SUBORDINATION AGREEMENT DATED DECEMBER 31, 2007
EXHIBIT
10.2
SUBORDINATION
AGREEMENT DATED DECEMBER 31, 2007
This
SUBORDINATION AGREEMENT (this
“Agreement”), dated as
of December 31, 2007 is among GALAXY ENERGY CORPORATION, a Colorado
corporation (“Borrower”), DOLPHIN ENERGY
CORPORATION, a Nevada corporation, and PANNONIAN INTERNATIONAL, LTD., a Colorado
corporation (each such corporation, including Borrower, and together with each
other obligor who becomes a party to this Agreement each an “Obligor” and, together, “Obligors”),
▇▇▇▇▇▇ FAMILY
TRUST UTD MARCH 28, 2005 (“▇▇▇▇▇▇ Trust”, together with
any transferees or holders from time to time of the Subordinated Note (as
defined below), each a “Subordinated Creditor”,
and collectively
the “Subordinated Creditors”), and
HFTP INVESTMENTS LLC, PROMETHEAN II MASTER, L.P., PROMETHEAN I MASTER LTD.,
CAERUS PARTNERS LLC, AG OFFSHORE CONVERTIBLES, LTD., and LEONARDO, L.P.,
(collectively, and together with any transferees or holders from time to time
of
the Notes (as defined below), hereinafter, the “Lenders”), and PROMETHEAN
ASSET MANAGEMENT L.L.C., a Delaware limited liability company, in its capacity
as collateral agent for itself and for the Lenders (including any successor
agent, hereinafter, the “Agent”).
R
E C I T A L S
A. Borrower
has executed and delivered to each of the Lenders those certain senior secured
convertible notes each made by Borrower and dated as of August 19, 2004, October
27, 2004, and May 31, 2005 (as the same have been and may hereafter be amended,
restated, supplemented or modified and in effect from time to time, and
including any notes issued in exchange or substitution therefor, individually
a
“Note” and collectively
the “Notes”). The Notes
were issued pursuant to a certain Securities Purchase Agreement dated as of
August 19, 2004 (as the same has been and hereafter may be amended, modified,
supplemented or restated, the “2004 Purchase Agreement”),
and a certain Securities Purchase Agreement dated as of May 31, 2005 (as the
same has been and hereafter may be amended, modified, supplemented or restated,
the “2005 Purchase
Agreement”, and together with the 2004 Purchase Agreement, collectively,
the “Purchase
Agreement”), in each case by and among, inter alia, Borrower and the
Lenders, and pursuant to which the Lenders have made certain loans (“Loans”) to
Borrower.
B. DOLPHIN
ENERGY CORPORATION, a Nevada corporation, and PANNONIAN INTERNATIONAL, LTD,
a
Colorado corporation (each such entity, together with each other person or
entity who becomes a party to the Guaranty (as defined herein) by execution
of a
joinder in the form of Exhibit A attached
thereto, is referred to individually as a “Guarantor” and collectively
as the “Guarantors”)
have executed a Guaranty dated as of August 19, 2004 (as the same has been
and
may hereafter be amended, restated, supplemented or modified and in effect
from
time to time, the “Guaranty”) in favor of the
Agent in respect of Borrower’s obligations under the Purchase Agreement and the
Notes.
C. Borrower
(the “Subordinated
Obligor”) and ▇▇▇▇▇▇ Trust have entered into that certain Subordinated
Promissory Note dated as of December 31, 2007 in the original principal
amount of $600,000 (as the same has been and may hereafter be amended, restated,
supplemented, replaced, substituted, divided, increased or otherwise modified
from time to time
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as
permitted hereunder, individually and collectively, the “Subordinated Note”) pursuant
to which, among other things, Subordinated Creditors have made a loan to the
Subordinated Obligor in the original principal amount of $600,000 and pursuant
to which Subordinated Obligor has incurred certain obligations and liabilities
to Subordinated Creditors.
NOW,
THEREFORE, in reliance upon this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which hereby are acknowledged,
the
parties hereto hereby agree as follows:
1.
Definitions. All
capitalized terms used but not elsewhere defined in this Agreement shall have
the respective meanings ascribed to such terms in the Purchase Agreement and
the
Notes. The following terms shall have the following meanings in this
Agreement:
Enforcement
Action is defined in subsection 2.7.
Lender
or
Lenders shall mean any holder of Senior Indebtedness including,
without limitation, any holder of any Senior Indebtedness after the consummation
of any Permitted Refinancing.
Loan
Documents
means the collective reference to the Purchase Agreement, the Notes, the
Warrants, Registration Rights Agreement, the Irrevocable Transfer Agent
Instructions, the Conveyances of Overriding Royalty Interests, the USBIT Account
Control Agreement, the ANB Amendment and the ANB Account Control Agreement
as
amended thereby, the First Amendment and the Security Agreement as amended
thereby, the Guaranty as amended thereby and the Pledge Agreement as amended
thereby, the 2004 Amendment, the Mortgage Amendments and the Mortgages as
amended thereby, the Colorado Mortgage and each of the other agreements to
which
any Obligor is a party or is bound in connection with the transactions
contemplated under the Purchase Agreement and the Notes.
