Filed by sedaredgar.com - Doral Energy Corp. - Exhibit 10.5






SUBORDINATION AGREEMENT 

          This
SUBORDINATION AGREEMENT (as amended or modified, the “Subordination
Agreement”) is by and among Green Shoe Investments Ltd., a Nevis
corporation (“Subordinated Creditor”, whether one or more), whose
address is P.O. Box 5565, Main Street, Charlestown, Nevis, West Indes, DORAL
ENERGY CORP., a Nevada corporation (“Borrower”), whose address is 111
Sepulveda Blvd., Suite 250, Manhattan Beach, California 90266 and MACQUARIE BANK
LIMITED, a bank incorporated under the laws of Australia (“Administrative
Agent”), with offices at Level 15, 1 Martin Place, Sydney, New South Wales,
2000 Australia. 

Background 

          1.      Borrower,
Administrative Agent and each of the Lenders (as defined in the Credit
Agreement) are parties to the Senior First Lien Secured Credit Agreement dated
as of July 29, 2008 (as amended, supplemented or modified from time to time, the
“Credit Agreement”). Borrower’s obligations to each of the Lenders under
the Credit Agreement are secured by a senior mortgage lien and first-priority
security interest conveying all of the real and personal property of Borrower.


          2.      Each
of Lenders’ obligations under the Credit Agreement is conditioned upon, among
other things, the subordination of all obligations owed by Borrower to the
Subordinated Creditor to the obligations owed by Borrower to Lenders under the
Credit Agreement and the other Loan Documents (as defined in the Credit
Agreement). 

          3.      Capitalized
terms not defined in this Subordination Agreement shall have the meanings set
forth in the Credit Agreement. 

Agreements 

          To
comply with the terms and conditions of the Credit Agreement and for other good
and valuable consideration, the receipt and sufficiency of which are
acknowledged by the parties, the Subordinated Creditor, Borrower and Lenders
agree as follows: 

          Section
1.      Subordination of Obligations and
Priority. 

                         (a)     
The payment of and any liens or security interests securing payment of any and
all Subordinated Debt (defined below) is expressly subordinated to the extent
and in the manner set forth in this Subordination Agreement to the Senior
Indebtedness (defined below) and the liens and security interests securing the
Senior Indebtedness. The term “Subordinated Debt” as used in this
Subordination Agreement means any and all indebtedness, liabilities and
obligations of Borrower to the Subordinated Creditor, absolute or contingent,
direct or indirect, joint, several or independent, now outstanding or owing or
which may hereafter be existing or incurred, arising by operation of law or
otherwise, due or to become due, or held or to be held by the Subordinated
Creditor, whether created directly or acquired by assignment, as a
participation, conditionally, as collateral security from another or otherwise,
including indebtedness, obligations and liabilities of Borrower to Subordinated
Creditor as a member of any partnership, syndicate, association or other group,
and whether incurred by Borrower as principal, surety, 




endorser, guarantor, accommodation party or otherwise,
including, without limiting the generality of the foregoing, all indebtedness,
liabilities and obligations of Borrower to the Subordinated Creditor arising out
of any operating agreement or similar agreement between Subordinated Creditor
and Borrower. 

                         The
term “Senior Indebtedness” as used in this Subordination Agreement means
any and all indebtedness, liabilities and other Obligations of Borrower to
Senior Creditor (as defined below) absolute or contingent, direct or indirect,
joint, several or independent, now outstanding or owing or which may hereafter
be existing or incurred, arising by operation of law or otherwise, due or to
become due, or held or to be held by Senior Creditor whether created directly or
acquired by assignment, as a participation, conditionally, as collateral
security from another or otherwise, including indebtedness, obligations and
liabilities of Borrower to Senior Creditor as a member of any partnership,
syndicate, association or other group, and whether incurred by Borrower as
principal, surety, endorser, guarantor, accommodation party or otherwise and
including, without limitation, all Obligations (as defined in the Credit
Agreement) owed by Borrower to Senior Creditor under the Credit Agreement, the
Swap Agreement and the other Loan Documents. 

                         (b)      Priority.
The agreements of Borrower, Senior Creditor and Subordinated Creditor herein are
applicable without regard to the date a loan or extension of credit is made to
Borrower. The term “Senior Creditor” includes Administrative Agent, each
of the Lenders party to the Credit Agreement and Macquarie Bank Limited under
the Swap Agreement. 

