LOAN AGREEMENT DATED AS OF APRIL 14, 2008 AMONG GALAXY ENERGY CORPORATION AND DOLPHIN ENERGY CORPORATION, BORROWERS, AND BRUNER FAMILY TRUST, LENDER
EXHIBIT 10.1
LOAN AGREEMENT DATED AS OF APRIL 14, 2008
AMONG
GALAXY ENERGY CORPORATION AND DOLPHIN ENERGY
CORPORATION, BORROWERS,
AND XXXXXX FAMILY TRUST, LENDER
Dated as
of April 14, 2008
Among
GALAXY
ENERGY CORPORATION
AND
DOLPHIN
ENERGY CORPORATION
Borrowers
and
XXXXXX
FAMILY TRUST
Lender
This LOAN
AGREEMENT, dated as of April14, 2008, is by
and among Galaxy Energy Corporation, a Colorado corporation, and Dolphin Energy
Corporation, a Nevada corporation, debtors and debtors-in-possession (together,
the “Borrowers”), and Xxxxxx Family Trust (the “Lender”).
RECITALS
A. The
Borrowers are independent oil and gas companies primarily engaged in the
exploration for, and the acquisition and development of, crude oil and natural
gas. The Borrowers filed their respective voluntary petitions for
relief under chapter 11 of title 11 of the United States Code on March 14, 2008
(the “Petition Date”) in the United States Bankruptcy Court for the District of
Colorado.
B. The
Borrowers have requested that the Lender provide the Borrowers with a line of
credit in the amount of up to $4,368,100.00 to provide working capital to fund
the Borrowers’ business operations in accordance with the Budget (defined
below).
C. Subject
to the terms and conditions set forth herein, the Lender has agreed to provide
such line of credit.
NOW
THEREFORE, the parties hereto hereby agree, effective upon the Loan Commencement
Date (as hereinafter defined), as follows:
ARTICLE
I
DEFINITIONS
As used
in this Agreement the following terms have the following meanings (terms defined
in the singular to have a correlative meaning when used in the plural and vice
versa):
“Agent’s 507(b)
Claim” has the meaning assigned to such
term in the Interim Order and Final Order.
“Agent’s Adequate Protection
Lien” has the meaning assigned to such term
in the Interim Order and Final Order.
“Agreement” means this
Loan Agreement, as amended or supplemented from time to
time. References to Articles, Sections, Exhibits, Schedules and the
like refer to the Articles, Sections, Exhibits, Schedules and the like of this
Agreement unless otherwise indicated.
“Banking Day” means
any day other than a day on which commercial banks are not authorized or
required to close in the United States.
“Bankruptcy Cases”
means the chapter 11 cases of Borrowers pending before the Bankruptcy Court
under Case Nos. 08-13164 and 08-13166.
“Bankruptcy Code”
means title 11 of the United States Code, as amended.
“Bankruptcy Court”
means the United States Bankruptcy Court for the District of Colorado, or such
other court having original jurisdiction over the Bankruptcy Cases.
“Borrowers” has the
meaning assigned to such term in the preamble hereto.
“Budget” means,
collectively, the emergency (one month) and the final (six and one-half months)
itemized budgets of the Borrowers attached hereto as Exhibit 1 as such Budget may
be amended, modified, extended or supplemented from time to time with the
Lender’s consent.
“Carve-Out Expenses”
means (i) the reasonable, unpaid fees and expenses of professionals, including
professionals representing the official committee of unsecured creditors, if
any, approved and allowed by orders of the Bankruptcy Court, up to an aggregate
amount of $275,000; (ii) the amounts payable pursuant to 28 U.S.C. § 1930(a)(6)
and any fees payable to the Clerk of the Bankruptcy Court; and (iii) allowed
fees and expenses of a chapter 7 trustee and professionals retained by such
trustee in an aggregate amount not to exceed $10,000.
“Collateral” means all
property, other than causes of action arising under chapter 5 of the Bankruptcy
Code, of each of the Borrowers and their bankruptcy estates of any kind
whatsoever, whether real, personal, or mixed, and whether now owned or hereafter
acquired, including, without limitation, all inventory, equipment, fixtures,
accounts, chattel paper, documents, general intangibles, instruments, money,
real property interests, oil and/or gas leases, xxxxx, lands, prospects, rights
and interests owned by one or more of the Borrowers and including the production
and the proceeds of production from oil and/or gas xxxxx, and the interests of
Galaxy Energy Corporation in each of its subsidiaries.
“Environmental Laws”
means any and all laws, rules, orders, regulations, statutes, ordinances,
guidelines, codes, decrees or other legally enforceable requirements (including,
without limitation, common law) of any international authority, foreign
government, the United States, or any state, local, municipal or other
governmental authority, regulating, relating to or imposing liability or
standards of conduct concerning protection of the environment or of human
health, or employee health and safety, as has been, is now, or may at any time
hereafter be, in effect.
“Environmental
Permits” means any and all permits, licenses, approvals, registrations,
notifications, exemptions and other authorizations required under any
Environmental Law.
“Event of Default” has
the meaning given such term in Section 10.1 hereof.
“Final Order” means an
order of the Bankruptcy Court, in form and substance satisfactory to the Lender,
finally approving this Agreement and the Loan made and to be made by the Lender
in accordance with this Agreement, as the same may be amended, modified or
supplemented from time to time with the express written consent of the
Lender.
“Interim Order” means
an order of the Bankruptcy Court, in form and substance satisfactory to the
Lender, approving, on an interim basis, this Agreement and the Loan made and to
be made by the Lender in accordance with this Agreement, as the same may be
amended, modified or supplemented from time to time with the express written
consent of the Lender.
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“Lender” has the
meaning assigned to such term in the preamble hereto.
“Lender’s Lien” has
the meaning assigned to such term in Section 5.1.
“Lien” means any lien
(statutory or otherwise), security interest, mortgage, deed of trust, priority,
pledge, charge, conditional sale, title retention agreement, financing lease or
other encumbrance or similar right of others, or any agreement to give any of
the foregoing.
“Loan” means the line
of credit given by the Lender to the Borrowers in the principal amount of up to
$4,368,100.00, as evidenced by the Note.
