As filed with the Securities And Exchange Commission on November 27, 1996
SEC Registration No. 333-14011
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
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 Of (Primary Standard Industrial (IRS Employer
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,
Professional Corporation Suite 2700 S. Tower
1200 Seventeenth Street, Suite 2600 Denver, Colorado 80202
Denver, Colorado 80202 (303) 893-2300
(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.
<PAGE>
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
Maximum Maximum Amount
Offering Aggregate Of
Title Of Each Class Of Securities To Be Amount To Be Price Per Offering Registration
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>
<TABLE>
<CAPTION>
Double Eagle Petroleum And Mining Co.
Cross-reference Sheet between Registration Statement (Form SB-2) and Form of Prospectus.
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 NOVEMBER 27, 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. To determine when the Warrants will
become detachable, the Company will consider market conditions and the advice
and recommendations of market makers.
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 November 22, 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. In addition, if a
market for the Units and Warrants does develop, there may be a negative effect
on trading caused by certain Securities And Exchange Commission ("SEC") rules.
See "RISK FACTORS--Possible Effects Of SEC And NASDAQ Rules On Market For Units,
Common Stock And Warrants". 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) $1.50 $.15 $1.35
Total (3) $1,500,000 $150,000 $1,350,000
===============================================================================
(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. 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 November ___, 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 $140,000 ($.14 per Unit),
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 $1,725,000,
$172,500, and $1,552,500, 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.
[Maps of Principal Areas Of Activity appear here]
[Graph showing three-year production data 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
14 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 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.
-iii-
<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 184 producing wells, with oil constituting approximately 55 percent and
natural gas constituting approximately 45 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 the 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>
Year Ended August 31,
-----------------------------------------------------------
1992 1993 1994 1995 1996
----------- ---------- ------------ ----------- -----------
Income Statement Data:
<S> <C> <C> <C> <C> <C>
Production revenues .............. $ 507,349 $ 427,538 $ 235,411 $ 247,461 $ 417,114
Property sales and
other revenues ................. $ 202,247 $ 228,439 $ 263,946 $ 686,025 $ 232,537
Depreciation,
depletion and
amortization .................... $ 95,915 $ 102,572 $ 72,108 $ 78,586 $ 106,900
Income before
income taxes and
cumulative effect
of accounting change ........... $ 43,238 $ (76,421) $ (203,039) $ 18,404 $ (24,077)
Net income ....................... $ 36,752 $ (76,421) $ (341,616)(1) $ 15,291 $ (21,143)
Net income per share(2) ............ $ .02 $ (.04) $ (.15)(1) $ .01 $ (.01)
Selected Operations
Data (Unaudited):
Proved Developed
Reserves
Oil (Bbls) ..................... 133,488 118,715 104,612 95,383 188,580
Gas (Mcf) ...................... 1,755,392 1,703,588 1,844,343 1,935,164 2,082,591
Production
Oil (Bbls) ....................... 24,633 20,002 11,107 9,528 17,352
Gas (Mcf) ........................ 58,666 79,832 53,287 68,862 140,179
Reserves to Production Ratio
(years)
Oil .............................. 5.4 5.9 9.4 10.0 10.9
Gas .............................. 30.0 21.3 34.6 28.1 14.9
Average sales price
Oil ($/Bbl) ...................... $ 16.86 $ 16.59 $ 16.37 $ 16.52 $ 21.42
Gas ($/Mcf) ...................... $ 1.37 $ 1.37 $ 1.32 $ 1.40 $ 1.16
Reserve replacement
costs ($/BOE) .................... (3) $ 46.52 $ 5.07 $ 24.37 $ 4.12
Net wells completed
during the period ................ .26 .25 .5 .8 .154
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
At August 31, 1995 At August 31, 1996
------------------- ----------------------------------
Actual As Adjusted (4)
----------- --------------
Balance Sheet Data:
<S> <C> <C> <C>
Working capital............ $173,390 $(263,679) $ 16,321
Total assets............... $2,235,220 $2,540,918 $3,500,918
Long-term debt............. -0- -0- -0-
Stockholders' equity....... $1,943,155 $1,922,012 $3,132,012
</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) 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.
(3) No reserves acquired.
(4) 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".
