EXHIBIT 10.4
FORM OF SUBORDINATION AGREEMENT
SUBORDINATION AGREEMENT
This SUBORDINATION AGREEMENT (this "AGREEMENT"), dated as of April 25,
2006 is among GALAXY ENERGY CORPORATION, a Colorado corporation ("BORROWER"),
DOLPHIN ENERGY CORPORATION, a Nevada corporation, and PANNONIAN INTERNATIONAL,
LTD., a Colorado corporation (each such corporation, including Borrower, and
together with each other Person who becomes a party to this Agreement each an
"OBLIGOR" and, together, "OBLIGORS"), the parties listed on the Schedule of
Subordinated Creditors attached hereto (each a "SUBORDINATED CREDITOR", and
collectively the "SUBORDINATED CREDITORS"), and HFTP INVESTMENT L.L.C, GAIA
OFFSHORE MASTER FUND, LTD., CAERUS FUND LTD, AG OFFSHORE CONVERTIBLES, LTD., and
LEONARDO, L.P., (collectively, and together with any transferees or holders from
time to time of the Notes (as defined below), hereinafter, the "LENDERS"), and
PROMETHEAN ASSET MANAGEMENT L.L.C., a Delaware limited liability company, in its
capacity as collateral agent for itself and for the Lenders (including any
successor agent, hereinafter, the "AGENT").
R E C I T A L S
A. Borrower has executed and delivered to each of the Lenders those
certain senior secured convertible notes each made by Borrower and dated as of
August 19, 2004, October 27, 2004, and May 31, 2005 (as the same may be amended,
restated, supplemented or modified and in effect from time to time, and
including any notes issued in exchange or substitution therefor, individually a
"NOTE" and collectively the "NOTES"). The Notes were issued pursuant to a
certain Securities Purchase Agreement dated as of August 19, 2004 (as the same
has been and hereafter may be amended, modified, supplemented or restated, the
"2004 PURCHASE AGREEMENT"), and a certain Securities Purchase Agreement dated as
of May 31, 2005 (as the same has been and hereafter may be amended, modified,
supplemented or restated, the "2005 PURCHASE AGREEMENT", and together with the
2004 Purchase Agreement, collectively, the "PURCHASE AGREEMENT"), in each case
by and among, inter alia, Borrower and the Lenders, and pursuant to which the
Lenders have made certain loans ("LOANS") to Borrower.
B. DOLPHIN ENERGY CORPORATION, a Nevada corporation, and PANNONIAN
INTERNATIONAL, LTD, a Colorado corporation (each such entity, together with each
other person or entity who becomes a party to the Guaranty (as defined herein)
by execution of a joinder in the form of EXHIBIT A attached thereto, is referred
to individually as a "GUARANTOR" and collectively as the "GUARANTORS") have
executed a Guaranty dated as of August 19, 2004 (as the same may be amended,
restated, supplemented or modified and in effect from time to time, the
"GUARANTY") in favor of the Agent in respect of Borrower's obligations under the
Purchase Agreement and the Notes.
C. Borrower (the "SUBORDINATED OBLIGOR") and Subordinated Creditors
have entered into a Securities Purchase Agreement dated as of April 25, 2006 (as
the same may be amended, supplemented, restated or otherwise modified from time
to time as permitted hereunder, the "SUBORDINATED PURCHASE AGREEMENT") pursuant
to which, among other things, Subordinated Creditors have extended credit to the
Subordinated Obligor as evidenced by Senior Subordinated Convertible Debentures
each dated as of April 25, 2006 by Subordinated Obligor in favor of Subordinated
Creditors in the aggregate original principal amount of $4,500,000.00 (as
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the same may be amended, supplemented, restated or otherwise modified from time
to time as permitted hereunder and including any debentures issued in exchange
or substitution therefor, each a "SUBORDINATED DEBENTURE" and collectively, the
"SUBORDINATED DEBENTURES"), and pursuant to which Subordinated Obligor has
incurred and may hereafter incur other obligations and liabilities to
Subordinated Creditors.
D. The consummation of the transactions contemplated by the
Subordinated Purchase Agreement, the Subordinated Debentures or any other
Subordinated Indebtedness Documents (as defined herein) are subject to the
execution and delivery of this Agreement by the Subordinated Obligor,
Subordinated Creditors, Agent and Lenders.
