As filed with the Securities And Exchange Commission on October 11, 1996
SEC Registration No. _______________
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
DOUBLE EAGLE PETROLEUM AND MINING CO.
----------------------------------------
(Name Of Small Business Issuer In Its Charter)
Wyoming 1330 83-0214692
- ----------------- -------------------------- ----------------------
(State Or Jurisdiction (Primary Standard Industrial (IRS Employer
Of Incorporation) Classification Code Number) Identification Number)
777 Overland Trail (P.O. Box 766)
Casper, Wyoming 82602
(307) 237-9330
- --------------------------------------------------------------------------------
(Address And Telephone Number Of Principal Executive Offices)
777 Overland Trail (P.O. Box 766)
Casper, Wyoming 82602
- --------------------------------------------------------------------------------
(Address Of Principal Place Of Business Or Intended Principal Place Of Business)
Stephen H. Hollis
777 Overland Trail (P.O. Box 766)
Casper, Wyoming 82602
(307) 237-9330
- --------------------------------------------------------------------------------
(Name, Address And Telephone Number Of Agent For Service)
Copies to:
----------
Alan L. Talesnick, Esquire Thomas E. Boyle, Esquire
Francis B. Barron, Esquire Krys Boyle Golz Freedman & Scott
Bearman Talesnick & Clowdus 600 Seventeenth Street, Suite 2700 S. Tower
Professional Corporation Denver, Colorado 80202
1200 Seventeenth Street, Suite 2600 (303) 893-2300
Denver, Colorado 80202
(303) 572-6500
================================================================================
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
- --------------------------------------------------------------------------------
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [] ___________________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [] ___________________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box []
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=================================================================================================================================
Proposed Proposed Amount
Maximum Maximum Of
Offering Aggregate Registra-
Title Of Each Class Of Securities To Be Amount To Be Price Per Offering tion
Registered Registered Share(1) Price Fee
=================================================================================================================================
<S> <C> <C> <C> <C>
Units, each consisting of
(a) One Share of Common Stock, $.10 par value 1,150,000 $1.50 $1,725,000 $595
Units(2)
(b) One Common Stock Purchase Warrant
Common Stock, issuable upon exercise of 1,150,000
Common Stock Purchase Warrants(3) Shares(2) $3.00 $3,450,000 $1,190
Underwriter's Warrants to purchase Units, each 100,000 $.001 $100 $1
Unit consisting of Warrants
(a) One Share of Common Stock
(b) One Common Stock Purchase Warrant
Units issuable upon exercise of Underwriter's 100,000 Units $1.50 $150,000 $52
Warrants, each Unit consisting of
(a) One share of Common Stock(4)
(b) One Common Stock Purchase Warrant(4)
Common Stock, issuable upon exercise of 100,000 $3.00 $300,000 $104
Warrants underlying Underwriter's Warrant(5) Shares
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL $5,625,100 $1,942
===============================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Includes 150,000 Units to cover the Underwriter's over-allotment option and
150,000 shares of Common Stock underlying the Warrants issuable upon
exercise of the Underwriter's over-allotment option.
(3) Issuable upon the exercise of Common Stock Purchase Warrants. This
Registration Statement also covers any additional shares of Common Stock
which may become issuable by virtue of the anti-dilution provisions of the
Common Stock Purchase Warrants. No additional registration fee is included
for these shares.
(4) Reserved for issuance upon exercise of the Underwriter's Warrants together
with such indeterminate number of Common Stock Purchase Warrants and/or
Common Stock as may be issuable pursuant to the anti-dilution provisions of
the Underwriter's Warrants, or the Common Stock Purchase Warrants.
(5) Reserved for issuance upon exercise of Common Stock Purchase Warrants
obtained upon exercise of the Underwriter's Warrants.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Double Eagle Petroleum And Mining Co.
Cross-reference Sheet between Registration Statement (Form SB-2)
and Form of Prospectus.
<TABLE>
<CAPTION>
SB-2 Reg S-B
Item Item Caption Caption In Prospectus
- ---- ---- ------- ---------------------
<S> <C> <C> <C>
16 101 Description Of Business. Business And Properties.
18 102 Description Of Property. Business And Properties.
9 103 Legal Proceedings. Not applicable.
20 201 Market For Common Stock And Related Price Range Of Common Stock; Dividends; Description
Stockholder Matters. Of Securities.
12 202 Description Of Securities. Description Of Securities; Certain Provisions Of
Wyoming Law And Of The Company's Articles Of
Incorporation.
17 303 Management's Discussion And Analysis or Management's Discussion And Analysis Of Financial
Plan Of Operation. Condition And Results Of Operations.
23 304 Changes In And Disagreements With Not applicable.
Accountants On Accounting And Financial
Disclosure.
22 310 Financial Statements. Financial Statements.
10 401 Directors, Executive Officers, Promoters Management.
And Control Persons.
21 402 Executive Compensation. Executive Compensation.
11 403 Security Ownership Of Certain Beneficial Principal Stockholders.
Owners And Management.
19 404 Certain Relationships And Related Transac- Not applicable.
tions.
15 404 Issuers Organized Within Five Years. Certain Relationships And Related Transactions.
1 501 Front Of Registration Statement And Registration Statement Cover Page; Prospectus Cover
Outside Front Cover Of Prospectus. Page; Prospectus Inside Cover Page.
2 502 Inside Front And Outside Back Cover Pages Cover Page; Inside Cover Page; Back Cover Page.
Of Prospectus.
3 503 Summary Information And Risk Factors. Prospectus Summary; Risk Factors.
4 504 Use Of Proceeds. Use Of Proceeds.
5 505 Determination Of Offering Price. Cover Page; Risk Factors.
6 506 Dilution. Not applicable.
7 507 Selling Security Holders. Not applicable.
8 508 Plan Of Distribution. Cover Page; Underwriting.
13 509 Interest Of Named Experts and Counsel. Not applicable.
14 510 Disclosure Of Commission Position On Securities And Exchange Commission Position On
Indemnification For Securities Act Certain Indemnification.
Liabilities.
</TABLE>
<PAGE>
[RED INK]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities And Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
PRELIMINARY PROSPECTUS DATED OCTOBER 11, 1996
SUBJECT TO COMPLETION
DOUBLE EAGLE PETROLEUM AND MINING CO.
1,000,000 Units of Common Stock and
Redeemable Common Stock Purchase Warrants
This Prospectus relates to an offering (the "Offering") by Double Eagle
Petroleum And Mining Co. (the "Company" or "Double Eagle") of 1,000,000 units
(the "Units"), each Unit consisting of one share of Common Stock, $.10 par value
(the "Common Stock"), and one redeemable Common Stock purchase warrant
("Warrant"), through Rocky Mountain Investments & Securities, Inc. (the
"Underwriter"). The Units are offered on a firm commitment basis. The Common
Stock and Warrants may be detached from the Units and traded separately only at
such time that the Company, in its sole discretion, determines to allow the
Common Stock and Warrants to be detached.
Each Warrant entitles the registered holder thereof to purchase one share
of Common Stock at an exercise price of $3.00 per share, subject to adjustment
in certain events, at any time during the period commencing on the date hereof
and expiring on the fifth anniversary of the date hereof. The Warrants are
subject to redemption by the Company at $.02 per Warrant at any time on not less
than 30 days' prior written notice to the holders of the Warrants, provided the
closing high bid price of the Common Stock as reported on The Nasdaq Small Cap
Stock Market has been at least $4.00 per share for a period of 20 of the 30
trading days ending on the date on which the Company gives notice of redemption.
The Warrants will be exercisable until the close of business on the day
immediately preceding the date fixed for redemption and further provided the
Company has a current registration statement in effect with respect to the
Common Stock issuable upon exercise of the Warrants. See "DESCRIPTION OF
SECURITIES-Warrants".
The Company's Common Stock is traded on The Nasdaq SmallCap Market
("NASDAQ") under the symbol "DBLE". On October 9, 1996, the closing high bid
price of the Common Stock as reported by NASDAQ was $1.25 per share and the low
asked price was $1.4375. See "PRICE RANGE OF COMMON STOCK". Prior to this
Offering, there has been no public market for the Units or the Warrants, and
there can be no assurance that any such market for the Units or the Warrants
(when the Warrants are detached from the Units) will develop after the closing
of this Offering, or that, if developed, it will be sustained. The offering
price of the Units, and the initial exercise price and other terms of the
Warrants, were established by negotiation between the Company and the
Underwriter and do not necessarily bear any direct relationship to the Company's
assets, earnings, book value per share or other generally accepted criteria of
value. See "UNDERWRITING". The Company has applied for quotation of the Units
and the Warrants (when the Warrants are detached from the Units) on NASDAQ under
the trading symbols "DBLEU" and "DBLEW", respectively.
The Company has granted to the Underwriter an option, exercisable for 45
days from the date of this Prospectus, to purchase not more than 15% of the
total number of Units initially offered, or up to 150,000 additional Units, at
the price to the public less the Underwriting discount set forth on the cover
page of this Prospectus. The Underwriter may exercise this option solely for the
purpose of covering over-allotments, if any, incurred in the sale of Units being
offered.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVESTMENT THEREIN INVOLVES A
HIGH DEGREE OF RISK. FOR A DESCRIPTION OF CERTAIN RISKS REGARDING AN INVESTMENT
IN THE COMPANY, SEE "RISK FACTORS".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
================================================================================
Underwriting
Discount And Proceeds To
Price To Public Commissions (1) Company (2)
- --------------------------------------------------------------------------------
Per Unit (2) $_____ $_____ $_____
Total (3) $_____ $_____ $_____
$----- $----- $-----
================================================================================
(See Notes on following page)
The Units are being offered by the Company through the Underwriter on a
firm commitment basis. The Offering is made by the Underwriter, subject to the
Underwriter's right to reject any subscription, in whole or in part, or to
withdraw or cancel the Offering without notice. It is expected that delivery of
the certificates representing the Common Stock and the Warrants underlying the
Units will be made against payment therefor at the offices of the Underwriter,
1600 Stout Street, Suite 920, Denver, Colorado 80202.
Rocky Mountain Securities & Investments, Inc.
The date of this Prospectus is October ___, 1996
-ii-
<PAGE>
Notes
(1) Does not reflect additional compensation to be received by the Underwriter
in the form of (i) a non- accountable expense allowance equal to 3% of the
gross proceeds of the Offering, of which $25,000 has been paid by the
Company to date; and (ii) Underwriter's Warrants entitling the Underwriter
to purchase 100,000 Units (one Unit for each ten Units sold other than
pursuant to the over-allotment option described in Note 3 below) at a price
equal to 100% of the per Unit price to the public, exercisable over a
period of four years (the "Underwriter's Warrants") commencing one year
after the date of this Prospectus (the "Effective Date"). The Units (the
"Underwriter's Units") issuable upon the exercise of the Underwriter's
Warrants are identical to the Units offered to the public pursuant to this
Prospectus except that the Warrants included in the Underwriter's Units are
not subject to redemption by the Company. See "DESCRIPTION OF
SECURITIES--Warrants". The Company also has agreed to indemnify the
Underwriter against certain civil liabilities, including liabilities
arising under the Securities Act of 1933, as amended (the "Securities
Act"). See "UNDERWRITING".
(2) After deducting discounts and commissions payable to the Underwriter, but
before payment of the Underwriter's non-accountable expense allowance or
the other expenses of the Offering, estimated at $ _______ ($.___ per
share), payable by the Company. See "UNDERWRITING".
(3) The Company has granted the Underwriter a 45-day option to purchase up to
150,000 additional Units at the price to public, less the Underwriting
Discount, to cover over-allotments, if any. If all of such Units are
purchased by the Underwriter, the total Price To Public, Underwriting
Discount And Commissions, and Proceeds To Company will be $_________,
$_________, and $___________, respectively. See "UNDERWRITING".
---------------
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and, in accordance therewith
files reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, Room 1024 and at the following Regional
Offices of the Commission: 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, and 7 World Trade Center, New York, New York 10048. Copies
of such material also can be obtained at prescribed rates by writing to the
Commission, Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549.
Officers, directors and affiliates of the Company, and persons associated
with them, may purchase Units in the Offering. If such purchases are made, they
will be made solely with a view toward investment and not resale. It is not
expected that purchases by officers, directors and their affiliates will exceed
5% of the Units offered.
---------------
[Map of Principal Areas Of Activity appears here]
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act Of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act Of 1934, as amended (the
"Exchange Act"). All statements other than statements of historical fact
included in this Prospectus, including without limitation the statements under
"PROSPECTUS SUMMARY", "RISK FACTORS--Risks Related To The Business Of The
Company--Oil And Gas Prices; Marketability Of Production" and "--Estimates Of
Reserves And Future Net Revenues; No Review By Independent Engineer",
"CAPITALIZATION", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Financial Condition, Liquidity And Capital
Resources", "BUSINESS AND PROPERTIES--Business Strategy", "--Principal Areas Of
Oil And Gas Activity", "--Zeolite Mining Activities", and "--Reserves", and Note
13 to the Financial Statements located elsewhere herein regarding the Company's
financial position and liquidity, the amount of and its ability to make debt
service payments, its strategies, financial instruments, and other
-iii-
<PAGE>
matters, are forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from the
Company's expectations are disclosed in this Prospectus, including without
limitation in conjunction with the forward-looking statements included in this
Prospectus.
-iv-
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements appearing elsewhere in this Prospectus and
in the documents incorporated by reference into this Prospectus. As used herein,
the "Company" of "Double Eagle" means Double Eagle Petroleum And Mining Co.
unless the context requires otherwise. Unless otherwise indicated, all
references to annual or quarterly periods refer to the Company's fiscal year
ending August 31.
THE COMPANY
General
Double Eagle was formed on January 13, 1972. The Company explores for,
develops, produces and sells crude oil and natural gas. The Company concentrates
its activities in areas in which it has accumulated detailed geologic knowledge
and developed significant management experience. Current areas of exploration
and development focus for the Company include the Moxa Arch in southwestern
Wyoming, the Powder River Basin in northeastern Wyoming, the Washakie Basin in
south central Wyoming, the Wind River Basin in central Wyoming, and the
Christmas Meadows area in northeastern Utah. The Company owns interests in a
total of 124 producing wells, with oil constituting approximately 50 percent and
natural gas constituting approximately 50 percent of its current production
(assuming 10 Mcf of gas production equals one barrel of oil production).
The Company also has undeveloped acreage in other basins and is evaluating
the possibility of additional activity in other areas. See "BUSINESS AND
PROPERTIES--Principal Areas Of Oil And Gas Activity".
In addition to its oil and gas activities, the Company owns placer mining
claims which overlie deposits of clinoptilolite, which is one of 34 naturally
occurring zeolites. The Company has leased these claims to a third party and
will receive a royalty on any production from these properties. See "BUSINESS
AND PROPERTIES--Zeolite Mining Activities".
Business Strategy
The Company's strategy is to increase its cash flow and oil and gas
reserves by developing and marketing oil and gas prospects. Upon marketing a
prospect to another entity, the Company will attempt to receive a promoted or
carried interest in the initial well for the prospect. The Company will then
participate proportionately in the drilling of any development wells on the
prospect. In prior years, the Company has undertaken to assemble a large acreage
position and sell it to others while retaining a royalty position. By attempting
to direct its focus to generation of geologic prospects with a promoted interest
at the exploratory phase and a participating interest at the development stage,
the Company will be utilizing more resources for drilling rather than for lease
acquisition. In this manner, the Company believes that in a shorter time period
it will be exposed to a greater number of opportunities to increase reserves and
cash flow.
The Company intends to develop several prospects each year with a view to
taking advantage of advances in seismic and drilling technologies. Of these
prospects, between five and ten each year will be intended as unusually high
potential, higher risk prospects. As indicated above, the Company intends to
market its prospects on a basis that will allow the Company to receive a
promoted or carried interest and thereby control its risk on the initial well on
each of these prospects.
SUMMARY CONSOLIDATED FINANCIAL AND OPERATIONS DATA
The summary consolidated financial and operations data set forth below
should be read in conjunction with the Consolidated Financial Statements of the
Company and the notes thereto and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" included elsewhere in this
Prospectus.
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended May 31,
Year Ended August 31, (Unaudited)
--------------------------------------------------------------------- ------------------------
1991 1992 1993 1994 1995 1995 1996
---------- --------- --------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement
Data:
Production revenues..... $651,859 $507,349 $427,538 $235,411 $247,461 $204,425 $270,332
Property sales and
other revenues........ $162,767 $202,247 $228,439 $263,946 $686,025 $667,893 $158,957
Depreciation,
depletion and
amortization........... $98,503 $95,915 $102,572 $72,108 $78,586 $49,158 $74,513
Income before
income taxes and
cumulative effect
of accounting change. . . $160,642 $43,238 $(76,421) $(203,039) $18,404 $205,100 $(22,947)
Net income.............. $160,161 $36,752 $(76,421) $(341,616)(1) $15,291 $159,028 $(19,513)
Net income per share...... $.08 $.02 $(.04) $(.15)(1) $.01 $.07 $(.01)
Selected Operations
Data (Unaudited):
Proved Developed
Reserves
Oil (Bbls)............ 159,397 133,488 118,715 104,612 95,383 95,383(2) 194,918(2)
Gas (Mcf)............. 2,064,625 1,755,392 1,703,588 1,844,343 1,935,164 1,935,164(2) 1,987,505(2)
Production
Oil (Bbls)............ 27,339 24,633 20,002 11,107 9,528 7,714 10,465
Gas (Mcf)............. 64,535 58,666 79,832 53,287 68,862 48,383 97,659
Reserves to
production
ratio (years)
Oil.............. 5.8 5.4 5.9 9.4 10.0 12.4 18.6
Gas.............. 32.0 30.0 21.3 34.6 28.1 40.0 20.4
Average sales price
Oil ($/Bbl) $21.43 $16.86 $16.59 $16.37 $16.52 $16.29 $17.89
Gas ($/Mcf)........... $1.22 $1.37 $1.37 $1.32 $1.40 $1.50 $1.06
Reserve replacement
costs ($/BOE).......... $3.10 (3) $46.52 $5.07 $24.37 $21.06 $2.92
Net wells completed
during the period...... .25 .26 .25 .5 .8 .23 .23
</TABLE>
- -------------------
-2-
<PAGE>
<TABLE>
<CAPTION>
At May 31, 1996
At August 31, 1995 (Unaudited)
------------------ --------------------------------------
Actual As Adjusted (2)
---------- --------------
(in thousands) (in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Working capital............ $ 173,390 $ (88,100) $______
Total assets............... $2,235,220 $2,319,776 $______
Long-term debt............. -0- -0- -0-
Stockholders' equity....... $1,943,155 $1,923,642 $______
</TABLE>
- --------------------
(1) Includes cumulative effect of change in method of accounting for income
taxes. See Note 1 to the Financial Statements included in this Prospectus.
(2) As adjusted to give effect to the estimated net proceeds of this offering
to be received by the Company after deducting underwriting and estimated
offering expenses, and assuming the sale by the Company of 1,000,000 Units,
which does not include the Underwriter's over-allotment option to purchase
up to 150,000 Units. See "USE OF PROCEEDS".
(3) No reserves acquired.
The Company is incorporated under the laws of Wyoming. The Company's
principal executive and administrative offices are located at 777 Overland
Trail, Casper, Wyoming 82602, telephone number (307) 237-9330.
The Offering
Securities Offered Units, each consisting of one share of the
Company's $.10 par value common stock (the "Common
Stock") and redeemable Common Stock purchase warrants
("Warrants") to purchase one share of Common Stock
for $3.00 per share during the five-year period
beginning on the date of this Prospectus. See
"DESCRIPTION OF SECURITIES".
Offering price: $____ per Unit
Common Stock outstanding(1):
Prior to the Offering: 2,712,371
After Offering(1): 3,712,371
Warrants Outstanding: 1,000,000
Prior to the Offering: -0-
After the Offering(2): 1,000,000
- -----------------
-3-
<PAGE>
(1) Does not include (i) up to 1,000,000 shares of Common Stock issuable upon
exercise of the Warrants offered in this Offering, and (ii) up to 200,000
shares of Common Stock issuable upon exercise of the Underwriter's Warrants
and the Warrants included in the Underwriter's Units issuable to the
Underwriter upon the exercise of the Underwriter's Warrants. See
"UNDERWRITING". Also does not include 170,000 shares of Common Stock
issuable upon exercise of outstanding stock options held by an employee of
the Company.
(2) Does not include (i) up to 150,000 Warrants that may be included in Units
issued pursuant to the Underwriter's over-allotment option, and (ii) up to
100,000 Warrants issuable upon exercise of the Underwriter's Warrants.
Redemption Of The The Warrants are redeemable, at any time, by the Company at
Warrants a price of $.02 per Warrants Warrant at any time prior to
their exercise or expiration upon 30 days' prior written or
published notice, provided however, that the closing bid
quotation for the Common Stock for at least 20 of the 30
consecutive business days ending on the day of the Company's
giving notice of redemption has been at least $4.00 per
share and further provided that the exercise of the Warrants
is subject to a current registration statement. The Warrants
remain exercisable during the 30-day notice period. Any
Warrantholder who does not exercise that holder's Warrants
prior to their expiration or redemption, as the case may be,
forfeits that holder's right to purchase the shares of
Common Stock underlying the Warrants. The Warrants included
in the Underwriter's Units issuable upon the exercise of the
Underwriter's Warrants are not subject to the Company's
redemption right. See "DESCRIPTION OF
SECURITIES-Warrants-Redemption".
Use Of Proceeds Assuming Offering gross proceeds of $1,500,000, net proceeds
will be used for the Company's oil and gas activities and to
increase working capital. Any funds received from the
exercise of the Underwriter's over-allotment option also
will be used for these purposes. See "USE OF PROCEEDS" and
"BUSINESS AND PROPERTIES".
Risk Factors The securities offered hereby involve a high degree of risk.
See "RISK FACTORS".
NASDAQ Common Stock: "DBLE"
Symbols Warrants: "DBLEW"
Units: "DBLEU"
SUMMARY OIL AND GAS RESERVE INFORMATION
The following table sets forth summary information with respect to the
Company's estimates of its net proved developed oil and gas reserves and
discounted present value of the estimated future net revenues from the
production and sale of these reserves as of each of August 31, 1995 and May 31,
1996, respectively. For additional information relating to reserves, see
"BUSINESS AND PROPERTIES--Production", "--Reserves", the Supplemental Oil And
Gas Information included after the Consolidated Financial Statements of the
Company included elsewhere in this Prospectus, and "RISK FACTORS--Estimates Of
Reserves And Future Net Revenues".
<TABLE>
<CAPTION>
Estimated Proved Reserves As Of
---------------------------------------------------------------------------------------
August 31, 1995(1) May 31, 1996
----------------------------------------- --------------------------------------
Developed Undeveloped Total Developed Undeveloped Total
--------- ----------- ----- --------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Crude Oil (Bbls)..................... 95,383 -0- 95,383 194,918 -0- 194,918
Natural Gas (Mcf).................... 1,935,164 -0- 1,935,164 1,987,505 -0- 1,987,505
-4-
<PAGE>
Present Value Of Estimated Future Net
Revenues Before Income Taxes (In
Thousands), Discounted At 10%(2).......... - - $863,312 - - $1,836,122
- ------------------------
(1) The Company's annual reserve reports are prepared as of August 31, which is the last day of the Company's fiscal year.
(2) The present value of estimated future net revenues as of each date was calculated using oil and gas prices as of that date.
-5-
</TABLE>
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. BEFORE MAKING AN INVESTMENT IN THE COMPANY, PROSPECTIVE INVESTORS SHOULD
GIVE CAREFUL CONSIDERATION TO THE FOLLOWING RISK FACTORS AFFECTING THE BUSINESS
OF THE COMPANY AND ITS SECURITIES, TOGETHER WITH OTHER INFORMATION IN THIS
PROSPECTUS.
Risks Relating To The Business Of The Company.
Past Operating Losses. The Company has reported net losses for two of its
past five fiscal years and for the nine months ended May 31, 1996. There is no
assurance that the Company's operations will be profitable. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and
"BUSINESS AND PROPERTIES".
Dependence On Key Personnel. The Company is highly dependent on the
services of each of Dr. Richard B. Laudon, the Chairman Of The Board, and
Stephen H. Hollis, the President of the Company. The loss of either Dr. Laudon
or Mr. Hollis could have a material adverse effect on the Company. See
"MANAGEMENT".
Oil And Gas Prices; Marketability Of Production. The Company's revenues,
profitability and liquidity are substantially dependent upon prevailing prices
for oil and natural gas. Oil and gas prices can be extremely volatile and in
recent years have been depressed by excess total domestic and imported supplies.
There can be no assurance that current price levels can be sustained. Prices
also are affected by actions of state and local agencies, the United States and
foreign governments, and international cartels. These external factors and the
volatile nature of the energy markets make it difficult to estimate future
prices of oil and natural gas. Any substantial or extended decline in the price
of natural gas would have a material adverse effect on the Company's financial
condition and results of operations, including reduced cash flow and borrowing
capacity. All of these factors are beyond the control of the Company. Sales of
oil and natural gas are seasonal in nature, leading to substantial differences
in cash flow at various times throughout the year. The marketability of the
Company's production depends in part upon the availability, proximity and
capacity of gas gathering systems, pipelines and processing facilities. Federal
and state regulation of oil and gas production and transportation, general
economic conditions, changes in supply and changes in demand all could adversely
affect the Company's ability to produce and market its oil and natural gas. If
market factors were to change dramatically, the financial impact on the Company
could be substantial. The availability of markets and the volatility of product
prices are beyond the control of the Company and thus represent a significant
risk. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS".
The Company uses the "successful efforts" method for capitalizing costs of
completed oil and gas wells. Pursuant to the successful efforts method, only the
costs attributable to successful exploratory wells and the costs of development
wells within a producing field are reflected in property and equipment.
Producing and non-producing properties are evaluated periodically and, if
conditions warrant, an impairment allowance is provided. The impairment
allowance is a one-time charge to earnings which does not impact cash flow from
operating activities.
The Company's revenues also depend on its level of success in acquiring or
finding additional reserves. Except to the extent that the Company acquires
properties containing proved reserves or conducts successful exploration and
development activities, or both, the proved reserves of the Company will decline
as reserves are produced. There can be no assurance that the Company's planned
exploration and development projects will result in significant additional
reserves or that the Company will have future success in drilling productive
wells at low reserve replacement costs.
-6-
<PAGE>
General Risks Of Oil And Gas Operations. The Company competes in the areas
of oil and gas exploration, production, development and transportation with
other companies, many of which may have substantially larger financial and other
resources. The nature of the oil and gas business also involves a variety of
risks, including the risks of operating hazards such as fires, explosions,
cratering, blow-outs, and encountering formations with abnormal pressures, the
occurrence of any of which could result in losses to the Company. The Company
maintains insurance against some, but not all, of these risks in amounts that
management believes to be reasonable in accordance with customary industry
practices. The occurrence of a significant event, however, that is not fully
insured could have a material adverse effect on the Company's financial
position.
Government Regulation And Environmental Risks. The production and sale of
oil and gas are subject to a variety of federal, state and local government
regulations including regulation concerning the prevention of waste, the
discharge of materials into the environment, the conservation of oil and natural
gas, pollution, permits for drilling operations, drilling bonds, reports
concerning operations, the spacing of wells, the unitization and pooling of
properties, and various other matters including taxes. Many jurisdictions have
at various times imposed limitations on the production of oil and gas by
restricting the rate of flow for oil and gas wells below their actual capacity
to produce. During the past few years there has been a significant amount of
discussion by legislators and the presidential administration concerning a
variety of energy tax proposals. There can be no certainty that any such measure
will be passed or what its effect will be on oil and natural gas prices if it is
passed. In addition, many states have raised state taxes on energy sources and
additional increases may occur, although there can be no certainty of the effect
that increases in state energy taxes would have on oil and natural gas prices.
Although the Company believes it is in substantial compliance with applicable
environmental and other government laws and regulations, there can be no
assurance that significant costs for compliance will not be incurred in the
future.
Equity Ownership By Directors And Officers. Prior to the sale of Common
Stock pursuant to this Offering, the Company's current officers and directors as
a group, together with their affiliates, owned approximately 41.4 percent of the
outstanding Common Stock. Upon consummation of this offering, and assuming they
do not purchase any shares in the offering and that the Underwriters do not
exercise their over-allotment option, the current officers and directors as a
group, together with their affiliates, will own approximately 30.7 percent of
the outstanding Common Stock.
Estimates Of Reserves And Future Net Revenues; No Review By Independent
Engineer. This Prospectus contains estimates of the Company's reserves and of
future net revenues which were prepared by the Company and have not been
reviewed by an independent petroleum engineer. However, these estimates are not
exact and are based on many variable and uncertain factors. Estimates of
reserves and of future net revenues may vary substantially depending, in part,
on the assumptions made and may be subject to adjustment either up or down in
the future. The actual amounts of production, revenues, taxes, development
expenditures, operating expenses, and quantities of recoverable oil and gas
reserves to be encountered may vary substantially from the estimated amounts.
Estimates of reserves also are extremely sensitive to the market prices for oil
and gas. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" and "BUSINESS AND PROPERTIES--Reserves".
Limited Liquidity For Common Stock. The Company's Common Stock is traded on
The Nasdaq SmallCap Market ("NASDAQ"). Average weekly trading volume for the
Common Stock as reported by NASDAQ was approximately 6,000 shares for the one
year period ended August 31, 1996. There can be no assurance that the average
weekly trading volume will increase after the Offering.
-7-
<PAGE>
Risks Concerning This Offering And The Securities Offered
No Dividends. The Company has not paid cash dividends with respect to its
Common Stock in the past and has no plans to pay cash dividends in the future.
No Assurance Of Market For Units, Common Stock Or Warrants. There currently
is a limited public market for the Common Stock and no public market for the
Units or Warrants (the Common Stock, Units and Warrants are referred to
collectively as the "Securities"). No assurance can be given that a market will
develop for the Units or Warrants. If a trading market is maintained for the
Common Stock and develops for the Units and Warrants, the prices may be highly
volatile. The Underwriter is not obligated to make a market in any of the
Securities upon completion of this Offering, and, even if it makes a market,
there is no assurance that it will continue to do so in the future. In addition,
if a market is maintained for the Common Stock and develops for the Units and
Warrants, and the Securities are not traded on NASDAQ and are sold below certain
prices, many brokerage firms may not effect transactions in the Securities, and
sales of the Securities may be subject to Securities And Exchange Commission
("SEC") Rule 15g-9. See below, "-Possible Effects Of SEC And NASDAQ Rules On
Market For Units, Common Stock And Warrants". Trading in the Securities, if any,
will be limited to the NASDAQ or, if the Company does not continue to qualify
for listing on the NASDAQ, the electronic bulletin board or the "pink sheets"
used by members of the National Association Of Securities Dealers, Inc.
("NASD"). If a market does not develop for the Securities, it may be difficult
or impossible for purchasers to resell the Securities. There is no assurance
that any of the Securities can ever be sold at the offered price or at any
price.
Possible Effects Of SEC And NASDAQ Rules On Market For Units, Common Stock
And Warrants. The Common Stock of the Company currently is listed on NASDAQ and
the Company has applied for listing of the Units and Warrants on NASDAQ
following the completion of this Offering. After the Units and Warrants
initially have been listed for trading on NASDAQ, and with respect to the Common
Stock that already is listed, in order to continue to be listed on NASDAQ, the
Company must continue to have total assets of at least $2 million, capital and
surplus of at least $1 million, and a price per share of at least $1. There is
no assurance that the Company will be able to meet the continued requirements
for NASDAQ.
If (i) the Company's securities are no longer eligible for trading on
NASDAQ, and (ii) those securities are traded for less than $5 per security, then
unless the Company's net tangible assets exceed $2,000,000 or the Company has
average revenue of at least $6,000,000 for the last three years, the respective
security (a "Low-Priced Security") will be subject to SEC Rule 15g-9 concerning
sales of low-priced securities or "penny stock" unless the security is otherwise
exempt from Rule 15g-9. Pursuant to Rule 15g-9, prior to concluding a sale, a
broker-dealer must make a special suitability determination for the purchaser
and receive the purchaser's written representations and agreement concerning the
transaction. In addition, Rule 15g-2 generally requires broker-dealers to
provide customers for whom they are effecting transactions in a Low-Priced
Security, before the transactions, with a standard risk disclosure document
describing the customer's right to disclosures of the (i) current bid and ask
quotations, if any, (ii) compensation of the broker-dealer and the salesperson
in the transaction, and (iii) monthly account statements showing the market
value of such stock held in the customer's account. If the Common Stock or
Warrants individually trade for more than $5 per security, then these rules will
not apply to transactions in the respective security trading for over $5. To the
extent that the respective security becomes a Low-Priced Security, these rules
will apply and may have a negative effect on the desire of brokers to sell the
Company's Securities, may have a negative effect on the brokers' ability to do
so, and also may have a negative effect on the ability of purchasers in this
Offering to sell the Company's Securities in the secondary market.
Arbitrary Determination Of Offering Price Of Units And Exercise Price Of
Warrants. The price at which the Units are being offered to the public and the
price at which the Warrants are exercisable for shares of Common Stock have been
determined arbitrarily. The offering price and exercise price were arrived at
-8-
<PAGE>
after negotiations between the Company and the Underwriter and were based upon
the Company's and the Underwriter's assessment of the market price for the
Common Stock, the history and prospects of the Company, the background of the
Company's management, and current conditions in the securities markets. See
"UNDERWRITING".
Registration Or Exemption Required To Exercise Warrants. Holders of
Warrants have the right to exercise their Warrants to purchase Common Stock only
if a registration statement relating to those shares is then in effect or an
exemption from registration is available and only if those shares are qualified
for sale, or are deemed to be exempt from qualification, under applicable
securities laws of the state of residence of the holder of those shares. The
Company intends to have a registration statement in effect at times that the
Warrants are eligible for exercise, although there can be no assurance that the
Company will be able to do so. However, the Company will not be required to
honor the exercise of the Warrants if, in its opinion, the issuance of Common
Stock would be unlawful because of the absence of an effective registration
statement or for other reasons. If the Company were unable to cause a required
registration statement to be effective during a period of time when holders
wished to exercise, the market value of the Warrants could be adversely
affected.
Relationship Of Underwriter To Trading; Possible Limitations On Market
Making Activities. The Underwriter may act in a brokerage capacity with respect
to the purchase or sale of the Securities in the over-the-counter market where
each will trade. The Underwriter also has the right to act as the Company's
agent in connection with any future solicitation of holders of Warrants to
exercise their Warrants. Unless granted an exemption by the SEC from Rule 10b-6
under the Exchange Act (the "Exchange Act"), the Underwriter and any other
soliciting broker/dealer will be prohibited from engaging in any market-making
activities or solicited brokerage activities with regard to the Company's
Securities during the periods prescribed by exemption (xi) to Rule 10b-6 (nine
business days) before the solicitation of the exercise of any Warrant until the
later of the termination of such solicitation activity or the termination of any
right the Underwriter may have to receive a fee for the solicitation of
Warrants. As a result, the Underwriter and soliciting broker/dealer may be
unable to continue to make a market for the Company's Securities during certain
periods while the Warrants are exercisable. Such a limitation, while in effect,
could impair the liquidity and market price of the Company's Securities. See
"UNDERWRITING".
No Assurance Of Market In The Company's Securities. There is no assurance
that the Underwriter will participate as a market maker for the Securities
should a market for the Units and Warrants develop in addition to the current,
though limited, market for the Common Stock. Although it is not currently
obligated to do so, if the Underwriter should choose to become a market maker
for any of the Securities, the Underwriter would not be under any obligation to
continue and it may cease being a market maker at any time.
THE COMPANY
The Company was organized as a Wyoming corporation in January 1972. The
executive offices of the Company are located at 777 Overland Trail, Casper,
Wyoming, and its telephone number at that address is (307) 237-9330.
USE OF PROCEEDS
The net proceeds to the Company from this Offering are estimated to be
$_________, ($_________ if the Underwriters' over-allotment option is exercised
in full) after deducting underwriting discounts and estimated offering expenses
payable by the Company. The Company intends to use approximately $___ million of
the proceeds of this Offering, together with its operating cash flow, for its
oil and gas activities, primarily development of marketable prospects on the
Company's acreage during fiscal 1996 and 1997. The Company also intends to
-9-
<PAGE>
utilize $250,000 of the net proceeds to repay the outstanding balance on its
bank line of credit. This line of credit, which is authorized for a maximum of
$350,000 of debt, accrues interest at one-half point over the prime rate of
interest and is due and payable on December 1, 1996. In addition, subject to
management's determination that there are appropriate opportunities, the Company
may use the remaining proceeds, together with its operating cash flow and bank
line of credit, for one or more of the following in its principal areas of
activity, which are not listed in order of priority: (i) additional development
drilling, (ii) acquisition of undeveloped acreage, (iii) acquisition of
producing properties, and (iv) exploratory drilling. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Liquidity And Capital Resources"; and "BUSINESS AND
PROPERTIES--Principal Areas Of Activity".
The estimated amounts and uses set forth above indicate the Company's
intentions for use of the net proceeds from the Offering. The Company may
reallocate the proceeds or utilize the proceeds for other oil and gas
opportunities the Company deems to be in its best interests, due to an
unforeseen change in circumstances concerning matters such as economic
conditions, availability of debt financing or the existence of a property
acquisition or development opportunity.
The net proceeds of this Offering will be placed temporarily in
certificates of deposit, short-term obligations of the United States government,
or other money-market instruments that are rated investment grade or its
equivalent until used for the purposes described above.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of May
31, 1996, and as adjusted to reflect the issuance and sale of 1,000,000 Units
offered hereby.
