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 [ ]
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[ ] 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)
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(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:
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2) Aggregate number of securities to which transaction applies:
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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):
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4) Proposed maximum aggregate value of transaction:
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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:
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GALAXY ENERGY CORPORATION
1331 - 17TH STREET, SUITE 1050
DENVER, COLORADO 80202
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 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 December 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 sell the Powder River Basin
assets held by Dolphin Energy Corporation, the Company's wholly-owned subsidiary
("Dolphin"), to PetroHunter Energy Corporation ("PetroHunter") for a total price
of $45,000,000, consisting of cash and no more than $25,000,000 in PetroHunter
common stock. The sale is contingent upon PetroHunter obtaining adequate
financing and upon the approval of the Company's Senior Lenders; and
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The board of directors has fixed November 20, 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 November 20, 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. SHAREHOLDERS MAY ALSO VOTE BY FACSIMILE
OR THE INTERNET. 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
November 17, 2006
GALAXY ENERGY CORPORATION
1331 - 17TH STREET, SUITE 1050
DENVER, COLORADO 80202
PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 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 November
28, 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.
SUMMARY OF TERMS
The following is a summary of the material terms of the proposed sale
of the Powder River Basin assets held by Dolphin, the Company's wholly-owned
subsidiary, to PetroHunter. For convenience, all further references to Dolphin
will be omitted.
o PROPERTY TO BE SOLD: The Company will deliver title to all of its interests
in its Powder River Basin assets. For more information see the discussion
beginning on page 8 under the heading "Description of Powder River Basin
Assets."
Galaxy Energy Corporation Proxy Statement - Page 1
o CONSIDERATION: The Company will receive total consideration of
$45,000,000. Up to $25,000,000 of the consideration will be paid in PetroHunter
common stock. The remaining consideration, approximately $20,000,000, will be
paid in cash. For more information see the discussion beginning on page 8 under
the heading "PROPOSAL 1 - TO APPROVE THE SALE OF THE COMPANY'S POWDER RIVER
BASIN ASSETS TO PETROHUNTER."
o CLOSING: The transaction is anticipated to close by December 31, 2006.
For more information see the discussion beginning on page 8 under the heading
"PROPOSAL 1 - TO APPROVE THE SALE OF THE COMPANY'S POWDER RIVER BASIN ASSETS TO
PETROHUNTER."
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
The proposed sale of the Powder River Basin assets to PetroHunter
qualifies as a "related party" transaction as defined in Statement of Financial
Accounting Standards No. 57, "Related Party Disclosures." PetroHunter is a
related party because Marc A. Bruner, a 14.3% beneficial shareholder of the
Company, is PetroHunter's controlling shareholder. In addition, Marc A. Bruner
is the father of Marc E. Bruner, the Company's President and Chief Executive
Officer and a director.
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
Only holders of record of Common Stock at the close of business on
November 20, 2006 (the "Record Date") 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 81,661,968
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 the Company's Common Stock as of
November 20, 2006:
AMOUNT AND NATURE OF BENEFICIAL PERCENT OF CLASS (2)<F2>
NAME AND ADDRESS OF BENEFICIAL OWNER (1)<F1> OWNERSHIP ------------------------
- ---------------------------------------- ---------
Marc A. Bruner 11,701,799 (3)<F3> 14.3%
29 Blauenweg
Metzerlen, Switzerland 4116
Resource Venture Management 4,899,525 6.0%
29 Blauenweg
Metzerlen, Switzerland 4116
Bruner Group, LLP 4,500,000 5.5%
1775 Sherman Street #1375
Denver, Colorado 80203
Galaxy Energy Corporation Proxy Statement - Page 2
AMOUNT AND NATURE OF BENEFICIAL PERCENT OF CLASS (2)<F2>
NAME AND ADDRESS OF BENEFICIAL OWNER (1)<F1> OWNERSHIP ------------------------
- ---------------------------------------- ---------
Marc E. Bruner 1,995,000 (4)<F4> 2.4%
Cecil D. Gritz 420,000 (5)<F5> *
Richard E. Kurtenbach 258,750 (6)<F6> *
Dr. James Edwards 240,000 (7)<F7> *
Robert Thomas Fetters, Jr. 180,000 (8)<F8> *
Nathan C. Collins 180,000 (8)<F8> *
Christopher S. Hardesty 151,000 (9)<F9> *
Ronald P. Trout 0 *
All officers and directors as a group (8 persons) 4,378,500 (10)<F10> 4.1%
*less than one percent (1%)
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<FN>
(1)<F1> To the Company's 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 81,661,968 shares of Common Stock outstanding as
of November 20, 2006. If a person listed on this table has the right to
obtain additional shares of Common Stock within sixty (60) days from
November 20, 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 495,000 shares issuable upon exercise of stock options.
(5)<F5> Includes 420,000 shares issuable upon exercise of stock options.
(6)<F6> Includes 258,750 shares issuable upon exercise of stock options.
(7)<F7> Includes 240,000 shares issuable upon exercise of stock options.
(8)<F8> Includes 180,000 shares issuable upon exercise of stock options.
(9)<F9> Includes 135,000 shares issuable upon exercise of stock options.
(10)<F10>Includes 1,908,750 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 the Company.
Galaxy Energy Corporation Proxy Statement - Page 3
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 sell the Company's Powder River Basin assets need only
be approved by a majority of the shares of Common Stock present or represented
and voting on the applicable proposal at the meeting, so long as a quorum is
present. 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 sell its Powder River Basin assets
to PetroHunter Energy Corporation for a total price of $45,000,000
consisting of cash and no more than $25,000,000 in PetroHunter common
stock. The sale is contingent upon PetroHunter obtaining adequate
financing and upon the approval of the Company's Senior Lenders.
Q. WHY IS THE COMPANY SEEKING SHAREHOLDER APPROVAL TO SELL THE POWDER
RIVER BASIN ASSETS?
A. Although shareholder approval is not required, the Company considers
the sale of its Powder River Basin assets to be outside of its normal
course of business. Therefore, the Company seeks shareholder approval
to provide shareholders the opportunity to voice their agreement with
or reservations about the proposed sale.
Galaxy Energy Corporation Proxy Statement - Page 4
Q. DO I HAVE A RIGHT TO SEEK AN APPRAISAL OF MY SHARES?
A. No. Under the laws of Colorado, the Company's Articles of
Incorporation, and the Company's Bylaws, this transaction does not give
rise to appraisal or dissenters' rights.