NOW, THEREFORE, in reliance upon this Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the parties hereto hereby agree as follows:
1. DEFINITIONS. All capitalized terms used but not elsewhere defined in
this Agreement shall have the respective meanings ascribed to such terms in the
Purchase Agreement and the Notes. The following terms shall have the following
meanings in this Agreement:
ENFORCEMENT ACTION is defined in subsection 2.7.
LENDER OR LENDERS shall mean any holder of Senior Indebtedness
including, without limitation, any holder of any Senior Indebtedness after
the consummation of any Permitted Refinancing.
LOAN DOCUMENTS means the collective reference to the Purchase
Agreement, the Notes, the Warrants, Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions, the Conveyances of Overriding
Royalty Interests, the USBIT Account Control Agreement, the ANB Amendment
and the ANB Account Control Agreement as amended thereby, the First
Amendment and the Security Agreement as amended thereby, the Guaranty as
amended thereby and the Pledge Agreement as amended thereby, the 2004
Amendment, the Mortgage Amendments and the Mortgages as amended thereby,
the Colorado Mortgage and each of the other agreements to which any Obligor
is a party or is bound in connection with the transactions contemplated
under the Purchase Agreement and the Notes.
PAID IN FULL or PAYMENT IN FULL shall mean the indefeasible payment
in full in cash of all Senior Indebtedness and termination of all
commitments to lend under the Loan Documents and Permitted Refinancing Loan
Documents.
PERMITTED REFINANCING means any refinancing of the Senior Indebtedness.
PERMITTED REFINANCING LOAN DOCUMENTS means any and all agreements,
documents and instruments executed in connection with a Permitted
Refinancing of Senior Indebtedness.
PROCEEDING is defined in subsection 2.3.
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SENIOR INDEBTEDNESS shall mean the obligations, liabilities and other
amounts owed under the Purchase Agreement, the Notes or any other Loan
Document including all interest, fees, expenses, indemnities and
enforcements costs, whether before or after the commencement of a
Proceeding and without regard to whether or not an allowed claim, and all
obligations and liabilities incurred with respect to Permitted
Refinancings, together with any amendments, restatements, modifications,
renewals or extensions of any thereof.
SUBORDINATED CREDITOR shall mean each "Subordinated Creditor" which is
signatory to this Agreement and any other holders of a Subordinated
Debenture or any other Subordinated Indebtedness from time to time as
permitted hereunder.
SUBORDINATED DEFAULT shall mean a default in the payment of the
Subordinated Indebtedness, or performance of any term, covenant or
condition contained in the Subordinated Indebtedness Documents or the
occurrence of any event or condition, which default, event or condition
permits any Subordinated Creditor to accelerate or demand payment of all or
any portion of the Subordinated Indebtedness.
SUBORDINATED DEFAULT NOTICE shall mean a written notice to Agent
pursuant to which Agent is notified of the existence of a Subordinated
Default, which notice incorporates a reasonably detailed description of
such Subordinated Default.
SUBORDINATED INDEBTEDNESS shall mean all of the obligations of Obligors
(including Subordinated Obligor) to Subordinated Creditors evidenced by the
Subordinated Purchase Agreement, the Subordinated Debentures and all other
amounts now or hereafter owed by Obligors to Subordinated Creditors
pursuant to the Subordinated Indebtedness Documents.
SUBORDINATED INDEBTEDNESS DOCUMENTS shall mean the Subordinated
Debenture(s), Subordinated Purchase Agreement, and Warrants in favor of the
Subordinated Creditors, in each case, dated April 25, 2006, and all other
documents and instruments evidencing or pertaining to any portion of the
Subordinated Indebtedness, as amended, supplemented, restated or otherwise
modified from time to time as permitted hereunder.
2005 NOTES means any Note or Notes issued pursuant to the 2005
Purchase Agreement.
2. SUBORDINATION OF SUBORDINATED INDEBTEDNESS TO SENIOR INDEBTEDNESS.
2.1 SUBORDINATION. The payment of any and all of the Subordinated
Indebtedness hereby expressly is subordinated, to the extent and in the
manner set forth herein, to the Payment in Full of the Senior Indebtedness.
Each holder of Senior Indebtedness, whether now outstanding or hereafter
arising, shall be deemed to have acquired Senior Indebtedness in reliance
upon the provisions contained herein.