<TABLE>
<CAPTION>
May 31, 1996
------------------------------------
Actual (1) As Adjusted (2)
------------ --------------
(in thousands)
<S> <C> <C>
Long-term debt .......................................... $ -0- $ -0-
Stockholders' equity:
Common stock, $.10 par value: 10,000,000 shares
authorized, 2,712,371 outstanding (3,712,371, $ 271,237 $ ......
as adjusted)(1)(2)....................................
Additional paid-in capital ............................ $ 886,254 $ ......
Retained earnings ..................................... $ 766,151 $ ......
----------
Total stockholders' equity .................. $1,923,642 $ ......
Total capitalization ....................... $1,923,642 $ ......
</TABLE>
- --------------------
(1) Does not include 170,000 shares issuable upon exercise of outstanding
options.
(2) Assumes no exercise of the Warrants included in the Units or of the
Underwriters' over-allotment option covering an additional 150,000 Units
and proceeds net of underwriting discounts and estimated offering expenses.
See "UNDERWRITING".
-10-
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded in the over-the-counter market and
listed on NASDAQ under the symbol "DBLE". The range of high and low bid prices
for each quarterly period during the two most recent fiscal years ended August
31, 1995 and 1996, as reported by NASDAQ is as follows:
High Low
---- ---
Fiscal 1995
First Quarter $.62 $.50
Second Quarter .75 .62
Third Quarter .75 .50
Fourth Quarter 1.37 .50
Fiscal 1996
First Quarter 1.62 .87
Second Quarter 1.50 .87
Third Quarter 1.75 1.00
Fourth Quarter 1.62 1.12
The quotations set forth above reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not reflect actual transactions. On
October 9, 1996 the high bid price for the Common Stock as reported by NASDAQ
was $1.25 per share and the low bid asked price was $1.4375.
Number Of Shareholders Of Record
On October 1, 1996, the number of shareholders of record was 2,055.
Transfer Agent
The Transfer Agent for the Common Stock and Warrants is American Securities
Transfer & Trust Co., Inc.
DIVIDEND POLICY
The Company has not paid any cash dividends since its inception. The
Company anticipates that all earnings will be retained for the development of
its business and that no cash dividends on its Common Stock will be paid in the
foreseeable future.
SELECTED FINANCIAL DATA
The selected financial data presented below for each of the years in the
five-year period ended August 31, 1995 are derived from the financial statements
of the Company, which financial statements have been audited by the Company's
independent auditors. The selected financial data presented for the nine-month
periods ended May 31, 1996 and May 31, 1995 are derived from the unaudited
financial statements of the Company included elsewhere in this Prospectus,
which, in the opinion of management, include all normal and recurring
adjustments necessary for a fair presentation of information. Production data
for all periods are unaudited. This information should be read in conjunction
with the Financial Statements and Notes thereto and "MANAGEMENT'S DISCUSSION AND
-11-
<PAGE>
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" included elsewhere in
this Prospectus. The selected data provided below are not necessarily indicative
of the future results of operations or financial performance of the Company.
<TABLE>
<CAPTION>
Nine Months Ended May 31,
Years Ended August 31, (Unaudited)
---------------------------------------------------------------- -------------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(in thousands except per share amounts)
Income Statement Data
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C>
Oil and gas production ............ $651,859 $507,349 $427,538 $235,411 $247,461 $204,425 $270,332
Sales of nonproducing properties .. 111,549 161,634 81,000 78,244 634,979 634,969 130,000
Sale of wells ..................... --- --- 13,750 136,495 --- --- ---
Interest income.................... 20,847 10,635 1,966 6,621 18,122 13,597 3,976
Other, primarily zeolite royalties 30,371 29,978 34,126 30,000 32,924 32,924 28,957
Gain on sale of investments....... --- --- 97,597 12,586 --- --- ---
--------- -------- --------- --------- --------- ---------- ---------
Total revenues.............. $814,626 $709,596 $655,977 $499,357 $933,486 $885,915 $433,265
Expenses:
Production costs.................. $103,238 $ 94,361 $107,038 $ 51,600 $ 45,009 $ 29,777 $ 52,040
Production taxes.................. 93,562 60,871 51,569 18,667 29,679 13,858 23,981
Cost of nonproducing
properties sold ................ 5,349 26,243 38,143 10,540 228,992 228,992 14,439
Cost of wells sold............... --- --- 17,125 69,736 --- --- ---
Exploration...................... 152,703 180,616 193,345 264,798 304,795 190,621 93,127
Depreciation, depletion and
amortization.................... 98,503 95,915 102,572 72,108 78,586 49,158 74,513
General and
administrative ................. 200,629 208,352 222,606 214,947 228,021 168,409 191,248
---------- --------- --------- --------- -------- -------- ---------
Total expenses............. $653,984 $666,358 $732,398 $702,396 $915,082 $680,815 $456,212
Income (loss) before income taxes
and cumulative effect of change
in method of accounting .......... $160,642 $ 43,238 $(76,421) $(203,039) $ 18,404 $205,100 $(22,947)
Provision for (benefit from)
income taxes...................... 45,419 6,486 --- (30,011) 3,113 46,072 (3,434)
--------- --------- --------- ---------- --------- --------- ---------
Income (loss) before cumulative
effect of change in method of
accounting ...................... 115,223 36,752 (76,421) (173,028) 15,291 159,028 (19,513)
Cumulative effect of change in
method of accounting for
income taxes..................... --- --- --- (168,588) --- --- ---
--------- --------- --------- ---------- --------- --------- ----------
Net income (loss) ................. $160,161 $ 36,752 $(76,421) $(341,616) $ 15,291 $159,028 $(19,513)
========= ========= ========= ========= ========= ======== ========
Income (loss) per common and
common equivalent share: $ .08 $ .02 $ (.04) $ (.15) $ .01 $ .07 $ (.01)
Before cumulative effect of
accounting change.............. .08 .02 (.04) (.08) .01 --- ---
-12-
<PAGE>
Cumulative effect of accounting
change......................... --- --- --- (.07) --- --- ---
--------- ---------- --------- --------- --------- --------- ---------
After cumulative effect of
accounting change.............. $ .08 $ .02 $ (.04) $ (.15) $ .01 $ .07 $ (.01)
Common Stock and Common Stock
equivalent shares outstanding.... 2,005,925 2,032,109 2,047,073 2,317,166 2,450,590 2,363,653 2,712,371
At August 31, At May 31,
---------------------------------------------------------------- -------------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
Selected Balance Sheet Data
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital................... $ 152,647 $ 72,334 $ 144,499 $ 60,494 $ 173,390 $ 425,720 $ (88,100)
Total assets...................... $2,150,865 $2,265,005 $2,004,968 $2,030,406 $2,235,220 $2,347,120 $2,319,776
Long-term debt ................... $ --- $ --- $ --- $ --- $ --- $ --- $ ---
Stockholders' equity.............. $1,917,391 $1,970,680 $1,928,229 $1,796,613 $1,943,155 $2,086,891 $1,923,642
</TABLE>
- --------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity And Capital Resources
- -------------------------------
During the nine months ended May 31, 1996, the Company's operations
resulted in negative working capital. The $261,500 decrease was due to the
Company's incurring a major workover on one of its producing properties in the
quarter ended May 31, 1996 and purchasing a producing property in the previous
quarter. These transactions were initially paid for with borrowed funds with a
majority of the debt being repaid in the quarter ended May 31, 1996 and the
previous quarter.
Management believes that the Company's liquidity is sufficient to meet
future cash needs for operations; however, without obtaining additional capital
from this Offering or from other sources (for which other sources it currently
has no plans), the Company will not be able to pursue the same number of oil and
gas projects on the same basis as it would like. It is not anticipated that
future material sales of oil and gas properties will be made solely to raise
working capital.
The Company's revenues and profitability are substantially dependent on the
prevailing prices for oil and natural gas. The volatility of oil and gas prices,
particularly in the western United States where the Company's properties are
located, could have a material adverse effect on the Company's liquidity and
operations. See "RISK FACTORS--Risks Relating To The Business Of The
Company--Oil And Gas Prices; Marketability Of Production".
-13-
<PAGE>
Results Of Operations
Nine Months Ended May 31, 1996 Compared To Nine Months Ended May 31, 1995
- -------------------------------------------------------------------------
The Company experienced a net loss for the nine months ended May 31, 1996
of $(19,153) compared to net income for the prior year period of $159,028. The
change is due mainly to the sale of several of the Company's nonproducing
properties in the first quarter of the prior year, yielding a profit of
$363,600, compared to the sale of nonproducing properties in the nine months
ended May 31, 1996 yielding a profit of $115,600.
Revenue from oil and gas sales increased by approximately $65,900 in the
nine-month period ended May 31, 1996 compared to the same period of 1995. This
increase can be attributed to a workover performed on one of its producing
properties and added production from the purchase of producing properties in the
first quarter of the current year.
Production costs and taxes increased by approximately $32,400 due to the
increase in oil and gas sales revenue.
Exploration costs decreased considerably during the nine months ended May
31, 1996 when compared to the same period of 1995. The $97,500 decrease mainly
is attributable to fewer of the Company's nonproducing leases being abandoned
and fewer rental payments being made due to the abandonments in the prior year
period.
Overall costs and expenses decreased by approximately $231,500 during the
nine months ended May 31, 1996 when compared to the prior year period, due
mainly to a decrease in the cost of properties sold.
Interest income decreased by approximately $9,600 due to a decrease in
funds being available for investments as they were used to purchase producing
properties in the current year.
Three Months Ended May 31, 1996 Compared To Three Months Ended February 29, 1996
- --------------------------------------------------------------------------------
Revenues from oil and gas sales increased by approximately $52,200, or 68
percent, compared to the previous quarter. Oil and gas revenues for the quarter
ended May 31, 1996 were $128,600 and were $76,400 for the quarter ended February
29, 1996. This increase was due mainly to the previously described workover on
one of the Company's producing properties.
Production costs, including taxes, decreased by approximately $12,600
during the quarter ended May 31, 1996 when compared to the previous quarter. The
decrease can be attributed to ad valorem taxes being paid in the previous
quarter.
Exploration costs increased during the three months ended May 31, 1996 when
compared to the previous quarter by $25,900. This increase is attributed to
higher valued nonproducing leases expiring in the quarter ended May 31, 1996
than in the previous quarter.
General and administrative costs decreased by approximately $15,700 during
the three months ended May 31, 1996 compared to the quarter ended February 29,
1996. This decrease was due to the cost attributable to the Company's annual
meeting in the previous quarter.
Interest income during the nine months ended May 31, 1996 remained fairly
stable compared to the previous quarter.
-14-
<PAGE>
Depreciation and depletion expense decreased by approximately $10,800
during the three months ended May 31, 1996 compared to the previous quarter.
This decrease can be attributed to a revised estimate of reserves from a
producing property following a workover in the quarter ended May 31, 1996. This
resulted in a decrease in the depletion ratio used to calculate depletion on the
property.
Operations in the quarter ended May 31, 1996 resulted in a $1,398 net loss
compared to net income of $34,360 for the previous quarter. The aforementioned
sale of nonproducing properties during the prior quarter is the primary cause
for the change.
Three Months Ended May 31, 1996 Compared To Three Months Ended May 31, 1995.
- ----------------------------------------------------------------------------
Oil and gas revenues increased by $32,500, or 16 percent, during the
quarter ended May 31, 1996, compared to the same quarter in 1995 due to better
prices and production from newly acquired producing properties.
Sales of and cost of sales of oil and gas properties decreased drastically
during the quarter ended May 31, 1996 when compared to the quarter ended May 31,
1995 the due to the sale of a nonproducing property in the prior year quarter
and no such sales in the quarter ended May 31, 1996.
Production costs, including production taxes, increased by $12,100 during
the quarter ended May 31, 1996 compared to the same quarter of 1995. This
increase coincides with the increase in revenue and the increase in operating
expenses for repairs to one of the Company's producing properties in the quarter
ended May 31, 1996.
Exploration costs decreased by $23,900 during the three months ended May
31, 1996 when compared to the corresponding quarter in 1995. This decrease is
mainly attributed to the abandonment of nonproducing leases during the
corresponding quarter.
General and administrative expenses and depreciation and depletion remained
relatively stable between the two quarters.
The decrease in net income (loss) of $25,100 can be attributed to the
previously described sale of a nonproducing property in the corresponding
quarter.
Year Ended August 31, 1995 Compared To August 31, 1994.
- -------------------------------------------------------
Revenues from sales of oil and gas were up slightly in during the year
ended August 31, 1995 as compared with during the year ended August 31, 1994.
The decrease in price per Mcf of gas was partly offset with an increase in the
production of gas. Production of gas increased as a result of the Company's
acquisition of an additional working interest in producing properties in the
Whiskey Butte Field in during the year ended August 31, 1995 and the acquisition
of an overriding royalty interest in the Farson Road Unit near the end of during
the year ended August 31, 1994. Sales and production of oil decreased as a
result of the Company selling its older producing properties in the Buck Creek
Field in fiscal 1994.
Sales and gains on sales of non-producing properties increased
significantly when compared to the previous year. Gains on sales of nonproducing
properties totaled $406,000 for fiscal 1995 compared to $67,700 for the previous
year. The Company sold a block of Wyoming leases during the first quarter at a
substantial gain.
There were no sales of producing properties during the year ended August
31, 1995.
-15-
<PAGE>
Interest income increased approximately $11,500 in fiscal 1995 compared to
fiscal 1994, due to increased interest rates and the improved cash position as a
result of the aforementioned nonproducing properties transaction.
Total production costs decreased slightly during the year ended August 31,
1995 as a result of the sale of the properties in the Buck Creek Field in fiscal
1994. Production taxes increased by $11,000 as a result of the increased oil and
gas revenue and additional taxes attributable to working interests during the
current year.
Exploration expenses increased by $40,000 in the year ended August 31,
1995. This is primarily attributable to the expiration of $129,000 of
nonproducing leases in North Dakota. Dry hole costs of $55,000 incurred during
fiscal 1995 were comparable to the $58,000 abandonment of a property in the
prior year. Lease rental costs during the year ended August 31, 1995 increased
as a result of higher rental requirements for some of the Company's newer
properties. Also, geological expenses increased as the Company is aggressively
evaluating the production capabilities of its properties.
General and administrative expenses remained relatively stable during the
two years.
Depreciation and depletion increased by $6,500 in during the year ended
August 31, 1995 compared to during the year ended August 31, 1994. This increase
is a result of increased production and the acquisition of the additional
working interest in the Whiskey Butte Field discussed earlier.
The deferred income tax benefit of $30,000 of the previous year was
replaced with a deferred tax expense of $3,000 during 1995 as a result of the
adoption of SFAS No. 109 in the previous year.
The above-mentioned events and factors led to the Company's net income of
$15,000 during the year ended August 31, 1995 compared to a net loss of $340,000
in the prior year.
BUSINESS AND PROPERTIES
Overview
The Company was formed on January 13, 1972. The Company explores for,
develops, produces and sells crude oil and natural gas. The Company concentrates
its activities in areas in which it has accumulated detailed geologic knowledge
and developed significant management experience. Current areas of exploration
and development focus for the Company include the Moxa Arch in southwestern
Wyoming, the Powder River Basin in northeastern Wyoming, the Washakie Basin in
south central Wyoming, the Wind River Basin in central Wyoming, and the
Christmas Meadows area in northeastern Utah. The Company owns interests in a
total of 124 producing wells, with oil constituting approximately 50 percent and
natural gas constituting approximately 50 percent of its current production
(assuming 10 Mcf of gas production equals one barrel of oil production).
The Company also has undeveloped acreage in other basins and is evaluating
the possibility of additional activity in other areas. See "--Principal Areas Of
Oil And Gas Activity".
Forward-Looking Statements
The Company's intentions and expectations described in this Prospectus with
respect to possible exploration and other testing activities concerning
properties in which it holds interests may be deemed to be forward-looking
statements. These statements are made based on management's current assessment
of the exploratory merits of the particular property in light of the geological
information available at the time and based on the Company's relative interest
in the property and its estimate of its share of the exploration cost.
Subsequently obtained information concerning the merits of any property as well
-16-
<PAGE>
as changes in estimated exploration costs and ownership interest may result in
revisions to management's expectations and intentions and thus the Company may
delete one or more of these intended exploration activities. Further,
circumstances beyond the Company's control may cause such prospects to be
eliminated from further consideration as exploration prospects. See above,
"DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS".
Business Strategy
The Company's strategy is to increase its cash flow and oil and gas
reserves by developing and marketing oil and gas prospects. Upon marketing a
prospect to another entity, the Company will attempt to receive a promoted or
carried interest in the initial well for the prospect. The Company will then
participate proportionately in the drilling of any development wells on the
prospect. In prior years, the Company has undertaken to assemble a large acreage
position and sell it to others while retaining a royalty position. By attempting
to direct its focus to generation of geologic prospects with a promoted interest
at the exploratory phase and a participating interest at the development stage,
the Company will be utilizing more resources for drilling rather than for lease
acquisition. In this manner, the Company believes that in a shorter time period
it will be exposed to a greater number of opportunities to increase reserves and
cash flow.
The Company intends to develop several prospects each year with a view to
taking advantage of advances in seismic and drilling technologies. Of these
prospects, between five and ten each year will be intended as unusually high
potential, higher risk prospects. As indicated above, the Company intends to
market its prospects on a basis that will allow the Company to receive a
promoted or carried interest and thereby control its risk on the initial well on
each of these prospects.
Principal Areas Of Oil And Gas Activity
Moxa Arch
During the past two years, the Company has participated in the drilling and
completion of 53 successful natural gas wells on the Moxa Arch in the Whiskey
Buttes and South Swan Fields of the Green River Basin in southwestern Wyoming.
The Company's working interests in these wells and other acreage on the Moxa
Arch range from 0.3 percent to 3.5 percent and cover approximately 30,000 gross
acres. In addition to the 53 wells drilled during the past two years, the
Company has working interests in 47 producing gas wells and a three percent
overriding royalty interest in another producing well, all of which are located
on the Moxa Arch. In addition, the Company intends to participate in the
drilling of five to ten additional development wells in 1997 at an estimated
average cost to the Company of approximately $7,500 per well. Production from
the Company's wells on the Moxa Arch is from the Frontier at a depth of
approximately 10,000 feet.
Powder River Basin
Rabourn Well. The Rabourn Well, in which the Company has a 100 percent
working interest, is located on a 400-acre lease in the Powder River Basin in
Campbell County, Wyoming. The Company drilled this well in 1981 and it had been
producing at a steady rate of 15 barrels of oil per day for a number of years
prior to April 1996, when the Company fracture stimulated the well. This
resulted in increased production which as of August 31, 1996 had sustained a
rate of approximately 55 barrels of oil per day. The Rabourn well produces from
the Muddy Sandstone formation at a depth of approximately 6,600 feet.
Jepson Holler Draw Unit. Double Eagle owns a 0.058 percent working interest
in the Jepson Holler Draw Unit, Johnson County, Wyoming. Ensign Oil & Gas
Company is starting to waterflood the unit to improve oil recovery. Currently,
there are 18 producing wells, 34 water injector wells and two water supply
wells. Ensign plans to drill 26 additional development wells and seven water
injector wells during 1997. The Company estimates its cost to participate in
this project at approximately $7,700. The field produces oil from the Cretaceous
Shannon Sandstone.
-17-
<PAGE>
Washakie Basin
James Creek Area. The Company owns a 25 percent working interest in 10,383
gross acres in the James Creek area approximately 30 miles South of Rock
Springs, Wyoming. In August 1995, the Company participated in a successful
recompletion that resulted in a well producing 300 Mcf of gas per day from the
Frontier at approximately 4,405 feet. An offset location targeting the Frontier
at approximately 4,500 feet has been identified, and the Company and its
partners intend to drill this well during the fall of 1997 at an estimated net
cost to the Company of $83,000 to drill and complete.
Red Creek. In November 1994, the Company sold a 100 percent working
interest in approximately 10,650 acres in Sweetwater and Carbon Counties,
Wyoming to Conoco, with the Company retaining a five percent overriding royalty
interest. In 1995, Conoco drilled an 11,244 foot Mesaverde test, which initially
flowed commercial quantities of natural gas. Conoco then fractured the well, and
this resulted in decreasing the production significantly and adding water
production in quantities substantial enough to render the well uneconomic.
Conoco has announced its intention to undertake additional drilling of wells on
this acreage during the remainder of 1996 and during 1997.
Rock Island Unit. In February 1996, the Company sold a 100 percent working
interest in a 688-acre lease in the Rock Island Unit located in the Washakie
Basin to Yates Petroleum, with the Company retaining a five percent overriding
royalty covering the interests sold to Yates. An exploratory unit has been
formed among Yates, the Company and owners of other adjacent acreage. Yates has
announced its intention to drill a 16,000 foot Frontier test on this acreage in
late 1996.
Marianne Field. The Company purchased additional working interests in the
five wells in which the Company previously had interests in the Marianne Field,
Sweetwater County, Wyoming in August 1996. Current net production from the five
wells is net 50 Mcf per day to the Company. A compressor unit will be added in
the fall of 1996 to attempt to increase production. The Company's working
interest varies from 2.9 percent to 15.8 percent in the five wells.
Wind River Basin
Madden Anticline. The Company owns interests in approximately 2,329 gross
and 448 net acres on the Madden Anticline, Fremont County, Wyoming. These
interests consist of working interests in 17 producing wells varying from .1 to
seven percent, at depths ranging from approximately 16,000 feet to 18,000 feet.
As of August 31, 1996, the Company's aggregate daily production from these wells
was 300 Mcf. In general, the Madden Anticline produces over 100 million cubic
feet of gas per day from seven formations in two fields, Long Butte Field and
Madden Field, at depths which vary from 3,000 feet to 25,000 feet.
In October 1996, the Company plans to drill a test on an undeveloped
480-acre lease in which the Company currently owns a 50 percent interest on the
Madden Anticline at an estimated net cost to the Company of $40,000. Existing
gas wells are producing on both sides of this lease. There currently is
significant drilling activity on Madden Anticline and the Company plans to be
involved in several development wells in this area in the future.
South Sand Draw. The Company has a 100 percent working interest in 735
acres in the South Sand Draw area of Fremont County, Wyoming. The Company
believes that because of the stratigraphically and structurally complex nature
of this prospect, 3-D seismic should be undertaken prior to designating drilling
locations and target zones. In July 1996, the Company spent $110 an acre to
acquire leases covering approximately 69 net acres based on its preliminary
analysis of this prospect.
-18-
<PAGE>
Adjacent acreage owned by other entities includes existing oil production from
the Phosphoria and Tensleep formations and existing gas production from the
Frontier formation. The Company is seeking partners for the 3-D seismic work,
exploration and development of its South Sand Draw acreage in an attempt to
commence its initial test well during 1997. The Company intends to attempt to
retain a carried interest in this acreage.
Graham No. 2 Well. The Company owns a 75 percent working interest in the
Graham No. 2 Well, which is located on a 363-acre lease in Natrona County,
Wyoming. The Company originally drilled this well in 1981, and it was producing
approximately 1.1 Mmcf of gas per day and 25 barrels of condensate at that time.
The initial zones were depleted and the well was shut-in in 1992. The Company
has identified seven prospective zones, and if it is able to obtain an
additional partner, will attempt to recomplete this well to a new zone in the
same formation. By obtaining an additional partner, the Company believes that it
can undertake the recompletion without additional out-of-pocket cost to the
Company, although the Company's interest in the well would be reduced.
Cooper Reservoir. The Company owns a 20 percent working interest in 840
gross acres in Cooper Reservoir Field in Natrona County, Wyoming. Intoil, Inc.
has staked a location to drill a well offsetting the Company's acreage; however
there is no assurance that the well will be drilled. The Company is marketing
this prospect to prospective partners and, based on discussions with the owner
of the remaining interests, anticipates that its initial test well will be
drilled during the summer of 1997 to the Fort Union formation at approximately
4,500 feet. The net cost to the Company for this well is estimated to be
approximately $80,000.
Utah
Christmas Meadows. The Company owns a 25 percent working interest in
approximately 23,000 acres in the Table Top Unit, Summit County, Utah. Seismic
work has been undertaken and drilling permits received for an initial test well.
However, approximately 400 acres within the Table Top Unit, which are adjacent
to the drillsite for the initial test well, have not been made available for
leasing by the federal government. The Company and its industry partners believe
that it would be imprudent to drill the test well until the adjacent lands are
leased. Because the adjacent federal lands have not been made available for
leasing, the Company and its industry partners requested that their current
federal leases be suspended so that they would not expire prior to the federal
government's making the adjacent unleased lands available for leasing. This
request was denied by the Bureau Of Land Management and the Company and its
industry partners currently are in the process of appealing this decision.
Because of these complications, drilling of the test well has been delayed until
at least the summer of 1997. In the event that the Company and its industry
partners are not successful in their appeal of the suspension of the leases, the
leases will expire according to their terms. The leases directly controlled by
the Company within the Table Top Unit will expire in approximately four years,
while the leases held by certain of the Company's industry partners will expire
prior to the summer of 1997. As a result of the unsettled nature of these
issues, there can be no assurance that the Company will be able to market and
drill this prospect in the near future. The Company estimates that its net cost
to participate in the test well will be approximately $325,000, although the
Company is attempting to bring in an additional partner to reduce the Company's
working interest and share of costs.
Zeolite Mining Activities
The Company has owned since 1972 placer mining claims covering 320 acres of
land in Lander County, Nevada and 640 acres of land in Owyhee County, Idaho,
which because of natural outcrops and because of other sampling and analysis are
believed to overlie significant deposits of clinoptilolite, which is one of 34
naturally occurring zeolites. Although the existence of these deposits has been
indicated for some time, no commercially significant mining operations have been
conducted on the Company's property because significant markets for zeolites
have not yet developed. Zeolites currently are utilized commercislly for small
-19-
<PAGE>
consumption items such as cat litter, deodorant and aquarium filler material,
but the amount of consumption from these markets has not justified large scale
production to date. Continuing efforts are being made by other entities to
develop more extensive markets for the use of zeolites, particularly with
respect to agricultural uses, such as feed supplement, soil amendment,
agriculture deodorant and pesticide carriers. For accounting purposes on the
Company's financial statements, these properties are carried at a total of $385.
In September 1996, the Company entered into a mining lease pursuant to
which Mr. Hayden Rader leased the Company's zeolite placer mining claims. This
mining lease and a previous agreement with the lessee provide for the lessee to
pay a production royalty of $8 per ton for each ton of minerals mined and
removed from the properties subject to the lease. (The Company will receive $7
of this $8 per ton royalty, and a third party will receive $1 of this amount.)
The lease may be terminated by the lessee with respect to all or a portion of
the properties at any time without any further obligation. During the term of
the lease, the lessee will undertake any assessment work and pay any maintenance
fees necessary to maintain the claims in good standing. The lessee paid to the
Company $10,000 as an option fee and an additional $15,000 as the option
exercise price upon entering into the mining lease. To the extent that the lease
is still in effect, the lessee shall be required to pay a lease bonus of $50,000
in September 1997 and annual advance royalties of $100,000 beginning in
September 1998. These advance royalties will be credited against the amount of
the royalty otherwise payable in the case of any production.
The lessee currently is attempting to develop markets for sale of zeolite
from these properties. There is no assurance that any such markets can be
developed or that any such sales will occur.
Production
The table below sets forth oil and gas production from the Company's net
interests in producing properties for each of its last three fiscal years.
<TABLE>
<CAPTION>
Oil And Gas Production
----------------------------------------
Nine
Months
Year Ended Ended
August 31, May 31,
----------------------- --------
1994 1995 1996
-------- ------- --------
Quantities
<S> <C> <C> <C>
Oil (Bbls)......................... 11,107 9,528 10,465
Gas (Mcf).......................... 53,287 68,862 97,659
Average Sales Price
Oil ($/Bbls)....................... $16.37 $16.52 $17.89
Gas ($/Mcf)........................ $1.32 $1.40 $1.06
Average Production Cost
($/BOE)*............................ $3.14 $2.74 $2.57
</TABLE>
- --------------------
* Does not include ad valorem and production taxes.
-20-
<PAGE>
Productive Wells
The following table categorizes certain information concerning the
productive wells in which the Company owned an interest as of August 31, 1996.
<TABLE>
<CAPTION>
Productive Wells
-------------------------------------------------------
Oil Gas
---------------------- ---------------------
Gross Net Gross Net
<S> <C> <C> <C> <C>
Wyoming ---- ---- 102.00 0.45
Moxa Arch............................
Powder River Basin................... 26.00 1.03 ---- ----
Washakie Basin....................... ---- ---- 24.00 1.3
Wind River Basin..................... ---- ---- 15.00 1.03
Other Productive Wells................. 17.00 0.73 ---- ----
Total 43.00 1.76 141.00 2.84
</TABLE>
Drilling, Acquisitions And Reserve Replacement Costs
During the three years ended August 31, 1995, the Company added proved
reserves from acquisitions, extensions, discoveries and reserve revisions of
approximately 96,564 BOE. Capital expenditures during this period were
approximately $491,360, resulting in an average annual reserve replacement cost
of approximately $5.09 per BOE over that three year period.
The Company drilled or participated in the drilling of wells as set forth
in the following table for the periods indicated. In certain of the wells in
which the Company participates, the Company has an overriding royalty interest
and no working interest.
<TABLE>
<CAPTION>
Wells Drilled
---------------------------------------------------------------------
Nine Months Ended
Year Ended August 31, May 31,
----------------------------------------- -------------------
1994 1995 1996
----------------- ------------------ -------------------
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
Exploratory
<S> <C> <C> <C> <C> <C> <C>
Oil................ 0 0 0 0 0 0
Gas................ 0 0 0 0 0 0
Dry Holes.......... 0 0 3 .3 1 .125
- - - -- - ----
Subtotal... 0 0 3 .3 1 .125
- - - -- - ----
Development
Oil................ 0 0 0 0 0 0
Gas................ 28 .5 12 .3 7 .029
Dry Holes.......... 0 0 2 .2 0 0
- - - -- - -
Subtotal... 28 .5 14 .5 7 .029
-- -- -- -- - ----
Totals: 28 .5 17 .8 16 .154
== == == == == ====
</TABLE>
-21-
<PAGE>
In addition, the Company was participating in 2 gross (.05 net)
[development/exploratory] wells which were either in the process of being
drilled or completed at August 31, 1996. All the Company's drilling activities
are conducted on a contract basis with independent drilling contractors.
Reserves
The following reserve related information for the years ended August 31,
1994, 1995, and 1996 is based on estimates prepared by the Company. The
Company's reserve estimates are developed using geological and engineering data
and interests and burdens information developed by the Company. Reserve
estimates are inherently imprecise and are continually subject to revisions
based on production history, results of additional exploration and development,
price of oil and gas and other factors. See "RISK FACTORS--Estimates Of Reserves
And Future Net Revenues; No Review By Independent Engineer". The notes following
the table should be read in connection with the reserve estimates.
<TABLE>
<CAPTION>
Estimated Proved Reserves (1)(2)
----------------------------------------------
At August 31, May 31,
---------------------------- --------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Proved Developed Oil Reserves (Bbls)........................ 104,612 95,383 194,918
Proved Undeveloped Oil Reserves (Bbls)...................... --- --- ---
Total Proved Oil Reserves (Bbls)....................... 104,612 95,383 194,918
Proved Developed Gas Reserves (Mcf)......................... 1,844,343 1,935,164 1,987,505
Proved Undeveloped Gas Reserves (Mcf)....................... --- --- ---
Total Proved Gas Reserves (Mcf)........................ 1,844,343 1,935,164 1,987,505
Total Proved Crude Oil Equivalents (BOE).................... 289,046 288,899 393,669
Present Value Of Estimated Future Net Revenues before
income taxes (in thousands), discounted
at 10%..................................................... $1,243,115 $863,312 $1,836,122
</TABLE>
- --------------------
(1) The Company's annual reserve reports are prepared as of August 31, which is
the last day of the Company's fiscal year.
(2) The present value of estimated future net revenues as of each date shown
was calculated using oil and gas prices as of that date.
Reference should be made to Note 11, Oil And Gas Producing Activities, on
page F-13 following the Financial Statements included in this Prospectus for
additional information pertaining to the Company's proved oil and gas reserves
as of the end of each of the last three fiscal years.
Acreage
The following tables set forth the gross and net acres of developed and
undeveloped oil and gas leases in which the Company had working interests and
royalty interests as of August 31, 1996. The category of "Undeveloped Acreage"
in the tables includes leasehold interests that already may have been classified
as containing proved undeveloped reserves.
-22-
<PAGE>
<TABLE>
<CAPTION>
WORKING INTERESTS
Developed Undeveloped
Acreage (1) Acreage (2) Total
--------------------- ------------------- -------------------
State Of Location (Area) Gross Net Gross Net Gross Net
------ ---- ------ ------ ------ -----
Wyoming:
<S> <C> <C> <C> <C> <C> <C>
Moxa Arch......................... 15,520 63 8,807 8,807 24,327 8,870
Powder River Basin................ 15,020 408 6,524 2,796 21,544 3,204
Washakie Basin.................... 2,400 617 47,168 28,772 49,568 29,389
Wind River Basin.................. 14,499 525 6,676 5,956 21,175 6,481
Utah:
Christmas Meadows................. 0 0 23,577 1,363 23,577 1,363
Other............................... 666 17 13,951 12,337 14,617 12,354
Total........................... 48,105 1,630 106,703 60,031 154,808 61,661
- -----------------------
ROYALTY INTERESTS
Developed Undeveloped
Acreage (1) Acreage (2) Total
------------------- ------------------- -------------------
State Of Location (Area) Gross Net Gross Net Gross Net
------ ----- ------ ----- ------ -----
Wyoming:
Moxa Arch......................... 1,320 20 2,830 103 4,150 123
Powder River Basin................ 1,480 3 2,360 102 3,840 105
Washakie Basin.................... 1,973 5 13,903 562 15,876 567
Wind River Basin.................. 8,960 280 0 0 8,960 280
Other............................... 1,826 86 5,880 272 7,706 358
Total.......................... 15,559 394 24,973 1,039 40,532 1,433
</TABLE>
(1) Developed acreage is acreage assigned to producing wells for the spacing
unit of the producing formation. Developed acreage in certain of the
Company's properties that include multiple formations with different well
spacing requirements may be considered undeveloped for certain formations,
but have only been included as developed acreage in the presentation above.
(2) Undeveloped acreage is lease acreage on which wells have not been drilled
or completed to a point that would permit the production of commercial
quantities of oil and gas regardless of whether such acreage contains
proved reserves.
Substantially all of the leases summarized in the preceding table will
expire at the end of their respective primary terms unless the existing leases
are renewed or production has been obtained from the acreage subject to the
lease prior to that date, in which event the lease will remain in effect until
the cessation of production. The following table sets forth the gross and net
acres subject to leases summarized in the preceding table that will expire
during the periods indicated:
-23-
<PAGE>
Acres Expiring
-----------------------
Gross Net
------- ------
Twelve Months Ending:
December 31, 1996............................ 1,933 1,683
December 31, 1997............................ 4,061 2,465
December 31, 1998............................ 2,875 1,915
December 31, 1999 and later.................. 60,406 44,416
MANAGEMENT
Directors And Executive Officers
The directors and executive officers of the Company are as follows:
Name Age Positions
- ---- --- ---------
Richard B. Laudon 61 Chairman Of The Board; Treasurer;
and Director
Stephen H. Hollis 46 President; and Director
Carol A. Osborne 44 Secretary
Tom R. Creager 37 Director
John R. Kerns 65 Director
William N. Heiss 44 Director
Dr. Richard B. Laudon has served as the Chairman Of The Board and Treasurer
of the Company since January 1972. In addition Dr. Laudon has served as a
Vice-President of the Company since January 1996. From 1972 until January 1994,
Dr. Laudon served as the President of the Company. Dr. Laudon held various
geological positions with Esso Corporation from 1959 to 1969. He was employed as
a senior geologist for an affiliate of United Nuclear Corporation from 1969 to
1970, and was an independent consulting geologist until 1972. Dr. Laudon was the
President of the Rocky Mountain Section of American Association of Petroleum
Geologists in 1986. Dr. Laudon received a Bachelor of Science Degree in Geology
from the University of Tulsa in 1956, a Master of Science Degree in Geology from
the University of Wisconsin in 1957, and a Doctorate of Philosophy in Geology
from the University of Wisconsin in 1959.
Stephen H. Hollis has served as the President of the Company since January
1994 and previously served as a Vice-President of the Company from December 1989
through January 1994. Mr. Hollis has served as a Director of the Company since
December 1989. Mr. Hollis has served as the Vice-President of Hollis Oil & Gas
Co., a small oil and gas company, since January 1994 and served as the President
of Hollis Oil & Gas Co. from June 1986 through January 1994. Mr. Hollis was a
geologist for an affiliate of United Nuclear Corporation from 1974 to 1977 and a
consulting geologist from 1977 to 1979.
-24-
<PAGE>
In 1979, Mr. Hollis joined Marathon Oil Company and held various positions until
1986, when he founded Hollis Oil & Gas Co. Mr. Hollis is a past President of the
Wyoming Geological Association. Mr. Hollis received a B.A. Degree in Geology
from the University of Pennsylvania in 1972 and a Masters Degree in Geology from
Bryn Mawr College in 1974.
John R. Kerns has served as a Director of the Company since January 1972.
From January 1972 until January 1980, Mr. Kerns served as Secretary of the
Company. Mr. Kerns was a geologist for Tenneco Oil Company from 1960 to 1968 and
has been an independent consulting geologist since that time. He is a past
President of the Wyoming Geological Association and a past President of the
Rocky Mountain Section of the American Association of Petroleum Geologists. Mr.