“Loan Commencement
Date” has the meaning attributed thereto in Section 6.1
hereof.
“Loan Documents” means
this Agreement, the Note and the Security Documents.
“Material Adverse
Effect” means a material adverse effect on (a) the business, assets,
property or condition (financial or otherwise) of the Borrowers (other than the
customary adverse effects due to the Borrowers’ Bankruptcy Cases and the
requirements of the Bankruptcy Code), (b) the validity or enforceability of this
Agreement or any of the Loan Documents or the rights and remedies of the Lender
hereunder or thereunder, or (c) the ability of either Borrower to perform its
obligations under any of the Loan Documents.
“Material Environmental
Amount” means an amount payable by either or both Borrowers in the
aggregate in excess of $50,000 for costs to comply with any Environmental Law;
costs of any investigation, and any remediation, required by any Environmental
Law; and compensatory damages, punitive damages, fines, and penalties pursuant
to any Environmental Law.
“Maturity Date” means
the earliest of (i) the closing of any transaction pursuant to which any third
party acquires substantially all of either of the Borrowers’ assets; (ii) the
conversion of either of the Bankruptcy Cases to a case under chapter 7 of the
Bankruptcy Code; (iii) the dismissal of either of the Bankruptcy Cases; (iv) the
date on which any chapter 11 plan of reorganization becomes effective; (v) the
occurrence of an Event of Default; or (vi) November 15, 2008.
“Note” means the
Secured Revolving Promissory Note in the amount of $4,368,100.00, or so much
thereof as shall be advanced, payable to or to the order of the Lender,
substantially in the form of Exhibit 2 attached hereto, and
all promissory note(s) delivered in substitution or exchange therefor, as any
such notes shall be modified and supplemented and in effect from time to
time.
“Obligations” means
all indebtedness, obligations and liabilities of the Borrowers to the Lender
incurred under or related to this Agreement, the Note or any other Loan
Document, whether such indebtedness, obligations or liabilities are direct or
indirect, secured or unsecured, joint or several, absolute or contingent, due or
to become due, whether for payment or performance, now existing or hereafter
arising, including the principal amount of the Loan outstanding, together with
interest thereon, and all reasonable expenses and fees, including but not
limited to all legal and accounting fees incurred by Lender, hereunder or under
any other
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Loan
Document, from time to time arising under or in connection with or evidenced or
secured by this Agreement, the Note, or any other Loan
Document.
“Orders” means the
Interim Order, the Final Order and all other orders entered by the Bankruptcy
Court in relation to this financing.
“Petition Date” means
March 14, 2008.
“Security Documents”
means, collectively, any mortgages, deeds of trust, assignments of production,
security agreements, fixture filings, Uniform Commercial Code financing
statements, and such other documents required by Lender granting the Lender a
Lien in the Collateral or perfecting such Lien.
ARTICLE
II
THE
LOAN
2.1 The
Loan.
(a) Subject
to the terms and conditions set forth herein, the Lender agrees to make advances
to the Borrowers from time to time during the period beginning with the Loan
Commencement Date and ending on September 30, 2008, in an aggregate principal
amount not to exceed the amount of the Note, as a revolving line of
credit.
(b) Notwithstanding
anything herein to the contrary, the Lender shall have no obligation to make
advances under the Note in excess of the amounts authorized by the Interim Order
or Final Order, and any reference herein to the amount of the Loan shall be
automatically reduced to the amounts so authorized. Consistent with
the foregoing, until entry of the Final Order, advances by the Lender under this
Agreement shall be limited to the amount expressly authorized by the Interim
Order.
2.2 Advances. Advances
shall be made pursuant to the Budget with a fifteen percent (15%) monthly
variance per line item in excess of expenses listed in the Budget, but subject
to a maximum ten percent (10%) cumulative variance per month in excess of the
line items in the Budget titled “Xxxxxx Trust Borrowings” and “Xxxxxx Trust to
cover field work;” provided, however, that in no event shall the Lender be
required to lend any amount in excess of $4,368,100.00, the amount of the
Note. For the purposes of calculating the 15% monthly variance per
line item set forth in the foregoing sentence, all line items of less than
$10,000 in the Budget shall in the aggregate be considered to be a single line
item. The Borrowers shall give the Lender notice of each advance
hereunder as provided in Section 4.3 hereof. On the date specified
for each advance, the Lender shall, subject to the terms and conditions of this
Agreement, make available the amount of such advance to the Borrowers by
depositing the same, in immediately available funds, in segregated accounts of
the Borrowers designated for such purpose.
2.3 Use of
Proceeds. The Borrowers hereby covenant, represent and warrant
that the proceeds of the Loan made to them will be used solely to fund the
Borrowers’ continued
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ordinary
course operations and working capital needs, including the costs of the
Borrowers’ Bankruptcy Cases, solely in accordance with the Budget and Section
2.2 above.
2.4 Note.
The Loan made by the Lender hereunder shall be evidenced by the Note dated as of
the date hereof.
2.5 No Discharge; Survival of
Claims. The
Obligations shall survive the entry of an order (i) confirming any chapter 11
plan in the Bankruptcy Cases, (ii) converting the Bankruptcy Cases to cases
under chapter 7 of the Bankruptcy Code, or (iii) dismissing the Bankruptcy
Cases. The super-priority administrative claim granted to the
Obligations and all Liens granted to the Lenders shall continue in full force
and effect and maintain their priority as set forth in the Orders until full
payment of the Obligations.
2.6 Waiver of Any Priming
Rights. The Borrowers hereby irrevocably waive any right,
pursuant to Sections 364(c) or 364(d) of the Bankruptcy Code or otherwise, to
grant any Lien of equal or greater priority than the Liens securing the
Obligations, or to approve or grant a claim of equal or superior priority to the
Obligations other than the Carve-Out Expenses.