2.2 RESTRICTION ON PAYMENTS. Notwithstanding any provision of the
Subordinated Indebtedness Documents to the contrary and in addition to any
other
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limitations set forth herein or therein, no payment (whether made in cash,
securities or other property or by set-off) of principal, interest or any
other amount due with respect to the Subordinated Indebtedness shall be
made or received, and no Subordinated Creditor shall exercise any right of
set-off or recoupment with respect to any Subordinated Indebtedness, until
all of the Senior Indebtedness is Paid in Full, PROVIDED HOWEVER: subject
to any adjustments or rights set forth in the Notes or any warrant,
Subordinated Obligor shall be permitted to make interest payments by means
of the issuance to any Subordinated Creditor of common stock of the
Borrower.
2.3 PROCEEDINGS. In the event of any insolvency, bankruptcy,
receivership, custodianship, liquidation, reorganization, assignment for
the benefit of creditors or other proceeding for the liquidation,
dissolution or other winding up of any Obligor or any of its Subsidiaries
or any of their respective properties (a "PROCEEDING"):
(i) the Lenders shall be entitled to receive payment in full
in cash of the Senior Indebtedness before any Subordinated
Creditor is entitled to receive any payment upon the
Subordinated Indebtedness, and Lenders shall be entitled to
receive for application in payment of such Senior Indebtedness
any payment or distribution of any kind or character, whether
in cash, property or securities or by set-off or otherwise,
which may be payable or deliverable in any such Proceedings in
respect of the Subordinated Indebtedness;
(ii) any payment or distribution of assets of any Obligor of
any kind or character, whether in cash, property or securities,
by set-off or otherwise, to which any Subordinated Creditor
would be entitled pursuant to the Subordinated Indebtedness but
for the provisions hereof shall be paid by the liquidating
trustee or agent or other Person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to the Lenders until
the Senior Indebtedness shall have been Paid in Full, and each
Subordinated Creditor acknowledges and agrees that such payment
or distribution may, particularly with respect to interest on
Senior Indebtedness after the commencement of a Proceeding,
result in such Subordinated Creditor receiving less than it
would otherwise receive;
(iii) each Subordinated Creditor hereby irrevocably (x)
authorizes, empowers and directs all receivers, trustees,
debtors in possession, liquidators, custodians, conservators
and others having authority in the premises to effect all such
payments and deliveries, and each Subordinated Creditor also
irrevocably authorizes, empowers and directs, the Agent and the
Lenders until the Senior Indebtedness shall have been Paid in
Full, to demand, xxx for, collect and receive every such
payment or distribution, and (y) agrees to execute and deliver
to the Agent and the Lenders all such further instruments
confirming the authorization referred to in the foregoing
clause (x); and
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(iv) each Subordinated Creditor hereby irrevocably authorizes,
empowers and appoints Agent and the Lenders (until the Senior
Indebtedness shall have been Paid in Full) as its agent and
attorney in fact to (x) execute, verify, deliver and file such
proofs of claim upon the failure of any Subordinated Creditor
promptly to do so (and in any event prior to thirty (30) days
before the expiration of the time to file any proof) and (y)
vote such claims in any such Proceeding; provided that no
holder of Senior Indebtedness shall have any obligation to
execute, verify, deliver and/or file any such proof of claim or
vote such claim. In the event the Agent or any Lender (or any
agent, designee or nominee thereof) votes any claim in
accordance with the authority granted hereby, such Subordinated
Creditor shall not be entitled to change or withdraw such vote.
The Senior Indebtedness shall continue to be treated as Senior
Indebtedness and the provisions hereof shall continue to govern the
relative rights and priorities of Lenders and the Subordinated
Creditors even if all or part of the Senior Indebtedness or the
security interests securing the Senior Indebtedness are subordinated,
set aside, avoided or disallowed in connection with any such Proceeding
and the provisions hereof shall be reinstated if at any time any
payment of any of the Senior Indebtedness is rescinded or must
otherwise be returned by Agent, any Lender or any agent, designee or
nominee of such holder.
