EXHIBIT 10.3
FORM OF WARRANT
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES
COMMON STOCK PURCHASE WARRANT
To Purchase _________ Shares of Common Stock of
GALAXY ENERGY CORPORATION
THIS COMMON STOCK PURCHASE WARRANT CERTIFIES that, for value
received, ________________ (the "HOLDER"), is entitled, upon the terms and
subject to the limitations on exercise and the conditions hereinafter set forth,
at any time on or after April 25, 2006 (the "INITIAL EXERCISE DATE") and on or
prior to the close of business on the fifth anniversary of the Initial Exercise
Date (the "TERMINATION DATE") but not thereafter, to subscribe for and purchase
from Galaxy Energy Corporation, a corporation incorporated in Colorado (the
"Company"), up to __________ shares (the "WARRANT SHARES") of Common Stock, par
value $.001 per share, of the Company (the "COMMON STOCK"). The purchase price
of one share of Common Stock (the "EXERCISE PRICE") under this Warrant shall be
$1.60, subject to adjustment hereunder. CAPITALIZED TERMS USED AND NOT OTHERWISE
DEFINED HEREIN SHALL HAVE THE MEANINGS SET FORTH IN THAT CERTAIN SECURITIES
PURCHASE AGREEMENT (THE "PURCHASE AGREEMENT"), DATED APRIL 25, 2006, BETWEEN THE
COMPANY AND THE PURCHASERS SIGNATORY THERETO.
Warrant - page 1
1. TITLE TO WARRANT. Prior to the Termination Date and subject to
compliance with applicable laws and Section 7 of this Warrant, this Warrant and
all rights hereunder are transferable, in whole or in part, at the office or
agency of the Company by the Holder in person or by duly authorized attorney,
upon surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed. The transferee shall sign an investment letter in form and
substance reasonably satisfactory to the Company.
2. AUTHORIZATION OF WARRANT SHARES. The Company represents and warrants
that all Warrant Shares which may be issued upon the exercise of the purchase
rights represented by this Warrant will, upon exercise of the purchase rights
represented by this Warrant, be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and charges in respect of the issue
thereof (other than taxes in respect of any transfer occurring contemporaneously
with such issue).
3. EXERCISE OF WARRANT.
(a) Exercise of the purchase rights represented by this
Warrant may be made at any time or times on or after the Initial
Exercise Date and on or before the Termination Date by delivery to the
Company of a duly executed facsimile copy of the Notice of Exercise
Form annexed hereto (or such other office or agency of the Company as
it may designate by notice in writing to the registered Holder at the
address of such Holder appearing on the books of the Company);
PROVIDED, HOWEVER, within 5 Trading Days of the date said Notice of
Exercise is delivered to the Company, the Holder shall have surrendered
this Warrant to the Company and the Company shall have received payment
of the aggregate Exercise Price of the shares thereby purchased by wire
transfer or cashier's check drawn on a United States bank. Certificates
for shares purchased hereunder shall be delivered to the Holder within
the earlier of (i) 5 Trading Days after the date on which the Notice of
Exercise shall have been delivered by facsimile copy or (ii) 3 Trading
Days from the delivery to the Company of the Notice of Exercise Form by
facsimile copy, surrender of this Warrant and payment of the aggregate
Exercise Price as set forth above ("WARRANT SHARE DELIVERY DATE");
PROVIDED, HOWEVER, in the event the Warrant is not surrendered or the
aggregate Exercise Price is not received by the Company within 5
Trading Days after the date on which the Notice of Exercise shall be
delivered by facsimile copy, the Warrant Share Delivery Date shall be
extended to the extent such 5 Trading Day period is exceeded. This
Warrant shall be deemed to have been exercised on the date the Notice
of Exercise is delivered to the Company by facsimile copy. The Warrant
Shares shall be deemed to have been issued, and Holder or any other
person so designated to be named therein shall be deemed to have become
a holder of record of such shares for all purposes, as of the date the
Warrant has been exercised by payment to the Company of the Exercise
Price and all taxes required to be paid by the Holder, if any, pursuant
to Section 5 prior to the issuance of such shares, have been paid. If
the Company fails to deliver to the Holder a certificate or
certificates representing the Warrant Shares pursuant to this Section
3(a) by the Warrant Share Delivery Date, then the Holder will have the
right to rescind such exercise. In addition to any other rights
available to the Holder, if the Company fails to deliver to the Holder
a certificate or certificates representing the Warrant Shares pursuant
to an exercise on or before the Warrant Share Delivery Date, and if
after such date the Holder is required by
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its broker to purchase (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the
Holder of the Warrant Shares which the Holder anticipated receiving
upon such exercise (a "BUY-IN"), then the Company shall (1) pay in cash
to the Holder the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the shares of Common
Stock so purchased exceeds (y) the amount obtained by multiplying (A)
