EXHIBIT 10.1
NOVEMBER 2006 WAIVER AND AMENDMENT AGREEMENT
THIS NOVEMBER 2006 WAIVER AND AMENDMENT AGREEMENT (this "AGREEMENT") is
made as of November 29, 2006, among Galaxy Energy Corporation, a Colorado
corporation ("GALAXY" or the "COMPANY"), the Subsidiaries (as defined below),
HFTP Investment LLC ("HFTP"), Gaia Offshore Master Fund, Ltd. ("GAIA"), Caerus
Fund Ltd. ("CAERUS"), Promethean II Master, L.P. ("MASTER"), AG Offshore
Convertibles, Ltd. (including as successor to AG Domestic Convertibles, L.P.,
"AG OFFSHORE") and Xxxxxxxx, L.P. ("XXXXXXXX" and, collectively with HFTP, Gaia,
Caerus, Master and AG Offshore, the "BUYERS").
W I T N E S S E T H:
WHEREAS, the Company and certain of the Buyers (collectively, the "2004
BUYERS") entered into that certain Securities Purchase Agreement (as amended,
restated, supplemented or otherwise modified and in effect from time to time,
the "2004 PURCHASE AGREEMENT"), dated as of August 19, 2004, pursuant to which
the Company issued to the 2004 Buyers senior secured convertible notes (such
notes, together with any promissory notes or other securities issued in exchange
or substitution therefor or replacement thereof, and as any of the same may be
amended, restated, supplemented or otherwise modified and in effect from time to
time, the "2004 NOTES"), dated August 19, 2004, in an aggregate original
principal amount of $15,000,000 and warrants (such warrants, together with any
warrants or other securities issued in exchange or substitution therefor or
replacement thereof, and as any of the same may be amended, restated,
supplemented or otherwise modified and in effect from time to time, the
"WARRANTS" and the shares of Common Stock issuable upon exercise of the Warrants
being referred to herein as the "WARRANT SHARES"), dated August 19, 2004, to
purchase initially an aggregate of 5,194,806 shares (subject to adjustment as
provided therein) of the common stock, par value $0.001 per share (the "COMMON
STOCK"), of the Company, and subsequently issued to the 2004 Buyers senior
secured convertible notes, dated October 27, 2004, in an aggregate original
principal amount of $5,000,000, none of which remain outstanding;
WHEREAS, the Company, Dolphin Energy Corporation, a Nevada corporation
("DOLPHIN"), Pannonian International, Ltd., a Colorado corporation ("PANNONIAN"
and, together with Dolphin, the "SUBSIDIARIES"), and Promethean Asset Management
L.L.C., a Delaware limited liability company, as collateral agent (including any
successors to Promethean Asset Management L.L.C., "AGENT"), entered into that
certain Security Agreement, dated as of August 19, 2004 (as amended, restated,
supplemented or otherwise modified and in effect from time to time, the
"SECURITY AGREEMENT"), in connection with the 2004 Buyers' acquisition of the
2004 Notes;
WHEREAS, the Company entered into that certain letter agreement, dated
January 25, 2005, with the 2004 Buyers with respect to the 2004 Notes (the
"LETTER AGREEMENT");
WHEREAS, the Company entered into that certain Securities Purchase
Agreement (the "2005 SUBORDINATED NOTE PURCHASE Agreement"), dated as of March
1, 2005, with the parties set forth therein (the "2005 SUBORDINATED
NOTEHOLDERS"), pursuant to which the Company
issued to the 2005 Subordinated Noteholders, among other things, senior
subordinated convertible notes (as amended by that certain Waiver and First
Amendment to March 2005 Notes and Warrants, dated as of May 31, 2005, and in
effect as of the date thereof, without amendment or modification thereafter, the
"2005 SUBORDINATED NOTES"), and, in connection therewith, entered into that
certain Subordination Agreement, dated as of May 31, 2005, with the
Subsidiaries, the 2005 Subordinated Noteholders, certain of the Buyers and Agent
(the "2005 SUBORDINATION AGREEMENT");
WHEREAS, the Company and certain of the Buyers (the "2005 BUYERS")
entered into that certain Securities Purchase Agreement, dated as of May 31,
2005 (as amended, restated, supplemented or otherwise modified and in effect
from time to time, the "2005 PURCHASE AGREEMENT" and, collectively with the 2004
Purchase Agreement, the "PURCHASE AGREEMENTS"), pursuant to which the Company
issued to the 2005 Buyers senior secured convertible notes in an aggregate
original principal amount of $10,000,000 (such notes, together with any
promissory notes or other securities issued in exchange or substitution therefor
or replacement thereof, and as any of the same may be amended, restated,
supplemented or otherwise modified and in effect from time to time, the "2005
NOTES" and, collectively with the 2004 Notes, the "NOTES"; the shares of Common
Stock issuable upon conversion of the Notes being referred to herein as the
"CONVERSION SHARES"), and the 2005 Buyers were granted perpetual overriding
royalty interests in the hydrocarbon production on the Company's and Dolphin's
properties (the "OVERRIDING ROYALTY INTEREST") pursuant to those certain
Conveyances of Overriding Royalty Interests, dated May 31, 2005 (the "ORRI
DOCUMENTS");
WHEREAS, the Company executed and delivered a Mortgage, Security
Agreement, Assignment, Financing Statement and Fixture Filing to DAR, LLC, dated
effective January 14, 2004, covering properties subject to the Security
Agreement (the "DAR MORTGAGE"), but did not list the DAR Mortgage as a Lien in
the Purchase Agreements;
WHEREAS, the Company has since received and properly filed a release of
the DAR Mortgage;
WHEREAS, the Company entered into that certain Waiver and Amendment,
dated as of December 1, 2005, with the Buyers (the "2005 WAIVER AND AMENDMENT");
WHEREAS, the Company entered into that certain Waiver and Agreement,
dated as of July 7, 2006, with the Buyers (the "2006 WAIVER AND AGREEMENT");
WHEREAS, the Company entered into that certain Securities Purchase
Agreement, dated as of April 25, 2006 (the "APRIL 2006 SUBORDINATED NOTE
PURCHASE AGREEMENT"), and that certain Securities Purchase Agreement, dated as
of June 20, 2006 (the "JUNE 2006 SUBORDINATED NOTE PURCHASE AGREEMENT" and,
collectively with the April 2006 Subordinated Note Purchase Agreement, the "2006
SUBORDINATED NOTE PURCHASE AGREEMENTS"; the 2006 Subordinated Note Purchase
Agreements and the 2005 Subordinated Note Purchase Agreement being collectively
referred to herein as the "SUBORDINATED NOTE PURCHASE AGREEMENTS"), with the
parties named therein (the "2006 SUBORDINATED NOTEHOLDERS" and, collectively
with the 2005 Subordinated Noteholders, the "SUBORDINATED NOTEHOLDERS"),
pursuant to which the Company issued to the 2006 Subordinated Noteholders, among
other things, subordinated
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convertible debentures (the "2006 SUBORDINATED NOTES" and, together with the
2005 Subordinated Notes, the "CONVERTIBLE SUBORDINATED NOTES"; all of the
Indebtedness of the Company outstanding under the Convertible Subordinated Notes
being referred to as the "OUTSTANDING CONVERTIBLE SUBORDINATED INDEBTEDNESS")
and, in connection therewith, entered into those certain Subordination
Agreements, dated as of April 25, 2006 and June 20, 2006, respectively, with the
Subsidiaries, the 2006 Subordinated Noteholders, certain of the Buyers and Agent
(the "2006 SUBORDINATION AGREEMENTS" and, together with the 2005 Subordination
Agreement, the "SUBORDINATION AGREEMENTS");
WHEREAS, the Company and Dolphin have entered into a letter of intent
with PetroHunter Energy Corporation, a Maryland corporation ("PETROHUNTER"),
with respect to the proposed sale (the "PRB SALE") to PetroHunter by the Company
and Dolphin of all of their Leased Real Property in the Powder River Basin of
Wyoming and Montana, as more specifically set forth on SCHEDULE 1 hereto (the
"PRB ASSETS");
WHEREAS, the Notes are collateralized by, among other things, the PRB
Assets;
WHEREAS, the consent of the Buyers is required for the Company and
PetroHunter to consummate the PRB Sale;
WHEREAS, the Company has incurred Indebtedness (as defined in the
Notes) in the form of obligations issued, undertaken or assumed as the deferred
purchase price of property or services consisting of account trade payables
("ACCOUNTS PAYABLE") exceeding an aggregate among the Company and the
Subsidiaries of $2,500,000 (the "ACCOUNTS PAYABLE DEFAULT"), resulting in the
breach of Section 4(n) of the 2004 Purchase Agreement, Section 4(p) of the 2005
Purchase Agreement, Section 12 of each of the 2004 Notes and Section 11 of each
of the 2005 Notes, resulting in a Triggering Event (as defined in the 2004
Notes) under Sections 3(b)(vii) and 3(b)(viii) of each of the 2004 Notes, a