ARTICLE
III
PAYMENTS
OF PRINCIPAL AND INTEREST
3.1 Principal. Each of
the Borrowers jointly and severally and unconditionally promises to pay the
Lender all Obligations, including the then unpaid principal amount of the Loan
and all accrued but unpaid interest, on the Maturity Date. Except as
otherwise agreed to by the Lender, the Borrowers shall repay the principal
amount advanced on the Note from time to time as funds become available (after
the payment of ordinary course operating expenses consistent with the Budget)
from the cash generated by proceeds of sales of the Borrowers’ assets (after the
payment of any senior Liens).
3.2 Interest. Interest
on the outstanding principal balance of the Note shall accrue at the rate of ten
percent (10%) per annum until payment of the principal in full. If an
Event of Default occurs, at the Lender’s option pursuant to Section 10.2 below,
the entire amount of the Secured Revolving Promissory Note shall be due and
payable and shall bear interest at the rate of thirteen percent (13%) per
annum.
3.3 Optional
Prepayments. The Borrowers shall have the right to prepay the
Loan, at any time or from time to time, without penalty, but with interest on
the amount prepaid to the date of such prepayment.
ARTICLE
IV
PAYMENTS;
COMPUTATIONS; ADVANCES
4.1 Payments.
(a) Except to
the extent otherwise provided herein, all payments of principal, interest and
other amounts to be made by the Borrowers to the Lender under this Agreement,
the
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Note and
the other Loan Documents, shall be made in immediately available funds, without
deduction, set-off or counterclaim, into a designated account (in accordance
with wire instructions to be provided by the Lender to the Borrowers) on the
date on which such payment is due.
(b) If the
due date of any payment under this Agreement or the Note would otherwise fall on
a day that is not a Banking Day, such date shall be extended to the next
succeeding Banking Day, and interest shall be payable for any principal so
extended for the period of such extension.
4.2 Computations. Interest
hereunder shall be computed on the basis of a year of 365 days.
4.3 Requests for
Advances. Unless the Borrowers and the Lender agree otherwise,
Lender shall make biweekly advances. Each advance shall be in the
amount contained in the Budget for the two-week period for which the advance is
made. Requests by the Borrowers to the Lender for additional advances
shall be effective only if agreed to by the Lender and only if received by the
Lender not later than 12:00 p.m. Mountain Standard or Daylight Time, as
applicable, three (3) Banking Days prior to the requested date of the
advance.
ARTICLE
V
SECURITY;
ADMINISTRATIVE PRIORITY
5.1 Grant
of Lien.
(a) Pursuant
to this Agreement and the Security Documents and pursuant to § 364(c)(2) and (3)
of the Bankruptcy Code, and to secure the Obligations, the Borrowers hereby
assign, pledge, transfer, grant, confirm and set over unto the Lender a Lien in
and to the Collateral (the “Lender’s Lien”).
(b) The
Lender’s Lien shall be a valid, perfected, and enforceable Lien on the
Collateral and shall be a first priority Lien; provided, however, that the
Lender’s Lien shall be subject only to (i) any valid, perfected, and enforceable
Liens on any of the Collateral in effect as of the Petition Date, (ii) the
Carve-Out Expenses, (iii) Permitted Postpetition Statutory Liens (as defined in
Article IX below) to the extent such Permitted Postpetition Statutory Liens are
accorded a priority over the Lender’s Lien; (iv)
the Agent’s Adequate Protection Lien, and (v) the Agent’s 507(b)
Claim. The Lender’s Lien and its priority shall remain in
effect until the Loan has been terminated and all Obligations have been
irrevocably repaid in cash in full.
5.2 Administrative
Priority. The Obligations of the Borrowers shall constitute
allowed administrative expenses in the Bankruptcy Cases having super-priority
status under § 364(c)(1) of the Bankruptcy Code over all other administrative
expenses and unsecured claims against the Borrowers now existing or hereafter
arising of any kind or nature whatsoever, including without limitation all
administrative expenses, charges and claims of the kind specified in §§ 326,
330, 331, 503(a), 503(b), 506(c), 507(a), 507(b), 546(c), and 726(b) of the Bankruptcy Code,
except for the Carve-Out Expenses and the Agent’s
Adequate Protection Lien and the Agent’s 507(b) Claim.
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5.3 Grants, Rights and Remedies
Cumulative. The Lender’s Lien and the administrative priority
granted pursuant to Section 5.2 hereof may be independently granted by the Loan
Documents, the Orders and by other agreements hereafter entered
into. This Agreement, the other Loan Documents, the Orders and such
other agreements hereinafter entered into supplement each other, and the grants,
priorities, rights and remedies of the Lender hereunder and thereunder are
cumulative.
5.4 No Filings
Required. The Lender’s Lien referred to herein shall be deemed
valid, perfected and enforceable by entry of the Interim Order or Final Order,
as the case may be, whichever occurs first. The Lender shall not be
required to file any financing statements, notices of Lien, mortgages, deeds of
trust, assignments of production, fixture filings or similar instruments in any
jurisdiction or filing office, or to take possession of any Collateral or to
take any other action in order to validate or perfect the Lien granted by or
pursuant to this Agreement, the Interim Order or the Final Order, as the case
may be, or any other Loan Document. The Borrowers consent to the
modification of the automatic stay under § 362 of the Bankruptcy Code to permit
the Lender, if the Lender so desires, to file any such financing statements,
notices of Lien, mortgages, deeds of trust, assignments of production, fixture
filings or similar instruments, take possession of any Collateral, or take any
other action to evidence, validate or perfect the Lien in the
Collateral.
5.5 Survival. Except as
approved by Lender in writing, the Lender’s Lien, its priority, administrative
priority and other rights and remedies granted to the Lender pursuant to this
Agreement and the other Loan Documents shall not be modified, altered, primed or
impaired in any manner by any other financing or extension of credit to the
Borrowers (pursuant to § 364 of the Bankruptcy Code or otherwise) or by any
dismissal or conversion of either of the Bankruptcy Cases or, with respect to
the Loan, any modification, amendment or reversal or stay of the Interim Order
or the Final Order, as the case may be, or by any other act or omission
whatsoever.