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
one redeemable Common Stock purchase warrant (the
"Warrant") 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: $1.50 per Unit
Common Stock outstanding(1):
Prior to the Offering: 2,712,371
After Offering(1): 3,712,371
Warrants Outstanding:
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, (ii) up to 150,000
shares of Common Stock that may be included in Units issued pursuant to the
Underwriter's over-allotment option and (iii) up to 100,000 shares of
Common Stock issuable upon exercise of the Underwriter's Warrants. See
"UNDERWRITING". Also does not include 170,000 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
Warrants The Warrants are redeemable, at any time, by the
Company at 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 August
31, 1996, respectively. For additional information relating to reserves, see
"BUSINESS AND PROPERTIES--Production", "--Reserves", Note 11, Oil and Gas
Producing Activities, included after the 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) August 31, 1996 (1)
--------------------------------------- ------------------------------------------
Developed Undeveloped Total Developed Undeveloped Total
--------- ----------- ----- --------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Crude Oil (Bbls)....... 95,383 -0- 95,383 188,580 -0- 188,580
Natural Gas (Mcf)...... 1,935,164 -0- 1,935,164 2,082,591 -0- 2,082,591
-4-
<PAGE>
Estimated Proved Reserves As Of
---------------------------------------------------------------------------------------
August 31, 1995(1) August 31, 1996
--------------------------------------- ------------------------------------------
Developed Undeveloped Total Developed Undeveloped Total
--------- ----------- ----- --------- ----------- -----
Present Value Of Estimated
Future Net Revenues Before
Income Taxes (In Thousands),
Discounted At 10%(2)....... - - $863,312 - - $2,449,299
</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 was
calculated using oil and gas prices as of that date.
-5-
<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 three of its
past five fiscal years. 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. The Company
does not carry "key man" life insurance policies on Dr. Laudon or Mr. Hollis.
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 oil and/or 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 gas 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>
Competition; 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-9 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
$1,350,000 ($1,552,500 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 $960,000 of the
proceeds of this Offering, together with its operating cash flow, for its oil
and gas activities during fiscal 1996 and 1997, which initially will focus on
identifying prospect areas, acquiring oil and gas leases, marketing prospects to
-9-
<PAGE>
industry partners, and funding the Company's share of drilling and completion
costs. See "BUSINESS--Plan Of Operation" and "--Principal Areas Of Oil And Gas
Activity" for a description of the Company's oil and gas activities and planned
expenditures. The Company also intends to 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, 1997. In addition, subject to management's determination that there
are appropriate opportunities, the Company's oil and gas activities may include
one or more of the following in its principal areas of activity (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 Oil And Gas 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 the results of
exploratory drilling and seismic analysis, changes in oil and/or gas prices and
other economic conditions that affect whether a project is economical,
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
August 31, 1996, and as adjusted to reflect the issuance and sale of the
1,000,000 Units offered hereby.
<TABLE>
<CAPTION>
August 31, 1996
--------------------------------------
Actual (1) As Adjusted (2)
----------- --------------
<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 $ 371,237
as adjusted)(1)(2).................................
Additional paid-in capital ......................... $ 886,254 $1,996,254
Retained earnings .................................. $ 764,521 $ 764,521
Total stockholders' equity ....... $1,922,012 $3,132,012
Total capitalization ............. $1,922,012 $3,132,012
</TABLE>
- --------------------
(1) Does not include 170,000 shares issuable upon exercise of outstanding
options.
-10-
<PAGE>
(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".
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
November 22, 1996 the closing high bid price for the Common Stock as reported by
NASDAQ was $1.25 per share and the closing low asked price was $1.4375.
Number Of Shareholders Of Record
On November 22, 1996, the number of shareholders of record was 2,045.
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.
-11-
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below for each of the years in the
five-year period ended August 31, 1996 are derived from the financial statements
of the Company, which financial statements have been audited by the Company's
independent auditors. 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 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>
Years Ended August 31,
-----------------------------------------------------------
1992 1993 1994 1995 1996
-------- --------- --------- -------- ---------
Income Statement Data
Revenues:
<S> <C> <C> <C> <C> <C>
Oil and gas production ................... $ 507,349 $ 427,538 $ 235,411 $ 247,461 $ 417,114
Sales of nonproducing properties ......... 161,634 81,000 78,244 634,979 130,000
Sale of wells ............................ -- 13,750 136,495 -- --
Interest income .......................... 10,635 1,966 6,621 18,122 4,474
Other, primarily zeolite royalties ....... 29,978 34,126 30,000 32,924 98,063
Gain on sale of investments .............. -- 97,597 12,586 -- --
--------- --------- --------- --------- ---------
Total revenues ..................... $ 709,596 $ 655,977 $ 499,357 $ 933,486 $ 649,651
Expenses:
Production costs ......................... $ 94,361 $ 107,038 $ 51,600 $ 45,009 $ 79,532
Production taxes ......................... 60,871 51,569 18,667 29,679 41,750
Cost of nonproducing properties sold ..... 26,243 38,143 10,540 228,992 14,439
Cost of wells sold ....................... -- 17,125 69,736 -- --
Exploration .............................. 88,950 84,988 69,341 91,705 84,685
