UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement - REVISED
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14A-6(E)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-12
GALAXY ENERGY CORPORATION
(Name of Registrant As Specified in its Charter)
----------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
------
---------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
---------
---------------------------------------------------------------------
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
-----------------------------------------------------
4) Proposed maximum aggregate value of transaction:
---------------------
5) Total fee paid:
------------------------------------------------------
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
----------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------
3) Filing Party:
--------------------------------------------------------
4) Date Filed:
----------------------------------------------------------
GALAXY ENERGY CORPORATION
1331 - 17TH STREET, SUITE 1050
DENVER, COLORADO 80202
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 22, 2006
To the Shareholders of Galaxy Energy Corporation:
A special meeting of shareholders of Galaxy Energy Corporation, a
Colorado corporation (the "Company"), will be held on Wednesday, February 22,
2006, at 10:00 a.m., local time, at 1331 - 17th Street, Suite 1050, Denver,
Colorado, for the following purposes:
1. To consider and vote upon a proposal to approve the issuance of
shares of Common Stock upon conversion of the Company's convertible notes issued
in 2004 and May 2005, in lieu of cash payments on such convertible notes, and
upon the exercise of the Company's warrants, issued or issuable in connection
with the convertible notes, to the extent that such issuance requires
shareholder approval under the rules of the American Stock Exchange;
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed January 17, 2006 as the record date
for the determination of shareholders entitled to notice of and to vote at the
meeting or any adjournment thereof. Only shareholders of record at the close of
business on the record date are entitled to notice of and to vote at the
meeting. A complete list of such shareholders will be available for examination
at the offices of the Company in Denver, Colorado, during ordinary business
hours for a period beginning January 25, 2006 and continuing through the
meeting.
All shareholders are cordially invited to attend the meeting.
SHAREHOLDERS ARE URGED, WHETHER OR NOT THEY PLAN TO ATTEND THE MEETING, TO
COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY AND TO RETURN IT PROMPTLY IN THE
POSTAGE-PAID RETURN ENVELOPE PROVIDED. If a shareholder who has returned a proxy
attends the meeting in person, such shareholder may revoke the proxy and vote in
person on all matters submitted at the meeting.
By order of the Board of Directors,
Marc E. Bruner
President and Chief Executive Officer
Denver, Colorado
January 23, 2006
GALAXY ENERGY CORPORATION
1331 - 17TH STREET, SUITE 1050
DENVER, COLORADO 80202
PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 22, 2006
INTRODUCTION
The accompanying proxy is solicited by and on behalf of the Board of
Directors of the Company for use at a special meeting of shareholders of the
Company to be held at the time and place and for the purposes set forth in the
foregoing notice. The approximate date on which this proxy statement and the
accompanying proxy were first sent to shareholders of the Company is January 23,
2006.
Shares represented by valid proxies will be voted at the meeting in
accordance with the directions given. If no direction is indicated, the shares
will be voted for the proposal described in the foregoing notice.
The Board of Directors is not aware of any other matter to be presented
for consideration at the meeting. If any other matter is properly presented for
action at the meeting, the proxy holders will vote the proxies in accordance
with their best judgment in such matters. The proxy holders may also, if it is
deemed to be advisable, vote such proxies to adjourn the meeting or to recess
the meeting from time to time. The persons named as proxies will have
discretionary authority to vote all shares for which they serve as proxies,
including abstentions and broker non-votes, on the adjournment of the meeting,
whether or not a quorum is present, to a date not more than 120 days after the
original record date to permit further solicitation of proxies.
Any shareholder of the Company returning a proxy has the right to
revoke the proxy at any time before it is exercised by giving written notice of
such revocation to the Company addressed to Christopher S. Hardesty, Chief
Financial Officer, Galaxy Energy Corporation, 1331 - 17th Street, Suite 1050,
Denver, Colorado 80202; however, no such revocation shall be effective until
such notice of revocation has been received by the Company at or prior to the
meeting.
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
Only holders of record of Common Stock at the close of business on
January 17, 2006, the record date for the meeting, are entitled to notice of and
to vote at the meeting or any adjournment(s) thereof. The presence of a majority
of the Common Stock outstanding on the record date is necessary to constitute a
quorum. On the record date for the meeting, there were issued and outstanding
[68,668,029] shares of Common Stock. At the meeting, each shareholder of record
on the record date will be entitled to one vote for each share registered in
such shareholder's name on the record date. The following table provides certain
information as to the share ownership of officers and directors individually and
as a group, and the holders of more than 5% of our Common Stock as of January
17, 2006:
Galaxy Energy Corporation Proxy Statement - Page 1
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER (1)<F1> BENEFICIAL OWNERSHIP PERCENT OF CLASS (2) <F2>
- ---------------------------------------- -------------------- --------------------
Marc A. Bruner 12,522,354 (3)<F3> 18.2%
29 Blauenweg
Metzerlen, Switzerland 4116
Resource Venture Management 5,222,729 7.6%
29 Blauenweg
Metzerlen, Switzerland 4116
Bruner Group, LLP 4,500,000 6.6%
1775 Sherman Street #1375
Denver, Colorado 80203
Marc E. Bruner 1,830,000 (4)<F4> 2.7%
Carmen Lotito 1,230,000 (5)<F5> 1.8%
Cecil D. Gritz 280,000 (6)<F6> *
Richard E. Kurtenbach 172,500 (7)<F7> *
Dr. James Edwards 160,000 (8)<F8> *
Robert Thomas Fetters, Jr. 120,000 (9)<F9> *
Thomas W. Rollins 120,000 (9)<F9> *
Nathan C. Collins 120,000 (9)<F9> *
Christopher S. Hardesty 106,000 (10)<F10> *
All officers and directors as a group (9 persons) 4,122,500 (11)<F11> 5.9%
*less than one percent (1%)
- ------------------
<FN>
(1)<F1> To our knowledge, except as set forth in the footnotes to this table
and subject to applicable community property laws, each person named in
the table has sole voting and investment power with respect to the
shares set forth opposite such person's name.