Triggering Event (as defined in the 2005 Notes) under Sections 3(a)(i)(F),
3(a)(i)(G) and 3(a)(i)(H) of each of the 2005 Notes, an Event of Default (as
defined in the 2004 Notes) under Sections 11(a)(ii) and 11(a)(iii) of each of
the 2004 Notes, and an Event of Default (as defined in the 2005 Notes) under
Sections 10(a)(ii) and 10(a)(iii) of each of the 2005 Notes, which would (among
other things) entitle each of the Buyers, as holders of the Notes, to require
the Company to redeem all or any portion of the Principal (as defined in the
Notes) of each of the Notes held by such Buyer at a price equal to the greater
of (i) the sum of (x) 125% of such Principal (the "TRIGGERING EVENT REDEMPTION
AMOUNT") plus (y) the Additional Amount (as defined in the Notes) with respect
to such Principal and (ii) the product of (A) the Conversion Rate (as defined in
the Notes) in effect at such time as such Buyer delivers a Notice of Redemption
at Option of Holder (as defined in the 2004 Notes) or a Notice of Redemption at
Option of Holder Upon Triggering Event (as defined in the 2005 Notes), as
applicable, multiplied by (B) the Weighted Average Price (as defined in the
Notes) of the Common Stock on the Trading Day (as defined in the Notes)
immediately preceding such Triggering Event;
WHEREAS, to induce the Buyers to waive the Triggering Event and the
Event of Default described in the foregoing recital, as well as the breaches of
the Purchase Agreements resulting from the Company's failure to disclose the DAR
Mortgage in the Purchase Agreements (such breaches being collectively referred
to herein as the "DAR MORTGAGE DISCLOSURE DEFAULT"), the Company has agreed to
amend the Notes and Warrants as provided herein;
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WHEREAS, to induce the Buyers to consent to the PRB Sale, the Company
has agreed to (i) issue an aggregate of 10,000,000 shares (subject to
proportionate adjustment for stock splits, stock dividends or similar events
occurring after the date hereof) of Common Stock to the Buyers pursuant to
automatic Cashless Exercises (as defined in the Warrants) of the Warrants,
pursuant to Section 2(e) of each of the Warrants and Section 6(d) hereof, upon
consummation of the PRB Sale, (ii) transfer an aggregate of 1,000,000 shares
(subject to proportionate adjustment for stock splits, stock dividends or
similar events occurring after the date hereof) of common stock, par value
$0.001 per share, of PetroHunter ("PETROHUNTER COMMON STOCK") to the Buyers by
directing PetroHunter to issue such shares directly to the Buyers in connection
with the PRB Sale, (iii) in the event that an Approved PRB Sale (as defined
below) is not consummated on or before December 31, 2006, issue an aggregate of
1,000,000 shares (subject to proportionate adjustment for stock splits, stock
dividends or similar events occurring after the date hereof) of Common Stock
pursuant to Section 6(c) hereof, unless certain conditions are satisfied, and
(iv) in the event that an Approved PRB Sale is not consummated on or before
January 31, 2007, issue an aggregate of 1,000,000 shares of Common Stock
(subject to proportionate adjustment for stock splits, stock dividends or
similar events occurring after the date hereof) pursuant to Section 6(c) hereof,
unless certain conditions are satisfied; and
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing a Registration Rights Agreement,
relating to the registration of certain of the shares of Common Stock that may
be issued by the Company hereunder (the "NEW GALAXY REGISTRATION RIGHTS
AGREEMENT").
NOW, THEREFORE, in consideration of the agreements, provisions and
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, each of the
undersigned agrees as follows:
1. DEFINED TERMS.
a. "APPROVED PRB SALE" means the PRB Sale; provided that, in
order for such PRB Sale to qualify as an "APPROVED PRB SALE," (i) the PRB Sale
shall be consummated no later than February 28, 2007, (ii) the Company shall
receive consideration of at least $45,000,000 pursuant to such PRB Sale (subject
to adjustment pursuant to the definitive purchase agreement pertaining to the
PRB Sale to be entered into by and among the Company and/or Dolphin and
PetroHunter and/or its operating subsidiary, but in any event, (A) such
adjustment shall not reduce the aggregate consideration to be received by the
Company by more than $2,000,000, and (B) such consideration shall include at
least an aggregate of 1,000,000 shares of PetroHunter Stock (subject to
proportionate adjustment for stock splits, stock dividends or similar events
occurring after the date hereof), but not more than $25,000,000 of PetroHunter
Stock), (iii) all of the PRB Sale Related Transactions shall be consummated
concurrently with such PRB Sale, and (iv) the Company shall be, and shall at all
times hereafter have been, in compliance in all respects with the terms and
conditions of this Agreement, the Purchase Agreements, the Notes, the Warrants
and the other Transaction Documents (as defined below).
b. "PRB SALE RELATED TRANSACTIONS" means, collectively, the
following transactions: (i) the issuance by the Company to the Buyers of an
aggregate of 10,000,000 shares of Common Stock (subject to proportionate
adjustment for stock splits, stock dividends or
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similar events occurring after the date hereof), pro rata based upon the
relative outstanding principal amounts of the Notes held by each of the Buyers
immediately prior to the execution hereof (which principal amounts are, for the
avoidance of doubt, set forth on SCHEDULE 2 attached hereto and which number of
shares so issuable to each Buyer are, for the avoidance of doubt, set forth on
SCHEDULE 3 attached hereto), pursuant to automatic Cashless Exercises of the
Warrants pursuant to Section 2(e) of each of the Warrants and Section 6(d)
hereof, and the credit of such aggregate number of shares of Common Stock to
which each such Buyer shall be entitled to such Buyer's or its designee's
balance account with The Depository Trust Company ("DTC") through DTC's Deposit
Withdrawal Agent Commission System; (ii) the transfer by the Company of an
aggregate of 1,000,000 shares (subject to proportionate adjustment for stock
splits, stock dividends or similar events occurring after the date hereof) of
PetroHunter Common Stock to the Buyers, pro rata based upon the relative
outstanding principal amounts of the Notes held by each of the Buyers as of the
date hereof (which number of shares so issuable to each Buyer are, for the
avoidance of doubt, set forth on SCHEDULE 3 hereto), by causing PetroHunter to
directly issue such shares to the Buyers in connection with the Approved PRB
Sale, and the delivery to each of the Buyers of a duly executed stock
certificate representing the shares of PetroHunter common stock so issued to
each such Buyer; (iii) the execution and delivery by PetroHunter and each of the
Buyers of a Registration Rights Agreement (A) providing that, no later than one
hundred twenty (120) days after the date of the PRB Sale, the shares of
PetroHunter common stock so issued to each of the Buyers shall be (I) registered
for public resale pursuant to a registration statement that has been declared
effective by the SEC, (II) freely tradable, without restriction of any type, on
the Alternative Investment Market of the London Stock Exchange pursuant to Rule
904 of Regulation S under the 1933 Act or (III) freely tradable, without
restriction of any type, in the United States on the OTC Bulletin Board and (B)
in a form acceptable to each of the Buyers, in its sole discretion, and
acknowledged in writing by PetroHunter as acceptable to it by no later than
December 14, 2006; (iv) the repayment of all of the Outstanding Convertible
Subordinated Indebtedness, in cash and/or shares of PetroHunter Common Stock
received by the Company as consideration in PRB Sale having an aggregate value
of not more than $17,696,302.54 (subject to appropriate adjustment under the
Convertible Subordinated Notes for any change in the prime rate from the date
hereof through February 28, 2007), and the retirement and cancellation of all of
the Convertible Subordinated Notes; and (v) the concurrent or prior amendment to
the ORRI Documents, and the filing of the amended ORRI Documents as directed by
the Buyer, to provide that in the event of an Approved PRB Sale, PetroHunter
shall be deemed to be an "AFFILIATE OF GRANTOR" for purposes of Section 14 of
any of the ORRI Documents.