2.4 INCORRECT PAYMENTS. If any payment (whether made in cash,
securities or other property) not permitted under this Agreement is
received by any Subordinated Creditor on account of the Subordinated
Indebtedness before all Senior Indebtedness is Paid in Full, such payment
shall not be commingled with any asset of such Subordinated Creditor, shall
be held in trust by such Subordinated Creditor for the benefit of the
Lenders and shall promptly be paid over to the Lenders, or their respective
designated representatives, for application (in accordance with the
Purchase Agreement, the Notes or the Permitted Refinancing Loan Documents)
to the payment of the Senior Indebtedness then remaining unpaid, until all
of the Senior Indebtedness is Paid in Full.
2.5 SALE, TRANSFER. No Subordinated Creditor shall sell, assign,
dispose of or otherwise transfer all or any portion of the Subordinated
Indebtedness (a) without giving prior written notice of such action to
Agent, (b) unless prior to the consummation of any such action, the
transferee thereof shall execute and deliver to Agent and the Lenders a
joinder to this Agreement, or an agreement substantially identical to this
Agreement and acceptable to the Lenders, in either case providing for the
continued subordination and forbearance of the Subordinated Indebtedness to
the Senior Indebtedness as provided herein and for the continued
effectiveness of all of the rights of Agent and Lenders arising under this
Agreement and (c) unless following such sale, assignment, pledge,
disposition or other transfer, there shall either be (i) no more than two
more than the number of holders of Subordinated Indebtedness on the date
hereof or (ii) one Person acting as agent for all holders of the
Subordinated Indebtedness pursuant to documentation reasonably satisfactory
to Agent such that any notices and communications to be delivered to
Subordinated Creditors hereunder and any consents
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required by Subordinated Creditors shall be made to or obtained from such
agent and shall be binding on each Subordinated Creditor as if directly
obtained from such Subordinated Creditor. In the event of a permitted sale,
assignment, disposition or other transfer, each Subordinated Creditor
engaging in such sale, assignment, disposition or other transfer, prior to
the consummation of any such action, shall cause the transferee thereof to
execute and deliver to Agent and the Lenders a joinder to this Agreement,
or an agreement substantially identical to this Agreement and acceptable to
the Lenders, in either case providing for the continued subordination and
forbearance of the Subordinated Indebtedness to the Senior Indebtedness as
provided herein and for the continued effectiveness of all of the rights of
Lenders and Agent arising under this Agreement. Notwithstanding the failure
to execute or deliver any such agreement, the subordination effected hereby
shall survive any sale, assignment, disposition or other transfer of all or
any portion of the Subordinated Indebtedness, and the terms of this
Agreement shall be binding upon the successors and assigns of each
Subordinated Creditor, as provided in Section 10 below.
2.6 LEGENDS. Until the Senior Indebtedness is Paid in Full, each of
the Subordinated Indebtedness Documents at all times shall contain in a
conspicuous manner the following legend:
"This Debenture and the indebtedness evidenced hereby are
subordinate in the manner and to the extent set forth in that
certain Subordination Agreement (the "Subordination
Agreement") dated as of April 25, 2006 among Galaxy Energy
Corporation, the Subordinated Creditors named therein, the
Lenders named therein, and Promethean Asset Management L.L.C,
to the Senior Indebtedness (as defined in the Subordination
Agreement); and each holder of this Debenture, by its
acceptance hereof, shall be bound by the provisions of the
Subordination Agreement."
2.7 RESTRICTION ON ACTION BY SUBORDINATED CREDITORS.
(a) Until the Senior Indebtedness is Paid in Full and
notwithstanding anything contained in the Subordinated Indebtedness
Documents, the Purchase Agreement, the other Loan Documents or the
Permitted Refinancing Loan Documents to the contrary, no Subordinated
Creditor shall, without the prior written consent of Agent, agree to any
amendment, modification or supplement to the Subordinated Indebtedness
Documents, the effect of which is to (i) increase the maximum principal
amount of the Subordinated Indebtedness or rate of interest (or cash pay
rate of interest) on any of the Subordinated Indebtedness, (ii) change to
an earlier date, any date upon which payments of principal or interest on
the Subordinated Indebtedness are due or otherwise front load the
amortization of any of the Subordinated Indebtedness, (iii) change in a
manner adverse to any Obligor or add any event of default or add or make
more restrictive any covenant with respect to the Subordinated
Indebtedness, (iv) change the redemption, prepayment or put provisions of
the Subordinated Indebtedness, (v) alter the subordination provisions with
respect to the Subordinated Indebtedness, including, without limitation,
subordinating the Subordinated Indebtedness to any other debt, (vi)
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shorten the maturity date of any of the Subordinated Indebtedness or
otherwise alter the repayment terms of the Subordinated Indebtedness in a
manner adverse to any Obligor, (vii) take any liens in any assets of any
Obligor or any of its Subsidiaries or any other assets securing the Senior
Indebtedness or (viii) obtain any guaranties or credit support from any
Person which is an affiliate of the Obligor, or (ix) change or amend any
other term of the Subordinated Indebtedness Documents if such change or
amendment would increase the obligations of any Obligor or confer
additional material rights on any Subordinated Creditor or any other holder
of the Subordinated Indebtedness in a manner adverse to any Obligor, Agent
or Lenders.