ARTICLE
VI
CONDITIONS
PRECEDENT
6.1 Conditions Precedent Pertaining to
Loan. The obligation of the Lender to make the Loan available
hereunder shall occur on the date (the “Loan Commencement Date”), when the
Lender has received each of the following, in form and substance satisfactory to
the Lender:
(a) the Note
duly executed by the Borrowers;
(b) any
Security Documents requested by the Lender, together with such mortgages, deeds
of trust, assignments of production, fixture filings, financing statements or
other instruments which in the opinion of the Lender are desirable to perfect
the Lender’s Lien created hereby and the Security Documents, duly executed by
the Borrowers;
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(c) evidence
that the Interim Order or the Final Order shall have been entered by the
Bankruptcy Court approving the Loan, and each such Order shall be in full force
and effect and shall not have been appealed, reversed, stayed, modified or
amended; and
(d) the
Budget in form and substance acceptable to the Lender, setting forth the costs,
expenses and working capital requirements of the Borrowers to be funded by the
Loan.
6.2 Additional Conditions
Precedent. The obligation of the Lender to make the Loan is
subject to the further conditions precedent that on the date of any advance the
following statements shall be true:
(a) the
representations and warranties made by the Borrowers in Article 7 hereunder and
in each of the other Loan Documents are true and correct in all material
respects on and as of the date of the Loan as though made on and as of such
date;
(b) no Event
of Default has occurred and is continuing, or would result from such
borrowing;
(c) the
Orders, as the case may be, shall be in full force and effect and shall not have
been appealed, reversed, stayed, modified or amended;
(d) The
Lender has not become aware of any information or other matter (including any
matter relating to financial models and underlying assumptions relating to the
Budget) affecting the Borrowers or the transactions contemplated hereby, that in
its judgment is inconsistent in a material and adverse manner with any such
information or other matter disclosed to it prior to the date of this
Agreement;
(e) The
Lender has received such additional information as the Lender may reasonably
request; and
(f) Nothing
has occurred since the Petition Date and is continuing which results in a
Material Adverse Effect.
ARTICLE
VII
REPRESENTATIONS
AND WARRANTIES
7.1 Incorporation, Good Standing and Due
Qualification. The Borrowers: (i) are duly organized, validly
existing and in good standing under the laws of their respective jurisdictions
of incorporation, as set forth in the Recitals; and (ii) have the power and
authority and the legal right to own and operate their property and to carry on
their businesses as presently conducted and as proposed to be
conducted.
7.2 Corporate Power and Authority; No
Conflicts. The execution, delivery and performance by the
Borrowers of the Loan Documents, the grant by the Borrowers and the perfection
of the Lender’s Lien, and the exercise by the Lender of any rights and remedies
hereunder or under the other Loan Documents have been duly authorized by
necessary corporate action and do not and will not: (i) contravene any provision
of the Borrowers’ respective charters
9
or
bylaws; (ii) violate any provision of, or require any filing, registration,
consent or approval under, any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to the Borrowers (other than entry of the Orders); or (iii) cause
the Borrowers to be in material default under any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award or any such
indenture, agreement, lease or instrument except as provided by the Bankruptcy
Code and the Orders.
7.3 Legally Enforceable
Agreements. Each Loan Document is, or when delivered under
this Agreement will be, a legal, valid and binding obligation of the Borrowers
enforceable against the Borrowers in accordance with its terms.
7.4 Budget. The Budget
has been prepared by the Borrowers in light of the past operations of the
business of the Borrowers. The Budget is based upon estimates and
assumptions stated therein, all of which the Borrowers believe to be reasonable
and fair in light of current conditions and current facts known to the Borrowers
and, as of the date hereof , reflect the Borrowers’ good faith and reasonable
estimates of the future financial performance of the Borrowers and of the other
information projected therein for the periods set forth therein.
7.5 Insurance. The
Borrowers maintain with financially sound and reputable insurers adequate
insurance with respect to their property and businesses.
7.6 Ownership of Property. Each of the Borrowers
has title in fee simple to, or a valid leasehold interest in, all its real
property, and good title to, or a valid leasehold interest in, all its other
property.
7.7 Bankruptcy Court
Orders. Each of the Orders, as the case may be, is in full
force and effect, and has not been reversed, stayed, modified or
amended.
7.8 Compliance with
Law. The Borrowers have all licenses, permits, consents or
approvals from or by, and have made all filings with, and have given all notices
to, all governmental authorities having jurisdiction, to the extent required for
the ownership, operation and conduct of the Borrowers’ businesses, and are in
compliance with all applicable provisions of law, including Environmental Laws,
except where the failure to comply, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
7.9 Environmental Matters. Other than exceptions to
any of the following that could not, individually or in the aggregate,
reasonably be expected to result in the payment of a Material Environmental
Amount:
(a) The
Borrowers: (i) are, and within the period of all applicable statutes of
limitation have been, in compliance with all applicable Environmental Laws; (ii)
hold all Environmental Permits (each of which is in full force and effect)
required for any of their current or intended operations or for any property
owned, leased, or otherwise operated by any of them; (iii) are, and within the
period of all applicable statutes of limitation have been, in compliance with
all of their Environmental Permits; and (iv) reasonably believe that each of
their Environmental Permits will be timely renewed and complied with, without
material expense; any additional Environmental Permits that may be required of
either of them will be timely obtained and complied with, without material
expense; and compliance with any Environmental Law that
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is or is
expected to become applicable to either of them will be timely attained and
maintained, without material expense.
(b) There is
no judicial, administrative, or arbitral proceeding (including any notice of
violation or alleged violation) under or relating to any Environmental Law to
which either Borrower is or will be named as a party that is pending or, to the
knowledge of either Borrower, threatened.
(c) Neither
of the Borrowers has received any written request for information, or been
notified that it is a potentially responsible party under or relating to the
federal Comprehensive Environmental Response, Compensation, and Liability Act or
any similar Environmental Law.
(d) Neither
of the Borrowers has entered into or agreed to any consent decree, order, or
settlement or other agreement, or is subject to any judgment, decree, or order
or other agreement, in any judicial, administrative, arbitral, or other forum
for dispute resolution, relating to compliance with or liability under any
Environmental Law.
ARTICLE
VIII
AFFIRMATIVE
COVENANTS
So long
as any Obligations shall remain outstanding, the Borrowers shall:
8.1 Maintenance of
Existence. Preserve and maintain their corporate existence and
good standing in the respective jurisdictions of their
organization.