the number of Warrant Shares that the Company was required to deliver
to the Holder in connection with the exercise at issue times (B) the
price at which the sell order giving rise to such purchase obligation
was executed, and (2) at the option of the Holder, either reinstate the
portion of the Warrant and equivalent number of Warrant Shares for
which such exercise was not honored or deliver to the Holder the number
of shares of Common Stock that would have been issued had the Company
timely complied with its exercise and delivery obligations hereunder.
For example, if the Holder purchases Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an
attempted exercise of shares of Common Stock with an aggregate sale
price giving rise to such purchase obligation of $10,000, under clause
(1) of the immediately preceding sentence the Company shall be required
to pay the Holder $1,000. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of the
Buy-In, together with applicable confirmations and other evidence
reasonably requested by the Company. Nothing herein shall limit a
Holder's right to pursue any other remedies available to it hereunder,
at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the Company's
failure to timely deliver certificates representing shares of Common
Stock upon exercise of the Warrant as required pursuant to the terms
hereof.
(b) If this Warrant shall have been exercised in part, the
Company shall, at the time of delivery of the certificate or
certificates representing Warrant Shares, deliver to Holder a new
Warrant evidencing the rights of Holder to purchase the unpurchased
Warrant Shares called for by this Warrant, which new Warrant shall in
all other respects be identical with this Warrant.
(c) The Company shall not effect any exercise of this Warrant,
and the Holder shall not have the right to exercise any portion of this
Warrant, pursuant to Section 3(a) or otherwise, to the extent that
after giving effect to such issuance after exercise, the Holder
(together with the Holder's affiliates), as set forth on the applicable
Notice of Exercise, would beneficially own in excess of 4.99% of the
number of shares of the Common Stock outstanding immediately after
giving effect to such issuance. For purposes of the foregoing sentence,
the number of shares of Common Stock beneficially owned by the Holder
and its affiliates shall include the number of shares of Common Stock
issuable upon exercise of this Warrant with respect to which the
determination of such sentence is being made, but shall exclude the
number of shares of Common Stock which would be issuable upon (A)
exercise of the remaining, nonexercised portion of this Warrant
beneficially owned by the Holder or any of its affiliates and (B)
exercise or conversion of the unexercised or nonconverted portion of
any other securities of the Company (including, without limitation, any
other Debentures or Warrants) subject to a limitation on conversion or
exercise analogous to the limitation contained herein beneficially
owned by the Holder or any of its affiliates. Except as set forth in
the
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preceding sentence, for purposes of this Section 3(c), beneficial
ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act. To the extent that the limitation contained in this
Section 3(c) applies, the determination of whether this Warrant is
exercisable (in relation to other securities owned by the Holder) and
of which a portion of this Warrant is exercisable shall be in the sole
discretion of such Holder, and the submission of a Notice of Exercise
shall be deemed to be such Holder's determination of whether this
Warrant is exercisable (in relation to other securities owned by such
Holder) and of which portion of this Warrant is exercisable, in each
case subject to such aggregate percentage limitation, and the Company
shall have no obligation to verify or confirm the accuracy of such
determination. For purposes of this Section 3(c), in determining the
number of outstanding shares of Common Stock, the Holder may rely on
the number of outstanding shares of Common Stock as reflected in (x)
the Company's most recent Form 10-Q or Form 10-K, as the case may be,
(y) a more recent public announcement by the Company or (z) any other
notice by the Company or the Company's Transfer Agent setting forth the
number of shares of Common Stock outstanding. Upon the written or oral
request of the Holder, the Company shall within two Trading Days
confirm orally and in writing to the Holder the number of shares of
Common Stock then outstanding. In any case, the number of outstanding
shares of Common Stock shall be determined after giving effect to the
conversion or exercise of securities of the Company, including this
Warrant, by the Holder or its affiliates since the date as of which
such number of outstanding shares of Common Stock was reported. The
provisions of this Section 3(c) may be waived by the Holder upon, at
the election of the Holder, not less than 61 days' prior notice to the
Company, and the provisions of this Section 3(c) shall continue to
apply until such 61st day (or such later date, as determined by the
Holder, as may be specified in such notice of waiver).
