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EXHIBIT 10.1
 
LOAN AGREEMENT DATED AS OF APRIL 14, 2008 AMONG
GALAXY ENERGY CORPORATION AND DOLPHIN ENERGY CORPORATION, BORROWERS,
AND BRUNER FAMILY TRUST, LENDER

 
 

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LOAN AGREEMENT

Dated as of April 14, 2008

Among

GALAXY ENERGY CORPORATION
AND
DOLPHIN ENERGY CORPORATION
Borrowers

and

BRUNER FAMILY TRUST
Lender

 
 
 

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This LOAN AGREEMENT, dated as of April14, 2008, is by and among Galaxy Energy
Corporation, a Colorado corporation, and Dolphin Energy Corporation, a Nevada
corporation, debtors and debtors-in-possession (together, the “Borrowers”), and
Bruner Family Trust (the “Lender”).
 
RECITALS
 
A.           The Borrowers are independent oil and gas companies primarily
engaged in the exploration for, and the acquisition and development of, crude
oil and natural gas.  The Borrowers filed their respective voluntary petitions
for relief under chapter 11 of title 11 of the United States Code on March 14,
2008 (the “Petition Date”) in the United States Bankruptcy Court for the
District of Colorado.
 
B.           The Borrowers have requested that the Lender provide the Borrowers
with a line of credit in the amount of up to $4,368,100.00 to provide working
capital to fund the Borrowers’ business operations in accordance with the Budget
(defined below).
 
C.           Subject to the terms and conditions set forth herein, the Lender
has agreed to provide such line of credit.
 
NOW THEREFORE, the parties hereto hereby agree, effective upon the Loan
Commencement Date (as hereinafter defined), as follows:
 
ARTICLE I
 
DEFINITIONS
 
As used in this Agreement the following terms have the following meanings (terms
defined in the singular to have a correlative meaning when used in the plural
and vice versa):
 
“Agent’s 507(b) Claim” has the meaning assigned to such term in the Interim
Order and Final Order.
 
“Agent’s Adequate Protection Lien” has the meaning assigned to such term in the
Interim Order and Final Order.
 
“Agreement” means this Loan Agreement, as amended or supplemented from time to
time.  References to Articles, Sections, Exhibits, Schedules and the like refer
to the Articles, Sections, Exhibits, Schedules and the like of this Agreement
unless otherwise indicated.
 
“Banking Day” means any day other than a day on which commercial banks are not
authorized or required to close in the United States.
 
“Bankruptcy Cases” means the chapter 11 cases of Borrowers pending before the
Bankruptcy Court under Case Nos. 08-13164 and 08-13166.
 
“Bankruptcy Code” means title 11 of the United States Code, as amended.
 

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“Bankruptcy Court” means the United States Bankruptcy Court for the District of
Colorado, or such other court having original jurisdiction over the Bankruptcy
Cases.
 
“Borrowers” has the meaning assigned to such term in the preamble hereto.
 
“Budget” means, collectively, the emergency (one month) and the final (six and
one-half months) itemized budgets of the Borrowers attached hereto as Exhibit 1
as such Budget may be amended, modified, extended or supplemented from time to
time with the Lender’s consent.
 
“Carve-Out Expenses” means (i) the reasonable, unpaid fees and expenses of
professionals, including professionals representing the official committee of
unsecured creditors, if any, approved and allowed by orders of the Bankruptcy
Court, up to an aggregate amount of $275,000; (ii) the amounts payable pursuant
to 28 U.S.C. § 1930(a)(6) and any fees payable to the Clerk of the Bankruptcy
Court; and (iii) allowed fees and expenses of a chapter 7 trustee and
professionals retained by such trustee in an aggregate amount not to exceed
$10,000.
 
“Collateral” means all property, other than causes of action arising under
chapter 5 of the Bankruptcy Code, of each of the Borrowers and their bankruptcy
estates of any kind whatsoever, whether real, personal, or mixed, and whether
now owned or hereafter acquired, including, without limitation, all inventory,
equipment, fixtures, accounts, chattel paper, documents, general intangibles,
instruments, money, real property interests, oil and/or gas leases, wells,
lands, prospects, rights and interests owned by one or more of the Borrowers and
including the production and the proceeds of production from oil and/or gas
wells, and the interests of Galaxy Energy Corporation in each of its
subsidiaries.
 
“Environmental Laws” means any and all laws, rules, orders, regulations,
statutes, ordinances, guidelines, codes, decrees or other legally enforceable
requirements (including, without limitation, common law) of any international
authority, foreign government, the United States, or any state, local, municipal
or other governmental authority, regulating, relating to or imposing liability
or standards of conduct concerning protection of the environment or of human
health, or employee health and safety, as has been, is now, or may at any time
hereafter be, in effect.
 
“Environmental Permits” means any and all permits, licenses, approvals,
registrations, notifications, exemptions and other authorizations required under
any Environmental Law.
 
“Event of Default” has the meaning given such term in Section 10.1 hereof.
 
“Final Order” means an order of the Bankruptcy Court, in form and substance
satisfactory to the Lender, finally approving this Agreement and the Loan made
and to be made by the Lender in accordance with this Agreement, as the same may
be amended, modified or supplemented from time to time with the express written
consent of the Lender.
 
“Interim Order” means an order of the Bankruptcy Court, in form and substance
satisfactory to the Lender, approving, on an interim basis, this Agreement and
the Loan made and to be made by the Lender in accordance with this Agreement, as
the same may be amended, modified or supplemented from time to time with the
express written consent of the Lender.
 
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“Lender” has the meaning assigned to such term in the preamble hereto.
 
“Lender’s Lien” has the meaning assigned to such term in Section 5.1.
 
“Lien” means any lien (statutory or otherwise), security interest, mortgage,
deed of trust, priority, pledge, charge, conditional sale, title retention
agreement, financing lease or other encumbrance or similar right of others, or
any agreement to give any of the foregoing.
 
“Loan” means the line of credit given by the Lender to the Borrowers in the
principal amount of up to $4,368,100.00, as evidenced by the Note.
 
“Loan Commencement Date” has the meaning attributed thereto in Section 6.1
hereof.
 