(b) Until the Senior Indebtedness is Paid in Full, no
Subordinated Creditor shall, without the prior written consent of Agent,
take or continue any action, or exercise any rights, remedies or powers in
respect of any of the Subordinated Debentures, the Subordinated Purchase
Agreement or any other Subordinated Indebtedness, or exercise or continue
to exercise any other right or remedy at law or in equity that such
Subordinated Creditor might otherwise possess, to collect any amount due
and payable in respect of any Subordinated Debenture or any of the other
Subordinated Indebtedness, including, without limitation, the acceleration
of the Subordinated Indebtedness, the commencement of any action to enforce
payment or foreclosure on any lien or security interest, the filing of any
petition in bankruptcy or the taking advantage of any other insolvency law
of any jurisdiction (any of the foregoing, an "ENFORCEMENT Action"). If any
Subordinated Creditor shall attempt to take any Enforcement Action or
otherwise seek to collect or realize upon any of the Subordinated
Indebtedness in violation of the terms hereof, the holders of the Senior
Indebtedness may, by virtue of the terms hereof, restrain any such
Enforcement Action or other action, either in its own name or in the name
of the applicable Obligor.
(c) Until the Senior Indebtedness is Paid in Full, any Liens
of Subordinated Creditors in the Collateral which may exist in breach of
each Subordinated Creditor's agreement pursuant to subsection 2.7(a)(vii)
or Section 18 of this Agreement shall be and hereby are subordinated for
all purposes and in all respects to the Liens of Agent and Lenders in the
Collateral, regardless of the time, manner or order of perfection of any
such Liens. In the event that any Subordinated Creditor obtains any Liens
in the Collateral in violation of subsection 2.7(a)(vii) or Section 18 of
this Agreement, Subordinated Creditors (i) shall (or shall cause their
agent to) promptly execute and deliver to Agent such termination statements
and releases as Agent shall request to effect the release of the Liens of
such Subordinated Creditor in such Collateral and (ii) shall be deemed to
have authorized Agent to file any and all termination statements required
by Agent in respect of such Liens. In furtherance of the foregoing, each
Subordinated Creditor hereby irrevocably appoints Agent its
attorney-in-fact, with full authority in the place and stead of such
Subordinated Creditor and in the name of such Subordinated Creditor or
otherwise, to execute and deliver any document or instrument which such
Subordinated Creditor may be required to deliver pursuant to this
subsection 2.7(c).
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3. CONTINUED EFFECTIVENESS OF THIS AGREEMENT; MODIFICATIONS TO SENIOR
INDEBTEDNESS.
(a) The terms of this Agreement, the subordination effected
hereby, and the rights and the obligations of Subordinated Creditors, Agent
and Lenders arising hereunder, shall not be affected, modified or impaired
in any manner or to any extent by: (i) any amendment or modification of or
supplement to the Purchase Agreement, any other Loan Document or any
Permitted Refinancing Loan Document or any Subordinated Indebtedness
Document; (ii) the validity or enforceability of any of such documents; or
(iii) any exercise or non-exercise of any right, power or remedy under or
in respect of the Senior Indebtedness or the Subordinated Indebtedness or
any of the instruments or documents referred to in clause (i) above.
