CERX Colombia Energy Resources Inc (CE)

On January 18, 2013, Colombia Energy Resources, Inc. (the “ Company ”) completed the initial closing of a private placement to a limited number of accredited investors (collectively, the “ Investors ”) of up to a maximum of $500,000 in cash for the Company’s 15% Secured Promissory Notes due January 18, 2014 (collectively, the “ Notes ”) , discounted at approximately 5% of the face value of thereof, and warrants (the “ Warrants ”) to purchase in aggregate up to 39,912,980 shares of the Company’s common stock, par value $0.001 (the “ Common Stock ”) at an exercise price of $0.01 per share.  Pursuant to the Subscription Agreement (the “ Subscription Agreement ”) between the Company and the Investors, for every $100,000 of cash paid for the discounted Notes, the Investors are entitled to receive Warrants to purchase 7,982,596 shares of Common Stock.

At the initial closing of the offering, the Company issued three Notes, two of which are deemed material to the Company. These two notes were issued in the principal amount of $105,000 and 7,982,596 Warrants each to Steelhead Navigator Master, L.P. (“ Steelhead ”) and Odyssey Reinsurance Company (“ Odyssey ”). Steelhead owns 1,800,000 shares of our Series A Preferred Stock representing a majority of the outstanding shares of the series and Odyssey owns 600,000 shares of Series A Preferred Stock representing approximately 21% of the outstanding shares of the series. The Notes accrue interest at the annual rate of 15%.

Each Note contains customary events of default by the Company, including, without limitation, failure to make required payments when due, failure to comply with the material terms and conditions of the Note, the occurrence of certain events of bankruptcy and insolvency, and breach of any representations warranties contained in the Note or the Subscription Agreement. An event of default under the Note will allow the holder to accelerate, or in certain cases, will automatically cause the acceleration of, the amounts due under such Note. The holders of the Notes are provided certain preferences in the event of liquidation. In the event of the liquidation, dissolution or winding up of the affairs of the Company, or a consolidation or merger of the Company with or into any other corporation or corporations, or a sale or other disposition of all or substantially all of the assets of the Company, a holder of a Note will be entitled to receive, out of the assets of the Company available for distribution to its stockholders, before any payment or distribution to the holders of the Common Stock or any class or series of Preferred Stock, for every $1.00 in principal of Note equal to (i) $2.50 (subject to adjustment for stock splits, stock dividends, recapitalizations and the like) plus (ii) any accrued but unpaid dividends to which the holders of Notes are then entitled.

To secure the Company’s obligations under the Notes, the Company granted the Investors a security interest in all of its membership interests in Energia Andina Santander Resources Cooperatieve U.A, a wholly-owned Dutch cooperative that indirectly owns all of the Company’s operating assets (“ Energia ”), under the terms and conditions of the (i) the Pledge and Collateral Agency Agreement, dated January 18, 2013 (the “ Pledge Agreement ”), among the Company, Colombia CPF LLC (“ CPF ”) and The Law Office of Ronald N. Vance & Associates, P.C., as collateral agent (“ Collateral Agent ”); (ii) the Deed of Pledge, dated as of January 18, 2013, among the Company, CPF, Energia. and Collateral Agent ( the “ Deed of Pledge ”); (iii) the Pledge Agreement relating to the Mining Titles, dated January 18, 2013, between Colombia Clean Power S.A.S. (“ CCP ”) and the Collateral Agent (the “ Mining Titles Pledge Agreement ”) pledging the interest of CCP in its mining concessions as collateral for repayment of the Notes; (iv) the Pledge Agreement Over the Assets of CCP, dated January 18, 2013, between CCP and the Collateral Agent (the “ Mining Assets Pledge Agreement ”) pledging the assets of CCP used in its mining operations as collateral for repayment of the Notes ; (v) the Mortgage Agreement, dated January 18, 2013, between CCP and the Collateral Agent (the “ Mortgage Agreement ”) pledging the real estate owned by CCP as collateral for the repayment of the Notes; and (vi) the Covenant Agreement, dated January 18, 2013, between the Company, CPF, Energia, Energia Andina Resources España, S.L., a Company Limited, incorporated under Spanish law, CCP, Steelhead and Odyssey (the “ Covenant Agreement ”). The Covenant Agreement prohibits the Company or its subsidiaries, without the consent of Steelhead and Odyssey, from issuing common stock or other voting or ownership interests, incurring debt or granting security interests, amending their entity governing documents, liquidating or dissolving the entities, entering into any transaction with an affiliate, entering into another line of business, disposing of assets, paying dividends or repurchasing shares, acquiring assets with a total value in excess of $1,000,000, or effecting any transaction which would result in a change of control.

The above description of the Notes, Warrants, Subscription Agreement, Pledge Agreement, the Deed of Pledge, the Mining Titles Pledge Agreement, the Mining Assets Pledge Agreement, the Covenant Agreement, and the Mortgage Agreement is qualified in its entirety by reference to the full text of the forms of Note and Warrant, and to the Subscription Agreement, the Pledge Agreement, Deed of Pledge, the Mining Titles Pledge Agreement, the Mining Assets Pledge Agreement, the Covenant Agreement and the Mortgage Agreement copies of which are filed as Exhibits 4.1, 4.2, 99.1, 99.2, 99.3, 99.4, 99.5, 99.6, and 99.7 to this Current Report on Form 8-K and the contents of which are incorporated herein by reference thereto.

The Subscription Agreement, the Pledge Agreement, the Deed of Pledge, the Mining Titles Pledge Agreement, the Mining Assets Pledge Agreement, and the Mortgage Agreement (collectively, the “ Financing Documents ”) have been included as exhibits to this Current Report on Form 8-K to provide information regarding their respective terms.  These exhibits are not intended to provide any other factual information about the Company.  The Financing Documents contain representations and warranties that the parties thereto made to each other as of specific dates. The assertions embodied in the representations and warranties in Financing Documents were made solely for purposes of the Financing Documents and the transactions and agreements contemplated thereby among the parties thereto and may be subject to important qualifications and limitations agreed to by the parties thereto in connection with negotiating the terms thereof. Moreover, some of those representations and warranties may not be accurate or complete as of any specified date, may be subject to a contractual standard of materially different from those generally applicable to stockholders or may have been used for the purposes of allocating risk among the parties to the Financing Documents rather than establishing matters as fact.