Document:

Exhibit
      10.1

    
 

    FIRST
      AMENDMENT TO CREDIT AGREEMENT

    

    THIS
      FIRST AMENDMENT TO CREDIT AGREEMENT (this “First
      Amendment”),
      dated
      as of August 29, 2006 (the “Effective
      Date”),
      is by
      and among STORM
      CAT ENERGY (USA) CORPORATION,
      a
      Colorado corporation (“Borrower”),
      STORM
      CAT ENERGY CORPORATION,
      a
      corporation amalgamated under the laws of British Columbia (“Parent”),
      and
JPMORGAN
      CHASE BANK, N.A.,
      a
      national banking association, as Global Administrative Agent (“Global
      Administrative Agent”)
      and
      the sole financial institution a party hereto as a Lender (“Lender”).

    

    W
      I T N E S S E T H:

    

    WHEREAS,
      Borrower, Parent, Global Administrative Agent and Lender are parties to that
      certain Credit Agreement dated as of July 28, 2006 (as amended by this
      First Amendment, the “Credit
      Agreement”)
      (unless otherwise defined herein, all terms used herein with their initial
      letter capitalized shall have the meaning given such terms in the Credit
      Agreement); and

    

    WHEREAS,
      Borrower and Parent have requested that Lender (i) amend certain terms of
      the Credit Agreement in certain respects, (ii) establish a Global Borrowing
      Base and U.S. Borrowing Base in each case in the amount of U.S. $20,000,000,
      to
      be effective as of the Effective Date and continuing until the next
      redetermination or other adjustment of the Global Borrowing Base and the U.S.
      Borrowing Base thereafter, and (iii) consent to certain transactions more
      particularly described herein; and

    

    WHEREAS,
      subject to and upon the terms and conditions set forth herein, Lender has agreed
      to Borrower’s and Parent’s requests.

    

    NOW
      THEREFORE, for and in consideration of the mutual covenants and agreements
      herein contained and other good and valuable consideration, the receipt and
      sufficiency of which are hereby acknowledged and confessed, Borrower, Parent,
      Global Administrative Agent and Lender hereby agree as follows:

    SECTION
      1 Amendments.
      In
      reliance on the representations, warranties, covenants and agreements contained
      in this First Amendment, and subject to the satisfaction of each condition
      precedent set forth in Section
      4
      hereof,
      the Credit Agreement is hereby amended effective as of the Effective Date in
      the
      manner provided in this Section
      1.

    

    1.1 Amendment
      to Definitions.
      The
      definitions of “Loan
      Document,”
      “Obligations”
and
      “Security
      Documents”
      contained in Section 1.1 of the Credit Agreement shall be amended to read in
      full as follows:

    

    “Loan
      Document”
means
      (1) this
      Agreement, the First Amendment, the Notes, the Secured Bridge Note, the Security
      Documents, the Fee Letter, the Intercreditor Agreement, the Facility Guaranties,
      the Hedging Agreements between Borrower, Parent or any of its Restricted
      Subsidiaries and any Lender or any Affiliate of a Lender, any Borrowing Request,
      any Interest Election Request, any election notice, and any agreement with
      respect to fees described in Section
      2.11,
      and
(2) each
      other agreement, document or instrument delivered by Parent, Borrower or any
      other Loan Party in connection with this Agreement or the Secured Bridge Note,
      as amended, supplemented, restated or otherwise modified from time to time.
      For
      avoidance of doubt, the term “Loan Document” shall not include the Canadian Loan
      Documents.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    “Obligations”
means,
      at any time, the sum of ii)(1) the
      aggregate Credit Exposure of the Lenders under the Loan Documents plus (2) all
      accrued and unpaid interest and fees owing to the Lenders under the Loan
      Documents plus (3) all
      Hedging Obligations in connection with all Hedging Agreements between Borrower,
      Parent or any of its Restricted Subsidiaries and any Lender or any Affiliate
      of
      a Lender plus (4) the
      “Obligation” (as defined in the Secured Bridge Note) of Borrower to JPMorgan
      Chase Bank, N.A. as “Payee” under and as defined in the Secured Bridge Note
plus (5) all
      other obligations (monetary or otherwise) of Borrower, Parent or any Restricted
      Subsidiary to any Lender or any Agent, whether or not contingent, arising under
      or in connection with any of the Loan Documents.

    

    “Security
      Documents”
means
      each Facility Guaranty, each Mortgage, each Pledge Agreement, the Confirmation
      and Ratification Agreement, each Canadian Security Document and each other
      instrument or document executed and delivered pursuant to Section 5.12
      or
Section 5.15
      or
      pursuant to the Loan Documents to secure any of the Obligations.