Paid
in Full
or Payment
in
Full shall mean the indefeasible payment in full in cash of all
Senior Indebtedness and termination of all commitments to lend under the Loan
Documents and Permitted Refinancing Loan Documents.
Permitted
Refinancing means any refinancing of the Senior
Indebtedness.
Permitted
Refinancing Loan
Documents means any and all agreements, documents and instruments
executed in connection with a Permitted Refinancing of Senior
Indebtedness.
Proceeding
is
defined in subsection 2.3.
Senior
Indebtedness shall mean the obligations, liabilities and other
amounts owed under the Purchase Agreement, the Notes or any other Loan Document
including all interest, fees, expenses, indemnities and enforcements costs,
whether before or after the commencement of a Proceeding and without regard
to
whether or not an allowed claim, and all obligations and liabilities incurred
with respect to Permitted Refinancings,
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together
with any amendments, restatements, modifications, renewals or extensions of
any
thereof.
Subordinated
Creditor shall mean ▇▇▇▇▇▇ Trust, each “Subordinated Creditor”
which is signatory to this Agreement from time to time and any
other holders of
a Subordinated Note or any other Subordinated Indebtedness from time to
time.
Subordinated
Default shall mean a default in the payment of the Subordinated
Indebtedness, or performance of any term, covenant or condition contained in
the
Subordinated Indebtedness Documents or the occurrence of any event or condition,
which default, event or condition permits any Subordinated Creditor to
accelerate or demand payment of all or any portion of the Subordinated
Indebtedness.
Subordinated
Default
Notice shall mean a written notice to Agent pursuant to which
Agent is notified of the existence of a Subordinated Default, which notice
incorporates a reasonably detailed description of such Subordinated
Default.
Subordinated
Indebtedness shall mean all of the obligations of Obligors
(including Subordinated Obligor) to Subordinated Creditors pursuant to or
evidenced by the Subordinated Note and the other Subordinated Indebtedness
Documents.
Subordinated
Indebtedness
Documents shall mean the Subordinated Note and all other documents
and instruments executed in connection with the Subordinated Note or otherwise
evidencing or pertaining to any portion of the Subordinated Indebtedness, as
amended, supplemented, restated or otherwise modified from time to time as
permitted hereunder.
2. Subordination
of
Subordinated Indebtedness to Senior Indebtedness.
2.1 Subordination. The
payment of any and all of the Subordinated Indebtedness hereby expressly is
subordinated, to the extent and in the manner set forth herein, to the Payment
in Full of the Senior Indebtedness. Each holder of Senior
Indebtedness, whether now outstanding or hereafter arising, shall be deemed
to
have acquired Senior Indebtedness in reliance upon the provisions contained
herein.
2.2 Restriction
on
Payments. Notwithstanding any provision of the
Subordinated Indebtedness Documents to the contrary and in addition to any
other
limitations set forth herein or therein, no payment (whether made in cash,
securities or other property or by set-off) of principal, interest or any other
amount due with respect to the Subordinated Indebtedness shall be made or
received, and no Subordinated Creditor shall exercise any right of set-off
or
recoupment with respect to any Subordinated Indebtedness, until all of the
Senior Indebtedness is Paid in Full, provided however:
subject to
any adjustments or rights set forth in the Notes, any warrant for the capital
stock of Borrower or Borrower’s charter, bylaws and similar constituent
documents, Subordinated Obligor shall be permitted to make interest payments
by
means of the issuance to any Subordinated Creditor of common stock of the
Borrower.