“Loan Documents” means this Agreement, the Note and the Security Documents.
 
“Material Adverse Effect” means a material adverse effect on (a) the business,
assets, property or condition (financial or otherwise) of the Borrowers (other
than the customary adverse effects due to the Borrowers’ Bankruptcy Cases and
the requirements of the Bankruptcy Code), (b) the validity or enforceability of
this Agreement or any of the Loan Documents or the rights and remedies of the
Lender hereunder or thereunder, or (c) the ability of either Borrower to perform
its obligations under any of the Loan Documents.
 
“Material Environmental Amount” means an amount payable by either or both
Borrowers in the aggregate in excess of $50,000 for costs to comply with any
Environmental Law; costs of any investigation, and any remediation, required by
any Environmental Law; and compensatory damages, punitive damages, fines, and
penalties pursuant to any Environmental Law.
 
“Maturity Date” means the earliest of (i) the closing of any transaction
pursuant to which any third party acquires substantially all of either of the
Borrowers’ assets; (ii) the conversion of either of the Bankruptcy Cases to a
case under chapter 7 of the Bankruptcy Code; (iii) the dismissal of either of
the Bankruptcy Cases; (iv) the date on which any chapter 11 plan of
reorganization becomes effective; (v) the occurrence of an Event of Default; or
(vi) November 15, 2008.
 
“Note” means the Secured Revolving Promissory Note in the amount of
$4,368,100.00, or so much thereof as shall be advanced, payable to or to the
order of the Lender, substantially in the form of Exhibit 2 attached hereto, and
all promissory note(s) delivered in substitution or exchange therefor, as any
such notes shall be modified and supplemented and in effect from time to time.
 
“Obligations” means all indebtedness, obligations and liabilities of the
Borrowers to the Lender incurred under or related to this Agreement, the Note or
any other Loan Document, whether such indebtedness, obligations or liabilities
are direct or indirect, secured or unsecured, joint or several, absolute or
contingent, due or to become due, whether for payment or performance, now
existing or hereafter arising, including the principal amount of the Loan
outstanding, together with interest thereon, and all reasonable expenses and
fees, including but not limited to all legal and accounting fees incurred by
Lender, hereunder or under any other
 
 
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Loan Document, from time to time arising under or in connection with or
evidenced or secured by this Agreement, the Note, or any other Loan Document.
 
“Orders” means the Interim Order, the Final Order and all other orders entered
by the Bankruptcy Court in relation to this financing.
 
“Petition Date” means March 14, 2008.
 
“Security Documents” means, collectively, any mortgages, deeds of trust,
assignments of production, security agreements, fixture filings, Uniform
Commercial Code financing statements, and such other documents required by
Lender granting the Lender a Lien in the Collateral or perfecting such Lien.
 
ARTICLE II
 
THE LOAN
 
2.1  The Loan.
 
(a)  Subject to the terms and conditions set forth herein, the Lender agrees to
make advances to the Borrowers from time to time during the period beginning
with the Loan Commencement Date and ending on September 30, 2008, in an
aggregate principal amount not to exceed the amount of the Note, as a revolving
line of credit.
 
(b)  Notwithstanding anything herein to the contrary, the Lender shall have no
obligation to make advances under the Note in excess of the amounts authorized
by the Interim Order or Final Order, and any reference herein to the amount of
the Loan shall be automatically reduced to the amounts so
authorized.  Consistent with the foregoing, until entry of the Final Order,
advances by the Lender under this Agreement shall be limited to the amount
expressly authorized by the Interim Order.
 
2.2  Advances.  Advances shall be made pursuant to the Budget with a fifteen
percent (15%) monthly variance per line item in excess of expenses listed in the
Budget, but subject to a maximum ten percent (10%) cumulative variance per month
in excess of the line items in the Budget titled “Bruner Trust Borrowings” and
“Bruner Trust to cover field work;” provided, however, that in no event shall
the Lender be required to lend any amount in excess of $4,368,100.00, the amount
of the Note.  For the purposes of calculating the 15% monthly variance per line
item set forth in the foregoing sentence, all line items of less than $10,000 in
the Budget shall in the aggregate be considered to be a single line item.  The
Borrowers shall give the Lender notice of each advance hereunder as provided in
Section 4.3 hereof.  On the date specified for each advance, the Lender shall,
subject to the terms and conditions of this Agreement, make available the amount
of such advance to the Borrowers by depositing the same, in immediately
available funds, in segregated accounts of the Borrowers designated for such
purpose.
 
2.3  Use of Proceeds.  The Borrowers hereby covenant, represent and warrant that
the proceeds of the Loan made to them will be used solely to fund the Borrowers’
continued
 
 
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ordinary course operations and working capital needs, including the costs of the
Borrowers’ Bankruptcy Cases, solely in accordance with the Budget and Section
2.2 above.
 
2.4  Note.      The Loan made by the Lender hereunder shall be evidenced by the
Note dated as of the date hereof.
 
2.5  No Discharge; Survival of Claims. The Obligations shall survive the entry
of an order (i) confirming any chapter 11 plan in the Bankruptcy Cases, (ii)
converting the Bankruptcy Cases to cases under chapter 7 of the Bankruptcy Code,
or (iii) dismissing the Bankruptcy Cases.  The super-priority administrative
claim granted to the Obligations and all Liens granted to the Lenders shall
continue in full force and effect and maintain their priority as set forth in
the Orders until full payment of the Obligations.
 
2.6  Waiver of Any Priming Rights.  The Borrowers hereby irrevocably waive any
right, pursuant to Sections 364(c) or 364(d) of the Bankruptcy Code or
otherwise, to grant any Lien of equal or greater priority than the Liens
securing the Obligations, or to approve or grant a claim of equal or superior
priority to the Obligations other than the Carve-Out Expenses.
 
ARTICLE III
 
PAYMENTS OF PRINCIPAL AND INTEREST
 
3.1  Principal.  Each of the Borrowers jointly and severally and unconditionally
promises to pay the Lender all Obligations, including the then unpaid principal
amount of the Loan and all accrued but unpaid interest, on the Maturity
Date.  Except as otherwise agreed to by the Lender, the Borrowers shall repay
the principal amount advanced on the Note from time to time as funds become
available (after the payment of ordinary course operating expenses consistent
with the Budget) from the cash generated by proceeds of sales of the Borrowers’
assets (after the payment of any senior Liens).
 