    

    1.2 Additional
      Definitions.
      Section
      1.1 of the Credit Agreement shall be amended to add the following definitions
      to
      such Section:

    

    “BBC”
means
      Bill Barrett CBM, L.L.C., a Texas limited liability company.

    

    “BBC
      Acquisition”
means
      the purchase by Borrower (or, as applicable, Storm Cat Powder River) of the
      BBC
      Assets pursuant to the BBC Acquisition Agreement, which purchase shall be on
      terms and conditions reasonably acceptable to Global Administrative Agent and
      Lender.

    

    “BBC
      Acquisition Agreement”
means
      that certain Purchase and Sale Agreement dated July 17, 2006, by and between
      BBC, as seller, and Borrower, as buyer, as amended through the Effective Date
      (as defined in the First Amendment).

    

    “BBC
      Acquisition Documents”
means
      the BBC Acquisition Agreement and all other agreements, assignments, deeds,
      conveyances, certificates and other documents and instruments now or hereafter
      executed and/or delivered by, between or among Borrower, Storm Cat Powder River
      and BBC pursuant to the BBC Acquisition Agreement or in connection with the
      BBC
      Acquisition.

    

    “BBC
      Assets”
means,
      collectively, the “Assets” as such term is defined in the BBC Acquisition
      Agreement.

    

    “BBC
      Reserve Report”
means
      an engineering and economic analysis of the BBC Assets prepared as of July
      1,
      2006 by Netherland, Sewell & Associates, Inc.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    “Confirmation
      and Ratification Agreement”
means
      that certain Confirmation and Ratification Agreement dated as of August 29,
      2006, by each Loan Party for the benefit of JPMorgan Chase Bank, N.A. as Global
      Administrative Agent, as a Lender and as payee under the Secured Bridge
      Note.

    

    “First
      Amendment”
means
      that certain First Amendment to Credit Agreement dated as of August 29, 2006,
      among Parent, Borrower, Global Administrative Agent and Lenders party
      thereto.

    

    “Secured
      Bridge Note”
means
      that certain Secured Promissory Note executed by Borrower and payable to the
      order of JPMorgan Chase Bank, N.A., in its individual capacity as payee under
      the Secured Bridge Note and not as Global Administrative Agent, in the original
      principal amount of $15,000,000, which promissory note shall be secured by
      the
      Collateral and payable as provided therein.

    

    “Storm
      Cat Powder River”
means
      Storm Cat Energy (Powder River) LLC, a Colorado limited liability
      company.

    

    1.3 Amendment
      to Total Funded Debt to EBITDA Covenant.
      Section
      6.1 of the Credit Agreement shall be amended to read in full as
      follows:

    

    “Section
      6.1 Ratio
      of Total Funded Debt to EBITDA.
      As of
      the end of any fiscal quarter, commencing with the fiscal quarter ending
      December 31, 2006, Parent will not permit its ratio of Total Funded Debt
      outstanding to Annualized EBITDA to be greater than (a) subject to the
      proviso below, for the fiscal quarters ending December 31, 2006 and March 31,
      2007, 5.00 to 1.00, and (b) for the fiscal quarter ending June 30, 2007 and
      for each fiscal quarter thereafter, 3.00 to 1.00; provided,
      that,
      in the
      event the Indebtedness evidenced by the Secured Bridge Note is paid in full
      pursuant to its terms (i) on or prior to December 31, 2006, the ratio
      set forth in clause (a) of this Section 6.1
      shall be
      automatically amended to be 3.50 to 1.00 for the fiscal quarters ending
      December 31, 2006 and March 31, 2007, and (ii) after
      December 31, 2006 but on or prior to March 31, 2007, the ratio set
      forth in clause (a) of this Section 6.1
      shall be
      automatically amended to be 5.00 to 1.00 for the fiscal quarter ending
      December 31, 2006 and 3.50 to 1.00 for the fiscal quarter ending
      March 31, 2007, in each case without any further action on the part of
      Parent, Borrower, Global Administrative Agent or any Lender.”

    

    1.4 Amendment
      to Debt Covenant.
      Section
      7.1 of the Credit Agreement shall be amended to (6) re-number
      clauses (x) and (xi) thereof to be clauses (xi) and (xii), respectively, and
      (7) add
      thereto a new clause (x) which shall read in full as follows:

    

    “(x) Indebtedness
      of Borrower evidenced by the Secured Bridge Note and Guarantee obligations
      of
      any Loan Party (other than Borrower) in respect thereof pursuant to the Security
      Documents.”