Kerns received a B.A. Degree in Geology from Oregon University in 1952 and a
Masters Degree in Geology from the University of Arizona in 1958.
William N. Heiss has served as a Director of the Company since January
1996. Mr. Heiss owned a mineral brokerage business until 1981, when he went into
private law practice, emphasizing mineral and real property law. Mr. Heiss has
served as a Director and the Secretary of Hollis Oil & Gas Co. since 1987 and as
President since January 1994. He is a member of the Rocky Mountain Mineral Law
Foundation, and the Natrona County and Wyoming Bar Associations. Mr. Heiss
received a B.A. Degree in mathematics from Indiana University in 1970 and a J.D.
degree from the University of Wyoming in 1978.
Tom R. Creager has served as a Director of the Company since January 1996.
Since October 1991, Mr. Creager has been President and Senior Portfolio Manager
with Pinnacle West Asset Management, Inc., a firm engaged in investment
management and research and as a consultant to CPA Consulting Group, P.C.
working in the areas of taxation, business and financial consulting. From 1985
to 1991, he worked in public accounting primarily in income tax areas. Mr.
Creager has served as a Director of Hollis Oil & Gas Co. since July 1989. From
1983 until 1985, Mr. Creager was employed by an oil and gas contractor and
supply company as corporate controller. Mr. Creager received a B.A. Degree in
Accounting from the University of Wyoming in 1983.
Carol A. Osborne has served as the Secretary of the Company since January
1996 and previously served as the Assistant Secretary of the Company from
December 1989 until January 1996. In addition, Ms. Osborne has served as the
Company's Office Manager since 1981.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth in summary form the compensation received
during each of the Company's last three completed fiscal years by each of the
Company's President and Chairman Of The Board. No employee of the Company
received total salary and bonus exceeding $100,000 during any of the last three
fiscal years.
-25-
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation
Long-Term
Name and Fiscal Year Salary Bonus Compensation Other Annual
Principal Position Ended ($)(1) ($) Options Compensation ($)
- ----------------------- ----------- -------- ------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Stephen H. Hollis, 1996 $53,700 -0- 50,000 -0-
President
1995 $53,700 -0- 70,000 -0-
1994 $53,700 -0- 50,000 -0-
Richard B. Laudon, 1996 $53,700 -0- -0- -0-
Chairman Of The
Board 1995 $53,700 -0- -0- -0-
1994 $53,700 -0- -0- -0-
</TABLE>
- ------------------
(1) The dollar value of base salary (cash and non-cash) received.
Option Grants Table
The following table sets forth information concerning individual grants of
stock options made during the fiscal year ended August 31, 1996 to the Company's
President and Chairman Of The Board. See "--Stock Option Plans".
<TABLE>
<CAPTION>
Option Grants For Fiscal Year Ended August 31, 1996
% of Total
Options Granted
Options to Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
- ---------------------------- ----------- ----------------- ------------------ ----------
<S> <C> <C> <C> <C>
Stephen H. Hollis, 50,000 100 1.18 1/22/99
President
Richard B. Laudon, -0- -0- N/A N/A
Chairman Of The Board
</TABLE>
Aggregated Option Exercises And Fiscal Year-End Option Value Table.
The following table sets forth information concerning each exercise of
stock options during the fiscal year ended August 31, 1996 by the Company's
President and Chairman Of The Board, and the fiscal year-end value of
unexercised options held by the President and Chairman Of The Board.
-26-
<PAGE>
Aggregated Option Exercises
For Fiscal Year Ended August 31, 1996
And Year-End Option Values
<TABLE>
<CAPTION>
Value of
Unexercised
Number of In-The-Money
Unexercised Options at
Options at Fiscal Fiscal Year-End
Year-End (#)(3) ($)(4)
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) (1) Realized ($)(2) Unexercisable Unexercisable
- ----------------------- ---------------- -------------- ----------------- -------------
<S> <C> <C> <C> <C>
Stephen H. Hollis, 0 0 170,000/0 $38,750/$0
President
Richard B. Laudon, 0 0 0/0 $0/$0
Chairman Of The Board
</TABLE>
- --------------------
(1) The number of shares received upon exercise of options during the fiscal
year ended August 31, 1996.
(2) With respect to options exercised during the Company's fiscal year ended
August 31, 1996, the dollar value of the difference between the option
exercise price and the market value of the option shares purchased on the
date of the exercise of the options.
(3) The total number of unexercised options held as of August 31, 1996
separated between those options that were exercisable and those options
that were not exercisable.
(4) For all unexercised options held as of August 31, 1996, the aggregate
dollar value of the excess of the market value of the stock underlying
those options over the exercise price of those exercised options, based on
the bid price of the Company's Common Stock on August 31, 1996. The bid
price for the Company's Common Stock on August 31, 1996 was $1.125 per
share.
Stock Option Plans
The 1993 Stock Option Plan. In January, 1993, the Board Of Directors of the
Company approved the Company's Stock Option Plan (1993) (the "1993 Plan"), which
subsequently was approved by the Company's stockholders. Pursuant to the 1993
Plan, the Company may grant options to purchase an aggregate of 200,000 shares
of the Company's common stock to key employees of the Company, including
officers and directors who are salaried employees who have contributed in the
past or who may be expected to contribute materially in the future to the
successful performance of the Company. The options granted pursuant to the 1993
Plan are intended to be incentive options qualifying for beneficial tax
treatment for the recipient. The 1993 Plan is administered by an option
committee that determines the terms of the options subject to the requirements
of the 1993 Plan. At August 31, 1996, options to purchase 200,000 shares were
outstanding under the 1993 Plan. In September 1996, options to purchase 30,000
shares held by Carol A. Osborne were repurchased by the Company for an aggregate
of $13,200. As a result, options to purchase an additional 30,000 shares could
be granted under the 1993 Plan.
The 1996 Stock Option Plan. In May 1996, the Board of Directors of the
Company approved the Company's 1996 Stock Option Plan (the "1996 Plan"), which
subsequently was approved by the Company's stockholders. Pursuant to the 1996
-27-
<PAGE>
Plan, the Company may grant options to purchase an aggregate of 200,000 shares
of the Company's common stock to key employees, directors, and other persons who
have or are contributing to the success of the Company. The options granted
pursuant to the 1996 Plan may be either incentive options qualifying for
beneficial tax treatment for the recipient or non-qualified options. The 1996
Plan is administered by an option committee that determines the terms of the
options subject to the requirements of the 1996 Plan. At August 31, 1996, no
options were outstanding under the 1996 Plan and options to purchase 200,000
could be granted under the 1993 Plan.
Compensation Of Outside Directors
Directors of the Company who are not also employees of the Company
("Outside Directors") are paid $400 for each meeting of the Board Of Directors
that they attend. Directors also are reimbursed for expenses incurred in
attending meetings and for other expenses incurred on behalf of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended August 31, 1995, the Company acquired certain proved
oil and gas leases and overriding royalties from Hollis Oil & Gas Co. In
addition to $71,300 cash, the Company issued 350,000 shares of restricted Common
Stock with a market value of $131,250, for a total purchase price of $202,550.
Mr. Stephen H. Hollis, the President and a Director of the Company, is a
Vice-President, Director and a stockholder of Hollis Oil & Gas Co. Mr. William
N. Heiss, currently a Director of the Company, is the President, a Director, and
a stockholder of Hollis Oil & Gas Co. Mr. Heiss was not a Director of the
Company at the time of this transaction. The purchase price was determined by
negotiations between the Company and Hollis Oil & Gas Co. and approved by the
Company's Board Of Directors with Mr. Hollis abstaining.
The Company and certain directors, stockholders and investees are joint
holders in proved and unproved oil and gas properties. During the normal course
of business, the Company pays or receives monies and in turn bills or pays the
interest holders for their respective shares. These transactions are immaterial
in amount when compared to the Company's total receipts and expenditures. They
are accounted for as part of the normal joint interest billing function.
During the year ended August 31, 1994, the Company completed a private
placement offering of 300,000 shares of its previously unissued common stock at
$.70 per share to provide funding for the Company. The stock was offered in
10,000 share blocks to holders-of-record owning 10,000 shares or more. Of the
300,000 shares sold, 255,715 shares were purchased by Dr. Richard Laudon, the
Chairman Of The Board Of Directors of the Company.
PRINCIPAL STOCKHOLDERS
The following table summarizes certain information as of August 31, 1996
and as anticipated immediately following this Offering with respect to the
beneficial ownership of the Company's common stock (i) by the Company's
directors, (ii) by stockholders known by the Company to own 5% or more of the
Company's common stock, and (iii) by all officers and directors as a group. The
following table assumes that the persons named do not purchase additional shares
in the Offering although this may occur.
-28-
<PAGE>
<TABLE>
<CAPTION>
As Of March 31, 1996 After Offering
------------------------------ --------------------------------
Percentage Of Percentage
Class Of Class
Name And Address Of Number Of Beneficially Number Of Beneficially
Beneficial Owner Shares Owned Shares Owned(6)
- ---------------- ------ ----- ------ --------
<S> <C> <C> <C> <C>
Dr. Richard B. Laudon 569,147 21.0% 569,147 15.3%
3737 West 46th
Casper, Wyoming 82604
Carol A. Osborne 200 --* 200 --*
John R. Kerns 77,203 2.8% 77,203 2.1%
Stephen H. Hollis (4) 544,900(1) 20.1% 544,900(1) 14.7%
2037 S. Poplar
Casper, Wyoming 82601
William N. Heiss (4) 350,000(2) 12.9% 350,000(2) 9.4%
Tom R. Creager(4) 351,500(3) 13.0% 351,500(3) 9.5%
Directors and Officers as a group 1,192,950(1)(4) 41.4% 1,192,950(1)(4) 30.7%
(Six Persons)
Hollis Oil & Gas Co. (4) 350,000 12.9% 350,000 9.4%
</TABLE>
- ---------------
* Less than one percent.
(1) Includes options held by Mr. Hollis to purchase 50,000 shares of Common
Stock that expire January 19, 1997, options to purchase 70,000 shares that
expire January 19, 1998, and options to purchase 50,000 shares that expire
January 22, 1999. In addition to 24,900 shares owned directly by Mr.
Hollis, the table above includes 350,000 shares of the Company's Common
Stock owned by Hollis Oil & Gas Co. Mr. Hollis is an officer, director and
51% owner of Hollis Oil & Gas Co.
(2) These shares are owned by Hollis Oil & Gas Co. Mr. Heiss is an officer,
director and 30% beneficial owner of Hollis Oil & Gas Co.
(3) Includes 350,000 shares of Common Stock of the Company held by Hollis Oil &
Gas Co. Mr. Creager is a director of Hollis Oil & Gas Co.
(4) The shares owned by Hollis Oil & Gas Company are shown or included as
beneficially owned five times in the table: once as beneficially owned by
Hollis Oil & Gas Company, again under the beneficial ownership of each of
Mr. Hollis, Mr. Heiss, and Mr. Creager, and also as part of the shares
beneficially owned by Directors and Officers as a group.
(5) Includes 1,000,000 shares included in the Offering. Does not include any
shares subject to the Underwriter's over-allotment option or any shares
subject to Warrants being issued pursuant to this Offering.
DESCRIPTION OF SECURITIES
The Company's authorized capital consists of 10,000,000 shares of $.10
par value Common Stock. The Company's issued and outstanding capital as of
August 31, 1996 consisted of 2,712,371 shares of Common Stock which were held by
approximately 2,055 stockholders of record. The following is a description of
the Company's Common Stock and Warrants.
-29-
<PAGE>
Common Stock
Each share of the Common Stock is entitled to share equally with each other
share of Common Stock in dividends from sources legally available therefore,
when, as, and if declared by the Board of Directors and, upon liquidation or
dissolution of the Company, whether voluntary or involuntary, to share equally
in the assets of the Company that are available for distribution to the holders
of the Common Stock. Each holder of Common Stock of the Company is entitled to
one vote per share for all purposes, except that in the election of directors,
each holder shall have the right to vote such number of shares for as many
persons as there are directors to be elected. Cumulative voting shall not be
allowed in the election of directors or for any other purpose, and the holders
of Common Stock have no preemptive rights, redemption rights or rights of
conversion with respect to the Common Stock. All outstanding shares of Common
Stock and all shares to be sold and issued upon exercise of the Warrants will be
fully paid and nonassessable by the Company. The Board of Directors is
authorized to issue additional shares of Common Stock within the limits
authorized by the Company's Articles Of Incorporation and without stockholder
action.
All shares of Common Stock have equal voting rights and are not assessable.
Cumulative voting and election of directors is permitted so that each
shareholder has the right to vote the number of shares owned by that shareholder
for as many persons as there are director nominees or to cumulate that
shareholder's shares to give one candidate as many votes as the director
nominees multiplied by the number of shares shall equal, or to distribute votes
on the same principle among as many candidates as the shareholders shall
determine.
Upon liquidation, dissolution or winding up of the Company, the assets of
the Company, after satisfaction of all liabilities, will be distributed pro rata
to the holders of the Common Stock. The shares of Common Stock presently
outstanding are fully paid and nonassessable.
Holders of the Company's common stock are entitled to dividends when, as,
and if, declared by the Board of Directors of the Company, out of funds legally
available therefor.
The Company has not paid any cash dividends since its inception.
The Company has reserved a sufficient number of shares of Common Stock for
issuance in the event that all the Warrants are exercised. In addition, the
Company has reserved a sufficient number of shares of Common Stock for issuance
upon the exercise of options under the Company's Stock Option Plans. See
"EXECUTIVE COMPENSATION--Stock Option Plans".
Warrants
General. The Warrants offered by the Company are to be in registered form.
They are being sold separate from the shares of Common Stock offered by the
Company and also will trade separately. Each Warrant is exercisable for one
share of Common Stock at $3.00 per Warrant during the period commencing on the
date of this Prospectus and ending five years from the date of this Prospectus.
Although there currently is no plan or other intention to do so, the Board of
Directors of the Company, in its sole discretion, may extend the exercise period
of the Warrants and/or reduce the exercise price of the Warrants. It is
anticipated that the Board would make such a modification only if it deemed it
to be in the Company's best interests. Possible circumstances that may lead to
modification of the terms of the Warrants, of which there is no assurance, would
include circumstances in which the market price of the Company's Common Stock is
less than the exercise price of the Warrants and the Board would reduce the
exercise price of the Warrants in order to encourage their being exercised. This
would be based on the Board's belief that it would be in the Company's best
interests to receive additional capital funds from that source.
-30-
<PAGE>
The exercise price of the Warrants was arbitrarily established and there is
no assurance that the price of the Common Stock of the Company will ever rise to
a level where exercise of the Warrants would be of any economic value to a
holder of the Warrants.
The Warrants included in the Underwriter's Units issuable upon the exercise
of the Underwriter's Warrants are identical to the Warrants included in the
Units offered to the public pursuant to this Prospectus, except that the
Warrants included in the Underwriter's Units are not subject to redemption by
the Company. See below, "--Redemption".
Current Registration Statement Required For Exercise. In order for a holder
to exercise that holder's Warrants, there must be a current registration
statement on file with the SEC and various state securities commissions to
continue registration of the issuance of the shares of Common Stock underlying
the Warrants. The Company intends to maintain a current registration statement
during the period that the Warrants are exercisable unless the market price of
the Common Stock underlying the Warrants would create no economic incentive for
exercise of the Warrants. If those circumstances were to exist during the entire
exercise period of the Warrants, the Warrants could expire without the holders
having had an opportunity to exercise their Warrants.
The maintenance of a currently effective registration statement could
result in substantial expense to the Company, and there is no assurance that the
Company will be able to maintain a current registration statement covering the
shares of Common Stock issuable upon exercise of the Warrants. Although there
can be no assurance, the Company believes that it will be able to qualify the
shares of Common Stock underlying the Warrants for sale in those states where
the Common Stock and Warrants are to be offered. The Warrants may be deprived of
any value if a current Prospectus covering the shares of Common Stock issuable
upon exercise of the Warrants is not kept effective or if the underlying shares
are not qualified in the states in which the Warrantholders reside.
Exercise Of Warrants. The Warrants may be exercised upon the surrender of
the Warrant certificate on or prior to the expiration of the exercise period,
with the form of "Election To Purchase" on the reverse side of the certificate
executed as indicated, and accompanied by payment of the full exercise price for
the number of Warrants being exercised. No rights of a stockholder inure to a
holder of Warrants until such time as a holder has exercised Warrants and has
been issued shares of Common Stock.
Redemption. Except for the Warrants included in the Underwriter's Units
issuable upon the exercise of the Underwriter's Warrants, the Warrants are
redeemable by the Company at any time prior to their exercise or expiration upon
30 days prior written or published notice, provided however, that the closing
bid quotation for the Common Stock for at least 20 of the 30 business days
ending on the date of the Company's giving notice of redemption has been at
least $4.00 per share. The redemption price for the Warrants will be $.02 per
Warrant. Any Warrant holder that does not exercise prior to the date set forth
in the Company's notice of redemption will forfeit the right to exercise the
Warrants and purchase the shares of Common Stock underlying those Warrants. Any
Warrants outstanding after the redemption date will be deprived of any value
except the right to receive the redemption price of $.02 per Warrant.
Tax Consequences Of Warrants. For federal income tax purposes, no gain or
loss will be realized upon exercise of a Warrant. The holder's basis in the
Common Stock received will be equal to the holder's cost basis in the Warrant
exercised, plus the amount of the exercise price. Any loss realized by a holder
of a Warrant due to a failure to exercise a Warrant prior to the expiration of
the exercise period will be treated for federal income tax purposes as a loss
from the sale or exchange of property that has the same character as any shares
of Common Stock acquired from the exercise of the Warrants.
-31-
<PAGE>
Warrant exercise price adjustments, or the omission of such adjustments,
may under certain circumstances be deemed to be distributions that could be
taxable as dividends for federal income tax purposes to holders of the Warrants
or the holders of the Common Stock.
The Internal Revenue Code provides that a corporation does not recognize
gain or loss upon the issuance, lapse or repurchase of a warrant to acquire its
own stock. Therefore, the Company will not recognize income upon the expiration
of any unexercised Warrants.
CERTAIN PROVISIONS OF WYOMING LAW AND OF THE COMPANY'S
ARTICLES OF INCORPORATION
The following paragraphs summarize certain provisions of Wyoming law and of
the Company's Articles Of Incorporation. The summary does not purport to be
complete and is subject to and qualified in its entirety by reference to Wyoming
law and the Company's Articles Of Incorporation for complete information.
Limitations On Changes In Control
The provisions of Sections 17-18-101, et seq., of the Wyoming Business
Corporation Act, which sections are referred to as the "Wyoming Management
Stability Act", could have the effect of delaying, deferring or preventing a
change in control of the Company or the removal of existing management, and as a
result could prevent the stockholders of the Company from being paid a premium
for their shares of Common Stock.
Indemnification Of Directors
The Company's Articles Of Incorporation provide that the Company will
indemnify each of its officers and directors against liabilities and expenses
incurred in connection with any action, suit or proceeding to which the officer
or director may be made a party by reason of his or her being an officer or
director of the Company. Indemnification is not provided if the officer or
director is liable for fraud or misconduct in any such matter. Although no
determination has been made to date, in the future the Company may attempt to
obtain directors' and officers' liability insurance.
UNDERWRITING
The Company has entered into an Underwriting Agreement with Rocky Mountain
Securities & Investments, Inc. (the "Underwriter"), which Underwriting Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part, and which governs the terms and conditions of the sale
of the Common Stock and Warrants offered hereby. Pursuant to the terms of the
Underwriting Agreement, the Underwriter, has agreed to purchase from the Company
approximately 1,000,000 Units on a firm commitment basis at $____ per Unit. The
Company has granted to the Underwriter an option, exercisable for 45 days from
the date of this Prospectus, to purchase not more than 15% of the total number
of Units initially offered, or up to 150,000 additional Units, at the price to
the public less the Underwriting discount set forth on the cover page of this
Prospectus. The Underwriter may exercise this option solely for the purpose of
covering over-allotments, if any, incurred in the sale of Units being offered.
Each Warrant included in the Units entitles its holder to purchase one share of
Common Stock at an exercise price of $3.00 per share.
The public offering price of the Units and the exercise price of the
Warrants was determined by negotiation between the Underwriter and the Company.
The Unit offering and Warrant exercise price and other terms were determined by
negotiation between the Company and the Underwriter and do not necessarily bear
any direct relationship to the Company's assets, earnings or other generally
accepted criteria of value. Other factors considered in determining the offering
-32-
<PAGE>
and exercise price of the Warrants include market price of the Company's Common
Stock, the business in which the Company is engaged, the Company's financial
condition, an assessment of the Company's management, the general condition of
the securities markets and the demand for similar securities of comparable
companies.
As compensation for its services, the Underwriter will receive a commission
equal to 10% of the gross proceeds from the sale of the Units. The Underwriter
also will receive a non-accountable expense allowance in an amount equal to 3%
of the gross proceeds of this Offering of which $25,000 has been paid to date.
To the extent that the expense allowance exceeds the actual expenses of the
Underwriter, the excess may be considered additional compensation to the
Underwriter.
The Underwriter has advised the Company that it proposes to offer the Units
to the public at the public offering price set forth on the cover page of this
Prospectus for each separate security, and that the Underwriter may allow to
certain dealers who are members of the NASD, and to certain foreign dealers not
eligible for membership in the NASD, concessions of not in excess of $ ______
for each Unit, of which amount a sum not in excess of $ _______ per share and $
_______ per Warrant may be re- allowed by such dealers to other dealers who are
members of the NASD and to certain foreign dealers not eligible for membership
in the NASD. After commencement of this Offering, the concession and the
re-allowance may be changed. No such modification shall change the amount of
proceeds to be received by the Company.
Pursuant to the Underwriting Agreement, the Company has agreed to sell to
the Underwriter, at a nominal cost, Underwriter's Warrants to purchase up to
100,000 Units, or one Unit for each ten Units sold in this Offering not
including the Units sold pursuant to the over-allotment option. The
Underwriter's Warrants will be non-exercisable for one year after the date of
this Prospectus. Thereafter, for a period of four years, the Underwriter's
Warrants will be exercisable at $____ per Unit, which is equal to the public
offering price for the Units. The Warrants included in the Underwriter's Units
issuable upon the exercise of the Underwriter's Warrants are not subject to
redemption by the Company in the same manner as the Warrants included in the
Units offered to the public pursuant to this Prospectus. The Underwriter's
Warrants are not transferable for a period of one year after the date of this
Prospectus, except to officers and stockholders of the Underwriter and to
members of the selling group and their officers and partners. The Company has
also granted one demand and certain "piggy-back" registration rights to the
holders of the Underwriter's Warrants.
For the life of the Underwriter's Warrants, the holders thereof are given,
at a nominal cost, the opportunity to profit from a rise in the market price of
the Company's securities with a resulting dilution in the interest of other
stockholders. Further, the holders may be expected to exercise the Underwriter's
Warrants at a time when the Company would in all likelihood be able to obtain
equity capital on terms more favorable than those provided in the Underwriter's
Warrants.
The Underwriter has informed the Company that it does not expect any sales
of the Units offered hereby to be made to discretionary accounts.
The Company may provide the Underwriter with the names of persons
contacting the Company with an interest in purchasing Units in this Offering,
and it is possible that the Company's officers, directors, and employees will
refer subscribers to the Underwriter. Although the Company will not provide any
names for the express purpose of closing the Offering, sales may be made to
those persons for that purpose. The Underwriter may sell a portion of the Units
offered hereby to such persons if they reside in a state in which the Units can
be sold. The Underwriter is not obligated to sell any Units to such persons and
will do so only to the extent that such sales would not be inconsistent with the
public distribution of the shares. Neither the Company nor the Underwriter will
directly or indirectly arrange for the financing of such purchases, and the
proceeds of the Offering will not directly or indirectly be used for such
purchases. Officers, directors and stockholders of the Company may purchase
Units offered hereby.
-33-
<PAGE>
For a period of three years after the closing of the Offering, the
Underwriter has the right to designate one person to serve as a member of the
Company's Board of Directors, subject to the approval of the majority of the
Board Of Directors. As a director, the Underwriter's designee would receive the
compensation usually paid to Outside Directors if that designee is not an
employee of the Company. There is no restriction on whether the person
designated is a director, officer, partner, employee, or affiliate of the
Underwriter. The Underwriter has not yet informed the Company of whether the
Underwriter intends to designate a director.
Upon the successful completion of this Offering, the Underwriter shall have
a preferential right for a period of three years from the effective date of this
Prospectus to act as managing Underwriter for any public offerings of securities
by the Company or any of its subsidiaries.
The Company has agreed to compensate the Underwriter for assisting the
Company in obtaining financing other than the financing pursuant to this
Offering. If, upon the request of the Company, the Underwriter arranges directly
financing for the Company consummated on or before April 4, 2001, the Company
will pay a 10 percent commission to the Underwriter based on the amount of the
equity financing. The Company will pay the Underwriter a five percent commission
based on the amount of debt financing arranged by the Underwriter and closed by
the Company during that period.
In addition, the Company will pay the Underwriter an amount equal to one
percent of any increase in the Company's line of credit that is obtained by the
Underwriter and accepted by the Company. The Company also has agreed to
compensate the Underwriter in the event that the Underwriter arranges for the
purchase or sale of assets, a merger, acquisition or joint venture accepted by
and closed with the Company on or before April 4, 2001. The fee is based on the
value of the transaction with a five percent fee being paid for transactions up
to and including $1,000,000 in value, a fee of four percent being paid on the
value of the transaction greater than $1,000,000 and up to $2,000,000, three
percent being paid on the value of the transaction greater than $2,000,000 and
up to and including $3,000,000, a fee of two percent being paid on the value of
the transaction greater than $3,000,000 and up to and including $4,000,000, and
one percent fee being paid on the value of the transaction to the Company in
excess of $4,000,000. The Company has agreed to reimburse the Underwriter for
any reasonable expenses it incurs in arranging or closing these types of
transactions.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain liabilities in connection with
this Offering, including liabilities under the Securities Act. See "SECURITIES
AND EXCHANGE COMMISSION POSITION ON CERTAIN INDEMNIFICATION".
The foregoing is a summary of the principal terms of the Underwriting
Agreement and the Underwriter's Warrants. Reference is made to the copies of the
Underwriting Agreement and the Underwriter's Warrants, which are filed as
exhibits to the Registration Statement of which this Prospectus forms a part.
There are no material relationships between the Company and the Underwriter
other than the relationships created by the Underwriting Agreement.
-34-
<PAGE>
SECURITIES AND EXCHANGE COMMISSION POSITION
ON CERTAIN INDEMNIFICATION
The Company has agreed to indemnify directors, officers, and other
representatives of the Company for costs incurred by each of them in connection
with any action, suit, or proceeding brought by reason of their position as a
director, officer, or representative. This would include actions, suits, or
proceedings with respect to liability under the Securities Act. To be eligible
for indemnification, the person being indemnified must have acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company.
The Board of Directors is empowered to make other indemnification as
authorized by the Articles Of Incorporation or corporate resolutions so long as
the indemnification is consistent with the Wyoming Business Corporation Act.
These provisions also include indemnification for liabilities arising under the
Securities Act.
In the Underwriting Agreement, the Company and the Underwriter have agreed
to indemnify each other against civil liabilities, including liabilities under
the Securities Act. See "UNDERWRITING".
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities And Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
LEGAL MATTERS
Bearman Talesnick & Clowdus Professional Corporation, Denver, Colorado, has
acted as counsel for the Company in connection with this Offering. Certain legal
matters will be passed upon for the Underwriter by Krys Boyle Golz Freedman &
Scott, Denver, Colorado.
EXPERTS
The audited financial statements of the Company appearing in this
Prospectus have been examined by Hocker, Lovelett, Hargens & Yennie, P.C.,
independent certified public accountants, as set forth in their report appearing
elsewhere herein, and are included in reliance upon such report and upon the
authority of said firm as experts in accounting and auditing.
-35-
<PAGE>
CERTAIN DEFINITIONS
Unless otherwise indicated in this Prospectus, natural gas volumes are
stated at the legal pressure base of the state or area in which the reserves are
located at 60(degree) Fahrenheit. Oil equivalents are determined using the ratio
of 10 Mcf of natural gas to one barrel of crude oil, condensate or natural gas
liquids so that 10 Mcf of natural gas are referred to as one barrel of oil
equivalent or "BOE".
As used in this Prospectus, the following terms have the following specific
meanings: "Mcf" means thousand cubic feet, "MMcf" means million cubic feet,
"Bbl" means barrel, "MBbl" means thousand barrels, "Mcfe" means thousand cubic
feet equivalent, "MMcfe" means million cubic feet equivalent, and "MMBtu" means
million British thermal units.
With respect to information concerning the Company's working interests in
wells or drilling locations, "gross" gas and oil wells or "gross" acres is the
number of wells or acres in which the Company has an interest, and "net" gas and
oil wells or "net" acres are determined by multiplying "gross" wells or acres by
the Company's working interest in those wells or acres. A working interest in an
oil and gas lease is an interest that gives the owner the right to drill,
produce, and conduct operating activities on the property and to receive a share
of production of any hydrocarbons covered by the lease. A working interest in an
oil and gas lease also entitles its owner to a proportionate interest in any
well located on the lands covered by the lease, subject to all royalties,
overriding royalties and other burdens, to all costs and expenses of
exploration, development and operation of any well located on the lease, and to
all risks in connection therewith.
A "development well" is a well drilled as an additional well to the same
horizon or horizons as other producing wells on a prospect, or a well drilled on
a spacing unit adjacent to a spacing unit with an existing well capable of
commercial production and which is intended to extend the proven limits of a
prospect. An "exploratory well" is a well drilled to find commercially
productive hydrocarbons in an unproved area, or to extend significantly a known
prospect.
"Reserves" means natural gas and crude oil, condensate and natural gas
liquids on a net revenue interest basis, found to be commercially recoverable.
"Proved developed reserves" includes proved developed producing reserves and
proved developed behind-pipe reserves. "Proved developed producing reserves"
includes only those reserves expected to be recovered from existing completion
intervals in existing wells. "Proved developed behind-pipe reserves" includes
those reserves that exist behind the casing of existing wells when the cost of
making such reserves available for production is relatively small compared to
the cost of a new well. "Proved undeveloped reserves" includes those reserves
expected to be recovered from new wells on proved undrilled acreage or from
existing wells where a relatively major expenditure is required for
recompletion.
* * * * *
-36-
<PAGE>
FINANCIAL STATEMENTS
Page
Number
------
Report of Independent Certified Public Accountants ........................F-1
Financial Statements:
Balance Sheets as of August 31, 1995 and 1994
and May 31, 1996 (unaudited)........................................F-2
Statements of Operations for the years ended
August 31, 1995, 1994, and 1993 and the nine months
ended May 31, 1996 and 1995(unaudited)...............................F-3
Statements of Stockholders' Equity for the years ended August
31, 1995, 1994, and 1993 and the nine months
ended May 31, 1996 (unaudited).......................................F-4
Statements of Cash flows for the years ended August 31, 1995,
1994, and 1993 and the nine months
ended May 31, 1996 and 1995 (unaudited)..............................F-6
Supplemental Schedule Of Noncash Investing And
Financing Activities.................................................F-6
Notes to Financial Statements..........................................F-7
-37-
<PAGE>
HOCKER, LOVELETT, HARGENS & YENNIE, P.C.
Certified Public Accountants
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders and Board of Directors
Double Eagle Petroleum and Mining Company
We have audited the balance sheets of Double Eagle Petroleum and Mining Company
as of August 31, 1995 and 1994, and the related statements of operations,
stockholders' equity, and cash flows for the years ended August 31, 1995, 1994
and 1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amount and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Double Eagle Petroleum and
Mining Company as of August 31, 1995 and 1994, and the results of its operations
and its cash flows for the years ended August 31, 1995, 1994 and 1993, in
conformity with generally accepted accounting principles.
As discussed in Note 5 to the financial statements, the Company changed its
method of accounting for income taxes effective September 1, 1993.
/s/ Hocker, Lovelett, Hargens & Yennie, P.C.
Casper, Wyoming
October 19, 1995
F-1
<PAGE>
<TABLE>
<CAPTION>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
BALANCE SHEETS
August 31,
May 31, ----------------------------
1996 1995 1994
----------- ---------- ----------
(Unaudited)
-----------
ASSETS
CURRENT ASSETS
<S> <C> <C> <C>
Cash and cash equivalents - Note 2 $ 4,607 $ 268,385 $ 108,460
Accounts receivable - Note 8 126,128 41,337 33,207
Prepaid expenses 25,000 - -
--------- --------- ---------
Total 155,735 309,722 141,667
OTHER ASSETS
Accounts receivable - Note 3 82,277 82,277 40,327
Investment, at cost 9,000 9,000 -
Other 11,600 11,500 13,998
--------- --------- ---------
Total 102,877 102,777 54,325
PROPERTY AND EQUIPMENT, at cost, net of
accumulated depreciation and depletion
and impairment allowance - Notes 4
and 8 (Successful Efforts method used
for oil and gas properties) 2,061,164 1,822,721 1,834,414
--------- --------- ---------
Total $2,319,776 $2,235,220 $2,030,406
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 73,535 $ 110,432 $ 52,473
Accrued production taxes 15,300 25,900 28,700
Notes payable - Note 13 155,000 - -
--------- --------- ---------
Total 243,835 136,332 81,173
DEFERRED TAX LIABILITY, net - Note 5 152,299 155,733 152,620
--------- --------- ---------
Total 396,134 292,065 233,793
STOCKHOLDERS' EQUITY - Notes 6 & 8
Common stock, $.10 par value;
authorized - 5,000,000 shares; issued
and outstanding - 2,712,371 shares in
1996 and 1995 and 2,362,371 shares 1994 271,237 271,237 236,237
Capital in excess of par value 886,254 886,254 790,003
Retained earnings 766,151 785,664 770,373
--------- --------- ---------
Total 1,923,642 1,943,155 1,796,613
--------- --------- ---------
Total $2,319,776 $2,235,220 $2,030,406
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
STATEMENTS OF OPERATIONS
Nine Months Ended
May 31, Year Ended August 31,
------------------------------------------------------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ---------
(Unaudited)
----------------------------
REVENUES - Note 7
<S> <C> <C> <C> <C> <C>
Sales of oil and gas $ 270,332 $ 204,425 $ 247,461 $ 235,411 $ 427,538
Sales of nonproducing properties 130,000 634,969 634,979 78,244 81,000
Sale of wells - - - 136,495 13,750
Other, primarily zeolite royalties 28,957 32,924 32,924 30,000 34,126
--------- --------- --------- --------- ---------
Total 429,289 872,318 915,364 480,150 556,414
COSTS AND EXPENSES
Production 52,040 29,777 45,009 51,600 107,038
Production taxes 23,981 13,858 29,679 18,667 51,569
Cost of nonproducing properties sold 14,439 228,992 228,992 10,540 38,143
Cost of wells sold - - - 69,736 17,125
Exploration 93,127 190,621 304,795 264,798 193,345
General and administrative 191,248 168,409 228,021 214,947 222,606
Depreciation and depletion 74,513 49,158 78,586 72,108 102,572
--------- --------- --------- --------- ---------
Total 449,348 680,815 915,082 702,396 732,398
--------- --------- --------- --------- ---------
INCOME (LOSS) FROM OPERATIONS (20,059) 191,503 282 (222,246) (175,984)
OTHER INCOME (EXPENSE)
Interest expense (6,864) - - - -
Interest income 3,976 13,597 18,122 6,621 1,966
Gain on sale of investments - - - 12,586 97,597
--------- --------- --------- --------- ---------
(2,888) 13,597 18,122 19,207 99,563
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (22,947) 205,100 18,404 (203,039) (76,421)
INCOME TAX EXPENSE (CREDIT) - Note 5
Current - - - - -
Deferred (3,434) 46,072 3,113 (30,011) -
--------- --------- --------- --------- --------
Total (3,434) 46,072 3,113 (30,011) -
--------- --------- --------- --------- --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE (19,513) 159,028 15,291 (173,028) (76,421)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE -
Note 5 - - - (168,588) -
--------- --------- --------- --------- ---------
NET INCOME (LOSS) $ (19,513) $ 159,028 $ 15,291 $ (341,616) $ (76,421)
========= ========= ========= ========= =========
INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE
Before cumulative effect of accounting
change $ (.01) $ .07 $ .01 $ (.08) $ (.04)
Cumulative effect of accounting change - - - (.07)
--------- --------- --------- --------- ---------
After cumulative effect of accounting
change $ (.01) $ .07 $ .01 $ (.15) $ (.04)
========= ========= ========= ========= =========
WEIGHTED AVERAGE COMMON STOCK AND COMMON
STOCK EQUIVALENT SHARES OUTSTANDING 2,712,371 2,363,653 2,450,590 2,317,166 2,047,073
========= ========= ========= ========= =========
DIVIDENDS PER SHARE OF COMMON STOCK $ .00 $ .00 $ .00 $ .00 $ .00
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Total
Capital in Stock-
Shares Common Excess of Retained Holders'
Outstanding Stock Par Value Earnings Equity
----------- ----------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance,
August 31, 1992 2,012,431 $ 201,243 $ 581,027 $1,188,410 $1,970,680
Net Loss - - - (76,421) (76,421)
Common Stock
Issued 50,000 5,000 29,000 - 34,000
Common Stock
Retired (60) (6) (24) - (30)
--------- -------- --------- --------- ----------
Balance,
August 31, 1993 2,062,371 206,237 610,003 1,111,989 1,928,229
Net Loss - - - (341,616) (341,616)
Common Stock
Issued 300,000 30,000 180,000 - 210,000
--------- -------- --------- --------- ----------
Balance,
August 31, 1994 2,362,371 236,237 790,003 770,373 1,796,613
Net Income - - - 15,291 15,291
Common Stock
Issued 350,000 35,000 96,251 - 131,251
--------- -------- --------- --------- ----------
Balance,
August 31, 1995 2,712,371 271,237 886,254 785,664 1,943,155
F-4
<PAGE>
Net Loss
(Unaudited) - - - (19,513) (19,513)
--------- -------- -------- --------- --------
Balance,
May 31, 1996 2,712,371 $ 271,237 $ 886,254 $ 766,151 $1,923,641
========= ======== ========= ========= ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
STATEMENTS OF CASH FLOWS
Nine Months Ended
May 31, Year Ended August 31,
----------------------------- -----------------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Cash from oil and gas sales $ 214,398 $ 182,363 $ 232,803 $ 295,394 $ 463,312
Cash paid for production,
exploration and general and
administrative (395,173) (298,969) (394,269) (333,124) (706,745)
Interest received 3,976 13,597 18,122 6,621 1,966
Interest paid (6,864) - - - -
---------- ---------- ---------- ---------- ----------
Net Cash Used in Operating
Activities (183,663) (103,009) (143,344) (31,109) (241,467)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of properties 130,000 634,969 634,979 214,739 94,750
Proceeds from sale of investments - - - 14,810 106,570
Purchases of properties (365,115) (333,154) (322,710) (411,660) (137,096)
Purchase of investment - - (9,000) - -
---------- ---------- ---------- ---------- ----------
Net Cash Provided by (Used
in) Investing Activities (235,115) 301,815 303,269 (182,111) 64,224
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 297,500 - - - -
Repayment of debt (142,500) - - - -
Proceed from issuance of common
stock - 131,250 - 210,000 34,000
Retirement of common stock - - - - (30)
---------- ---------- ---------- ---------- ----------
Net Cash Provided by
Financing Activities 155,000 131,250 - 210,000 33,970
---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (263,778) 330,056 159,925 (3,220) (143,273)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 268,385 108,460 108,460 111,680 254,953
---------- ---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 4,607 $ 438,516 $ 268,385 $ 108,460 $ 111,680
========== ========== ========== ========== ==========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the year ended August 31, 1995, the Company issued 350,000 shares of
common stock with a market value of $131,250 as partial payment on the purchase
of oil and gas producing properties.