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2.3 Proceedings. In
the event of any insolvency, bankruptcy, receivership, custodianship,
liquidation, reorganization, assignment for the benefit of creditors or other
proceeding for the liquidation, dissolution or other winding up of any Obligor
or any of its Subsidiaries or any of their respective properties (a “Proceeding”):
(i) the
Lenders shall be entitled to receive Payment in Full in cash of the Senior
Indebtedness before any Subordinated Creditor is entitled to receive any payment
upon the Subordinated Indebtedness, and Lenders shall be entitled to receive
for
application in payment of such Senior Indebtedness any payment or distribution
of any kind or character, whether in cash, property or securities or by set-off
or otherwise, which may be payable or deliverable in any such Proceedings in
respect of the Subordinated Indebtedness;
(ii) any
payment or distribution of assets of any Obligor of any kind or character,
whether in cash, property or securities, by set-off or otherwise, to which
any
Subordinated Creditor would be entitled pursuant to the Subordinated
Indebtedness but for the provisions hereof shall be paid by the liquidating
trustee or agent or other Person making such payment or distribution, whether
a
trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly
to the Lenders until the Senior Indebtedness shall have been Paid in Full,
and
each Subordinated Creditor acknowledges and agrees that such payment or
distribution may, particularly with respect to interest on Senior Indebtedness
after the commencement of a Proceeding, result in such Subordinated Creditor
receiving less than it would otherwise receive;
(iii) each
Subordinated Creditor hereby irrevocably (x) authorizes, empowers and directs
all receivers, trustees, debtors in possession, liquidators, custodians,
conservators and others having authority in the premises to effect all such
payments and deliveries, and each Subordinated Creditor also irrevocably
authorizes, empowers and directs, the Agent and the Lenders until the Senior
Indebtedness shall have been Paid in Full, to demand, ▇▇▇ for, collect and
receive every such payment or distribution, and (y) agrees to execute and
deliver to the Agent and the Lenders all such further instruments confirming
the
authorization referred to in the foregoing clause (x); and
(iv) each
Subordinated Creditor hereby irrevocably authorizes, empowers and appoints
Agent
and the Lenders (until the Senior Indebtedness shall have been Paid in Full)
as
its agent and attorney in fact to (x) execute, verify, deliver and file such
proofs of claim upon the failure of any Subordinated Creditor promptly to do
so
(and in any event prior to thirty (30) days before the expiration of the time
to
file any proof) and (y) vote such claims in any such Proceeding; provided that
no holder of Senior Indebtedness shall have any obligation to execute, verify,
deliver and/or file any such proof of claim or vote such claim. In
the event the
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Agent
or
any Lender (or any agent, designee or nominee thereof) votes any claim in
accordance with the authority granted hereby, such Subordinated Creditor shall
not be entitled to change or withdraw such vote.
The
Senior Indebtedness shall continue to be treated as Senior Indebtedness and
the
provisions hereof shall continue to govern the relative rights and priorities
of
Lenders and the Subordinated Creditors even if all or part of the Senior
Indebtedness or the security interests securing the Senior Indebtedness are
subordinated, set aside, avoided or disallowed in connection with any such
Proceeding and the provisions hereof shall be reinstated if at any time any
payment of any of the Senior Indebtedness is rescinded or must otherwise be
returned by Agent, any Lender or any agent, designee or nominee of such
holder.
2.4 Incorrect
Payments. If any payment (whether made in cash,
securities or other property) not permitted under this Agreement is received
by
any Subordinated Creditor on account of the Subordinated Indebtedness before
all
Senior Indebtedness is Paid in Full, such payment shall not be commingled with
any asset of such Subordinated Creditor, shall be held in trust by such
Subordinated Creditor for the benefit of the Lenders and shall promptly be
paid
over to the Lenders, or their respective designated representatives, for
application (in accordance with the Purchase Agreement, the Notes or the
Permitted Refinancing Loan Documents) to the payment of the Senior Indebtedness
then remaining unpaid, until all of the Senior Indebtedness is Paid in
Full.
2.5 Sale,
Transfer. No Subordinated Creditor shall sell, assign,
dispose of or otherwise transfer all or any portion of the Subordinated
Indebtedness or any Subordinated Note or other Subordinated Indebtedness
Document (a) without giving prior written notice of such action to Agent, (b)
unless prior to the consummation of any such action, the transferee thereof
shall execute and deliver to Agent and the Lenders a joinder to this Agreement,
or an agreement substantially identical to this Agreement and acceptable to
Agent and the Lenders, in either case providing for the continued subordination
and forbearance of the Subordinated Indebtedness to the Senior Indebtedness
as
provided herein and for the continued effectiveness of all of the rights of
Agent and Lenders arising under this Agreement and (c) unless following such
sale, assignment, pledge, disposition or other transfer, there shall either
be
(i) no more than two more than the number of holders of Subordinated
Indebtedness on the date hereof or (ii) one Person acting as agent for all
holders of the Subordinated Indebtedness pursuant to documentation reasonably
satisfactory to Agent, such that any notices and communications to be delivered
to Subordinated Creditors hereunder and any consents required by Subordinated
Creditors shall be made to or obtained from such agent and shall be binding
on
each Subordinated Creditor as if directly obtained from such Subordinated
Creditor. In the event of a permitted sale, assignment, disposition
or other transfer, each Subordinated Creditor engaging in such sale, assignment,
disposition or other transfer, prior to the consummation of any such action,
shall cause the transferee thereof to execute and deliver to Agent and the
Lenders a joinder to this Agreement, or an agreement substantially identical
to
this Agreement and acceptable to the Lenders, in either case providing for
the
continued subordination and forbearance of the
5
Subordinated
Indebtedness to the Senior Indebtedness as provided herein and for the continued
effectiveness of all of the rights of Lenders and Agent arising under this
Agreement. Notwithstanding the failure to execute or deliver any such
agreement, the subordination effected hereby shall survive any sale, assignment,
disposition or other transfer of all or any portion of the Subordinated
Indebtedness, and the terms of this Agreement shall be binding upon the
successors and assigns of each Subordinated Creditor, as provided in Section
10
below.