    

    1.5 Amendment
      to Events of Default Provision.
      Section
      8.1 of the Credit Agreement shall be amended to add thereto a new clause (l)
      which shall read in full as follows: 

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    “(l) Event
      of Default under Secured Bridge Note.
      Any
“Event of Default” as defined in the Secured Bridge Note shall
      occur.”

     

    SECTION
      2 Global
      Borrowing Base and U.S. Borrowing Base; Allocation of Global Borrowing
      Base.
      In
      reliance on the representations, warranties, covenants and agreements contained
      in the Credit Agreement and this First Amendment, and subject to the
      satisfaction of each condition precedent set forth in Section
      4
      hereof,
      Borrower, Parent, Global Administrative Agent and Lender agree that (8) the
      Borrowing Base and the U.S. Borrowing Base in effect for the period from and
      after the Effective Date until the next redetermination or other adjustment
      of
      the Global Borrowing Base and U.S. Borrowing Base thereafter shall each be
      U.S.
      $20,000,000, (9) the
      redetermination provided for in clause (a)
      of this
Section
      2
      shall
      not be construed or deemed to be a discretionary redetermination for purposes
      of
      Section 2.7(e) of the Credit Agreement, (10) the
      Allocated U.S. Borrowing Base shall be U.S. $20,000,000 as of the Effective
      Date, and (11) the
      Allocated Canadian Borrowing Base shall be U.S. $0 as of the Effective
      Date.

     

    SECTION
      3 Consent
      and Waiver.
      Parent
      and Borrower have requested that Lender (12) consent
      to (a) the
      BBC Acquisition, and (b) the
      incurrence of the Indebtedness evidenced by the Secured Bridge Note (the
      transactions described in subclauses (i)
      and
(ii)
      of this
      clause (a)
      being
      collectively referred to as the “Subject
      Transactions”),
      and
(13) waive
      (a) any
      provision of the Credit Agreement and the other Loan Documents to the extent
      such provisions prohibit the consummation of the Subject Transactions, and
      (b) any
      and all remedies and other rights under the Credit Agreement and the other
      Loan
      Documents in respect of any Default or Event of Default to the extent, but
      only
      to the extent, occurring solely from the consummation of the Subject
      Transactions. In reliance on the representations, warranties, covenants and
      agreements contained in the Credit Agreement and this First Amendment, and
      subject to the satisfaction of the conditions precedent set forth in
Section
      4
      hereof
      (and in the Credit Agreement, as applicable), Lender hereby (x) consents to
      the Subject Transactions, and (y) waives (i) any provision of the
      Credit Agreement and the other Loan Documents to the extent such provisions
      prohibit the consummation of the Subject Transactions, and (ii) any and all
      remedies and other rights under the Credit Agreement and the other Loan
      Documents in respect of any Default or Event of Default to the extent, but
      only
      to the extent, occurring solely from the consummation of the Subject
      Transactions. The consents and waivers contained in this Section
      3
      are
      limited solely to the Subject Transactions, and the applicable provisions of
      the
      Credit Agreement and the other Loan Documents to the extent they prohibit the
      consummation of, or provide rights and remedies in respect of the consummation
      of, such transactions. Nothing contained herein shall be deemed (i) a
      consent to any action other than the consummation of the Subject Transactions,
      or (ii) a
      waiver of any provisions of the Credit Agreement or any other Loan Document
      except to the extent any such provision prohibits the consummation of, or
      provides rights and remedies in respect of the consummation of, the Subject
      Transactions.

     

    SECTION
      4 Conditions
      Precedent.
      The
      effectiveness of (14) the
      amendments to the Credit Agreement contained in Section
      1
      hereof,
(15) the
      increase in the Global Borrowing Base and U.S. Borrowing Base contained in
      Section
      2
      hereof,
      and (16) the
      consents and waivers contained in Section
      3
      hereof,
      is subject to the satisfaction of each condition precedent set forth in this
      Section
      4:

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    4.1 Closing
      Deliveries.
      Global
      Administrative Agent shall have received each of the following documents,
      instruments and agreements, each of which shall be in form and substance, and,
      as applicable, executed in such counterparts, as shall be acceptable to Global
      Administrative Agent and Lender:

    

    (a) a
      fully
      executed copy of the BBC Acquisition Agreement and all other material documents,
      instruments and agreements executed and/or delivered by any Loan Party in
      connection with the BBC Acquisition Agreement and the closing of the BBC
      Acquisition, together with a certificate from an Authorized Officer of Borrower
      certifying that (i) such
      copies are accurate and complete and represent the complete understanding and
      agreement of the parties thereto, (ii) no
      material right or obligation of any party thereto has been modified, amended
      or
      waived, and (iii) subject
      only to the establishment of the Global Borrowing Base and U.S. Borrowing Base
      described in Section
      2
      hereof
      and the disbursement and application of proceeds in connection therewith and
      in
      connection with the Secured Bridge Note, the BBC Acquisition will be consummated
      on the terms set forth in the BBC Acquisition Agreement; 