Q. WHAT HAPPENS IF THE PROPOSAL IS APPROVED?
A. If the proposal is approved, then the Company will close the
transaction before December 31, 2006, so long as by that date
PetroHunter has obtained adequate financing and the Company has
obtained approval from its Senior Lenders. The proceeds from the sale
will be utilized to reduce the Companies outstanding debt to its Senior
Lenders. The outstanding debt will be settled at the closing.
Q. WHAT IF THE PROPOSAL IS NOT APPROVED?
A. If the proposal does not receive shareholder approval, then the Company
will not proceed with the sale.
Q: WHY IS THE BOARD OF DIRECTORS RECOMMENDING THAT I VOTE IN FAVOR OF THE
PROPOSED SALE THE POWDER RIVER BASIN ASSETS?
A: Based upon the fairness opinion of Bruce E. Lazier, the board of
directors of the Company has unanimously determined that the terms of
the proposed asset sale are fair to, and in the best interests of, the
stockholders. The board of directors unanimously recommends that you
vote for the approval of the proposed sale of the Powder River Basin
assets to PetroHunter.
Q: WHEN DO YOU EXPECT THE SALE TO BE COMPLETED?
A: The Company is working toward completing the sale by December 31, 2006.
If the proposed sale is approved and the other conditions to the sale
are satisfied or waived, the proposed sale of the Powder River Basin
assets should be completed within one week after the special meeting.
Q: WHAT ARE THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PROPOSED SALE
OF THE POWDER RIVER BASIN ASSETS TO THE SHAREHOLDERS?
A: Generally, there will be no tax consequences to the shareholders as
a result of the sale of the Powder River Basin assets.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE
PROPOSED SALE TO YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR FOR A FULL UNDERSTANDING OF THE
TAX CONSEQUENCES OF THE PROPOSED SALE TO YOU.
Galaxy Energy Corporation Proxy Statement - Page 5
Q: WHEN AND WHERE IS THE SPECIAL MEETING?
A: The special meeting of the Company's stockholders will be held on
December 22, 2006, at 10:00 a.m., local time, at 1331 - 17th Street,
Suite 1050, Denver, Colorado, 80202.
Q: WHO CAN VOTE ON THE PROPOSED SALE OF THE POWDER RIVER BASIN ASSETS?
A: Holders of the Company's common stock at the close of business on
November 20, 2006, the record date for the special meeting, may vote
in person or by proxy at the special meeting.
Q: WHAT DO I NEED TO DO NOW?
A: You should read this proxy statement carefully, including the exhibits
accompanying this proxy statement and the documents incorporated by
reference into this proxy statement, and consider how the proposed sale
affects you. Then, please mark your vote on your proxy card and date,
sign and mail it in the enclosed, postage paid return envelope or vote
your shares via facsimile or the Internet according to the instructions
on the proxy card.
Q: HOW DO I VOTE?
A: You may vote by signing the proxy card and returning it to the Company
in the postage paid return envelope prior to December 22, 2002. You may
also vote via facsimile, telephone, or the Internet. Please refer to
the enclosed proxy card, which contains complete instructions for
voting via facsimile, telephone, and the Internet.
Q: WHAT HAPPENS IF I DO NOT VOTE?
A: The failure to return your proxy card will have the same effect as
voting "AGAINST" the proposed sale. Likewise, the failure to vote via
facsimile, telephone, or the Internet will also count as voting
"AGAINST" the proposed sale.
Q: MAY I VOTE IN PERSON?
A: Yes. You may attend the special meeting and vote your shares in person
whether or not you signed and return your proxy card or vote via
facsimile, telephone, or the Internet. If you exercise your right to
vote at the meeting after signing and returning your proxy card or
voting via facsimile or the Internet, you must affirmatively revoke
your proxy card, facsimile, or Internet vote before you can vote your
shares at the meeting. If your shares are held of record by a broker,
bank or other nominee and you wish to vote at the meeting, you must
obtain a proxy from the broker, bank or other nominee.
Galaxy Energy Corporation Proxy Statement - Page 6
Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD, OR VOTED
VIA FACSIMILE, TELEPHONE, OR THE INTERNET?
A: Yes. You may change your vote at any time before your proxy card,
facsimile vote, or Internet vote is cast at the special meeting. You
can do this in several ways. You can send a written notice to the
Company's Secretary at the executive offices located at 1331 - 17th
Street, Suite 1050, Denver, Colorado, 80202, stating that you would
like to revoke your proxy card, facsimile, telephone, or Internet vote.
You may also change your facsimile, telephone, or Internet vote by
following the instructions on your proxy card. You can attend the
meeting, affirmatively revoke your proxy, facsimile, telephone, or
Internet vote and vote in person. Your attendance alone will not revoke
your proxy card, facsimile, telephone, or Internet vote.
Q: IF MY BROKER HOLDS MY SHARES IN STREET NAME, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: No. Your broker will not be able to vote your shares without
instructions from you. You should instruct your broker to vote your
shares by following the procedures provided by your broker. 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.
Q: IS THERE ANY LITIGATION CHALLENGING THE PROPOSED SALE?
A: No. However, a complaint could be filed at any time. There can be no
guarantee that such a claim would not interfere with the proposed sale.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: The information provided above in question and answer format is for
your convenience only and is merely a summary of the information
contained in this proxy statement. You should carefully read this
entire proxy statement, including the exhibits and the documents
incorporated by reference. If you would like additional copies, without
charge, of this proxy statement or if you have questions about the
proposed sale, including the procedures for voting your shares, you
should contact:
Galaxy Energy Corporation
1331 - 17th Street, Suite 1050
Denver, Colorado, 80202
Telephone: (303) 293-2300
Galaxy Energy Corporation Proxy Statement - Page 7
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This proxy statement may include or incorporate by reference statements
that are not historical facts. These forward-looking statements are based on the
Company's current estimates and assumptions and, as such, involve uncertainty
and risk, and are not guarantees of future performance. Forward-looking
statements include the information concerning the Company's possible or assumed
future results of operations and also include those preceded or followed by the
words "anticipates," "believes," "could," "estimates," "expects," "intends,"
"may," "should," "plans," "targets" and/or similar expressions.