2.6 Legends. Until
the Senior Indebtedness is Paid in Full, each of the Subordinated Indebtedness
Documents at all times shall contain in a conspicuous manner the following
legend:
“This
[
Promissory Note ] and the indebtedness evidenced hereby are subordinate in
the
manner and to the extent set forth in that certain Subordination Agreement
dated
as of December 14, 2007 (the “Subordination Agreement”) among Galaxy Energy
Corporation, the Subordinated Creditors named therein, the Lenders named
therein, and Promethean Asset Management L.L.C., to the Senior Indebtedness
(as
defined in the Subordination Agreement); and each holder of this Promissory
Note, by its acceptance hereof, shall be bound by the provisions of the
Subordination Agreement.”
2.7 Restriction
on Action by
Subordinated Creditors.
(a) Until
the
Senior Indebtedness is Paid in Full and notwithstanding anything contained
in
the Subordinated Indebtedness Documents, the Purchase Agreement, the other
Loan
Documents or the Permitted Refinancing Loan Documents to the contrary, no
Subordinated Creditor shall, without the prior written consent of Agent, agree
to any amendment, modification or supplement to the Subordinated Indebtedness
Documents, the effect of which is to (i) increase the maximum principal amount
of the Subordinated Indebtedness or rate of interest (or cash pay rate of
interest) on any of the Subordinated Indebtedness, (ii) change to an earlier
date, any date upon which payments of principal or interest on the Subordinated
Indebtedness are due or otherwise front load the amortization of any of the
Subordinated Indebtedness, (iii) change in a manner adverse to any Obligor
or
add any event of default or add or make more restrictive any covenant with
respect to the Subordinated Indebtedness, (iv) change the redemption, prepayment
or put provisions of the Subordinated Indebtedness, (v) alter the subordination
provisions with respect to the Subordinated Indebtedness, including, without
limitation, subordinating the Subordinated Indebtedness to any other debt,
(vi)
shorten the maturity date of any of the Subordinated Indebtedness or otherwise
alter the repayment terms of the Subordinated Indebtedness in a manner adverse
to any Obligor, (vii) take any liens in any assets of any Obligor or any of
its
Subsidiaries or any other assets securing the Senior Indebtedness or (viii)
obtain any guaranties or credit support from any Person which is an affiliate
of
any Obligor, or (ix) change or amend any other term of the Subordinated
Indebtedness Documents if such change or amendment would increase the
obligations of any Obligor or confer additional material rights on
any
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Subordinated
Creditor or any other holder of the Subordinated Indebtedness in a manner
adverse to any Obligor, Agent or Lenders.
(b) Until
the
Senior Indebtedness is Paid in Full, no Subordinated Creditor shall, without
the
prior written consent of Agent, take or continue any action, or exercise any
rights, remedies or powers in respect of the Subordinated Indebtedness or any
Subordinated Indebtedness Document, or exercise or continue to exercise any
other right or remedy at law or in equity that such Subordinated Creditor might
otherwise possess, to collect any amount due and payable in respect of any
Subordinated Indebtedness, including, without limitation, the acceleration
of
the Subordinated Indebtedness, the commencement of any action to enforce payment
or foreclosure on any lien or security interest, the filing of any petition
in
bankruptcy or the taking advantage of any other insolvency law of any
jurisdiction (any of the foregoing, an “Enforcement
Action”). If any Subordinated Creditor shall attempt to take
any Enforcement Action or otherwise seek to collect or realize upon any of
the
Subordinated Indebtedness in violation of the terms hereof, the holders of
the
Senior Indebtedness may, by virtue of the terms hereof, restrain any such
Enforcement Action or other action, either in its own name or in the name of
the
applicable Obligor.
(c) Until
the Senior Indebtedness is Paid in Full, any Liens of Subordinated Creditors
in
the Collateral which may exist in breach of each Subordinated Creditor's
agreement pursuant to subsection 2.7(a)(vii) or Section 18 of this Agreement
shall be and hereby are subordinated for all purposes and in all respects to
the
Liens of Agent and Lenders in the Collateral, regardless of the time, manner
or
order of perfection of any such Liens. In the event that any
Subordinated Creditor obtains any Liens in the Collateral in violation of
subsection 2.7(a)(vii) or Section 18 of this Agreement, Subordinated Creditors
(i) shall (or shall cause their agent to) promptly execute and deliver to Agent
such termination statements and releases as Agent shall request to effect the
release of the Liens of such Subordinated Creditor in such Collateral and (ii)
shall be deemed to have authorized Agent to file any and all termination
statements required by Agent in respect of such Liens. In furtherance of the
foregoing, each Subordinated Creditor hereby irrevocably appoints Agent its
attorney-in-fact, with full authority in the place and stead of such
Subordinated Creditor and in the name of such Subordinated Creditor or
otherwise, to execute and deliver any document or instrument which such
Subordinated Creditor may be required to deliver pursuant to this subsection
2.7(c).
3. Continued
Effectiveness of
this Agreement; Modifications to Senior Indebtedness.
