UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) MARCH 1, 2005
GALAXY ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
COLORADO 0-32237 98-0347827
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) Identification No.)
1331 - 17TH STREET, SUITE 730, DENVER, COLORADO 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 293-2300
NOT APPLICABLE
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
On March 2, 2005, Dolphin Energy Corporation ("Dolphin"), a wholly-owned
subsidiary of Galaxy Energy Corporation ("Galaxy"), deposited $7,000,000 in
escrow as a condition precedent to an agreement to acquire an initial 58-1/3%
working interest in 4,000 net undeveloped mineral acres in the Piceance Basin in
Colorado. The terms of the acquisition are set forth in a Lease Acquisition and
Development Agreement with Apollo Energy LLC and ATEC Energy Ventures, LLC, the
Sellers. The Sellers were not willing to enter into the Agreement with Dolphin
without having some agreement regarding the remaining 41-2/3% working interest
in the subject properties. Since the management of Galaxy and its advisers had
previously decided that it would be imprudent for Galaxy to accept any larger
commitment than provided in the Agreement, it was necessary to find a third
party to take the remaining working interest, and Marc A. Bruner was willing to
provide a guaranteed payment of $2,000,000 to the Sellers and enter into an
agreement with the Sellers to acquire a 16-1/3% working interest for such
$2,000,000 with the option to acquire up to all of the then remaining 25%
working interest in the subject properties by investing an additional
$3,000,000. If Mr. Bruner invests the entire $5,000,000, his total working
interest in the properties will be 41-2/3%. Mr. Bruner and Dolphin entered into
a Participation Agreement to address certain rights and obligations as between
them, pertaining to their acquisition agreements with the Sellers. Marc A.
Bruner is a significant shareholder of Galaxy Energy Corporation, Chairman of
Galaxy's Advisory Committee, and the father of Marc E. Bruner, the president and
a director of Galaxy.
Under the Participation Agreement, Marc A. Bruner has the right, but not the
obligation to deposit up to an additional $25,000,000 into escrow on or before
August 1, 2005, while Dolphin has the right, but not the obligation, to deposit
up to an additional $3,000,000 into escrow on or before December 1, 2005.
Dolphin and Mr. Bruner have agreed that their respective ownership interests
shall be based upon the amounts deposited into escrow and used to acquire the
leases. Therefore, if both Dolphin and Mr. Bruner contribute their maximum
amounts, their ownership interests in the leases will be Dolphin 25% and Bruner
75%.
Under the acquisition agreements with the Sellers, Dolphin and Mr. Bruner are
obligated to drill one well by November 1, 2005 and nine additional wells by
August 22, 2006. If they should fail to drill any of the nine wells, they are
obligated to pay Sellers $500,000 for each well as liquidated damages or they
are to reassign to Sellers any of the acreage covered by the leases that remains
undrilled.
Dolphin and Mr. Bruner have agreed that each shall be responsible for its/his
respective share of the cost of operations in accordance with the terms of the
operating agreement, with such share based on the ownership interest at the time
the cost is incurred.
Dolphin and Mr. Bruner have also agreed that for the first 36 months of
operations under the operating agreement, Bruner shall assign all of his rights
and obligations as operator, such that Dolphin shall be the contract operator or
sub-operator under the operating agreement, and that Dolphin shall be entitled
to a management fee of 10% of its costs as operator.
2
Funding for Dolphin's share of acquisition and project costs has been financed
through a private placement of $7,695,000 in senior subordinated convertible
notes. As of March 1, 2005, Galaxy had entered into Securities Purchase
Agreements with several accredited investors (the "Investors") pursuant to which
Galaxy agreed to sell, and the Investors agreed to purchase, in the aggregate,
up to $7,695,000 principal amount of Senior Subordinated Convertible Notes and
three-year warrants to purchase 307,800 shares of common stock at $1.88 per
share. The notes may be converted by the holders into shares of common stock at
a price of $1.88 per share.
Galaxy has agreed to file a registration statement with the Securities and
Exchange Commission in order to register the resale of the shares issuable upon
conversion of the notes and the shares issuable upon exercise of the warrants.
This summary description of the financing described by the agreements does not
purport to be complete and is qualified in its entirety by reference to the form
of the agreements and other documents that are filed as Exhibits hereto.
The press release issued by Galaxy on March 3, 2005 relating to the property
acquisition is filed herewith as Exhibit 99.1.
ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES.
On March 1, 2005, Galaxy sold $7,695,000 principal amount of Senior Subordinated
Convertible Notes and three-year warrants to purchase 307,800 shares of common
stock at $1.88 per share to several accredited investors. The notes may be
converted by the holders into shares of common stock at a price of $1.88 per
share. See "Item 1.01 Entry Into a Material Definitive Agreement." Galaxy paid a
placement agent fee of approximately $385,000.
A holder of a warrant is not permitted to exercise the warrant for a number of
shares of common stock greater than the number that would cause the aggregate
beneficial ownership of common stock of such holder and all persons affiliated
with such holder to exceed 4.99% of Galaxy's then outstanding common stock. Both
the number of warrants and the exercise price of the warrants are subject to
anti-dilution adjustments in the event of certain stock splits, stock
combinations and other similar transactions.
Based upon the sophistication and financial condition of the Investors, Galaxy
relied upon the exemptions from registration under the Securities Act of 1933
contained in Section 4(2) of the Securities and/or Rule 506 of Regulation D
promulgated under the Securities Act for the offer and sale of the notes and
warrants.
3
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
Exhibits:
REGULATION
S-K NUMBER DOCUMENT
10.1 Lease Acquisition and Development Agreement between Dolphin
Energy Corporation (Buyer/Operator) and Apollo Energy LLC and
ATEC Energy Ventures, LLC (Seller/Non-Operator) dated February
22, 2005
10.2 Participation Agreement between Dolphin Energy Corporation and
Marc A. Bruner dated February 23, 2005
10.3 Securities Purchase Agreement dated August 19, 2004 between
Galaxy Energy Corporation and the Buyers named therein
10.4 Form of Note
10.5 Form of Common Stock Purchase Warrant
10.6 Registration Rights Agreement dated March 1, 2005 between
Galaxy Energy Corporation and the Buyers named therein
10.7 Subordination Agreement
99.1 Press release issued March 3, 2005
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GALAXY ENERGY CORPORATION
March 4, 2005 By: /s/ MARC E. BRUNER
----------------------------------------
Marc E. Bruner, President
4