c. "PRB SALE DEADLINE" means February 28, 2007.
d. "TRANSACTION DOCUMENTS" means, collectively, the Transaction
Documents (as defined in the 2004 Purchase Agreement) and the Transaction
Documents (as defined in the 2005 Purchase Agreement), including this Agreement,
the New Galaxy Registration Rights Agreement, the Letter Agreement, the
Subordination Agreements, the 2005 Waiver and Amendment and the 2006 Waiver and
Agreement.
Each capitalized term used herein, and not otherwise defined, shall have the
meaning ascribed thereto in the 2005 Purchase Agreement.
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2. INCREASE IN PRINCIPAL AND AMENDMENT OF NOTES.
a. For purposes of this Section 2, each capitalized term used
herein, and not otherwise defined, shall have the meaning ascribed thereto in
the Notes.
b. Each of the Buyers, severally and not jointly, hereby agrees
with the Company that as of the date hereof, the Principal of each of the Notes
held by such Buyer shall increase to an amount equal to the difference between
(i) 125% of the Principal of such Note (equal to the Triggering Event Redemption
Amount with respect thereto) as of the end of the day on October 31, 2006, minus
(ii) any Principal of such Note redeemed by the Company after October 31, 2006
but prior to the date hereof in accordance with such Note (as set forth on
SCHEDULE 2 attached hereto). For avoidance of doubt, each of the Buyers,
severally and not jointly, hereby agrees with the Company that, as a result of
the preceding sentence, immediately following the execution hereof, the
Principal of each of the Notes held by such Buyer shall be the amount set forth
for such Note on SCHEDULE 2 attached hereto.
c. Each of the Buyers, severally and not jointly, hereby agrees
with the Company that the definition of "MATURITY DATE" under:
(i) each of the 2004 Notes held by such Buyer is hereby
amended to mean "the earliest of (A) the date of consummation of the PRB Sale
(as defined in the November 0000 Xxxxxx and Amendment (as defined herein)), (B)
April 29, 2007, and (C) such date as all amounts due under this Note have been
fully paid"; and
(ii) each of the 2005 Notes held by such Buyer is hereby
amended to mean "the earliest of (A) the date of consummation of the PRB Sale,
(B) May 31, 2010, (C) the date of a Maturity Date Acceleration Event (as defined
herein), and (D) such date as all amounts due under this Note have been fully
paid."
d. Each of the Buyers, severally and not jointly, hereby agrees
with the Company that the first sentence of Section 4(b) of each of the Notes
held by such Buyer is hereby amended and restated in its entirety as follows:
"(b) OPTIONAL REDEMPTION UPON CHANGE OF CONTROL. In addition
to the rights of the Holder under Section 4(a), upon a Change
of Control (as defined below) of the Company, the Holder shall
have the right, at the Holder's option, to require the Company
to redeem all or a portion of the Principal at a price equal
to 100% (or 115% in the case of an event satisfying the
definition of Change of Control pursuant to subsection (iii)
below that is not pursuant to a definitive written agreement
executed by the Company and approved by the Company's Board of
Directors) of the Principal plus the Interest Amount with
respect to such Principal (the "CHANGE OF CONTROL REDEMPTION
PRICE")."
e. Each of the Buyers, severally and not jointly, hereby agrees
with the Company that the definition of "TRIGGERING EVENT" set forth in:
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(i) Section 3(b) of each of the 2004 Notes held by such Buyer
is hereby amended by adding new paragraphs (ix) and (x) immediately after
paragraph (viii) thereof, such paragraphs to read in their entirety as follows:
"(ix) any failure of the Company to pay any Principal of this
Note, when and as due; or
(x) the Company breaches, or does not comply with, any of the
provisions of that certain November 2006 Waiver and Amendment
Agreement, dated as of November 29, 2006, by and among the
Company, its Subsidiaries and the Buyers (as defined therein)
(the "NOVEMBER 2006 WAIVER AND AMENDMENT")."
and;
(ii) Section 3(a)(i) of each of the 2005 Notes held by such
Buyer is hereby amended by adding new paragraphs (J) and (K) immediately after
paragraph (I) thereof, such paragraphs to read in their entirety as follows:
"(J) any failure of the Company to pay any Principal of this
Note, when and as due; or
(K) the Company breaches, or does not comply with, any of the
provisions of that certain November 2006 Waiver and Amendment
Agreement, dated as of November 29, 2006, by and among the
Company, its Subsidiaries and the Buyers (as defined therein)
(the "NOVEMBER 2006 WAIVER AND AMENDMENT")."
f. Each of the Buyers, severally and not jointly, hereby agrees
with the Company that the definition of "EVENT OF DEFAULT" set forth in:
(i) Section 11(a) of each of the 2004 Notes held by such Buyer
is hereby amended by adding a new clause (ix) immediately after clause (viii)
thereof, such clause to read in its entirety as follows:
"(ix) any Subordinated Noteholder (as defined in the November
0000 Xxxxxx and Amendment) exercises any rights or remedies
that it may have under any Convertible Subordinated Note (as
defined in the November 2006 Waiver and Amendment) or any of
the Subordinated Note Purchase Agreements (as defined in the
November 2006 Waiver and Amendment) on account of any breach
of any representation, warranty, covenant or other term or
condition of, or any "Event of Default," "Triggering Event" or
other default under, any of the Convertible Subordinated Notes
or any of the Subordinated Note Purchase Agreements, relating
to, or resulting from (or any Subordinated Noteholder
otherwise breaches or violates any of the Subordination
Agreements in connection with), the Accounts Payable Default
(as defined in the November 0000 Xxxxxx and Amendment), the
2005 Subordinated Notes Accounts Payable Default (as defined
in the November 2006 Waiver and Amendment), the DAR Mortgage
Disclosure Default (as defined in the November 2006 Waiver and
Amendment), the Subordinated Note DAR Mortgage Disclosure
Default (as defined in the
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November 2006 Waiver and Amendment), or the execution and
delivery of the November 2006 Waiver and Amendment and the
consummation of the transactions contemplated thereby."
and;
(ii) Section 10(a) of each of the 2005 Notes held by such
Buyer is hereby amended by adding a new clause (ix) immediately after clause
(viii) thereof, such clause to read in its entirety as follows:
"(ix) any Subordinated Noteholder (as defined in the November
0000 Xxxxxx and Amendment) exercises any rights or remedies
that it may have under any Convertible Subordinated Note (as
defined in the November 2006 Waiver and Amendment) or any of
the Subordinated Note Purchase Agreements (as defined in the
November 2006 Waiver and Amendment) on account of any breach
of any representation, warranty, covenant or other term or
condition of, or any "Event of Default," "Triggering Event" or
other default under, any of the Convertible Subordinated Notes
or any of the Subordinated Note Purchase Agreements relating
to, or resulting from (or any Subordinated Noteholder
otherwise breaches or violates any of the Subordination
Agreements in connection with), the Accounts Payable Default
(as defined in the November 0000 Xxxxxx and Amendment), the
2005 Subordinated Notes Accounts Payable Default (as defined
in the November 2006 Waiver and Amendment), the DAR Mortgage
Disclosure Default (as defined in the November 2006 Waiver and
Amendment), the Subordinated Note DAR Mortgage Disclosure
Default (as defined in the November 2006 Waiver and
Amendment), or the execution and delivery of the November 2006
Waiver and Amendment and the consummation of the transactions
contemplated thereby."