See accompanying notes to financial statements.
F-6
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
NOTES TO FINANCIAL STATEMENTS
(Information at May 31, 1996 and for the nine
months ended May 31, 1996 and 1995
is unaudited)
The Company was incorporated under Wyoming law in 1972 for the purpose of
exploring, developing and producing oil, gas and other minerals in the Rocky
Mountain region of the United States. Its oil and gas production is sold to
major companies of the petroleum industry under terms requiring payment within
sixty days. The prices received for its oil and gas are very volatile due to
economic conditions within the industry. Income from mineral production is
nominal and received in the form of minimum annual royalties.
1. Significant Accounting Policies
This summary of significant accounting policies is presented to assist in
understanding the Company's financial statements:
a. Cash and Cash Equivalents - For purposes of the Statement of Cash
Flows, the Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
b. Property and Equipment - The Company uses the "successful efforts"
method for capitalizing the costs of completed oil and gas wells
whereby only the costs attributable to successful exploratory wells
and the costs of development wells within a producing field are
reflected in property and equipment. Produc- ing and nonproducing
properties are evaluated periodically, and if conditions warrant, an
impairment allowance is provided. The costs of exploratory wells are
charged to expense in the period in which the wells are determined to
be unsuccessful. Depletion and depreciation of the capitalized costs
for producing oil and gas properties are provided by the
unit-of-production method based on proved oil and gas reserves.
Uncompleted wells and equipment are reflected at the Company's
incurred cost and represent costs of drilling and equipping oil and
gas wells that are not completed as of the balance sheet date.
The costs of unproved leases which become productive are reclassified
to proved properties when proved reserves are discovered on the
property.
Unproved oil and gas interests are carried at original acquisition
costs including filing and title fees. Annual rentals and geological
and geophysical expenditures are charged to expense when incurred.
Zeolite properties include the original costs to acquire and stake the
claims and the preliminary evaluation and development costs which are
necessary prior to commencement of mining operations. Subsequent to
the time that zeolite mines reach operational status, all operational
expenditures are charged to expense in the period incurred.
F-7
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Information at May 31, 1996 and for the nine
months ended May 31, 1996 and 1995
is unaudited)
1. Significant Accounting Policies (Continued)
Office facilities and equipment are recorded at cost. Depreciation of
office facilities and equipment is recorded using straight-line and
accelerated methods over the estimated useful lives of 7 to 40 years
for office facilities and 5 years for office equipment. Maintenance
and repairs are charged to expense as incurred.
c. Bad Debts - The direct write off method of accounting for
uncollectible accounts receivable is utilized whereby an account is
written off only when determined to be uncollectible. The results of
this method do not vary materially from the preferred method.
d. Investment - The accompanying financial statements include the
investment in an unconsolidated partnership, in which the Company owns
a 30% interest. The investment is carried at cost under the equity
method.
e. Income Taxes - Effective September 1, 1993, the Company adopted SFAS
Statement No. 109, "Accounting for Income Taxes." Under SFAS No. 109,
deferred income taxes are provided for the tax effect of timing
differences arising from certain costs and expenses which are
recognized in different periods for income tax and financial reporting
purposes.
f. Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
g. Unaudited Periods - The financial information with respect to the nine
months ended May 31, 1996 and 1995 is unaudited. In the opinion of
management, such information contains all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of
the results for such periods.
2. Off Balance Sheet Risk of Financial Instruments
Interest bearing time deposits are held by the Company in a commercial bank
in excess of the Federal Deposit Insurance Corporation's maximum limits.
The following is a summary of the insured and uninsured bank balances at:
May 31, 1996
----------------------
Carrying Bank
Amount Balance
--------- ----------
Insured $ 4,607 $ 87,553
Uninsured - -
F-8
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Information at May 31, 1996 and for the nine
months ended May 31, 1996 and 1995
is unaudited)
2. Off Balance Sheet Risk of Financial Instruments (Continued)
August 31,
------------------------------------------------
1995 1994
--------------------- -----------------------
Carrying Bank Carrying Bank
Amount Balance Amount Balance
--------- -------- --------- ---------
Insured $100,962 $100,962 $105,212 $105,212
Uninsured 167,423 185,750 3,248 16,717
3. Gas Balancing Arrangement
The Company has a 100% ownership in a producing gas well which is located
in a unitized field operated by a major oil company. At the end of fiscal
year 1992-93, there was an imbalance, caused by the gas purchasing company
recognizing purchase contracts with certain, but not all, interest owners
in the field while it continued to take all gas produced. The Company's
portion of the underbalance at August 31, 1994 and 1993 was estimated to
be 40,000 mcf's and at August 31, 1995 and May 31, 1996, 80,000 mcf's as a
result of the Company purchasing additional ownership in the well. An
estimated payout for the underbalance of $1 per mcf is used to value the
receivable. The Company has not received payment or settlement for its
share of the imbalance to date.
4. Property and Equipment
A summary of property and equipment is as follows:
May 31, 1996
---------------------------
Accumulated
Depreciation
Cost And Depletion
---------- -------------
Zeolite mining
properties $ 385 $ -
Unproved oil and
gas interest 439,060 -
Proved oil interests 683,724 201,311
Completed wells and
related equipment 2,233,560 1,174,802
Wells in process - -
Condominium office
facility 130,049 64,412
Office equipment 47,965 33,054
--------- ---------
Total $3,534,743 $1,473,579
========== ==========
F-9
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Information at May 31, 1996 and for the nine
months ended May 31, 1996 and 1995
is unaudited)
4. Property and Equipment (Continued)
August 31,
-------------------------------------------------------
1995 1994
------------------------- --------------------------
Accumulated Accumulated
Depreciation Depreciation
Cost And Depletion Cost And Depletion
---------- ------------- ---------- -------------
Zeolite mining
properties $ 385 $ - $ 385 $ -
Unproved oil and
gas interests 488,278 - 779,648 -
Proved oil interests 516,055 161,407 315,909 147,910
Completed wells and
related equipment 1,977,564 1,146,453 1,905,485(1) 1,092,945
Wells in process 71,570 - - -
Condominium office
facility 130,049 62,447 130,049 59,599
Office equipment 37,886 28,759 30,362 26,970
--------- --------- --------- ---------
Total $3,221,787 $1,399,066 $3,161,838 $1,327,424
========= ========= ========= =========
(1) Net of impairment allowance of $54,567.
5. Income Taxes
Effective September 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", which applies
an asset and liability approach requiring the recognition of deferred tax
assets and liabilities with respect to the expected future tax
consequences of events that have been recognized in the financial
statements and tax returns. All of the Company's earnings are located in
the United States.
May 31, August 31,
-------------------- -----------------------------
Income Tax expense (credit) 1996 1995 1995 1994 1993
---- ---- ---- ---- ----
Current $ - $ - $ - $ - $ -
Deferred (3,434) 46,072 3,113 (30,011) -
Deferred tax liabilities (assets) are comprised of the following at:
August 31,
May 31, ----------------------
Tax effects of temporary differences 1996 1995 1994
------------------------------------ --------- -------- ---------
1st year federal lease rentals $ 2,276 $ 3,850 $ 3,438
Intangible drilling costs 358,253 332,826 312,436
Percentage depletion 133,083 133,083 133,083
Depreciation 2,193 2,193 2,193
Tax basis surrendered property 113 113 113
Production taxes 2,844 2,844 2,844
-------- -------- --------
Total Long Term Deferred Tax
Liabilities 498,762 474,909 454,107
Depletion of intangible drilling costs (240,650) (233,279) (226,947)
Net operating loss carryforwards (104,857) (84,941) (73,584)
Other (956) (956) (956)
-------- -------- --------
Total Long Term Deferred Tax Assets (346,463) (319,176) (301,487)
-------- -------- --------
Net Long Term Deferred Tax
Liabilities $ 152,299 $ 155,733 $ 152,620
======== ======== ========
F-10
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Information at May 31, 1996 and for the nine
months ended May 31, 1996 and 1995
is unaudited)
5. Income Taxes (Continued)
At August 31, 1995, the Company has unused deductions and credits which
may be applied against future taxable income and which expire as follows:
Percent
Depletion
In Excess Net Operating Investment
Year Ending of Cost Loss Tax
August 31, Depletion Carryforward Credits
----------- --------- ------------ ---------
1997 $ - $ - $ 11,643
1998 - - 19,397
1999 - - 9,630
2000 - - 4,306
2001 - - 580
2002 - - -
2003 - 191,551 -
2004 - 49,017 -
2007 - 78,344 -
2008 - 28,442 -
2009 - 143,210 -
2010 - 75,706 -
Indefinite 1,413,203 - -
--------- -------- -------
Total $1,413,203 $ 566,270 $ 45,556
========= ======== =======
Investment tax credits for financial purposes are the same as those shown
for tax reporting purposes.
6. Common Stock
Under an employee's incentive stock option plan approved by the
stockholders in January, 1993, 200,000 shares of common stock have been
authorized and reserved for issuance to employees. Options granted under
this plan cannot exceed ten years from the date of grant. The option price
is equal to the market value of the common stock on date of grant. At
August 31, 1995, there were six options outstanding for two hundred
thousand shares to current employees of the Company. The term in which to
exercise is three years from the date of each grant.
Changes in the status of options outstanding under the plan at August 31,
are as follows:
Shares
---------------------------------------
1995 1994 1993
------- ------- --------
Beginning of year 120,000 60,000 100,000
Granted 80,000 60,000 60,000
Expired/Exercised - - (100,000)
------- ------- --------
End of year 200,000 120,000 60,000
Option price $.75, $.875 $.875 and $1.1875 $1.1875
and $1.1875
There were no changes during the nine months ended May 31, 1996. The Board
of Directors has authorized the purchase and retirement of a maximum of
200,000 shares of the Company's outstanding common stock. As of May 31,
1996, 27,960 shares have been purchased to date and retired at a per share
cost of $1.50 to $10.00.
F-11
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Information at May 31, 1996 and for the nine
months ended May 31, 1996 and 1995
is unaudited)
7. Major Customers
Certain customers who accounted for more than 10% individually of the
Company's oil and gas sales are as follows:
Nine Months Ended
May 31, Year Ended August 31,
--------------------- --------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
Company A $ 28,611 $ - $ - $ 21,308 $ 117,927
Company B 139,961 68,690 91,120 89,668 116,906
Company C 25,547 18,344 27,761 27,946 -
Company D 11,798 38,665 52,522 66,057 121,487
8. Related Party Transactions
During the year ended August 31, 1995, the Company acquired certain
proved oil and gas leases and overriding royalties from a related party.
In addition to $71,300 cash, the Company issued 350,000 shares of
restricted common stock with a market value of $131,250 for a total
purchase price of $202,550.
The Company and certain directors, stockholders and investees are joint
holders in proved and unproved oil and gas properties. During the normal
course of business, the Company pays or receives monies and in turn
bills or pays the interest holders for their respective shares. These
transactions are immaterial in amount when compared to the Company's
total receipts and expenditures. They are accounted for as part of the
normal joint interest billing function.
During the year ended August 31, 1994, the Company conducted a private
placement offering of 300,000 shares of its previously unissued common
stock at $.70/share. The stock was offered in 10,000 share blocks to
holders-of-record owning 10,000 shares or more. Of the 300,000 shares
sold, 255,715 shares were purchased by the Chairman of the Board of
Directors which provided $179,000 of working capital for the Company.
9. Segment Information
The Company's dominant segment is oil and gas exploration and
development. Revenues and assets of the Company's zeolite mining segment
account for less than 10% of total revenues and total assets.
F-12
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Information at May 31, 1996 and for the nine
months ended May 31, 1996 and 1995
is unaudited)
10. Statements of Cash Flows
Reconciliation of Net Income (Loss) to Net Cash Used By Operating
Activities at:
<TABLE>
<CAPTION>
Nine Months Ended
May 31, Year Ended August 31,
------------------------ ----------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Income (Loss) $ (19,513) $ 159,028 $ 15,291 $(341,616) $ (76,421)
Adjustments to reconcile
net income (loss) to net
cash provided (used) by
operating activities:
Depreciation and depletion 74,513 49,158 78,586 72,108 102,572
Sales of properties (130,000) (634,969) (634,979) (214,739) (94,750)
Sale of investments - - - (14,810) (106,570)
Costs of properties
disposed 52,159 352,324 387,068 278,687 140,667
Cost of investments sold - - - 2,224 8,973
Deferred taxes - net (3,434) 46,072 3,113 138,577 -
(Increase) Decrease In:
Accounts receivable (84,791) (57,484) (50,080) 22,481 1,648
Prepaid expenses (25,000) - - - -
Other (100) 2,498 2,498 7,502 -
(Decrease) Increase In:
Accounts payable (36,897) (5,236) 57,959 32,677 (209,825)
Accrued production
taxes (10,600) (14,400) (2,800) (14,200) (7,761)
--------- -------- -------- -------- --------
Total Adjustments (164,150) (262,037) (158,635) 310,507 (165,046)
-------- -------- -------- -------- --------
Net Cash Used by Operating
Activities $(183,663) $(103,009) $(143,344) $ (31,109) $(241,467)
======== ======== ======== ======== ========
</TABLE>
11. Oil and Gas Producing Activities
Capitalized costs relating to oil and gas activities at August 31:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Proved properties $2,493,619 $2,221,394 $3,278,907
Unproved properties 559,848 779,649 585,915
--------- --------- ---------
3,053,467 3,001,043 3,864,822
Accumulated depreciation
and depletion 1,307,860 1,240,855 2,165,029
--------- --------- ---------
Net $1,745,607 $1,760,188 $1,699,793
========= ========= =========
Costs incurred in oil and gas property acquisition, exploration, and
development activities for the years ended August 31,:
Property acquisition: 1995 1994 1993
---- ---- ----
Proved $ 207,346 $ 13,433 $ 11,000
Unproved 95,442 343,795 67,942
Exploration 304,795 264,798 193,345
Development 143,649 24,960 59,481
--------- --------- ---------
Total $ 751,232 $ 646,986 $ 331,768
========= ========= =========
</TABLE>
F-13
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Information at May 31, 1996 and for the nine
months ended May 31, 1996 and 1995
is unaudited)
11. Oil and Gas Producing Activities (Continued)
Results of operations for oil and gas producing activities, excluding
corporate overhead and interest costs, for the years ended August 31,:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues $ 247,461 $ 235,411 $ 427,538
Production costs (74,688) (70,267) (158,607)
Exploration expenses (304,795) (264,798) (193,345)
Depreciation and depletion (73,949) (67,607) (98,398)
Income tax expense 3,113 30,011 -
--------- --------- ---------
Results of operations from
producing activities $ (202,858) $ (137,250) $ (22,812)
========= ========= =========
</TABLE>
Reserve quantity information (unaudited) for the years ended August 31,
(all located in the United States):
1995
----------------------------
Proved developed reserves: Oil (bbl's) Gas (mcf's)
----------- -----------
Beginning of year 104,612 1,844,343
Revisions of previous estimates 299 (3,329)
Discoveries - 90,000
Purchased - 73,012
Production (9,528) (68,862)
--------- ---------
End of year 95,383 1,935,164
========= =========
1994
-----------------------------
Proved developed reserves: Oil (bbl's) Gas (mcf's)
----------- ------------
Beginning of year 118,715 1,703,588
Revisions of previous estimates 2,507 2,041
Discoveries 12,314 256,000
Purchased 5 11,506
Sold (17,822) (75,505)
Production (11,107) (53,287)
--------- ---------
End of year 104,612 1,844,343
========= =========
1993
----------------------------
Proved developed reserves: Oil (bbl's) Gas (mcf's)
----------- -----------
Beginning of year 133,488 1,755,392
Revisions of previous estimates 2,379 24,803
Purchased 2,850 3,225
Production (20,002) (79,832)
--------- ----------
End of year 118,715 1,703,588
========= ==========
The above reserve information is based on estimates prepared by the
Company. Proved developed oil and gas reserves are those which can be
expected to be recovered through existing wells with existing equipment
and operating methods. Proved undeveloped oil and gas reserves are
those which are expected to be recovered from new wells on undrilled,
proved acreage, or from existing wells where a relatively major
expenditure is required for completion. Management does not feel that
the Company has any proved, undeveloped reserves. All information
presented pertains to proved, developed reserves.
F-14
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Information at May 31, 1996 and for the nine
months ended May 31, 1996 and 1995
is unaudited)
11. Oil and Gas Producing Activities (Continued)
Standardized measure of discounted future net cash flows and changes
therein relating to proved oil and gas reserves at August 31,
(unaudited):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Future cash flows $ 3,349,951 $ 4,147,146 $ 5,206,229
Future production costs (1,481,310) (1,456,421) (1,910,918)
Future income taxes (1) (635,338) (914,847) (1,120,430)
---------- ---------- ----------
Future net cash flows 1,233,303 1,775,878 2,174,881
10% annual discount (369,991) (532,763) (652,485)
---------- ---------- ----------
Discounted future net cash
flows $ 863,312 $ 1,243,115 $ 1,522,396
========== ========== ==========
</TABLE>
(1) The income tax is 34% of the future cash flows less the future
production costs.
The following are the principal sources of changes in the standardized
measure of discounted future net cash flows for the years ended August
31, (unaudited):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Sales, net of production costs $ (142,966) $ (165,881) $ (268,931)
Net changes in prices and
production costs (344,196) (343,832) 379,995
Discoveries and purchases 57,054 69,447 37,296
Development cost (76,577) (24,960) (59,481)
Revisions of previous
quantity estimates 2,570 33,705 55,675
Accretion of discount 124,312 152,240 125,265
---------- ---------- ----------
Net changes $ (379,803) $ (279,281) $ 269,819
========== ========== ==========
</TABLE>
The preceding is a standardized measure of the discounted future net
cash flows and changes applicable to proved oil and gas reserves
required by SFAS 69 of the FASB. The future cash flows are based on
estimated oil and gas reserves utilizing prices and costs in effect as
of year end discounted at 10% per year and assuming continuation of
existing economic conditions.
The standardized measure of discounted future net cash flows, in
management's opinion, should be examined with caution. The basis for
this table is management's reserve study which contains imprecise
estimates of quantities and rates of production of reserves. Revisions
of previous estimates can have a significant impact on these results.
Also, exploration costs in one year may lead to significant
discoveries in later years and may significantly change previous
estimates of proved reserves and their valuation.
Therefore, the standardized measure of discounted future net cash
flows is not necessarily a "best estimate" of the fair value of the
Company's proved oil and gas properties.
F-15
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Information at May 31, 1996 and for the nine
months ended May 31, 1996 and 1995
is unaudited)
12. Significant Event
Effective November 1, 1993, with finalization February 17, 1994, the
Company sold all of its interest in the Buck Creek Field which resulted
in a net profit of $67,133. Buck Creek was one of the Company's older
producing fields but had experienced significant declines in production
in recent years. Lower oil prices, higher operating costs, and the
decreased production made the economics of this property marginal at
best.
13. Borrowings
On October 17, 1995, the Company initiated a $250,000 revolving line of
credit at Hilltop National Bank. At May 31, 1996 the outstanding balance
was $155,000. The credit line matures December 1, 1996, and until that
time requires monthly payments of accrued unpaid interest. The interest
rate on the note is variable, based on the New York Prime Rate plus .50
percentage points (9.0% at May 31, 1996). The note is secured by any
funds on deposit at Hilltop National Bank
F-16
<PAGE>
- ---------------------------------------- -----------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS
BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON DOUBLE EAGLE PETROLEUM
AS HAVING BEEN AUTHORIZED BY THE AND MINING CO.
COMPANY. THIS PROSPECTUS SHALL NOT
CONS\TITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OF- FER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR 1,000,000 Units
QUALIFICATION UNDER THE SECURITIES LAWS Of Common Stock And
OF ANY SUCH STATE. Common Stock Purchase Warrants
------------------------------
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY................ 1
RISK FACTORS...................... 6
THE COMPANY....................... 9
USE OF PROCEEDS................... 9
CAPITALIZATION.................... 10
PRICE RANGE OF COMMON STOCK....... 11
DIVIDEND POLICY................... 11
SELECTED FINANCIAL DATA........... 11 -------------------
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL PROSPECTUS
CONDITION AND RESULTS
OF OPERATIONS................... 13 -------------------
BUSINESS AND PROPERTIES........... 16
MANAGEMENT........................ 24
EXECUTIVE COMPENSATION............ 25
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS............ 28
PRINCIPAL STOCKHOLDERS............ 28
DESCRIPTION OF SECURITIES......... 29
CERTAIN PROVISIONS OF
WYOMING LAW AND OF THE
COMPANY'S ARTICLES OF
INCORPORATION................... 32
UNDERWRITING...................... 32
SECURITIES AND EXCHANGE
COMMISSION POSITION ON
CERTAIN INDEMNIFICATION......... 35
LEGAL MATTERS..................... 35
EXPERTS ......................... 35
CERTAIN DEFINITIONS............... 36
FINANCIAL STATEMENTS.............. 37
------------------------------
UNTIL 90 DAYS AFTER THE EFFECTIVE DATE Rocky Mountain Securities
OF THE REGISTRATION STATEMENT OF WHICH & Investments, Inc.
THIS PROSPECTUS IS A PART, ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN , 1996
ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ---------------------------------------- ----------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification Of Directors And Officers.
The Wyoming Business Corporation Act provides for indemnification by a
corporation of costs incurred by directors, employees, and agents in connection
with an action, suit, or proceeding brought by reason of their position as a
director, employee, or agent. The person being indemnified must have acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation.
The Board of Directors is empowered to make other indemnification as
authorized by the Articles Of Incorporation or by corporate resolution so long
as the indemnification is consistent with the Wyoming Business Corporation Act.
Item 25. Other Expenses Of Issuance And Distribution.
The following is an itemization of all expenses (subject to future
contingencies) incurred or to be incurred by the Registrant in connection with
the issuance and distribution of the securities being offered assuming the sale
of the maximum Offering amount.
Registration and filing fee.................................$1,942
Transfer agent's fee........................................ 750
Printing and engraving*.....................................15,000
Accounting fees and expenses*................................3,500
Legal fees and expenses*....................................45,000
Blue sky fees and expenses*.................................14,000
NASD filing fee..............................................1,063
NASDAQ listing fee...........................................7,500
Underwriter's non-accountable expense allowance*............45,000
Miscellaneous*.............................................. 6,245
---------
Total*...............................................$*140,000
- --------------------
* Estimated
Item 26. Recent Sales Of Unregistered Securities.
During the fiscal year ended August 31, 1994, the Company issued an
aggregate of 300,000 shares of Common Stock at a purchase price of $.70 per
share pursuant to an exemption from registration in accordance with Rule 504
under the Securities Act of 1993, as amended (the "Securities Act"). The
offering was made to existing shareholders owning at least 10,000 shares of the
Company's Common Stock. Of the 300,000 shares sold, 255,715 shares were
purchased by Richard Laudon, the Chairman Of The Board of the Company.
In May 1995, the Company issued 350,000 shares of the Company's Common
Stock to Hollis Oil & Gas Co. in partial consideration for the purchase of oil
and gas interests. The shares were issued pursuant to an exemption from
registration in accordance with Section 4(2) under the Securities Act.
II-1
<PAGE>
Item 27. Exhibits.
The following is a complete list of Exhibits filed as part of this
Registration Statement, which Exhibits are incorporated herein.
Number Description
1.1 Underwriting Agreement between Double Eagle Petroleum and Mining Co.
("Registrant") and Rocky Mountain Investments & Securities, Inc. (the
"Underwriter").
3.1(a) Articles Of Incorporation filed with the Wyoming Secretary Of State
on January 13, 1972.
3.1(b) Articles Of Amendment of Registrant filed with the Wyoming Secretary
Of State on February 27, 1984.
3.1(c) Articles Of Amendment of Registrant filed with the Wyoming Secretary
Of State on July 9, 1996.
3.2 Bylaws.
4.1(a) Specimen Common Stock Certificate.
4.1(b) Specimen Common Stock Purchase Warrant.
4.2 Form of Underwriter's Warrant.
4.3 Form of Warrant Agreement concerning Common Stock Purchase Warrants.*
5.1 Opinion of Bearman Talesnick & Clowdus Professional
Corporation concerning legality of issuance of Units of Common
Stock, Warrants, and underlying securities.
10.1 Agreement dated May 26, 1995 between the Registrant and Hollis Oil
& Gas Co.
23.1 Consent Of Bearman Talesnick & Clowdus Professional Corporation
(included in Exhibit 5.1).
23.2 Consent Of Hocker, Lovelett, Hargens & Yennie, P.C.
- ----------------------
*To be filed by amendment.
Item 28. Undertakings.
1. The undersigned Registrant hereby undertakes:
(a) to file, during any period in which offers or sales are being
made, a post-effective amendment to the Registration Statement:
(1) to include any Prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(2) to reflect in the Prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
and
(3) to include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
II-2
<PAGE>
information in the Registration Statement, including
(but not limited to) any addition or deletion of a
managing underwriter;
(b) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof;
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
2. The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing certificates in such denominations and
registered in such names as required by the Underwriter to permit
prompt delivery to each purchaser.
3. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the Registrant's Articles Of
Incorporation, or otherwise, the Registrant has been advised that in
the opinion of the Securities And Exchange Commission such
indemnifications is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Casper,
State of Wyoming on October 11, 1996.
DOUBLE EAGLE PETROLEUM AND MINING CO.
By: /s/ Stephen H. Hollis
---------------------------------------
Stephen H. Hollis, President
By: /s/ Richard B. Laudon
---------------------------------------
Richard B. Laudon, Treasurer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and
directors of the Registrant, by virtue of their signatures to the Registration
Statement appearing below, hereby constitute and appoint Stephen H. Hollis or
Richard B. Laudon and each or either of them, wi h full power of substitution,
as attorneys-in-fact in their names, place and stead to execute any and all
amendments to this Registration Statement in the capacities set forth opposite
their name and hereby ratify all that said attorneys-in-fact and each of them or
his substitutes may do by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Richard B. Laudon Chairman Of The Board; Director; October 11, 1996
- ----------------------------------------- Treasurer (Principal Accounting
Richard B. Laudon and Financial Officer)
/s/ John R. Kerns
- ----------------------------------------- Director October 11, 1996
John R. Kerns
/s/ Stephen H. Hollis
- ----------------------------------------- President; Director (Principal October 11, 1996
Stephen H. Hollis Executive Officer)
/s/ Tom R. Creager
- ----------------------------------------- Director October 11, 1996
Tom R. Creager
/s/ William N. Heiss
- ----------------------------------------- Director October 11, 1996
William N. Heiss
</TABLE>
DOUBLE EAGLE PETROLEUM AND MINING CO.
UNDERWRITING AGREEMENT
October , 1996
Rocky Mountain Securities & Investments, Inc.
As Representative of the Several
Underwriters Named in Schedule I Hereto
920 Hudson's Bay Centre
1600 Stout Street
Denver, Colorado 80202
Gentlemen:
Double Eagle Petroleum and Mining Co., a Wyoming corporation (the
"Company"), hereby confirms its agreement with you (the "Representative") and
with the other Members of the Underwriting Group, including the Representative,
named in Schedule I hereto (hereinafter "the Underwriting Group") as follows:
SECTION 1
DESCRIPTION OF SECURITIES
The Company's authorized and outstanding capitalization when the offering
of the securities contemplated hereby is permitted to commence and at the
Closing Date (hereinafter defined), will be as set forth in the Registration
Statement and Prospectus (hereinafter defined) included therein. The Company
proposes to issue and sell to the Underwriting Group an aggregate of 1,000,000
units ("Unit" or "Units"), each Unit consisting of one (1) share of the
Company's $0.10 par value common stock ("Common Stock") and one (1) Common Stock
Purchase Warrant ("Warrant" or "Warrants") at a price of $3.00 per Unit.
Each Warrant will entitle the holder to purchase one (1) share of Common
Stock at an exercise price of $3.00 per share ("Warrant Exercise Price") during
the five-year period commencing on the effective date of the Registration
Statement ("Effective Date"). The Warrants will be redeemable on thirty (30)
days prior written notice at a redemption price of $0.02 per Warrant if (a) the
closing high bid price of the Common Stock has exceeded $4.00 per share for at
least the last 20 of the 30 trading days immediately preceding the mailing of
the notice of redemption, (b) the Company has in effect a current registration
statement with the applicable regulatory authorities registering the Common
Stock issuable upon exercise of the Warrants. The shares of the Company's Common
Stock underlying the Warrants are referred to herein as the "Warrant Shares."
The Representative shall also have an over-allotment option to purchase all
or part of an additional number of Units (the "Over-Allotment") as will be equal
to not more than fifteen (15%) of the total number of Units initially offered,
for a period of forty-five (45) days from the Effective Date, as provided in
Section 3.1 hereof. The Over-Allotment shall be exercisable by the Underwriter,
in whole or in part, from time to time during the aforementioned forty-five (45)
day period.
The Company proposes to issue and sell to the Representative on the Closing
Date, for a total purchase price of $100, warrants to purchase common stock
substantially identical to the Common Stock comprising a part of the Units at
100% of the initial per Unit offering price on the Effective Date of the
<PAGE>
Registration Statement (the "Unit Common Stock Warrant") and warrants to
purchase Warrants comprising a part of the Units (the "Unit Warrant") (the Unit
Common Stock Warrant and the Unit Warrant are together referred to as the
"Underwriter's Warrants"), as provided in Section 3.3 hereof.
SECTION 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Underwriting Group to enter into this Agreement, the
Company hereby represents and warrants to and agrees with each member of the
Underwriting Group that:
2.1 Registration Statement and Prospectus. A Registration Statement on Form
SB-2 (File No. ) with respect to the Units, including the related Prospectus,
copies of which have heretofore been delivered by the Company to the
Representative, has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations ("Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder, and said Registration Statement has
been filed with the Commission under the Act; one or more amendments to said
Registration Statement, copies of which have heretofore been delivered to the
Representative, has or have heretofore been filed; and the Company may file on
or prior to the Effective Date of the Registration Statement additional
amendments to said Registration Statement, including the final Prospectus.
Included in such Registration Statement are a sufficient number of additional
shares of the Company's Common Stock which are reserved against exercise of the
over-allotment option.
As of the Effective Date, the capitalization of the Company shall consist
of no more than 3,000,000 shares of capital stock, either outstanding or subject
to issuance upon the exercise of outstanding options, warrants or purchase
rights or upon the conversion of outstanding convertible securities. Any changes
in the number of shares of Common Stock issued and outstanding at or prior to
the Effective Date of the Registration Statement must be approved by the
Representative. Without the Representative's prior consent, there shall be no
warrants, options or rights outstanding as of the Effective Date of the
Registration Statement to purchase Common Stock other than as described in the
Registration Statement.
As used in this Agreement, the term "Registration Statement" refers to and
means said Registration Statement on Form SB-2 and all amendments thereto,
including the Prospectus, the information incorporated therein by reference, all
exhibits and financial statements, as it becomes effective; the term
"Prospectus" refers to and means the Prospectus included in the Registration
Statement when it becomes effective or as filed in final form in accordance with
the requirements of Rule 424(b) of the Rules and Regulations; and the term
"Preliminary Prospectus" refers to and means any prospectus included in said
Registration Statement before it becomes effective. The term "Effective Date"
throughout this Agreement refers to the date the Commission declares the
Registration Statement effective pursuant to Section 8 of the Act.
2.2 Accuracy of Registration Statement and Prospectus. The Commission has
not issued any order preventing or suspending the use of any Preliminary
Prospectus with respect to the Units, and each Preliminary Prospectus has
conformed in all material respects with the requirements of the Act and the
applicable Rules and Regulations of the Commission thereunder and to the best of
the Company's knowledge has not included at the time of filing any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein not misleading, except with respect to matters
subsequently amended prior to the Effective Date. On the Effective Date and on
the Closing Date, the Registration Statement and Prospectus will contain all
statements which are required to be stated therein in accordance with the Act
and the Rules and Regulations for the purposes of the public offering of the
2
<PAGE>
Units, and all statements of material fact contained in the Registration
Statement and Prospectus will be true and correct, and neither the Registration
Statement nor the Prospectus will include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, the
Company does not make any representations or warranties as to information
contained in or omitted from the Registration Statement or the Prospectus in
reliance upon written information furnished on behalf of the Underwriting Group
specifically for use therein. The Company will not at any time hereafter file
any amendments to the Registration Statement or in accordance with Rule 424(b)
of the Rules and Regulations of which the Representative shall not have been
previously advised in advance of filing or to which the Representative shall
reasonably object in writing.
2.3 Financial Statements. The financial statements of the Company together
with related schedules and notes as set forth in the Registration Statement and
Prospectus will present fairly the financial position of the Company and the
results of its operations and the changes in its financial position at the
respective dates and for the respective periods for which they apply; such
financial statements have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods concerned
except as otherwise stated therein.
2.4 Independent Public Accountant. ........................... have
certified or shall certify certain of the fiscal year end financial statements
filed or to be filed with the Commission as part of the Registration Statement
and Prospectus and are independent certified public accountants within the
meaning of the Act and the Rules and Regulations.
2.5 No Material Adverse Change. Except as may be reflected in or
contemplated by the Registration Statement or the Prospectus, subsequent to the
dates as of which information is given in the Registration Statement and
Prospectus, and prior to the Closing Date, (i) there shall not be any material
adverse change in the condition, financial or otherwise, of the Company or in
its business taken as a whole; (ii) there shall not have been any material
transaction entered into by the Company other than transactions in the ordinary
course of business; (iii) the Company shall not have incurred any material
liabilities, obligations or claims, contingent or otherwise, which are not
disclosed in the Prospectus; (iv) except in the ordinary course of business and
with the consent of the Representative, there shall not have been nor will there
be any change in the capital stock or long-term debt (except current payments)
of the Company; and (v) the Company has not and will not have paid or declared
any dividends or other distributions on its capital stock.
2.6 No Defaults. Other than as disclosed in the Registration Statement or
Prospectus, the Company is not in any material default which has not been waived
in the performance of any obligation, agreement or condition contained in any
debenture, note or other evidence of indebtedness or any indenture or loan
agreement of the Company. The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated, and compliance with the
terms of this Agreement will not conflict with or result in a breach of any of
the terms, conditions or provisions of, or constitute a default under, the
articles of incorporation, as amended, or by-laws of the Company, any note,
indenture, mortgage, deed of trust, or other agreement or instrument to which
the Company is a party or by which it or any of its property is bound, or any
existing law, order, rule, regulation, writ, injunction, or decree of any
government, governmental instrumentality, agency or body, arbitration tribunal
or court, domestic or foreign, having jurisdiction over the Company or its
property. The consent, approval, authorization, or order of any court or
governmental instrumentality, agency or body is not required for the
consummation of the transactions herein contemplated except such as may be
required under the Act or under the securities laws of any state or
jurisdiction.
3
<PAGE>
2.7 Incorporation and Standing. The Company is and at the Closing Date and
the Over-Allotment Closing Date will be duly incorporated and validly existing
in good standing as a corporation under the laws of the State of Wyoming with
authorized and outstanding capital stock as set forth in the Registration
Statement and the Prospectus, and with full power and authority (corporate and
other) to own its property and conduct its business, present and proposed, as
described in the Registration Statement and Prospectus; the Company has full
power and authority to enter into this Agreement; and the Company is duly
qualified and in good standing as a foreign corporation in each jurisdiction in
which the character or location of its properties (owned or leased) or the
nature of its business makes such qualification necessary.