    

    (b) all
      environmental reports that Borrower has obtained in connection with the BBC
      Acquisition, which reports shall be reasonably acceptable to Global
      Administrative Agent and its counsel;

    

    (c) Mortgages
      and amendments to Mortgages duly executed and delivered by Borrower or, as
      applicable, Storm Cat Powder River, together with such other assignments,
      conveyances, amendments, agreements and other writings, including, without
      limitation, UCC-1 and UCC-3 financing statements, in form and substance
      satisfactory to Global Administrative Agent, pursuant to which, among other
      things, (17)
      Borrower
      or, as applicable, Storm Cat Powder River, shall grant to Global Administrative
      Agent a first and prior Lien, subject only to Permitted Encumbrances, in and
      to
      the BBC Assets constituting Borrowing Base Properties, and (18) the
      existing Mortgages shall be amended to evidence and reflect the Secured Bridge
      Note; 

    

    (d) the
      Confirmation and Ratification Agreement duly executed and delivered by each
      Loan
      Party;

    

    (e) opinions
      dated the Effective Date, addressed to Global Administrative Agent and all
      Lenders from (19) Hogan
      & Hartson L.L.P., counsel to Parent and Borrower, and (20) local
      counsel in the State of Wyoming, in each case in form and substance acceptable
      to Global Administrative Agent and its counsel; and

    

    (f) such
      other documents, instruments and agreements as Global Administrative Agent
      may
      reasonably require in connection with this First Amendment and the transactions
      contemplated hereby.

    

    4.2 BBC
      Acquisition.
      Subject
      only to the establishment of the Global Borrowing Base and U.S. Borrowing Base
      described in Section
      2
      hereof
      and the disbursement and application of proceeds in connection therewith and
      in
      connection with the Secured Bridge Note, Borrower shall have completed the
      BBC
      Acquisition in accordance with the terms of the BBC Acquisition Agreement,
      and
      as a result thereof, Borrower (or, as applicable, Storm Cat Powder River) shall
      have acquired good title to the BBC Assets, free and clear of all Liens except
      Permitted Encumbrances. Upon completion of the BBC Acquisition, the
      representations and warranties contained in Section 3.5, Section 3.15
      and Section 3.16 of the Credit Agreement will not be inaccurate in any
      material respect.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    4.3 Title
      Review.
      Global
      Administrative Agent or its counsel shall have completed a satisfactory review
      of title to not less than 80% of the Present Value of the BBC Assets evaluated
      for purposes of establishing the amount of the Global Borrowing Base set forth
      in Section
      2
      hereof,
      and such review shall not have revealed any condition or circumstance which
      would reflect that the representations and warranties contained in
      Section 3.5 of the Credit Agreement are inaccurate in any
      respect.

    

    4.4 Hedging
      Agreements.
      Borrower shall have entered into Hedging Agreements with Approved Counterparties
      and the notional volumes for which are not less than 80% of the reasonably
      anticipated projected production from proved, developed, producing Oil and
      Gas
      Properties (including, without limitation, the BBC Assets), and which Hedging
      Agreements shall have a term of three (3) years from the Effective
      Date.

    

    4.5 Secured
      Bridge Note.
      JPMorgan Chase Bank, N.A. shall have received the original duly executed Secured
      Bridge Note, together with such other documents, instruments and agreements
      required to be delivered in connection with such Secured Bridge Note, and all
      conditions to the advance of the proceeds of such Secured Bridge Note shall
      have
      been satisfied.

    

    4.6 No
      Defaults.
      Prior
      to and after giving effect to the amendments contained in Section
      1
      hereof,
      and at the time the BBC Acquisition is to be consummated, no Default, Event
      of
      Default, Global Borrowing Base Deficiency or U.S. Borrowing Base Deficiency
      shall exist, nor shall the consummation of such transaction result in any
      Default, Event of Default, Global Borrowing Base Deficiency or U.S. Borrowing
      Base Deficiency.

    

    4.7 Fees
      and Expenses.
      Borrower shall have paid (21) all
      fee and amounts as Borrower shall be required to pay to Global Administrative
      Agent and its Affiliates pursuant to any separate agreement between or among
      Borrower, Global Administrative Agent and/or its Affiliates, and (22) all
      reasonable fees and expenses incurred by Global Administrative Agent in
      connection with the preparation, negotiation and execution of this First
      Amendment, including, without limitation, all reasonable fees and expenses
      of
      Vinson & Elkins L.L.P., counsel to Global Administrative Agent.