(b) Agent and Lenders may at any time and from time to time in
their sole discretion, renew, amend, refinance, extend or otherwise modify
the terms and provisions of Senior Indebtedness (including, without
limitation, the terms and provisions relating to the principal amount
outstanding thereunder, the rate of interest thereof, the payment terms
thereof and the provisions thereof regarding default or any other matter)
or exercise (or refrain from exercising) any of their rights under the Loan
Documents, all without notice to or consent from the Subordinated Creditors
and without incurring liability to any Subordinated Creditor and without
impairing or releasing the obligations of any Subordinated Creditor under
this Agreement. No compromise, alteration, amendment, renewal, restatement,
refinancing or other change of, or waiver, consent or other action in
respect of any liability or obligation under or in respect of, any terms,
covenants or conditions of Senior Indebtedness or the Loan Documents,
whether or not in accordance with the provisions of the Senior
Indebtedness, shall in any way alter or affect any of the subordination
provisions hereof.
4. REPRESENTATIONS AND WARRANTIES.
(A) Each Subordinated Creditor hereby represents and warrants
(as to itself and not as to any other Subordinated Creditor) to Agent and
Lenders as follows:
4.1 EXISTENCE AND POWER. If an entity, such Subordinated
Creditor is duly organized, validly existing and in good standing under the
laws of the state of its organization.
4.2 AUTHORITY. Such Subordinated Creditor has full power and
authority to enter into, execute, deliver and carry out the terms of this
Agreement and to incur the obligations provided for herein, all of which
have been duly authorized by all proper and necessary action and are not
prohibited by the organizational documents of such Subordinated Creditor.
4.3 BINDING AGREEMENTS. This Agreement, when executed and
delivered, will constitute the valid and legally binding obligation of such
Subordinated Creditor enforceable in accordance with its terms.
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4.4 CONFLICTING AGREEMENTS; LITIGATION. No provisions of any
mortgage, indenture, contract, agreement, statute, rule, regulation,
judgment, decree or order binding on such Subordinated Creditor or
affecting the property of such Subordinated Creditor conflicts with, or
requires any consent which has not already been obtained under, or would in
any way prevent the execution, delivery or performance of the terms of this
Agreement. The execution, delivery and carrying out of the terms of this
Agreement will not constitute a default under, or result in the creation or
imposition of, or obligation to create, any Lien upon the property of such
Subordinated Creditor pursuant to the terms of any such mortgage,
indenture, contract or agreement. No pending or, to the best of such
Subordinated Creditor's knowledge, threatened, litigation, arbitration or
other proceedings if adversely determined would in any way prevent the
performance of the terms of this Agreement.
4.5 NO DIVESTITURE. On the date hereof, such Subordinated
Creditor which is signatory hereto is the current owner and holder of its
Subordinated Debenture and all other Subordinated Indebtedness Documents.
4.6 DEFAULT UNDER SUBORDINATED INDEBTEDNESS DOCUMENTS. On the
date hereof, no default exists under or with respect to the Subordinated
Debenture held by Subordinated Creditor or any of the other Subordinated
Indebtedness Documents applicable to such Subordinated Debenture.
(B) Each Obligor hereby represents and warrants to Agent and
Lenders that the signatories to this Agreement under the heading
"Subordinated Creditors" constitute all of the holders of the Subordinated
Debentures and the other Subordinated Indebtedness.
5. CUMULATIVE RIGHTS, NO WAIVERS. Each and every right, remedy and power
granted to Agent or Lenders hereunder shall be cumulative and in addition to any
other right, remedy or power specifically granted herein, in the Purchase
Agreement, the other Loan Documents or Permitted Refinancing Loan Documents or
now or hereafter existing in equity, at law, by virtue of statute or otherwise,
and may be exercised by Agent or Lenders, from time to time, concurrently or
independently and as often and in such order as Agent or Lenders may deem
expedient. Any failure or delay on the part of Agent or Lenders in exercising
any such right, remedy or power, or abandonment or discontinuance of steps to
enforce the same, shall not operate as a waiver thereof or affect Agent's or
Lenders' right thereafter to exercise the same, and any single or partial
exercise of any such right, remedy or power shall not preclude any other or
further exercise thereof or the exercise of any other right, remedy or power,
and no such failure, delay, abandonment or single or partial exercise of Agent's
or Lenders' rights hereunder shall be deemed to establish a custom or course of
dealing or performance among the parties hereto.