3. AMENDMENT OF WARRANTS.
a. For purposes of this Section 3, each capitalized term used
herein, and not otherwise defined, shall have the meaning ascribed thereto in
the Warrants.
b. Each of the Buyers, severally and not jointly, hereby agrees
with the Company that Section 1(b) of each of the Warrants held by such Buyer is
hereby amended by adding the following definitions to read in their entirety as
follows:
""APPROVED PRB SALE" means the PRB Sale; provided that, in
order for such PRB Sale to qualify as an "APPROVED PRB SALE,"
(i) the PRB Sale shall be consummated no later than the PRB
Sale Deadline (as defined herein), (ii) the Company shall
receive consideration of at least $45,000,000 pursuant to such
PRB Sale (subject to adjustment pursuant to the definitive
purchase agreement pertaining to the PRB Sale to be entered
into by and among the Company and/or Dolphin and PetroHunter
and/or its operating subsidiary, but in any event, (A) such
adjustment shall not reduce the aggregate consideration to be
received by the Company by more than $2,000,000, and (B) such
consideration shall include at
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least an aggregate of 1,000,000 shares (subject to
proportionate adjustment for stock splits, stock dividends or
similar events occurring after the date hereof) of common
stock, par value $0.001 per share, of PetroHunter Energy
Corporation, a Maryland corporation ("PETROHUNTER STOCK"), but
not more than $25,000,000 of PetroHunter Stock), (iii) the PRB
Sale Related Transactions (as defined in that certain November
0000 Xxxxxx and Amendment Agreement, dated as of November 29,
2006, among the Company, its Subsidiaries and the Buyers named
therein (the "NOVEMBER 2006 WAIVER AND AMENDMENT") shall be
consummated concurrently with such PRB Sale, and (iv) the
Company shall be, and shall at all times after November 29,
2006 have been, in compliance in all respects with the terms
and conditions of this Warrant, the November 2006 Waiver and
Amendment and the other Transaction Documents (as defined in
the November 2006 Waiver and Amendment);
"PRB SALE" means the sale to PetroHunter Energy Corporation, a
Maryland corporation ("PETROHUNTER"), by the Company and
Dolphin Energy Corporation, a Nevada corporation and
wholly-owned Subsidiary of the Company, of all of their Leased
Real Property in the Powder River Basin of Wyoming and Montana
as more specifically set forth on SCHEDULE 1 to the November
2006 Waiver and Amendment;
"PRB SALE DEADLINE" means February 28, 2007."
c. Each of the Buyers, severally and not jointly, hereby agrees
with the Company that Section 1(b) of each of the Warrants held by such Buyer is
hereby amended to restate the following definition to read in its entirety as
follows:
""EXPIRATION DATE" means the date that is the later of (A) the
date that is three (3) years after the Warrant Date (as defined in Section 14)
or, if such date does not fall on a Business Day, then the next Business Day,
and (B) if this Warrant was issued in replacement of another Warrant pursuant to
Section 3(b) of such other Warrant, then the date which is 20 Trading Days after
the date on which a Registration Statement (as defined in the Registration
Rights Agreement) covering the resale of all of the Warrant Shares has been
declared effective by the Securities and Exchange Commission in accordance with
the terms of the Registration Rights Agreement; provided, however, that in the
event that (i) an Approved PRB Sale is not consummated by the PRB Sale Deadline
or (ii) the PRB Sale is terminated or abandoned and publicly disclosed as such
prior to the PRB Sale Deadline and the Company has contemporaneously delivered
irrevocable written notice to each of the Buyers that the limited consent
provided under Section 6(a) of the November 2006 Waiver and Amendment has been
terminated, then the Expiration Date shall be extended for a period equal to the
number of days from November 1, 2006 until the earlier of (x) the PRB Sale
Deadline or (y) the date of such termination or abandonment and public
disclosure of such and delivery of such irrevocable notice."
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4. TERMINATION OF LIENS AND SECURITY INTEREST DOCUMENTS.
a. For purposes of this Section 4, each capitalized term used
herein, and not otherwise defined, shall have the meaning ascribed thereto in
the Security Agreement.
b. Each of the Buyers, severally and not jointly, hereby agrees
that, upon the first date following an Approved PRB Sale on which no Notes are
outstanding (i.e., because there are no outstanding Liabilities under any
Notes), (i) all security interests and Liens that such Buyer and/or Agent, as
collateral agent for such Buyer, may have on any real or personal property of
the Company and the Subsidiaries under the Security Agreement, the Mortgages,
the Pledge Agreement, the Account Control Agreements and the Guarantees
(collectively, the "SECURITY INTEREST DOCUMENTS") or other agreements pursuant
to which the Company or any of the Subsidiaries granted Liens in favor of Agent
as collateral security for such Person's obligations under the Security Interest
Documents shall terminate and be of no further force or effect; (ii) such Buyer
will thereafter reassign, and hereby authorizes and directs Agent (as collateral
agent for such Buyer) to thereafter reassign, to the Company and the
Subsidiaries, as applicable, all rights and interests in the property and assets
of the Company and the Subsidiaries which, pursuant to the Security Interest
Documents or other agreements pursuant to which Company or any Subsidiary
granted Liens in favor of Agent as collateral security for such Person's
obligations under the Transaction Documents, were previously assigned or granted
as collateral security to Agent (as collateral agent for such Buyer) by the
Company and the Subsidiaries; (iii) the Security Interest Documents shall
terminate, and the Company and the Subsidiaries shall have no further
liabilities or obligations thereunder (other than indemnification and expense
reimbursement obligations that expressly survive the termination of the Security
Interest Documents, which shall so survive as unsecured claims); provided,
however, that Section 5.12 of the Security Agreement shall survive any such
termination; and (iv) such Buyer, at the Company's expense, shall thereafter
deliver, and hereby authorizes and directs Agent, as collateral agent for such
Buyer, to thereafter deliver, at Company's expense, to the Company such
termination statements, releases, cancellations, discharges and other agreements
as may be reasonably requested by the Company in connection with the termination
and release of all security interests and Liens of such Buyer and Agent as
contemplated hereby (the "TERMINATION DOCUMENTS"); provided, however, that (i)
the Company shall supply each of the Buyers and Agent with the forms of any such
Termination Documents to be executed or authorized by such Buyer or Agent, as
applicable, and (ii) in no event shall Agent be required to execute or deliver
any such Termination Document until it has been assured to its reasonable
satisfaction that no Notes (nor any Liabilities thereunder) are outstanding.
5. TRIGGER EVENT AND EVENT OF DEFAULT WAIVER.
a. Subject to Section 5(c), each of the Buyers, severally and
not jointly, hereby waives (i) the DAR Mortgage Disclosure Default and (ii) the
breaches of Section 4(n) of the 2004 Purchase Agreement, Section 4(p) of the
2005 Purchase Agreement, Section 12 of each of the 2004 Notes held by such
Buyer, and Section 11 of each of the 2005 Notes held by such Buyer, as well as
the occurrence of a Triggering Event (as defined in the 2004 Notes) under
Sections 3(b)(vii) and 3(b)(viii) of each of the 2004 Notes held by such Buyer,
a Triggering Event (as defined in the 2005 Notes) under Sections 3(a)(i)(F),
3(a)(i)(G) and 3(a)(i)(H) of each of the 2005 Notes held by such Buyer, an Event
of Default (as defined in the 2004 Notes) under
10
Sections 11(a)(ii) and 11(a)(iii) of each of the 2004 Notes held by such Buyer,
and an Event of Default (as defined in the 2005 Notes) under Sections 10(a)(ii)
and 10(a)(iii) of each of the 2005 Notes held by such Buyer, resulting solely
from the Accounts Payable Default; provided that there shall be an immediate
breach of the Purchase Agreements and each of the Notes and a Triggering Event
and Event of Default under each of the Notes in the event that the aggregate
amount of the Accounts Payable exceeds $5,000,000 at any time following the date
of this Agreement. The Company hereby covenants and agrees that, at no time
during the period commencing on the date hereof and ending on the first date
hereafter on which no Notes are outstanding, shall the aggregate Accounts
Payable of the Company and the Subsidiaries exceed $5,000,000.