(2)<F2> This table is based on [68,668,029] shares of Common Stock outstanding
as of January 17, 2006. If a person listed on this table has the right
to obtain additional shares of Common Stock within sixty (60) days from
January 17, 2006, the additional shares are deemed to be outstanding
for the purpose of computing the percentage of class owned by such
person, but are not deemed to be outstanding for the purpose of
computing the percentage of any other person.
(3)<F3> Included in Mr. Bruner's share ownership are shares owned of record by
Resource Venture Management and Bruner Group, LLP. Mr. Bruner is a
control person of both these entities. Also included in Mr. Bruner's
share ownership are 203,390 shares issuable upon exercise of warrants.
(4)<F4> Includes 330,000 shares issuable upon exercise of stock options.
(5)<F5> Includes 230,000 shares issuable upon exercise of stock options.
(6)<F6> Includes 280,000 shares issuable upon exercise of stock options.
Galaxy Energy Corporation Proxy Statement - Page 2
(7)<F7> Includes 172,500 shares issuable upon exercise of stock options.
(8)<F8> Includes 160,000 shares issuable upon exercise of stock options.
(9)<F9> Includes 120,000 shares issuable upon exercise of stock options.
(10)<F10>Includes 90,000 shares issuable upon exercise of stock options.
(11)<F11>Includes 1,622,500 shares issuable upon exercise of stock options.
</FN>
CHANGES IN CONTROL
There are no agreements known to management that may result in a change
of control of our company.
VOTING PROCEDURES AND TABULATION
The Company will appoint one or more inspectors of election to act at
the meeting and to make a written report thereof. Prior to the meeting, the
inspectors will sign an oath to perform their duties in an impartial manner and
to the best of their abilities. The inspectors will ascertain the number of
shares outstanding and the voting power of each of such shares, determine the
shares represented at the meeting and the validity of proxies and ballots, count
all votes and ballots and perform certain other duties as required by law. The
inspectors will tabulate the number of votes cast for, against or abstained from
the proposal described in the foregoing notice.
The proposal to issue shares of Common Stock upon the conversion of
convertible notes and upon the exercise of warrants to the extent such issuance
requires shareholder approval under the rules of the American Stock Exchange
must be approved by a majority of the shares of Common Stock present or
represented and voting on the applicable proposal at the meeting. If a
shareholder abstains from voting on this proposal, it will have the same effect
as a vote cast "AGAINST" such proposal.
If the Company receives a signed proxy card with no indication of the
manner in which shares are to be voted on the proposal, such shares will be
voted in accordance with the recommendation of the Board of Directors for such
proposal.
Brokers who hold shares in street name only have the authority to vote
on certain items when they have not received instructions from beneficial
owners. Any "broker non-votes" will be counted for the purposes of determining
whether a quorum is present for the meeting, but will not be counted as votes
cast regarding the proposal.
QUESTIONS AND ANSWERS ABOUT THE PROPOSAL
Q. WHAT PROPOSAL ARE SHAREHOLDERS BEING ASKED TO CONSIDER AT THE UPCOMING
SPECIAL MEETING?
A. The Company is seeking approval to issue Common Stock upon the
conversion of or in lieu of (1) cash payments on the convertible notes
and the exercise of warrants, each of which were issued pursuant to the
terms of a Securities Purchase Agreement entered into on August 19,
2004, and (2) cash payments on the convertible notes and the exercise
of issuable warrants, each of which were issued or issuable pursuant to
the terms of a Securities Purchase Agreement entered into on May 31,
2005, in each case to the extent such issuance equals or exceeds 20% of
the Company's outstanding Common Stock.
Galaxy Energy Corporation Proxy Statement - Page 3
Q. WHY IS THE COMPANY SEEKING SHAREHOLDER APPROVAL TO ISSUE COMMON STOCK
UPON THE CONVERSION OF OR IN LIEU OF CASH PAYMENTS ON THE CONVERTIBLE
NOTES AND EXERCISE OF WARRANTS TO THE EXTENT SUCH ISSUANCE EQUALS OR
EXCEEDS 20% OF THE COMPANY'S OUTSTANDING COMMON STOCK?
A. The Company's Common Stock is listed on the American Stock Exchange
("AMEX"). The AMEX rules require shareholder approval for any sale,
issuance, or potential issuance of stock at a price below the greater
of the book or market value, where the amount of stock being issued or
potentially issuable is equal to or in excess of 20% of the common
stock outstanding. Because of this rule, the Company is seeking
approval to issue Common Stock upon the conversion of or in lieu of
cash payments on the convertible notes and the exercise of issued and
issuable warrants to the extent such issuance would equal or exceed 20%
of the Company's outstanding Common Stock. The Company had obtained
shareholder approval as to the notes and warrants issued in 2004.
However, on December 1, 2005, the Company entered into a Waiver and
Amendment with the holders of the 2004 notes and the holders of notes
issued in May 2005, which, among other things, lowered the conversion
price of the notes and exercise price of the warrants. The Company is
seeking shareholder approval with respect to both the 2004 notes and
May 2005 notes and related warrants due to this change, as the lowering
of the conversion price and exercise price had the effect of increasing
the number of shares issuable upon conversion of the notes and exercise
of the warrants.