(a)
The
terms of this Agreement, the subordination effected hereby, and the rights
and
the obligations of Subordinated Creditors, Agent and Lenders arising hereunder,
shall not be affected, modified or impaired in any manner or to any extent
by:
(i) any amendment or modification of or supplement to the Purchase Agreement,
any other Loan Document or any Permitted Refinancing Loan Document or any
Subordinated Indebtedness Document; (ii) the validity or enforceability of
any
of such documents; or (iii) any exercise or non-exercise of any right, power
or
remedy under or in respect of the
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Senior
Indebtedness or the Subordinated Indebtedness or any of the instruments or
documents referred to in clause (i) above.
(b) Agent
and Lenders may at any time and from time to time in their sole discretion,
renew, amend, refinance, extend or otherwise modify the terms and provisions
of
Senior Indebtedness (including, without limitation, the terms and provisions
relating to the principal amount outstanding thereunder, the rate of interest
thereof, the payment terms thereof and the provisions thereof regarding default
or any other matter) or exercise (or refrain from exercising) any of their
rights under the Loan Documents, all without notice to or consent from the
Subordinated Creditors and without incurring liability to any Subordinated
Creditor and without impairing or releasing the obligations of any Subordinated
Creditor under this Agreement. No compromise, alteration, amendment,
renewal, restatement, refinancing or other change of, or waiver, consent or
other action in respect of any liability or obligation under or in respect
of,
any terms, covenants or conditions of Senior Indebtedness or the Loan Documents,
whether or not in accordance with the provisions of the Senior Indebtedness,
shall in any way alter or affect any of the subordination provisions
hereof.
4. Representations
and
Warranties.
(a) Each
Subordinated Creditor hereby represents and warrants (as to itself and not
as to
any other Subordinated Creditor) to Agent and Lenders as follows:
4.1 Existence
and
Power. If an entity, such Subordinated Creditor is duly
organized, validly existing and in good standing under the laws of the state
of
its organization.
4.2 Authority. Such
Subordinated Creditor has full power and authority to enter into, execute,
deliver and carry out the terms of this Agreement and to incur the obligations
provided for herein, all of which have been duly authorized by all proper and
necessary action and are not prohibited by the organizational documents of
such
Subordinated Creditor.
4.3 Binding
Agreements. This Agreement, when executed and
delivered, will constitute the valid and legally binding obligation of such
Subordinated Creditor enforceable in accordance with its terms.
4.4 Conflicting
Agreements;
Litigation. No provisions of any mortgage, indenture,
contract, agreement, statute, rule, regulation, judgment, decree or order
binding on such Subordinated Creditor or affecting the property of such
Subordinated Creditor conflicts with, or requires any consent which has not
already been obtained under, or would in any way prevent the execution, delivery
or performance of the terms of this Agreement. The execution,
delivery and carrying out of the terms of this Agreement will not constitute
a
default under, or result in the creation or imposition of, or obligation to
create, any Lien upon the property of such Subordinated Creditor pursuant to
the
terms of any such mortgage, indenture, contract or agreement. No
pending or, to the best of such
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Subordinated
Creditor’s knowledge, threatened, litigation, arbitration or other proceedings
if adversely determined would in any way prevent the performance of the terms
of
this Agreement.
4.5 No
Divestiture. On the date hereof, such Subordinated
Creditor which is signatory hereto is the current owner and holder of its
Subordinated Note and all other Subordinated Indebtedness Documents (if
any).
4.6 Default
under Subordinated
Indebtedness Documents. On the date hereof, no default
exists under or with respect to the Subordinated Note held by Subordinated
Creditor or any of the other Subordinated Indebtedness Documents applicable
to
such Subordinated Note.
(b) Each
Obligor hereby represents and warrants to Agent and Lenders that the signatory
to this Agreement under the heading “Subordinated Creditor” constitutes the only
holder of the Subordinated Note and the other Subordinated
Indebtedness.
5. Cumulative
Rights, No
Waivers. Each and every right, remedy and power granted
to Agent or Lenders hereunder shall be cumulative and in addition to any other
right, remedy or power specifically granted herein, in the Purchase Agreement,
the other Loan Documents or Permitted Refinancing Loan Documents or now or
hereafter existing in equity, at law, by virtue of statute or otherwise, and
may
be exercised by Agent or Lenders, from time to time, concurrently or
independently and as often and in such order as Agent or Lenders may deem
expedient. Any failure or delay on the part of Agent or Lenders in
exercising any such right, remedy or power, or abandonment or discontinuance
of
steps to enforce the same, shall not operate as a waiver thereof or affect
Agent’s or Lenders’ right thereafter to exercise the same, and any single or
partial exercise of any such right, remedy or power shall not preclude any
other
or further exercise thereof or the exercise of any other right, remedy or power,
and no such failure, delay, abandonment or single or partial exercise of Agent’s
or Lenders’ rights hereunder shall be deemed to establish a custom or course of
dealing or performance among the parties hereto.