b. Subject to Section 5(c), each of the Buyers, severally and
not jointly, hereby waives its right to require the early repayment of any
amounts under any of the 2004 Notes held by such Buyer, pursuant to Section 13
thereof, as a result of an Equity Liquidity Test Failure (as defined in the 2004
Notes) occurring prior to the Maturity Date (as defined in the 2004 Notes, as
amended hereby) of such 2004 Note.
c. The limited waivers set forth in Section 5(a) and Section 5(b)
hereof are conditioned upon, and subject to, the validity and enforceability of
the Company's commitments and obligations under this Agreement, the voiding,
setting aside, or determination of invalidity or unenforceability of which shall
render such waivers null and void and of no force and effect, each Buyer being
entitled thereafter to exercise all remedies at law or in equity under this
Agreement and the Transaction Documents as if Section 5(a) and Section 5(b) had
not been part of this Agreement, as executed. The limited waivers set forth in
Section 5(a) and Section 5(b) hereof are not, nor shall they be deemed to be,
waivers under any other circumstance or waivers of any other condition,
requirement, provision or breach of, or rights under, any of the Transaction
Documents (including the rights of the Buyers as a result of a Share
Availability Test Failure (as defined in the 2004 Notes)) or any other agreement
or instrument.
6. CONSENT TO APPROVED PRB SALE.
a. Subject to Sections 6(b) and 6(c) and the conditions set
forth in the definition of "APPROVED PRB SALE," each of the Buyers, severally
and not jointly, hereby consents to, and approves, an Approved PRB Sale and the
PRB Sale Related Transactions.
b. The limited consent set forth in Section 6(a) hereof is
conditioned upon, and subject to, the validity and enforceability of the
Company's commitments and obligations under this Agreement, the voiding, setting
aside, or determination of invalidity or unenforceability of which shall render
such consent null and void and of no force and effect, each Buyer being entitled
thereafter to exercise all remedies at law or in equity under the Transaction
Documents as if Section 6(a) had not been part of this Agreement, as executed.
The limited consent set forth in Section 6(a) is not, nor shall be deemed to be,
a consent under any other circumstance or a consent to any transaction other
than an Approved PRB Sale. The limited consent set forth in Section 6(a) shall
terminate and be of no further force or effect upon the Company's delivery to
each of the Buyers of irrevocable written notice of termination of such consent.
11
c. In the event the Approved PRB Sale is not consummated (and
has not been terminated or abandoned and publicly announced as such, with the
Company having contemporaneously delivered irrevocable written notice to each of
the Buyers that the limited consent set forth in Section 6(a) has been
terminated) on or before December 31, 2006, then, on the first Business Day
after December 31, 2006, the Company shall issue to the Buyers an aggregate of
1,000,000 shares (subject to proportionate adjustment for stock splits, stock
dividends or similar events occurring after the date hereof) of Common Stock,
pro rata based upon the relative outstanding principal amounts of the Notes held
by each of the Buyers as of the date hereof (which number of shares so issuable
to each Buyer are, for the avoidance of doubt, set forth on SCHEDULE 3 hereto).
In the event the Approved PRB Sale is not consummated (and has not been
terminated or abandoned and publicly announced as such, with the Company
contemporaneously having delivered irrevocable notice to each of the Buyers that
the limited waiver set forth in Section 6(a) has been terminated) on or before
January 31, 2007, then, on the first Business Day after January 31, 2007, the
Company shall issue to the Buyers an additional aggregate of 1,000,000 shares
(subject to proportionate adjustment for stock splits, stock dividends or
similar events occurring after the date hereof) of Common Stock, pro rata based
upon the relative outstanding principal amounts of the Notes held by each of the
Buyers as of the date hereof (which number of shares so issuable to each Buyer
are, for the avoidance of doubt, set forth on SCHEDULE 3 hereto). In the event
that the Company shall be required to issue shares of Common Stock to each of
the Buyers pursuant to this Section 6(c), then on the date the Company is
required to issue such shares, the Company shall deliver to such Buyer a duly
executed stock certificate representing such shares of Common Stock. The shares
of Common Stock issued under this Section 6(c) shall not be subject to any
restrictions on transfer other than those imposed by the 1933 Act, and the
certificates representing such shares of Common Stock shall not bear any legend
other than a legend substantially identical that contained in Section 2(g) of
the 2005 Purchase Agreement.
d. Subject to, and concurrently with, the consummation of the
Approved PRB Sale, and as a part of the PRB Sale Related Transactions, (i) the
Warrant Exercise Price (as defined in the Warrants) of each of the Warrants
shall automatically be adjusted so that an aggregate of 10,000,000 shares
(subject to proportionate adjustment for stock splits, stock dividends or
similar events occurring after the date hereof) of Common Stock will be issuable
to the Buyers upon the Cashless Exercise of all of the outstanding Warrants, pro
rata based upon the relative outstanding principal amounts of the Notes held by
each of the Buyers as of the date hereof (which number of shares so issuable to
each Buyer are, for the avoidance of doubt, set forth on SCHEDULE 3 hereto),
(ii) there shall be automatic Cashless Exercises of all of the outstanding
Warrants resulting in the issuance of an aggregate of such 10,000,000 shares
(subject to proportionate adjustment for stock splits, stock dividends or
similar events occurring after the date hereof) of Common Stock to the Buyers,
pro rata based upon the relative outstanding principal amounts of the Notes held
by each of the Buyers as of the date hereof (which number of shares so issuable
to each Buyer are, for the avoidance of doubt, set forth on SCHEDULE 3 hereto),
and (iii) the aggregate number of shares of Common Stock to which each such
Buyer shall be entitled shall be credited to such Buyer's or its designee's
balance account with DTC through DTC's Deposit Withdrawal Agent Commission
System.
e. Subject to, and concurrently with, the consummation of the
Approved PRB Sale, and as a part of the PRB Sale Related Transactions, the
Company shall transfer to the
12
Buyers an aggregate of 1,000,000 shares (subject to proportionate adjustment for
stock splits, stock dividends or similar events occurring after the date hereof)
of PetroHunter Common Stock, by directing PetroHunter to issue such shares
directly to the Buyers, pro rata based upon the relative outstanding principal
amounts of the Notes held by each of the Buyers as of the date hereof (which
number of shares so issuable to each Buyer are, for the avoidance of doubt, set
forth on SCHEDULE 3 hereto). The shares of PetroHunter Common Stock issued under
this Section 6(e) shall not be subject to any restrictions on transfer other
than those imposed by the 1933 Act, and the certificates representing such
shares of PetroHunter Common Stock shall not bear any legend other than a legend
substantially identical that contained in Section 2(g) of the 2005 Purchase
Agreement.
f. Each of the Buyers, severally and not jointly, acknowledges
that this Agreement constitutes the Transfer Notice set forth in Section 9 of
the ORRI Documents and hereby elects to have its Overriding Royalty Interests,
which burden the PRB Assets, assumed by PetroHunter as part of the PRB Sale.
Each of the Buyers, severally and not jointly, further agrees that it shall
execute any document reasonably necessary to reflect this election.
g. The Company and the Subsidiaries (as defined in the Purchase
Agreements) agree and acknowledge that all of the terms and provisions of each
of the Transaction Documents remain in full force in accordance with their
terms, subject to the terms and conditions of this Agreement.