Q. WHY WERE THE PRIVATE PLACEMENTS DONE?
A. The Company issued $15 million in convertible notes and related
warrants in August 2004 and issued $5 million of additional convertible
notes in October 2004 to fund the Company's coal bed methane
development program in the Powder River Basin of Wyoming. More
specifically, the funds were used to drill new wells and to complete
and connect these and existing wells on the Company's Leiter Area,
Pipeline Ridge and Tower (West Recluse and Glasgow) properties. In May
2005, the Company issued $10 million in convertible notes and related
warrants to fund further coal bed methane development work in the
Powder River Basin of Wyoming. The funds raised in May 2005 have been
used to pay part or all of the costs to complete and hook up wells and
complete the related production infrastructure on the Company's Leiter
Area, Ucross and Pipeline Ridge properties in Wyoming.
Q. WHAT HAPPENS IF THE PROPOSAL IS APPROVED?
A. If the proposal is approved, then the owners of the convertible notes
may, at their option, or in some instances, at the Company's option,
convert their convertible notes into Common Stock, and they may
exercise warrants that they have received or may receive for Common
Stock, even if the number of shares issued equals or exceeds 20% of the
Company's outstanding Common Stock. Since the conversion price of the
convertible notes has been lowered to $1.25 per share and the exercise
price of the outstanding warrants has been lowered to $1.25, with the
exercise price of issuable warrants capped at $1.25 per share, the
aggregate percentage of Common Stock for which they would be
convertible or exercisable could exceed the 20% threshold.
Q. WHAT IF THE PROPOSAL IS NOT APPROVED?
A. If the proposal does not receive shareholder approval, and if the
issuance equals or exceeds 20% of the Company's outstanding Common
Stock, then the Company may be required to redeem for cash the portion
of the convertible notes and the portion of the warrants that is not
convertible or exercisable due to such 20% limitation. If the Company
does not have sufficient cash at such
Galaxy Energy Corporation Proxy Statement - Page 4
time to effect a redemption, the Company will default on its
obligations under the convertible notes and warrants.
Q. CAN THE CONVERSION OF THE CONVERTIBLE NOTES AND THE EXERCISE OF THE
WARRANTS ALLOW THE INVESTORS TO OBTAIN CONTROL OF THE COMPANY?
A. No. The terms of the convertible notes and the warrants prohibit the
conversion of any principal under the convertible notes or the exercise
of any warrants which, after giving effect to such conversion or
exercise, would cause a note or warrant holder and its affiliates to
beneficially own at any time more than 4.99% of the outstanding Common
Stock of the Company. Accordingly, no note or warrant holder could ever
obtain control of the Company through conversion of the convertible
notes or exercise of the warrants.
PROPOSAL 1 - TO APPROVE THE ISSUANCE OF SHARES OF COMMON STOCK
UPON CONVERSION OF THE CONVERTIBLE NOTES ISSUED IN 2004 AND MAY 2005, IN LIEU
OF CASH PAYMENTS ON THE CONVERTIBLE NOTES, AND UPON THE EXERCISE OF THE
WARRANTS THAT HAVE BEEN ISSUED OR ARE ISSUABLE UNDER THE TERMS OF THE NOTES,
TO THE EXTENT SUCH ISSUANCE WOULD REQUIRE SHAREHOLDER APPROVAL
UNDER THE RULES OF THE AMERICAN STOCK EXCHANGE
On August 19, 2004, the Company issued in a private placement $15
million of secured convertible notes initially convertible by the holders into
8,021,390 shares of Common Stock and warrants initially exercisable at $1.54 per
share for 5,194,806 shares of Common Stock. These investors purchased an
additional $5 million of secured convertible notes (with substantially the same
terms) on October 27, 2004. These additional notes were initially convertible by
the holders into 2,673,797 shares of Common Stock. The convertible notes issued
in August 2004 and the additional convertible notes issued in October 2004 will
be referred to in this proxy statement as the 2004 notes. Under the terms of the
2004 notes, the Company may make certain payments of principal and interest
through the issuance of Common Stock in partial conversion of the notes. Under
the terms of the warrants, once the Company's Common Stock trades at or above
$2.31 per share for any 20 consecutive trading days, the holder would
automatically be required to exercise its warrants for cash. The holder would
then receive back the same number of replacement warrants having substantially
the same terms as the initial warrants, but at a new warrant exercise price at a
15% premium to the then current price. The initial warrants and any additional
warrants issued in replacement of such warrants are referred to in this proxy
statement as the 2004 warrants. The issuance of shares of Common Stock upon the
conversion of or in lieu of cash payments on the 2004 notes and upon the
exercise of the 2004 warrants under certain circumstances could equal 20% or
more of the Company's Common Stock outstanding.
On May 31, 2005, the Company issued in a private placement $10 million
of secured convertible notes initially convertible by the holders into 5,319,149
shares of Common Stock. These notes will be referred to in this proxy statement
as the 2005 notes, and together with the 2004 notes will be referred to in this
proxy statement as the convertible notes. Under the terms of the 2005 notes, the
Company may make certain payments of principal and interest through the issuance
of Common Stock in partial conversion of the notes. If the Company repurchases
the notes prior to May 31, 2008, the holders will be issued warrants for a
number of shares equal to the number of shares the notes are convertible into
immediately prior to the repurchase. These warrants will be referred to in this
proxy statement as the 2005 warrants, and together with the 2004 warrants will
be referred to in this proxy statement as the warrants. The issuance of shares
of Common Stock upon the conversion of or in lieu of cash payments on the 2005
notes and upon the exercise of the 2005 warrants under certain circumstances
could equal 20% or more of the Company's Common Stock outstanding.
Galaxy Energy Corporation Proxy Statement - Page 5
On December 1, 2005, the Company entered into a Waiver and Amendment
with the holders of the convertible notes which, among other things, lowered the
conversion price of the notes to $1.25 and exercise price of the 2004 warrants
to $1.25 per share.