6. Modification. Any
modification or waiver of any provision of this Agreement, or any consent to
any
departure by Agent or any Subordinated Creditor therefrom, shall not be
effective in any event unless the same is in writing and signed by Agent and
the
holders of at least 51% of the then outstanding principal balance of the
Subordinated Note and then such modification, waiver or consent shall be
effective only in the specific instance and for the specific instance and for
the specific purpose given. Any notice to or demand on any
Subordinated Creditor in any event not specifically required of Agent hereunder
shall not entitle any Subordinated Creditor to any other or further notice
or
demand in the same, similar or other circumstances unless specifically required
hereunder.
7. Additional
Documents and
Actions. Each Subordinated Creditor at any time, and
from time to time, after the execution and delivery of this Agreement, upon
the
request of Agent and at the expense of Borrower, will promptly execute and
deliver such further documents and do such further acts and things as Agent
may
request in order to effect fully the purposes of this Agreement.
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8. Notices. Any
notices, consents, waivers or other communications required or permitted to
be
given under the terms of this Agreement must be in writing and will be deemed
to
have been delivered: (i) upon receipt, when delivered personally;
(ii) upon receipt, when sent by facsimile (provided confirmation of transmission
is mechanically or electronically generated and kept on file by the sending
party); or (iii) one (1) Business Day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such
communications shall be:
|
If to ▇▇▇▇▇▇ Trust:
|
▇▇▇▇▇▇
Family Trust UTD March 28, 2005
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇, Trustee
▇▇▇▇▇▇
▇▇▇▇▇ LLP
▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇)
▇▇▇-▇▇▇▇
|
|
If
to any other Subordinated
Creditor:
|
To
the address of such Subordinated Creditor set forth on the joinder
to this
Agreement executed by such Subordinated Creditor
|
|
If to any Obligor:
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Galaxy
Energy Corporation
▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇
▇. ▇▇▇▇▇▇
Telecopy:
(▇▇▇) ▇▇▇-▇▇▇▇
|
|
with a copy to:
|
▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, P.C.
▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇
▇. ▇▇▇▇▇▇▇▇▇
Telecopy:
(▇▇▇) ▇▇▇-▇▇▇▇
|
|
If to Agent:
|
Promethean
Asset Management L.L.C.
▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇▇ ▇. ▇’▇▇▇▇▇
Telephone:
(▇▇▇) ▇▇▇-▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
|
|
with a copy to:
|
▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP
▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn:
▇▇▇▇ ▇. ▇▇▇▇, Esq.
Telecopy:
(▇▇▇) ▇▇▇-▇▇▇▇
|
10
|
If
to a Lender:
|
To
the address of such Lender set forth on the Schedule I
hereto
|
or,
in
the case of party named above, at such other address and/or facsimile number
and/or to the attention of such other person as the recipient party has
specified by written notice given to each other party five (5) days prior to
the
effectiveness of such change. Written confirmation of receipt (A)
given by the recipient of such notice, consent, waiver or other communication,
(B) mechanically or electronically generated by the sender’s facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a nationally recognized overnight
delivery service shall be rebuttable evidence of personal service, receipt
by
facsimile or deposit with a nationally recognized overnight delivery service
in
accordance with clause (i), (ii) or (iii) above, respectively.
9. Severability. In
the event that any provision of this Agreement is deemed to be invalid by reason
of the operation of any law or by reason of the interpretation placed thereon
by
any court or governmental authority, this Agreement shall be construed as not
containing such provision and the invalidity of such provision shall not affect
the validity of any other provisions hereof, and any and all other provisions
hereof which otherwise are lawful and valid shall remain in full force and
effect.
10. Successors
and
Assigns. This Agreement shall inure to the benefit of
the successors and assigns of Agent and Lenders and shall be binding upon the
successors and assigns of Subordinated Creditors and Obligors.
11. Counterparts. This
Agreement may be executed in two or more identical counterparts, all of which
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to each other party;
provided that a facsimile signature shall be considered due execution and shall
be binding upon the signatory thereto with the same force and effect as if
the
signature were an original, not a facsimile signature.
12. Defines
Rights of Creditors;
Subrogation.
(a) The
provisions of this Agreement are solely for the purpose of defining the relative
rights of Subordinated Creditors, Agent and Lenders and shall not be deemed
to
(i) create any rights or priorities in favor of any other Person, including,
without limitation, any Obligor, (ii) amend any of the Loan Documents or in
any
way waive any of the rights that the Agent and the Lenders have against any
Obligor under the Loan Documents, or (iii) waive any Event of Default or
Triggering Event under any of the Loan Documents.