In addition, the Company shall not effect any exercise of
this Warrant, and the Holder shall not have the right to exercise any
portion of this Warrant, pursuant to Section 3(a) or otherwise, to the
extent that after giving effect to such exercise of this Warrant and
any other Warrants issued under the Purchase Agreement, and the
conversion of any portion of any of the Debentures issued under the
Purchase Agreement, the Company will have issued in the aggregate a
number of shares of its Common Stock that is 20% or more of the number
of shares of the Common Stock.
(d) If, despite the Company's obligations under the Purchase
Agreement, the Warrant Shares to be issued are not registered and
available for resale pursuant to a registration statement in accordance
with the Purchase Agreement or if the Company should give its approval,
then notwithstanding anything contained herein to the contrary, the
Holder may, at its election exercised in its sole discretion, exercise
this Warrant in whole or in part and, in lieu of making the cash
payment otherwise contemplated to be made to the Company upon such
exercise in payment of the aggregate Exercise Price, elect instead to
receive upon such exercise the "Net Number" of shares of Common Stock
determined according to the following formula (a "CASHLESS EXERCISE")
in which the Holder shall be entitled to receive a certificate for the
number of Warrant Shares equal to the quotient obtained by dividing
[(A-B) (X)] by (A), where:
(A) = the VWAP on the Trading Day preceding the date of such
election;
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(B) = the Exercise Price of the Warrants, as adjusted; and
(X) = the number of Warrant Shares issuable upon exercise
of this Warrant in accordance with the terms of this
Warrant.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be entitled
to purchase upon such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to such fraction multiplied by
the Exercise Price.
5. CHARGES, TAXES AND EXPENSES. Issuance of certificates for Warrant
Shares shall be made without charge to the Holder for any issue or transfer tax
or other incidental expense in respect of the issuance of such certificate, all
of which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the Holder or in such name or names as may be
directed by the Holder; PROVIDED, HOWEVER, that in the event certificates for
Warrant Shares are to be issued in a name other than the name of the Holder,
this Warrant when surrendered for exercise shall be accompanied by the
Assignment Form attached hereto duly executed by the Holder; and the Company may
require, as a condition thereto, the payment of a sum sufficient to reimburse it
for any transfer tax incidental thereto.
6. CLOSING OF BOOKS. The Company will not close its stockholder books
or records in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.