The Company's Common Stock is listed on the American Stock Exchange
("AMEX"). The AMEX rules require shareholder approval for any sale, issuance, or
potential issuance of stock at a price that is below the greater of the book or
market value, where the amount of stock being issued equals or exceeds 20% of
the outstanding common stock. Because under certain circumstances conversion of
the convertible notes and exercise of the warrants could result in the issuance
of Common Stock below the book value or market price and because of this rule
and a related contractual commitment by the Company to the purchasers of the
convertible notes and warrants, the Company is seeking shareholder approval to
issue Common Stock upon the conversion of or in lieu of cash payments on the
convertible notes and the exercise of the warrants to the extent such issuance
equals or exceeds 20% of the Company's outstanding Common Stock. In October
2004, the Company's shareholders had approved the issuance of shares in
connection with the 2004 notes and 2004 warrants. However, as described above,
the Company agreed to reduce the conversion price of the 2004 notes and the
exercise price of the 2004 warrants in December 2005, and this change
necessitates obtaining shareholder approval. THE BOARD OF DIRECTORS RECOMMENDS A
VOTE "FOR" APPROVAL OF THE ISSUANCE OF SHARES OF COMMON STOCK UPON CONVERSION OF
THE COMPANY'S OUTSTANDING CONVERTIBLE NOTES, IN LIEU OF CASH PAYMENTS ON THE
CONVERTIBLE NOTES, AND UPON THE EXERCISE OF THE WARRANTS TO THE EXTENT SUCH
ISSUANCE REQUIRES SHAREHOLDER APPROVAL UNDER THE AMEX RULES. Set forth below is
certain information with respect to the issuance of the convertible notes and
the warrants.
REASON FOR ISSUANCE OF CONVERTIBLE NOTES AND WARRANTS
The Company issued $15 million in convertible notes and related
warrants in August 2004 and issued $5 million of additional convertible notes in
October 2004 to fund the Company's coal bed methane development program in the
Powder River Basin of Wyoming. More specifically, the funds were used to drill
new wells and to complete and connect these and existing wells on the Company's
Leiter Area, Pipeline Ridge and Tower (West Recluse and Glasgow) properties. In
May 2005, the Company issued $10 million in convertible notes and related
warrants to fund further coal bed methane development work in the Powder River
Basin of Wyoming. The funds raised in May 2005 have been used to pay part or all
of the costs to complete and hook up wells and complete the related production
infrastructure on the Company's Leiter Area, Ucross and Pipeline Ridge
properties in Wyoming.
PRINCIPAL TERMS OF CONVERTIBLE NOTES AND WARRANTS
2004 NOTES. The 2004 notes were originally issued in the aggregate
principal amount of $20 million, were originally due March 1, 2007 and bear
interest at the prime rate plus 7.25%, adjusted quarterly. The Company's
obligation to pay principal and interest under the 2004 notes began March 1,
2005. The Company may meet its payment obligations under the 2004 notes in
either cash or by issuing Common Stock through mandatory conversions, provided
certain conditions are met. The Company also has the right under specified
circumstances to make voluntary prepayments of all or any portion of the
outstanding principal under the 2004 notes. The note holders had the right at
any time to convert the 2004 notes into shares of Common Stock of the Company at
an initial conversion price of $1.87 (subject to adjustment to prevent
dilution). All of the 2004 notes, excluding accrued interest, were initially
convertible into 10,695,187 shares of Common Stock. On December 1, 2005, the
conversion price was lowered from $1.87 to $1.25, the maturity date was extended
to July 1, 2007, the monthly installment payments were deferred until April 1,
2006, and any redemption or conversion of the 2004 notes by the Company was
extended until the later of April 1, 2006 or the date that is four months after
the date on which shareholder approval is obtained. The Company also extended
the period during which it has
Galaxy Energy Corporation Proxy Statement - Page 6
agreed to pay the holders of the 2004 notes interest equal to what would have
accrued from date of redemption through and including the date that is the later
of September 30, 2006 and the date that immediately precedes the date that is
six months after the date on which shareholder approval is obtained, in the
event the Company redeems the notes prior the later of October 1, 2006 and the
date that is six months after the date on which shareholder approval is
obtained. The number of conversion shares is subject to adjustment from time to
time upon the occurrence of certain events described in the 2004 notes.
2005 NOTES. $10 million in principal amount of convertible notes were
issued on May 31, 2005. The 2005 notes have a term of 5 years and bear interest
at the prime rate plus 7.25%, adjusted quarterly. The Company's obligation to
pay interest on the 2005 notes began on July 1, 2005. The Company may meet its
payment obligations under the 2005 notes in either cash or by issuing Common
Stock through mandatory conversions, provided certain conditions are met. The
note holders had the right at any time to convert the 2005 notes into shares of
Common Stock of the Company at an initial conversion price of $1.88 (subject to
adjustment to prevent dilution). All of the 2005 notes, excluding accrued
interest, were initially convertible into 5,319,149 shares of Common Stock. On
December 1, 2005, the conversion price was lowered from $1.88 to $1.25,
increasing the number of conversion shares to 8,000,000 (excluding shares
issuable for payment of accrued interest). The number of conversion shares is
subject to adjustment from time to time upon the occurrence of certain events
described in the 2005 notes.
SECURITY. The convertible notes are secured by a first perfected
security interest in all of the assets of the Company and its subsidiaries. In
addition, the Company's subsidiaries have guaranteed payment of the convertible
notes.
2004 WARRANTS. The 2004 warrants were issued on August 19, 2004. They
may be exercised for a term of three years. The number of shares of Common Stock
of the Company initially issuable upon exercise of the warrants was 5,194,806
shares at an initial per share exercise price of $1.54. On December 1, 2005, the
exercise price was lowered to $1.25 per share and the number of shares
purchasable under the 2004 warrants was increased to 6,400,002. Both the number
of warrant shares and the exercise price are subject to adjustment from time to
time upon the occurrence of certain events described in the warrants.