3.2  Interest.  Interest on the outstanding principal balance of the Note shall
accrue at the rate of ten percent (10%) per annum until payment of the principal
in full.  If an Event of Default occurs, at the Lender’s option pursuant to
Section 10.2 below, the entire amount of the Secured Revolving Promissory Note
shall be due and payable and shall bear interest at the rate of thirteen percent
(13%) per annum.
 
3.3  Optional Prepayments.  The Borrowers shall have the right to prepay the
Loan, at any time or from time to time, without penalty, but with interest on
the amount prepaid to the date of such prepayment.
 
ARTICLE IV
 
PAYMENTS; COMPUTATIONS; ADVANCES
 
4.1  Payments.
 
(a)  Except to the extent otherwise provided herein, all payments of principal,
interest and other amounts to be made by the Borrowers to the Lender under this
Agreement, the
 
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Note and the other Loan Documents, shall be made in immediately available funds,
without deduction, set-off or counterclaim, into a designated account (in
accordance with wire instructions to be provided by the Lender to the Borrowers)
on the date on which such payment is due.
 
(b)  If the due date of any payment under this Agreement or the Note would
otherwise fall on a day that is not a Banking Day, such date shall be extended
to the next succeeding Banking Day, and interest shall be payable for any
principal so extended for the period of such extension.
 
4.2  Computations.  Interest hereunder shall be computed on the basis of a year
of 365 days.
 
4.3  Requests for Advances.  Unless the Borrowers and the Lender agree
otherwise, Lender shall make biweekly advances.  Each advance shall be in the
amount contained in the Budget for the two-week period for which the advance is
made.  Requests by the Borrowers to the Lender for additional advances shall be
effective only if agreed to by the Lender and only if received by the Lender not
later than 12:00 p.m. Mountain Standard or Daylight Time, as applicable, three
(3) Banking Days prior to the requested date of the advance.
 
ARTICLE V
 
SECURITY; ADMINISTRATIVE PRIORITY
 
5.1  Grant of Lien.
 
(a)  Pursuant to this Agreement and the Security Documents and pursuant to §
364(c)(2) and (3) of the Bankruptcy Code, and to secure the Obligations, the
Borrowers hereby assign, pledge, transfer, grant, confirm and set over unto the
Lender a Lien in and to the Collateral (the “Lender’s Lien”).
 
(b)  The Lender’s Lien shall be a valid, perfected, and enforceable Lien on the
Collateral and shall be a first priority Lien; provided, however, that the
Lender’s Lien shall be subject only to (i) any valid, perfected, and enforceable
Liens on any of the Collateral in effect as of the Petition Date, (ii) the
Carve-Out Expenses, (iii) Permitted Postpetition Statutory Liens (as defined in
Article IX below) to the extent such Permitted Postpetition Statutory Liens are
accorded a priority over the Lender’s Lien; (iv) the Agent’s Adequate Protection
Lien, and (v) the Agent’s 507(b) Claim.  The Lender’s Lien and its priority
shall remain in effect until the Loan has been terminated and all Obligations
have been irrevocably repaid in cash in full.
 
5.2  Administrative Priority.  The Obligations of the Borrowers shall constitute
allowed administrative expenses in the Bankruptcy Cases having super-priority
status under § 364(c)(1) of the Bankruptcy Code over all other administrative
expenses and unsecured claims against the Borrowers now existing or hereafter
arising of any kind or nature whatsoever, including without limitation all
administrative expenses, charges and claims of the kind specified in §§ 326,
330, 331, 503(a), 503(b), 506(c), 507(a), 507(b), 546(c), and 726(b) of the
Bankruptcy Code, except for the Carve-Out Expenses and the Agent’s Adequate
Protection Lien and the Agent’s 507(b) Claim.
 
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5.3  Grants, Rights and Remedies Cumulative.  The Lender’s Lien and the
administrative priority granted pursuant to Section 5.2 hereof may be
independently granted by the Loan Documents, the Orders and by other agreements
hereafter entered into.  This Agreement, the other Loan Documents, the Orders
and such other agreements hereinafter entered into supplement each other, and
the grants, priorities, rights and remedies of the Lender hereunder and
thereunder are cumulative.
 
5.4  No Filings Required.  The Lender’s Lien referred to herein shall be deemed
valid, perfected and enforceable by entry of the Interim Order or Final Order,
as the case may be, whichever occurs first.  The Lender shall not be required to
file any financing statements, notices of Lien, mortgages, deeds of trust,
assignments of production, fixture filings or similar instruments in any
jurisdiction or filing office, or to take possession of any Collateral or to
take any other action in order to validate or perfect the Lien granted by or
pursuant to this Agreement, the Interim Order or the Final Order, as the case
may be, or any other Loan Document.  The Borrowers consent to the modification
of the automatic stay under § 362 of the Bankruptcy Code to permit the Lender,
if the Lender so desires, to file any such financing statements, notices of
Lien, mortgages, deeds of trust, assignments of production, fixture filings or
similar instruments, take possession of any Collateral, or take any other action
to evidence, validate or perfect the Lien in the Collateral.
 
5.5  Survival.  Except as approved by Lender in writing, the Lender’s Lien, its
priority, administrative priority and other rights and remedies granted to the
Lender pursuant to this Agreement and the other Loan Documents shall not be
modified, altered, primed or impaired in any manner by any other financing or
extension of credit to the Borrowers (pursuant to § 364 of the Bankruptcy Code
or otherwise) or by any dismissal or conversion of either of the Bankruptcy
Cases or, with respect to the Loan, any modification, amendment or reversal or
stay of the Interim Order or the Final Order, as the case may be, or by any
other act or omission whatsoever.
 