7. TRANSFER, DIVISION AND COMBINATION.
(a) Subject to compliance with any applicable securities
laws and the conditions set forth in Sections 1 and 7(e) hereof and to
the provisions of Section 5.1 of the Purchase Agreement, this Warrant
and all rights hereunder are transferable, in whole or in part, upon
surrender of this Warrant at the principal office of the Company,
together with a written assignment of this Warrant substantially in the
form attached hereto duly executed by the Holder or its agent or
attorney and funds sufficient to pay any transfer taxes payable upon
the making of such transfer. Upon such surrender and, if required, such
payment, the Company shall execute and deliver a new Warrant or
Warrants in the name of the assignee or assignees and in the
denomination or denominations specified in such instrument of
assignment, and shall issue to the assignor a new Warrant evidencing
the portion of this Warrant not so assigned, and this Warrant shall
promptly be cancelled. A Warrant, if properly assigned, may be
exercised by a new holder for the purchase of Warrant Shares without
having a new Warrant issued.
(b) This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the
Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued, signed by the
Holder or its agent or attorney. Subject to compliance with Section
7(a), as to any transfer which may be involved in such division or
combination, the Company shall
Warrant - page 5
execute and deliver a new Warrant or Warrants in exchange for the
Warrant or Warrants to be divided or combined in accordance with such
notice.
(c) The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under
this Section 7.
(d) The Company agrees to maintain, at its aforesaid
office, books for the registration and the registration of transfer of
the Warrants.
(e) If, at the time of the surrender of this Warrant in
connection with any transfer of this Warrant, the transfer of this
Warrant shall not be registered pursuant to an effective registration
statement under the Securities Act and under applicable state
securities or blue sky laws, the Company may require, as a condition of
allowing such transfer (i) that the Holder or transferee of this
Warrant, as the case may be, furnish to the Company a written opinion
of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to the
effect that such transfer may be made without registration under the
Securities Act and under applicable state securities or blue sky laws,
(ii) that the holder or transferee execute and deliver to the Company
an investment letter in form and substance acceptable to the Company
and (iii) that the transferee be an "accredited investor" as defined in
Rule 501(a) promulgated under the Securities Act.
8. NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE. This Warrant does not
entitle the Holder to any voting rights or other rights as a shareholder of the
Company prior to the exercise hereof. Upon the surrender of this Warrant and the
payment of the aggregate Exercise Price (or by means of a cashless exercise),
the Warrant Shares so purchased shall be and be deemed to be issued to such
Holder as the record owner of such shares as of the close of business on the
later of the date of such surrender or payment.
9. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant or any stock
certificate relating to the Warrant Shares, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it (which, in
the case of the Warrant, shall not include the posting of any bond), and upon
surrender and cancellation of such Warrant or stock certificate, if mutilated,
the Company will make and deliver a new Warrant or stock certificate of like
tenor and dated as of such cancellation, in lieu of such Warrant or stock
certificate.
10. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a Saturday,
Sunday or legal holiday.
11. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.
(a) STOCK SPLITS, ETC. The number and kind of securities
purchasable upon the exercise of this Warrant and the Exercise Price
shall be subject to adjustment from
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time to time upon the happening of any of the following. In case the
Company shall (i) pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock to holders of its outstanding
Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares, (iii) combine its outstanding shares
of Common Stock into a smaller number of shares of Common Stock, or
(iv) issue any shares of its capital stock in a reclassification of the
Common Stock, then the number of Warrant Shares purchasable upon
exercise of this Warrant immediately prior thereto shall be adjusted so
that the Holder shall be entitled to receive the kind and number of
Warrant Shares or other securities of the Company which it would have
owned or have been entitled to receive had such Warrant been exercised
in advance thereof. Upon each such adjustment of the kind and number of
Warrant Shares or other securities of the Company which are purchasable
hereunder, the Holder shall thereafter be entitled to purchase the
number of Warrant Shares or other securities resulting from such
adjustment at an Exercise Price per Warrant Share or other security
obtained by multiplying the Exercise Price in effect immediately prior
to such adjustment by the number of Warrant Shares purchasable pursuant
hereto immediately prior to such adjustment and dividing by the number
of Warrant Shares or other securities of the Company resulting from
such adjustment. An adjustment made pursuant to this paragraph shall
become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
(b) ANTI-DILUTION PROVISIONS. During the Exercise Period,
the Exercise Price shall be subject to adjustment from time to time as
provided in this Section 11(b). In the event that any adjustment of the
Exercise Price as required herein results in a fraction of a cent, such
Exercise Price shall be rounded up or down to the nearest cent.