2005 WARRANTS. If issued, the 2005 warrants would be exercisable until
May 31, 2008 (unless extended under certain circumstances). The initial maximum
exercise price was $1.88, but was lowered on December 1, 2005 to $1.25 per
share. Both the number of warrant shares and the exercise price are subject to
adjustment from time to time upon the occurrence of certain events described in
the 2005 warrants.
LIMITATION ON CONVERSION OR EXERCISE. The terms of the convertible
notes and the warrants prohibit the conversion of any principal under the
convertible notes or the exercise of any warrants which, after giving effect to
such conversion or exercise, would cause a note or warrant holder and its
affiliates to beneficially own at any time more than 4.99% of the outstanding
Common Stock of the Company.
REGISTRATION RIGHTS. In connection with the issuance of the 2004 notes
and the warrants, the Company entered into a registration rights agreement under
which it is required to register 110% of the number of shares of Common Stock
issuable upon exercise of the warrants and 175% of the greater of (i) the number
of shares of Common Stock issuable upon conversion of the convertible notes, at
an assumed conversion price approximately equal to the market price of the
Common Stock and (ii) the number of conversion shares issuable at the fixed
conversion price. The Company entered into a similar registration rights
agreement in connection with the 2005 notes, under which it agreed to register
175% of the number of conversion shares issuable at the fixed conversion price.
Galaxy Energy Corporation Proxy Statement - Page 7
WHY THE COMPANY NEEDS SHAREHOLDER APPROVAL
In accordance with Section 713 of the AMEX Company Guide, which
requires shareholder approval for the sale, issuance, or potential issuance of
common stock (or securities convertible into, or exercisable for, common stock)
representing 20% or more of an issuer's common stock or voting power outstanding
before such issuance at a price below the greater of the common stock's book or
market value, and under the terms of the agreements pursuant to which the
Company sold the convertible notes and the warrants and the December 1, 2005
waiver and amendment agreement, the Company is soliciting shareholder approval
of the issuance of shares of Common Stock upon conversion of, or in lieu of cash
payments on, the convertible notes and exercise of the warrants, to the extent
such issuance would equal or exceed 20% of the Company's outstanding Common
Stock. If the Company obtains shareholder approval, there is no limit over time
on the number of shares that could be issued upon conversion of, or in lieu of
cash payments on, the convertible notes and exercise of the warrants, and such
issuance of shares of Common Stock will no longer be subject to shareholder
approval under Section 713 of the AMEX Company Guide. If the Company does not
obtain shareholder approval, the Company will not be obligated to issue any
shares representing 20% or more of the outstanding Common Stock due to
restrictions relating to Section 713. The holders would, however, have the right
under such circumstances to require the Company to redeem in cash the portion of
the remaining balance of the convertible notes and the portion of the warrants
with respect to which shares cannot be issued, but there is no assurance that
the Company would have sufficient cash at such time to effect the redemption. If
the shareholders do not approve this proposal, and the Company does not have
sufficient cash at such time to effect a redemption, the Company will default on
its obligations under the convertible notes and warrants. In addition, if the
Company does not obtain shareholder approval by March 1, 2006, a waiver given by
the holders of the notes will be rendered null and void and the holders would
thereafter be entitled to pursue any claim that any of them might have arising
from Dolphin Energy Corporation (the Company's wholly-owned subsidiary) having
entered into a Third Amendment to Participation Agreement with Exxel Energy
Corporation as of October 4, 2005.
PROVISIONS OF THE CONVERTIBLE NOTES AND WARRANTS THAT COULD RESULT IN THE
ISSUANCE OF SHARES
Both the convertible notes and the warrants contain a number of
provisions that could require or result in the issuance of, respectively, more
than the number of shares of Common Stock into which the notes are currently
convertible by the holders (excluding accrued interest) and the shares of Common
Stock for which the warrants are exercisable. These provisions are summarized
below.
CONVERTIBLE NOTES
CONVERSION OF CONVERTIBLE NOTES IN LIEU OF CASH PAYMENTS; ADJUSTMENTS.
The repayment of the convertible notes could result in the issuance of shares of
Common Stock equal to or in excess of 20% of the Company's outstanding Common
Stock at a price below the greater of the book or market value of the Common
Stock. Since March 1, 2005, the Company has been obligated to repay the 2004
notes in monthly installments of principal in the amount of $833,333.33, plus
accrued interest on the principal amount of the then outstanding convertible
notes at the prime rate plus 7.25% per annum. Since July 1, 2005, the Company
has been obligated to pay accrued interest on the then outstanding principal
amount of the 2005 notes at the prime rate plus 7.25% per annum. At the
Company's option, it may pay its monthly payments of principal and interest and
its quarterly interest payments in cash or through a partial conversion of the
convertible notes into shares of the Company's Common Stock at a conversion rate
equal to the lesser of $1.25 (as may be adjusted to prevent dilution), or 93% of
the weighted average trading price of the Company's Common Stock on the trading
day preceding the conversion, assuming the satisfaction or waiver of certain
conditions. Among other things, the Company's Common Stock must be trading above
$1.00 per share, the Common Stock to be issued must be registered in a currently
Galaxy Energy Corporation Proxy Statement - Page 8
effective registration statement, and the conversion must not result in the
holder converting an amount that exceeds a specified percentage of the trading
volume during the conversion period. If the weighted average trading price
remains low, the payment of the monthly principal and interest installments on
the 2004 notes and the quarterly interest payments on the 2005 notes through
partial conversion of the convertible notes could result in the issuance of
shares of Common Stock equal to or in excess of 20% of the Company's outstanding
Common Stock.