2.8 Legality of Outstanding Stock. The outstanding capital stock of the
Company has been duly and validly authorized, issued and is fully paid and
nonassessable and will conform to all statements with regard thereto contained
in the Registration Statement and Prospectus. No sales of securities have been
made by the Company in violation of the registration or anti-fraud provisions of
the Act or in violation of any other federal law or laws of any state or
jurisdiction.
2.9 Legality of Securities. The Units, Common Stock, Warrants, Common Stock
underlying the Warrants ("Warrant Shares"), Underwriter's Warrants, and the
Common Stock and Warrants issuable upon the exercise of the Underwriter's
Warrants have been duly and validly authorized and, when issued and delivered
against payment therefor as provided in this Agreement, will be validly issued,
fully paid and nonassessable. The Common Stock and Warrant Shares and the Common
Stock underlying the Underwriter's Warrants, upon issuance, will not be subject
to the preemptive rights of any shareholders of the Company. The Warrants and
the Underwriter's Warrants, when sold and delivered, will constitute valid and
binding obligations of the Company enforceable in accordance with the terms
thereof. A sufficient number of shares of Common Stock of the Company has been
reserved for issuance upon exercise of the Warrants, the Unit Common Stock
Warrants and the Warrants issuable upon the exercise of the Unit Warrants. The
Common Stock, the Warrants, the Warrant Shares, the Underwriter's Warrants and
the Common Stock and Warrants issuable upon the exercise of the Underwriter's
Warrants will conform to all statements with regard thereto in the Registration
Statement and Prospectus.
2.10 Prior Sales. No unregistered securities of the Company, of an
affiliate or of a predecessor of the Company have been sold within three years
prior to the date hereof, except as set forth in the Registration or otherwise
disclosed to the Representative in writing.
2.11 Litigation. Except as set forth in the Registration Statement and
Prospectus, there is and at the Closing Date there will be no action, suit or
proceeding before any court, arbitration tribunal or governmental agency,
authority or body pending or to the knowledge of the Company threatened which
might result in judgments against the Company not adequately covered by
insurance or which collectively might result in any material adverse change in
the condition (financial or otherwise), the business or the prospects of the
Company, or would materially affect the properties or assets of the Company.
2.12 Underwriter's Warrants. Upon delivery of and payment for the
Underwriter's Warrants to be sold by the Company as set forth in Section 3.3 of
this Agreement, the Representative and designees of the Representative will
receive good and marketable title thereto, free and clear of all liens,
encumbrances, charges and claims whatsoever; and the Company will have on the
Effective Date and at the time of delivery of such Underwriter's Warrants full
legal right and power and all authorization and approval required by law to
sell, transfer and deliver such Underwriter's in the manner provided hereunder.
4
<PAGE>
2.13 Finder. The Company knows of no outstanding claims against it for
compensation for services in the nature of a finder's fee, origination fee or
financial consulting fee with respect to the offer and sale of the Units
hereunder except as previously disclosed in writing to the Representative.
2.14 Exhibits. There are no contracts or other documents which are required
to be filed as exhibits to the Registration Statement by the Act or by the Rules
and Regulations which have not been so filed and each contract to which the
Company is a party and to which reference is made in the Prospectus has been
duly and validly executed, is in full force and effect in all material respects
in accordance with their respective terms, and none of such contracts have been
assigned by the Company; and the Company knows of no present situation or
condition or fact which would prevent compliance with the terms of such
contracts, as amended to date. Except for amendments or modifications of such
contracts in the ordinary course of business, the Company has no intention of
exercising any right which it may have to cancel any of its obligations under
any of such contracts, and has no knowledge that any other party to any of such
contracts has any intention not to render full performance under such contracts.
2.15 Tax Returns. The Company has filed all federal and state tax returns
which are required to be filed by it and has paid all taxes shown on such
returns and on all assessments received by it to the extent such taxes have
become due. All taxes with respect to which the Company is obligated have been
paid or adequate accruals have been set up to cover any such unpaid taxes.
2.16 Property. Except as otherwise set forth in or contemplated by the
Registration Statement and Prospectus, the Company has good title, free and
clear of all liens, encumbrances and defects, except liens for current taxes not
due and payable, to all property and assets which are described in the
Registration Statement and the Prospectus as being owned by the Company, subject
only to such exceptions as are not material and do not adversely affect the
present or prospective business of the Company.
2.17 Authority. The execution and delivery by the Company of this Agreement
has been duly authorized by all necessary corporate action and this Agreement is
the valid, binding and legally enforceable obligation of the Company.
2.18 Lock-Up. Prior to the Effective Date of the Registration Statement,
the Company shall cause each of its officers, directors and 5% or greater
shareholders of the Company to execute and deliver an agreement to the
Representative that such person will not sell, pledge or otherwise dispose of
any shares of the Company's Common Stock owned directly or indirectly by such
person or beneficially by such person (as defined by the Securities Exchange Act
of 1934 and rules promulgated thereunder) on the Effective Date of the
Registration State for a period thereafter of one (1) year without the
Representative's prior written consent, which consent shall not be unreasonably
withhold. All such agreements shall be in form and substance satisfactory to the
Representative and the Representative's Counsel and shall be delivered to the
Representative and the Representative's Counsel prior to the Effective Date of
the Registration Statement.
2.19 Use of Form SB-2. The Company is eligible to use Form SB-2 for the
offer and sale of the Units, the Common Stock, the Warrants, the Warrant Shares,
Underwriter's Warrants and the underlying Common Stock and securities underlying
such Underwriter's Warrants.
2.20 NASDAQ or Exchange Listing. On the Effective Date, the Company's
securities must be qualified for initial inclusion or maintaining inclusion on
NASDAQ Small Cap. The Company agrees to have its eligible securities designated
as a NASDAQ National Market System security or listing on a national securities
exchange as soon as the Company meets the qualifications for such designation or
listing.
5
<PAGE>
2.21 Transfer and Warrant Agent, Daily Transfer Sheets and DTC Position
Listing Report. The Company shall designate a transfer and warrant agent
acceptable to the Underwriter for the Company's securities. For a period of two
(2) years from the Effective Date, the Company, at its expense, shall provide
the Underwriter, if so requested in writing, with copies of the Company's daily
Common Stock and Warrant transfer sheets and the DTC special security position
listing reports. The Company agrees not to change its transfer agent for two (2)
years without the prior written consent of the Underwriter.
All of the above representations and warranties shall survive the
performance or termination of this Agreement.
SECTION 3
PURCHASE AND SALE OF THE UNITS
3.1 Purchase of Units and Over-Allotment Option. The Company hereby agrees
to sell to members of the Underwriting Group named in Schedule I hereto
(individually referred to as "Member" and collectively referred to as "Members")
(for all of whom the Representative is acting), severally and not jointly, and
each Member of the Underwriting Group, upon the basis of the representations and
warranties herein obtained, but subject to the conditions hereinafter stated,
agrees to purchase from the Company, severally and not jointly, the number of
Units set forth opposite their respective names in Schedule I hereto at a
purchase price of $3.00 per Unit.
The Company hereby grants to the Representative an over-allotment option
for a period of forty-five (45) days after the Effective Date to purchase at a
purchase price of $3.00 per Unit up to 150,000 additional Units, each such Unit
to be identical in all respects to a Unit as described in Section 1 hereof,
solely to cover over-allotments, if any.
3.1.1 Default by a Member. If for any reason one or
more Members of the Underwriting Group shall fail or refuse
(otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of
Section 9 hereof) to purchase and pay for the number of
Units agreed to be purchased by such Member, the Company
shall immediately give notice thereof to the Representative,
and the non-defaulting Members shall have the right within
24 hours after the receipt by the Representative of such
notice, to purchase or procure one or more other Members to
purchase, in such proportions as may be agreed upon among
the Representative and such purchasing Member or Members and
upon the terms herein set forth, the Units which such
defaulting Member or Members agreed to purchase. If the
non-defaulting Members fail so to make such arrangements
with respect to all such Units, the number of Units which
each non-defaulting Member is otherwise obligated to
purchase under the Agreement shall be automatically
increased pro rata to absorb the remaining Units which the
defaulting Member or Members agreed to purchase; provided,
however, that the non-defaulting Members shall not be
obligated to purchase the Units which the defaulting Member
or Members agreed to purchase in excess of 10% of the total
number of Units which such non-defaulting Member agreed to
purchase hereunder, and provided further that the
non-defaulting Members shall not be obligated to purchase
any Units which the defaulting Member or Members agreed to
purchase if such additional purchase would cause the Member
to be in violation of the net capital rule of the Commission
or other applicable law. If the total number of Units which
the defaulting Member or Members agreed to purchase shall
not be purchased or absorbed in accordance with the two
preceding sentences, the Company shall have the right,
within 24 hours next succeeding the 14-hour period above
6
<PAGE>
referred to, to make arrangements with other underwriters or
purchasers satisfactory to the Representative for the
purchase of such Units on the terms herein set forth. In any
such case, either the Representative or the Company shall
have the right to postpone the Closing determined as
provided in Section 3.2.2 hereof for not more than seven
business days after the date originally fixed as the Closing
pursuant to said Subsection 3.2.2 in order that any
necessary changes in the Registration Statement, the
Prospectus or any other documents or arrangements may be
made. If neither the non-defaulting Members nor the Company
shall make arrangements within the 24-hour periods stated
above for the purchase of all the Units which the defaulting
Member or Members agreed to purchase hereunder, this
Agreement shall be terminated without further act or deed
and without any liability on the part of the Company to any
non-defaulting Member, except the Company shall be liable
for actual expenses incurred by the Representative as
provided in Section 3.4 hereof, and without any liability on
the part of any non-defaulting Member to the Company.
3.1.2 Liability of Defaulting Member. Nothing contained
in this Section 3.1 shall relieve any defaulting Member of
its liability, if any, to the Company or to the remaining
Members of the Underwriting Group for damages occasioned by
its default hereunder.
3.2 Public Offering Price. After the Commission notifies the Company that
the Registration Statement has become effective, the Members of the Underwriting
Group propose to offer the Units to the public at an initial public offering
price of $3.00 per Unit as set forth in the Prospectus. The Members of the
Underwriting Group may allow such discounts and concessions upon sales to
selected dealers as may be determined from time to time by the Representative.
3.2.1 Payment For Units. Payment for the Units
(including Units included in the over-allotment option which
the Representative agrees to purchase) shall be made to the
Company or its order by certified or official bank check or
checks, in the amount of the purchase price by or on behalf
of the Representative at the offices of the Representative
in Denver, Colorado, upon delivery to the Representative or
its designee of certificates for the Common Stock and
Warrants comprising the Units in definitive form in such
numbers and registered in such names as the Representative
requests in writing at least three full business days prior
to such delivery. At the request of the Representative, the
Company shall deliver the component securities of the Unit
to the Members of the Underwriting Group through the
facilities of The Depository Trust Company or as otherwise
directed.
3.2.2 Closing. The time and date of delivery and
payment hereunder is herein called the "Closing Date" and
shall take place at the office of the Representative in
Denver, Colorado, or at such other location as may be
specified by the Representative, at 10:00 a.m. on the fifth
business day following the date of the Prospectus; provided,
however, that such date may be extended for not more than an
additional seven business days by the Representative. Should
the Representative elect to exercise any part of the
over-allotment option pursuant to Section 3.1 hereinabove,
the time and date of delivery and payment for said
over-allotment Units shall be as mutually agreed, but not
later than the forty-fifth (45th) calendar day after the
Effective Date or the date of the Prospectus, whichever is
later. Said date is referred to as the "Over-Allotment
Closing Date."
3.2.3 Inspection of Certificates. For the purpose of
expediting the checking and packaging of the certificates
for the securities comprising the Units and the
Underwriter's Unit Purchase Warrants, the Company agrees to
make the certificates available for inspection by the
7
<PAGE>
Representative at the main office of the Representative in
Denver, Colorado, at least two full business days prior to
the proposed delivery date.
3.3 Sale of Underwriter's Warrants. On the Closing Date, the Company will
sell to the Underwriter for a total purchase price of $100, warrants to purchase
common stock substantially identical to the Common Stock comprising a part of
the Units at 100% of the initial per Unit offering price on the Effective Date
of the Registration Statement (the Unit Common Stock Warrant) and warrants to
purchase Warrants comprising a part of the Units (the Unit Warrant) (the Unit
Common Stock Warrant and the Unit Warrant are together referred to as the
Underwriter's Warrants). The Company shall not be obligated to sell and deliver
the Underwriter's Warrants, and the Representative will not be obligated to
purchase and pay for the Underwriter's Warrants, except upon payment for the
Units pursuant to Subsection 3.2.1 hereof.
The total number of securities which may be purchased upon exercise of the
Unit Common Stock Warrant will be 10% of the number of shares of Common Stock
which are sold as a part of the Units in the offering and the total number of
securities which may be acquired upon exercise of the Unit Warrant will be 10%
of the number of Warrants included as a part of the Units, respectively,
excluding such Units as may be sold upon exercise of the Underwriter's
over-allotment option. The Underwriter's Warrants shall be non-transferable for
a period of one (1) year following the Effective Date except to the Underwriters
and selected dealers and their respective officers or partners. The Unit Common
Stock Warrant shall contain anti-dilution provisions, a cashless exercise
provision, a one-time demand registration provision, customary piggyback
registration rights and shall otherwise be in form and substance satisfactory to
the Underwriter. The Unit Common Stock Warrant will be exercisable during the
four-year period commencing one (1) year after the Effective Date. The Unit
Warrant will be exercisable during the period provided in the Warrant,
commencing one (1) year after the Effective Date.
3.4 Representative's Expense Allowance. It is understood that the Company
shall reimburse the Representative, for itself alone and not on behalf of the
other Members of the Underwriting Group, for its expenses on a nonaccountable
basis in the amount of 3% of the gross proceeds from the sale of the Units ($
.............. per Unit) including proceeds from the sale of the Units included
in the over-allotment option. The Representative acknowledges receipt of $25,000
of said non-accountable expense allowance. By the Closing Date and, if
applicable, on the Over-Allotment Closing Date, the Representative shall be
entitled to withhold the unpaid balance of such nonaccountable expense
allowance. The Representative shall be solely responsible for all expenses
incurred by it in connection with the offering including, but not limited to,
the expenses of its own counsel except as set forth in Section 5.7 hereof.
Notwithstanding the foregoing, if the Registration Statement does not become
effective, or the offering is never commenced after it becomes effective, or if
this Agreement is terminated as provided herein, the Representative will retain
so much of the non-accountable expense allowance which has been or should have
been received by the Representative from the Company as is equal to its actual
accountable out-of-pocket expenses and reimburse the remainder, if any to the
Company, provided that the amount to be reimbursed will not exceed the amount of
the non-accountable expense allowance. The Representative's expenses shall
include, but are not to be limited to, a fee to compensate the Representative
for the services and time of Representative's counsel, plus any additional
expenses and fees, including but not limited to, travel expenses, postage
expenses, duplication expenses, confirmation and other record preparation
expenses, long-distance telephone expenses, consultant and investigator expenses
and other expenses incurred by the Representative in connection with the
proposed offering.
3.5 Additional Financing. The Company agrees that if the Representative
arranges for equity financing accepted by and closed with the Company other than
as contemplated herein during a period of five (5) years from the date of this
Agreement, the Company will pay a ten percent (10%) commission to the
8
<PAGE>
Representative based on the amount of equity financing. "Arranges," as used in
this section, means locating the financing, introducing the Company to the
source of the financing, and assisting the Company, in all reasonable ways as
the Company may request, to negotiate and complete the financing.
If the Underwriter arranges for debt financing accepted by and closed with
the Company during a period of five (5) years from the date hereof, the Company
will pay a five percent (5%) commission to the Underwriter based on the amount
of debt financing.
If the Underwriter obtains an increase in the Company's line of credit,
which is accepted by and closed with the Company, the Company will pay a fee
equal to 1% of the amount of increase.
If the Underwriter arranges for the purchase or sale of assets, for a
merger, acquisition or joint venture accepted by and closed with the Company,
during a period of five (5) years from the date hereof, the Company will pay a
fee to the Underwriter for its services calculated as follows:
5% of the value of the transaction to the Company up to and including
$1,000,000,
4% of the value of the transaction to the Company greater than
$1,000,000 and up to and including $2,000,000,
3% of the value of the transaction to the Company greater than
$2,000,000 and up to and including $3,000,000,
2% of the value of the transaction to the Company greater than
$3,000,000 and up to and including $4,000,000, and
1% of the value of the transaction to the Company in excess o
$4,000,000, all from such income as received.
In addition, the Company shall reimburse the Representative for any
reasonable expenses that it incurs in arranging and closing such funding or
transactions, including fees of its counsel after receiving written approval
from the Company.
The provisions of this Section 3.5 shall survive the performance or
termination of this Agreement in accordance with Section 12.2 of this Agreement.
3.6 Representations of the Parties. The parties hereto respectively
represent that as of the Closing Date the representations herein contained and
the statements contained in all the certificates theretofore or simultaneously
delivered by any party to another, pursuant to this Agreement, shall in all
material respects be true and correct.
3.7 Post-Closing Information. The Representative covenants that reasonably
promptly after the Closing Date, it will supply the Company with all information
required from the Representative which must be supplied to the Commission, if
any, and such additional information as the Company may reasonably request to be
supplied to the securities authorities for such states in which the Units have
been qualified for sale.
3.8 Re-Offers By Selected Dealers. On each sale by the Representative of
any of the Units to selected dealers, the Representative shall require the
selected dealer purchasing any such Units to agree to re-offer the same on the
terms and conditions of the offering set forth in the Registration Statement and
Prospectus.
9
<PAGE>
3.9 Right of First Refusal. If the Offering is consummated, the Company
will grant to the Representative a right of first refusal for a period of three
(3) years after the Effective Date to act as managing underwriter for any public
offerings of its securities contemplated by the Company or any of its
subsidiaries. The right shall continue in effect during the entire three (3)
year period despite the exercise of the right or the refusal to exercise the
right during the period. The Representative shall have thirty (30) days within
which to determine whether to exercise the right. The right shall continue
during the entire three (3) year period despite any prior exercise of the right
or the refusal to exercise the right during the period.
SECTION 4
REGISTRATION STATEMENT AND PROSPECTUS
4.1 Delivery of Registration Statements. The Company shall deliver to the
Representative without charge two (2) manually signed copies of the Registration
Statement, including all financial statements and exhibits filed therewith and
any amendments or supplements thereto, and shall deliver without charge to the
Representative ten (10) conformed copies of the Registration Statement and any
amendment or supplement thereto, including such financial statements and
exhibits. The signed copies of the Registration Statement so furnished to the
Representative will include manually signed copies of any and all consents and
certificates of the independent public accountant certifying to the financial
statements included in the Registration Statement and Prospectus and signed
copies of any and all opinions, consents and certificates of any other persons
whose profession gives authority to statements made by them and who are named in
the Registration Statement or Prospectus as having prepared, certified, or
reviewed any part thereof.
4.2 Delivery of Preliminary Prospectus. The Company will cause to be
delivered to Members of the Underwriting Group and to other broker-dealers,
without charge, prior to the Effective Date as many copies of each Preliminary
Prospectus filed with the Commission bearing in red ink the statement required
by Item 501(c)(8) of Regulation S-K (Reg. 229.501(c)(8)) as may be required by
the Representative. The Company consents to the use of such documents by Members
of the Underwriting Group and by selected dealers prior to the Effective Date of
the Registration Statement.
4.3 Delivery of Prospectus. The Company will deliver, without charge,
copies of the Prospectus at such addresses and in such quantities as may be
required by the Representative for the purposes contemplated by this Agreement
and shall deliver said printed copies of the Prospectus to Members of the
Underwriting Group and to selected dealers within one business day after the
Effective Date.
4.4 Further Amendments and Supplements. If during such period of time as in
the opinion of the Representative or its counsel the Prospectus is required to
be delivered under the Act, any event occurs or any event known to the Company
relating to or affecting the Company shall occur as a result of which the
Prospectus as then amended or supplemented would include an untrue statement of
a material fact, or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or if it is necessary at any time after the Effective Date to
amend or supplement the Prospectus to comply with the Act, the Company will
forthwith notify the Representative thereof and prepare and file with the
Commission such further amendment to the Registration Statement or supplemental
or amended Prospectus as may be required and furnish and deliver to the
Representative and to others whose names and addresses are designated by the
Representative, all at the cost of the Company, a reasonable number of copies of
the amended or supplemented Prospectus which as so amended or supplemented will
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the Prospectus not misleading in the
10
<PAGE>
light of the circumstances as of the date of such Prospectus, amendment, or
supplement, and which will comply in all respects with the Act; and in the event
the Representative is required to deliver a Prospectus beyond completion of its
participation in the public offering, upon request will prepare promptly such
Prospectus or Prospectuses as may be necessary to permit continued compliance
with the requirements of the Act.
4.5 Use of Prospectus. The Company authorizes the Members of the
Underwriting Group in connection with the distribution of the Units and all
selected dealers to whom any of the Units may be sold to use the Prospectus as
from time to time amended or supplemented, in connection with the offer and sale
of the Units and in accordance with the applicable provisions of the Act, the
Rules and Regulations and state Blue Sky or securities laws.
SECTION 5
COVENANTS OF THE COMPANY
The Company covenants and agrees with the Representative and other Members
of the Underwriting Group that:
5.1 Objection of Representative to Amendments or Supplements. After the
date hereof, the Company will not at any time, whether before or after the
Effective Date, file any amendment or supplement to the Registration Statement
or Prospectus unless and until a copy of such amendment or supplement has been
previously furnished to the Representative a reasonable period prior to the
proposed filing thereof, or to which the Representative or counsel for the
Representative have reasonably objected, in writing, on the ground that such
amendment or supplement is not in compliance with the Act or the Rules and
Regulations.
5.2 Company's Best Efforts to Cause Registration Statement to Become
Effective. The Company will use its best efforts to cause the Registration
Statement and any post-effective amendment subsequently filed, to become
effective as promptly as reasonably practicable and will promptly advise the
Representative, and will confirm such advice in writing (i) when the
Registration Statement shall become effective and when any amendment thereto
shall have become effective and when any amendment of or supplement to the
Prospectus shall be filed with the Commission, (ii) when the Commission shall
make a request or suggestion for any amendment to the Registration Statement or
the Prospectus or for additional information and the nature and substance
thereof, (iii) of the issuance by the Commission of an order suspending the
effectiveness of the Registration Statement pursuant to Section 8 of the Act or
of the initiation of any proceedings for that purpose, (iv) of the happening of
any event which in the judgment of the Company makes any material statement in
the Registration Statement or Prospectus untrue or which requires the making of
any changes in the Registration Statement or Prospectus in order to make the
statements therein not misleading, and (v) of the refusal to qualify or the
suspension of the qualification of the Units for offer or sale in any
jurisdiction, or of the institution of any proceedings for any of such purposes.
The Company will use every reasonable effort to prevent the issuance of any such
order or of any order preventing or suspending such use, to prevent any such
refusal to qualify or any such suspension, and to obtain as soon as possible a
lifting of any such order, the reversal of any such refusal and the termination
of any such suspension.
5.3 Preparation and Filing of Amendments and Supplements. The Company
agrees to prepare and file promptly with the Commission, upon request of the
Representative, such amendments or supplements to the Registration Statement or
Prospectus, in form satisfactory to counsel to the Company, as in the opinion of
counsel to the Representative and of counsel to the Company may be necessary in
connection with the offer and sale of the Units and will use its best efforts to
cause the same to become effective as promptly as possible.
11
<PAGE>
5.4 Blue Sky Qualification. It is understood and agreed by the Company and
the Representative that it shall be a condition of the Offering that the sale of
the Units be registered or otherwise qualified for offer and sale in those
states as may be reasonably requested by the Representative. The Company
specifically agrees to attempt to register or qualify the Offering in
California, Colorado, Florida, Illinois, Kansas, New Jersey, New York, North
Carolina, Texas and Wyoming. Copies of all applications for the registration or
qualification of the Units and other securities referenced herein and related
documents (except for the Registration Statement and Prospectus) will be filed
by Representative's Counsel with the various states and shall be supplied to the
Company's legal counsel, concurrently with their transmission to the various
states. The expense of such filings, including legal fees of Representatives's
Counsel, shall be promptly paid by the Company. The Company shall advance to
Representative's Counsel a retainer of $5,000, against which the legal fees of
Representative's Counsel may be billed. Copies of all comments and orders
received from the various states shall be immediately supplied to the Company's
legal counsel. Immediately prior to the distribution of the preliminary
Prospectuses to potential investors, and prior to the Effective Date,
Representative's Counsel shall provide a written memorandum of all states
wherein the preliminary Prospectus may be distributed and wherein the Offering
has been registered or qualified for sale, cancelled, withdrawn, denied or
exempt, the date of such event(s) and the number of Units registered or
qualified for sale in each such state. After settlement and closing, the
Representative may confirm the qualification of the Company's securities in
writing to the Company and the Company's counsel. Failure by the Company or
Company's counsel to refute such confirmation shall constitute an affirmative
statement by the same advising the Representative that such qualification in
fact has taken place.
5.5 Financial Statements. The Company at its own expense will prepare and
give and will continue to give such financial statements and other information
to and as may be required by the Commission, or the proper public bodies of the
states in which the Units and underlying securities may be registered or
qualified.
5.6 Reports and Financial Statements to the Representative. During the
period of three years from the Closing Date, the Company will deliver to the
Representative, copies of each annual report of the Company, and will deliver to
the Representative: (i) within 90 days after the close of each fiscal year of
the Company, a financial report of the Company and its subsidiaries, if any, on
a consolidated basis, and a similar financial report of all unconsolidated
subsidiaries, if any, all such reports to include a balance sheet as of the end
of the preceding fiscal year, a statement of operations, a statement of cash
flows and an analysis of shareholders' equity covering such fiscal year, and all
to be in reasonable detail and certified by independent public accountants for
the Company; (ii) copies of all other statements, documents, or other
information which the Company shall mail or otherwise make available to any
class of its security holders, or shall file with the Commission; and (iii) upon
request in writing from the Representative, furnish to the Representative such
other information as may reasonably be requested and which may be properly
disclosed to the Representative with reference to the property, business and
affairs of the Company and its subsidiaries, if any; provided such written
request includes an agreement to keep confidential any information which should
not be disclosed to the public.
The requirements of subparagraph (i) in the above paragraph will be
satisfied if the Company provides to the Representative copies of its Form 10-K,
Form 10-Q and Form 8-K in the form and at the time it is filed with the
Securities and Exchange Commission.
If the Company shall fail to furnish the Representative with financial
statements as herein provided, within the times specified herein, the
Representative, after giving reasonable notice of not less than 30 days, shall
have the right to have such financial statements prepared by independent public
accountants of its own choosing and the Company agrees to furnish such
independent public accountants such data and assistance and access to such
records as they may reasonably require to enable them to prepare such statements
and to pay their reasonable fees and expenses in preparing the same.
12
<PAGE>
5.7 Expenses Paid by the Company. The Company shall bear, whether or not
the transactions contemplated hereunder are consummated or the Registration
Statement is prevented from becoming effective or this Agreement is terminated,
all costs and expenses incident to the filing of the Registration Statement with
the NASD, the cost and legal counsel fees of qualification under state
securities laws (with such legal fees not to exceed $10,000 in total without
prior approval of the Company), the fees and disbursements of legal counsel and
accountants for the Company, the cost of preparing and printing the Registration
Statement, the cost of printing as many preliminary and final Prospectuses as
the Representative may deem necessary, the cost of providing the
Representative's Counsel with two bound volumes of the Registration Statement as
amended, including all exhibits, correspondence and other documentation relating
thereto, and all expenses incurred in connection with the holding of due
diligence meetings, including the cost of the meeting room, food and beverage,
and expenses incurred by Company representatives in attending a reasonable
number of such due diligence meetings (which shall include all expenses of
presentations as reasonably requested by the Representative) with the
Representatives' representatives, prospective dealers and their representatives
and others, the expenses of delivery of preliminary and final Prospectuses to
the Representatives and dealers (the final Prospectus shall be delivered no
later than the day following the Effective Date), and any other expenses
customarily paid by an issuer; provided, however, that any amounts paid to the
Representative as an expense allowance shall not exceed the amounts provided in
Section 3.4. Except as specified above, the Company shall not be required to pay
any fees or charges for attending, or any travel or lodging expenses incurred in
attending, due diligence meetings by representatives of the Representatives or
dealers.
5.8 Reports to Shareholders. The Company represents that its Common Stock
is registered under Section 12 of the Securities Exchange Act of 1934, as
amended ("1934 Act"), and that the Company has, to the best of its knowledge,
filed in a timely manner all reports and other documents required to be filed
pursuant to Sections 13, 14, or 15(d) during the period that the Company has
been required to file such reports and documents. The Company agrees that for so
long as the Company's Common Stock is registered under the 1934 Act, the Company
will hold an annual meeting of shareholders for the election of directors within
one hundred eighty (180) days after the end of each of the Company's fiscal
years. The Company shall provide the Company's shareholders with the audited
financial statements of the Company as of the end of the fiscal year just
completed prior thereto, such financial statements will be those required by the
1934 Act and will be included in an annual report meeting the requirements of
Rule 14c-3 under the 1934 Act, provide the Company's shareholders with quarterly
summary operating financial statements, and cause its Board of Directors to
establish and maintain an audit and compensation committee.
5.9 Section 11(a) Financials. The Company will make generally available to
its security holders and will deliver to the Representative, as soon as
practicable, an earnings statement (as to which no opinion need be rendered but
which will satisfy the provisions of Section 11(a) of the Act) covering a period
of at least 12 months beginning after the Effective Date. Compliance by the
Company with Rule 158 promulgated under the Act shall satisfy the requirements
of this Section 5.9.
5.10 Post-Effective Availability of Prospectus. Within the time during
which the Prospectus is required to be delivered under the Act, the Company will
comply, at its own expense, with all requirements imposed upon it by the Act, as
now or hereafter amended, by the Rules and Regulations, as from time to time may
be in force, and by any order of the Commission, so far as necessary to permit
the continuance of sales or dealings in the Units, the securities comprising the
Units and the exercise of the Warrants.
13
<PAGE>
5.11 Application of Proceeds. The Company will adopt procedures for the
stewardship of the net proceeds it receives from the sale of the Units and will
apply the net proceeds from the sale of the Units substantially in the manner
specifically set forth in the Registration Statement and Prospectus unless any
deviation from such application is in accordance with the Registration Statement
and occurs only after approval by the Board of Directors of the Company and then
only after the Board of Directors has obtained the written opinion of recognized
legal counsel well versed in the federal and state securities laws as to the
propriety of any such deviation.
5.12 Undertakings of Certain Shareholders. The Company will deliver to the
Representative, prior to the execution of this Agreement, the undertaking of
each officer and director that such persons shall not sell or otherwise dispose
of any portion of the shares of common stock owned directly, indirectly or
beneficially prior to the Effective Date for a period of one (1) year from the
Effective Date without the Representative's prior written consent.
5.13 Delivery of Documents. At the Closing, the Company will deliver to the
Representative true and correct copies of the articles of incorporation of the
Company and all amendments thereto, all such copies to be certified by the
Secretary of the Company; true and correct copies of the by-laws of the Company
and of the minutes of all meetings of the directors and shareholders of the
Company held prior to the Closing Date which in any way relate to the subject
matter of this Agreement.
5.14 Cooperation With Representative's Due Diligence. At all times prior to
the Closing Date, the Company will cooperate with the Representative in such
investigation as the Representative may make or cause to be made of all the
properties, management, business and operations of the Company in connection
with the purchase and public offering of the Units, and the Company will make
available to the Representative in connection therewith such information in its
possession as the Representative may reasonably request.
5.15 Appointment of Transfer Agent and Warrant Agent. The Company has
appointed *____________________, ____________________, as Transfer Agent for the
Units and component securities and Warrant Agent for the Warrants, subject to
the Closing. The Company will not change or terminate such appointment for a
period of three years from the Effective Date without first obtaining the
written consent of the Representative, which consent shall not be unreasonably
withheld.
5.16 Compliance With Conditions Precedent. The Company will use all
reasonable efforts to comply or cause to be complied with the conditions
precedent to the several obligations of the Members of the Underwriting Group in
Section 8 hereof.
5.17 Filing of Form SR. If required under the Act, the Company agrees to
file with the Commission all required reports on Form SR in accordance with the
provisions of Rule 463 promulgated under the Act and to provide a copy of such
reports to the Representative and its counsel.
5.18 Bound Volume. The Company shall supply to the Representative and the
Representative's counsel, at the Company's cost, two bound volumes each of all
of the public offering materials within a reasonable time after the closing, not
to exceed three months.
5.19 Listing in Moody's and Standard & Poor's. As soon as possible prior to
the Effective Date, the Company agrees to use its best efforts to have the
Company listed in Moody's Over-The-Counter Manual and Standard & Poor's Standard
Corporation Records, or if already listed, the Company agrees to use its best
efforts to maintain such listings.
14
<PAGE>
5.20 NASDAQ . The Company agrees to have the Units, Common Stock and
Warrants comprising the Units eligible for quotation on NASDAQ on the Effective
Date, on the Closing Date and on the Over-Allotment Closing Date and continuing
thereafter during the entire period that the Company is in compliance with
NASDAQ maintenance requirements. The NASDAQ symbols, other than for the Common
Stock, shall be mutually agreeable to the Company and the Representative.
5.21 Secondary Trading Qualification. The Company agrees to qualify the
Units, Common Stock and Warrants for secondary trading, as soon as legally
possible, for secondary trading in such states as are requested by the
Representative from time to time.
5.22 Right of Inspection. The Company agrees that for a period of three (3)
years after the Effective Date, the Representative, at the Representative's
expense, will have the right to have a person or persons selected by the
Representative review the books and records of the Company upon seven (7) days'
written notice and at reasonable times. Such person or persons will be required
to execute a confidentiality agreement which will, in part, prohibit disclosure
of information to any party except the Representative, which information shall
be held in confidence unless otherwise specifically agreed to by the Company in
writing.
5.23 Board Member. Immediately after the Closing, the Representative shall
have the right, subject to the approval of the majority of the Board of
Directors, to select one member of the Company's Board of Directors. The
director to be selected by the Representative shall serve until the next annual
meeting of the Company's shareholders. Thereafter, the Company will have such
member renominated for an additional two terms of office, and the Company's
officers and directors will agree to vote their shares to re-elect such member.
Additionally, the Company will solicit its shareholders to vote in favor of the
Representative's nominee.
5.24 Outside Directors, Committees, Executive Compensation. The Company
agrees to have at least two outside directors on the Effective Date of the
Registration Statement, and to cause such persons to be renominated as directors
for two additional one-year terms. The Company will form independent audit and
compensation committees which shall be comprised of three of the Company's
directors. Two of these directors will be independent directors who are not
officers of the Company.
5.25 Public Relations Advisors. The Company agrees to engage the service of
a public relations advisory firm, acceptable to the Underwriter, at least sixty
(60) days prior to the Effective Date and to retain the services of such firm
for at least one (1) year following the Effective Date.
SECTION 6
INDEMNIFICATION AND CONTRIBUTION
6.1 Indemnification By Company. The Company agrees to indemnify and hold
harmless the Representative and the other Members of the Underwriting Group (for
the purposes of this Section 6 collectively the "Underwriters") and each
officer, director, employee, representative, agent, surety, guarantor, and each
person who controls each of the Underwriters within the meaning of Section 15 of
the Act against any and all losses, claims, damages or liabilities, joint or
several, to which they or any of them may become subject under the Act, any
other statute, at common law, NASD requirements or otherwise and to reimburse
the persons indemnified above for any legal or other expenses (including the
cost of any investigation and preparation) incurred by them in connection with
any litigation, arbitration or any other proceeding (hereinafter referred to as
"litigation" in this Section 6), whether or not resulting in any liability, but
only insofar as such losses, claims, damages, liabilities and litigation arise
out of or are based upon this Agreement or any matter relating to the offer or
sale of the Units, including, but not limited to, any violation of any
registration requirements, any improper use of sales literature or any
15
<PAGE>
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereto or any application or other
document filed in order to qualify the Units under the securities laws of the
states where filings were made, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, all as of the date when the Registration
Statement or such amendment, as the case may be, becomes effective, or any
untrue statement or alleged untrue statement of a material fact contained in the
Prospectus (as amended or supplemented if the Company shall have filed with the
Commission any amendments thereof or supplements thereto), or the omission or
alleged omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading as of the date of the Prospectus or such amendment or
supplement; provided, however, that the indemnity agreement contained in this
Section 6.1 shall not apply to amounts paid in settlement of any such litigation
if such settlements are effected without the consent of the Company, nor shall
it apply to the Underwriters or any other person indemnified as provided above
in respect of any such losses, claims, damages, liabilities or actions arising
out of or based upon any such untrue statements or alleged untrue statement, or
any such omission or alleged omission, if such statement or omission was made in
reliance upon information peculiarly within the knowledge of the Underwriters
and furnished in writing to the Company by the Underwriters specifically for use
in connection with the preparation of the Registration Statement and Prospectus
or any such amendment or supplement thereto. This indemnity agreement is in
addition to any other liability which the Company may otherwise have to the
Underwriters or any other person indemnified as provided above. The Underwriters
or any other person indemnified as provided above agree within twenty days after
the receipt by them of written notice of the commencement of any action against
them in respect of which indemnity may be sought from the Company on account of
the indemnity agreement contained in this Section 6.1 to notify the Company in
writing of the commencement thereof. The failure of the Underwriters or any
other person indemnified as provided above so to notify the Company of any such
action shall relieve the Company from any liability which it may have to such
person on account of the indemnity agreement contained in this Section 6.1, but
shall not relieve the Company from any other liability which it may have to the
Underwriters or any person identified above. In case any such action shall be
brought against the Underwriters or any other person indemnified as provided
above and the Underwriters shall notify the Company of the commencement thereof,
the Company shall be entitled to participate in (and, to the extent that it
shall wish, to direct) the defense thereof at its own expense, but such defense
shall be conducted by counsel of recognized standing and reasonably satisfactory
to the Underwriters or any other person indemnified as provided above, defendant
or defendants in such litigation. The Company agrees to notify the Underwriters
promptly of commencement of any litigation against it or any of its officers or
directors, of which it may be advised, in connection with the issue and sale of
any of the Units or any securities included therein and to furnish to the
Underwriters, at their request, copies of all pleadings therein and permit the
Underwriters to be observers therein and apprise the Underwriters of all
developments therein, all at the Company's expense.