You are cautioned that these statements are only predictions and that
forward-looking statements are subject to a number of risks, assumptions and
uncertainties that could cause actual results to differ materially from those
projected in such forward-looking statements. These risks, assumptions and
uncertainties include, but are not limited to, future decisions by the
Securities and Exchange Commission or other governmental or regulatory bodies;
the vote of the Company's shareholders on the proposed sale; business
disruptions resulting from the announcement of the proposed sale; uncertainties
related to litigation; economic and political conditions in the U.S. and abroad;
and other risks outlined in the Company's filings with the SEC. All
forward-looking statements are effective only as of the date they are made and
the Company disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
PROPOSAL 1 - TO APPROVE THE SALE OF THE COMPANY'S
POWDER RIVER BASIN ASSETS TO PETROHUNTER
On October 23, 2006, the Company entered into a letter of intent to
sell its Powder River Basin assets to PetroHunter Energy Corporation for a total
price of $45,000,000, consisting of cash and no more than $25,000,000 in
PetroHunter common stock. The sale is contingent upon PetroHunter obtaining
adequate financing and upon the approval of the Company's Senior Lenders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE SALE OF
THE POWDER RIVER BASIN ASSETS TO PETROHUNTER FOR $45,000,000 IN CASH AND
PETROHUNTER COMMON STOCK. The proposed sale requires authorization of a majority
of the votes entitled to be cast by the holders of the Common Stock on the
Record Date. Each share of Common Stock is entitled to one vote per share. If
the Company fails to obtain the requisite stockholders' authorization for the
proposed sale, the Company will not consummate the Purchase and Sale Agreement.
The holders of the Common Stock are not entitled to appraisal rights in
connection with the proposed sale under the laws of Colorado, the Company's
Articles of Incorporation or the Company's Bylaws.
Set forth below is certain information with respect to the sale of
Powder River Basin assets.
DESCRIPTION OF POWDER RIVER BASIN ASSETS
As reported in the Company's report on Form 10-Q for the quarter ended
August 31, 2006, the Powder River Basin assets consist, on a cost basis, of the
following:
Galaxy Energy Corporation Proxy Statement - Page 8
- ----------------------------------------------------------------------
TOTAL CAPITALIZED COSTS
- ----------------------------------------------------------------------
EVALUATED PROPERTIES
- ----------------------------------------------------------------------
West Recluse $ 2,834,557
- ----------------------------------------------------------------------
Glasgow 2,068,620
- ----------------------------------------------------------------------
Leiter/Ucross 3,042,695
- ----------------------------------------------------------------------
Castle Rock 1,870,577
- ----------------------------------------------------------------------
UNEVALUATED PROPERTIES
- ----------------------------------------------------------------------
Pipeline Ridge 12,426,928
- ----------------------------------------------------------------------
Leiter/Ucross 10,793,037
- ----------------------------------------------------------------------
Buffalo Run 5,236,903
- ----------------------------------------------------------------------
Kirby 2,065,226
- ----------------------------------------------------------------------
Horse Hill 1,276,976
- ----------------------------------------------------------------------
Dutch Creek 1,872,967
- ----------------------------------------------------------------------
Beaver Creek 563,099
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Asset Retirement Obligation Asset and
all Other 1,367,885
- ----------------------------------------------------------------------
Less accumulated depletion,
amortization and impairment (8,436,812)
- ----------------------------------------------------------------------
TOTAL $36,982,658
- ----------------------------------------------------------------------
In greater detail, the assets that will be sold if approval is obtained
are as follows:
The Powder River Basin is an area of 14 million acres in northeastern
Wyoming and southeastern Montana that is roughly bounded by the Bighorn
Mountains in the West, the Black Hills in the east, Montana's Cedar Ridge in the
north, and Wyoming's Laramie Mountains, Casper arch, and Hartville Uplift in the
South. The area is marked by grass-covered plains, rolling hills, wide, flat
streambeds, and broad floodplains. The Powder River Basin is the single largest
source of coal mined in the United States. It is also home to oil and
conventional natural gas production. Since 1997, it has also been the site of
intensive coal bed methane production and has recently become the most active
area in the country for such gas development. The United States Geological
Survey estimates there may be as much as 100 trillion cubic feet of gas waiting
to be found in the Powder River Basin.
Methane is the clean-burning primary component of natural gas. While
conventional natural gas is often comprised of a mixture of methane and other
gases, coal bed methane (CBM) is attractive because it usually has very high
percentage of methane - up to 96%. Coal bed methane in the Powder River Basin
was generated not by heat and pressure, but by bacterial activity within the
coal itself. These anaerobic bacteria are classified as methanogens for their
ability to generate large quantities of methane. As methane is generated it is
trapped (absorbed) onto microscopic surfaces within the coal by water pressure.
In recent years, coal bed methane has attracted attention from the
energy sector. Methane is generally considered a cleaner form of energy than
traditional coal and oil. Since CBM in this area is found at relatively shallow
predictable depths, exploration and development costs are generally much
Galaxy Energy Corporation Proxy Statement - Page 9
lower than for deeper, more geologically complex oil and gas exploration
projects. The wells drilled and completed to extract CBM from these shallower
coal seams are therefore much more cost effective to construct. Operating costs,
however, for these wells are usually higher than for conventional free flowing
gas wells due to the need for pumping and disposing of water during the
producing life.
The extraction of coal bed methane involves pumping water from the coal
seam aquifer in order to release the water pressure that is trapping the gas in
the coal. Methane travels with the ground water being pumped from the coal by a
well drilled and equipped with a water pump that is completed in a coal seam
that contains methane. Since methane has very low solubility in water, it
separates from the water in the well before the water enters the pump. Instead
of dewatering the coal seam, the goal is to decrease the hydrostatic pressure
above the coal seam. Water moving from the coal seam to the well bore encourages
gas migration toward the producing well. As this water pressure is released, the
gas will rise and is separated from the water and can be piped away. New coal
bed methane wells often produce water for several months and then, as the water
production decreases, natural gas production increases as the coal seams
de-water.
The Company's Wyoming properties in the Powder River Basin consist of
about 53,000 net acres in four project areas in Sheridan, Johnson and Campbell
counties, plus working interests in a total of 210 coal bed methane wells in
various stages of completion and production and 8 water disposal wells. The
Company acquired all leases and acquired or drilled all wells in the period from
December 2003 through November 2005.
The Company's Montana properties in the Powder River Basin consist of
about 32,000 net acres in two project areas in Big Horn county, plus working
interests in 18 non-operated wells in various stages of completion and
production.