6. MODIFICATION. Any modification or waiver of any provision of this
Agreement, or any consent to any departure by Agent or any Subordinated Creditor
therefrom, shall not be effective in any event unless the same is in writing and
signed by Agent and the holders of at least 51% of the then outstanding
principal balance of the Subordinated Debenture(s), and then such modification,
waiver or consent shall be effective only in the specific instance and for the
specific instance and for the
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specific purpose given. Any notice to or demand on any Subordinated Creditor in
any event not specifically required of Agent hereunder shall not entitle any
Subordinated Creditor to any other or further notice or demand in the same,
similar or other circumstances unless specifically required hereunder.
7. ADDITIONAL DOCUMENTS AND ACTIONS. Each Subordinated Creditor at any
time, and from time to time, after the execution and delivery of this Agreement,
upon the request of Agent and at the expense of Borrower, will promptly execute
and deliver such further documents and do such further acts and things as Agent
may request in order to effect fully the purposes of this Agreement.
8. NOTICES. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) Business Day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to a Subordinated To the address of such Subordinated
Creditor: Creditor set forth on the Schedule
of Subordinated Creditors hereto
If to any Obligor: Galaxy Energy Corporation
0000 00xx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Attention: Xxxx X. Xxxxxx
Telecopy: (000) 000-0000
with a copy to: Xxxx Xxxx Xxxx Xxxxxxxxxx & Xxxxxxxxx,
P.C.
000 Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Attention: Xxx X. Xxxxxxxxx
Telecopy: (000) 000-0000
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If to Agent: Promethean Asset Management L.L.C.
00 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to: Xxxxxx Xxxxxx Xxxxxxxx LLP
000 Xxxx Xxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000-0000
Attn: Xxxx X. Xxxx
Telecopy: (000) 000-0000
If to a Lender: To the address of such Lender set
forth on the Schedule I hereto
or, in the case of party named above, at such other address and/or facsimile
number and/or to the attention of such other person as the recipient party has
specified by written notice given to each other party five (5) days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a nationally recognized overnight
delivery service shall be rebuttable evidence of personal service, receipt by
facsimile or deposit with a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.
9. SEVERABILITY. In the event that any provision of this Agreement is
deemed to be invalid by reason of the operation of any law or by reason of the
interpretation placed thereon by any court or governmental authority, this
Agreement shall be construed as not containing such provision and the invalidity
of such provision shall not affect the validity of any other provisions hereof,
and any and all other provisions hereof which otherwise are lawful and valid
shall remain in full force and effect.
10. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
the successors and assigns of Agent and Lenders and shall be binding upon the
successors and assigns of Subordinated Creditors and Obligors.
11. COUNTERPARTS. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to each other party; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.
12. DEFINES RIGHTS OF CREDITORS; SUBROGATION.
11
(a) The provisions of this Agreement are solely for the purpose
of defining the relative rights of Subordinated Creditors, Agent and
Lenders and shall not be deemed to (i) create any rights or priorities in
favor of any other Person, including, without limitation, any Obligor, (ii)
amend any of the Loan Documents or in any way waive any of the rights that
the Agent and the Lenders have against any Obligor under the Loan
Documents, or (iii) waive any Event of Default or Triggering Event under
any of the Loan Documents.
(b) Subject to the Payment in Full of the Senior Indebtedness,
in the event and to the extent cash, property or securities otherwise
payable or deliverable to the holders of the Subordinated Indebtedness
shall have been applied pursuant to this Agreement to the payment of Senior
Indebtedness, then and in each such event, the holders of the Subordinated
Indebtedness shall be subrogated to the rights of each holder of Senior
Indebtedness to receive any further payment or distribution in respect of
or applicable to the Senior Indebtedness; and, for the purposes of such
subrogation, no payment or distribution to the holders of Senior
Indebtedness of any cash, property or securities to which any holder of
Subordinated Indebtedness would be entitled except for the provisions of
this Agreement shall, and no payment over pursuant to the provisions of
this Agreement to the holders of Senior Indebtedness by the holders of the
Subordinated Indebtedness shall, as between any Obligor, its creditors
other than the holders of Senior Indebtedness and the holders of
Subordinated Indebtedness, be deemed to be a payment by such Obligor to or
on account of Senior Indebtedness.