    

    4.8 Other
      Documentation.
      Global
      Administrative Agent shall have received such other documents, instruments
      and
      agreements as it or Lender may reasonably request, all in form and substance
      reasonably satisfactory to Global Administrative Agent and Lender.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    SECTION
      5 Representations
      and Warranties of Borrower.
      To
      induce Lender and Global Administrative Agent to enter into this First
      Amendment, Parent and Borrower hereby jointly and severally represent and
      warrant to Lender and Global Administrative Agent as follows:

    

    5.1 Due
      Authorization; No Conflict.
      The
      execution, delivery and performance by Parent and Borrower of this First
      Amendment are within Parent’s and Borrower’s corporate powers, have been duly
      authorized by all necessary action, require no action by or in respect of,
      or
      filing with, any governmental body, agency or official and do not violate or
      constitute a default under any provision of applicable law or any material
      agreement binding upon Parent or Borrower or result in the creation or
      imposition of any Lien upon any of the assets of Borrower except Permitted
      Encumbrances.

    

    5.2 Validity
      and Enforceability.
      This
      First Amendment constitutes the valid and binding obligation of Parent and
      Borrower enforceable in accordance with its terms, except as (23) the
      enforceability thereof may be limited by bankruptcy, insolvency or similar
      laws
      affecting creditor’s rights generally, and (24) the
      availability of equitable remedies may be limited by equitable principles of
      general application.

    

    5.3 Accuracy
      of Representations and Warranties.
      Each
      representation and warranty of each Loan Party contained in the Loan Documents
      is true and correct in all material respects as of the date hereof (except
      to
      the extent such representations and warranties are expressly made as of a
      particular date, in which event such representations and warranties were true
      and correct as of such date).

    

    5.4 Absence
      of Defaults.
      Prior
      to and after giving effect to the amendments contained in Section
      1
      hereof,
      no Default or Event of Default has occurred which is continuing. 

    

    5.5 No
      Defense.
      Borrower has no defense to payment of, or any counterclaim or rights of set-off
      with respect to, all or any portion of the Obligations.

    

    SECTION
      6 Miscellaneous.

    

    6.1 Reaffirmation
      of Loan Documents.
      Any and
      all of the terms and provisions of the Credit Agreement and the Loan Documents
      shall, except as amended and modified hereby, remain in full force and effect,
      and are hereby ratified and confirmed. The amendments contemplated hereby shall
      not limit or impair any Liens securing the Obligations, each of which are hereby
      ratified, affirmed and extended to secure the Obligations.

    

    6.2 Confirmation
      of Loan Documents and Liens.
      As a
      material inducement to Lender to make the agreements and grant the consents,
      waivers and amendments set forth herein, Parent and Borrower hereby (25) acknowledge
      and confirm the continuing existence, validity and effectiveness of the Loan
      Documents and the Liens granted thereunder, (26) agree
      that the execution, delivery and performance of this First Amendment and the
      consummation of the transactions contemplated hereby shall not in any way
      release, diminish, impair, reduce or otherwise adversely affect such Loan
      Documents and Liens, and (27) acknowledge
      and agree that the Liens granted under the Loan Documents secure, and after
      the
      consummation of the transactions contemplated hereby will continue to secure,
      the payment and performance of the Obligations as first priority perfected
      Liens.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    6.3 Parties
      in Interest.
      All of
      the terms and provisions of this First Amendment shall bind and inure to the
      benefit of the parties hereto and their respective successors and
      assigns.

    

    6.4 Legal
      Expenses.
      Borrower hereby agrees to pay on demand all reasonable fees and expenses of
      counsel to Global Administrative Agent incurred by Global Administrative Agent
      in connection with the preparation, negotiation and execution of this First
      Amendment.

    

    6.5 Counterparts.
      This
      First Amendment may be executed in counterparts, and all parties need not
      execute the same counterpart; however, no party shall be bound by this First
      Amendment until Parent, Borrower and Lender have executed a counterpart.
      Facsimiles shall be effective as originals.

    

    6.6 Complete
      Agreement.
      THIS
      FIRST AMENDMENT, THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT
      THE
      FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
      PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN
      ORAL AGREEMENTS BETWEEN OR AMONG THE PARTIES.

    

    6.7 Headings.
      The
      headings, captions and arrangements used in this First Amendment are, unless
      specified otherwise, for convenience only and shall not be deemed to limit,
      amplify or modify the terms of this First Amendment, nor affect the meaning
      thereof.