REASON FOR SALE OF POWDER RIVER BASIN ASSETS
The Company has determined that the additional capital requirements
necessary to realize profitability in the Powder River Basin is greater than the
resources available to it at this time. Also, the burden of the Company's
outstanding debts has diverted the Company's resources away from its primary
operations. The Company believes that it is in the shareholders' best interest
to divest the Powder River Basin assets and redeem its outstanding debt held by
Senior Lenders. The proposed sale will free the Company's resources to focus on
developing the Company's other assets.
CONSIDERATION TO BE RECEIVED
Subject to PetroHunter receiving adequate financing, the Company will
receive approximately $20,000,000 in cash and up to $25,000,000 in PetroHunter
common stock at the closing of the transaction. The PetroHunter common stock
will be restricted common stock issued in reliance upon an exemption from
securities registration afforded by the provisions of Section 4(2) under the
Securities Act of 1933, as amended.
Galaxy Energy Corporation Proxy Statement - Page 10
PetroHunter is Maryland corporation whose common stock is traded on the
OTC Bulletin board of directors. PetroHunter is subject to the reporting
requirements of the Securities and Exchange Commission.
USE OF PROCEEDS OF THE PROPOSED SALE OF THE POWDER RIVER BASIN ASSETS
The Purchase and Sale Agreement provides that upon consummation of the
sale, the Company will receive $20,000,000 in cash plus $25,000,000 in
PetroHunter common stock. The Company expects to use a portion of the proceeds
received from the proposed sale to pay off its outstanding notes payable,
including notes payable to Senior Lenders.
After giving effect to the payment made on November 1, 2006,
$13,203,403.76 in principal amount was owed to the Senior Lenders, who hold a
lien on all of the Company's assets, including the Powder River Basin assets.
The Company is in the process of negotiating with the Senior Lenders to obtain
their consent for the sale. In addition to paying the outstanding principal
balance and accrued but unpaid interest on the notes of the Senior Lenders, the
Company anticipates that it will also issue to the Senior Lenders 10,000,000 of
its shares of common stock and transfer to the Senior Lenders 1,000,000 shares
of the PetroHunter stock received as the purchase consideration.
The Senior Lenders are requesting, as a condition to their consent,
that the Company's other convertible debt, in the aggregate principal amount of
$14,695,000, be paid immediately after the Company closes its transaction with
PetroHunter. After paying the debt owed to the Senior Lenders in cash, the
Company will not have sufficient cash to pay the holders of its other
convertible debt. Therefore, the Company is also negotiating with the holders of
its other convertible debt to accept shares of PetroHunter stock as payment of
those obligations.
Following the closing of the proposed sale and after the anticipated
payment of notes payable and other estimated expenses and costs incurred in
connection with the proposed sale and making the other assumptions set forth in
the unaudited pro forma condensed consolidated financial statements annexed
hereto, the Company estimates that its net pre-tax proceeds will be roughly
$7,000,000, consisting primarily of PetroHunter common stock. The liabilities
that the Company will pay off at or after the closing may be more or less than
the amounts thereof as of August 31, 2006.
FEDERAL INCOME TAX CONSEQUENCES OF THE SALE
The Company will recognize the difference between the tax basis of
Powder River Basin assets and the sales price as a taxable gain. The Company
will apply its accumulated net operating losses to the gain in the current
taxable year. Due to the application of the Company's net operating losses, the
gain from the sale of the Powder River Basin assets will not create taxable
income in the current taxable year.
REGULATORY APPROVALS
No federal or state regulatory approvals must be obtained in connection
with this transaction.
Galaxy Energy Corporation Proxy Statement - Page 11
FAIRNESS OPINION
The Company engaged Bruce E. Lazier to provide a fairness opinion with
respect to the proposed sale of the Powder River Basin assets to PetroHunter.
Bruce E. Lazier has not yet completed the analysis of the fairness of the
proposed sale. Upon receipt of the opinion, a copy of the fairness opinion will
be made available for inspection at the Company's principal executive offices
during its regular business hours by any shareholder entitled to vote on the
proposed sale or representative who has been so designated in writing.
RECOMMENDATION OF THE BOARD OF DIRECTORS
Even though the Company has not yet received the fairness opinion from
Bruce E. Lazier, the Company's board of directors has considered the financial
and business aspects of the proposed sale and believes that the it is in the
best interests of the Company and its stockholders. The board of directors
recommends a vote "for" the proposal to authorize the sale of the Powder River
Basin assets to PetroHunter. In making its determination, the board of directors
considered the following factors:
o The belief of the board of directors that, as a result of the consideration
to be received by the Company as a result of the proposed sale, the proposed
sale will represent an attractive return to the Company on the Company's
investment in the Powder River Basin assets.
o The consideration to be received in the proposed sale will enable the
Company to significantly reduce its outstanding debts and improve its working
capital deficit.
o The substantially lighter outstanding debt will allow the Company to
refocus its liquid capital on operating activities through further investment
and acquisition transactions rather than expend such capital on principal and
interest payments.
o The board of directors believes that attractive investment opportunities
may develop in the foreseeable future and may require lighter outstanding debt
obligations and fewer outstanding loan covenants in order to take advantage of
opportunities as they develop.
The foregoing discussion of the information and factors considered by
the Company's board of directors is not intended to be exhaustive, but includes
the primary factors considered. In view of the wide variety of factors
considered in connection with its evaluation of the proposed sale, the Company's
board of directors did not find it practicable to assign relative weights to the
factors considered in reaching its decision. In addition, individual directors
may have given different weights to different factors and may have viewed some
factors more positively or negatively than others.
PRESENT AND PAST TRANSACTIONS WITH PETROHUNTER
The proposed sale of the Powder River Basin assets to PetroHunter
qualifies as a "related party" transaction as defined in Statement of Financial
Accounting Standards No. 57, "Related Party
Galaxy Energy Corporation Proxy Statement - Page 12
Disclosures." PetroHunter is a related party because Marc A. Bruner, a 14.3%
beneficial shareholder of the Company, is PetroHunter's controlling shareholder.
In addition, Marc A. Bruner is the father of Marc E. Bruner, the Company's
President and Chief Executive Officer and a director.