Certain events may transpire that lower the applicable conversion price
under the convertible notes or otherwise give the holders rights to additional
shares of Common Stock, which could result in the issuance of shares of Common
Stock at a price below the greater of the book or market value of the Common
Stock and equal to or in excess of 20% of the Company's outstanding Common
Stock. Any determination of the number of shares of the Company's Common Stock
into which the convertible notes may be converted is subject to adjustment in
the event of certain future issuances of securities or derivative securities,
stock dividends, stock splits, stock combinations and other similar
transactions. Any adjustments that lower the applicable conversion price could
result in the issuance of shares of Common Stock at a price below the greater of
the book or market value of the Common Stock and equal to or in excess of 20% of
the Company's outstanding Common Stock. The convertible notes give the holders
the right to any additional rights, including those obtained through the
consolidation, merger or sale of assets of the Company or a similar transaction,
that are granted, issued or sold to the Company's shareholders as if the holders
had held the number of shares of Common Stock acquirable upon the complete
conversion of the convertible notes at the time such rights become available to
the shareholders. The convertible notes also give the holders the right to any
dividends or distributions that are made to the Company's shareholders as if the
holders had held the number of shares of Common Stock acquirable upon the
complete conversion of the convertible notes at the time such rights become
available to the shareholders. These additional rights could result in the
issuance of shares of Common Stock equal to or in excess of 20% of the Company's
total outstanding Common Stock.
CONVERSION OF CONVERTIBLE NOTES AT THE OPTION OF THE HOLDER. The notes
are convertible at the option of the holder, in whole or in part, at any time
prior to their maturity at the current conversion price of $1.25. Any
determination of the number of shares of the Company's Common Stock into which
the convertible notes may be converted is subject, however, to adjustment in the
event of certain future issuances of securities or derivative securities, stock
dividends, stock splits, stock combinations and other similar transactions. Any
adjustments that lower the applicable conversion price could result in the
issuance of shares of Common Stock at a price below the greater of the book or
market value of the Common Stock and equal to or in excess of 20% of the
Company's outstanding Common Stock. If the Company does not timely effect a
conversion of the convertible notes, it will be subject to cash penalties,
additional adjustments to the applicable conversion price, and other penalties
described in the convertible notes. Moreover, in such case, the holders of the
convertible notes may require the Company to redeem all of the outstanding
principal amount of the convertible notes at that time (as discussed below),
which could ultimately result in a further adjustment to the applicable
conversion price.
MANDATORY CONVERSION OR REDEMPTION OF THE 2004 NOTES. The holders of
the 2004 notes may elect to have a portion of the principal amount repaid early
by the Company, if the Company fails to meet an equity liquidity test or a share
availability test, which are measured monthly. The equity liquidity test means
that the product of 20% of the average monthly dollar trading volume during the
prior 3 months and the number of months then remaining in the term of the 2004
notes must be greater than the outstanding principal balance of and accrued
interest on the 2004 notes. The share availability test means that the product
of (i) the average of the weighted average price for the 10 consecutive trading
days immediately preceding the date of determination multiplied by (ii) the
number of shares registered for resale and reserved for issuance, less the
number of 2004 warrant shares then outstanding, must be greater than the
outstanding principal balance of and accrued interest on the 2004 notes. In the
event of a failure
Galaxy Energy Corporation Proxy Statement - Page 9
of either test, the Company would be required to redeem in cash and/or provide
for the early conversion of a sufficient amount of the 2004 notes in order to
meet that test. Since the conversion rate would be equal to the lesser of $1.25
(as may be adjusted to prevent dilution), or 93% of the weighted average trading
price of the Company's Common Stock on the trading day preceding the conversion,
such conversion could result in the issuance of shares of Common Stock at a
price below the greater of the book or market value of the Common Stock and
equal to or in excess of 20% of the Company's outstanding Common Stock.
MANDATORY REDEMPTION OF THE 2005 NOTES. The holders of the 2005 notes
may elect to have the notes repaid in cash at any time after May 31, 2008.
REDEMPTION AND DEFAULT PROVISIONS IN THE CONVERTIBLE NOTES. Certain
events, referred to as "Triggering Events," could result in an adjustment that
lowers the applicable conversion price and the issuance of shares of Common
Stock at a price below the greater of book or market value and equal to or in
excess of 20% of the Company's outstanding Common Stock. Upon the occurrence of
a Triggering Event, the holders of the convertible notes may cause the Company
to redeem the convertible notes in cash. Circumstances that are deemed
Triggering Events under which the holders may cause the Company to redeem the
convertible notes include: the Company's failure to obtain and/or maintain the
effectiveness of any of the registration statements covering the resale of the
Common Stock underlying the convertible notes and the warrants, the failure of
the Common Stock to be listed on the OTC Bulletin Board, AMEX, another national
securities exchange, the NASDAQ National Market or the NASDAQ SmallCap Market,
the suspension from trading of the Company's Common Stock for a period of five
consecutive trading days or for more than 10 trading days in any 365-day period,
the Company's failure to timely deliver shares of Common Stock upon conversion
of the convertible notes or exercise of the warrants, material breaches by the
Company under the applicable securities purchase agreement, the convertible
notes, the warrants, the registration rights agreement or any other agreement
entered into in connection with the transactions contemplated by such
agreements, and the Company's failure to make its monthly installments or
quarterly interest payments as provided in the convertible notes.
However, if the Company does not have sufficient cash to effect a
redemption as a result of a Triggering Event, the holders are entitled to void
their redemption notices and receive a reset of their applicable conversion
price to the lesser of the conversion price then in effect, or the lowest
weighted average price of the Company's Common Stock during the period beginning
on the date on which the notice of redemption is delivered to the Company and
ending on the date the holder delivers notice to the Company of its intent to
void the redemption notice. This reset to a lower applicable conversion price
could result in the issuance of shares of Common Stock at a price below the
greater of book or market value and equal to or in excess of 20% of the
Company's outstanding Common Stock.