8.2 Conduct of
Business. Subject to the provisions of the Bankruptcy Code,
(i) continue to engage in an efficient and economical manner in a business of
the same general type as conducted by them on the date of this Agreement; (ii)
obtain from time to time all licenses, permits, authorizations or other forms of
permission which under federal, state and local laws are necessary or advisable
for operating and maintaining the conduct of their businesses (including,
without limitation, copyrights, trademarks, patents and licenses to use tangible
or intangible property and similar rights), and (iii) use their best efforts, in
each case consistent with the Budget, to preserve and protect the value of the
Collateral.
8.3 Maintenance of Properties and
Executory Contracts and Leases. Subject to the provisions of
the Bankruptcy Code, maintain, keep and preserve all of their properties
(tangible and intangible) including leased property, necessary or useful in the
proper conduct of their businesses in commercially reasonable working order and
condition, ordinary wear and tear excepted, and shall use their best efforts to
ensure that all leases and executory contracts necessary or useful in the
Borrowers’ businesses or operations remain in full force and effect, except to
the extent otherwise consented to by the Lender.
8.4 Maintenance of
Insurance. Maintain insurance as is usually and customarily
maintained with respect to the Collateral, with financially sound and reputable
insurance companies or associations in such amounts and covering such risks as
are usually carried by
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companies
engaged in the same or a similar business and similarly situated, which
insurance may provide for reasonable deductibility from coverage
thereof.
8.5 Compliance with
Laws. Comply in all respects with all applicable laws, rules,
regulations and orders (including the Orders), such compliance to include,
without limitation, complying with all Environmental Laws, and paying before the
same become delinquent all taxes, assessments and governmental charges imposed
upon them or upon their property, subject to the limitations and requirements of
the Bankruptcy Code and the Orders.
8.6 Environmental
Laws.
(a) Comply in
all material respects with all applicable Environmental Laws, and obtain and
comply in all material respects with and maintain, any and all licenses,
approvals, notifications, registrations or permits required by applicable
Environmental Laws.
(b) Conduct
and complete all investigations, studies, sampling and testing, and all
remedial, removal and other actions required under Environmental Laws and
promptly comply in all material respects with all lawful orders and directives
of all governmental authorities regarding Environmental Laws.
8.7 Right of
Inspection. (A) Keep proper books of records and account in
which full, true and correct entries in conformity with generally accepted
accounting principles and all requirements of law shall be made of all dealings
and transactions in relation to their business and activities and (B) at any
reasonable time and from time to time permit the Lender or any agent or
representative thereof, to examine and make copies and abstracts from the
records and books of account of, and visit the properties of, the Borrowers, and
to discuss the affairs, finances and accounts of the Borrowers with any of their
respective officers and directors and the Borrowers’ independent
accountants.
8.8 Reporting
Requirements. Furnish to the Lender:
(a) biweekly
reports comparing actual to budgeted income and expenses;
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(b) copies of
the monthly and other reports required by the Office of the United States
Trustee contemporaneously when submitted to the Office of the United States
Trustee;
(c) copies of
all documents and reports submitted to the Securities and Exchange Commission
contemporaneously when submitted thereto; and
(d) such
further information relating to the Borrowers’ assets, financial condition, or
operations as the Lender may reasonably request.
8.9 Notices. Promptly
give notice to the Lender of any of the following:
(a) the
occurrence of any Event of Default;
(b) any (i)
default or event of default under any contractual obligation of the Borrowers or
(ii) litigation, investigation or proceeding which may exist at any time between
the Borrowers and any governmental authority, that in either case, if not cured
or if adversely determined, as the case may be, could reasonably be expected to
have a Material Adverse Effect;
(c) any
litigation or proceeding affecting the Borrowers in which the amount involved is
$10,000 or more and not covered by insurance or in which injunctive or similar
relief is sought;
(d) the
following events, as soon as possible after either Borrower knows or has reason
to know thereof: (i) any adverse claim against the Collateral involving an
amount in excess of $10,000 (individually or in the aggregate of all adverse
claims), or (ii) any substantial change in the Collateral or of the occurrence
of any event that could reasonably be expected to have a Material Adverse
Effect; and
(e) any
development or event that has had or could reasonably be expected to have a
Material Adverse Effect.
Each
notice pursuant to this Section shall be accompanied by a statement of the
Borrowers setting forth details of the occurrence referred to therein and
stating what action the Borrowers propose to take with respect
thereto.
8.10 Further
Assurances. Execute, acknowledge, deliver, record, file,
register, perform and do any and all such further acts, deeds, mortgages, deeds
of trust, conveyances, security agreements, assignments, estoppel certificates,
financing statements, assurances and other instruments as the Lender may
reasonably request from time to time in order to carry out more effectively the
purposes of this Agreement or any other Loan Document, or to perfect and renew
more fully the rights of the Lender with respect to the Collateral (or with
respect to any additions thereto or replacements or proceeds thereof or with
respect to any other property or assets hereafter acquired by either Borrower
which may be deemed to be part of the Collateral) pursuant hereto or
thereto. Upon the exercise by the Lender of any power, right,
privilege or remedy pursuant to this Agreement or the other Loan Documents which
requires any consent, approval, recording, qualification or authorization of any
governmental authority, the Borrowers shall execute and deliver, or shall cause
the execution and delivery of, all applications, certifications, instruments and
other documents and papers that the Lender may be required to obtain from any
Borrowers for such governmental consent, approval, recording, qualification or
authorization.