(i) ADJUSTMENT OF EXERCISE PRICE. If during the
period commencing from the Initial Exercise Date and ending
upon the later of (A) 24 months from the Initial Exercise Date
or (B) the completion of new financing of at least $25,000,000
at a stock price greater than 200% of the Set Price (the "FULL
RATCHET ADJUSTMENT PERIOD"), the Company shall issue or sell,
or in accordance with Section 11(b)(ii) hereof is deemed to
have issued or sold, any shares of Common Stock by means of
Capital Shares Equivalents (as defined in the Purchase
Agreement), except for Excepted Issuances (as defined in
Section 11(b)(ii)(E) hereof), for an effective consideration
per share of less than the then Exercise Price or for no
consideration (such lower price, the "BASE SHARE PRICE" and
such issuances collectively, a "DILUTIVE ISSUANCE"), then, the
Exercise Price shall be reduced to equal the Base Share Price.
Such adjustment shall be made whenever such shares of Common
Stock or Capital Shares Equivalent are issued. If during the
period commencing after the Full Ratchet Adjustment Period the
Company shall issue or sell, or in accordance with this
Section 11(b)(ii) hereof is deemed to have issued or sold by
shares of Common Stock by means of Capital Shares Equivalents,
except for Excepted Issuances (as defined in Section
11(b)(ii)(E) hereof), for a consideration less than the then
Exercise Price or for no consideration, then, and thereafter
successively upon each such issue, the Exercise Price shall be
reduced as follows: (X) the number of shares of Common Stock
outstanding immediately prior to such issue shall be
multiplied by the Exercise Price in effect at the time of such
issue and the product shall be added to the
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aggregate consideration, if any, received by the Company upon
such issue of additional shares of Common Stock; and (Y)
the sum so obtained shall be divided by the number of shares
of Common Stock outstanding immediately after such issue. The
resulting quotient shall be the adjusted Exercise Price.
(ii) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For
purposes of determining the adjusted Exercise Price under
Section 11(b) hereof, the following will be applicable:
(A) ISSUANCE OF RIGHTS OR OPTIONS.
If the Company in any manner issues or grants any
warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to
purchase Common Stock or Capital Shares Equivalent
(such warrants, rights and options to purchase Common
Stock or Capital Shares Equivalent are hereinafter
referred to as "OPTIONS") and the effective price per
share for which Common Stock is issuable upon the
exercise of such Options is less than the Exercise
Price ("BELOW BASE PRICE OPTIONS"), then the maximum
total number of shares of Common Stock issuable upon
the exercise of all such Below Base Price Options
(assuming full exercise, conversion or exchange of
Capital Shares Equivalent, if applicable) will, as of
the date of the issuance or grant of such Below Base
Price Options, be deemed to be outstanding and to
have been issued and sold by the Company for such
price per share and the maximum consideration payable
to the Company upon such exercise (assuming full
exercise, conversion or exchange of Capital Shares
Equivalent, if applicable) will be deemed to have
been received by the Company. For purposes of the
preceding sentence, the "effective price per share
for which Common Stock is issuable upon the exercise
of such Below Base Price Options" is determined by
dividing (i) the total amount, if any, received or
receivable by the Company as consideration for the
issuance or granting of all such Below Base Price
Options, plus the minimum aggregate amount of
additional consideration, if any, payable to the
Company upon the exercise of all such Below Base
Price Options, plus, in the case of Capital Shares
Equivalent issuable upon the exercise of such Below
Base Price Options, the minimum aggregate amount of
additional consideration payable upon the exercise,
conversion or exchange thereof at the time such
Capital Shares Equivalent first become exercisable,
convertible or exchangeable, by (ii) the maximum
total number of shares of Common Stock issuable upon
the exercise of all such Below Base Price Options
(assuming full conversion of Capital Shares
Equivalent, if applicable). No further adjustment to
the Exercise Price will be made upon the actual
issuance of such Common Stock or Convertible
Securities upon the exercise of such Below Base Price
Options or upon the exercise, conversion or exchange
of Capital Shares Equivalent issuable upon exercise
of such Below Base Price Options.