    

    6.8 Effectiveness.
      This
      First Amendment shall be effective automatically and without necessity of any
      further action by Parent, Borrower, Global Administrative Agent or Lender when
      counterparts hereof have been executed by Parent, Borrower and Lender, and
      all
      conditions to the effectiveness hereof set forth herein and in the Credit
      Agreement have been satisfied (including, without limitation, all conditions
      precedent set forth in Section
      4
      hereof).

    

    6.9 GOVERNING
      LAW.
      THIS
      FIRST AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
      OF THE STATE OF NEW YORK.

    

    IN
      WITNESS WHEREOF, the parties hereto have caused this First Amendment to be
      duly
      executed by their respective authorized officers on the date and year first
      above written.

    

    [Signature
      pages to follow]

    

    
      
         

      

      
         

        
          

        

      

      
         

      

       

      
        SIGNATURE
          PAGE TO

        FIRST
          AMENDMENT TO CREDIT AGREEMENT

        BY
          AND
          AMONG

        STORM
          CAT
          ENERGY CORPORATION, 

        STORM
          CAT
          ENERGY (USA) CORPORATION, AS BORROWER, AND

        JPMORGAN
          CHASE BANK, N.A., AS GLOBAL ADMINISTRATIVE AGENT

        AND
          THE
          SOLE LENDER PARTY THERETO

      

    

     

    
      	 	
              PARENT:

              

              STORM
                CAT ENERGY CORPORATION,
                

              a
                corporation amalgamated under the laws of British Columbia

              

              

              By:
                /s/
                J. Scott
                Zimmerman                                     
                

              J.
                Scott Zimmerman, President and 

              Chief
                Executive Officer

              

              

              

              BORROWER:

              

              STORM
                CAT ENERGY (USA) CORPORATION,
                

              a
                Colorado corporation

              

              

              By:/s/
                J. Scott
                Zimmerman                                       
                

              J.
                Scott Zimmerman, President

            

    

    
[Signature
      Page]

    
      
        
           

        

        
           

          
            

          

        

        
           

        

         

        
          SIGNATURE
            PAGE TO

          FIRST
            AMENDMENT TO CREDIT AGREEMENT

          BY
            AND
            AMONG

          STORM
            CAT
            ENERGY CORPORATION, 

          STORM
            CAT
            ENERGY (USA) CORPORATION, AS BORROWER, AND

          JPMORGAN
            CHASE BANK, N.A., AS GLOBAL ADMINISTRATIVE AGENT

          AND
            THE
            SOLE LENDER PARTY THERETO

        

      

    

    Each
      of
      the undersigned (i) consent and agree to this First Amendment, and (ii) agree
      that the Loan Documents to which it is a party shall remain in full force and
      effect and shall continue to be the legal, valid and binding obligation of
      such
      Person, enforceable against it in accordance with its terms.

     

    
      	 	
              ACKNOWLEDGED
                AND AGREED TO BY:

              

              STORM
                CAT ENERGY (POWDER RIVER) LLC,

              a
                Colorado limited liability company

              

              

              By:/s/
                J. Scott
                Zimmerman                                       
                

              J.
                Scott Zimmerman, Manager

              

              

              STORM
                CAT ENERGY (USA) OPERATING CORPORATION,
                a
                Colorado corporation

              

              

              By:/s/
                J. Scott
                Zimmerman                                         
                

              J.
                Scott Zimmerman, President

              

              

              

              STORM
                CAT ENERGY (ALASKA) LLC,
                

              a
                Colorado limited liability company

              

              

              By:/s/
                J. Scott
                Zimmerman                                          
                

              J.
                Scott Zimmerman, Manager

              

              

              

              TRIPLE
                CROWN GATHERING CORPORATION,
                

              a
                Colorado corporation

              

              

              By:/s/
                J. Scott
                Zimmerman                                          
                

              J.
                Scott Zimmerman, President

            

    

    

      [Signature
        Page]

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    

    
      SIGNATURE
        PAGE TO

      FIRST
        AMENDMENT TO CREDIT AGREEMENT

      BY
        AND
        AMONG

      STORM
        CAT
        ENERGY CORPORATION, 

      STORM
        CAT
        ENERGY (USA) CORPORATION, AS BORROWER, AND

      JPMORGAN
        CHASE BANK, N.A., AS GLOBAL ADMINISTRATIVE AGENT

      AND
        THE
        SOLE LENDER PARTY THERETO

    

     

    
      	 	
              GLOBAL
                ADMINISTRATIVE AGENT:

              

              JPMORGAN
                CHASE BANK, N.A.,
                

              as
                Global Administrative Agent

              

              

              By:/s/
                J. Scott
                Fowler                                               
                

              J.
                Scott Fowler, Senior Vice President

              

              

              

              LENDER:

              

              JPMORGAN
                CHASE BANK, N.A.,
                

              as
                a Lender

              

              