The occurrence of an event of default under the convertible notes could
also result in the issuance of shares of Common Stock at a price below the
greater of book or market value and equal to or in excess of 20% of the
Company's outstanding Common Stock. If an event of default occurs, the holders
of the convertible notes may declare the convertible notes, including all
amounts due thereunder, to be due and payable immediately. Such amount would
bear interest at the rate of 2.0% per month until paid in full. If the Company
does not timely pay the amounts due, the holders of the convertible notes may
void the acceleration and the conversion price would be adjusted to the lesser
of the conversion price then in effect, or the lowest weighted average price of
the Company's Common Stock during the period beginning on the date on which the
convertible notes became accelerated and ending on the date on which the holders
of the convertible notes notify the Company of their intent to void the
acceleration. This reset to a lower applicable conversion price could result in
the issuance of shares of Common Stock at a price below the greater of book or
market value and equal to or in excess of 20% of the Company's outstanding
Common Stock. The events of default include any failure to pay any principal
amount of the convertible
Galaxy Energy Corporation Proxy Statement - Page 10
notes when due, failure to comply with any material provision of the convertible
notes, some payment defaults of the Company's other indebtedness, initiation of
bankruptcy proceedings by or against the Company and the Company's failure to
timely file any report with the SEC under the Securities Exchange Act of 1934.
WARRANTS
In connection with the sale of the 2004 notes, the Company issued
warrants and may issue additional warrants to the purchasers of the 2004 notes.
Effective December 1, 2005, the 2004 warrants give the holders the right to
purchase from the Company, until August 19, 2007, an aggregate of 6,400,002
shares of the Company's Common Stock for $1.25 per share. If the Company
repurchases the 2005 notes prior to May 31, 2008, the holders will be issued
warrants for a number of shares equal to the number of shares the notes are
convertible into immediately prior to the repurchase. If issued, the 2005
warrants would give the holders the right to purchase from the Company, until
May 31, 2008 (unless extended under certain circumstances), shares of the
Company's Common Stock at a price not to exceed $1.25 per share. Certain events
may transpire that lower the applicable exercise price under the warrants,
increase the number of shares for which the warrants are exercisable, or
otherwise give the holders rights to additional shares of Common Stock, which
could result in the issuance of shares of Common Stock at a price below the
greater of book or market value and equal to or in excess of 20% of the
Company's outstanding Common Stock. Both the number of shares for which the
warrants are exercisable and the exercise price of the warrants are subject to
anti-dilution adjustments in the event of certain future issuances of securities
or derivative securities, stock dividends, stock splits, stock combinations and
any other similar transactions. Any adjustments that increase the number of
shares, result in the issuance of additional warrants, or lower the exercise
price could result in the issuance of shares of Common Stock at a price below
the greater of book or market value and equal to or in excess of 20% of the
Company's outstanding Common Stock. The warrants also give the holders the right
to any additional rights, including those obtained through the consolidation,
merger or sale of assets of the Company or a similar transaction, that are
granted, issued or sold to the Company's shareholders as if the holders had held
the number of shares of Common Stock acquirable upon the complete exercise of
the warrants at the time such rights become available to the shareholders. These
additional rights could result in the issuance of shares of Common Stock at a
price below the greater of book or market value and equal to or in excess of 20%
of the Company's total outstanding Common Stock.
POTENTIAL DILUTION AND MARKET CONSEQUENCES
The issuance of shares of Common Stock pursuant to the convertible
notes and warrants could substantially dilute the interests of the Company's
other shareholders. The convertible notes, with an aggregate outstanding
principal balance of $22.5 million as of the date of this proxy statement, were
convertible by the holders into Common Stock at any time prior to their
respective maturity dates at initial conversion prices of $1.87 and $1.88,
subject to adjustments in the event of certain future issuances of securities or
derivative securities, stock splits, stock dividends, stock combinations and
other similar transactions. As of December 1, 2005, the conversion price was
lowered to $1.25. Moreover, the conversion price of the convertible notes could
be lowered, perhaps substantially, in a variety of circumstances, including: the
Company's issuance of Common Stock below the convertible notes' conversion
price, either directly or in connection with the issuance of most securities
that are convertible into, or exercisable for, shares of its Common Stock, the
Company's failure to comply with specific registration and listing obligations
applicable to the Common Stock into which the convertible notes are convertible,
and the Company's breaching other obligations to the holders of the convertible
notes.
Correspondingly, the Company issued to the holders of 2004 notes
three-year warrants entitling the warrant holders to purchase (as of December 1,
2005) an aggregate of 6,400,002 shares of its
Galaxy Energy Corporation Proxy Statement - Page 11
Common Stock at an exercise price of $1.25 per share and providing for the
issuance of replacement warrants on terms substantially similar to the initial
warrants, but at a 15% premium to the then current price, in the event the
Company's stock trades at or above $2.31 per share for any 20 consecutive
trading days. Also, under certain conditions, the Company has agreed to issue to
the holders of 2005 notes warrants entitling the warrant holders to purchase
shares of its Common Stock at a an exercise price not to exceed $1.25 per share
and providing for the issuance of replacement warrants on terms substantially
similar to the initial 2005 warrants. Both the number of warrants and the
exercise price are subject to adjustments that could make them further dilutive
to the Company's other shareholders. There is no "ceiling" on the number of
warrants that may be issuable under certain circumstances under the
anti-dilution adjustments in the warrants.
To the extent the holders convert the convertible notes or exercise the
warrants and then sell the shares of the Company's Common Stock they receive
upon conversion or exercise, the Company's stock price could decrease due to the
additional amount of shares available in the market. The subsequent sales of
these shares could encourage short sales by the Company's shareholders and
others, which could place further downward pressure on the Company's stock
price. Moreover, the note and warrant holders, subject to applicable laws, may
hedge their positions in the Company's stock by shorting its stock, which could
further adversely affect the stock price. The effect of these activities on the
Company's stock price could increase the number of shares required to be issued
upon conversion of the convertible notes, in lieu of cash payments on the
convertible notes or upon exercise of the warrants.