ARTICLE VI
 
CONDITIONS PRECEDENT
 
6.1  Conditions Precedent Pertaining to Loan.  The obligation of the Lender to
make the Loan available hereunder shall occur on the date (the “Loan
Commencement Date”), when the Lender has received each of the following, in form
and substance satisfactory to the Lender:
 
(a)  the Note duly executed by the Borrowers;
 
(b)  any Security Documents requested by the Lender, together with such
mortgages, deeds of trust, assignments of production, fixture filings, financing
statements or other instruments which in the opinion of the Lender are desirable
to perfect the Lender’s Lien created hereby and the Security Documents, duly
executed by the Borrowers;
 
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(c)  evidence that the Interim Order or the Final Order shall have been entered
by the Bankruptcy Court approving the Loan, and each such Order shall be in full
force and effect and shall not have been appealed, reversed, stayed, modified or
amended; and
 
(d)  the Budget in form and substance acceptable to the Lender, setting forth
the costs, expenses and working capital requirements of the Borrowers to be
funded by the Loan.
 
6.2  Additional Conditions Precedent.  The obligation of the Lender to make the
Loan is subject to the further conditions precedent that on the date of any
advance the following statements shall be true:
 
(a)  the representations and warranties made by the Borrowers in Article 7
hereunder and in each of the other Loan Documents are true and correct in all
material respects on and as of the date of the Loan as though made on and as of
such date;
 
(b)  no Event of Default has occurred and is continuing, or would result from
such borrowing;
 
(c)  the Orders, as the case may be, shall be in full force and effect and shall
not have been appealed, reversed, stayed, modified or amended;
 
(d)  The Lender has not become aware of any information or other matter
(including any matter relating to financial models and underlying assumptions
relating to the Budget) affecting the Borrowers or the transactions contemplated
hereby, that in its judgment is inconsistent in a material and adverse manner
with any such information or other matter disclosed to it prior to the date of
this Agreement;
 
(e)  The Lender has received such additional information as the Lender may
reasonably request; and
 
(f)  Nothing has occurred since the Petition Date and is continuing which
results in a Material Adverse Effect.
 
ARTICLE VII
 
REPRESENTATIONS AND WARRANTIES
 
7.1  Incorporation, Good Standing and Due Qualification.  The Borrowers: (i) are
duly organized, validly existing and in good standing under the laws of their
respective jurisdictions of incorporation, as set forth in the Recitals; and
(ii) have the power and authority and the legal right to own and operate their
property and to carry on their businesses as presently conducted and as proposed
to be conducted.
 
7.2  Corporate Power and Authority; No Conflicts.  The execution, delivery and
performance by the Borrowers of the Loan Documents, the grant by the Borrowers
and the perfection of the Lender’s Lien, and the exercise by the Lender of any
rights and remedies hereunder or under the other Loan Documents have been duly
authorized by necessary corporate action and do not and will not: (i) contravene
any provision of the Borrowers’ respective charters
 
 
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or bylaws; (ii) violate any provision of, or require any filing, registration,
consent or approval under, any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to the Borrowers (other than entry of the Orders); or (iii) cause
the Borrowers to be in material default under any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award or any such
indenture, agreement, lease or instrument except as provided by the Bankruptcy
Code and the Orders.
 
7.3  Legally Enforceable Agreements.  Each Loan Document is, or when delivered
under this Agreement will be, a legal, valid and binding obligation of the
Borrowers enforceable against the Borrowers in accordance with its terms.
 
7.4  Budget.  The Budget has been prepared by the Borrowers in light of the past
operations of the business of the Borrowers.  The Budget is based upon estimates
and assumptions stated therein, all of which the Borrowers believe to be
reasonable and fair in light of current conditions and current facts known to
the Borrowers and, as of the date hereof , reflect the Borrowers’ good faith and
reasonable estimates of the future financial performance of the Borrowers and of
the other information projected therein for the periods set forth therein.
 
7.5  Insurance.  The Borrowers maintain with financially sound and reputable
insurers adequate insurance with respect to their property and businesses.
 
7.6  Ownership of Property. Each of the Borrowers has title in fee simple to, or
a valid leasehold interest in, all its real property, and good title to, or a
valid leasehold interest in, all its other property.
 
7.7  Bankruptcy Court Orders.  Each of the Orders, as the case may be, is in
full force and effect, and has not been reversed, stayed, modified or amended.
 
7.8  Compliance with Law.  The Borrowers have all licenses, permits, consents or
approvals from or by, and have made all filings with, and have given all notices
to, all governmental authorities having jurisdiction, to the extent required for
the ownership, operation and conduct of the Borrowers’ businesses, and are in
compliance with all applicable provisions of law, including Environmental Laws,
except where the failure to comply, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
 
7.9  Environmental Matters. Other than exceptions to any of the following that
could not, individually or in the aggregate, reasonably be expected to result in
the payment of a Material Environmental Amount:
 
(a)  The Borrowers: (i) are, and within the period of all applicable statutes of
limitation have been, in compliance with all applicable Environmental Laws; (ii)
hold all Environmental Permits (each of which is in full force and effect)
required for any of their current or intended operations or for any property
owned, leased, or otherwise operated by any of them; (iii) are, and within the
period of all applicable statutes of limitation have been, in compliance with
all of their Environmental Permits; and (iv) reasonably believe that each of
their Environmental Permits will be timely renewed and complied with, without
material expense; any additional Environmental Permits that may be required of
either of them will be timely obtained and complied with, without material
expense; and compliance with any Environmental Law that
 
 
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is or is expected to become applicable to either of them will be timely attained
and maintained, without material expense.
 
(b)  There is no judicial, administrative, or arbitral proceeding (including any
notice of violation or alleged violation) under or relating to any Environmental
Law to which either Borrower is or will be named as a party that is pending or,
to the knowledge of either Borrower, threatened.
 
(c)  Neither of the Borrowers has received any written request for information,
or been notified that it is a potentially responsible party under or relating to
the federal Comprehensive Environmental Response, Compensation, and Liability
Act or any similar Environmental Law.
 
(d)  Neither of the Borrowers has entered into or agreed to any consent decree,
order, or settlement or other agreement, or is subject to any judgment, decree,
or order or other agreement, in any judicial, administrative, arbitral, or other
forum for dispute resolution, relating to compliance with or liability under any
Environmental Law.
 