ARTICLE
IX
NEGATIVE
COVENANTS
So long
as any Obligations shall remain outstanding, the Borrowers shall not, without
the prior approval of the Lender:
(a) seek,
consent to or suffer to exist any modification, stay, vacation or amendment of
the Orders, as the case may be, except for modifications and amendments agreed
to by the Lender;
13
(b) seek,
consent to or suffer to exist a priority for any administrative expense or
unsecured claim against the Borrowers (now existing or hereafter arising of any
kind or nature whatsoever, including without limitation any administrative
expenses, charges or claims of the kind specified in §§ 503(b), 506(c), and
507(b) of the Bankruptcy Code) equal or superior to the priority of the Lender
in respect of the Obligations, except for the Carve-Out Expenses;
(c) create,
incur, or suffer to exist any Lien upon any of the Borrowers’ assets except for
postpetition statutory Liens (such as mechanics’ liens) arising in the ordinary
course of business which are not overdue or which are being contested in good
faith by appropriate proceedings (“Permitted Postpetition Statutory
Liens”);
(d) use the
proceeds of the loan to finance in any way any action, suit, arbitration,
proceeding, application, motion or other litigation challenging the validity,
perfection, priority, extent or enforceability of the Obligations or the Liens
of the Lender in the Collateral or any other Obligations of the Borrowers to the
Lender;
(e) with
respect to Borrower Galaxy Energy Corporation, declare or pay any dividend, make
any distribution on or redeem or otherwise acquire any of is capital stock, or
pay or make any distribution to shareholders;
(f) make any
distribution under a chapter 11 plan in these Bankruptcy Cases; or
(g) make any
payment in settlement of any claim, action or proceeding, before any court,
arbitrator or other governmental body without the prior written consent of the
Lender.
ARTICLE
X
EVENTS
OF DEFAULT
10.1 Events
of Default
. Any
of the following events shall be an “Event of Default”:
(a) the
Borrowers shall: (i) fail to pay the principal of the Note as and when due and
payable; or (ii) fail to pay interest on the Note or other amount due hereunder
as and when due and payable and such failure shall continue unremedied for ten
(10) Banking Days.
(b) any
representation or warranty made by the Borrowers in this Agreement or in any
other Loan Document, or which is contained in any certificate, document,
opinion, financial or other statement furnished at any time under or in
connection with any Loan Document, was incorrect in any material respect on or
as of the date made or deemed made;
(c) an order
shall be entered by the Bankruptcy Court in either of the Bankruptcy Cases, or
either of the Borrowers shall file in either of the Bankruptcy Cases an
application for an order, for the appointment of (i) a trustee or (ii) an
examiner with the authority to perform duties of a trustee (other than the
duties solely of an examiner) in respect of the estate of either of the
Borrowers or the operation of the business of either of the
Borrowers;
14
(d) an order
shall be entered by the Bankruptcy Court dismissing either of the Bankruptcy
Cases or converting either of the Bankruptcy Cases to a chapter 7
case;
(e) any
change in the senior management of either of the Borrowers not previously agreed
to by the Lender;
(f) an order
shall be entered by the Bankruptcy Court without the express prior written
consent of the Lender (i) revoking, reversing, staying, modifying, supplementing
or amending the Orders or any them or any of the Loan Documents; or (ii)
permitting any administrative expense or any claim (now existing or hereafter
arising, of any kind or nature whatsoever) to have administrative priority equal
or superior to the priority of the Lender in respect of the Obligations, except
for Carve-Out Expenses.
(g) an
application for any of the orders described in clauses (c), (d) or (f) above
shall be made by (i) either of the Borrowers or (ii) a person other than the
Borrowers and such application is not contested by the Borrowers in good faith
or the relief requested is granted in an order that is not stayed pending
appeal;
(h) any
material license, permit or other authorization by any federal, state or local
government or any lease relating to the Collateral which, in each case, is
necessary for the use or operation in the conduct of the businesses engaged in
by the Borrowers on the date hereof shall be revoked or canceled or otherwise
terminated; or
(i) one or
more judgments or decrees shall be entered against either Borrower involving a
liability (not paid or fully covered by insurance as to which the relevant
insurance company has acknowledged coverage) of $50,000 or more (other than the
allowances but not enforcement of claims in the Bankruptcy Cases), and all such
judgments or decrees shall not have been vacated, discharged, stayed (including
pursuant to Section 362 of the Bankruptcy Code) or bonded pending appeal within
15 days from the entry thereof;
(j) the Loan
Documents and the Orders shall, for any reason, cease to create a valid Lien on
any of the Collateral purported to be covered thereby or such Lien shall cease
to be a perfected Lien having the priority provided herein and in the Orders
pursuant to Section 364 of the Bankruptcy Code against the Borrowers, or either
Borrower shall so allege in any pleading filed in any court, or any provision of
any Loan Document shall, for any reason, cease to be valid and binding on either
Borrower or either Borrower shall so state in writing;
(k) any
Material Adverse Effect shall occur after the Loan Commencement
Date;
(l) the
bringing of a motion, taking of any action or the filing of any plan of
reorganization by either Borrower: (a) to obtain additional financing under
section 364(c) or (d) of the Bankruptcy Code or not otherwise permitted pursuant
to the Loan Documents except, with the consent of the Lender, in connection with
any financing the proceeds of which shall be used to repay in full the
Obligations; (b) to grant any Lien on any Collateral except as permitted
hereunder and under the other Loan Documents; (c) except as provided in the
Interim Order or Final Order, as the case may be, to use cash collateral of the
Lender under section 363(c) of the Bankruptcy Code without the prior written
consent of the Lender; or (d) which is materially
15
adverse
to the Lender or its rights and remedies hereunder or its interest in the
Collateral, including, without limitation, any such action or actions which seek
to reduce, set-off or subordinate the Obligations or challenge the Lender’s Lien
in any of the Collateral;
(m) the
filing by any Borrower of any plan of reorganization that does not provide for
full payment of the Obligations as required herein, on or prior to the effective
date of such plan of reorganization;
(n) the entry
of an order by the Bankruptcy Court granting relief from or modifying the
automatic stay of section 362 of the Bankruptcy Code (i) to allow any creditor
other than the Lender to execute upon or enforce a Lien on any Collateral in
excess of $50,000 in the aggregate, or (ii) with respect to any Lien of or the
granting of any Lien on any Collateral to any state or local environmental or
regulatory agency or authority that would have a Material Adverse
Effect;
(o) the entry
of an order in the Bankruptcy Cases avoiding or requiring repayment of any
portion of the payments made on account of the Obligations;
(p) the sale
without the consent of the Lender of all or substantially all of the Borrowers’
assets either through a sale under section 363 of the Bankruptcy Code, through a
confirmed plan of reorganization in the Bankruptcy Cases, or otherwise, that
does not provide for payment in full of the Obligations and termination of
Lender’s commitment to make Loans hereunder;
(q) the
Borrowers shall: (i) fail to perform or observe any other term, covenant or
agreement on its part to be performed or observed in any Loan Document,
including the covenants contained in Article VIII and Article IX above, and such
failure shall continue unremedied for ten (10) Banking Days after notice thereof
or (ii) fail to comply with any of the terms or provisions of the Interim Order
or the Final Order.