6.2 Indemnification By Underwriters. The Underwriters agree to indemnify
and hold harmless the Company, and each director, officer, employee and agent of
the Company and each person who controls the Company within the meaning of
Section 15 of the Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become subject
under the Act or any other statute or at common law and to reimburse persons
indemnified as above for any legal or other expenses (including the cost of any
investigation and preparation) incurred by them in connection with any
litigation, whether or not resulting in any liability, but only insofar as such
losses, claims, damages, liabilities and litigation arise out of or are based
upon any statement in or omission from the Registration Statement or any
amendment thereto, or the Prospectus (as amended or as supplemented, if amended
or supplemented as aforesaid) or any application or other document filed in any
state or jurisdiction in order to qualify the Units under the securities laws
thereof, if such statement or omission was made in reliance upon information
peculiarly within its knowledge and furnished in writing to the Company by the
16
<PAGE>
Underwriters on their behalf specifically for use in connection with the
preparation thereof or supplement thereto. This indemnity agreement is in
addition to any other liability which the Underwriters may otherwise have to the
Company and any other person indemnified as provided above. The Underwriters
shall not be liable for amounts paid in settlement of any such litigation if
such settlement was effected without the consent of the Underwriters. In case of
commencement of any action in respect of which indemnity may be sought from the
Underwriters on account of the indemnity agreement contained in this Section
6.2, each person agreed to be indemnified by the Underwriters shall have the
same obligation to notify the Underwriters as the Underwriters have toward the
Company in Section 6.1 above, subject to the same loss of indemnity in the event
such notice is not given, and the Underwriters shall have the same right to
participate in (and, to the extent that they shall wish, to direct) the defense
of such action at their own expense, but such defense shall be conducted by
counsel of recognized standing and satisfactory to the Company or any other
person indemnified as provided above. The Underwriters agree to notify the
Company promptly of the commencement of any litigation against the Underwriters
(and any other person indemnified as provided above), of which it may be
advised, in connection with the issue and sale of any of the securities of the
Company, and to furnish to the Company at its request copies of all pleadings
therein and apprise it of all the developments therein, all at the Underwriters'
expense, and permit the Company to be an observer therein.
6.3 Contribution. If the indemnification provided for in Sections 6.1 and
6.2 of this Agreement are, for any reason other than as specified in such
Sections, held by a court to be unavailable and the Company or any Member of the
Underwriting Group has been required to pay damages as a result of a
determination by a court, arbitration tribunal or any other person having
jurisdiction over any Member of the Underwriting Group that the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto contains an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, then the Company shall contribute to the
damage paid by the Member of the Underwriting Group and the Member of the
Underwriting Group shall contribute to the damages paid by the Company, but in
each case only to the extent that such damages arise out of or are based upon
such untrue statement or omission, (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Member of the Underwriting Group on the other from the offering of the Units or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect the relative
benefits referred to in clause (i) above but also the relative fault of the
Company and the Member of the Underwriting Group in connection with the
statements or omissions which resulted in such damages, as well as any other
relevant equitable considerations. The relative benefits received by the Company
and the Member of the Underwriting Group shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
unitemized expenses received by the Member of the Underwriting Group. The
relative fault shall be determined by reference to, among other things, whether
the untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the Company or the Member of the Underwriting
Group and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such untrue statement or omission. For
purposes of this Section 6.3, the term "damages" shall include any counsel fees
or other expenses reasonably incurred by the Company or the Member of the
Underwriting Group in connection with investigating or defending any action or
claim which is the subject of the contribution provisions of this Section 6.3.
Notwithstanding the provisions of this Section 6.3, no Member of the
Underwriting Group shall be required to contribute any amount in excess of the
amount by which the total price at which the Units underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Member of the Underwriting Group has otherwise been required
to pay by reason of any such untrue statements or omissions. No person adjudged
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
17
<PAGE>
such fraudulent misrepresentation. Under this Section 6.3, each Member of the
Underwriting Group's obligations to contribute are several in proportion to
their respective underwriting obligations and not joint.
The agreements contained in this Section 6 and the representations and
warranties of the Company set forth in this Underwriting Agreement shall remain
operative and in full force and effect, regardless of (a) any investigation made
by or on behalf of any Member of the Underwriting Group or any person
controlling any Member of the Underwriting Group or by or on behalf of the
Company, or any person controlling the Company, (b) acceptance of any Units and
payment therefor hereunder, and (c) any termination of any other provision of
this Underwriting Agreement. A successor of any Member of the Underwriting Group
or of the Company, or any director or officer thereof or any person controlling
any Member of the Underwriting Group or the Company, as the case may be, shall
be entitled to the benefits of the agreements contained in this Section 6.
SECTION 7
EFFECTIVENESS OF AGREEMENT
This Agreement shall become effective (i) at 10:00 a.m., Denver time, on
the first full business day after the Effective Date, or (ii) upon release by
the Representative of the Units for sale after the Effective Date, whichever
shall first occur. The Representative agrees to notify the Company immediately
after the Representative shall have taken any action, by release or otherwise,
whereby this Agreement shall have become effective. This Agreement shall,
nevertheless, become effective at such time earlier than the time specified
above, after the Effective Date, as the Representative may determine by notice
to the Company.
SECTION 8
CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS
The obligations of the Underwriting Group hereunder to purchase the Units
and to make payment to the Company hereunder on the Closing Date and on the
Over-Allotment Closing Date, if any, shall be subject to the accuracy, as of the
Closing Date and the Over-Allotment Closing Date, of each of the representations
and warranties on the part of the Company herein contained, to the performance
by the Company of all its agreements herein contained, to the fulfillment of or
compliance by the Company with all covenants and conditions hereof, and to the
following additional conditions:
8.1 Effectiveness of Registration Statement. The Registration Statement
shall have become effective and no order suspending the effectiveness of the
Registration Statement shall have been issued and no proceeding for that purpose
shall have been initiated or threatened by the Commission or be pending; any
request for additional information on the part of the Commission (to be included
in the Registration Statement or Prospectus or otherwise) shall have been
complied with to the satisfaction of the Commission; and neither the
Registration Statement or the Prospectus nor any amendment thereto shall have
been filed to which counsel to the Representative shall have reasonably objected
in writing or have not given their consent.
8.2 Accuracy of Registration Statement. The Representative shall not have
disclosed in writing to the Company that the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto contains an untrue
statement of a fact which, in the opinion of counsel to the Representative, is
material or omits to state a fact which, in the opinion of such counsel, is
material and is required to be stated therein, or is necessary to make the
statements therein not misleading.
8.3 Casualty and Other Calamity. The Company shall not have sustained any
loss on account of fire, explosion, flood, accident, calamity or any other
cause, of such character as materially adversely affects its business of
18
<PAGE>
property considered as an entire entity, whether or not such loss is covered by
insurance, and no officer or director of the Company shall have suffered any
injury, sickness or disability of a nature which would materially adversely
affect his or her ability to properly function as an officer or director of the
Company.
8.4 Litigation and Other Proceedings. Other than as disclosed in the
Registration Statement or Prospectus, there shall be no litigation instituted or
threatened against the Company and there shall be no proceeding instituted or
threatened against the Company before or by any federal or state commission,
regulatory body or administrative agency or other governmental body, domestic or
foreign, wherein an unfavorable ruling, decision or finding would materially
adversely affect the business, management, licenses, operations or financial
condition or income of the Company considered as an entity.
8.5 Lack of Material Change. Except as contemplated herein or as set forth
in the Registration Statement and Prospectus, during the period subsequent to
the date of the last audited balance sheet included in the Registration
Statement, the Company (a) shall have conducted its business in the usual and
ordinary manner as the same was being conducted on the date of the last audited
balance sheet included in the Registration Statement, and (b) except in the
ordinary course of its business, the Company shall not have incurred any
liabilities, claims or obligations (direct or contingent) or disposed of any of
its assets, or entered into any material transaction or suffered or experienced
any substantially adverse change in its condition, financial or otherwise. The
capital stock and surplus accounts of the Company shall be substantially the
same as at the date of the last audited balance sheet included in the
Registration Statement, without considering the proceeds from the sale of the
Units, other than as may be set forth in the Prospectus, and except as the
surplus reflects the result of continued losses from operations consistent with
the trend established by prior periods.
8.6 Review By and Opinion of Representative's Counsel. The authorization of
the Units, the Common Stock, the Warrants, the Warrant Shares, the Underwriter's
Unit Purchase Warrants and the Common Stock and Warrants issuable upon the
exercise of the Underwriter's Unit Purchase Warrants, the Registration
Statement, the Prospectus and all corporate proceedings and other legal matters
incident thereto and to this Agreement shall be reasonably satisfactory in all
respects to counsel to the Representative.
8.7 Opinion of Counsel. The Company shall have furnished to the
Representative an opinion, dated the Effective Date, the Closing Date and, if
applicable, the Over-Allotment Closing Date, addressed to the Representative,
from Bearman Talesnick & Clowdus, P.C., 1200 17th Street, Suite 2600, Denver,
Colorado, 80202-5826, counsel to the Company, to the effect that based upon a
review by them of the Registration Statement, Prospectus, the Company's
certificate of incorporation, by-laws, and relevant corporate proceedings and
contracts, and examination of such laws they deem necessary and such other
investigation by such counsel as they deem necessary to express such opinion:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Wyoming, and has the corporate power
and authority to own its properties and to carry on its
business as described in the Registration Statement and
Prospectus.
(ii) The Company is duly qualified and in good standing
as a foreign corporation authorized to do business in all
jurisdictions in which the character of the properties owned
or held under lease or the nature of the business conducted
requires such qualification and in which the failure to
qualify would have a materially adverse effect on the
business of the Company.
19
<PAGE>
(iii) The authorized and outstanding capital stock of
the Company is as set forth in the Registration Statement
and Prospectus; the outstanding common stock of the Company,
the Units, the Common Stock, the Warrants, and the
Underwriter's Unit Purchase Warrants conform to the
statements concerning them in the Registration Statement and
Prospectus; the outstanding common stock of the Company
contains no preemptive rights; the Units and Underwriter's
Unit Purchase Warrants have been, and the Warrant Shares
issuable upon exercise of the Warrants, and the securities
issuable upon exercise of the Underwriter's Unit Purchase
Warrants will be, duly and validly authorized and, upon
issuance thereof and payment therefor in accordance with
this Agreement, validly issued, fully paid and
nonassessable, and will not be subject to the preemptive
rights of any shareholder of the Company.
(iv) The Warrants, the Underwriter's Unit Purchase
Warrants and the Warrants comprising part of the
Underwriter's Unit Purchase Warrants have been duly and
validly authorized and are valid and binding obligations of
the Company enforceable in accordance with their respective
terms.
(v) A sufficient number of shares of common stock has
been duly reserved for issuance upon the exercise of the
Warrants, the Underwriter's Unit Purchase Warrants and the
Warrants issuable upon exercise of the Underwriter's Unit
Purchase Warrants.
(vi) To such counsel's knowledge, no consents,
approvals, authorizations or orders of agencies, officers or
other regulatory authorities are required for the valid
authorization, issuance or sale of the Units, the Common
Stock, the Warrants and the Underwriter's Unit Purchase
Warrants contemplated by this Agreement, except as such have
been obtained and are in full force and effect under the Act
and such as may be required under applicable state
securities laws in connection with the purchase and
distribution of such securities by the Representative and
the Underwriting Group and the approval of the underwriting
terms and compensation by the NASD.
(vii) The issuance and sale of the Units, the
Underwriter's Unit Purchase Warrants, and the consummation
of the transactions herein contemplated and compliance with
the terms of this Agreement will not conflict with or result
in a breach of any of the terms, conditions, or provisions
of or constitute a default under the certificate of
incorporation, or by-laws of the Company, or, to their
knowledge, any note, indenture, mortgage, deed of trust, or
other agreement or instrument known to such counsel without
any specific investigation to which the Company is a party
or by which the Company or any of its property is bound or
any existing law (provided this paragraph shall not relate
to federal or state securities laws), order, rule,
regulation, writ, injunction, or decree known to such
counsel of any government, governmental instrumentality,
agency, body, arbitration tribunal, or court, domestic or
foreign, having jurisdiction over the Company or its
property.
(viii) On the basis of a reasonable inquiry by such
counsel, including his participation in conferences with
representatives of the Company and its accountants at which
the contents of the Registration Statement and the
Prospectus and related matters were discussed, and without
expressing any opinion as to the financial statements or
other financial data contained therein: (A) nothing has come
to such counsel's attention which leads them to believe that
the Registration Statement and the Prospectus, as amended or
supplemented by any amendments or supplements thereto made
by the Company prior to the Closing Date, do not comply as
to form in all material respects with the requirements of
the Act; (B) nothing has come to their attention which leads
them to believe that the Registration Statement or the
Prospectus, as amended or supplemented by any such
amendments or supplements thereto, contains any untrue
statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the
20
<PAGE>
statements therein not misleading; (C) they do not know of
any contract or other document required to be described in
or filed as an exhibit to the Registration Statement which
is not so described or filed; and (D) the Registration
Statement has become effective under the Act, and, to the
best of their knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been instituted or
are pending or contemplated by the Commission.
(ix) This Agreement has been duly authorized and
executed by the Company and is a valid and binding agreement
of the Company.
(x) The Company is not in default of any of the
contracts, licenses, leases or agreements to which it is a
party, and the offering of the Units, the Common Stock, the
Warrants and the Underwriter's Unit Purchase Warrants will
not cause the Company to become in default of any of its
contracts, licenses, leases or agreements.
(xi) The Company is not currently offering any
securities for sale except as described in the Registration
Statement.
(xii) Counsel has no knowledge of any promoter,
affiliate, parent or subsidiaries of the Company except as
are described in the Registration Statement and Prospectus.
(xiii) To the knowledge of counsel, and without making
any statement as to title, the Company owns all properties
described in the Registration Statement as being owned by
it; the properties are free and clear of all liens, charges,
encumbrances or restrictions except as described in the
Registration Statement; all of the leases, subleases and
other agreements under which the Company holds its
properties are in full force and effect; the Company is not
in default under any of the material terms or provisions of
any of the leases, subleases or other agreements; and there
are no claims against the Company concerning its rights
under the leases, subleases and other agreements and
concerning its right to continued possession of its
properties.
(xiv) To the knowledge of counsel, the Company
possesses the required licenses, certificates,
authorizations or permits issued by the appropriate federal,
state and local regulatory authorities necessary to conduct
its business as described in the Registration Statement and
to retain possession of its properties. Counsel is unaware
of any notice of any proceeding relating to the revocation
or modification of any of these licenses, certificates,
authorizations or permits having been received by the
Company.
(xv) To the knowledge of counsel, the Company has paid
all taxes which are shown as due and owing on the financial
statements included in the Registration Statement and
Prospectus.
(xvi) The Units, Common Stock and Warrants of the
Company are qualified for trading on the NASDAQ system upon
completion of the distribution of the Units by the
respective participant.
As to all factual matters including without limitation the issuance of
stock and warrant certificates and receipt of payment therefor, the states in
which the Company transacts business, the adoption of resolutions reflected by
the Company's minute book and the like, such counsel may rely on the certificate
of an appropriate officer of the Company. Counsel's opinion as to the validity
and enforceability of any and all contracts and agreements referenced herein may
exclude any opinion as to the validity or enforceability of any indemnification
or contribution provisions thereof, or as the validity or enforceability of any
such contract or agreement may be limited by bankruptcy or other laws relating
to or affecting creditors' rights generally and by equitable principles.
21
<PAGE>
8.8.1 Accountant's Letter. The Representative shall
have received letters addressed to it dated the Effective
Date, the Closing Date and, if applicable, the
Over-Allotment Closing Date, respectively, and a draft of
such letter at least five days prior to the Effective Date,
the Closing Date and, if applicable, the Over-Allotment
Closing Date, from *____________________, independent public
accountants for the Company, stating that (i) with respect
to the Company they are independent public accountants
within the meaning of the Act and the applicable published
Rules and Regulations thereunder and the response to Item
509 of Regulation S-K as reflected by the Registration
Statement is correct insofar as it relates to them; (ii) in
their opinion, the financial statements examined by them of
the Company at all dates and for all periods referred to in
their opinion and included in the Registration Statement and
Prospectus, comply in all material respects with the
applicable accounting requirements of the Act and the
published Rules and Regulations thereunder with respect to
registration statements on Form SB-2; (iii) on the basis of
certain indicated procedures (but not an examination in
accordance with generally accepted accounting principles),
including a reading of the latest available interim
unaudited financial statements of the Company, whether or
not appearing in the Prospectus, inquiries of the officers
of the Company or other persons responsible for its
financial and accounting matters regarding the specific
items for which representations are requested below and a
reading of the minute books of the Company, nothing has come
to their attention which would cause them to believe that
during the period from the last audited balance sheet
included in the Registration Statement to a specified date
not more than five days prior to the date of such letter (a)
there has been any change in the capital stock or other
securities of the Company or any payment or declaration of
any dividend or other distribution in respect thereof or
exchange therefor other than as set forth in or contemplated
by the Registration Statement or Prospectus; (b) there have
been any material decreases in net current assets or net
assets as compared with amounts shown in the last audited
balance sheet included in the Prospectus so as to make said
financial statements misleading other than as set forth in
or contemplated by the Registration Statement or Prospectus;
and (c) on the basis of the indicated procedures and
discussions referred to in clause (iii) above, nothing has
come to their attention which, in their judgment, would
cause them to believe or indicate that (1) the unaudited
financial statements and schedules set forth in the
Registration Statement and Prospectus do not present fairly
the financial position and results of the Company, for the
periods indicated, in conformity with the generally accepted
accounting principles applied on a consistent basis with the
audited financial statements, and (2) the dollar amounts,
percentages and other financial information set forth in the
Registration Statement and Prospectus under the captions
"Summary", "Risk Factors", and "Dilution", are not in
agreement with the Company's general ledger, financial
records or computations made by the Company therefrom.
8.8.2 Conformed Copies of Accountant's Letter. The
Representative shall be furnished without charge, in
addition to the original signed copies, such number of
signed or photostatic or conformed copies of such letters as
the Representative shall reasonably request.
8.9 Officer's Certificate. The Company shall have furnished to the
Representative certificates, each signed by the President and Chief Financial
Officer of the Company, one dated as of the Effective Date, one dated as of the
Closing Date, and, if applicable, one dated as of the Over-Allotment Closing
Date, to the effect that:
(i) The representations and warranties of the Company
in this Agreement are true and correct at and as of the date
of the certificate, and the Company has complied with all
22
<PAGE>
the agreements and has satisfied all the conditions on its
part to be performed or satisfied at or prior to the date of
the certificate.
(ii) The Registration Statement has become effective
and no order suspending the effectiveness of the
Registration Statement has been issued and to the best of
the knowledge of the respective signers, no proceeding for
that purpose has been initiated or is threatened by the
Commission.
(iii) The respective signers have each carefully
examined the Registration Statement and Prospectus and any
amendments and supplements thereto, and to the best of their
knowledge the Registration Statement and the Prospectus and
any amendments and supplements thereto contain all
statements required to be stated therein, and all statements
contained therein are true and correct, and neither the
Registration Statement nor Prospectus nor any amendment or
supplement thereto includes any untrue statement of a
material fact or omits to state any material fact required
to be stated therein or necessary to make the statements
therein not misleading and, since the Effective Date of the
Registration Statement, there has occurred no event required
to be set forth in an amended or a supplemented Prospectus
which has not been so set forth.
(iv) Except as set forth in the Registration Statement
and Prospectus since the respective dates of the periods for
which information is given in the Registration Statement and
Prospectus and prior to the date of the certificate, (a)
there has not been any substantially adverse change,
financial or otherwise, in the affairs or condition of the
Company, and (b) the Company has not incurred any material
liabilities, direct or contingent, or entered into any
material transactions, otherwise than in the ordinary course
of business.
(v) Subsequent to the respective dates as of which
information is given in the Registration Statement and
Prospectus, no dividends or distribution whatever have been
declared and/or paid on or with respect to the common stock
of the Company.
8.10 Tender of Delivery of Securities. All of the Units being offered by
the Company and the Underwriter's Unit Purchase Warrants being purchased from
the Company shall be tendered for delivery in accordance with the terms and
provisions of this Agreement.
8.11 Blue-Sky Registration or Qualification. The Units shall be registered
or qualified in such states as the Representative and the Company may agree
pursuant to Section 5.4, and each such registration or qualification shall be in
effect and not subject to any stop order or other proceeding on the Closing Date
or the Over-Allotment Closing Date. On the Effective Date of the Registration
Statement, on the Closing Date and, if applicable, the Over-Allotment Closing
Date, the Representative shall receive from counsel for the Company, written
information which contains the following:
(i) the names of the states in which applications to
register or qualify the Units, the Common Stock, the
Warrants and the Warrant Shares have been filed;
(ii) the status of such registrations or qualifications
in such states as of the date of such letter;
(iii) a list containing the name of each such state in
which the Units, the Common Stock, the Warrants and the
Warrant Shares may be legally offered and sold by a dealer
licensed in such state and the number of each which may be
legally offered and sold in each such state as of the date
of such letter.
23
<PAGE>
(iv) with respect to the written information dated on
the Effective Date, a representation that such counsel will
continuously update such written opinion if any material
changes occur, of which counsel received actual notice, in
the information provided therein between the Effective Date
and the Closing Date and, if applicable, Over-Allotment
Closing Date;
(v) the names of the states in which the offer and sale
of the Units is exempt from registration or qualification;
and
(vi) a statement that the Members of the Underwriting
Group and selected dealers in the offering may rely upon the
information contained therein.
8.12 Approval of Representative's Counsel. All opinions, letters,
certificates and evidence mentioned above or elsewhere in this Agreement shall
be deemed to be in compliance with the provisions hereof only if they are in
form and substance satisfactory to counsel to the Representative, whose approval
shall not be unreasonably withheld. The suggested form of such documents shall
be provided to the counsel for the Representative at least three business days
before the Closing Date. The Representative's counsel will provide a written
memorandum stating such closing documents which it deems necessary for its
review.
8.13 Officers' Certificate as a Company Representative. Any certificate
signed by an officer of the Company and delivered to the Representative or
counsel for the Representative shall be deemed a representation and warranty by
the Company to the Representative as to the statements made therein.
SECTION 9
TERMINATION
9.1 Termination Because of Noncompliance. This Agreement may be terminated
in its entirety by the Representative by notice to the Company prior to its
effectiveness or in the event that the Company shall have failed or been unable
to comply with any of the terms, conditions or provisions of this Agreement on
the part of the Company to be performed, complied with or fulfilled (including
but not limited to those specified in Sections 2, 3, 4, 5, and 8 hereof) within
the respective times herein provided for, unless compliance therewith or
performance or satisfaction thereof shall have been expressly waived by the
Representative in writing.
9.2 Other Grounds for Termination by Representative. This Agreement may be
terminated by the Representative by notice to the Company at any time if, in the
sole judgment of the Representative, payment for and delivery of the Units is
rendered impracticable or inadvisable because of:
(a) Material adverse changes in the Company's business,
business prospects, licenses, management, earnings,
properties or conditions, financial or otherwise;
(b) Any action, suit or proceedings, threatened or
pending, at law or equity against the Company, or by any
federal, state or other commissions, board or agency wherein
any unfavorable result or decision could materially
adversely affect the business, business prospects, licenses,
properties, financial condition or income or earnings of the
Company;
(c) Additional material governmental restrictions not
in force and effect on the date hereof shall have been
imposed upon the trading in securities generally, or new
offering or trading restrictions shall have been generally
established by a registered securities exchange, Commission,
NASD or other applicable regulatory authority, or trading in
securities generally on
24
<PAGE>
any such exchange, NASDAQ or otherwise, shall have been
suspended, or a general moratorium shall have been
established by federal or state authorities;
(d) Substantial and material changes in the condition
of the market beyond normal fluctuations such that it would
be undesirable, impracticable or inadvisable in the judgment
of the Representative to proceed with this Agreement or with
the public offering of the Units;
(e) Any outbreak or escalation of major hostilities in
which the United States is involved, any declaration of war
by Congress or any other substantial national or
international calamity or emergency if, in the judgment of
the Representative, the effect of any such outbreak,
escalation, declaration, calamity or emergency makes it
impractical or inadvisable to proceed with completion of the
sale of and payment for the Units; or
(f) Any suspension of trading in the securities of the
Company in the over-the-counter market or the interruption
or termination of quotations of any security of the Company
on the NASDAQ System.
9.3 Effect of Termination Hereunder. Any termination of this Agreement
pursuant to this Section 9 shall be without liability of any character
(including, but not limited to, loss of anticipated profits or consequential
damages) on the part of any party hereto, except that the Company shall remain
obligated to pay the costs and expenses provided to be paid by it specified in
Sections 3.4 and 5.7; and the Company and the Underwriting Group shall be
obligated to pay, respectively, all losses, claims, damages or liabilities,
joint or several, under Section 6.1 in the case of the Company and Section 6.2
in the case of the Underwriting Group.
SECTION 10
REPRESENTATIVE'S REPRESENTATIONS AND WARRANTIES
The Representative represents and warrants to and agrees with the Company
that:
10.1 Registration as Broker-Dealer and Member of NASD. The Representative
is registered as a broker-dealer with the Securities and Exchange Commission and
is registered as a securities broker-dealer in all states in which it will sell
Units and is a member in good standing of the National Association of Securities
Dealers, Inc.
10.2 No Pending Proceedings. There is not now pending or threatened against
the Representative any action or proceeding of which it has been advised, either
in any court of competent jurisdiction, before the Commission or any state
securities regulatory authority concerning activities as a broker or dealer
which are foreseen as affecting the Representative's capacity to complete the
terms of this Agreement.
10.3 Company's Right to Terminate. In the event any action or proceeding of
the type referred to in Section 10.2 above shall be instituted against the
Representative at any time prior to the Effective Date hereunder, or in the
event there shall be filed by or against the Representative in any court
pursuant to any federal, state, local or municipal statute, a petition in
bankruptcy or insolvency or for reorganization or for the appointment of a
receiver or trustee of its assets or if it makes an assignment for the benefit
of creditors, the Company shall have the right on three days' written notice to
the Representative to terminate this Agreement without any liability to the
Representative of any kind except for the payment of all expenses as provided
herein.
25
<PAGE>
10.4 Representative's Covenants. The Representative covenants and agrees
with the Company that (i) it will not offer or sell the Units in any state or
other jurisdiction where it has not been advised in writing that the Units are
qualified for the offer and sale therein or exempt from such requirements; (ii)
it will not make any representation to any person in connection with the offer
and sale of the Units covered hereby except as set forth in the Registration
Statement or as authorized in writing by the Company; and (iii) it will comply
in good faith with all laws, rules and regulations applicable to the
distribution of the securities, including the Rules of Fair Practice of the
National Association of Securities Dealers, Inc.
SECTION 11
NOTICE
Except as otherwise expressly provided in this Agreement:
11.1 Notice to the Company. Whenever notice is required by the provisions
of this Underwriting Agreement to be given to the Company, such notice shall be
in writing addressed to the Company as follows:
Double Eagle Petroleum and Mining Co.
Attn: Dr. Richard B. Laudon, Chairman
and Stephen H. Hollis, President
777 Overland Trail
Casper, Wyoming 82602
with a copy to:
Bearman Talesnick & Clowdus, P.C.
Attn: Alan L. Talesnick, Esq.
1200 17th Street, Suite 2600
Denver, Colorado 80202-5427
11.2 Notice to the Representative. Whenever notice is required by the
provisions of this Agreement to be given to the Representative, such notice
shall be given in writing addressed to the Representative as follows:
Rocky Mountain Securities & Investments, Inc.
Attn: S. James Horning, President
920 Hudson's Bay Centre
1600 Stout Street
Denver, Colorado 80202-3134
with a copy to:
Krys Boyle Golz Freedman & Scott, P.C.
Attn: Thomas E. Boyle, Esq.
600 17th Street, Suite 2700-S
Denver, Colorado 80202-5427
26
<PAGE>
11.3 Effective Date of Notices. Such notices shall be effective the date
actually received, three days from the day of mailing, or on the date of
delivery set forth on the receipt if the notice is sent by registered mail or
any expedited delivery service.
SECTION 12
MISCELLANEOUS
12.1 Benefit. This Agreement is made solely for the benefit of the
Representative, the other Members of the Underwriting Group, the Company, their
respective officers, directors and controlling persons referred to in Section 15
of the Act and such other persons as are identified in this Agreement, and their
respective successors and assigns, and no other person shall acquire or have any
right under or by virtue of this Agreement. The term "successor" or the term
"successors and assigns" as used in this Agreement shall not include any
purchasers, as such, of any of the Units.
12.2 Survival. The respective indemnities, agreements, representations,
warranties, covenants and other statements of the Company or its officers and
the Representative or the Members of the Underwriting Group as set forth in or
made pursuant to this Agreement and the indemnity agreements contained in
Section 6 hereof of the Company and the Underwriters (as defined in Section 6)
shall survive and remain in full force and effect, regardless of (i) any
investigation made by or on behalf of the Company or the Underwriters or any
such officer or director thereof or any controlling person of the Company or of
the Underwriters, (ii) delivery of or payment for the Units, and (iii) the
Closing Date and Over-Allotment Closing Date, and any successor of the Company
and the Underwriters or any controlling person, officer or director thereof, as
the case may be, shall be entitled to the benefits hereof.
12.3 Governing Law. The validity, interpretation and construction of this
Agreement and of each part hereof will be governed by the laws of the State of
Colorado.
12.4 Entire Agreement. This Agreement contains the entire agreement and
understanding between the parties hereto, and supersedes all agreements and
understandings including, but not limited to, the Letter of Intent dated April
4, 1996 which was understood and accepted by the Company on April 8, 1996.
12.5 Representative's Information. The statements with respect to the
public offering of the Units on the inside and outside of both the front and
back cover pages of the Prospectus and under the caption "Underwriting" in the
Prospectus constitute the written information furnished by or on behalf of the
Representative referred to in Section 2.2 hereof, in Section 6.1 hereof and
Section 6.2 hereof.
12.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be deemed an original and all of which together
will constitute one and the same instrument.
27
<PAGE>
Please confirm that the foregoing correctly sets forth the Agreement
between you and the Company.
Very truly yours,
DOUBLE EAGLE PETROLEUM AND MINING CO.
ATTEST:
By By
-------------------------------------- ---------------------------------
, Secretary Stephen H. Hollis, President
By
--------------------------------------
Dr. Richard B. Laudon, Chairman
WE HEREBY CONFIRM AS OF THE DATE HEREOF THAT THE ABOVE SETS FORTH THE
AGREEMENT BETWEEN THE COMPANY AND US.
ROCKY MOUNTAIN SECURITIES &
INVESTMENTS, INC.
(for itself and as Representative of
the several Underwriters names in
Schedule I hereto)
By
--------------------------------------
S. James Horning, President
28
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING CO.
(A Wyoming Corporation)
SCHEDULE I
This Schedule sets forth the name of each Underwriter referred to in the
Underwriting Agreement and the number of Units to be purchased by each
Underwriter.
Number
Name of Units
---- --------
----------
Total
==========
29
ARTICLES OF INCORPORATION
OF
DOUBLE EAGLE PETROLEUM AND MINING CO.
The undersigned natural person of the age of twenty-one years or more,
acting as an incorporator of a corporation under the Wyoming Business
Corporation Act, adopts the following Articles of Incorporation for such
corporation.
FIRST: The name of the corporation is DOUBLE EAGLE PETROLEUM AND MINING CO.
SECOND: The period of its duration is perpetual.
THIRD: The purpose for which this corporation is organized is to engage in
the petroleum and mining business, to engage in all other activities related to
such business and to engage in and do any lawful act concerning any or all
lawful business for which corporations may be organized under the laws of
Wyoming, now or hereafter in effect.
FOURTH: The aggregate number of shares which the corporation shall have
authority to issue is 50,000,000, each share to have a part value of 1(cent).
FIFTH: Cumulative voting of shares of stock is authorized.
SIXTH: The corporation will not commence business until consideration of
the value of at least $500 has been received for the issuance of shares.
SEVENTH: Shareholders shall not have pre-emptive rights to acquire
additional or treasury shares of the corporation. All lawful restrictions on the
sale or other disposition of shares may be placed upon all or a portion or
portions of the certificates evidencing the corporation's shares. No shareholder
or subscriber to the capital stock of the corporation shall be under any
obligation to the corporation or its creditors with respect to such stock other
than the obligation to pay the corporation the full consideration for which
stock was issued or is to be issued.
EIGHTH: The address of the initial registered office is 102 Rivercross Rd.,
Casper, Wyoming and the name of its initial registered agent at such address is
Richard B. Laudon.
NINTH: The address of the principal place of business is 102 Rivercross
Rd., Casper, Wyoming 82601.
TENTH: The number of directors constituting the initial Board of Directors
of the corporation is six, and the names of the persons who are to serve as
Directors until the first annual meeting of shareholders or until their
successors are elected and qualified are: Richard B. Laudon, John A. Masek, Earl
T. Hegna, John R. Kerns, James P. Gillum, and Robert E. Hammond. The number of
Directors to be elected at the annual meeting of shareholders or at a special
meeting called for the election of Directors shall be not less than three nor
more than nine, the exact number to be fixed by the Bylaws.
<PAGE>
ELEVENTH: The name and address of the sole incorporator is George W.
Hopper, 560 Denver Club Building, Denver, Colorado 80202.
TWELFTH: No contracts or other transactions between the corporation and any
other corporation, whether or not a majority of the shares of the capital stock
of such other corporation is owned by this corporation, and no act of this
corporation shall be in any way affected or invalidated by the fact that any of
the directors, officers or members of the management of this corporation are
pecuniarily or otherwise interested in or are directors, officers or members of
management of such other corporation. Any director, officer or other member of
management of this corporation individually, or any firm of which such director,
officer or member of management may be a member, may be a party to, or may be
pecuniarily or otherwise interested in, any contract or transaction of this
corporation, provided, however, that the fact that he or such firm is so
interested shall be disclosed or shall have been known to the Board of Directors
of this corporation or a majority thereof; and any director of this corporation
who is also a director, officer or member of management of such other
corporation, or who is so interested, may be counted in determining the
existence of a quorum at any meeting of the Board of Directors of this
corporation that shall authorize such contract or transaction, and may vote
thereat to authorize such contract or transaction, with like force and effect as
if he were not such director, officer or member of management of such other
corporation or not so interested.
THIRTEENTH: The corporation shall indemnify each director and each officer,
his heirs, executors and administrators, against expenses reasonably incurred or
liability incurred by him in connection with any action, suit or proceeding to
which he may be made a party by reason of his being or having been a director or
officer of the corporation, except in relation to matters as to which he shall
be finally adjudged in such action, suit or proceeding to be liable for fraud or
misconduct. In the event of a settlement before or after action or suit,
indemnification shall be provided only in connection with such matters covered
by the settlement as to which the corporation is advised by counsel that the
person to be indemnified was not guilty of such fraud or misconduct. The
foregoing right of indemnification shall not exclude other rights to which he
may be entitled.
FOURTEENTH: The officers, directors, and other members of management of
this corporation shall be subject to the doctrine of corporate opportunities
only insofar as it applies to business opportunities in which this corporation
has expressed an interest as determined from time to time by the corporation's
Board of Directors as evidenced by resolutions appearing in the corporation's
Minutes. When such areas of interest are delineated, all such business
opportunities within such ares of interest which come to the attention of the
officers, directors and other members of management of this corporation shall be
disclosed promptly to this corporation and made available to it. The Board of
Directors may reject any business opportunity presented to it and thereafter an
officer, director or other member of management may avail himself of such
opportunity. Until such time as this corporation, through its Board of
Directors, has designated an area of interest, the officers, directors and other
members of management of this corporation shall be free to engage in such areas
of interest on their own and this doctrine shall not limit the rights of any
officer, director or other member of management of this corporation to continue
a business existing prior to the time that such area of interest is designated
by this corporation. This provision shall not be construed to release any
employee of the corporation (other than an officer, director or member of
management) from any duties which he may have to the corporation.
FIFTEENTH: The Board of Directors of this corporation is authorized to
adopt, confirm, ratify, alter, amend, rescind, and repeal Bylaws or any portion
thereof from time to time.
-2-
<PAGE>
Dated: January 12, 1972.
/s/ George W. Hopper
------------------------------
George W. Hopper
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
I, Donald S. Molen, a Notary Public, hereby certify that on January 12,
1972 personally appeared before me George W. Hopper who being by me first duly
sworn declared that he is the person who signed the foregoing document as
incorporator, and that the statements therein contained are true.
IN WITNESS WHEREOF I have hereunto set my hand and seal on January 12,
1972.
My commission expires: April 20, 1972.
/s/ Donald S. Molen
-------------------------------
Notary Public
-3-
ARTICLES OF AMENDMENT
OF
DOUBLE EAGLE PETROLEUM AND MINING CO.
Pursuant to the provisions of the Wyoming Business Corporation Act the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is DOUBLE EAGLE PETROLEUM AND MINING CO.