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(B) ISSUANCE OF CAPITAL SHARES
EQUIVALENT. If the Company in any manner issues or
sells any Capital Shares Equivalent, whether or not
immediately convertible (other than where the same
are treated as Options or are issuable upon the
exercise of Options under Section 11(b)(ii)(A)) and
the effective price per share for which Common Stock
is issuable upon such exercise, conversion or
exchange is less than the Exercise Price, then the
maximum total number of shares of Common Stock
issuable upon the exercise, conversion or exchange of
all such Capital Shares Equivalent will, as of the
date of the issuance of such Capital Shares
Equivalent, be deemed to be outstanding and to have
been issued and sold by the Company for such price
per share and the maximum consideration payable to
the Company upon such exercise (assuming full
exercise, conversion or exchange of Capital Shares
Equivalent, if applicable) will be deemed to have
been received by the Company. For the purposes of the
preceding sentence, the "effective price per share
for which Common Stock is issuable upon such
exercise, conversion or exchange" is determined by
dividing (i) the total amount, if any, received or
receivable by the Company as consideration for the
issuance or sale of all such Capital Shares
Equivalent, plus the minimum aggregate amount of
additional consideration, if any, payable to the
Company upon the exercise, conversion or exchange
thereof at the time such Capital Shares Equivalent
first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of
shares of Common Stock issuable upon the exercise,
conversion or exchange of all such Capital Shares
Equivalent. No further adjustment to the Exercise
Price will be made upon the actual issuance of such
Common Stock upon exercise, conversion or exchange of
such Capital Shares Equivalent.
(C) CHANGE IN OPTION PRICE OR
CONVERSION RATE. If there is a change at any time in
(i) the amount of additional consideration payable to
the Company upon the exercise of any Options; (ii)
the amount of additional consideration, if any,
payable to the Company upon the exercise, conversion
or exchange of any Capital Shares Equivalent; or
(iii) the rate at which any Capital Shares Equivalent
are convertible into or exchangeable for Common Stock
(in each such case, other than under or by reason of
provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change
will be readjusted to the Exercise Price which would
have been in effect at such time had such Options or
Capital Shares Equivalent still outstanding provided
for such changed additional consideration or changed
conversion rate, as the case may be, at the time
initially granted, issued or sold.
(D) CALCULATION OF CONSIDERATION
RECEIVED. If any Common Stock, Options or Capital
Shares Equivalent are issued, granted or sold for
cash, the consideration received therefor for
purposes of this Warrant will be the amount received
by the Company therefor, before
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deduction of reasonable commissions, underwriting
discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with
such issuance, grant or sale. In case any Common
Stock, Options or Capital Shares Equivalent are
issued or sold for a consideration part or all of
which shall be other than cash, the amount of the
consideration other than cash received by the Company
will be the fair market value of such consideration,
except where such consideration consists of
securities, in which case the amount of consideration
received by the Company will be the fair market value
(closing bid price, if traded on any market) thereof
as of the date of receipt. In case any Common Stock,
Options or Capital Shares Equivalent are issued in
connection with any merger or consolidation in which
the Company is the surviving corporation, the amount
of consideration therefor will be deemed to be the
fair market value of such portion of the net assets
and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Capital
Shares Equivalent, as the case may be. The fair
market value of any consideration other than cash or
securities will be determined in good faith by an
investment banker or other appropriate expert of
national reputation selected by the Company and
reasonably acceptable to the holder hereof, with the
costs of such appraisal to be borne by the Company.