7. COVENANTS.
a. Prior to 9:00 a.m., New York time, on November 30, 2006, the
Company shall (a) file a Form 8-K (the "8-K") with the Securities and Exchange
Commission (the "SEC") describing the terms of this Agreement, any information
reasonably requested to be disclosed therein by any Buyer and any material
non-public information previously provided by the Company, any of the
Subsidiaries or any of their respective officers, directors, employees or agents
to any of the Buyers and not subsequently disclosed on a Form 8-K or other
publicly-available filing with the SEC prior to the filing of the 8-K, and
including this Agreement (including the exhibits and schedules hereto) as an
exhibit to the 8-K, all in the form required by the 1934 Act, and (b) publicly
issue on a widely disseminated basis a press release (the "PRESS RELEASE") in
the form agreed to by the Company and each of the Buyers prior to the date
hereof; provided that the Press Release shall not be issued prior to the filing
of the 8-K. The Company shall provide each Buyer with a reasonable opportunity
to review and comment upon the 8-K prior to the filing thereof with the SEC.
b. Within two (2) Business Days following the date hereof, the
Company shall reimburse each Buyer for all of the out-of-pocket fees, costs and
expenses (including, but not limited to, attorneys' fees, costs and expenses)
incurred by such Buyer in connection with the negotiation and documentation of
this Agreement.
c. Within two (2) Business Days following the execution by a
Buyer of any subordination agreement with the Company, the Company shall
reimburse such Buyer for all of the out-of-pocket fees, costs and expenses
(including, but not limited to, attorneys' fees, costs
13
and expenses) incurred by such Buyer in connection with such Buyer's review and
execution of such subordination agreement.
d. No later than the earliest of (A) the PRB Sale Deadline, (B)
the date of termination or abandonment of the PRB Sale and public disclosure as
such, or (C) the date of consummation of an Approved PRB Sale, the Company shall
obtain (i) from each of the Subordinated Noteholders, a duly executed
irrevocable waiver of any breach, "Event of Default," "Triggering Event" or
other default under the Convertible Subordinated Notes or the Subordinated Note
Purchase Agreements relating to, or resulting from, the Accounts Payable
Default, the incurrence of Indebtedness (as defined in the 2005 Convertible
Subordinated Notes) in the form of obligations issued, undertaken or assumed as
the deferred purchase price of property or services consisting of Accounts
Payable exceeding an aggregate among the Company and the Subsidiaries of
$2,500,000 (the "2005 SUBORDINATED NOTES ACCOUNTS PAYABLE DEFAULT"), the DAR
Mortgage Disclosure Default, any breaches of the Subordinated Note Purchase
Agreements resulting from any failure by the Company to disclose the DAR
Mortgage in the Subordinated Note Purchase Agreements (any such breaches being
collectively referred to herein as the "SUBORDINATED NOTE DAR MORTGAGE
DISCLOSURE DEFAULT") or the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, and (ii) from each of the
2005 Subordinated Noteholders, a duly executed amendment to each of the 2005
Subordinated Notes and the 2005 Subordinated Note Purchase Agreement to increase
the amount of permitted Accounts Payable in the definition of Indebtedness (as
defined in the 2005 Convertible Subordinated Notes) to $5,000,000.
8. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each of the Buyers that:
a. AUTHORIZATION; ENFORCEMENT; VALIDITY. Each of the Company and
the Subsidiaries has the requisite corporate power and authority to enter into
and perform its obligations under this Agreement, the New Galaxy Registration
Rights Agreement, the Notes (as amended hereby), the Warrants (as amended
hereby), the Securities Interest Documents (as amended hereby) and the other
Transaction Documents. The execution and delivery of this Agreement by each of
the Company and the Subsidiaries and the consummation of the transactions
contemplated hereby (including the issuance of the shares of Common Stock (the
"COMMON SHARES") and the transfer of the shares of PetroHunter Common Stock (the
"PETROHUNTER SHARES") in accordance herewith) have been duly authorized by the
respective boards of directors of the Company and the Subsidiaries, and no
further consent or authorization is required of any of the Company, the
Subsidiaries or their respective Boards of Directors or shareholders (under
applicable law, the rules and regulations of the Principal Market (as defined in
the Notes) or otherwise. The Company has, however, elected to submit the PRB
Sale to the Company's shareholders for approval because the PRB Sale is a
"related party transaction." This Agreement has been duly executed and delivered
by each of the Company and the Subsidiaries, and each of this Agreement, the New
Galaxy Registration Rights Agreement, the Notes (as amended hereby), the
Warrants (as amended hereby), the Security Interest Documents (as amended
hereby) and the other Transaction Documents constitutes a valid and binding
obligation of each of the Company and the Subsidiaries, enforceable against each
of the Company and the Subsidiaries in accordance with its terms.
14
b. ISSUANCE OF SECURITIES. Upon issuance upon exercise of the
Warrants (as amended hereby) in accordance with the terms thereof and hereof,
the Common Shares will be validly issued, fully paid and nonassessable and free
from all taxes and Liens, with the Buyers being entitled to all rights accorded
to a holder of Common Stock. Upon issuance, sale and transfer in accordance with
the terms hereof, the PetroHunter Shares will be validly issued, fully paid and
nonassessable and free from all taxes and Liens, with the Buyers being entitled
to all rights accorded to a holder of PetroHunter Common Stock. Each of the
issuance by the Company of the Common Shares and the issuance by PetroHunter and
transfer by the Company of the PetroHunter Shares is exempt from registration
under the 1933 Act.
c. NO CONFLICTS. The execution and delivery of this Agreement
by each of the Company and the Subsidiaries, the performance by each of the
Company and the Subsidiaries of its obligations hereunder and the consummation
by each of the Company and the Subsidiaries of the transactions contemplated
hereby and by the New Galaxy Registration Rights Agreement, the Notes (as
amended hereby), the Warrants (as amended hereby), the Security Interest
Documents (as amended hereby) and the other Transaction Documents will not (i)
result in a violation of the Articles of Incorporation or the Bylaws of the
Company or the organizational documents of any Subsidiary; (ii) conflict with,
or constitute a breach or default (or an event which, with the giving of notice
or lapse of time or both, constitutes or would constitute a breach or default)
under, or give to others any right of termination, amendment, acceleration or
cancellation of, or other remedy with respect to, any agreement, indenture or
instrument to which the Company or any of the Subsidiaries is a party; or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and the rules and
regulations of the Principal Market) applicable to the Company or any of the
Subsidiaries or by which any property or asset of the Company or any of the
Subsidiaries is bound or affected. Except as provided in Section 8(a) hereof,
neither the Company nor any of the Subsidiaries is required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency, the Principal Market or any other regulatory or
self-regulatory authority in order for it to execute, deliver or perform any of
its obligations under or contemplated by this Agreement in accordance with the
terms hereof, or under the New Galaxy Registration Rights Agreement, the Notes
(as amended hereby), the Warrants (as amended hereby), the Security Interest
Documents (as amended hereby) and the other Transaction Documents.
d. NO GENERAL SOLICITATION. Neither the Company, nor any of its
affiliates, nor any Person acting on its or their behalf, has engaged or will
engage in any form of general solicitation or general advertising (within the
meaning of Regulation D under the 0000 Xxx) in connection with the offer or sale
of the PetroHunter Common Stock to the Buyers.
e. ACQUISITION OF PETROHUNTER SHARES. The Company will acquire
the PetroHunter Shares for its own account as principal and not with a view
towards, or for resale in connection with, the public sale or distribution
thereof, except pursuant to sales registered or exempted from registration under
the 1933 Act; provided, however, that by making the representations herein, the
Company does not represent that it agreed to hold any of the PetroHunter Shares
for any minimum or other specific term.
15
f. ACCREDITED INVESTOR STATUS. The Company is an "accredited
investor" as that term is defined in Rule 501(a)(3) of Regulation D under the
1933 Act.
g. RELIANCE ON EXEMPTIONS. The Company understands that the
Common Shares and the PetroHunter Shares will be transferred to the Buyers in
reliance on specific exemptions from the registration requirements of federal
and state securities laws and that the Buyers are relying in part upon the truth
and accuracy of, and the Company's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Company set
forth herein in order to determine the availability of such exemptions and the
eligibility of the Company to transfer the PetroHunter Shares to the Buyers.
h. INFORMATION. The Company and its advisors, if any, were
furnished with all materials relating to the business, finances and operations
of PetroHunter and materials relating to the Company's acquisition of
PetroHunter Shares that were requested by the Company. The Company and its
advisors, if any, were afforded the opportunity to ask questions of PetroHunter.