SECOND: The following amendment of the Articles of Incorporation was
adopted by the shareholders of the corporation on February 2, 1984, in the
manner prescribed by the Wyoming Business Corporation Act:
FOURTH: The aggregate number of shares
which the corporation shall have
authority to issue is 5,000,000, each
share to have a part value of $.10.
THIRD: The number of shares of the corporation outstanding at the time of
such adoption was 10,006,147; and the number of shares entitled to vote thereon
was 10,006,147.
FOURTH: The designation and number of outstanding shares of each class
entitled to vote thereon as a class were as follows: None.
FIFTH: The number of shares voted for such amendment was 6,836,145; and the
number of shares voted against such amendment was 1,036,665.
SIXTH: The number of shares of each class entitled to vote thereon as a
class voted for and against such amendment, respectively, was: None.
SEVENTH: The manner, if not set forth in such amendment, in which any
exchange, reclassification, or cancellation of issued shares provided for in the
amendment shall be effected, is as follows: No change.
EIGHTH: The manner in which such amendment effects a change in the amount
of stated capital, and the amount of stated capital as changed by such
amendment, are as follows: No change.
Dated February 24, 1984
DOUBLE EAGLE PETROLEUM AND MINING CO.
By: /s/ Richard B. Laudon
--------------------------------
Its President
<PAGE>
and /s/ James P. Gillum
----------------------------------
Its Secretary
VERIFICATION
STATE OF WYOMING )
) SS.
COUNTY OF NATRONA )
I, Carol A. Osborne, a notary public, do hereby certify that on this
24th day of February, 1984, personally appeared before me Richard B. Laudon,
who, being by me first duly sworn, declared that he is the President of Double
Eagle Petroleum And Mining Co., that he signed the foregoing document as
President of the corporation, and that the statements therein contained are
true.
/s/ Carol A. Osborne
----------------------------------
Notary Public
My Commission Expires: April 9, 1985
-2-
ARTICLES OF AMENDMENT
(BY SHAREHOLDERS)
1. The name of the corporation is Double Eagle Petroleum And Mining Co.
2. Article 4 is amended as follows: "to increase the number of authorized
shares to 10,000,000.
3. The amendment was adopted on June 20, 1996, by the shareholders.
4. The designation, number of outstanding shares, number of votes entitled to
be case by each voting group entitled to vote separately on the amendment:
2,712,401, and the number of votes of each voting group indisputably
represented at the meeting: 2,347,261.
5. Either the total number of votes cast for and against the amendment by each
voting group entitled to vote separately on the amendment OR the total
number of undisputed votes cast for the amendment by each voting group:
2,314,881.
6. The number of votes cast for the amendment by each voting group was
sufficient for approval by that voting group.
7. If the amendment provides for an exchange, reclassification, or
cancellation of issued shares, provisions for implementing the amendment if
not contained in the amendment itself:
Not Applicable
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Date: July 8, 1996
Signed: /s/ Stephen H. Hollis
------------------------
Stephen H. Hollis
Title: President
------------------------
BYLAWS
OF
DOUBLE EAGLE PETROLEUM AND MINING CO.
OFFICES
-------
Section 1. The principal offices of the corporation in the State of Wyoming
shall be located at 102 Rivercross Rd., Casper, Wyoming 82601. The corporation
may have such other offices, either within or without the State of Wyoming, as
the Board of Directors may designate or as the business of the corporation may
require from time to time.
SHAREHOLDERS
------------
Section 2. Annual Meetings. The annual meeting of the shareholders shall be
held during the months of November, December or January of each year at such
time and place as the President, Vice President or Secretary shall designate,
for the purpose of electing Directors and for the transaction of such other
business as may come before the meeting.
Section 3. Special Meetings. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
the President or by the Board of Directors, and shall be called by the President
at the request of the holders of not less than one-tenth of all the outstanding
shares of the corporation entitled to vote at the meetings.
Section 4. Place of Meeting. The Board of Directors may designate any
place, either within or without the State of Wyoming, as the place of meeting
for any annual meeting or for any special meeting called by the Board of
Directors. A waiver of notice signed by all shareholders entitled to vote at a
meeting may designate any place, either within or without the State of Wyoming,
as the place for the holding of such meeting. If no designation is made, or if a
special meeting be otherwise called, the place of meeting shall be the
registered office of the corporation in the State of Wyoming.
Section 5. Notice of Meeting. Written or printed notice stating the place,
date and hour of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
nor more than fifty days before the date of the meeting, either personally or by
mail, by or at the direction of the President, or the Secretary, or the officer
or persons calling the meeting, to each shareholder of record entitled to vote
at such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States Mail, addressed to the shareholder at his address
as it appears on the stock transfer books of the corporation, with postage
thereon prepaid.
Section 6. Closing of Transfer Books or Fixing of Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors of the
corporation may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, fifty days. If the stock transfer
books shall be closed for the purpose of determining shareholders entitled to
notice of or to vote at a meeting of shareholders, such books shall be closed
for at least ten days immediately preceding such meeting. In lieu of closing the
stock transfer books, the Board of Directors may fix in advance a date as the
record date for any such determination of shareholders, such date in any case to
be not more than fifty days and, in case of a meeting of shareholders, not less
than ten days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. If the stock transfer books are
<PAGE>
not closed and no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a dividend, the date of which notice of the
meeting is mailed or the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of shareholders. When a determination of shareholders
entitled to vote at any meeting of shareholders has been made as provided in
this section, such determination shall apply to any adjournment thereof.
Section 7. Quorum. A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy shall constitute a quorum at
a meeting of shareholders. If less than a majority of the outstanding shares are
represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
Section 8. Proxies. At all meetings of shareholders, a shareholder may vote
by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Such proxy shall be filed with the Secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise provided in the
proxy.
Section 9. Voting of Shares by Certain Holders. Shares standing in the name
of another corporation may be voted by such officer, agent or proxy as the
Bylaws of such corporation may prescribe, or, in the absence of such provision,
as the Board of Directors of such corporation may determine.
Shares held by an administrator, executor, guardian or conservator may be
voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority so to do be
contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Shares of its own stock belonging to the corporation or held by it in a
fiduciary capacity shall not be voted, directly or indirectly, at any meeting,
and shall not be counted in determining the total number of outstanding shares
at any given time.
Section 10. Voting. At each election for Directors every shareholder
entitled to vote at such election shall have the right to vote, in person or by
proxy, the number of shares owned by him for as many persons as there are
Directors to be elected, or to cumulate his votes by giving one candidate as
-2-
<PAGE>
many votes as the number of such Directors multiplied by the number of his
shares shall equal, or by distributing such votes on the same principle among
any number of such candidates.
Section 11. Informal Action by Shareholders. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of the shareholders, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.
BOARD OF DIRECTORS
------------------
Section 12. General Powers. The business and affairs of the corporation
shall be managed by its Board of Directors.
Section 13. Number, Tenure and Qualifications. The number of Directors of
the corporation shall be six. Each Director shall hold office until the next
annual or special meeting of shareholders at which a new Board of Directors is
elected and until his successor shall have been elected and qualified. Directors
need not be residents of Wyoming or shareholders of the corporation.
Section 14. Regular Meetings. A regular meeting of the Board of Directors
shall be held without other notice than this Bylaw immediately after, and at the
same place as, the annual meeting of shareholders. The Board of Directors may
provide by resolution, the time and place, either within or without Wyoming for
the holding of additional regular meetings without other notice than such
resolution.
Section 15. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the President or any two Directors. The
person or persons authorized to call special meetings of the Board of Directors
may fix any place, either within or without the State of Wyoming as the place
for holding any special meeting of the Board of Directors called by them.
Section 16. Notice. Notice of any special meeting shall be given at least
two days previously thereto by written notice delivered personally or by
telegram to each Director or mailed to each Director at his business address at
least five days previously thereto. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail so addressed, with postage
thereon prepaid. If notice be given by telegram, such notice shall be deemed to
be delivered when the telegram is delivered to the telegraph company. Any
Director may waive notice of any meeting. The attendance of a Director at a
meeting shall constitute a waiver of notice of such meeting, except where a
Director attends a meeting for the express purpose of objecting to the
transaction of any business because the meting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
Section 17. Quorum. A majority of the number of Directors fixed by Section
13 shall constitute a quorum for the transaction of business at any meeting of
the Board of Directors, but if less than such majority is present at a meeting,
a majority of the Directors present may adjourn the meeting from time to time
without further notice.
Section 18. Manner of Acting. The act of the majority of the Directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
-3-
<PAGE>
Section 19. Vacancies. Any vacancy occurring in the Board of Directors may
be filled by the affirmative vote of a majority of the remaining Directors
though less than a quorum of the Board of Directors. A Director elected to fill
a vacancy shall be elected for the unexpired term of his predecessor in office.
Any directorship to be filled by reason of an increase in the number of
Directors shall be filled by election at an annual meeting or at a special
meeting of shareholders called for that purpose.
Section 20. Compensation. By resolution of the Board of Directors, the
Directors may be paid their expenses, if any, or attendance at each meeting of
the Board of Directors, and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as Director. No such
payment shall preclude any Director from serving the corporation in any other
capacity and receiving compensation therefor.
Section 21. Presumption of Assent. A Director of the corporation who is
present at a meeting of the Board of Directors at which action or any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent shall be entered into the minutes of the meeting or unless he shall
file his written dissent to such action with the person acting as the Secretary
of the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a Director
who voted in favor of such action.
Section 22. Informal Action by Directors. Any action required to be taken
at a meeting of the Directors, or any other action which may be taken at a
meeting of the Directors, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
Directors with respect to the subject matter thereof.
OFFICERS
--------
Section 23. Number. The officers of the corporation shall be a President, a
Secretary, and a Treasurer, each of whom shall be elected by the Board of
Directors. One or more Vice-Presidents (the number thereof to be determined by
the Board of Directors) and such other officers and assistant officers as may be
deemed necessary may be elected or appointed by the Board of Directors. Any two
or more offices may be held by the same person, except the offices of President
and Secretary.
Section 24. Election and Term of Office. The officers of the corporation to
be elected by the Board of Directors shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each annual
meeting of the shareholders. If the election of officers shall not be held at
such meeting, such election shall be held as soon thereafter as conveniently may
be. Each officer shall hold office until his successor shall have been duly
elected and shall have qualified or until his death or until he shall resign or
shall have been removed in the manner hereinafter provided.
Section 25. Removal. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interests of the corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.
Section 26. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term.
-4-
<PAGE>
Section 27. President. The President shall be the principal executive
officer of the corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the corporation. He shall, when present, preside at all meetings of
the shareholders and of the Board of Directors. He may sign, with the Secretary,
Assistant Secretary, or any other proper officer of the corporation thereunto
authorized by the Board of Directors, certificates for shares of the
corporation, any deeds, mortgages, bonds, contracts or other instruments which
the Board of Directors has authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the Board of
Directors or by these Bylaws to some other officer or agent of the corporation,
or shall be required by law to be otherwise signed or executed; and in general
shall perform all duties incident to the office of President and such other
duties as may be prescribed by the Board of Directors from time to time.
Section 28. The Vice-Presidents. In the absence of the President or in the
event of his death, inability or refusal to act, the Vice-President (or in the
event there be more than one Vice-President, the Vice-Presidents in the order
designated at the time of their election, or in the absence of any designation,
then in the order of their election), if there be a Vice-President shall perform
the duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President. Any Vice-President
may sign, with the Secretary or an Assistant Secretary, certificates for shares
of the corporation; and shall perform such other duties as from time to time may
be assigned to him by the President or by the Board of Directors.
Section 29. The Secretary. The Secretary shall: (A) keep the minutes of the
shareholders and of the Board of Directors meetings in one or more books
provided for that purpose; (B) see that all notices are duly given in accordance
with the provisions of these Bylaws or as required by law; (C) be custodian of
the corporate records and of the seal of the corporation and see that the seal
of the corporation is affixed to all documents the execution of which on behalf
of the corporation under its seal is duly authorized; (D) keep a register of the
post office address of each shareholder which shall be furnished to the
Secretary by such shareholder; (E) sign with the President, or a Vice-President,
certificates for shares of the corporation, the issuance of which shall have
been authorized by resolution of the Board of Directors; (F) have general charge
of the stock transfer books of the corporation; and (G) in general perform all
duties incident to the Office of Secretary and such other duties as from time to
time may be assigned to him by the President or by the Board of Directors.
Section 30. The Treasurer. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his duties in such sum
and with such surety or sureties as the Board of Directors shall determine. He
shall: (A) have charge and custody of and be responsible for all funds and
securities of the corporation; receive and give receipts for moneys due and
payable to the corporation from any source whatsoever, and deposit all such
moneys in the name of the corporation in such banks, trust companies, or other
depositories as shall be selected; and (B) in general perform al of the duties
incident to the office of Treasurer and such other duties as from time to time
may be assigned to him by the President or by the Board of Directors.
Section 31. Assistant Secretaries and Assistant Treasurers. The Assistant
Secretaries, when authorized by the Board of Directors, may sign with the
President or a Vice-President certificates for shares of the corporation the
issuance of which shall have been authorized by a resolution of the Board of
Directors. The Assistant Treasurers shall respectively, if required by the Board
of Directors, give bonds for the faithful discharge of their duties in such sums
and with such sureties as the Board of Directors shall determine. The Assistant
Secretaries and Assistant Treasurers, in general, shall perform such duties as
shall be assigned to them by the Secretary or the Treasurer, respectively, or by
the President or the Board of Directors.
-5-
<PAGE>
Section 32. Salaries. The salaries of the offices shall be fixed from time
to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a Director of the
corporation.
CONTRACTS, LOANS, CHECKS AND DEPOSITS
-------------------------------------
Section 33. Contracts. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances.
Section 34. Loans. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
Section 35. Checks, Drafts, etc. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation, shall be signed by such officer or officers, agent or agents of
the corporation and in such manner as shall from time to time be determined by
resolution of the Board of Directors.
Section 36. Deposits. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositories as the Board of Directors may
select.
MISCELLANEOUS
-------------
Section 37. Certificates for Shares. Certificates representing shares of
the corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the President or a
Vice-President and by the Secretary or an Assistant Secretary. All certificates
for shares shall be consecutively numbered or otherwise identified. The name and
address of the person to whom the shares represented thereby are issued, with
the number of shares and date of issue, shall be entered on the stock transfer
books of the corporation. All certificates surrendered to the corporation for
transfer shall be cancelled and no new certificate shall be issued until the
former certificate for a like number of shares shall have been surrendered and
cancelled, except that in case of a lost, destroyed or mutilated certificate a
new one may be issued therefor upon such terms and indemnity to the corporation
as the Board of Directors may prescribe.
Section 38. Transfer of Shares. Transfer of shares of the corporation shall
be made only on the stock transfer books of the corporation by the holder of
record thereof or by his legal representative, who shall furnish proper evidence
of authority to transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the corporation, and on
surrender for cancellation of the certificate for such shares. The person in
whose name shares stand on the books of the corporation shall be deemed by the
corporation to be the owner thereof for all purposes.
-6-
<PAGE>
Section 39. Dividends. The Board of Directors may from time to time
declare, and the corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law.
Section 40. Seal. The Board of Directors shall provide a corporate seal
which shall be circular in form and shall have inscribed thereon the name of the
corporation and the state of incorporation and the words, "Corporate Seal."
Section 41. Waiver of Notice. Whenever any notice is required to be
given to any shareholder or Director of the corporation under the provisions of
these Bylaws or under the provisions of the Articles of Incorporation or under
the provisions of the Wyoming Business Corporation Act, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice.
Section 42. Amendments. These Bylaws may be altered, amended or repealed
and new Bylaws may be adopted by the Board of Directors at any regular or
special meeting of the Board of Directors.
-7-
Certificate No. _____ ________ Shares
DOUBLE EAGLE PETROLEUM AND MINING CO.
10,000,000 Shares 10 Cent Par Value Authorized
Incorporated under the laws of the State of Wyoming
THIS CERTIFIES
THAT ................................................................ IS THE
OWNER OF
**SPECIMEN**
CUSIP 258570 209
Fully paid and non-assessable shares of the par value of 10 cents per share of
the common Stock of Double Eagle Petroleum And Mining Co. transferrable on the
books of the corporation by the holder hereof in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
is not valid unless countersigned by the transfer agent.
Witness the seal of the corporation and the signatures of its duly authorized
officers.
Dated:
-------------------------------
[CORPORATE SEAL]
- ------------------------------------- ----------------------------------
Secretary President
W - _____ _____ Warrants
DOUBLE EAGLE PETROLEUM AND MINING CO.
A Wyoming Corporation Redeemable
Common Stock Purchase Warrant Certificate
Warrant Shares. This Warrant Certificate certifies that __________, or
registered assigns (the "Warrant Holder"), is the registered owner of the
above-indicated number of Redeemable Common Stock Purchase Warrants (the
"Warrants) exercisable in the manner set forth in this Warrant Certificate. One
Warrant entitles the Warrant Holder thereof to purchase from Double Eagle
Petroleum And Mining Co., a Wyoming corporation (the "Company"), during the
period determined in accordance with the section entitled "Warrant Exercise
Period" below, one fully paid and nonassessable share (the "Share") of the $.10
par value common stock of the Company (the "Common Stock") at the purchase price
of $3.00 per Share (the "Exercise Price"), upon surrender of this Warrant
Certificate with the exercise form hereon duly completed and executed, with the
payment of the Exercise Price at the office of American Securities Transfer &
Trust Co., Inc., 1825 Lawrence Street, Suite 444, Denver, Colorado 80202-1817
(the "Warrant Agent"), as more fully set forth in the Agreement between the
Company and the Warrant Agent (the "Warrant Agreement"). The Company in its sole
discretion may reduce the Exercise Price, but the Company is not required or
otherwise committed to do so.
Warrant Exercise Period. The "Warrant Exercise Period" shall be defined as
follows:
Warrant Holders may exercise the Warrants during the period beginning on
the date of this Warrant and ending at 5:00 p.m., Denver, Colorado time, on
_________, 2001 [five years after the effective date]; provided however that
shares of Common Stock may not be issued upon exercise of any of the Warrants
represented by this Warrant Certificate by the Warrant Holder unless, at the
time of such exercise, the Company has an effective registration statement under
the Securities Act Of 1933 (the "Securities Act") covering the issuance of such
shares and unless such shares can be legally issued to the Warrant Holder under
the securities laws of such Warrant Holder's state of residence.
Other Exercise Provisions. The Exercise Price, the number of Shares
purchasable upon exercise of each Warrant, the number of Warrants outstanding
and the Expiration Date are subject to adjustments upon the occurrence of
certain events. The Warrant Holder may exercise all or any number of Warrants
resulting in the purchase of a whole number of Shares. Reference hereby is made
to the provisions on the reverse side of this Warrant Certificate and to the
provisions of the Warrant Agreement, all of which hereby are incorporated by
reference in and made a part of this Warrant Certificate and which shall for all
purposes have the same effect as though fully set forth at this place.
The Warrant Holder of the Warrants evidenced by this Warrant Certificate
may exercise all or any number of such Warrants during the period and in the
manner stated hereon. The Exercise Price shall be payable in lawful money of the
United States of America and in cash or by good check or bank draft payable to
the order of the Company. If, upon any exercise of any Warrants evidenced by
this Warrant Certificate, the number of Warrants exercised shall be less than
the total number of Warrants so evidenced, there shall be issued to the Warrant
Holder a new Warrant Certificate evidencing the number of Warrants not so
exercised. No adjustment shall be made for any dividends on any Shares issued
upon exercise of this Warrant.
At any time prior to the exercise or expiration of this Warrant, the
Company shall have the right to call the Warrants for redemption upon 30 days'
prior written or published notice at a price of $.02 per Warrant, provided
however that the closing bid quotation for the Common Stock for at least 20 of
the 30 consecutive business days ending on the day of the Company's giving
notice of redemption has been at least $4.00 per share. Warrant Holders shall
have the right to exercise the Warrants held by them prior to the date set forth
in the Company's notice of redemption (the "Redemption Date"). After the
Redemption Date, all rights of the Warrant Holders shall terminate, other than
the right to receive the redemption price of $.02 per Warrant, without interest.
The redemption price shall be subject to adjustment upon the occurrence of
certain events as described in the Warrant Agreement.
No Warrant may be exercised after expiration of the Warrant Exercise
Period. Any Warrant not exercised by such time shall become void.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
signed by its President and by its Secretary, each by a facsimile of his
signature, and has caused a facsimile of its corporate seal to be imprinted
hereon.
DOUBLE EAGLE PETROLEUM AND MINING CO.
Dated:______________, 1996 By:
-------------------------------------
Stephen H. Hollis, President
By:
------------------------------------
Carol A. Osborne, Secretary
Countersigned:
AMERICAN SECURITIES TRANSFER & TRUST, INC.
1825 Lawrence Street, Suite 444
Denver, CO 80202-1817
- ----------------------------------
Warrant Agent:
By:
-------------------------------
Authorized Signature
- -----------------------------------
Printed Name
- -----------------------------------
Printed Title
WARRANT NO.
WARRANT TO PURCHASE UNITS
OF
DOUBLE EAGLE PETROLEUM AND MINING CO.
Warrant to Purchase 100,000 Units
(subject to adjustment as set forth herein)
Exercise Price $........... Per Unit
(subject to adjustment as set forth herein)
VOID AFTER 3:00 P.M., DENVER, COLORADO, TIME,............
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (the "Act") OR REGISTERED OR QUALIFIED UNDER ANY OTHER
APPLICABLE FEDERAL OR STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE OFFERED
FOR SALE, SOLD, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR QUALIFICATION FILED IN ACCORDANCE WITH THE ACT OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT.
Double Eagle Petroleum and Mining Co., 777 Overland Trail, Casper, Wyoming,
82602 (the "Company"), hereby certifies that, for value received, Rocky Mountain
Securities & Investments, Inc., 920 Hudson's Bay Centre, 1600 Stout Street,
Denver, Colorado, 80202-3134 (the "Holder"), is entitled, subject to the terms
and conditions set forth below, to purchase from the Company at any time on or
after ____________________________, but before 3:00 p.m., Denver time, on
____________________, up to 100,000 units ("Unit" or "Units"), each Unit
consisting of one (1) share of the Company's $0.10 par value common stock
("Common Stock") and one (1) Common Stock Purchase Warrant ("Warrant" or
"Warrants") at a purchase price of $ per Unit. The form of Common Stock Purchase
Warrant agreed to by the parties is attached hereto as Exhibit A.
The number and character of the securities purchasable upon exercise of
this Warrant and the Exercise Price are subject to adjustment as provided below.
The term "Warrant" as used herein shall include this Warrant and any Warrants
issued in substitution for or replacement of this Warrant, or any Warrants into
which this Warrant may be divided or exchanged. The securities purchasable upon
the exercise of this Warrant are hereinafter referred to as "Warrant
Securities." Except as otherwise provided herein, the Warrant Securities shall
be as described in the Company 's prospectus dated ____________________
("Effective Date").
This Warrant may be assigned, transferred, sold, offered for sale, or
exercised by the Holder upon compliance with all the pertinent provisions
hereof.
1. Exercise of Warrant.
(a) Subject to the other terms and conditions of this Warrant, the purchase
rights evidenced by this Warrant may be exercised in whole or in part at any
time, and from time to time, on or after ____________________, but before 3:00
p.m., Denver time, on ____________________, by the Holder's presentation and
surrender of this Warrant to the Company at its principal office or at the
office of the Company's stock transfer agent, if any, accompanied by a duly
executed Notice of Exercise, in the form attached to and by this reference
incorporated in this Warrant as Exhibit A, and by payment of the aggregate
Exercise Price, in certified funds or a bank cashier's check, for the number of
<PAGE>
Units specified in the Notice of Exercise. In the event this Warrant is
exercised in part only, as soon as is practicable after the presentation and
surrender of this Warrant to the Company for exercise, the Company shall execute
and deliver to the Holder a new Warrant, containing the same terms and
conditions as this Warrant, evidencing the right of the Holder to purchase the
number of Units as to which this Warrant has not been exercised.
(b) Upon receipt of this Warrant by the Company as described in subsection
(a) above, the Holder shall be deemed to be the holder of record of the Warrant
Securities issuable upon such exercise, notwithstanding that the transfer books
of the Company may then be closed or that certificates representing such Warrant
Securities may not have been prepared or actually delivered to the Holder.
2. Exchange, Assignment or Loss of Warrant.
(a) This Warrant may not be sold, transferred, assigned or hypothecated
until ____________________, except for (i) the sale, transfer, or assignment, in
whole or in part, to or among the officers of Rocky Mountain Securities &
Investments, Inc. and other securities broker-dealers which are members of the
National Association of Securities Dealers, Inc. ("NASD") and which participated
in the public offering of the Company's Units and the officers or partners of
those NASD member firms, (ii) the transfer by operation of law as a result of
the death of any transferee to whom all or a portion of this Warrant may be
transferred, and (iii) the transfer to any successor to the business of Rocky
Mountain Securities & Investments, Inc. All sales, transfers, assignments or
hypothecations of this Warrant must be in compliance with Section 8 hereof. Any
assignment or transfer of this Warrant shall be made by the presentation and
surrender of this Warrant to the Company at its principal office or the office
of its transfer agent, if any, accompanied by a duly executed Assignment Form,
in the form attached to and by this reference incorporated in this Warrant as
Exhibit B. Upon the presentation and surrender of these items to the Company,
the Company, at its sole expense, shall execute and deliver to the new Holder or
Holders a new Warrant or Warrants, containing the same terms and conditions as
this Warrant, in the name of the new Holder or Holders as named in the
Assignment Form, and this Warrant shall at that time be cancelled.
(b) This Warrant, alone or with other Warrants containing substantially the
same terms and conditions and owned by the same Holder, is exchangeable at the
option of the Holder but at the Company's sole expense, at any time prior to its
expiration either by its terms or by its exercise in full upon presentation and
surrender to the Company at its principal office or at the office of its
transfer agent, if any, for another Warrant or other Warrants, of different
denominations but containing the same terms and conditions as this Warrant,
entitling the Holder to purchase the same aggregate number of Warrant Securities
that were purchasable pursuant to the Warrant or Warrants presented and
surrendered. At the time of presentation and surrender by the Holder to the
Company, the Holder also shall deliver to the Company a written notice, signed
by the Holder, specifying the denominations in which new Warrants are to be
issued to the Holder.
(c) The Company will execute and deliver to the Holder a new Warrant
containing the same terms and conditions as this Warrant upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction, or mutilation of this Warrant, provided that (i) in the case of
loss, theft, or destruction, the Company receives from the Holder a reasonably
satisfactory indemnification, and (ii) in the case of mutilation, the Holder
presents and surrenders this Warrant to the Company for cancellation. Any new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company regardless of whether the Warrant that was
lost, stolen, destroyed, or mutilated shall be enforceable by anyone at any
time.
2
<PAGE>
3. Adjustments: Stock Dividends, Reclassification, Reorganization, Merger
and Anti-Dilution Provisions.
(a) If the Company increases or decreases the number of its issued and
outstanding shares of Common Stock, or changes in any way the rights and
privileges of such shares, by means of (i) the payment of a stock dividend or
the making of any other distribution on such shares payable in its Common Stock,
(ii) a forward or reverse stock split or other subdivision of shares, (iii) a
consolidation or combination involving its Common Stock, or (iv) a
reclassification or recapitalization involving its Common Stock, then the
Exercise Price in effect at the time of such action and the number of Warrant
Securities purchasable pursuant to this Warrant at that time shall be
proportionately adjusted so that the numbers, rights, and privileges relating to
the Warrant Securities then purchasable pursuant to this Warrant shall be
increased, decreased or changed in like manner, for the same aggregate purchase
price as set forth in this Warrant, as if the Warrant Securities purchasable
pursuant to this Warrant immediately prior to the event at issue had been
issued, outstanding, fully paid and nonassessable at the time of that event. As
an example, if the Company were to declare a two-for-one forward stock split or
a 100 percent stock dividend, then the unpurchased number of Warrant Securities
subject to this Warrant would be doubled and the Exercise Price for all
unpurchased Warrant Securities would be reduced by 50 percent. These adjustments
would result in the Holder's rights under this Warrant not being diluted by the
stock split or stock dividend and the Holder paying the same aggregate exercise
price.
If the Company shall declare a dividend payable in money on its Common
Stock and at substantially the same time shall offer to its shareholders a right
to purchase new shares of Common Stock from the proceeds of such dividend or for
an amount substantially equal to the dividend, all shares of Common Stock so
issued shall, for purposes of this Warrant, be deemed to have been issued as a
stock dividend.
(b) If the Company pays or makes any dividend or other distribution upon
its Common Stock payable in securities or other property, excluding money or the
Company's Common Stock but including (without limitation) shares of any other
class of the Company's stock or stock or other securities convertible into or
exchangeable for shares of Common Stock or any other class of the Company's
stock or other interests in the Company or its assets ("Convertible
Securities"), a proportionate part of those securities or that other property
shall be set aside by the Company and delivered to the Holder in the event that
the Holder exercises this Warrant. The securities and other property then
deliverable to the Holder upon the exercise of this Warrant shall be in the same
ratio to the total securities and property set aside for the Holder as the
number of Warrant Securities with respect to which the Warrant is then exercised
is to the total Warrant Securities purchasable pursuant to this Warrant at the
time the securities or property were set aside for the Holder.
If the Company shall declare a dividend payable in money on its Common
Stock and at substantially the same time shall offer to its shareholders a right
to purchase new shares of a class of stock (other than Common Stock),
Convertible Securities, property or other interests from the proceeds of such
dividend or for an amount substantially equal to the dividend, all shares of
stock, Convertible Securities, property or other interests so issued or
transferred shall, for purposes of this Warrant, be deemed to have been issued
as a dividend or other distribution subject to this subsection (b).
(c) If at any time the Company grants to its shareholders rights to
subscribe pro rata for additional securities of the Company, whether Common
Stock, Convertible Securities, or other classifications, or for any other
securities, property or interests that the Holder would have been entitled to
subscribe for if, immediately prior to such grant, the Holder had exercised this
Warrant, then the Company shall also grant to the Holder the same subscription
rights that the Holder would be entitled to if the Holder had exercised this
Warrant in full immediately prior to such grant.
3
<PAGE>
(d) The Company shall cause effective provision to be made so that the
Holder shall have the right thereafter, by the exercise of this Warrant, to
purchase for the aggregate Exercise Price described in this Warrant the kind and
amount of shares of stock and other securities, and property and interests, as
would be issued or payable with respect to or in exchange for the number of
Warrant Securities of the Company that are then purchasable pursuant to this
Warrant as if such Warrant Securities had been issued to the Holder immediately
before the occurrence of any of the following events: (i) the reclassification,
capital reorganization, or other similar change of outstanding shares of Common
Stock of the Company, other than as described and provided for in subsection (a)
above; (ii) the merger or consolidation of the Company with one or more other
corporations or other entities, other than a merger with a subsidiary or
affiliate pursuant to which the Company is the continuing entity and the
outstanding shares of Common Stock, including the Warrant Securities purchasable
pursuant to this Warrant, are not affected; or (iii) the spin-off of assets to a
subsidiary or an affiliated entity, or the sale, lease, or exchange of a
significant portion of the Company's assets, in a transaction pursuant to which
the Company's shareholders of record are to receive securities or other
interests in another entity. Any such provision made by the Company for
adjustments with respect to this Warrant shall be as nearly equivalent to the
adjustments otherwise provided for in this Warrant as is reasonably practicable.
The foregoing provisions of this subsection (d) shall similarly apply to
successive reclassifications, capital reorganizations and similar changes of
shares of Common Stock and to successive consolidations, mergers, spin-offs,
sales, leases or exchanges. In the event that in any such reclassification,
capital reorganization, change, consolidation, merger, spin-off, sale, lease or
exchange additional shares of Common Stock are issued in exchange, conversion,
substitution or payment, in whole or in part, for securities of the Company
other than Common Stock, any such issue shall be treated as an issue of Common
Stock covered by the provisions of subsection (f) below, with the amount of the
consideration received upon the issue to be determined in accordance with
subsection (g) below.
(e) If any sale, lease or exchange of all, or substantially all, of the
Company's assets or business or any dissolution, liquidation or winding up of
the Company (a "Termination of Business") shall be proposed, the Company shall
deliver written notice to the Holder or Holders of this Warrant in accordance
with Section 4 below as a condition precedent to the consummation of that
Termination of Business. If the result of the Termination of Business is that
shareholders of the Company are to receive securities or other interests of
another entity, the provisions of subsection (d) above shall apply. However, if
the result of the Termination of Business is that shareholders of the Company
are to receive money or property other than securities or other interests in
another entity, the Holder or Holders of this Warrant shall be entitled to
exercise this Warrant prior to the consummation of the event at issue and, with
respect to any Warrant Securities so purchased, shall be entitled to all of the
rights of the other shareholders of Common Stock with respect to any
distribution by the Company in connection with the Termination of Business. In
the event no other entity is involved and subsection (d) does not apply, all
purchase rights under this Warrant shall terminate at the close of business on
the date as of which shareholders of record of the Common Stock shall be
entitled to participate in a distribution of the assets of the Company in
connection with the Termination of Business; provided, that in no event shall
that date be less than 30 days after delivery to the Holder or Holders of this
Warrant of the written notice described above and in Section 4. If the
termination of purchase rights under this Warrant is to occur as a result of the
event at issue, a statement to that effect shall be included in that written
notice.
Notwithstanding anything herein to the contrary, in the event that
Termination of Business is to occur prior to ________________, then provisions
shall be made by the Company, by setting aside money or other assets to be
distributed to shareholders in an amount sufficient for distribution to Holder
or Holders of this Warrant as if the Warrant had been previously exercised, to
ensure that the Holder or Holders of this Warrant will have an opportunity to
participate in such distribution by exercising the Warrant within 90 days after
its earliest exercise date. The Company will take no steps to dissolve the
Company prior to such date.
4
<PAGE>
(f) If at any time or from time to time the Company should issue or sell
any shares of Common Stock, including shares held in the Company's Treasury,
without consideration or for a per share consideration less than the Exercise
Price in effect immediately prior to the issuance or sale, the Exercise Price in
effect immediately prior to each such issuance or sale shall be adjusted
downward to equal (i) the per share consideration received by the Company upon
the issuance or sale of its Common Stock, plus (ii) one-third of one percent of
that per share consideration for each month remaining before this Warrant
expires by its terms, including only complete months for purposes of this
adjustment. Upon adjustment of the Exercise Price, the number of Warrant
Securities purchasable pursuant to this Warrant shall also be adjusted to equal
a number computed by (i) dividing the Exercise Price in effect immediately prior
to such adjustment by the Exercise Price as adjusted, and (ii) multiplying the
resulting quotient by the number of Warrant Securities purchasable pursuant to
this Warrant immediately prior to such adjustment. For purposes of any
computation to be made in accordance with the provisions of this subsection (f),
the following provisions (A) through (D) shall be applicable:
(A) In case the Company at any time shall issue options, rights or
warrants to purchase shares of Common Stock, including shares held in the
Company's Treasury, or shall issue any Convertible Securities, without
consideration or for a consideration per share less than the Exercise Price
in effect immediately prior to the issuance of such options, rights,
warrants or Convertible Securities, the Exercise Price and the number of
Warrant Securities purchasable pursuant to this Warrant shall be adjusted
in accordance with the provisions of this subsection (f). For purposes of
this provision (A), (i) the aggregate maximum number of shares of Common
Stock deliverable under such options, rights or warrants shall be
considered to have been issued at the time such options, rights or warrants
were issued, for a consideration equal to the minimum purchase price per
share of Common Stock provided for in the options, rights or warrants plus
the consideration, if any, paid to the Company for such options, rights or
warrants; and (ii) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or exchange for any Convertible Securities
shall be considered to have been issued at the time such Convertible
Securities were issued for a consideration equal to the consideration paid
to the Company upon the issuance of those Convertible Securities.
(B) No adjustment of the Exercise Price or the Warrant Securities
purchasable pursuant to this Warrant shall be made in connection with the
issuance or sale of Common Stock upon the exercise of options, rights or
warrants, or upon the conversion of Convertible Securities.
(C) In case of the issuance or sale of shares of Common Stock for a
consideration part or all of which is in money, the amount of the money
consideration for those shares shall be deemed to be (i) the amount of
money received by the Company for such shares, or (ii) if shares of Common
Stock are offered by the Company for subscription, the subscription price,
or (iii) if shares of Common Stock are sold to underwriters or dealers for
a public offering without a subscription offering, the initial public
offering price without deduction for any compensation paid or discount
allowed in the sale, underwriting or purchase by underwriters or dealers or
others performing similar services or for any expenses incurred in
connection therewith.
(D) In case of the issuance or sale of shares of Common Stock for a
consideration part or all of which is property, securities or interests
other than money, the amount of consideration therefor other than money
shall be deemed to be the fair market value of such consideration as
determined in accordance with subsection (h) below.
(g) Except as otherwise provided in this Section 3, upon any adjustment of
the Exercise Price, the Holder shall be entitled to purchase, at the new
Exercise Price, the number of shares of Common Stock, calculated to the nearest
full share, obtained by multiplying the number of Warrant Securities purchasable
pursuant to this Warrant immediately prior to the adjustment of the Exercise
Price by the Exercise Price in effect immediately prior to its adjustment and
dividing the product so obtained by the new Exercise Price.