(E) EXCEPTED ISSUANCES. Notwithstanding the
foregoing, no adjustment will be made under this
Section 11(b) in respect of (1) the granting or
exercise of options to employees, officers and
directors of the Company pursuant to any stock option
plan duly adopted by a majority of the non-employee
members of the Board of Directors of the Company or a
majority of the members of a committee of
non-employee directors established for such purpose,
(2) the conversion of the Debentures or any
Debentures of this series or of any other series or
the conversion or exercise of any other security
issued by the Company in connection with the offer
and sale of the Company's securities pursuant to the
Purchase Agreement, (3) the amendment, exercise,
conversion or redemption of any Capital Shares
Equivalent or Options issued and outstanding on the
Original Issue Date, (4) the payment of interest on
any Senior Debt in shares of the Company's Common
Stock, (5) the issuance of any shares or Capital
Shares Equivalent pursuant to the terms of any
convertible securities issued and outstanding on the
Original Issue Date, or (6) the issuance of
securities in connection with acquisitions or
strategic investments, the primary purpose of which
is not to raise capital. "Senior Debt" shall mean all
of the indebtedness identified in Schedule 3.1(x) to
the Purchase Agreement.
(iii) MINIMUM ADJUSTMENT OF EXERCISE PRICE. No
adjustment of the Exercise Price shall be made in an amount of
less than 1% of the Exercise Price in effect at the time such
adjustment is otherwise required to be made, but any such
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lesser adjustment shall be carried forward and shall be made
at the time and together with the next subsequent adjustment
which, together with any adjustments so carried forward, shall
amount to not less than 1% of such Exercise Price.
12. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR
DISPOSITION OF ASSETS. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("OTHER
PROPERTY"), are to be received by or distributed to the holders of Common Stock
of the Company, then the Holder shall have the right thereafter to receive, at
the option of the Holder, (a) upon exercise of this Warrant, the number of
shares of Common Stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and Other Property receivable upon
or as a result of such reorganization, reclassification, merger, consolidation
or disposition of assets by a Holder of the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such event or (b) cash
equal to the value of this Warrant as determined in accordance with the
Black-Scholes option pricing formula. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of Warrant Shares
for which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 12. For purposes of
this Section 12, "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 12 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.
13. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may at any time
during the term of this Warrant reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of Directors
of the Company.
14. NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall give notice thereof to the Holder, which
Warrant - page 11
notice shall state the number of Warrant Shares (and other securities or
property) purchasable upon the exercise of this Warrant and the Exercise Price
of such Warrant Shares (and other securities or property) after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth the computation by which such adjustment was made.
15. NOTICE OF CORPORATE ACTION. If at any time:
(a) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend
or other distribution, or any right to subscribe for or purchase any
evidences of its indebtedness, any shares of stock of any class or any
other securities or property, or to receive any other right, or
(b) there shall be any capital reorganization of the
Company, any reclassification or recapitalization of the capital stock
of the Company or any consolidation or merger of the Company with, or
any sale, transfer or other disposition of all or substantially all the
property, assets or business of the Company to, another corporation or,
c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 20 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, liquidation or winding up, and (ii)
in the case of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their Warrant Shares for securities or other property
deliverable upon such disposition, dissolution, liquidation or winding up. Each
such written notice shall be sufficiently given if addressed to Holder at the
last address of Holder appearing on the books of the Company and delivered in
accordance with Section 17(d).
16. AUTHORIZED SHARES. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the Warrant
Shares upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as
Warrant - page 12
provided herein without violation of any applicable law or regulation, or of any
requirements of the Principal Market upon which the Common Stock may be listed.
Except and to the extent as waived or consented to by the Holder,
the Company shall not by any action, including, without limitation, amending its
certificate of incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Holder as set forth in this
Warrant against impairment. Without limiting the generality of the foregoing,
the Company will (a) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in
par value, (b) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant, and (c) use commercially
reasonable efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof as may be necessary
to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment
in the number of Warrant Shares for which this Warrant is exercisable or in the
Exercise Price, the Company shall obtain all such authorizations or exemptions
thereof, or consents thereto, as may be necessary from any public regulatory
body or bodies having jurisdiction thereof.