          Section
2.      Restrictions on Subordinated
Creditor. During such time as any Senior Indebtedness remains unpaid,
Subordinated Creditor will not ask for, demand, sue for, take, receive or accept
from the Borrower, by set off or in any other manner, any payment or
distribution on account of the Subordinated Debt, nor present any instrument
evidencing the Subordinated Debt for payment (other than such presentment as may
be necessary to prevent discharge of other liable parties on such instrument);
[provided, however, nothing contained herein shall
prevent Subordinated Creditor from (a) receiving any scheduled payment from
Borrower pursuant to the instruments set forth on Exhibit A (the
“Subordinated Debt Instruments”) and (b) receiving payment from
Borrower for goods and services provided to Borrower by Subordinated Creditor in
the ordinary course of business within thirty (30) days of the date hereof or
after the date hereof.] 

          Section
3.      Prohibition of All Payments Following
Default and Notice. 

                         (a)     
If there shall occur and be continuing any Event of Default, then, unless and
until such Event of Default shall have been cured, or unless and until the
Senior Indebtedness shall be paid in full, the Subordinated Creditor will not
ask for, sue for, take, demand, receive or accept from Borrower, by set off or
in any other manner, any payment or distribution on account of the Subordinated
Debt nor present any Subordinated Debt Instrument or any instrument evidencing
the Subordinated Debt for payment (other than such presentment as may be
necessary to prevent discharge of other liable parties on such instrument). 

                         (b)     
In the event that Borrower defaults under the Subordinated Debt prior to the
full and final payment of the Senior Indebtedness, Borrower shall provide Lender
with notice of such default. 

2




          Section
4.      Payments Cannot Create a Default.
The Subordinated Creditor will not ask for, demand, sue for, take, receive or
accept from Borrower, by set off or in any other manner, any payment or
distribution on account of the Subordinated Debt, if the making of such payment
would constitute, or would result in the occurrence of, a violation of the
provisions of any instrument or agreement evidencing, in connection with, as
security for or providing for the issuance of any Senior Indebtedness or would
result in the occurrence of any event which with the giving of notice or lapse
of time or both would constitute a default or an event of default under the
Credit Agreement or any other Loan Document. 

          Section
5.      Unauthorized Receipt of Payment by
Subordinated Creditor. In the event the Subordinated Creditor shall receive
any payment or distribution on account of the Subordinated Debt which
Subordinated Creditor is not entitled to receive under this Subordination
Agreement, Subordinated Creditor will hold any amount so received in trust for
Senior Creditor and will promptly turn over such payment to Senior Creditor in
the form received by Subordinated Creditor (together with any necessary
endorsement) to be applied against the Senior Indebtedness. 

          Section
6.      Restrictions on Actions to Recover
Subordinated Debt. The Subordinated Creditor will not commence any action or
proceeding against Borrower to recover all or any part of the Subordinated Debt
or join with any other creditor, unless Senior Creditor shall also join, in
bringing any proceedings against Borrower under any bankruptcy, reorganization,
readjustment of debt, arrangement of debt, receivership, liquidation or
insolvency law or statute of the Federal or any state government unless and
until all Senior Indebtedness shall have been paid in full. 

          Section
7.      Insolvency or Bankruptcy by Borrower. In
the event of any receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization or arrangement with creditors, adjustment
of debt, whether or not pursuant to bankruptcy laws, the sale of all or
substantially all of the assets, dissolution, liquidation, or any other
marshaling of the assets and liabilities of Borrower, the Subordinated Creditor
will at Senior Creditor’s request file any claim, proof of claim, proof of
interest or other instrument of similar character necessary to enforce the
obligations of Borrower in respect of the Subordinated Debt and will hold in
trust for Senior Creditor and pay over to Senior Creditor, in the form received
(together with any necessary endorsement), to be applied on the Senior
Indebtedness, any and all monies, dividends or other assets received in any such
proceedings on account of the Subordinated Debt unless and until the Senior
Indebtedness shall be paid in full. In the event that the Subordinated Creditor
shall fail to take any such action requested by Senior Creditor, Senior
Creditor, may, as attorney in fact for the Subordinated Creditor take such
action on behalf of the Subordinated Creditor, and the Subordinated Creditor
hereby appoints Senior Creditor as attorney in fact for the Subordinated
Creditor to demand, sue for, collect and receive any and all such monies,
dividends or other assets and give acquittance therefor and to file any claim,
proof of claim, proof of interest or other instrument of similar character and
to take such other proceedings in Senior Creditor’s own name or in the name of
the Subordinated Creditor as Senior Creditor may deem necessary or advisable for
the enforcement of this Subordination Agreement, and the Subordinated Creditor
will execute and deliver to Senior Creditor such other and further powers of
attorney or other instruments as Senior Creditor may request in order to
accomplish the foregoing. 