(b) Subject
to the Payment in Full of the Senior Indebtedness, in the event and to the
extent cash, property or securities otherwise payable or deliverable to the
holders of the Subordinated Indebtedness shall have been applied pursuant to
this Agreement to the payment of Senior Indebtedness, then and in each such
event, the holders of the Subordinated Indebtedness shall be subrogated to
the
rights of each holder
11
of
Senior
Indebtedness to receive any further payment or distribution in respect of or
applicable to the Senior Indebtedness; and, for the purposes of such
subrogation, no payment or distribution to the holders of Senior Indebtedness
of
any cash, property or securities to which any holder of Subordinated
Indebtedness would be entitled except for the provisions of this Agreement
shall, and no payment over pursuant to the provisions of this Agreement to
the
holders of Senior Indebtedness by the holders of the Subordinated Indebtedness
shall, as between any Obligor, its creditors other than the holders of Senior
Indebtedness and the holders of Subordinated Indebtedness, be deemed to be
a
payment by such Obligor to or on account of Senior Indebtedness.
13. Conflict. In
the event of any conflict between any term, covenant or condition of this
Agreement and any term, covenant or condition of any of the Subordinated
Indebtedness Documents, the provisions of this Agreement shall control and
govern. For purposes of this Section 13, to the extent that any
provisions of any of the Subordinated Indebtedness Documents provide rights,
remedies and benefits to Agent or Lenders that exceed the rights, remedies
and
benefits provided to Agent or Lenders under this Agreement, such provisions
of
the applicable Subordinated Indebtedness Documents shall be deemed to supplement
(and not to conflict with) the provisions hereof.
14. Statement
of Indebtedness to
Subordinated Creditors. Borrower will furnish to Agent
upon demand, a statement of the indebtedness owing from Obligors to Subordinated
Creditors, and will give Agent access to the books of Obligors in accordance
with the Purchase Agreement so that Agent can make a full examination of the
status of such indebtedness.
15. Headings. The
paragraph headings used in this Agreement are for convenience only and shall
not
affect the interpretation of any of the provisions hereof.
16. Termination. This
Agreement shall terminate upon the Payment in Full of the Senior
Indebtedness.
17. Subordinated
Default
Notice. Subordinated Creditors and Borrower each shall
provide Agent with a Subordinated Default Notice upon the occurrence of each
Subordinated Default, and Subordinated Creditors shall notify Agent in the
event
such Subordinated Default is cured or waived.
18. No
Contest of Senior
Indebtedness or Liens; No Security for Subordinated
Indebtedness. Each Subordinated Creditor agrees that it
will not, and will not encourage any other Person to, at any time, contest
the
validity, perfection, priority or enforceability of the Senior Indebtedness
or
Liens in the Collateral granted to Agent and the Lenders pursuant to the
Purchase Agreement, the other Loan Documents or the Permitted Refinancing Loan
Documents or accept or take any collateral security for the Subordinated
Indebtedness. In furtherance of the foregoing, on the date hereof,
each Subordinated Creditor hereby represents and warrants that it has not taken
or received a security interest in, or lien upon, any asset of any Obligor,
whether in respect of the Subordinated Indebtedness or otherwise.
19. Governing
Law, Jurisdiction
Waiver of Jury Trial. All
questions
concerning the construction, validity, enforcement and interpretation of
this
Agreement shall be governed by
12
the
internal laws of the State of New York, without giving effect to any choice
of
law or conflict of law provision or rule (whether of the State of New York
or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that
the
venue of such suit, action or proceeding is improper. Each party
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof
to
such party at the address for such notices to it under this Agreement and agrees
that such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by
law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.
20. Waiver
of
Consolidation. Each Subordinated Creditor acknowledges
and agrees that (i) Obligors are each separate and distinct entities; and (ii)
it will not at any time insist upon, plead or seek advantage of any substantive
consolidation, piercing the corporate veil or any other order or judgment that
causes an effective combination of the assets and liabilities of Obligors in
any
case or proceeding under Title 11 of the United States Code or other similar
proceeding.
[remainder
of page intentionally left
blank; signature pages follow]
13
IN
WITNESS WHEREOF,
Subordinated Creditor, each Obligor, Agent and each Lender has caused this
Agreement to be executed as of the date first above written.