Other than this proposed sale and the relationship described above,
neither the Company nor any of its executive officers, directors, controlling
persons or subsidiaries has any present or proposed material agreement,
arrangement, understanding or relationship with PetroHunter or any of its
executive officers, directors, controlling persons or subsidiaries. Other than
with respect to this proposed sale described above, there have not been any
negotiations, transactions or material contacts during the past two years
between Company and PetroHunter or its affiliates concerning any merger,
consolidation, acquisition, tender offer for or other acquisition of any class
of the Company's securities, election of the Company's directors; or sale or
other transfer of a material amount of assets of the Company.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Annexed to this proxy statement is unaudited pro forma condensed
consolidated information of the Company. The unaudited pro forma condensed
consolidated statements of operations give effect to the proposed sale as though
it had occurred as of the beginning of the applicable period. The unaudited pro
forma condensed consolidated balance sheet gives effect to the proposed sale as
though it had occurred as of the date of the balance sheet.
OPERATION OF THE POWDER RIVER BASIN ASSETS AFTER THE PROPOSED SALE
After the closing of the proposed sale, PetroHunter will own and
operate all of the Company's Powder River Basin assets. The Company will retain
substantial assets. The proposed sale will not constitute the sale of
substantially all of the Company's assets under Colorado law.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Shareholders wishing further information concerning the proposed sale
of the Powder River Basin assets should carefully read this entire proxy
statement, including the exhibits and the documents incorporated by reference.
If you would like additional copies, without charge, of this proxy statement or
if you have questions about the proposed sale, including the procedures for
voting your shares, you should contact:
Galaxy Energy Corporation
1331 - 17th Street, Suite 1050
Denver, Colorado, 80202
Telephone: (303) 293-2300
Galaxy Energy Corporation Proxy Statement - Page 13
THE PURCHASE AND SALE AGREEMENT
Set forth below is a summary description of the Purchase and Sale
Agreement pertaining to the sale of the Powder River Basin assets. As of the
date of the filing of this Preliminary Proxy Statement, the final Purchase and
Sale Agreement is still being negotiated. If any material alteration from this
summary description is agreed upon, the Company will amend this summary
description to conform to the terms and conditions of the executed Purchase and
Sale Agreement.
THE PARTIES TO THE PURCHASE AND SALE AGREEMENT
o Dolphin Energy Corporation, a wholly-owned subsidiary of Galaxy Energy
Corporation, a publicly traded oil and gas company holding title to various oil
and gas producing properties.
o PetroHunter Operating Company, a wholly-owned subsidiary of PetroHunter
Energy Corporation, a publicly traded oil and gas company holding title to
various oil and gas producing properties.
THE CLOSING DATE AND EFFECTIVE TIME
The proposed sale will close as promptly as practicable following the
authorization of the Purchase and Sale Agreement by the Company's shareholders
and upon the satisfaction or waiver, where permissible, of the other conditions
to consummation of the proposed sale, including PetroHunter obtaining adequate
financing. The Effective Time of the purchase and sale will be 7:00 a.m.,
Mountain Standard Time on January 1, 2007.
ASSETS TO BE SOLD BY THE COMPANY
Subject to and upon the terms and conditions set forth in the Purchase
and Sale Agreement, the Purchase and Sale Agreement provides for the sale of all
the Company's assets, rights, options, and other property interests located in
the Powder River Basin to PetroHunter, including the following:
o all of the Company's Powder River Basin leases and wells, subject to any
overriding royalty interests and fee mineral or fee surface interests;
o all rights under contracts relating to the Company's Powder River Basin
assets;
o transferable permits, licenses, industry certifications and listings, and
governmental authorizations relating to Company's Powder River Basin assets;
o all personal property located on the Powder River Basin assets and
all property affixed to same, including improvements thereto; and
o all geologic, geophysical and other data relating to the foregoing.
Galaxy Energy Corporation Proxy Statement - Page 14
LIABILITIES TO BE ASSUMED BY PETROHUNTER
PetroHunter will assume all duties and obligations relating to the
purchased assets arising at and after the Effective Time.
ASSETS TO BE RETAINED BY THE COMPANY
The Company will retain all assets not sold to PetroHunter, including
its Piceance Basin, Romanian concession agreements, and East Texas holdings and
the following:
o all cash and cash equivalent items and equity securities owned by the
Company or its affiliates;
o all accounts receivables attributable to or arising out of the Company's
Powder River Basin operations before the closing of the proposed sale; and
o all causes of action, claims and rights arising prior to the closing
against third parties relating to all of the Company's assets not sold to
PetroHunter.
SALE PRICE AND ADJUSTMENTS
The Purchase and Sale Agreement provides that PetroHunter will pay the
Company, on the closing date, $20,000,000 in cash plus $25,000,000 in
PetroHunter common stock. The sales price will be adjusted for the following:
o any defects or irregularities in the title to the assets sold to
PetroHunter; and
o all costs and expenses incurred by the Company, if any, for normal
operation of the Powder River Basin assets between the Effective Time and
closing will be borne by PetroHunter.
THE COMPANY'S INDEMNIFICATION OF PETROHUNTER
The Company will indemnify PetroHunter against all costs relating to
the ownership and operation of the Powder River Basin assets prior to the
closing.
PETROHUNTER'S INDEMNIFICATION OF THE COMPANY
PetroHunter will indemnify the Company all costs relating to the
ownership and operation of the Powder River Basin assets after the closing.
REPRESENTATIONS AND WARRANTIES
The Purchase and Sale Agreement will contain representations and
warranties the parties made to each other as of the execution date. The
assertions embodied in those representations and warranties were made solely for
purposes of the contract between the parties and may be subject to important
qualifications and limitations agreed by the parties in connection with
negotiating its terms. The Company is not aware of any existing facts or
circumstances that would render any of the Company's representations or
warranties contained in the Purchase and Sale Agreement incorrect or
Galaxy Energy Corporation Proxy Statement - Page 15
incomplete in any material respect. However, if occurrences or facts material to
a shareholder's decision whether or not to vote in favor of the proposed sale
arise subsequent to the date hereof, including incompleteness or inaccuracy of
material representations and warranties contained in the Purchase and Sale
Agreement, the Company will publicly disclose such facts or occurrences.
THE COMPANY'S REPRESENTATIONS AND WARRANTIES
In the Purchase and Sale Agreement, the Company makes a number of
representations and warranties to PetroHunter, including with respect to the
matters set forth below:
o good standing and authority;
o board approval;
o status of the property;
o taxes;
o operation of the property in accordance with environmental and other
laws;
o outstanding contracts and obligations;
o legal proceedings;
o liens and encumbrances; and
o rights of first refusal.