              By:/s/
                J. Scott
                Fowler                                                
                

              J.
                Scott Fowler, Senior Vice President

            

    

    

      [Signature
        Page]Exhibit 10.1 

Pharmos Corporation

99 Wood Avenue South, Suite 301

Iselin, New Jersey 08830

 

	

             
 	

            August 31, 2006
 

 

Lloyd I. Miller, III

4550 Gordon Drive

Naples, Florida 34102  

 

Dear Mr. Miller:

 

This letter sets forth our agreement concerning the settlement of the proxy dispute between Pharmos
Corporation (the “Company” or “Pharmos”) and you. Specifically, we have agreed as follows:

 

1. The Company will prepare a revised preliminary proxy statement for a Meeting of Shareholders to
be held on or about September 27, 2006, or as soon thereafter as reasonably practicable (the “Meeting”). The form of preliminary proxy will be substantially similar to the Company’s
preliminary proxy filed with the Securities and Exchange Commission on May 3, 2006 (the “Preliminary Proxy”), and will include as agenda items: (i) a proposal (the “Acquisition
Proposal”) to approve the issuance of shares of the Company’s common stock in connection with the proposed acquisition (the “Acquisition”) by the Company of Vela Pharmaceuticals
Inc. (“Vela”); (ii) the election (the “Election”) of three Class III directors to serve for a three-year term until the 2009 annual meeting of shareholders; and (iii) the
ratification (the

“Ratification”) of the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm of the Company for the fiscal year ending December 31, 2006. Provided
that the Company enters into an amendment (the “Merger Agreement Amendment”) to its March 2006 Merger Agreement with Vela, a copy of which is annexed hereto as Exhibit A, you agree that
neither you nor any of the Related Parties, as defined below, will engage, directly or indirectly, in a proxy contest or will otherwise solicit proxies to vote in opposition to any of the three items
referred to above. You will also take all necessary and appropriate action promptly to notify the Securities and Exchange Commission of the withdrawal of your preliminary proxy statement filed in
opposition to the Company’s proxy materials, and will amend your Report on Schedule 13D to reflect the terms of our agreement as provided in this letter. In addition, you agree to vote, and to
cause the

Related Parties to vote, all shares of common stock of the Company beneficially owned by you or the Related Parties as of the record date for the Meeting in favor of the Acquisition Proposal, for the
Election of the Company’s nominees for Class III directors and in favor of the Ratification, and, have executed and delivered (and will cause the Related Parties to execute and deliver within 5
business days of the date hereof) a voting agreement with the Company in the form annexed hereto as Exhibit B (the “Voting Agreement”). “Related Parties” shall mean members of
your family, any entity directly or indirectly controlled by you or members of your family, or entities which hold shares of the Company’s common stock for the benefit of you or members of your
family, including without limitation Trust A-4 and Milfam II L.P.

 

2. Pharmos agrees that on the earlier of (i) two days immediately following the date of the Meeting
or (ii) the date of the closing of the Acquisition, you or a mutually agreeable designee will be added as a member of the Company’s Board of Directors (the “Board”). If the Acquisition
Proposal has not been approved or the Acquisition otherwise has not closed by such date, this will be accomplished by our expanding the size of the Board from seven to eight members by means of
increasing the number of Class II Directors, with a term expiring in 2008, from two to three members, and you or such reasonably acceptable designee will be appointed to the new vacant Board
position. If the Acquisition has occurred, this will be accomplished by 

 

 

 

our expanding the size of the Board from seven to nine members, and you or your reasonably
acceptable designee will be appointed to a vacancy of the Class II Directors, with a term expiring in 2008. At your discretion, if you choose to have your designee appointed to the new Board
position, you may attend all Board meetings as an observer, subject to your execution of a customary confidentiality agreement, in which case you shall receive all prior notices and materials that
members of the Board receive.  Your observer rights will continue as long as you and the Related Parties collectively hold at least 3% of the Company’s outstanding voting stock. If the
Acquisition is completed, the size of the whole Board will be nine (9) members.

 

3. The new member of the Board (either you or your designee) will be appointed to serve on the
Board’s Governance and Nominating Committee.