5
<PAGE>
(h) If consideration other than money is received by the Company upon the
issuance or sale of Common Stock, Convertible Securities, or other securities or
interests, the fair market value of such consideration, as reasonably determined
by the Board of Directors of the Company, shall be used for purposes of any
adjustment required by this Section 3. The fair market value of such
consideration shall be determined as of the date of the adoption of the
resolution of the Board of Directors of the Company that authorizes the
transaction giving rise to the adjustment. In case of the issuance or sale of
Common Stock, Convertible Securities, or other securities or interests in
conjunction with the issuance or sale of other securities or property without a
separate allocation of the purchase price, the Board of Directors of the Company
shall reasonably determine an allocation of the consideration among the items
being issued or sold. The reclassification of securities other than Common Stock
into securities including Common Stock shall be deemed to involve the issuance
of that Common Stock for a consideration other than money immediately prior to
the close of business on the date fixed for the determination of shareholders
entitled to receive that Common Stock.
The Company shall promptly deliver written notice of all such
determinations by its Board of Directors to the Holder or Holders of this
Warrant, and those determinations shall be final and binding on the Holder or
Holders if, and only if, no Holder of this Warrant delivers written notice to
the Company of an objection to a determination within 30 days after written
notice of that determination is delivered to the Holder. If written notice of an
objection is delivered to the Company and the parties cannot reconcile their
dispute, the dispute shall be arbitrated pursuant to Section 15 below.
(i) The provisions of this Section 3 shall apply to successive events that
may occur from time to time but shall only apply to a particular event if it
occurs prior to the expiration of this Warrant either by its terms or by its
exercise in full.
(j) Unless the context requires otherwise, whenever reference is made
in this Section 3 to the issue or sale of shares of Common Stock, the term
"Common Stock" shall mean (i) the $0.10 par value common stock of the Company,
(ii) any other class of stock ranking on a parity with, and having substantially
similar rights and privileges as the Company's $0.10 par value common stock, and
(iii) any Convertible Security convertible into either (i) or (ii). However,
subject to the provisions of subsection (d) above, Warrant Securities issuable
upon exercise of this Warrant shall include only shares of the common stock
designated as $0.10 par value common stock of the Company as of the date of this
Warrant and warrants to purchase such common stock.
(k) For purposes of subsections (a), (b) and (f) above, shares of Common
Stock owned or held at any relevant time by, or for the account of, the Company,
in its treasury or otherwise, shall not be deemed to be outstanding for purposes
of the calculations and adjustments described.
4. Notice to Holders. If, prior to the expiration of this Warrant either by
its terms or by its exercise in full, any of the following shall occur:
(i) the Company shall declare a dividend or authorize any other
distribution on its Common Stock; or
(ii) the Company shall authorize the granting to the shareholders of
its Common Stock of rights to subscribe for or purchase any
securities or any other similar rights; or
6
<PAGE>
(iii) any reclassification, reorganization or similar change of the
Common Stock, or any consolidation or merger to which the Company
is a party, or the sale, lease, or exchange of any significant
portion of the assets of the Company; or
(iv) the voluntary or involuntary dissolution, liquidation or winding
up of the Company; or
(v) any purchase, retirement or redemption by the Company of its
Common Stock;
then, and in any such case, the Company shall deliver to the Holder or Holders
written notice thereof at least 30 days prior to the earliest applicable date
specified below with respect to which notice is to be given, which notice shall
state the following:
(i) the date on which a record is to be taken for the purpose of such
dividend, distribution or rights, or, if a record is not to be
taken, the date as of which the shareholders of Common Stock of
record to be entitled to such dividend, distribution or rights
are to be determined;
(ii) the date on which such reclassification, reorganization,
consolidation, merger, sale, transfer, dissolution, liquidation,
winding up or purchase, retirement or redemption is expected to
become effective, and the date, if any, as of which the Company's
shareholders of Common Stock of record shall be entitled to
exchange their Common Stock for securities or other property
deliverable upon such reclassification, reorganization,
consolidation, merger, sale, transfer, dissolution, liquidation,
winding up, purchase, retirement or redemption; and
(iii) if any matters referred to in the foregoing clauses (i) and (ii)
are to be voted upon by shareholders of Common Stock, the date as
of which those shareholders to be entitled to vote are to be
determined.
5. Officers' Certificate. Whenever the Exercise Price or the aggregate
number of Warrant Securities purchasable pursuant to this Warrant shall be
adjusted as required by the provisions of Section 3 above, the Company shall
promptly file with its Secretary or an Assistant Secretary at its principal
office, and with its transfer agent, if any, an officers' certificate executed
by the Company's President and Secretary or Assistant Secretary, describing the
adjustment and setting forth, in reasonable detail, the facts requiring such
adjustment and the basis for and calculation of such adjustment in accordance
with the provisions of this Warrant. Each such officers' certificate shall be
made available to the Holder or Holders of this Warrant for inspection at all
reasonable times, and the Company, after each such adjustment, shall promptly
deliver a copy of the officers' certificate relating to that adjustment to the
Holder or Holders of this Warrant. The officers' certificate described in this
Section 5 shall be deemed to be conclusive as to the correctness of the
adjustment reflected therein if, and only if, no Holder of this Warrant delivers
written notice to the Company of an objection to the adjustment within 30 days
after the officers' certificate is delivered to the Holder or Holders of this
Warrant. The Company will make its books and records available for inspection
and copying during normal business hours by the Holder so as to permit a
determination as to the correctness of the adjustment. If written notice of an
objection is delivered by a Holder to the Company and the parties cannot
reconcile the dispute, the Holder and the Company shall submit the dispute to
arbitration pursuant to the provisions of Section 15 below. Failure to prepare
or provide the officers' certificate shall not modify the parties' rights
hereunder.
6. Reservation of Warrant Securities. The Company hereby agrees that at all
times prior to ____________________, it will have authorized and will reserve
and keep available for issuance and delivery to the Holder that number of shares
of its Common Stock that may be required from time to
7
<PAGE>
time for issuance and delivery upon the exercise of the then unexercised portion
of this Warrant and all other similar Warrants then outstanding and unexercised
and upon the exercise of any Warrant Securities.
7. Common Stock Purchase Warrants Not Redeemable. The Common Stock Purchase
Warrants issuable as part of the Units hereunder shall not be redeemable or
subject to call, notwithstanding statements to the contrary in instruments
representing said Common Stock Purchase Warrants.
8. Registration Under the Securities Act of 1933.
(a) If at any time prior to ____________________, (five years from the
Effective Date), the Company files a registration statement with the United
States Securities and Exchange Commission pursuant to the Securities Act of
1933, as amended (the "Act"), or pursuant to any other act passed after the date
of this Agreement, which filing provides for the sale of securities by the
Company to the public, or files a Regulation A Offering Statement under the Act,
the Company shall offer to the Holder or Holders of this Warrant and the holders
of any Warrant Securities the opportunity to register or qualify the Warrant (if
prior to its expiration), Warrant Securities and any Warrant Securities
underlying the unexercised portion of this Warrant, if any, at the Company's
sole expense, regardless of whether the Holder or Holders of this Warrant or the
holders of Warrant Securities or both may have previously availed themselves of
any of the registration rights described in this Section 8; provided, however,
that in the case of a Regulation A offering, the opportunity to qualify shall be
limited to the amount of the available exemption after taking into account the
securities that the Company wishes to qualify. Notwithstanding anything to the
contrary, this subsection (a) shall not be applicable to a registration
statement on Forms S-4, S-8 or their successors or any other inappropriate forms
filed by the Company with the United States Securities and Exchange Commission.
The Company shall deliver written notice to the Holder or Holders of this
Warrant and to any holders of the Warrant Securities of its intention to file a
registration statement or Regulation A Offering Statement under the Act at least
60 days prior to the filing of such registration statement or offering
statement, and the Holder or Holders and holders of Warrant Securities shall
have 30 days thereafter to request in writing that the Company register or
qualify the Warrant, Warrant Securities, or the Warrant Securities underlying
the unexercised portion of this Warrant in accordance with this subsection (a).
Upon the delivery of such a written request within the specified time, the
Company shall be obligated to include in its contemplated registration statement
or offering statement all information necessary or advisable to register or
qualify the Warrant, Warrant Securities or Warrant Securities underlying the
unexercised portion of this Warrant for a public offering, if the Company does
file the contemplated registration statement or offering statement; provided,
however, that neither the delivery of the notice by the Company nor the delivery
of a request by a Holder or by a holder of Warrant Securities shall in any way
obligate the Company to file a registration statement or offering statement.
Furthermore, notwithstanding the filing of a registration statement or offering
statement, the Company may, at any time prior to the effective date thereof,
determine not to offer the securities to which the registration statement or
offering statement relates, other than the Warrant, Warrant Securities and
Warrant Securities underlying the unexercised portion of this Warrant.
The Company shall comply with the requirements of this subsection (a) and
the related requirements of subsection (g) at its own expense. That expense
shall include, but not be limited to, legal, accounting, consulting, printing,
federal and state filing fees, NASD fees, out-of-pocket expenses incurred by
counsel, accountants and consultants retained by the Company, and miscellaneous
expenses directly related to the registration statement or offering statement
and the offering. However, this expense shall not include the portion of any
underwriting commissions, transfer taxes and the underwriter's accountable and
nonaccountable expense allowances attributable to the offer and sale of
8
<PAGE>
the Warrant, Warrant Securities and the Warrant Securities underlying the
unexercised portion of this Warrant, all of which expenses shall be borne by the
Holder or Holders of this Warrant and the holders of the Warrant Securities
registered or qualified.
(b) In addition to the rights described in subsection (a), upon the written
request of a majority holder, as defined in subsection (h) below (the "Majority
Holder"), made at any time after ____________________, but before
____________________ (five years from the Effective Date), the Company shall
file within 90 days of such written request a registration statement or
Regulation A Offering Statement pursuant to the Act, and all necessary
amendments thereto, to register or qualify the Warrant, Warrant Securities and
the Warrant Securities underlying the unexercised portion of this Warrant. No
additional securities shall be included in such registration statement or
Offering Statement without the written consent of the Majority Holder. The
Company may use the Regulation A exemption if available, but the Company must
file a registration statement if the securities that are to be covered cannot be
sold pursuant to Regulation A because of the limitations applicable to the use
of the Regulation A exemption. The Company agrees to use its best efforts to
cause this registration or qualification to become effective as promptly as
practicable, and its officers, directors, consultants, auditors and counsel
shall cooperate in all matters necessary or advisable to pursue this objective.
All of the expenses of this registration or qualification shall be borne by the
Company, including, but not limited to, legal, accounting, consulting, printing,
filing and NASD fees, out-of-pocket expenses incurred by counsel, accountants,
and consultants retained by the Company and miscellaneous expenses directly
related to the registration statement or offering statement and the offering,
and the underwriter's accountable and nonaccountable expense allowances and
fees; but the Company shall not pay any brokerage fees, commissions or
underwriting discounts except to the extent they are attributable to other
securities that the Company has been permitted to register or qualify or to
offer in conjunction with the registration and qualification of the Warrant,
Warrant Securities or the Warrant Securities underlying the unexercised portion
of this Warrant. The Majority Holder shall be entitled to exercise the rights
described in this subsection (b) one time only.
Within 10 days after the delivery by the Majority Holder to the Company of
the notice described above, the Company shall deliver written notice to all
other Holders of this Warrant and holders of the Warrant Securities, if any,
advising them that the Company is proceeding with a registration statement or
offering statement and offering them the right to include the Warrant and
Warrant Securities of those Holders or holders therein. If any Holder of a
Warrant and Warrant Securities delivers written acceptance of that offer to the
Company within 30 days after the delivery of the Company's notice, the Company
shall be obligated to include that holder's Warrant and that holder's Warrant
Securities in the contemplated registration statement or offering statement.
(c) In the event that the Company registers or qualifies the Warrant,
Warrant Securities or the Warrant Securities underlying the unexercised portion
of this Warrant pursuant to subsections (a) or (b) above, the Company shall
include in the registration statement or qualification, and the prospectus
included therein, all information and materials necessary or advisable to comply
with the applicable statutes and regulations so as to permit the public sale of
the Warrant, Warrant Securities or the Warrant Securities underlying the
unexercised portion of this Warrant. As used in subsections (a) and (b) of this
Section 8, reference to the Company's securities shall include, but not be
limited to, any class or type of the Company's securities or the securities of
any of the Company's subsidiaries or affiliates.
(d) In addition to the registration rights described in subsections (a) and
(b) above, upon the written request of any Holder of this Warrant or any holder
of Warrant Securities, the Company, as promptly as possible after delivery of
such request, shall cooperate with the requesting Holder or holder in preparing
and signing any registration statement or offering statement that the Holder or
holder may desire to file in order to sell or transfer the Warrant and Warrant
Securities. Within 10 days after the delivery of the written request described
above, the Company shall deliver written notice to all other Holders of this
9
<PAGE>
Warrant and holders of Warrant Securities, if any, advising them that the
Company is proceeding with a registration statement or offering statement and
that their Warrant and Warrant Securities will be included therein if they so
desire and agree to pay their pro rata share of the cost of registration or
qualification and provided that the Holder or holder delivers written notice to
the Company of their desire to be included and their agreement to pay their pro
rata share of the cost within 30 days after the delivery of the Company's notice
to them. The Company will supply all information necessary or advisable for any
such registration statements or offering statements; provided, however, that all
the costs and expenses of such registration statements or offering statements
shall be borne, in a manner proportionate to the number of securities for which
they indicate a desire to register, by the Holders of this Warrant and the
holders of Warrant Securities who seek the registration or qualification of
their Warrant, Warrant Securities or Warrant Securities underlying the
unexercised portion of their Warrant. In determining the amount of costs and
expenses to be borne by those Holders or holders, the only costs and expenses of
the Company to be included are the additional costs and expenses that would not
have otherwise been incurred by the Company if those Holders or holders had not
desired to file a registration statement or offering statement. As an example,
and without limitation, audit fees would not be charged to those Holders or
holders if or to the extent that the Company would have incurred the same audit
fees for its year-end or other use in the absence of the registration statement
or offering statement. The Holders or holders responsible for the costs and
expenses shall reimburse the Company for those reimbursable costs and expenses
reasonably incurred by the Company within 30 days after the initial effective
date of the registration statement or qualification at issue.
No other securities of the Company of any type shall be included in, be the
subject of, or be publicly offered pursuant to any registration statement or
offering statement filed within 180 days following the latest effective date of
any registration statement or offering statement filed pursuant to this
subsection (d) unless (i) the Company obtains the prior written consent of Rocky
Mountain Securities & Investments, Inc. upon such terms and conditions as Rocky
Mountain Securities & Investments, Inc. in its sole discretion may deem
desirable, and (ii) the owners or holders of those other securities, including,
without limitation, the Company, agree to bear an equitable portion, acceptable
to Rocky Mountain Securities & Investments, Inc. of the costs and expenses of
the registration statement or offering statement filed pursuant to this
subsection (d).
(e) As to each registration statement or offering statement, the Company's
obligations contained in this Section 8 shall be conditioned upon a timely
receipt by the Company in writing of the following:
(i) Information as to the terms of the contemplated public offering
furnished by and on behalf of each Holder or holder intending to make
a public distribution of the Warrant, Warrant Securities or Warrant
Securities underlying the unexercised portion of the Warrant; and
(ii) Such other information as the Company may reasonably require from such
Holders or holders, or any underwriter for any of them, for inclusion
in the registration statement or offering statement.
(f) In each instance in which the Company shall take any action to register
or qualify the Warrant, Warrant Securities or the Warrant Securities underlying
the unexercised portion of this Warrant, if any, pursuant to this Section 8, the
Company shall do the following:
(i) supply to Rocky Mountain Securities & Investments, Inc., as the
representative of the Holders of the Warrant and the holders of
Warrant Securities whose Warrant and Warrant Securities are being
registered or qualified, 2 manually signed copies of each registration
statement or offering statement, and all amendments thereto, and a
10
<PAGE>
reasonable number of copies of the preliminary, final or other
prospectus or offering circular, all prepared in conformity with the
requirements of the Act and the rules and regulations promulgated
thereunder, and such other documents as Rocky Mountain Securities &
Investments, Inc. shall reasonably request;
(ii) cooperate with respect to (A) all necessary or advisable actions
relating to the preparation and the filing of any registration
statements or offering statements, and all amendments thereto, arising
from the provisions of this Section 8, (B) all reasonable efforts to
establish an exemption from the provisions of the Act or any other
federal or state securities statutes, (C) all necessary or advisable
actions to register or qualify the public offering at issue pursuant
to federal securities statutes and the state "blue sky" securities
statutes of each jurisdiction that the Holders of the Warrant or
holders of Warrant Securities shall reasonably request, and (D) all
other necessary or advisable actions to enable the Holders of the
Warrant and holders of the Warrant Securities to complete the
contemplated disposition of their securities in each reasonably
requested jurisdiction;
(iii) keep all registration statements or offering statements to which this
Section 8 applies, and all amendments thereto, effective under the Act
for a period of at least 9 months after their initial effective date
and cooperate with respect to all necessary or advisable actions to
permit the completion of the public sale or other disposition of the
securities subject to a registration statement or offering statement;
and
(iv) indemnify and hold harmless each Holder of the Warrant, each holder of
Warrant Securities, and each underwriter within the meaning of the Act
for each such Holder or holder, from and against all losses, claims,
damages, and liabilities, including, but not limited to, any and all
expenses reasonably incurred in investigating, preparing, defending or
settling any claim, arising from or relating to (A) any untrue or
alleged untrue statement of a material fact contained in any
registration statement or offering statement to which this Section 8
applies, or (B) any omission or alleged omission to state a material
fact necessary to make the statements contained in a registration
statement or offering statement to which this Section 8 applies not
misleading; provided, however, that the indemnification contained in
this provision (iv) shall not apply if the untrue statement or
omission, or alleged untrue statement or omission, was the result of
information furnished in writing to the Company by the Holder, holder
or underwriter seeking indemnification expressly for use in the
registration statement or offering statement at issue. To the extent
that the indemnification contained in this provision applies, the
Company also shall indemnify and hold harmless each officer, director,
employee, controlling person or agent of an indemnified Holder, holder
or underwriter.
(g) In each instance in which pursuant to this Section 8 the Company shall
take any action to register or qualify the Warrant, Warrant Securities or the
Warrant Securities underlying the unexercised portion of this Warrant, prior to
the effective date of any registration statement or offering statement, the
Company and each Holder or holder of Warrants or Warrant Securities being
registered or qualified shall enter into reciprocal indemnification agreements,
in the form customarily used by reputable investment bankers with respect to
public offerings of securities, containing substantially the same terms as
described in subsection (f)(iv) above. These indemnification agreements also
shall contain an agreement by the Holder or shareholder at issue to indemnify
and hold harmless the Company, its officers, directors from and against any and
all losses, claims, damages and liabilities, including, but not limited to, all
expenses reasonably incurred in investigating, preparing, defending or settling
any claim, directly resulting from any untrue statements of material facts, or
omissions to state a material fact necessary to make a statement not misleading,
contained in a registration statement or offering statement to which
11
<PAGE>
this Section 8 applies, if, and only if, the untrue statement or omission
directly resulted from information provided in writing to the Company by the
indemnifying Holder or shareholder expressly for use in the registration
statement or offering statement at issue.
(h) The term "Majority Holder" as used in this Section 8 shall include any
Holder, any holder of Warrant Securities, or any combination of Holders and such
holders of Warrant Securities, if they hold, in the aggregate, unexercised
Warrants plus issued and outstanding Warrant Securities equal to more than 50%
of the total of (i) all Warrant Securities issued and outstanding as a result of
the exercise of the Warrant, and (ii) all Warrant Securities that may at that
time be purchased by exercising the unexercised portion of the Warrant. For
purposes hereof, a Warrant entitling the Holder to purchase more than one share
shall be deemed to hold Warrants equal to the number of shares which may be
acquired pursuant to any such Warrant.
(i) For purposes of subsection (f)(i) above, by the receipt of this Warrant
or any Warrant Securities, all Holders and all holders of Warrant Securities
acknowledge and agree that Rocky Mountain Securities & Investments, Inc. is and
shall be their representative.
(j) The Company's obligations described in this Section 8 shall continue in
full force and effect regardless of the exercise, surrender, cancellation or
expiration of this Warrant.
9. Transfer to Comply With the Securities Act of 1933.
(a) This Warrant, the Warrant Securities, and all other securities issued
or issuable upon exercise of this Warrant, may not be offered, sold or
transferred, in whole or in part, except in compliance with the Securities Act
of 1933, as amended (the "Act"), and except in compliance with all applicable
state securities statutes.
(b) The Company may cause the following legend, or its equivalent, to be
set forth on each certificate representing the Warrant Securities, or any other
security issued or issuable upon exercise of this Warrant, not theretofore
distributed to the public or sold to underwriters, as defined by the Act, for
distribution to the public pursuant to Section 8 above:
"The shares represented by this Certificate have not been registered
under the Securities Act of 1933 ("the Act") and are 'restricted
securities' as that term is defined in Rule 144 under the Act. The
shares may not be offered for sale, sold or otherwise transferred
except pursuant to an effective registration statement under the Act or
pursuant to an exemption from registration under the Act, the
availability of which is to be established to the satisfaction of the
Company."
10. Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of all or any part of this
Warrant. With respect to any fraction of a share of any security called for upon
any exercise of this Warrant, the Company shall pay to the Holder an amount in
money equal to that fraction multiplied by the current market value of that
share. The current market value shall be determined as follows:
(i) if the security at issue is listed on a national securities
exchange or admitted to unlisted trading privileges on such an
exchange or listed on the National Association of Securities
Dealers National Market System, the current value shall be the
last reported sale price of that security on such exchange or
system on the last business day prior to the date of the
applicable exercise of this Warrant or, if no such sale is
made on such day, the average of the highest closing bid and
lowest asked price for such day on such exchange or system; or
12
<PAGE>
(ii) if the security at issue is not so listed or admitted to
unlisted trading privileges, the current market value shall be
the average of the last reported highest bid and lowest asked
prices quoted on the National Association of Securities
Dealers Automated Quotations System or, if not so quoted, then
by the National Quotation Bureau, Inc. on the last business
day prior to the day of the applicable exercise of this
Warrant; or
(iii) if the security at issue is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not
reported, the current market value shall be determined in such
reasonable manner as may be prescribed from time to time by
the Board of Directors of the Company, subject to the
objection and arbitration procedure as described in Section 5
above.
11. Rights of the Holder. The Holder shall not be entitled to any rights as
a shareholder in the Company by reason of this Warrant, either at law or equity,
except as specifically provided for herein. The Company covenants, however, that
for so long as this Warrant is at least partially unexercised, it will furnish
any Holder of this Warrant with copies of all reports and communications
furnished to the shareholders of the Company.
12. Charges Due Upon Exercise. The Company shall pay any and all issue or
transfer taxes, including, but not limited to, all federal or state taxes, that
may be payable with respect to the transfer of this Warrant or the issue or
delivery of Warrant Securities upon the exercise of this Warrant.
13. Warrant Securities to be Fully Paid. The Company covenants that all
Warrant Securities that may be issued and delivered to a Holder of this Warrant
upon the exercise of this Warrant will be, upon such delivery, validly and duly
issued, fully paid and nonassessable.
14. Notices. All notices, certificates, requests, or other similar items
provided for in this Warrant shall be in writing and shall be personally
delivered or deposited in the United States mail, postage prepaid, addressed to
the respective party as indicated in the portions of this Warrant preceding
Section 1. All notices shall be deemed to be delivered upon personal delivery or
upon the expiration of 3 business days following deposit in the United States
mail, postage prepaid. The addresses of the parties may be changed, and
addresses of other Holders and holders of Warrant Securities may be specified,
by written notice delivered pursuant to this Section 14. The Company's principal
office shall be deemed to be the address provided pursuant to this Section for
the delivery of notices to the Company.
15. Applicable Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of Colorado, and courts located in
Colorado shall have exclusive jurisdiction over all disputes arising hereunder.
16. Arbitration. The Company and the Holder, and by receipt of this Warrant
or any Warrant Securities, all subsequent Holders or holders of Warrant
Securities, agree to submit all controversies, claims, disputes and matters of
difference with respect to this Warrant, including, without limitation, the
application of this Section 16 to arbitration in Denver, Colorado, according to
the rules and practices of the American Arbitration Association from time to
time in force; provided, however, that if such rules and practices conflict with
the applicable procedures of Colorado courts of general jurisdiction or any
other provisions of Colorado law then in force, those Colorado rules and
provisions shall govern. This agreement to arbitrate shall be specifically
enforceable. Arbitration may proceed in the absence of any party if notice of
the proceeding has been given to that party. The parties agree to abide by all
awards rendered in any such proceeding. These awards shall be final and binding
on all parties to the extent and in the manner provided by the rules of civil
procedure enacted in Colorado. All awards may be filed, as a basis of judgment
and of the issuance of execution for its collection, with the clerk of one or
13
<PAGE>
more courts, state or federal, having jurisdiction over either the party against
whom that award is rendered or its property. No party shall be considered in
default hereunder during the pendency of arbitration proceedings relating to
that default.
17. Miscellaneous Provisions.
(a) Subject to the terms and conditions contained herein, this Warrant
shall be binding on the Company and its successors and shall inure to the
benefit of the original Holder, its successors and assigns and all holders of
Warrant Securities and the exercise of this Warrant in full shall not terminate
the provisions of this Warrant as it relates to holders of Warrant Securities.
(b) If the Company fails to perform any of its obligations hereunder, it
shall be liable to the Holder for all damages, costs and expenses resulting from
the failure, including, but not limited to, all reasonable attorney's fees and
disbursements.
(c) This Warrant cannot be changed or terminated or any performance or
condition waived in whole or in part except by an agreement in writing signed by
the party against whom enforcement of the change, termination or waiver is
sought.
(d) If any provision of this Warrant shall be held to be invalid, illegal
or unenforceable, such provision shall be severed, enforced to the extent
possible, or modified in such a way as to make it enforceable, and the
invalidity, illegality or unenforceability shall not affect the remainder of
this Warrant.
(e) The Company agrees to execute such further agreements, conveyances,
certificates and other documents as may be reasonably requested by the Holder to
effectuate the intent and provisions of this Warrant.
(f) Paragraph headings used in this Warrant are for convenience only and
shall not be taken or construed to define or limit any of the terms or
provisions of this Warrant. Unless otherwise provided, or unless the context
shall otherwise require, the use of the singular shall include the plural and
the use of any gender shall include all genders.
DOUBLE EAGLE PETROLEUM AND MINING CO.
ATTEST:
By By
------------------------------------ ---------------------------------
, Secretary Stephen H. Hollis, President
By
------------------------------------
Dr. Richard B. Laudon, Chairman
14
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
(To be executed by a Holder desiring to exercise the right to purchase Units
pursuant to a Warrant.)
The undersigned Holder of a Warrant hereby
(a) irrevocably elects to exercise the Warrant to the extent of
purchasing _______________ Units;
(b) makes payment in full of the aggregate Exercise Price for those
Units in the amount of $_________________ by the delivery of certified
funds or a bank cashier's check in the amount of $_________________;
(c) requests that certificates evidencing the securities underlying
such Units be issued in the name of the undersigned, or, if the name and
address of some other person is specified below, in the name of such other
person:
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
(Name and address of person other than the
undersigned in whose name Units are to be registered)
(d) requests, if the number of Units purchased are not all the Units
purchasable pursuant to the unexercised portion of the Warrant, that a new
Warrant of like tenor for the remaining Units purchasable pursuant to the
Warrant be issued and delivered to the undersigned at the address stated
below.
Dated:
----------------------- -----------------------------------
Signature
(This signature must conform in all
respects to the name of the Holder
as specified on the fact of the
Warrant.)
- --------------------------------
Social Security Number -----------------------------------
or Employer ID Number Printed Name
Address:
------------------------------------
------------------------------------
15
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned, , hereby sells, assigns and transfers unto:
Name:
-------------------------------------------------------------------------
(Please type or print in block letters)
Address:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
the right to purchase _________________ Units of Double Eagle Petroleum and
Mining Co. (the "Company") pursuant to the terms and conditions of the Warrant
held by the undersigned. The undersigned hereby authorizes and directs the
Company (i) to issue and deliver to the above-named assignee at the above
address a new Warrant pursuant to which the rights to purchase being assigned
may be exercised, and (ii) if there are rights to purchase Units remaining
pursuant to the undersigned's Warrant after the assignment contemplated herein,
to issue and deliver to the undersigned at the address stated below a new
Warrant evidencing the right to purchase the number of Units remaining after
issuance and delivery of the Warrant to the above-named assignee. Except for the
number of Units purchasable, the new Warrants to be issued and delivered by the
Company are to contain the same terms and conditions as the undersigned's
Warrant. To complete the assignment contemplated by this Assignment Form, the
undersigned hereby irrevocably constitutes and appoints ........................
as the undersigned's attorney-in-fact to transfer the Warrants and the rights
thereunder on the books of the Company with full power of substitution for these
purposes.
Dated:
-------------------------------- ------------------------------------
Signature
(This signature must conform in all
respects to the name of the Holder
as specified on the fact of the
Warrant.)
-----------------------------------
Printed Name
Address:
-----------------------------------
-----------------------------------
16
October 10, 1996
Securities And Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Gentlemen and Ladies:
We have acted as counsel for Double Eagle Petroleum And Mining Co., a
Wyoming corporation (the "Company"), in connection with the registration on Form
SB-2 under the Securities Act of 1933, as amended, of up to 1,350,000 shares of
the Company's $.10 par value common stock ("Common Stock") and Redeemable Common
Stock Purchase Warrants ("Warrants") to purchase up to an additional 1,350,000
shares of Common Stock.
We have examined the Articles Of Incorporation and the Bylaws of the
Company and the record of the Company's corporate proceedings concerning the
registration described above. In addition, we have examined such other
certificates, agreements, documents and papers, and we have made such other
inquiries and investigations of law as we have deemed appropriate and necessary
in order to express the opinion set forth in this letter. In our examinations,
we have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, photostatic, or conformed copies and the
authenticity of the originals of all such latter documents. In addition, as to
certain matters we have relied upon certificates and advice from various state
authorities and public officials, and we have assumed the accuracy of the
material and the factual matters contained herein.
Subject to the foregoing and on the basis of the aforementioned
examinations and investigations, it is our opinion that the shares of Common
Stock being registered by the Company, if and when sold and delivered as
described in the Company's Registration Statement on Form SB-2 (the
"Registration Statement"), will have been duly authorized and legally issued,
and will constitute fully paid and nonassessable shares of the Company's Common
Stock. Further, the Warrants, if and when issued, will represent the right to
purchase shares of the Company's Common Stock, all as set forth in the
Registration Statement.
We hereby consent (a) to be named in the Registration Statement and in the
prospectus that constitutes a part of the Registration Statement as the
attorneys passing, on behalf of the Company, upon the validity of the issuance
of the Common Stock and Warrants, and (b) to the filing of this opinion as an
exhibit to the Registration Statement.
<PAGE>
Securities And Exchange Commission
October 10, 1996
Page 2
This opinion is to be used solely for the purpose of the registration of
the Common Stock and Warrants and may not be used for any other purpose.
Very truly yours,
/s/ Bearman Talesnick & Clowdus
---------------------------------------
Professional Corporation
BEARMAN TALESNICK & CLOWDUS
Professional Corporation
BTC:sl
Enclosures
(HOLLIS OIL & GAS CO. LETTERHEAD)
P.O. Box 1068
Casper, WY 82602
(307) 577-7460
May 26, 1995
Double Eagle Petroleum & Mining Company
ATTN: Richard A. Laudon
777 Overland Trail
Casper, WY 82601
Dear Dick:
This letter, when accepted by Double Eagle Petroleum & Mining Company ("Double
Eagle"), will be an agreement for Hollis Oil & Gas Company ("Hollis") to sell
and Double Eagle to buy certain properties of Hollis on the terms set forth
below.
1. Hollis agrees to sell and Double Eagle agrees to buy all of Hollis'
right, title and interest in and to all oil and gas leases and overriding
royalty interests in following lands located in Sweetwater County, Wyoming:
Township Range
-------- -----
21N 111W
21N 112W
22N 111W
23N 110W
23N 111W
24N 110W, Except Section 32
and an undivided one-half of the interest owned by Hollis in Section
32, T24N, R110W prior to the Farmout Agreement dated September 8, 1994
between Hollis and Double Eagle covering the 20-32 Well located in the
NE/4 of that section ("Farmout Agreement")
(the "Subject Interests"), and all privileges and rights appurtenant to the
Subject Interests; together with all of Seller's corresponding right, title and
interest in and to and under or derived from all presently existing and
effective unitization, pooling and communitization agreements, declarations and
orders to which the Subject Interests are committed, and the properties and the
units created thereby (including but not limited to all units formed under
orders, regulations, rules or other official actions of any federal state or
other government agency having
<PAGE>
Double Eagle Petroleum & Mining Company
May 26, 1995
Page 2
jurisdiction) to the extent they are attributable to and allocable to the
Subject Interests (the "Pooled Interests"); EXCEPTING AND RESERVING to Seller a
concurrent right, title and interest to such contracts, agreements and
instruments to the extent attributable and allocable to any rights and interests
retained by Seller in Section 32, T24N, R110W and in any lands and depths not
described above;
2. The parties hereby cancel and nullify the Farmout Agreement in its
entirety.
3. The purchase price to be paid by Double Eagle shall be $71,300 cash and
350,000 shares of Double Eagle stock, subject to a provision and restricting
sale of the stock for a period of two years from the date of issuance.
4. The effective date of the sale shall be May 31, 1995. All production
from and proceeds attributable to the Subject Interests or Pooled Interests as
well as ad valorem, production and severance taxes on oil and gas production
prior to the effective date shall be pro rated as of the effective date. Hollis
shall be entitled to all production and proceeds attributable to the Subject
Interests or Pooled Interests prior to the effective date, while Double Eagle
shall be entitled to all oil and gas produced from the Subject Interests or
Pooled Interests subsequent to the effective date.
5. Notwithstanding the allocation of production provided in Section 4,
Purchaser acknowledges and agrees to the following regarding possible gas
imbalances affecting the Subject Interests or Pooled Interests:
(a) Double Eagle has made an independent investigation into any
gas imbalances (including any underproduced gas or
overproduced gas) and has taken such imbalances into
consideration in the purchase price.
(b) Gas underproduction: In the event Hollis is underproduced as
to any well(s) included in the Subject Interests or Pooled
Interests, Double Eagle agrees not to hold Hollis liable for
such underproduction. Hollis, however, agrees that if closing
occurs, Double Eagle is hereby assigned all of its contractual
rights to make up such underproduction.
(c) Gas overproduction: In the event Hollis is overproduced as to
any well(s) appurtenant to the Subject Interests or Pooled
Interests, Double Eagle acknowledges and agrees that its share
of gas from any such overproduced well(s) included in the
Subject Interests or Pooled Interests may at some
<PAGE>
Double Eagle Petroleum & Mining Company
May 26, 1995
Page 3
point be curtailed by underproduced working interest owner(s).
The parties agree that Hollis shall not be liable to Double
Eagle in the event such curtailment occurs, there shall be no
adjustment to the Purchase Price if Hollis is overproduced,
and Double Eagle shall accept the Subject Interests or Pooled
Interests subject to any obligations created by such
overproduction.
6. Closing shall take place in the offices of Double Eagle on or before
June 15, 1995. At closing, Hollis will execute and deliver to Double Eagle an
assignment of the Subject Interests in a form mutually acceptable to both
parties. Double Eagle will pay Hollis $71,300 in cash, and issue to Hollis
350,000 fully paid and non-assessable, restricted shares of common stock in
Double Eagle. Hollis agrees to execute federal form assignments and such other
instruments as are necessary to carry out the intent of this agreement.
7. If closing occurs, Double Eagle hereby agrees and shall agree, in
writing in the instruments conveying the Subject Interests, effective May 31,
1995, to take the Subject Interests subject to and to assume, perform, pay for
and comply with, all of the provisions, duties, liabilities and obligations
(express or implied) that relate to or are attributable to the Subject Interests
or Pooled Interests, whether existing as of the effective date or later arising,
including, but not limited to the following, insofar as they relate to or
pertain to the Subject Interests or Pooled Interests and are binding upon
Hollis: all of the terms and conditions of the leases, agreements, contracts and
instruments described as pertaining to the Subject Interests or Pooled
Interests; all valid unit, pooling and communitization agreements or orders; all
valid and existing lease burdens (including, but not limited to, royalties,
overriding royalties, production payments, net profits interests, carried
working interests or other burdens); all operating agreements; all farmin and
farmout agreements; all area of mutual interest agreements; all preferential
purchase rights, consent to assignment requirements and reassignment
obligations; all other contracts, agreements and instruments; and all duties
imposed by governmental law, rule or regulation.
8. Hollis will specially warrant the title to the Subject Interests to be
free from all liens and encumbrances created by, through or under Hollis, but
not otherwise, except for operating agreements, farmouts, communitization,
pooling, unitization or other similar agreements.
9. Hollis will be entitled to nominate at least one new director to the
board of Double Eagle whose election Double Eagle and its current directors will
recommend and support. In the event of any resignation or retirement of any
current directors, or the addition of a sixth
<PAGE>
Double Eagle Petroleum & Mining Company
May 26, 1995
Page 4
director, Hollis will be entitled to nominate a director, whose election Double
Eagle will recommend and support.
If the foregoing correctly sets forth our understanding, please execute and
return to Hollis one copy of this letter.
Sincerely yours,
William N. Heiss
President
WNH/sb
AGREED TO AND ACCEPTED THIS 30th day of May, 1995.
DOUBLE EAGLE PETROLEUM & MINING COMPANY
By
--------------------------------------
Title
-----------------------------------
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Double Eagle Petroleum
And Mining Co. on Form SB-2 of our report dated October 19, 1995 relating to the
financial statements of Double Eagle Petroleum And Mining Co. appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Hocker, Lovelett, Hargens & Yennie, P.C.
----------------------------------------------
Casper, Wyoming
October 10, 1996