          Section
8.      Senior Creditor’s Rights. Senior
Creditor may, at any time, and from time to time, without the consent of or
notice to the Subordinated Creditor, without incurring 

3




responsibility to the Subordinated Creditor and without
impairing or releasing any of Senior Creditor’s rights or any of the obligations
of the Subordinated Creditor under this Subordination Agreement: 

                         (a)      change
the amount of the Senior Indebtedness, manner, place or terms of payment, or
change or extend for any period the time of payment of, or renew, rearrange or
otherwise modify or alter, the Senior Indebtedness or any instrument or
agreement now or hereafter executed evidencing, in connection with, as security
for or providing for the issuance of any of the Senior Indebtedness in any
manner, or enter into or amend in any manner any other agreement relating to the
Senior Indebtedness (including provisions restricting or further restricting
payments of the Subordinated Debt); 

                         (b)      sell,
exchange, release or otherwise deal with all or any part of any property by
whomsoever at any time pledged or mortgaged to secure, howsoever securing, the
Senior Indebtedness in accordance with the applicable Loan Documents; 

                         (c)      release
anyone liable in any manner for payment or collection of the Senior
Indebtedness; 

                         (d)      exercise
or refrain from exercising any rights against Borrower or others (including the
Subordinated Creditor); and 

                         (e)      apply
any sums received by Senior Creditor, by whomsoever paid and however realized,
to payment of the Senior Indebtedness in such a manner as Senior Creditor, in
its sole discretion, may deem appropriate. 

          Section
9.      Documentation of Subordinated Debt. The
Subordinated Creditor will: 

                         (a)      cause
all Subordinated Debt to be evidenced by a note, debenture or other instrument
evidencing the Subordinated Debt; 

                         (b)      at
Senior Creditor’s request, promptly surrender or cause to be surrendered any
such note, debenture, or instrument evidencing the Subordinated Debt so that a
statement or legend may be entered thereon to the effect that such note,
debenture, or other instrument is subordinated to the Senior Indebtedness in
favor of Senior Creditor in the manner and to the extent set forth in this
Subordination Agreement; 

                         (c)     
mark the books of Subordinated Creditor to show that the Subordinated Debt is
subordinated to the Senior Indebtedness in the manner and to the extent set
forth in this Subordination Agreement; and 

                         (d)      cause
all financial statements of the Subordinated Creditor hereafter prepared for
delivery to any person to make specific reference to the provisions of this
Subordination Agreement. 

          Section
10.      Notices. All notices and other
communications provided for hereunder shall be in writing (including by
facsimile transmission). All such written notices shall be mailed, faxed or
delivered, to the applicable address, or facsimile number set out below or to
such other 

4




address, or facsimile number, as shall be designated by such
party in a notice to the other parties. All such notices and other
communications shall be deemed to be given or made upon the earlier to occur of
(a) actual receipt by the relevant party hereto and (b) (i) if delivered
by hand or by courier, upon delivery; (ii) if delivered by mail, four
Business Days after deposit in the mails, postage prepaid; and (iii) if
delivered by facsimile, when sent and the sender has received electronic
confirmation of error free receipt. In no event shall a voicemail message be
effective as a notice, communication or confirmation hereunder. 

	 	If to Administrative Agent: 	Macquarie Bank Limited 
	 	  	Houston Representative Office 
	 	 	 One Allen Center 	 
	 	  	500 Dallas Street, Suite 3100 
	 	  	Houston, Texas 77002 
	 	  	Attention: 	Michael Sextro 
	 	  	Telephone: 	713-275-6207 
	 	  	Facsimile: 	713-275-6222 
	 	  	E-Mail: 	michael.sextro@macquarie.com 
	 	  	  	  
	 	With a copy to: 	Greenberg Traurig, LLP 
	 	  	1000 Louisiana, Suite 1700 
	 	  	Houston, Texas 77002 
	 	  	Attention: 	Douglas C. Atnipp 
	 	  	Telephone: 	713-374-3500 
	 	  	Facsimile: 	713-374-3505 
	 	  	E-Mail: 	atnippd@gtlaw.com 
	 	  	  	  
	 	If to Subordinated Creditor: 	Green Shoe Investments Ltd. 
	 	  	P.O. Box 556, Main Street,
      Charlestown 
	 	 	 Nevis, West Indes 	 
	 	  	Attention: 	Roger Knox 
	 	  	Telephone: 	 
    
	 	  	Facsimile: 	+41 22 799 0801 
	 	  	E-Mail: 	 
    
	 	  	  	  
	 	If to Borrower: 	Doral Energy Corp 
	 	  	111 N. Sepulveda Blvd. 
	 	  	Suite 250 	  
	 	  	Manhattan Beach, CA 90266 
	 	  	Attention: 	Paul Kirkitelos 
	 	  	Telephone: 	310 – 990-8708 
	 	  	Facsimile: 	253-541-7833 
	 	  	E-Mail: 	paulk@doralenergy.com 


5 




          Section
11.      Execution of Instruments. The
Subordinated Creditor agrees to execute any and all other instruments necessary
as required by the Lender to subordinate the Subordinated Debt to the Senior
Indebtedness as herein provided. 