10.2 Consequences of an Event of
Default. Upon occurrence of an Event of Default, the Lender
may, at its option, (a) without further notice or demand, declare the
outstanding principal balance of and accrued but unpaid interest on this Note at
once due and payable, (b) pursue any and all other rights, remedies and
recourses available to the Lender, or (c) pursue any combination of the
foregoing. The failure to exercise the option to accelerate the
maturity of this Note or any other right, remedy or recourse available to the
Lender hereof upon the occurrence of an Event of Default hereunder shall not
constitute a waiver of the right of the Lender of this Note to exercise the same
at that time or at any subsequent time with respect to such Event of Default or
any other Event of Default. All undertakings of the Borrowers
contained in the Loan Documents shall survive any termination, and the Lender
shall retain its Liens in the Collateral and all of its rights and remedies
under the Loan Documents and the Orders until full payment of the
Obligations. The rights, remedies and recourses of the Lender shall
be cumulative and concurrent and may be pursued separately, successively or
together as often as occasion therefor shall arise, at the sole discretion of
the Lender. The acceptance by the Lender of any payment under this
Note which is less than the payment in full of all amounts due and payable at
the time of such payment shall not (i) constitute a waiver of or impair, reduce,
release or extinguish any right, remedy or recourse of the Lender hereof, or
nullify any prior exercise of any such right,
16
remedy or
recourse, or (ii) impair, reduce, release or extinguish the obligations of
Borrowers as provided herein. If an Event of Default shall occur, in
order to pursue such remedies as the Lender deems advisable, the Lender may seek
from the Bankruptcy Court relief from the automatic stay and the Borrowers
consent to, and will not contest, the Lender’s request for relief from the
automatic stay on an expedited basis.
ARTICLE
XI
MISCELLANEOUS
11.1 Amendments
and Waivers. The
Borrowers and the Lender may from time to time enter into agreements amending,
modifying or supplementing this Agreement, the Note or any other Loan Documents,
and the Lender may from time to time grant waivers or consents to a departure
from the due performance of the Obligations of the Borrowers hereunder or
thereunder. Any such agreement, waiver or consent must be in writing
and shall be effective only to the extent specifically set forth in such
writing.
11.2 Survival of Representations and
Warranties. All representations and warranties made herein, in
the other Loan Documents and in any document, certificate or statement delivered
pursuant hereto or in connection herewith shall survive the execution and
delivery of this Agreement and the making of the Loan hereunder.
11.3 Binding
Effect and Assignability. This
Agreement shall be binding upon and inure to the benefit of the Lender, the
Borrowers and their respective successors and assigns (including, except for the
right to request Loans, any trustee or examiner or other person with expanded
powers succeeding to the rights of the Borrowers or pursuant to any conversion
to a case under chapter 7 of the Bankruptcy Code). The Borrowers may
not assign any of their rights or obligations under the Loan, this Agreement,
the Note and the other Loan Documents without the prior written consent of the
Lender and any such assignment without prior written consent shall be
void. The Lender may assign its interest in the Loan and this
Agreement, the Note and the other Loan Documents without approval of the
Borrowers.
11.4 Notices. Any
notice required to be given under this Agreement shall be given in writing and
may be served either by personal delivery, facsimile, Federal Express or similar
over-night delivery or by depositing the same in first class mail, postage
prepaid, addressed to the respective parties as indicated below, or such
different address as a party may have fixed by notice hereunder:
To
Lender:
Xxxxxx Family
Trust
c/o Xxxx X. Xxxxxx,
Co-Trustee
0000 00xx Xxxxxx,
Xxxxx 0000
Xxxxxx, Xxxxxxxx
00000
Telephone
No.: (000) 000-0000
Facsimile
No.: (000) 000-0000
17
and
Xxxxxx Family
Trust
c/o Xxxxxxx X.
Xxxxxxx, Co-Trustee
0000 Xxxxxxxx Xxxxx,
Xxxxx 000
XxXxxx,
Xxxxxxxx 00000
Telephone
No.: (000) 000-0000
Facsimile
No.: (000) 000-0000
with a
copy to:
Xxxx X. Xxxxxx,
Esq.
Xxxxxxx Xxxxx Xxxxxxx
& Xxxxxxxxx, LLP
0000 00xx Xxxxxx,
Xxxxx 0000
Xxxxxx,
Xxxxxxxx 00000
Telephone No.: (000)
000-0000
Facsimile No.: (000)
000-0000
To
Borrowers:
Galaxy Energy
Corporation
Dolphin Energy
Corporation
0000 00xx Xxxxxx,
Xxxxx 0000
Xxxxxx, Xxxxxxxx
00000
Attn: Xxxx X.
Xxxxxx, President
Telephone
No.: (000) 000-0000
Facsimile
No.: (000) 000-0000
with a copy to:
Xxxxxxx X. Xxxxxx,
Esq.
Xxxxxx & Company,
P.C.
000 Xxxx 00xx Xxxxxx,
Xxxxx 000
Xxxxxx, Xxxxxxxx
00000
Telephone No.: (000)
000-0000
Facsimile No.: (000)
000-0000
Notices
delivered personally shall be effective upon delivery. Notices
transmitted by facsimile or overnight delivery shall be effective when received
provided such are received during normal business hours, otherwise they shall be
effective the next business day. Notices delivered by mail shall be
effective 72 hours after mailing.
11.5 Headings. The
headings and captions hereunder are for convenience only and shall not affect
the interpretation or construction of this Agreement.