The Company has sought such accounting, legal and tax advice as it has
considered necessary to make an investment decision with respect to its
acquisition and subsequent transfer of the PetroHunter Shares. The Company has
conducted its own investigation, to the extent that the Company has determined
necessary or desirable, in connection with the transfer of the PetroHunter
Shares to the Buyers and is not relying on any statements of or information from
any Buyer concerning PetroHunter.
i. ACKNOWLEDGMENT REGARDING NON-AFFILIATE STATUS. The Company
acknowledges and agrees that (A) none of the Buyers is, nor at any time prior to
the date hereof has been, nor as a result of holding the Notes and the Warrants
or the Conversion Shares issuable upon conversion of the Notes or the Warrant
Shares issuable upon exercise of the Warrants, will at any time hereafter be, an
"affiliate" of the Company (within the meaning of Rule 144(a)(1) under the 1933
Act), and (B) upon any Cashless Exercise of any of the Warrants in accordance
herewith, the Common Shares acquired upon such exercise shall, for purposes of
Rule 144(d) under the 1993 Act, be deemed to have been acquired from the Company
on the Warrant Date (as defined in the Warrants) of such Warrant, and the
Company agrees not to take any contrary position.
j. NO RESTRICTIONS ON TRANSFER OF COMMON STOCK. Upon issuance
to each of the Buyers, the Common Shares issued by the Company to such Buyer
pursuant to Section 6(d) hereof shall not be subject to any restriction on
transfer under the 1933 Act or any state securities law, and shall otherwise be
freely tradable by such Buyer.
9. REPRESENTATION AND WARRANTIES OF EACH OF THE BUYERS. Each of the
Buyers, jointly and not severally, represents and warrants to the Company that
with respect to such Buyer:
a. EXISTENCE; AUTHORIZATION. Such Buyer is a validly existing
corporation, partnership, limited liability company or other entity and has the
requisite corporate, partnership, limited liability or other organizational
power and authority to enter into and perform its obligations under this
Agreement. This Agreement has been duly and validly authorized, executed and
delivered on behalf of such Buyer and is a valid and binding agreement of such
Buyer, enforceable against such Buyer in accordance with its terms.
16
b. INVESTMENT PURPOSE. Such Buyer will acquire the PetroHunter
Shares set forth opposite such Buyer's name on SCHEDULE 3 hereto for its own
account and not with a view towards, or for resale in connection with, the
public sale or distribution thereof, except pursuant to sales registered or
exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer does not agree to hold any of the PetroHunter
Shares for any minimum or other specific term and reserves the right to dispose
of the Common Shares and PetroHunter Shares at any time in accordance with or
pursuant to a registration statement or an exemption under the 1933 Act.
c. ACCREDITED INVESTOR STATUS. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D.
d. RELIANCE ON EXEMPTIONS. Such Buyer understands that the
PetroHunter Shares are being offered and sold to it in reliance on specific
exemptions from the registration requirements of the United States federal and
state securities laws and that the Company is relying in part upon the truth and
accuracy of, and such Buyer's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Buyer set forth herein in
order to determine the availability of such exemptions and the eligibility of
such Buyer to acquire the PetroHunter Shares.
e. INFORMATION. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of PetroHunter and materials relating to the offer and sale of the PetroHunter
Shares that have been requested by such Buyer. Such Buyer and its advisors, if
any, have been afforded the opportunity to ask questions of the Company
regarding PetroHunter. Neither such inquiries nor any other due diligence
investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer's right to rely on the
Company's representations and warranties contained in Section 8. Such Buyer
understands that its investment in the PetroHunter Shares involves a high degree
of risk. Such Buyer has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to its
acquisition of the PetroHunter Shares.
f. NOT 10% SHAREHOLDER. Immediately following the issuance to
such Buyer of Common Shares pursuant to Section 6(d) hereof, such Buyer and its
affiliates shall beneficially own, in the aggregate, less than 10.0% of the
total outstanding shares of Common Stock.
10. AVOIDANCE OF DOUBT. The parties hereto hereby agree, for the
avoidance of doubt, that (a) the terms "NOTES" and "WARRANTS" as used in the
Transaction Documents shall mean the Notes and Warrants, in each case as, and to
the extent, amended by this Agreement, and (b) the terms "LIABILITIES" and
"OBLIGATIONS" as used in the Transaction Documents and "INDEBTEDNESS" as used in
the Mortgages shall include all liabilities and obligations of the Company under
this Agreement, under the New Galaxy Registration Rights Agreement, under each
of the Notes (as amended hereby, including the increase in Principal thereof as
provided hereunder), under each of the Warrants (as amended hereby), under each
of the Security Interest Documents (as amended hereby) and under the other
Transaction Documents (in each case as,
17
and to the extent, amended or modified hereby), and each of the parties hereto
agrees not to take any contrary positions.
11. INDEPENDENT NATURE OF THE BUYERS. The obligations of each of the
Buyers hereunder are several and not joint with the obligations of the other
Buyers, and none of the Buyers shall be responsible in any way for the
performance of the obligations of any of the other Buyers hereunder or under any
of the other Transaction Documents. Each of the Buyers shall be responsible only
for its own agreements and covenants hereunder and under the other Transaction
Documents. The decision of each of the Buyers to enter into this Agreement has
been made by each such party independently of any of the other Buyers and
independently of any information, materials, statements or opinions as to the
business, affairs, operations, assets, properties, liabilities, results of
operations, condition (financial or otherwise) or prospects of the Company or
any of the Subsidiaries or PetroHunter or any of its subsidiaries which may have
been made or given by any of the other Buyers or by any agent or employee of any
of the other Buyers, and none of the Buyers nor any of their respective agents
or employees shall have any liability to any of the other Buyers (or any other
Person) relating to or arising from any such information, materials, statements
or opinions. Nothing contained herein or in any of the other Transaction
Documents, and no action taken by any of the Buyers pursuant hereto or thereto,
shall be deemed to constitute any of the Buyers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that any of the Buyers are in any way acting in concert or as a
group with respect to such obligations or the transactions contemplated hereby
or thereby. Each of the Buyers shall be entitled to independently protect and
enforce its rights, including the rights arising out of this Agreement, the New
Galaxy Registration Rights Agreement, the Notes, the Warrants, the Purchase
Agreements, the Security Interest Documents and the other Transaction Documents
(in each case as amended hereby), and it shall not be necessary for any of the
other Buyers to be joined as an additional party in any proceeding for such
purpose.
12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns. The successors and assigns of such entities shall include
their respective receivers, trustees or debtors-in-possession.
13. FURTHER ASSURANCES. The Company hereby agrees from time to time,
as and when requested by any Buyer, to execute and deliver or cause to be
executed and delivered, all such documents, instruments and agreements,
including secretary's certificates, stock powers and irrevocable transfer agent
instructions, and to take or cause to be taken such further or other action, as
such Buyer may reasonably deem necessary or desirable in order to carry out the
intent and purposes of this Agreement and the other Transaction Documents.
14. RULES OF CONSTRUCTION. All words in the singular or plural include
the singular and plural and pronouns stated in either the masculine, the
feminine or neuter gender shall include the masculine, feminine and neuter, and
the use of the word "including" in this Agreement shall be by way of example
rather than limitation.
15. GOVERNING LAW; JURISDICTION; JURY TRIAL. All questions concerning
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by the
18
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.
16. 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. In the event that any signature to this
Agreement or any amendment hereto is delivered by facsimile transmission or by
e-mail delivery of a ".pdf" format data file, such signature shall create a
valid and binding obligation of the party executing (or on whose behalf such
signature is executed) with the same force and effect as if such facsimile or
".pdf" signature page were an original thereof. No party hereto shall raise the
use of a facsimile machine or e-mail delivery of a ".pdf" format data file to
deliver a signature to this Agreement or any amendment hereto or the fact that
such signature was transmitted or communicated through the use of a facsimile
machine or e-mail delivery of a ".pdf" format data file as a defense to the
formation or enforceability of a contract, and each party hereto forever waives
any such defense.
17. SECTION HEADINGS. The section headings herein are for convenience
of reference only, and shall not affect in any way the interpretation of any of
the provisions hereof.