ARTICLE VIII
 
AFFIRMATIVE COVENANTS
 
So long as any Obligations shall remain outstanding, the Borrowers shall:
 
8.1  Maintenance of Existence.  Preserve and maintain their corporate existence
and good standing in the respective jurisdictions of their organization.
 
8.2  Conduct of Business.  Subject to the provisions of the Bankruptcy Code, (i)
continue to engage in an efficient and economical manner in a business of the
same general type as conducted by them on the date of this Agreement; (ii)
obtain from time to time all licenses, permits, authorizations or other forms of
permission which under federal, state and local laws are necessary or advisable
for operating and maintaining the conduct of their businesses (including,
without limitation, copyrights, trademarks, patents and licenses to use tangible
or intangible property and similar rights), and (iii) use their best efforts, in
each case consistent with the Budget, to preserve and protect the value of the
Collateral.
 
8.3  Maintenance of Properties and Executory Contracts and Leases.  Subject to
the provisions of the Bankruptcy Code, maintain, keep and preserve all of their
properties (tangible and intangible) including leased property, necessary or
useful in the proper conduct of their businesses in commercially reasonable
working order and condition, ordinary wear and tear excepted, and shall use
their best efforts to ensure that all leases and executory contracts necessary
or useful in the Borrowers’ businesses or operations remain in full force and
effect, except to the extent otherwise consented to by the Lender.
 
8.4  Maintenance of Insurance.  Maintain insurance as is usually and customarily
maintained with respect to the Collateral, with financially sound and reputable
insurance companies or associations in such amounts and covering such risks as
are usually carried by
 
 
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companies engaged in the same or a similar business and similarly situated,
which insurance may provide for reasonable deductibility from coverage thereof.
 
8.5  Compliance with Laws.  Comply in all respects with all applicable laws,
rules, regulations and orders (including the Orders), such compliance to
include, without limitation, complying with all Environmental Laws, and paying
before the same become delinquent all taxes, assessments and governmental
charges imposed upon them or upon their property, subject to the limitations and
requirements of the Bankruptcy Code and the Orders.
 
8.6  Environmental Laws.
 
(a)  Comply in all material respects with all applicable Environmental Laws, and
obtain and comply in all material respects with and maintain, any and all
licenses, approvals, notifications, registrations or permits required by
applicable Environmental Laws.
 
(b)  Conduct and complete all investigations, studies, sampling and testing, and
all remedial, removal and other actions required under Environmental Laws and
promptly comply in all material respects with all lawful orders and directives
of all governmental authorities regarding Environmental Laws.
 
8.7  Right of Inspection.  (A) Keep proper books of records and account in which
full, true and correct entries in conformity with generally accepted accounting
principles and all requirements of law shall be made of all dealings and
transactions in relation to their business and activities and (B) at any
reasonable time and from time to time permit the Lender or any agent or
representative thereof, to examine and make copies and abstracts from the
records and books of account of, and visit the properties of, the Borrowers, and
to discuss the affairs, finances and accounts of the Borrowers with any of their
respective officers and directors and the Borrowers’ independent accountants.
 
8.8  Reporting Requirements.  Furnish to the Lender:
 
(a)  biweekly reports comparing actual to budgeted income and expenses;
 
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(b)  copies of the monthly and other reports required by the Office of the
United States Trustee contemporaneously when submitted to the Office of the
United States Trustee;
 
(c)  copies of all documents and reports submitted to the Securities and
Exchange Commission contemporaneously when submitted thereto; and
 
(d)  such further information relating to the Borrowers’ assets, financial
condition, or operations as the Lender may reasonably request.
 
8.9  Notices.  Promptly give notice to the Lender of any of the following:
 
(a)  the occurrence of any Event of Default;
 
(b)  any (i) default or event of default under any contractual obligation of the
Borrowers or (ii) litigation, investigation or proceeding which may exist at any
time between the Borrowers and any governmental authority, that in either case,
if not cured or if adversely determined, as the case may be, could reasonably be
expected to have a Material Adverse Effect;
 
(c)  any litigation or proceeding affecting the Borrowers in which the amount
involved is $10,000 or more and not covered by insurance or in which injunctive
or similar relief is sought;
 
(d)  the following events, as soon as possible after either Borrower knows or
has reason to know thereof: (i) any adverse claim against the Collateral
involving an amount in excess of $10,000 (individually or in the aggregate of
all adverse claims), or (ii) any substantial change in the Collateral or of the
occurrence of any event that could reasonably be expected to have a Material
Adverse Effect; and
 
(e)  any development or event that has had or could reasonably be expected to
have a Material Adverse Effect.
 
Each notice pursuant to this Section shall be accompanied by a statement of the
Borrowers setting forth details of the occurrence referred to therein and
stating what action the Borrowers propose to take with respect thereto.
 
8.10  Further Assurances.  Execute, acknowledge, deliver, record, file,
register, perform and do any and all such further acts, deeds, mortgages, deeds
of trust, conveyances, security agreements, assignments, estoppel certificates,
financing statements, assurances and other instruments as the Lender may
reasonably request from time to time in order to carry out more effectively the
purposes of this Agreement or any other Loan Document, or to perfect and renew
more fully the rights of the Lender with respect to the Collateral (or with
respect to any additions thereto or replacements or proceeds thereof or with
respect to any other property or assets hereafter acquired by either Borrower
which may be deemed to be part of the Collateral) pursuant hereto or
thereto.  Upon the exercise by the Lender of any power, right, privilege or
remedy pursuant to this Agreement or the other Loan Documents which requires any
consent, approval, recording, qualification or authorization of any governmental
authority, the Borrowers shall execute and deliver, or shall cause the execution
and delivery of, all applications, certifications, instruments and other
documents and papers that the Lender may be required to obtain from any
Borrowers for such governmental consent, approval, recording, qualification or
authorization.
 