          Section
12.      Assignment by Subordinated
Creditor. Subordinated Creditor will not assign or transfer to others any
claim the Subordinated Creditor has or may have against Borrower as long as any
of the Senior Indebtedness remains outstanding, unless such assignment or
transfer is expressly made subject to this Subordination Agreement. 

          Section
13.      Warranties and Representations. The
Subordinated Creditor represents and warrants that (a) neither the execution nor
delivery of this Subordination Agreement nor fulfillment of or compliance with
the terms and provisions hereof will conflict with, or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any agreement
or instrument (including, without limitation, any formation documents) to which
Subordinated Creditor is now subject, (b) none of the Subordinated Debt is or
will be subordinated to any other indebtedness of Borrower other than the Senior
Indebtedness unless otherwise agreed by Lender, (c) except for the Subordinated
Debt evidenced by the Subordinated Debt Instruments, as of the date of this
Agreement, Borrower has no additional debt due and owing to Subordinated
Creditors and (d) Exhibit B contains a listing of all liens filed by
Subordinated Creditor relating to the Subordinated Debt. 

          Section
14.      Waiver of Notice of Acceptance. Notice
of acceptance of this Subordination Agreement is waived, acceptance on the part
of Lender being conclusively presumed by its request for this Subordination
Agreement and delivery of the same to it. 

          Section
15.      Assignment by Lender. This
Subordination Agreement may be assigned by Lender in connection with any
assignment or transfer of the Senior Indebtedness. 

          Section
16.      GOVERNING LAW. THIS SUBORDINATION
AGREEMENT SHALL BE CONSTRUED UNDER AND GOVERNED BY THE LAWS OF THE STATE OF
TEXAS AND APPLICABLE FEDERAL LAW. 

          Section
17.      Severability. If any provision (or
portion of any provision) of this Subordination Agreement is rendered or
declared invalid, illegal or unenforceable by reason of any existing or
subsequently enacted legislation or by a final decision of any court of
competent jurisdiction, the parties shall promptly meet and negotiate substitute
provisions for those rendered invalid, illegal or unenforceable, but all of the
remaining provisions will remain in full force and effect. 

          Section
18.      Counterparts. This Subordination
Agreement may be executed in two or more counterparts, and it shall not be
necessary that the signatures of all parties be contained together on any one
counterpart of this Subordination Agreement. Each counterpart will be deemed an
original, but all counterparts taken together will constitute one and the same
agreement. 

6




          Section
19.      ENTIRE AGREEMENT; AMENDMENT. THIS
SUBORDINATION AGREEMENT REFLECTS THE ENTIRE AGREEMENT OF THE PARTIES WITH
RESPECT TO THE MATTERS COVERED BY THIS SUBORDINATION AGREEMENT AND CANNOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
AMONG ANY OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE
PARTIES. This Subordination Agreement may be amended and the rights of any party
under this Subordination Agreement may be waived only pursuant to a written
agreement signed by each of the parties to this Subordination Agreement. 

[SIGNATURES BEGIN ON THE FOLLOWING PAGE] 

7




          IN
WITNESS WHEREOF, the undersigned has executed this instrument effective as of
July 29, 2008. 

SUBORDINATED CREDITOR: 

GREEN SHOE INVESTMENTS LTD.,

a Nevis corporation 

	 	By: 	/s/ Roger Knox 
	 	Name: 	Roger Knox 
	 	Title: 	Director 


[SIGNATURE PAGE TO SUBORDINATION AGREEMENT] 




          IN
WITNESS WHEREOF, the undersigned has caused this instrument to be executed by
its duly authorized undersigned officer effective as of July 29, 2008. 

BORROWER: 

DORAL ENERGY CORP., 
a
Nevada corporation 

	 	By: 	/s/ Paul Kirkitelos 
	 	Name: 	Paul Kirkitelos 
	 	Title: 	President & CEO 


[SIGNATURE PAGE TO SUBORDINATION AGREEMENT] 




          IN
WITNESS WHEREOF, the undersigned has caused this instrument to be executed by
its duly authorized undersigned officers effective as of July 29, 2008. 

LENDER: 

MACQUARIE BANK LIMITED, 
a
bank incorporated under the laws of Australia 

	 	By: 	/s/
      Andrew Sinclair 
	 	Name: 	Andrew
      Sinclair 
	 	Title: 	Division Director 
	 	  	  
	 	  	  
	 	By: 	/s/
      Thomas Cullinan 
	 	Name: 	Thomas
      Cullinan 
	 	Title: 	Attorney 


[SIGNATURE PAGE TO SUBORDINATION AGREEMENT] 




EXHIBIT A 

Subordinated Debt Instruments 

None. 




EXHIBIT B 

Liens 

None.