PETROHUNTER'S REPRESENTATIONS AND WARRANTIES
In the Purchase and Sale Agreement, PetroHunter makes a number of
representations and warranties to the Company, including with respect to the
matters set forth below:
o good standing and authority;
o board approval;
o acquisition of property for own account; and
o compliance with bond posting laws.
THE COMPANY'S COVENANTS
In the Purchase and Sale Agreement, the Company makes a number of
covenants, including the following:
o customary covenants concerning the operation of the Company's business
and the Powder River Basin assets prior to the closing of the proposed sale;
o to notify PetroHunter of the occurrence of significant events; and
o to grant PetroHunter access to the property and the books and records
relating to the property.
Galaxy Energy Corporation Proxy Statement - Page 16
CLOSING CONDITIONS
The Company's obligation to close the proposed sale is subject to the
prior satisfaction or waiver of the conditions set forth below:
o PetroHunter's representations and warranties being true and correct
in all material respects at and as of the closing date;
o PetroHunter's performance or compliance in all material respects of
all obligations and with all covenants required by the Purchase and Sale
Agreement;
o the Company having obtained all required regulatory approval of the
sale, if any;
o authorization by the Company's Senior Lenders; and
o the absence of any injunction or legal restraint, actual or threatened,
that would either prevent consummation of the transaction contemplated by the
Purchase and Sale Agreement or have a material adverse effect on such
contemplated transaction.
PetroHunter's obligation to consummate the proposed sale is also
subject to, among others, the prior satisfaction or waiver of the additional
conditions set forth below:
o the Company's representations and warranties being true and correct in
all material respects at and as of the closing date;
o the Company's performance or compliance in all material respects
of all obligations and with all covenants required by the Purchase and Sale
Agreement;
o the absence of any injunction or legal restraint, actual or threatened,
that would either prevent consummation of the transaction contemplated by the
Purchase and Sale Agreement or have a material adverse effect on such
contemplated transaction;
o all approvals having been obtained and documented, in a form acceptable
to PetroHunter, from the Company's Senior Lenders, the Company, and any
necessary regulatory authority; and
o PetroHunter obtaining suitable financing.
AMENDMENT
The parties may not amend the Purchase and Sale Agreement except by an
instrument in writing signed by both parties.
ASSIGNMENT
The Purchase and Sale Agreement and the rights and obligations
thereunder are assignable or transferable by either party without the prior
written consent of the other.
Galaxy Energy Corporation Proxy Statement - Page 17
SHAREHOLDER PROPOSALS AND OTHER MATTERS
If a shareholder intends to present a proposal for action at the
Company's 2007 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 31, 2007. 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 2007 ANNUAL MEETING BUT IS INSTEAD SOUGHT TO BE PRESENTED
DIRECTLY AT THAT ANNUAL MEETING, SECURITIES AND EXCHANGE COMMISSION RULES PERMIT
MANAGEMENT OF THE COMPANY TO VOTE PROXIES IN ITS DISCRETION IF (A) THE COMPANY
RECEIVES NOTICE OF THE PROPOSAL BEFORE THE CLOSE OF BUSINESS ON APRIL 15, 2007
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 15, 2007.
The cost of solicitation of proxies will be borne by the Company. The
Company has retained Georgeson Shareholder Communications Inc. to assist with
the solicitation of proxies for a fee of approximately $55,000. 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
November __, 2006
Galaxy Energy Corporation Proxy Statement - Page 18
GALAXY ENERGY CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
On _________________, 2006 Dolphin Energy Corporation ("Dolphin"), a
wholly owned subsidiary of Galaxy Energy Corporation, (the "Company"), entered
into a Purchase and Sale Agreement to sell all of its oil and gas assets in the
Powder River Basin area of Wyoming and Montana (the "Asset Sale") to PetroHunter
Energy Corporation ("PetroHunter"), a related party. The agreement provides for
the sale by Dolphin of all its interests in oil and gas leases and natural gas
wells in Sheridan, Johnson and Campbell Counties, Wyoming, and Big Horn County,
Montana, and the assumption by PetroHunter of certain accounts receivable, and
other current assets and selected liabilities directly related to the assets.
The purchase price is $20 million in cash and $25 million in PetroHunter common
stock, valued at $1.50 per share. The Asset Sale is subject to approval by the
Company's senior secured creditors and shareholders of the Company and is
subject to PetroHunter obtaining adequate financing. The Asset Sale is currently
expected to close on or around December 31, 2006. The accompanying unaudited pro
forma balance sheet of the Company gives effect to the proposed Asset Sale as
though it had occurred as of August 31, 2006. The accompanying unaudited pro
forma statements of operations for the nine months ended August 31, 2006 and the
year ended November 30, 2005, give effect to the proposed sale as if it had
occurred on December 1, 2005 and December 1, 2004, respectively.
The unaudited pro forma condensed consolidated financial information
was derived by adjusting the historical financial statements of the Company for
the removal of assets, liabilities, revenues and expenses associated with the
proposed Asset Sale and the pro forma adjustments described in the footnotes
herein. The ongoing activity presented in these unaudited pro forma consolidated
financial statements represents the Company's ongoing business and corporate
assets, liabilities, revenues and expenses that will not be divested in the
Asset Sale. The unaudited pro forma consolidated statements of operations do not
reflect the effects of consolidated potential revenues from the investment of
the net proceeds to be received by the Company from the Asset Sale. Based upon
asset balances as of August 31, 2006, the estimated gain on the sale before
taxes, for book purposes, is approximately $9.4 million. Following closing of
the Asset Sale, and as a condition of obtaining the consent of the senior
secured creditor, the Company will be required to redeem all convertible debt
and accrued interest and pay other compensation to the senior secured creditor
for such consent. Following all required payments, the Company estimates net
remaining proceeds of the sale will be approximately $.4 million of cash and
$6.9 million PetroHunter stock. These pro forma consolidated financial
statements are presented for illustrative purposes only and, therefore, are not
necessarily indicative of the operating results and financial position that
might have been achieved if the Asset Sale had occurred as of an earlier date
and are not necessarily indicative of the operating results and financial
position which may occur in the future.
The unaudited pro forma condensed consolidated financial statements
herein, have been prepared in accordance with accounting principles generally
accepted in the United States of America, consistent with, and should be read in
conjunction with, the historical financial statements and notes thereto included
in the From 10K filed for the year ended November 30, 2005 and Form 10-Q filed
for the nine months ended August 31, 2006.