ARTICLE IX
 
NEGATIVE COVENANTS
 
So long as any Obligations shall remain outstanding, the Borrowers shall not,
without the prior approval of the Lender:
 
(a)  seek, consent to or suffer to exist any modification, stay, vacation or
amendment of the Orders, as the case may be, except for modifications and
amendments agreed to by the Lender;
 
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(b)  seek, consent to or suffer to exist a priority for any administrative
expense or unsecured claim against the Borrowers (now existing or hereafter
arising of any kind or nature whatsoever, including without limitation any
administrative expenses, charges or claims of the kind specified in §§ 503(b),
506(c), and 507(b) of the Bankruptcy Code) equal or superior to the priority of
the Lender in respect of the Obligations, except for the Carve-Out Expenses;
 
(c)  create, incur, or suffer to exist any Lien upon any of the Borrowers’
assets except for postpetition statutory Liens (such as mechanics’ liens)
arising in the ordinary course of business which are not overdue or which are
being contested in good faith by appropriate proceedings (“Permitted
Postpetition Statutory Liens”);
 
(d)  use the proceeds of the loan to finance in any way any action, suit,
arbitration, proceeding, application, motion or other litigation challenging the
validity, perfection, priority, extent or enforceability of the Obligations or
the Liens of the Lender in the Collateral or any other Obligations of the
Borrowers to the Lender;
 
(e)  with respect to Borrower Galaxy Energy Corporation, declare or pay any
dividend, make any distribution on or redeem or otherwise acquire any of is
capital stock, or pay or make any distribution to shareholders;
 
(f)  make any distribution under a chapter 11 plan in these Bankruptcy Cases; or
 
(g)  make any payment in settlement of any claim, action or proceeding, before
any court, arbitrator or other governmental body without the prior written
consent of the Lender.
 
ARTICLE X
 
EVENTS OF DEFAULT
 
10.1  Events of Default
 
.  Any of the following events shall be an “Event of Default”:
 
(a)  the Borrowers shall: (i) fail to pay the principal of the Note as and when
due and payable; or (ii) fail to pay interest on the Note or other amount due
hereunder as and when due and payable and such failure shall continue unremedied
for ten (10) Banking Days.
 
(b)  any representation or warranty made by the Borrowers in this Agreement or
in any other Loan Document, or which is contained in any certificate, document,
opinion, financial or other statement furnished at any time under or in
connection with any Loan Document, was incorrect in any material respect on or
as of the date made or deemed made;
 
(c)  an order shall be entered by the Bankruptcy Court in either of the
Bankruptcy Cases, or either of the Borrowers shall file in either of the
Bankruptcy Cases an application for an order, for the appointment of (i) a
trustee or (ii) an examiner with the authority to perform duties of a trustee
(other than the duties solely of an examiner) in respect of the estate of either
of the Borrowers or the operation of the business of either of the Borrowers;
 
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(d)  an order shall be entered by the Bankruptcy Court dismissing either of the
Bankruptcy Cases or converting either of the Bankruptcy Cases to a chapter 7
case;
 
(e)  any change in the senior management of either of the Borrowers not
previously agreed to by the Lender;
 
(f)  an order shall be entered by the Bankruptcy Court without the express prior
written consent of the Lender (i) revoking, reversing, staying, modifying,
supplementing or amending the Orders or any them or any of the Loan Documents;
or (ii) permitting any administrative expense or any claim (now existing or
hereafter arising, of any kind or nature whatsoever) to have administrative
priority equal or superior to the priority of the Lender in respect of the
Obligations, except for Carve-Out Expenses.
 
(g)  an application for any of the orders described in clauses (c), (d) or (f)
above shall be made by (i) either of the Borrowers or (ii) a person other than
the Borrowers and such application is not contested by the Borrowers in good
faith or the relief requested is granted in an order that is not stayed pending
appeal;
 
(h)  any material license, permit or other authorization by any federal, state
or local government or any lease relating to the Collateral which, in each case,
is necessary for the use or operation in the conduct of the businesses engaged
in by the Borrowers on the date hereof shall be revoked or canceled or otherwise
terminated; or
 
(i)  one or more judgments or decrees shall be entered against either Borrower
involving a liability (not paid or fully covered by insurance as to which the
relevant insurance company has acknowledged coverage) of $50,000 or more (other
than the allowances but not enforcement of claims in the Bankruptcy Cases), and
all such judgments or decrees shall not have been vacated, discharged, stayed
(including pursuant to Section 362 of the Bankruptcy Code) or bonded pending
appeal within 15 days from the entry thereof;
 
(j)  the Loan Documents and the Orders shall, for any reason, cease to create a
valid Lien on any of the Collateral purported to be covered thereby or such Lien
shall cease to be a perfected Lien having the priority provided herein and in
the Orders pursuant to Section 364 of the Bankruptcy Code against the Borrowers,
or either Borrower shall so allege in any pleading filed in any court, or any
provision of any Loan Document shall, for any reason, cease to be valid and
binding on either Borrower or either Borrower shall so state in writing;
 
(k)  any Material Adverse Effect shall occur after the Loan Commencement Date;
 
(l)  the bringing of a motion, taking of any action or the filing of any plan of
reorganization by either Borrower: (a) to obtain additional financing under
section 364(c) or (d) of the Bankruptcy Code or not otherwise permitted pursuant
to the Loan Documents except, with the consent of the Lender, in connection with
any financing the proceeds of which shall be used to repay in full the
Obligations; (b) to grant any Lien on any Collateral except as permitted
hereunder and under the other Loan Documents; (c) except as provided in the
Interim Order or Final Order, as the case may be, to use cash collateral of the
Lender under section 363(c) of the Bankruptcy Code without the prior written
consent of the Lender; or (d) which is materially
 
 
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adverse to the Lender or its rights and remedies hereunder or its interest in
the Collateral, including, without limitation, any such action or actions which
seek to reduce, set-off or subordinate the Obligations or challenge the Lender’s
Lien in any of the Collateral;
 
(m)  the filing by any Borrower of any plan of reorganization that does not
provide for full payment of the Obligations as required herein, on or prior to
the effective date of such plan of reorganization;
 
(n)  the entry of an order by the Bankruptcy Court granting relief from or
modifying the automatic stay of section 362 of the Bankruptcy Code (i) to allow
any creditor other than the Lender to execute upon or enforce a Lien on any
Collateral in excess of $50,000 in the aggregate, or (ii) with respect to any
Lien of or the granting of any Lien on any Collateral to any state or local
environmental or regulatory agency or authority that would have a Material
Adverse Effect;
 
(o)  the entry of an order in the Bankruptcy Cases avoiding or requiring
repayment of any portion of the payments made on account of the Obligations;
 
(p)  the sale without the consent of the Lender of all or substantially all of
the Borrowers’ assets either through a sale under section 363 of the Bankruptcy
Code, through a confirmed plan of reorganization in the Bankruptcy Cases, or
otherwise, that does not provide for payment in full of the Obligations and
termination of Lender’s commitment to make Loans hereunder;
 
(q)  the Borrowers shall: (i) fail to perform or observe any other term,
covenant or agreement on its part to be performed or observed in any Loan
Document, including the covenants contained in Article VIII and Article IX
above, and such failure shall continue unremedied for ten (10) Banking Days
after notice thereof or (ii) fail to comply with any of the terms or provisions
of the Interim Order or the Final Order.
 