| SUBORDINATED CREDITOR: | |||
| ▇▇▇▇▇▇ FAMILY TRUST UTD MARCH 28, 2005 | |||
|
|
By:
|
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇ | |
| Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇ | |||
| Title: Trustee | |||
|
|
By:
|
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | |
| Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | |||
| Title: Trustee | |||
| OBLIGORS: | |||
| GALAXY ENERGY CORPORATION, a Colorado corporation | |||
|
|
By:
|
/s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ | |
| Name: ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ | |||
| Title: SVP & CFO | |||
| DOLPHIN ENERGY CORPORATION, a Nevada corporation | |||
|
|
By:
|
/s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ | |
| Name: ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ | |||
| Title: Secretary & Treasurer | |||
| PANNONIAN INTERNATIONAL, LTD., a Colorado corporation | |||
|
|
By:
|
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇ | |
| Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇ | |||
| Title: COO | |||
| AGENT: | |||
| PROMETHEAN ASSET MANAGEMENT L.L.C. in its capacity as agent for all Lenders | |||
|
|
By:
|
||
| Name: | |||
| Title: | |||
| LENDERS: | |||
| HFTP INVESTMENTS, LLC | |||
|
|
By:
|
||
| Name: | |||
| Title: | |||
| PROMETHEAN II MASTER, L.P. | |||
| By: | Promethean Asset Management L.L.C. | ||
| Its: | Investment Manager | ||
|
|
By:
|
||
| Name: | |||
| Title: | |||
| PROMETHEAN I MASTER, LTD. | |||
| By: | Promethean Asset Management L.L.C. | ||
| Its: | Investment Manager | ||
|
|
By:
|
|
|
| Name: | |||
| Title: | |||
| CAERUS PARTNERS LLC | |||
| By: | Promethean Asset Management L.L.C. | ||
| Its: | Investment Manager | ||
|
|
By:
|
||
| Name: | |||
| Title: | |||
| AG OFFSHORE CONVERTIBLES, LTD. | |||
| By: | Promethean Asset Management L.L.C. | ||
| Its: | Investment Manager | ||
|
|
By:
|
||
| Name: | |||
| Title: | |||
| ▇▇▇▇▇▇▇▇, L.P. | |||
| By: | ▇▇▇▇▇▇▇▇ Capital Management, Inc. | ||
| Its: | General Partner | ||
| By: | ▇▇▇▇▇▇, ▇▇▇▇▇▇ & Co., L.P. | ||
| Its: | Director | ||
|
|
By:
|
||
| Name: | |||
| Title: | |||
SCHEDULE
I
NOTICE
ADDRESS FOR
LENDERS
|
Buyer’s
Name
|
Buyer
Address
and
Facsimile
Number
|
Investor’s
Legal
Representative’s
Address
and Facsimile
Number
|
|
HFTP
Investments LLC
|
℅Promethean
Asset Management L.L.C.
▇▇
▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇▇ ▇. ▇’▇▇▇▇▇
Telephone:
(▇▇▇) ▇▇▇-▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
Residence:
Delaware
|
▇▇▇▇▇▇
▇▇▇▇▇▇ Rosenman LLP
▇▇▇
▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention:
▇▇▇▇ ▇. ▇▇▇▇, Esq.
Telephone:
(▇▇▇) ▇▇▇-▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
|
|
Promethean
II Master, L.P.
|
℅Promethean
Asset Management L.L.C.
▇▇
▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇▇ ▇. ▇’▇▇▇▇▇
Telephone:
(▇▇▇) ▇▇▇-▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
Residence:
Cayman Islands
|
▇▇▇▇▇▇
▇▇▇▇▇▇ Rosenman LLP
▇▇▇
▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention:
▇▇▇▇ ▇. ▇▇▇▇, Esq.
Telephone:
(▇▇▇) ▇▇▇-▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
|
|
Promethean
I Master Ltd.
|
℅Promethean
Asset Management L.L.C.
▇▇
▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇▇ ▇. ▇’▇▇▇▇▇
Telephone:
(▇▇▇) ▇▇▇-▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
Residence:
Cayman Islands
|
▇▇▇▇▇▇
▇▇▇▇▇▇ Rosenman LLP
▇▇▇
▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention:
▇▇▇▇ ▇. ▇▇▇▇, Esq.
Telephone:
(▇▇▇) ▇▇▇-▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
|
|
Caerus
Partners LLC
|
℅Promethean
Asset Management L.L.C.
▇▇
▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇▇ ▇. ▇’▇▇▇▇▇
Telephone:
(▇▇▇) ▇▇▇-▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
Residence:
Delaware
|
▇▇▇▇▇▇
▇▇▇▇▇▇ Rosenman LLP
▇▇▇
▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention:
▇▇▇▇ ▇. ▇▇▇▇, Esq.
Telephone:
(▇▇▇) ▇▇▇-▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
|
|
AG
Offshore Convertibles, Ltd.
|
c/o
▇▇▇▇▇▇, ▇▇▇▇▇▇ & Co.
▇▇▇
▇▇▇▇ ▇▇▇▇▇▇
▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇
▇. ▇▇▇▇
Telephone:
(▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇)
▇▇▇-▇▇▇▇
Residence: Cayman
Islands
|
▇▇▇▇,
Weiss, Rifkind, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇
▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇
▇. ▇▇▇▇, Esq.
Telephone:
(▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
|
|
Buyer's
Name
|
Buyer
Address
and
Facsimile
Number
|
Investor's
Legal
Representative's
Address
and Facsimile
Number
|
|
▇▇▇▇▇▇▇▇,
L.P.
|
c/o
▇▇▇▇▇▇, ▇▇▇▇▇▇ & Co.
▇▇▇
▇▇▇▇ ▇▇▇▇▇▇
▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇
▇. ▇▇▇▇
Telephone:
(▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇)
▇▇▇-▇▇▇▇
Residence: Cayman
Islands
|
▇▇▇▇,
Weiss, Rifkind, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇
▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇
▇. ▇▇▇▇, Esq.
Telephone:
(▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
|