17. MISCELLANEOUS.
(a) JURISDICTION. This Warrant shall constitute a contract under
the laws of Colorado, without regard to its conflict of law,
principles or rules.
(b) RESTRICTIONS. The Holder acknowledges that the Warrant Shares
acquired upon the exercise of this Warrant, if not registered, will
have restrictions upon resale imposed by state and federal securities
laws.
(c) NONWAIVER AND EXPENSES. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall
operate as a waiver of such right or otherwise prejudice Holder's
rights, powers or remedies, notwithstanding all rights hereunder
terminate on the Termination Date. If the Company willfully and
knowingly fails to comply with any provision of this Warrant, which
results in any material damages to the Holder, the Company shall pay to
Holder such amounts as shall be sufficient to cover any costs and
expenses including, but not limited to, reasonable attorneys' fees,
including those of appellate proceedings, incurred by Holder in
collecting any amounts due pursuant hereto or in otherwise enforcing
any of its rights, powers or remedies hereunder.
(d) NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the Holder by the Company shall
be delivered in accordance with the notice provisions of the Purchase
Agreement.
Warrant - page 13
(e) LIMITATION OF LIABILITY. No provision hereof, in the
absence of any affirmative action by Holder to exercise this Warrant or
purchase Warrant Shares, and no enumeration herein of the rights or
privileges of Holder, shall give rise to any liability of Holder for
the purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by
creditors of the Company.
(f) REMEDIES. Holder, in addition to being entitled to exercise
all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The
Company agrees that monetary damages would not be adequate compensation
for any loss incurred by reason of a breach by it of the provisions of
this Warrant and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
(g) SUCCESSORS AND ASSIGNS. Subject to applicable securities
laws, this Warrant and the rights and obligations evidenced hereby
shall inure to the benefit of and be binding upon the successors of the
Company and the successors and permitted assigns of Holder. The
provisions of this Warrant are intended to be for the benefit of all
Holders from time to time of this Warrant and shall be enforceable by
any such Holder or holder of Warrant Shares.
(h) AMENDMENT. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and
the Holder.
(i) SEVERABILITY. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Warrant shall
be prohibited by or invalid under applicable law, such provision shall
be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining
provisions of this Warrant.
(j) HEADINGS. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed
a part of this Warrant.
********************
Warrant - page 14
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: April 25, 2006
GALAXY ENERGY CORPORATION
By:
-------------------------------------------------
Name: Christopher S. Hardesty
Title: Chief Financial Officer
Warrant - page 15
NOTICE OF EXERCISE
To: GALAXY ENERGY CORPORATION
(1) The undersigned hereby elects to purchase _______ Warrant Shares
of Galaxy Energy Corporation pursuant to the terms of the attached Warrant (only
if exercised in full), and tenders herewith payment of the exercise price in
full, together with all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] the cancellation of such number of Warrant Shares as is
necessary, in accordance with the formula set forth in
subsection 3(d), to exercise this Warrant with respect
to the maximum number of Warrant Shares purchasable
pursuant to the cashless exercise procedure set forth in
subsection 3(d).
(3) Please issue a certificate or certificates representing said
Warrant Shares in the name of the undersigned or in such other name as is
specified below:
----------------------------------------
The Warrant Shares shall be delivered to the following:
----------------------------------------
----------------------------------------
----------------------------------------
(4) ACCREDITED INVESTOR. The undersigned is an "accredited investor"
as defined in Regulation D promulgated under the Securities Act of 1933, as
amended.
[PURCHASER]
By:
------------------------------------
Name:
Title:
Dated:
------------------------------
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
whose address is
- ------------------------------------------------ ----------------
- ---------------------------------------------------------------.
Dated: ______________, _______
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.