GALAXY ENERGY CORPORATION
(A Development Stage Company)
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
As of August 31, 2006
As Presented Adjustments Pro Forma
ASSETS
Current assets
Cash and cash equivalents $ 166,599 $ 399,270 (2) $ 565,869
Accounts receivable, joint interest 2,804,244 (82,123) (1)(a) 2,722,121
Accounts receivable, other 169,723 (76,682) (1)(a) 93,041
Prepaid and other 209,901 - 209,901
-------------------------------- -----------------
Total Current Assets 3,350,467 240,464 3,590,931
-------------------------------- -----------------
Oil and gas properties, at cost, full cost method of accounting
Evaluated oil and gas properties, net of accumulated 10,066,449 (9,816,449) (1)(b) 250,000
Unevaluated oil and gas properties 43,295,633 (35,603,021) (1)(b) 7,692,612
Less accumulated depletion, amortization and impairment (8,686,812) 8,436,812 (1)(b) (250,000)
-------------------------------- -----------------
44,675,270 (36,982,658) 7,692,612
-------------------------------- -----------------
Furniture and equipment, net 140,743 - 140,743
-------------------------------- -----------------
Other assets
Deferred financing costs, net 613,013 (613,013) (1)(c) -
Restricted investments 459,783 (404,783) (1)(d) 55,000
Other 18,003 - 18,003
-------------------------------- -----------------
1,090,799 (1,017,795) 73,003
Investment in Affiliated Company - 6,888,876 (2) 6,888,876
-------------------------------- -----------------
TOTAL ASSETS $ 49,257,279 $ (30,871,113) $ 18,386,166
================================ =================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 5,554,065 $ (281,058) (1)(a) $ 5,273,007
Accounts payable - related party 78,910 - 78,910
Current portion convertible notes payable, net 4,601,343 (4,601,343) (2)(4) -
Notes payable 2,049,728 - 2,049,728
Interest payable 594,691 (412,613) (2) 182,078
-------------------------------- -----------------
12,878,737 (5,295,014) 7,583,723
-------------------------------- -----------------
Non-current obligations
Convertible notes payable, net 19,488,613 (19,488,613) (2)(4) -
Interest Payable 1,916,124 (1,916,124) (2) -
Asset retirement obligation 1,255,788 (1,231,548) (3) 24,240
-------------------------------- -----------------
Total Non-current obligations 22,660,525 (22,636,285) 24,240
-------------------------------- -----------------
Stockholders' equity
Preferred stock, $001 par value -
Authorized - 25,000,000 shares
Issued - none
Common stock, $.001 par value
Authorized - 400,000,000 shares
Issued and outstanding - 86,425,943 76,426 10,000 (5) 86,426
Capital in excess of par value 69,081,963 2,990,000 (5) 72,071,963
Deficit accumulated during the development stage (55,440,372) (5,939,814) (6) (61,380,186)
-------------------------------- -----------------
Total Stockholders' Equity 13,718,017 (2,939,814) 10,778,203
-------------------------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 49,257,279 $ (30,871,113) $ 18,386,166
================================ =================
Below are the key assumptions included in the calculation of the Adjustments
Resulting from Asset Sale and resulting pro forma amounts in the balance sheet
above:
(1) (a) All outstanding accounts receivable and accounts payable, directly
relating to the assets sold will be transferred to PetroHunter for
subsequent collection or payment.
(b) All oil and gas assets in the Powder River Basin with a net book value
of $36,982,658 as of August 31, 2006 will be purchased by PetroHunter
for $20 million in cash and $25 million in PetroHunter common stock.
(c) Unamortized deferred financing costs of convertible debt will be
written off and included in interest expense upon redemption of such
debt.
(d) PetroHunter will reimburse the Company for restricted cash deposits,
pledged as security in lieu of performance bonds, on assets being sold.
(2) Proceeds from the Asset Sale (cash and stock), are expected to be utilized
as follows, resulting in net proceeds from the Asset Sale of $399,270 of
cash and $6,888,876 of PetroHunter common stock:
-----------------------------------------------------------------------------------------------------------
Cash Stock
-----------------------------------------------------------------------------------------------------------
Sale of Powder River Basin Assets $20,000,000 $25,000,000
-----------------------------------------------------------------------------------------------------------
Reimbursement for performance surety bonds 404,783 -
-----------------------------------------------------------------------------------------------------------
Redemption of Convertible Notes:
-----------------------------------------------------------------------------------------------------------
Senior Secured Creditors (16,135,799)
-----------------------------------------------------------------------------------------------------------
Subordinated Creditors (14,695,000)
-----------------------------------------------------------------------------------------------------------
Payment of accrued Interest
-----------------------------------------------------------------------------------------------------------
Senior Secured Creditors (412,613)
-----------------------------------------------------------------------------------------------------------
Subordinated Creditors (1,916,124)
-----------------------------------------------------------------------------------------------------------
Compensation paid to Senior Secured Creditors for waiver of
triggering event and consent to Asset Sale (3,457,101) (1,500,000)
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
NET PROCEEDS FROM ASSET SALE $399,270 $6,888,876
======== ==========
-----------------------------------------------------------------------------------------------------------
(3) Asset retirement obligation to plug, abandon and restore oil and gas well
locations assumed by PetroHunter at closing of Asset Sale transaction.
(4) The Company will utilize proceeds from the sale of assets to redeem all
convertible debt as follows:
------------------------------------------------------------------------------------------------------------
Less: Unamortized Discount
Redemption Amount (Charged to Profit and Loss) Net
------------------------------------------------------------------------------------------------------------
Current liabilities $6,135,799 $(1,534,456) $4,601,343
==========
----------------------------------------------------------------------------------------------------------
Non-current obligations $24,695,000 $(5,206,387) $19,488,613
===========
------------------------------------------------------------------------------------------------------------
(5) Includes 10 million shares of Company common stock issued to senior secured
creditor at assumed market price of $0.30 per share as compensation for
approval of asset sale and cancellation of outstanding warrants issued to
creditor.