10.2  Consequences of an Event of Default.  Upon occurrence of an Event of
Default, the Lender may, at its option, (a) without further notice or demand,
declare the outstanding principal balance of and accrued but unpaid interest on
this Note at once due and payable, (b) pursue any and all other rights, remedies
and recourses available to the Lender, or (c) pursue any combination of the
foregoing.  The failure to exercise the option to accelerate the maturity of
this Note or any other right, remedy or recourse available to the Lender hereof
upon the occurrence of an Event of Default hereunder shall not constitute a
waiver of the right of the Lender of this Note to exercise the same at that time
or at any subsequent time with respect to such Event of Default or any other
Event of Default.  All undertakings of the Borrowers contained in the Loan
Documents shall survive any termination, and the Lender shall retain its Liens
in the Collateral and all of its rights and remedies under the Loan Documents
and the Orders until full payment of the Obligations.  The rights, remedies and
recourses of the Lender shall be cumulative and concurrent and may be pursued
separately, successively or together as often as occasion therefor shall arise,
at the sole discretion of the Lender.  The acceptance by the Lender of any
payment under this Note which is less than the payment in full of all amounts
due and payable at the time of such payment shall not (i) constitute a waiver of
or impair, reduce, release or extinguish any right, remedy or recourse of the
Lender hereof, or nullify any prior exercise of any such right,
 
 
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remedy or recourse, or (ii) impair, reduce, release or extinguish the
obligations of Borrowers as provided herein.  If an Event of Default shall
occur, in order to pursue such remedies as the Lender deems advisable, the
Lender may seek from the Bankruptcy Court relief from the automatic stay and the
Borrowers consent to, and will not contest, the Lender’s request for relief from
the automatic stay on an expedited basis.
 
ARTICLE XI
 
MISCELLANEOUS
 
11.1  Amendments and Waivers.  The Borrowers and the Lender may from time to
time enter into agreements amending, modifying or supplementing this Agreement,
the Note or any other Loan Documents, and the Lender may from time to time grant
waivers or consents to a departure from the due performance of the Obligations
of the Borrowers hereunder or thereunder.  Any such agreement, waiver or consent
must be in writing and shall be effective only to the extent specifically set
forth in such writing.
 
11.2  Survival of Representations and Warranties.  All representations and
warranties made herein, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Loan hereunder.
 
11.3  Binding Effect and Assignability.  This Agreement shall be binding upon
and inure to the benefit of the Lender, the Borrowers and their respective
successors and assigns (including, except for the right to request Loans, any
trustee or examiner or other person with expanded powers succeeding to the
rights of the Borrowers or pursuant to any conversion to a case under chapter 7
of the Bankruptcy Code).  The Borrowers may not assign any of their rights or
obligations under the Loan, this Agreement, the Note and the other Loan
Documents without the prior written consent of the Lender and any such
assignment without prior written consent shall be void.  The Lender may assign
its interest in the Loan and this Agreement, the Note and the other Loan
Documents without approval of the Borrowers.
 
11.4  Notices.  Any notice required to be given under this Agreement shall be
given in writing and may be served either by personal delivery, facsimile,
Federal Express or similar over-night delivery or by depositing the same in
first class mail, postage prepaid, addressed to the respective parties as
indicated below, or such different address as a party may have fixed by notice
hereunder:
 
To Lender:
 
            Bruner Family Trust
            c/o Marc E. Bruner, Co-Trustee
            1331 17th Street, Suite 1050
            Denver, Colorado 80202
            Telephone No.:  (303) 293-2300
            Facsimile No.:  (303) 293-2417
 
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            and
            Bruner Family Trust
            c/o Cynthia L. Gausvik, Co-Trustee
            8484 Westpark Drive, Suite 900
            McLean, Virginia  22102
            Telephone No.:  (703) 744-8040
            Facsimile No.:  (703) 744-8001
 
with a copy to:
 
            Carl A. Eklund, Esq.
            Ballard Spahr Andrews & Ingersoll, LLP
            1225 17th Street, Suite 2300
            Denver, Colorado  80202
            Telephone No.: (303) 292-2400
            Facsimile No.: (303) 296-3956
 
To Borrowers:
 
            Galaxy Energy Corporation
            Dolphin Energy Corporation
            1331 17th Street, Suite 1050
            Denver, Colorado 80202
            Attn:  Marc E. Bruner, President
            Telephone No.:  (303) 293-2300
            Facsimile No.:  (303) 293-2417

with a copy to:
 
            Douglas W. Jessop, Esq.
            Jessop & Company, P.C.
            303 East 17th Avenue, Suite 930
            Denver, Colorado 80203
            Telephone No.: (303) 860-7700
            Facsimile No.: (303) 860-7233
 
Notices delivered personally shall be effective upon delivery.  Notices
transmitted by facsimile or overnight delivery shall be effective when received
provided such are received during normal business hours, otherwise they shall be
effective the next business day.  Notices delivered by mail shall be effective
72 hours after mailing.
 
11.5  Headings.  The headings and captions hereunder are for convenience only
and shall not affect the interpretation or construction of this Agreement.
 
11.6  Severability.  The provisions of this Agreement are intended to be
severable.  If for any reason any provision of this Agreement shall be held
invalid or unenforceable in whole
 
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or in part in any jurisdiction, such provision shall, as to such jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without in
any manner affecting the validity or enforceability thereof in any other
jurisdiction or the remaining provisions hereof in any jurisdiction.
 