Even though no holder may convert any principal amount under its
convertible notes or exercise its warrants if upon such conversion or exercise
such holder, together with its affiliates, would beneficially own at any time
more than 4.99% of the Company's outstanding Common Stock following such
conversion or exercise, this restriction does not prevent a holder from selling
a substantial number of shares in the market. By periodically selling shares
into the market, an individual holder could eventually sell more than 4.99% of
the Company's Common Stock while never holding more than 4.99% at any specific
time. This process could also result in the issuance of shares of Common Stock
at a price below the greater of book or market value and equal to or in excess
of 20% of the Company's outstanding Common Stock.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
The terms of the convertible notes and warrants are complex and only
briefly summarized in this proxy statement. Shareholders wishing further
information concerning the rights, preferences and terms of the convertible
notes and warrants are referred to the documents filed as exhibits to the
Company's Current Report on Form 8-K filed with the Securities and Exchange
Commission on August 20, 2004, June 1, 2005 and December 2, 2005.
SHAREHOLDER PROPOSALS AND OTHER MATTERS
If a shareholder intends to present a proposal for action at the
Company's 2006 annual meeting and wishes to have such proposal considered for
inclusion in the Company's proxy materials in reliance on Rule 14a-8 under the
Securities Exchange Act of 1934, the proposal must have been submitted in
writing and received by the Company by January 16, 2006. Such proposals must
also meet the other requirements of the rules of the Securities and Exchange
Commission relating to shareholder proposals.
For any proposal that is not submitted for inclusion in the proxy
statement for the 2006 annual meeting but is instead sought to be presented
directly at next year's annual meeting, Securities and Exchange Commission rules
permit management of the Company to vote proxies in its discretion if (a)
Galaxy Energy Corporation Proxy Statement - Page 12
the Company receives notice of the proposal before the close of business on
April 1, 2006 and advises shareholders in the proxy statement about the nature
of the matter and how management intends to vote on such matter, or (b) the
Company does not receive notice of the proposal prior to the close of business
on April 1, 2006.
The cost of solicitation of proxies will be borne by the Company.
Solicitation may be made by mail, personal interview, telephone and/or telegraph
by officers and regular employees of the Company, who will receive no additional
compensation therefor. The Company will bear the reasonable expenses incurred by
banks, brokerage firms and custodians, nominees and fiduciaries in forwarding
proxy material to beneficial owners.
The Company will provide, by first class mail or other equally prompt
means, a copy of the information that is incorporated by reference in the proxy
statement, without charge, to each person to whom a proxy statement is delivered
upon written or oral request within one day of receipt of such request. Requests
for such information may be directed to Galaxy Energy Corporation, Attention:
Corporate Secretary, 1331 - 17th Street, Suite 1050, Denver, Colorado 80202,
telephone (303) 293-2300.
GALAXY ENERGY CORPORATION
Marc E. Bruner
President and Chief Executive Officer
Denver, Colorado
January 23, 2006
Galaxy Energy Corporation Proxy Statement - Page 13
PROXY
GALAXY ENERGY CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Marc E. Bruner and Christopher S.
Hardesty, and either of them, proxies with power of substitution in each, and
hereby authorizes them to represent and to vote, as designated below, all shares
of common stock, $0.001 par value per share ("Common Stock"), of GALAXY ENERGY
CORPORATION, standing in the name of the undersigned at the close of business on
January 17, 2006, at the special meeting of shareholders to be held on February
22, 2006, at Denver, Colorado, and at any adjournment thereof and especially to
vote on the items of business specified herein, as more fully described in the
notice of the meeting dated January 23, 2006, and the proxy statement
accompanying the same, the receipt of which is hereby acknowledged.
This proxy when duly executed will be voted in the manner directed
herein by the undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE PROPOSAL TO APPROVE ISSUANCE OF SHARES OF COMMON STOCK TO THE
EXTENT SUCH ISSUANCE REQUIRES APPROVAL UNDER AMERICAN STOCK EXCHANGE RULES.
PLEASE MARK VOTE IN BOX IN THE FOLLOWING MANNER USING DARK INK ONLY.
[X]
1. PROPOSAL TO APPROVE ISSUANCE OF SHARES OF COMMON STOCK, TO THE EXTENT
ISSUANCE REQUIRES APPROVAL UNDER AMERICAN STOCK EXCHANGE RULES. The undersigned
hereby votes in response to the proposal to approve the issuance of shares of
Common Stock upon conversion of the Company's convertible notes issued in 2004
and May 2005, in lieu of cash payments on the convertible notes, and upon the
exercise of the warrants that have been issued or may be issued under the terms
of the notes, to the extent that such issuance requires shareholder approval
under the rules of the American Stock Exchange.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. In their discretion, the undersigned hereby authorizes the proxies to vote
upon such other business or matters as may properly come before the meeting or
any adjournment thereof.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED FOR YOUR
INSTRUCTIONS TO BE EXECUTED.
The undersigned hereby revokes any proxy or proxies heretofore given to
represent or vote such Common Stock and hereby ratifies and confirms all action
that said proxies, their substitutes, or any of them, might lawfully take in
accordance with the terms hereof.
Signature 1 - Please keep Signature 2 - Please keep
Signature within the box Signature within the box Date (mm/dd/yyyy)
[ ] [ ] [ / / ]
----------------------------------- ----------------------------------- -------- -------- ----------
NOTE: This proxy should be signed exactly as name appears hereon. Joint owners
should both sign. If signed as attorney, executor, guardian, or in some other
representative capacity, or as an officer of a corporation, please indicate full
title or capacity. Please complete, date and return it in the enclosed envelope,
which requires no postage if mailed in the United States.