(6) Net charge to profit and loss from asset sale is as follows:
----------------------------------------------------------------------------------------------
Gain on asset sale $9,371,142
----------------------------------------------------------------------------------------------
Write off of deferred financing costs (613,012)
----------------------------------------------------------------------------------------------
Write off of unamortized discount on convertible notes (6,740,843)
----------------------------------------------------------------------------------------------
Compensation to senior secured creditor: (7,957,101)
----------------------------------------------------------------------------------------------
Net Charge to Profit and Loss ($5,939,814)
============
----------------------------------------------------------------------------------------------
SUBSEQUENT EVENTS
The Pro Forma financial statements above do not include the following
transactions and events, which occurred subsequent to August 31, 2006:
i) The Company has issued three subordinated unsecured promissory notes in
favor of Bruner Family Trust UTD March 28, 2005 on the following dates and
in the following amounts:
-----------------------------------------------------------------------
ISSUE DATE AMOUNT MATURITY DATE
-----------------------------------------------------------------------
September 28, 2006 $2,500,000 January 26, 2007
-----------------------------------------------------------------------
November 1, 2006 $1,000,000 March 1, 2007
-----------------------------------------------------------------------
November 13, 2006 $500,000 March 13, 2007
-----------------------------------------------------------------------
Interest accrues on each note at the rate of 8% per annum and the notes
mature on the later of the dates above or the time at which the
registrant's senior indebtedness has been paid in full. In connection with
these loans, the Company and the lender have executed subordination
agreements with the holders of the senior indebtedness for the September 28
and November 1 notes and have submitted a subordination agreement for
execution by the holders of the senior indebtedness for the November 13
note. One of the trustees of Bruner Family Trust UTD March 28, 2005 is Marc
E. Bruner, the president and a director of the Company. Proceeds of the
loans were used to support the Company's operations.
Should the Asset Sale be completed, the Company has not determined whether
it will use any of the remaining net proceeds to pay any of the
above-described notes or whether it will seek an extension of the due date
of these notes.
ii) In October 2006, the Note Payable of $2,049,728 was acquired from the
existing noteholder by the Bruner Family Trust UTD March 28, 2005, a
related party. The note together with accrued interest is due in full on
December 1, 2006. As the Company is currently borrowing funds from the
Bruner Family Trust UTD March 28, 2005 to support the Company's operations,
it is doubtful that the Company will pay this note by the stated December
1, 2006 due date.
GALAXY ENERGY CORPORATION
(A Development Stage Company)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended August 31, 2006
As Presented Adjustments Pro Forma
Revenue
Natural gas sales $ 955,895 $ (930,395) (1) $ 25,500
Gain on disposition of oil and gas property - - -
Operating revenue - - -
955,895 (930,395) $ 25,500
-------------------------------- -----------------
Operating expenses
Lease operating expense 590,311 (566,134) (1) 24,177
General and administrative 3,652,158 - 3,652,158
Impairment of oil and gas properties 1,031,160 (1,031,160) (1) -
Depreciation and amortization 680,707 (508,682) (1) 172,025
5,954,336 (2,105,976) 3,848,360
-------------------------------- -----------------
Other income (expense)
Interest 12,588 - 12,588
Interest and financing costs (12,918,109) 12,643,284 (2)
- (7,957,101) (3) (8,231,926)
(12,905,521) 4,686,183 (8,219,338)
-------------------------------- -----------------
Net loss from continuing operations ($17,903,962) $ 5,861,764 $ (12,042,198)
================================ =================
Net loss per common share - basic & diluted ($0.26) ($0.15)
================ =================
Weighed average number of common
shares outstanding 69,290,943 78,668,029
================ =================
(1) Represents the results of operations for the period giving effect to the
Asset Sale effective December 1, 2005.
(2) Interest expense and financing costs eliminated as a result of the
redemption of convertible debt effective December 1, 2005.
(3) Represents financing costs associated with the redemption of senior secured
creditor debt.
(4) Pro forma weighted average shares outstanding reflects the issuance of 10
million shares of common stock to senior secured creditors as compensation
for consent of Asset Sale, and elimination of common shares issued upon
conversion of principle and interest during the period.
GALAXY ENERGY CORPORATION
(A Development Stage Company)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended November 30, 2005
As Presented Adjustments Pro Forma
Revenue
Natural gas sales $ 1,297,194 $ (1,297,194) (1) $ -
Gain on disposition of oil and gas properties 197,676 - 197,676
Operating Revenue 43,472 - 43,472
1,538,342 (1,297,194) $ 241,148
-------------------------------- ---------------
Operating expenses
Lease operating expense 965,069 (965,069) (1) 0
General and administrative 5,316,588 - 5,316,588
Impairment of oil and gas properties 5,273,795 (3,104,449) (1) 2,169,346
Depreciation and amortization 1,887,074 (1,802,496) (1) 84,578
13,442,526 (5,872,014) 7,570,512
-------------------------------- ---------------
Other income (expense)
Interest 163,291 - 163,291
Interest and financing costs (12,244,752) 12,006,530 (2) -
(7,957,101) (3) (8,195,323)
(12,081,461) $ 4,049,429 (8,032,032)
-------------------------------- ---------------
Net loss from continuing operations $ (23,985,645) $ 8,624,248 $ (15,361,396)
================================ ===============
Net loss per common share - basic & diluted $ (0.37) ($0.22)
================ ===============
Weighed average number of common
shares outstanding 64,698,889 70,386,287
================ ===============
(1) Represents the results of operations for the period giving effect to the
Asset Sale effective December 1, 2004
(2) Interest expense and financing costs eliminated as a result of the
redemption of convertible debt effective December 1, 2004.
(3) Represents financing costs associated with the redemption of senior
secured creditor debt.
(4) Pro forma weighted average shares outstanding reflects the issuance of 10
million shares of common stock to senior secured creditors as compensation
for consent of Asset Sale, and elimination of common shares issued upon
conversion of principle and interest during the period.
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
November 20, 2006, at the special meeting of shareholders to be held on December
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 November 28, 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 THE SALE OF THE POWDER RIVER BASIN ASSETS.
PLEASE MARK VOTE IN BOX IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
1. PROPOSAL TO APPROVE SALE OF POWDER RIVER BASIN ASSETS. The undersigned hereby
votes in response to the proposal to approve the sale of Galaxy's Powder River
Basin assets to PetroHunter Energy Corporation for a total price of $45,000,000,
consisting of cash and no more than $25,000,000 in PetroHunter common stock. The
sale is contingent upon PetroHunter obtaining adequate financing and upon the
approval of the Galaxy's Senior Lenders.
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.