13. CONFLICT. In the event of any conflict between any term, covenant
or condition of this Agreement and any term, covenant or condition of any of the
Subordinated Indebtedness Documents, the provisions of this Agreement shall
control and govern. For purposes of this Section 13, to the extent that any
provisions of any of the Subordinated Indebtedness Documents provide rights,
remedies and benefits to Agent or Lenders that exceed the rights, remedies and
benefits provided to Agent or Lenders under this Agreement, such provisions of
the applicable Subordinated Indebtedness Documents shall be deemed to supplement
(and not to conflict with) the provisions hereof.
14. STATEMENT OF INDEBTEDNESS TO SUBORDINATED CREDITORS. Borrower will
furnish to Agent upon demand, a statement of the indebtedness owing from
Obligors to Subordinated Creditors, and will give Agent access to the books of
Obligors in accordance with the Purchase Agreement so that Agent can make a full
examination of the status of such indebtedness.
15. HEADINGS. The paragraph headings used in this Agreement are for
convenience only and shall not affect the interpretation of any of the
provisions hereof.
16. TERMINATION. This Agreement shall terminate upon the Payment in Full
of the Senior Indebtedness.
17. SUBORDINATED DEFAULT NOTICE. Subordinated Creditors and Borrower each
shall provide Agent with a Subordinated Default Notice upon the occurrence of
each Subordinated Default, and Subordinated Creditors shall notify Agent in the
event such Subordinated Default is cured or waived.
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18. NO CONTEST OF SENIOR INDEBTEDNESS OR LIENS; NO SECURITY FOR
SUBORDINATED INDEBTEDNESS. Each Subordinated Creditor agrees that it will not,
and will not encourage any other Person to, at any time, contest the validity,
perfection, priority or enforceability of the Senior Indebtedness or Liens in
the Collateral granted to Agent and the Lenders pursuant to the Purchase
Agreement, the other Loan Documents or the Permitted Refinancing Loan Documents
or accept or take any collateral security for the Subordinated Indebtedness. In
furtherance of the foregoing, on the date hereof, each Subordinated Creditor
hereby represents and warrants that it has not taken or received a security
interest in, or lien upon, any asset of any Obligor, whether in respect of the
Subordinated Indebtedness or otherwise.
19. GOVERNING LAW, JURISDICTION WAIVER OF JURY TRIAL. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of New
York. Each party hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in the City of New York, borough of Manhattan,
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT
OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
20. WAIVER OF CONSOLIDATION. Each Subordinated Creditor acknowledges and
agrees that (i) Obligors are each separate and distinct entities; and (ii) it
will not at any time insist upon, plead or seek advantage of any substantive
consolidation, piercing the corporate veil or any other order or judgment that
causes an effective combination of the assets and liabilities of Obligors in any
case or proceeding under Title 11 of the United States Code or other similar
proceeding.
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IN WITNESS WHEREOF, each Subordinated Creditor, each Obligor, Agent
and each Lender has caused this Agreement to be executed as of the date first
above written.
SUBORDINATED CREDITOR:
---------------------------------
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
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OBLIGORS:
GALAXY ENERGY CORPORATION, a Colorado
corporation
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
DOLPHIN ENERGY CORPORATION, a Nevada
corporation
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
PANNONIAN INTERNATIONAL, LTD., a Colorado
corporation
By:
---------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
AGENT:
PROMETHEAN ASSET MANAGEMENT L.L.C. in its
capacity as agent for all Lenders
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
LENDERS:
HFTP INVESTMENT L.L.C.
By: Promethean Asset Management L.L.C.
Its: Investment Manager
By:
----------------------------------------
Name:
Title:
15
GAIA OFFSHORE MASTER FUND, LTD.
By: Promethean Asset Management L.L.C.
Its: Investment Manager
By:
----------------------------------------
Name:
Title:
CAERUS FUND LTD.
By: Promethean Asset Management L.L.C.
Its: Investment Manager
By:
----------------------------------------
Name:
Title:
AG OFFSHORE CONVERTIBLES, LTD.
By: Xxxxxx, Xxxxxx & Co., L.P.
Director
By:
---------------------------------------
Name: Xxx Xxxxxxxxxxx
Title: Chief Financial Officer
XXXXXXXX, L.P.
By: Xxxxxxxx Capital Management, Inc.
Its: General Partner
By: Xxxxxx, Xxxxxx & Co., L.P
Its: Director
By:
---------------------------------------
Name:
Title:
16