18. NO STRICT CONSTRUCTION. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
19. MERGER. This Agreement and the other Transaction Documents, as
amended hereby, represent the final agreement of each of the parties hereto with
respect to the matters contained herein and may not be contradicted by evidence
of prior or contemporaneous agreements, or prior or subsequent oral agreements,
among any of the parties hereto.
19
20. RATIFICATION BY GUARANTORS. By execution hereof, each of the
Subsidiaries hereby acknowledges and agrees that it has reviewed this Agreement
and hereby ratifies and confirms its respective obligations under the
Transaction Documents, in each case as amended hereby.
21. RELEASE. The Company and each of the Subsidiaries hereby agree
that, as of the date hereof and as of the first date on which no Notes are
outstanding, each of Company and the Subsidiaries releases the Buyers and Agent
and their respective affiliates and subsidiaries and their respective officers,
directors, partners, members, managers, employees, shareholders, agents and
representatives, as well as their respective successors and assigns, from any
and all claims, obligations, rights, causes of action and liabilities, of
whatever kind or nature, whether known or unknown, whether foreseen or
unforeseen, arising on or before such date, which any such Person ever had, now
has or hereafter can, shall or may have for, upon or by reason of any matter,
cause or thing whatsoever, which are based upon, arise under or are related to
the Purchase Agreements, the Notes, the Warrants, the Security Interest
Documents and the other Transaction Documents, other than with respect to
Agent's and each of the Buyers' obligations under this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]
20
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by each of the undersigned as of the date first above written.
COMPANY:
GALAXY ENERGY CORPORATION
By: /s/ XXXXXXXXXXX X. XXXXXXXX
--------------------------------------
Name: XXXXXXXXXXX X. XXXXXXXX
--------------------------------------
Title: SVP & CFO
--------------------------------------
SUBSIDIARIES:
DOLPHIN ENERGY CORPORATION
By: /s/ XXXXXXX X. XXXXXXXXXX
--------------------------------------
Name: XXXXXXX X. XXXXXXXXXX
--------------------------------------
Title: CORPORATE SECRETARY
--------------------------------------
PANNONIAN INTERNATIONAL, LTD.
By: /s/ XXXXXXX X. XXXXXXXXXX
--------------------------------------
Name: XXXXXXX X. XXXXXXXXXX
--------------------------------------
Title: CORPORATE SECRETARY
--------------------------------------
BUYERS:
HFTP INVESTMENT L.L.C.
By: Promethean Asset Management L.L.C.
Its: Investment Manager
By: /s/ XXXXXX X. XXXXXXXX
-----------------------------------
Name: Xxxxxx X. Xxxxxxxx
Title: Partner and Authorized Signatory
GAIA OFFSHORE MASTER FUND, LTD.
By: Promethean Asset Management L.L.C.
Its: Investment Manager
By: /s/ XXXXXX X. XXXXXXXX
-----------------------------------
Name: Xxxxxx X. Xxxxxxxx
Title: Partner and Authorized Signatory
CAERUS FUND LTD.
By: Promethean Asset Management L.L.C.
Its: Investment Manager
By: /s/ XXXXXX X. XXXXXXXX
-----------------------------------
Name: Xxxxxx X. Xxxxxxxx
Title: Partner and Authorized Signatory
PROMETHEAN II MASTER, L.P.
By: Promethean Asset Management L.L.C.
Its: Investment Manager
By: /s/ XXXXXX X. XXXXXXXX
-----------------------------------
Name: Xxxxxx X. Xxxxxxxx
Title: Partner and Authorized Signatory
AG OFFSHORE CONVERTIBLES, LTD.
By: Xxxxxx, Xxxxxx & Co., L.P.
Its: Investment Manager
By: /s/ XXXX X. XXXXXX
------------------------------------
Name: XXXX X. XXXXXX
------------------------------------
Title: CHIEF EXECUTIVE OFFICER
------------------------------------
XXXXXXXX, L.P.
By: Xxxxxxxx Capital Management, Inc.
Its: General Partner
By: Xxxxxx, Xxxxxx & Co., L.P.
Its: Director
By: /s/ XXXX X. XXXXXX
------------------------------------
Name: XXXX X. XXXXXX
------------------------------------
Title: CHIEF EXECUTIVE OFFICER
------------------------------------
SCHEDULE 1
LIST OF PRB ASSETS
SCHEDULE 2
---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
OUTSTANDING PRINCIPAL AMOUNT OUTSTANDING
PRINCIPAL AMOUNT OUTSTANDING UNDER THE NOTES UNDER THE NOTES
NOTEHOLDER AND SENIOR SECURED CONVERTIBLE UNDER THE NOTES IMMEDIATELY PRIOR TO THE AS OF THE DATE HEREOF
NOTES AS OF OCTOBER 31, 2006 DATE HEREOF (GIVING EFFECT HERETO)
---------------------------------------------------------------------------------------------------------------------------------
HFTP INVESTMENT LLC
o 2004 Notes o $1,556,389.51 o $1,311,475.34 o $1,700,572.72
o 2005 Note o $2,507,089.00 o $2,507,089.00 o $3,133,861.25
---------------------------------------------------------------------------------------------------------------------------------
GAIA OFFSHORE MASTER FUND, LTD.
o 2004 Notes o $529,569.64 o $446,236.31 o $578,628.72
o 2005 Note o $1,333,333.00 o $1,333,333.00 o $1,666,666.25
---------------------------------------------------------------------------------------------------------------------------------
CAERUS FUND LTD.
o 2004 Notes o $66,196.46 o $55,779.79 o $72,328.91
o 2005 Note o $166,667.00 o $166,667.00 o $208,333.75
---------------------------------------------------------------------------------------------------------------------------------
PROMETHEAN II MASTER, L.P.
o 2004 Notes o $495,693.10 o $417,690.60 o $541,613.88
o 2005 Note o $2,659,578.00 o $2,659,578.00 o $3,324,472.50
---------------------------------------------------------------------------------------------------------------------------------
AG OFFSHORE CONVERTIBLES, LTD.
o 2004 Notes o $1,180,555.05 o $972,221.72 o $1,267,360.48
o 2005 Note o $0.00 o $0.,00 o $0.00
---------------------------------------------------------------------------------------------------------------------------------
XXXXXXXX, L.P.
o 2004 Notes o $0.00 o $0.00 o $0.00
o 2005 Note o $3,333,333.00 o $3,333,333.00 o $4,166,666.25
---------------------------------------------------------------------------------------------------------------------------------
TOTAL $13,828,403.76 $13,203,403.76 $16,660,504.71
---------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
SHARES OF COMMON STOCK SHARES OF COMMON STOCK
OF THE COMPANY ISSUABLE OF THE COMPANY SHARES OF COMMON STOCK SHARES OF COMMON STOCK
PURSUANT TO ISSUABLE PURSUANT TO OF THE COMPANY OF PETROHUNTER
SECTION 6(C) SECTION 6(C) ISSUABLE PURSUANT TO ISSUABLE PURSUANT TO
BUYER (DECEMBER 31, 2006) (JANUARY 31, 2007) SECTION 6(D) SECTION 6(E)
------------------------------------------------------------------------------------------------------------------------------------
HFTP INVESTMENT LLC 289,211 289,211 2,892,106 289,211
------------------------------------------------------------------------------------------------------------------------------------
GAIA OFFSHORE MASTER FUND, LTD. 134,781 134,781 1,347,811 134,781
------------------------------------------------------------------------------------------------------------------------------------
CAERUS FUND LTD. 16,848 16,848 168,477 16,848
------------------------------------------------------------------------------------------------------------------------------------
PROMETHEAN II MASTER, L.P. 233,066 233,066 2,330,663 233,066
------------------------------------------------------------------------------------------------------------------------------------
AG OFFSHORE CONVERTIBLES, LTD. 73,634 73,634 736,342 73,634
------------------------------------------------------------------------------------------------------------------------------------
XXXXXXXX, L.P. 252,460 252,460 2,524,601 252,460
------------------------------------------------------------------------------------------------------------------------------------
TOTAL 1,000,000 1,000,000 10,000,000 1,000,000
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