 

4. Neither you nor the Related Parties shall at any time engage in any form of conduct, or make any
statements or representations, that disparage or otherwise impair the reputation, goodwill or commercial interests of Pharmos, the members of its Board, its management, employees, agents,
stockholders, subsidiaries, parents, and/or other direct or indirect affiliates concerning the subject matter of the proxy contest or the Lawsuit, as defined below. Pharmos shall not at any time
engage in any form of conduct, or make any statements or representations, that disparage or otherwise impair the reputation, goodwill or commercial interests of you, the Related Parties or any other
member of your proposed slate of directors identified in your preliminary proxy materials dated May 25, 2006, and your and their respective management, employees, agents, stockholders, subsidiaries,
parents, and/or

other direct or indirect affiliates concerning the subject matter of the proxy contest or the Lawsuit. Notwithstanding the foregoing, Pharmos’ rights with respect to Raymond E. McKee
(“McKee”) under the Settlement Agreement which is being entered into with him simultaneously with execution of this letter (the “McKee Settlement Agreement”) shall be governed by
the McKee Settlement Agreement, including any right Pharmos has in the event McKee is in breach of his obligation thereunder.

 

5. Simultaneously with execution of this letter, Pharmos will voluntarily dismiss with prejudice the
lawsuit Pharmos filed in the United States District Court for the District of Connecticut, Pharmos Corporation v. Raymond E. McKee, Civ. No. 3:06-950 (the “Lawsuit”). Pharmos and McKee will
execute and deliver to each other a settlement agreement and mutual releases in forms satisfactory to Pharmos and McKee. Pharmos further agrees and covenants that, in addition to the general release
as reflected in Exhibit C-1 (the “Pharmos Release”), it will not file suit or seek administrative or judicial relief of any kind against any third parties named or defined as releasees in
the Pharmos Release, for any claims or causes of action related to the proxy contest or the claims asserted in the Lawsuit.  

 

6. Pharmos and you will exchange general releases, in the form annexed as Exhibits C-1 and C-2
hereto, as a result of which Pharmos, on the one hand, and you and the Related Parties, on the other hand, will release each other of all claims that were asserted or could have been asserted against
each other, except that the obligations of Pharmos and you created hereunder will survive and will not be released.

 

7. Pharmos will reimburse you and the Related Parties for actual, documented out of pocket fees and
expenses related to the proxy dispute and the Lawsuit, consisting of (i) reasonable attorneys’ fees and expenses of your counsel related to the preparation and filing of Schedule 13Ds and
amendments and preliminary proxy materials, as well as the settlement of the proxy dispute, (ii) related filing and printing expenses, (iii) fees paid to a proxy solicitation firm,  (iv) reasonable
attorneys’ fees and expenses of your counsel as well as counsel for the Related Parties and counsel for your broker Joseph Betti and his 

 

2

 

 

 

brokerage firm in connection with the Lawsuit and (v) your other expenses and fees of your advisors
and other director nominees, not to exceed $40,000 in the aggregate. The aggregate amount of fees and expenses identified in items (i) through (v) above shall not exceed $680,000. 

 

8. The Preliminary Proxy will be revised to disclose our agreements as set forth herein and the
terms of the Merger Agreement Amendment, and such revisions shall not be made without first providing a draft to your counsel for review.

 

9. This letter may be executed in counterparts with the same force and effect as one fully executed
original document. This letter and exhibits hereto contain all the representations and warranties, express and implied, oral and written, of the parties hereto, and the entire understanding and
agreement between and among the parties with respect to the subject matter hereof and supersede all prior and contemporaneous conversations, negotiations, proposed agreements, representations,
covenants and warranties with respect to the subject matter hereof. 

 

10. You acknowledge and agree that this agreement is subject to the approval by the Board. 

 

[Remainder of page intentionally blank; signature page follows.]

 

3

 

 

 

	

             
 	

             
 	

            Very truly yours,
 
	

             
 	

             
 	

             
 
	

             
 	

             
 	

            PHARMOS CORPORATION
 
	

             
 	

             
 	

             
 
	

             
 	

             
 	

            By:    
s/ HAIM AVIV                   
 
	

             
 	

             
 	

            Haim Aviv
 
	

             
  	

             
  	

            Chairman and Chief Executive Officer
  
	

             
  	

             
  	

             
  

ACKNOWLEDGED AND AGREED:

 

    s/ LLOYD I. MILLER, III             

Lloyd I. Miller, III

 

4

 

 

EXHIBIT A TO LETTER AGREEMENT

 

AMENDMENT TO AGREEMENT AND PLAN OF MERGER

 

SEE EXHIBIT 2.1 TO THIS CURRENT REPORT ON 8-K

 

EXHIBIT B TO LETTER AGREEMENT

 

VOTING AGREEMENT AND WAIVER 

 

SEE EXHIBIT 10.2 TO THIS CURRENT REPORT ON 8-K

 

EXHIBITS C-1, C-2 TO LETTER AGREEMENT

 

FORMS OF GENERAL RELEASES 

 

The foregoing Exhibits have been omitted from this filing. Pharmos Corporation shall furnish a copy
of any omitted Exhibit on a supplemental basis to the Securities and Exchange Commission upon request.

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