11.6 Severability. The
provisions of this Agreement are intended to be severable. If for any
reason any provision of this Agreement shall be held invalid or unenforceable in
whole
18
or in
part in any jurisdiction, such provision shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without in any
manner affecting the validity or enforceability thereof in any other
jurisdiction or the remaining provisions hereof in any
jurisdiction.
11.7 Payment of
Expenses. Borrowers agree to reimburse the Lender for all of
its out-of-pocket costs and expenses, including the reasonable fees and
disbursements of the Lender’s attorneys, accountants and other professionals,
incurred by the Lender in connection with this Loan, including all costs and
expenses incurred in connection with the development and preparation of this
Loan and the Loan Documents, the enforcement or preservation of any of the
Lender’s rights under any of the Loan Documents, and the administration of the
transactions contemplated hereby.
11.8 Counterparts
and Facsimile. This
Agreement may be executed in any number of counterparts, all of which taken
together shall constitute one and the same instrument, and any party hereto may
execute this Agreement by signing any such counterpart. This
Agreement may also be executed via facsimile, provided the original signature
pages are executed and delivered within ten (10) days thereafter.
11.9 Integration. The
Loan Documents set forth the entire agreement between the parties hereto
relating to the transactions contemplated thereby and supersede any prior oral
or written statements or agreements with respect to such
transactions. This Agreement shall therefore be deemed to have been
negotiated and prepared at the joint request, direction and construction of the
parties, at arm’s length, with the advice and participation of counsel, and will
be interpreted in accordance with its terms without favor to any
party.
11.10 Governing
Law. This
Agreement shall be governed by and interpreted in accordance with the laws of
the State of Colorado, except to the extent governed by the Bankruptcy Code and
without regard to Colorado conflict of laws provisions, and shall be deemed to
have been drafted by all parties hereto.
[Remainder
of page intentionally left blank.]
19
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
GALAXY
ENERGY CORPORATION
By:
Name:
Title:
DOLPHIN
ENERGY CORPORATION
By:
Name:
Title:
XXXXXX
FAMILY TRUST
By:
Name: Xxxx
X. Xxxxxx
Title: Co-Trustee
and
By:
Name: Xxxxxxx
X. Xxxxxxx
Title: Co-Trustee
20
EXHIBIT
1
Budget
See
attached.
21
EXHIBIT
2
Secured
Revolving Promissory Note
See
attached.
SECURED
REVOLVING PROMISSORY NOTE
$4,368,100.00
April 14, 2008
FOR VALUE
RECEIVED, the undersigned, Galaxy Energy Corporation, a Colorado corporation,
and Dolphin Energy Corporation, a Nevada corporation, (together, the
“Borrowers”), hereby jointly and severally promise to pay to the order of Xxxxxx
Family Trust (the “Lender”), the principal sum of Four Million Three Hundred
Sixty-Eight Thousand One Hundred Dollars ($4,368,100.00), or so much thereof as
shall from time to time be advanced or readvanced to Borrowers in accordance
with the Loan Agreement dated of even date herewith (the “Loan Agreement”),
together with interest thereon on the unpaid principal balance thereof at an
annual rate of ten percent (10%) per annum. Principal and interest
shall be payable as herein provided in lawful money of the United States of
America to Lender at 0000 00xx Xxxxxx,
Xxxxx 0000, Xxxxxx, Xxxxxxxx 00000, or at such other place as from time to time
may be designated by the holder of this Note.
Interest
on this Note shall accrue from the date(s) of advance of funds hereunder through
the date(s) of payment. The outstanding principal balance hereof from
time to time and all accrued interest thereon shall be due and payable on
November 15, 2008 or such earlier Maturity Date as provided in the Loan
Agreement, at which time the outstanding principal balance hereof and all
accrued and unpaid interest shall be due and payable in full.
Advances
shall be made by Lender hereunder upon written request by Borrowers in a manner
consistent with the Loan Agreement, including a statement of the amount and
purpose of such request. The aggregate outstanding amount of such
advances shall not exceed the principal amount of this Note.
The
payment of this Note and all interest hereon is secured by the Loan Agreement
and by the Security Documents and the Orders (as such terms are defined in the
Loan Agreement). Reference is made to the Loan Agreement and Security
Documents for a description of the collateral securing this Note.
This Note
may be prepaid in full or in part at any time prior to maturity without premium
or penalty.
Upon the
failure of the Borrowers to make any principal and interest payment when due and
payable on the Maturity Date or such earlier payment date required by the Loan
Agreement, or any part thereof, or in the performance of any of the terms,
agreements, covenants, or conditions contained in the Security Documents or the
Loan Agreement, the principal balance hereof and the interest accrued hereon
together with any additional sums to be paid under the Loan Agreement and
Security Documents or advanced by the holder hereof, at the election of the
holder hereof, may be declared to be forthwith due and payable and shall bear
interest at the rate of thirteen percent (13%) percent per annum. The
failure to exercise this election upon a default shall not constitute a waiver
of the right to exercise this option in the event of any subsequent or
continuing default.
Borrowers
and all parties now or hereafter liable for the payment hereof, primarily or
secondarily, directly or indirectly, and whether as endorser, guarantor, surety,
or otherwise,
hereby
severally waive demand, presentment, notice of dishonor or nonpayment, protest
and notice of protest, and diligence in collecting and consent to substitution,
release, or impairment of collateral, the taking of additional collateral,
extensions of time for payment, and acceptance of partial payments, whether
before, at, or after maturity.
Each
Borrower and all parties now or hereafter liable for the payment hereof agree to
pay all costs and expenses, including reasonable attorneys’ fees, incurred in
collecting this Note or any part thereof and in preserving, securing possession
of, and realizing upon any security of this Note.
This Note
may not be amended, modified, or changed, nor shall any waiver of any provision
hereby be effective except only by an instrument in writing and signed by the
party against whom enforcement of any waiver, amendment, change, modification or
discharge is sought.
This Note
is made and shall be governed by and interpreted in accordance with the laws of
the State of Colorado and without regard to Colorado conflict of laws
provisions.
GALAXY
ENERGY CORPORATION
By:
Name:
Title:
DOLPHIN
ENERGY CORPORATION
By:
Name:
Title:
