITE MOUNTAIN POWER, LLC, an Arizona
limited liability company (“SWMP”), and COBANK, ACB, as Administrative Agent
(together with its successors and assigns in such capacity, “Administrative
Agent”) for the Senior Claimants (as defined in Section 1.1).
RECITALS
          A. SWMP owns, operates and maintains an approximately 24 MW
biomass-fired power generation plant located near Snowflake, Arizona (the
“Project”).
          B. In connection with the ownership, operation and maintenance of the
Project, SWMP has entered into that certain Credit Agreement, dated as of
September 1, 2006, as amended and restated on the date hereof (as further
amended, amended and restated, supplemented or otherwise modified from time to
time, the “Credit Agreement”), among SWMP, Renegy, LLC, an Arizona limited
liability company (“Renegy”), Renegy Trucking, LLC, an Arizona limited liability
company (“Renegy Trucking” and together with Renegy and SWMP, the “Borrowers”),
Administrative Agent and the financial institutions from time to time parties
thereto (collectively, the “Lenders”), pursuant to which, among other things,
the Lenders have extended Loans to, and for the benefit of, the Borrowers.
          C. Junior Claimant has entered into that certain Amended and Restated
Limited Liability Company Agreement of SWMP, dated on or about the date hereof
(as amended, amended and restated, supplemented or otherwise modified from time
to time, the “LLC Agreement”), with AZ Biomass LLC, a Delaware limited liability
company (“SSB”), pursuant to which, subject to the terms and conditions
contained therein and herein, (i) Junior Claimant has agreed to provide working
capital loans to SWMP (the “Renegy Loans”) and (ii) SWMP has agreed to pay
Junior Claimant a management fee and reimburse Junior Claimant for certain
out-of-pocket expenses incurred on behalf of SWMP (the “Renegy Fees”).
          D. The Senior Claimants have agreed that Junior Claimant may enter
into the LLC Agreement only if Junior Claimant shall join in this Agreement and
Junior Claimant shall subordinate, to the extent and in the manner hereinafter
set forth, all claims and rights in respect of the Subordinated Amounts to all
Senior Claims (each as defined below) to the extent set forth in this Agreement.
AGREEMENT
          NOW, THEREFORE, in consideration of the promises contained herein, and
in order to induce the Lenders to continue to perform under the Credit Agreement
and to make the advances of credit contemplated thereby, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:

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ARTICLE I.
DEFINITIONS
          1.1 Agreement Definitions. The following terms when used in this
Agreement, including its preamble and recitals, shall have the following
meanings:
          “Proceeding” means any (a) insolvency, bankruptcy, receivership,
liquidation, reorganization, readjustment, composition or other similar
proceeding relating to SWMP, its property or its creditors as such,
(b) proceeding for any liquidation, dissolution or other winding-up of SWMP,
voluntary or involuntary, whether or not involving insolvency or bankruptcy
proceedings, (c) general assignment for the benefit of creditors of SWMP or (d)
other marshaling of the assets of SWMP.
          “Senior Claimants” means the Secured Parties under and as defined in
the Credit Agreement.
          “Senior Claims” means all other Obligations owing to any Senior
Claimant, whether now existing or hereafter incurred or created, under or with
respect to the Credit Documents and any related documents.
          “Subordinated Amounts” means the (i) repayment by SWMP to Junior
Claimant of any principal and interest on the Renegy Loans in accordance with
Section 4.4 of the LLC Agreement and (ii) the payment by SWMP to Junior Claimant
of Renegy Fees in accordance with Section 8.2 of the LLC Agreement.
          “Subordination Period” means the period of time commencing on the date
of the execution and delivery of this Agreement by each of the parties hereto
and ending on the date on which all Senior Claims shall have been paid in full,
in cash, all of the Commitments of the Lenders under the Credit Agreement shall
have been terminated and all of the Swap Agreements to which any Senior Claimant
is a party shall have been terminated.
          1.2 Credit Agreement Definitions. All capitalized terms used herein
and not otherwise defined herein shall have the meaning given in the Credit
Agreement.
          1.3 Rules of Interpretation. Unless otherwise provided herein, the
rules of interpretation set forth in Exhibit A to the Credit Agreement shall
apply to this Agreement, including its preamble and recitals.
ARTICLE II.
CERTAIN SUBORDINATION TERMS
          2.1 Making of Payments. During the Subordination Period,
notwithstanding anything in the LLC Agreement to the contrary, each of the
parties hereto agree as follows:
     (a) Subject to clause (c) below, Junior Claimant agrees, for the benefit of
Administrative Agent and the other Senior Claimants, that it will not ask,
demand, sue

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for, take or receive from SWMP by set-off or in any other manner, or retain
payment (in whole or in part) of, any of the Subordinated Amounts or any
security therefor.
     (b) Subject to clause (c) below, SWMP agrees that it will not make any
payment of any kind on account of, or provide any additional security or
guarantee for, the Subordinated Amounts, and SWMP agrees that it will not make
any payment of any kind on account of, or provide any additional security or
guarantee for, the Subordinated Amounts (whether on behalf of SWMP or
otherwise).
     (c) Notwithstanding anything contained in clauses (a) or (b) above, SWMP
may pay to Junior Claimant (and Junior Claimant may receive from SWMP)
Subordinated Amounts due to Junior Claimant with funds available for
distribution by SWMP to Junior Claimant under Waterfall Level 8.
     (d) Junior Claimant directs SWMP to make, and SWMP agrees to make, the
payment of the Senior Claims prior to the payment of the Subordinated Amounts,
except as permitted by clause (c) above.
          2.2 Legend. Each negotiable instrument or promissory note evidencing a
Subordinated Amount or a lien, if any, in respect thereof shall bear a legend
(or otherwise include notice provisions satisfactory to Administrative Agent)
providing that payment of the Subordinated Amounts thereunder and the priority
of any such lien have been subordinated to prior payment of the Senior Claims
and the liens in respect thereof in the manner and to the extent set forth in
this Agreement.
          2.3 Proceeding Against SWMP; Proof of Claim.
                2.3.1 Proceeding Against SWMP. At any general meeting of
creditors of SWMP or any member thereof, or in the event of any Proceeding
during the Subordination Period, Administrative Agent, on behalf of the Senior
Claimants, is hereby irrevocably authorized at any such meeting or in any such
Proceeding:
     (a) to enforce claims comprising the Subordinated Amounts in the name of
Junior Claimant, by proof of debt, proof of claim, suit or otherwise;
     (b) to collect any assets of SWMP distributed, divided or applied by way of
dividend or payment as a result of a Proceeding, or such securities issued, on
account of the Subordinated Amounts as a result thereof and apply the same, or
the proceeds of any realization upon the same that the Senior Claimants in their
discretion elect to effect, to Senior Claims until all Senior Claims shall have
been paid in full (the Senior Claimants hereby agreeing to render any surplus as
a court of competent jurisdiction may direct); and
     (c) other than voting claims comprising or arising out of the Subordinated
Amounts in any Proceeding (including the right to vote to accept or reject any
plan of partial or complete liquidation or reorganization), to take generally
any action in connection with any such meeting or proceeding which Junior
Claimant might otherwise take in respect of the Subordinated Amounts and claims
relating thereto.

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               2.3.2 Proof of Claim. After the commencement of any Proceeding
referred to in Section 2.3.1, Junior Claimant may inquire of Administrative
Agent in writing whether Administrative Agent, on behalf of Senior Claimants,
intends to exercise the foregoing rights with respect to the Subordinated
Amounts. Should Administrative Agent fail, within a reasonable time after
receipt of such inquiry, either to file a proof of claim with respect to the
Subordinated Amounts and to furnish a copy thereof to Junior Claimant, or to
inform Junior Claimant in writing that the Senior Claimants intend to exercise
their rights to assert the Subordinated Amounts in the manner hereinabove
provided, Junior Claimant may, but shall not be required to, proceed to file a
proof of claim with respect to the Subordinated Amounts and take such further
steps with respect thereto, not inconsistent with this Agreement, as Junior
Claimant may reasonably deem proper.
          2.4 Time of Filing. Notwithstanding the time of filing, attachment or
recording of any document or other instrument, it is agreed by Junior Claimant
that the Liens of the Collateral Documents shall be senior to any liens arising
in favor of Junior Claimant as part of or relating to the LLC Agreement.
          2.5 Wrongful Collections. Should any payment on account of, or any
collateral for any part of, the Subordinated Amounts be received by Junior
Claimant in violation of this Agreement, such payment or collateral shall be
delivered by Junior Claimant forthwith to Administrative Agent, on behalf of the
Senior Claimants, for application to Senior Claims, in the form received.
Administrative Agent is irrevocably authorized to supply any required
endorsement or assignment which may have been omitted. Until so delivered, any
such payment or collateral shall be held by Junior Claimant in trust for the
Senior Claimants and shall not be commingled with other funds or property of
Junior Claimant.
ARTICLE III.
OWNERSHIP OF SUBORDINATED AMOUNTS; AMENDMENT OF LLC AGREEMENT; CREDIT DOCUMENTS
          3.1 Ownership of Subordinated Amounts. Junior Claimant represents and
warrants that it is the lawful owner of the right to receive the Subordinated
Amounts and no part thereof has been assigned to or subordinated or subjected to
any other security interest in favor of anyone other than the Senior Claimants.
Junior Claimant shall not assign all or any portion of the Subordinated Amounts,
its commitment under, or any of its rights or remedies under, the LLC Agreement
without the prior written consent of Administrative Agent and the Majority
Lenders, the Required Lenders or all Lenders, as applicable (which consent may
be granted or withheld in their respective sole discretion), and in any event
only upon the execution and delivery to Administrative Agent of an agreement by
any such assignee to be bound by the terms of this Agreement (including
provisions relating to assignment), in form and substance the same as this
Agreement, or otherwise as may be reasonably satisfactory to Administrative
Agent.
          3.2 Amendment of LLC Agreement. Junior Claimant shall not amend the
LLC Agreement without Administrative Agent’s prior written consent.
          3.3 Credit Documents. Junior Claimant acknowledges that it has been
provided with a copy of the Credit Documents and has read and is familiar with
the provisions

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thereof. Junior Claimant hereby consents to the application of Project Revenues
in the order of priority and in the manner set forth in Article 7 of the Credit
Agreement, notwithstanding anything in any of the LLC Agreement to the contrary.
Junior Claimant shall not otherwise take any action prejudicial to or
inconsistent with the Senior Claimants’ priority position over Junior Claimant
created by this Agreement.
ARTICLE IV.
WAIVERS
          Administrative Agent and the Senior Claimants are hereby authorized to
demand specific performance of this Agreement, whether or not SWMP shall have
complied with the provisions hereof applicable to it, at any time when Junior
Claimant shall have failed to comply with any provision hereof applicable to it.
Junior Claimant hereby irrevocably waives any defense based on the adequacy of a
remedy at law which might be asserted as a bar to the remedy of specific
performance hereof in any action brought therefor by the Senior Claimants.
Junior Claimant further waives presentment, notice and protest in connection
with all negotiable instruments evidencing Senior Claims or Subordinated Amounts
to which Junior Claimant may be a party, notice of the acceptance of this
Agreement by the Senior Claimants, notice of any loan made, extension granted or
other action taken in reliance hereon, and all demands and notices of every kind
in connection with this Agreement, Senior Claims or time of payment of Senior
Claims or Subordinated Amounts. Junior Claimant hereby assents to any renewal,
extension or postponement of the time of payment of Senior Claims or any other
indulgence with respect thereto, to any increase in the amount of Senior Claims,
to any substitution, exchange or release of collateral therefor and to the
addition or release of any person primarily or secondarily liable thereon and
assents to the provisions of any instrument, security or other writing
evidencing Senior Claims.
ARTICLE V.
REINSTATEMENT
          The obligations of Junior Claimant under this Agreement shall continue
to be effective, or be reinstated, as the case may be, if at any time any
payment in respect of any Senior Claim, or any other payment to any holder of
any Senior Claim in its capacity as such, is rescinded or must otherwise be
restored or returned by the holder of such Senior Claims upon the occurrence of
any Proceeding, or upon or as a result of the appointment of a receiver,
intervenor or conservator of, or trustee or similar officer for, SWMP or any
substantial part of its property, or otherwise, all as though such payment had
not been made.
ARTICLE VI.
BANKRUPTCY
          This Agreement shall remain in full force and effect as between Junior
Claimant and Senior Claimant notwithstanding the occurrence of any Proceeding
affecting SWMP or any member thereof.
ARTICLE VII.
FURTHER ASSURANCES

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          SWMP and Junior Claimant shall execute and deliver to the Senior
Claimants such further instruments and shall take such further action as the
Senior Claimants may at any time or times reasonably request in order to carry
out the provisions and intent of this Agreement. To this end, Junior Claimant
(a) irrevocably authorizes and empowers (without imposing any obligation on) the
Senior Claimants and any agent thereof to demand, sue for, collect and receive
all payments and distributions on or in respect of its Subordinated Amounts
which are required to be paid or delivered to the Senior Claimants, as provided
herein, and to file and prove all claims therefor and take all such other
action, in the name of Junior Claimant or otherwise, as the Senior Claimants may
determine to be necessary or appropriate for the enforcement of these
subordination provisions, all in such manner as the Senior Claimants or
Administrative Agent shall instruct, (b) irrevocably authorizes and empowers
(without imposing any obligation) the Senior Claimants and Administrative Agent
to vote the Subordinated Amounts in such manner as the Senior Claimants or
Administrative Agent shall instruct and (c) agrees to execute and deliver to the
Senior Claimants or Administrative Agent all such further instruments confirming
the above authorization, and all such proofs of claim, assignments of claim and
other instruments, and to take all such other action, as may be requested by
Senior Claimants in order to enable the Senior Claimants to enforce all claims
upon or in respect of the Subordinated Amounts.
ARTICLE VIII.
MISCELLANEOUS
          8.1 Notices. Any communications between the parties hereto or notices
provided herein to be given may be given to the following addresses:

     
If to Administrative Agent:
  CoBank, ACB
 
  5500 S. Quebec Street
 
  Greenwood Village, CO 80111
 
  Attn: Dale Keyes
 
  Facsimile: (303) 224-2599
 
   
If to SWMP:
  Snowflake White Mountain Power, LLC
 
  3418 N. Val Vista Drive
 
  Mesa, AZ 85213
 
  Attn: Robert M. Worsley
 
  Telecopy: (480) 718-7977
 
   
If to Junior Claimant:
  Renegy Holdings, Inc.
 
  301 West Warner Road, Suite 132
 
  Tempe, Arizona 85284-2961
 
  Attn: Robert M. Worsley
 
  Telecopy No.: (480) 556-5500

All notices or other communications required or permitted to be given hereunder
shall be in writing and shall be considered as properly given (a) if delivered
in person, (b) if sent by overnight delivery service (including Federal Express,
UPS, ETA, Emery, DHL, AirBorne and other similar overnight delivery services),
(c) if mailed by first class United States Mail, postage

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prepaid, registered or certified with return receipt requested, or (d) if sent
by facsimile. Notice so given shall be effective upon receipt by the addressee,
except that communication or notice so transmitted by facsimile or other direct
written electronic means shall be deemed to have been given when sent and
receipt has been confirmed (except that, if not given during normal business
hours for the recipient, shall be deemed to have been given at the opening of
business on the next business day for recipient). Any party shall have the right
to change its address for notice hereunder to any other location within the
continental United States by giving of 30 days’ notice to the other parties in
the manner set forth above.
          8.2 Benefit of Agreement. Nothing in this Agreement, expressed or
implied, shall give or be construed to give to any Person other than the parties
hereto and the Senior Claimants, any legal or equitable right, remedy or claim
under this Agreement, or under any covenants and provisions of this Agreement,
each such covenant and provision being for the sole benefit of the parties
hereto and the Senior Claimants. The rights granted to the Senior Claimants
hereunder are solely for their protection and nothing herein contained shall
impose on the Senior Claimants any duties with respect to any property of SWMP
or Junior Claimant received hereunder. The Senior Claimants shall have no duty
to preserve rights against prior parties in any property of any kind received
hereunder.
          8.3 Delay and Waiver. No failure or delay by Administrative Agent in
exercising any right or power hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of Administrative Agent hereunder are
cumulative and are not exclusive of any rights or remedies that they would
otherwise have. No waiver of any provision of this Agreement or any other Credit
Document or consent to any departure by SWMP therefrom shall in any event be
effective unless the same shall be permitted by Section 13.4, and then such
waiver or consent shall be effective only in the specific instance and for the
purpose for which given.
          8.4 Amendments. This Agreement may not be amended, modified or
supplemented, except in a writing signed by each of the parties hereto.
          8.5 Governing Law. This Agreement shall be governed by, and construed
under, the laws of the State of New York, without reference to conflicts of laws
(other than Section 5-1401 of the New York General Obligations Law).
          8.6 Consent to Jurisdiction. Each of the parties hereto agrees that
any legal action or proceeding by or against SWMP or Junior Claimant or with
respect to or arising out of this Agreement may be brought in or removed to the
courts of the State of New York, in and for the County of New York, or of the
United States of America for the Southern District of New York, as
Administrative Agent may elect. By execution and delivery of this Agreement,
each of the parties hereto accepts, for itself and in respect of its property,
generally and unconditionally, the jurisdiction of the aforesaid courts. Each of
the parties hereto irrevocably consents to the service of process out of any of
the aforementioned courts in any manner permitted by law. Nothing herein shall
affect the right of Administrative Agent to bring legal action or proceedings in
any other competent jurisdiction. Each of the parties hereto hereby waives any
right to stay or

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dismiss any action or proceeding under or in connection with this Agreement
brought before the foregoing courts on the basis of forum non-conveniens.
          8.7 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OR CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF ANY PARTY HERETO. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR EACH PARTY TO ENTER INTO THIS AGREEMENT.
          8.8 Severability. The provisions of this Agreement are severable, and
if any clause or provision shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability shall affect
only such clause or provision, or part thereof, in such jurisdiction and shall
not in any manner affect such clause or provision in any other jurisdiction, or
any other clause or provision of this Agreement in any jurisdiction.
          8.9 Headings. Article and Section headings have been inserted in this
Agreement as a matter of convenience for reference only and it is agreed that
such article and section headings are not a part of this Agreement and shall not
be used in the interpretation of any provision of this Agreement.
          8.10 Successors and Assigns. Without limiting anything set forth in
Article 3, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, provided that
neither SWMP nor Junior Claimant may assign or otherwise transfer any of its
rights or obligations hereunder without the prior written consent of
Administrative Agent (which consent may be withheld in its sole discretion).
          8.11 Entire Agreement. This Agreement and any agreement, document or
instrument attached hereto or referred to herein among the parties hereto
integrate all the terms and conditions mentioned herein or incidental hereto and
supersede all oral negotiations and prior writings in respect of the subject
matter hereof. In the event of any conflict between the terms, conditions and
provisions of this Agreement and any such agreement, document or instrument, the
terms, conditions and provisions of this Agreement shall prevail.
          8.12 Survival of Agreements. All covenants, agreements,
representations and warranties made by SWMP and Junior Claimant herein and in
the other instruments delivered in connection with or pursuant to this Agreement
shall be considered to have been relied upon by the other parties hereto and
shall survive the execution and delivery of this Agreement and the termination
of the Subordination Period. The provisions regarding the payment of expenses
and indemnification obligations, including Section 13.13, shall survive and
remain in full force and effect regardless of the consummation of the
transactions contemplated hereby, the termination of the Subordination Period,
or the termination of this Agreement or any provision hereof.

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          8.13 Counterparts. This Agreement and any amendments, waivers,
consents or supplements hereto or in connection herewith may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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          IN WITNESS WHEREOF, the parties hereto, by their officers duly
authorized, intending to be legally bound, have caused this Subordination
Agreement to be duly executed and delivered as of the date first above written.

            SNOWFLAKE WHITE MOUNTAIN POWER, LLC,
an Arizona limited liability company
      By:   Renegy Holdings, Inc., a Delaware corporation, as Manager          
    /s/ Robert M. Worsley         Name:   Robert M. Worsley        Title:  
Chief Executive Officer        RENEGY HOLDINGS, INC.,
a Delaware corporation
      By:   /s/ Robert M. Worsley         Name:   Robert M. Worsley       
Title:   Chief Executive Officer        COBANK, ACB,
as Administrative Agent
      By:   /s/ Dale Keyes         Name:   Dale Keyes        Title:   Vice
President, Energy Banking Group     

SUBORDINATION AGREEMENT (RENEGY HOLDINGS)