11.7  Payment of Expenses.  Borrowers agree to reimburse the Lender for all of
its out-of-pocket costs and expenses, including the reasonable fees and
disbursements of the Lender’s attorneys, accountants and other professionals,
incurred by the Lender in connection with this Loan, including all costs and
expenses incurred in connection with the development and preparation of this
Loan and the Loan Documents, the enforcement or preservation of any of the
Lender’s rights under any of the Loan Documents, and the administration of the
transactions contemplated hereby.
 
11.8  Counterparts and Facsimile.  This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and any party hereto may execute this Agreement by signing any such
counterpart.  This Agreement may also be executed via facsimile, provided the
original signature pages are executed and delivered within ten (10) days
thereafter.
 
11.9  Integration.  The Loan Documents set forth the entire agreement between
the parties hereto relating to the transactions contemplated thereby and
supersede any prior oral or written statements or agreements with respect to
such transactions.  This Agreement shall therefore be deemed to have been
negotiated and prepared at the joint request, direction and construction of the
parties, at arm’s length, with the advice and participation of counsel, and will
be interpreted in accordance with its terms without favor to any party.
 
11.10  Governing Law.  This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Colorado, except to the extent governed
by the Bankruptcy Code and without regard to Colorado conflict of laws
provisions, and shall be deemed to have been drafted by all parties hereto.
 
[Remainder of page intentionally left blank.]
 

 
 
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
 
GALAXY ENERGY CORPORATION

By:                                                                           
Name:                                                                      
Title:                                                                        

DOLPHIN ENERGY CORPORATION

By:                                                                           
Name:                                                                      
Title:                                                                        

BRUNER FAMILY TRUST

By:                                                                           
Name:  Marc E. Bruner
Title:  Co-Trustee

and

By:                                                                           
Name:  Cynthia L. Gausvik
Title:  Co-Trustee

 
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EXHIBIT 1
 

 
Budget
 

 
See attached.
 

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EXHIBIT 2
 

 
Secured Revolving Promissory Note
 

 
See attached.
 

 
 

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SECURED REVOLVING PROMISSORY NOTE
 
$4,368,100.00                                                                                                                                  
April 14, 2008
 
FOR VALUE RECEIVED, the undersigned, Galaxy Energy Corporation, a Colorado
corporation, and Dolphin Energy Corporation, a Nevada corporation, (together,
the “Borrowers”), hereby jointly and severally promise to pay to the order of
Bruner Family Trust (the “Lender”), the principal sum of Four Million Three
Hundred Sixty-Eight Thousand One Hundred Dollars ($4,368,100.00), or so much
thereof as shall from time to time be advanced or readvanced to Borrowers in
accordance with the Loan Agreement dated of even date herewith (the “Loan
Agreement”), together with interest thereon on the unpaid principal balance
thereof at an annual rate of ten percent (10%) per annum.  Principal and
interest shall be payable as herein provided in lawful money of the United
States of America to Lender at 1331 17th Street, Suite 1050, Denver, Colorado
80202, or at such other place as from time to time may be designated by the
holder of this Note.
 
Interest on this Note shall accrue from the date(s) of advance of funds
hereunder through the date(s) of payment.  The outstanding principal balance
hereof from time to time and all accrued interest thereon shall be due and
payable on November 15, 2008 or such earlier Maturity Date as provided in the
Loan Agreement, at which time the outstanding principal balance hereof and all
accrued and unpaid interest shall be due and payable in full.
 
Advances shall be made by Lender hereunder upon written request by Borrowers in
a manner consistent with the Loan Agreement, including a statement of the amount
and purpose of such request.  The aggregate outstanding amount of such advances
shall not exceed the principal amount of this Note.
 
The payment of this Note and all interest hereon is secured by the Loan
Agreement and by the Security Documents and the Orders (as such terms are
defined in the Loan Agreement).  Reference is made to the Loan Agreement and
Security Documents for a description of the collateral securing this Note.
 
This Note may be prepaid in full or in part at any time prior to maturity
without premium or penalty.
 
Upon the failure of the Borrowers to make any principal and interest payment
when due and payable on the Maturity Date or such earlier payment date required
by the Loan Agreement, or any part thereof, or in the performance of any of the
terms, agreements, covenants, or conditions contained in the Security Documents
or the Loan Agreement, the principal balance hereof and the interest accrued
hereon together with any additional sums to be paid under the Loan Agreement and
Security Documents or advanced by the holder hereof, at the election of the
holder hereof, may be declared to be forthwith due and payable and shall bear
interest at the rate of thirteen percent (13%) percent per annum.  The failure
to exercise this election upon a default shall not constitute a waiver of the
right to exercise this option in the event of any subsequent or continuing
default.
 
Borrowers and all parties now or hereafter liable for the payment hereof,
primarily or secondarily, directly or indirectly, and whether as endorser,
guarantor, surety, or otherwise,
 
 
 
 

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hereby severally waive demand, presentment, notice of dishonor or nonpayment,
protest and notice of protest, and diligence in collecting and consent to
substitution, release, or impairment of collateral, the taking of additional
collateral, extensions of time for payment, and acceptance of partial payments,
whether before, at, or after maturity.
 
Each Borrower and all parties now or hereafter liable for the payment hereof
agree to pay all costs and expenses, including reasonable attorneys’ fees,
incurred in collecting this Note or any part thereof and in preserving, securing
possession of, and realizing upon any security of this Note.
 
This Note may not be amended, modified, or changed, nor shall any waiver of any
provision hereby be effective except only by an instrument in writing and signed
by the party against whom enforcement of any waiver, amendment, change,
modification or discharge is sought.
 
This Note is made and shall be governed by and interpreted in accordance with
the laws of the State of Colorado and without regard to Colorado conflict of
laws provisions.
 
GALAXY ENERGY CORPORATION

By:                                                                           
Name:                                                                      
Title:                                                                        

DOLPHIN ENERGY CORPORATION

By:                                                                           
Name:                                                                      
Title:                                                                        
 
 

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