Write-offs and abandonments 91,666 108,357 195,457 213,090 92,793
Depreciation, depletion and
amortization ............................ 95,915 102,572 72,108 78,586 106,900
Interest expense -- -- -- -- 10,594
General and
administrative .......................... 208,352 222,606 214,947 228,021 240,035
--------- --------- --------- --------- ---------
Total expenses ..................... $ 666,358 $ 732,398 $ 702,396 $ 915,082 $ 673,728
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<PAGE>
Income (loss) before income taxes and
cumulative effect of change
in method of accounting ................... $ 43,238 $ (76,421) $(203,039) $ 18,404 ($ 24,077)
Provision for (benefit from)
income taxes .............................. 6,486 -- (30,011) 3,113 (2,934)
--------- --------- --------- --------- --------
Income (loss) before cumulative
effect of change in method of
accounting ................................ 36,752 (76,421) (173,028) 15,291 (21,143)
Cumulative effect of change in
method of accounting for
income taxes .............................. -- -- (168,588) -- --
--------- --------- --------- --------- ----------
Net income (loss) ........................... $ 36,752 $ (76,421) $(341,616) $ 15,291 $ (21,143)
========= ========= ========= ========= =========
Income (loss) per common and
common equivalent share:(1) .................. $ .02 $ (.04) $ (.15) $ .01 $ (.01)
Before cumulative effect of
accounting change ........................ .02 (.04) (.08) .01 (.01)
Cumulative effect of accounting
change ................................... -- -- (.07) -- --
----------- --------- --------- --------- ---------
After cumulative effect of accounting
change ................................... $ .02 $ (.04) $ (.15) $ .01 $ (.01)
Common Stock and Common Stock
equivalent shares outstanding .............. 2,032,109 2,047,073 2,317,166 2,450,590 2,712,371
At August 31,
-----------------------------------------------------------------------
1992 1993 1994 1995 1996
----------- ----------- ------------- ----------- -----------
Selected Balance Sheet Data
Working capital ............................. $ 72,334 $ 144,499 $ 60,494 $ 173,390 $ (263,679)
Total assets ................................ $ 2,265,005 $ 2,004,968 $ 2,030,406 $ 2,235,220 $ 2,540,918
Long-term debt .............................. $ -- $ -- $ -- $ -- $ --
Stockholders' equity ........................ $ 1,970,680 $ 1,928,229 $ 1,796,613 $ 1,943,155 $ 1,922,012
</TABLE>
- ----------
(1) 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.
-13-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity And Capital Resources
During the year ended August 31, 1996, the Company's operations resulted in
negative working capital of ($264,000) compared with positive working capital of
$173,000 at August 31, 1995. The $437,000 decrease was due to the Company's
incurring a significant expense to fracture stimulate and recomplete three of
its producing wells, and costs to acquire additional interests in certain
prospects. One of the three recompletions, that of the Rabourn Well, resulted in
substantially increased production from that well. These transactions were
initially paid for with borrowed funds, and a majority of the debt was repaid in
the two quarters ended May 31, 1996 and February 28, 1996, respectively. The
funds were borrowed from a commercial bank pursuant to a demand loan that
accrued interest at a rate per annum equal to one percentage point above the
bank's prime rate.
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 (which other sources are currently
unknown), the Company will not be able to pursue the same number of oil and gas
projects on the same basis as it would like. The Company has budgeted
approximately $800,000 to pursue oil and gas projects during fiscal 1997
assuming the completion of this Offering and approximately $310,000 if this
Offering is not completed. See "USE OF PROCEEDS" and "BUSINESS--Principal Areas
Of Oil And Gas Activity". It is not anticipated that the Company will undertake
future material sales of oil and gas properties for the primary purpose of
raising working capital. The proceeds from the Offering, together with the
Company's operating cash flow, are expected to be sufficient for the Company's
anticipated operations through fiscal 1997.
Revenues from the sale of oil and gas increased significantly in fiscal
1996, and certain of these funds were reinvested in capitalized development
activities. Although this reinvestment resulted in a short-term decrease in
working capital, it is anticipated to result in increased future cash flows as
shown in Note 11 to the financial statements. The Company is not the operator on
the wells in which it holds interests; therefore, no inventories of oil and gas
are reflected in its financial statements. Accounts receivable at year end were
more than double the prior year, primarily due to increased production from the
Rabourn Well. In addition, accounts receivable and accounts payable were both
significant at year end due to the work being performed on the Graham Unit to
which the Company bills joint interest parties for 25%.
During the year ended August 31, 1996, the gas balancing agreement had no
effect on operations or liquidity and capital resources. Because there has been
no significant fluctuation in the units of gas and the price used to value the
receivable, no adjustment has been made to the asset. In the near future, the
Company intends to contact the operator and initiate a settlement for the
imbalance.
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".
-14-
<PAGE>
Results Of Operations
Year Ended August 31, 1996 Compared To Year Ended August 31, 1995
The Company experienced a net loss for the year ended August 31, 1996 of
$(21,143) compared to net income for the prior year of $15,291. The change is
due mainly to the sale of several of the Company's nonproducing properties in
the first quarter of fiscal 1995, yielding a profit of $363,600, compared to the
sale of nonproducing properties in fiscal 1996 yielding a profit of $115,600.
Without considering proceeds from sales of properties, the Company had a net
loss from operations of $(139,638) for the year ended August 31, 1996 compared
to a net loss of $(387,583) for the year ended August 31, 1995, primarily as a
result of increased production and lower write-offs and abandonments.
Revenue from oil and gas sales increased by approximately $169,600 in the
year ended August 31, 1996 compared to the year ended August 31, 1995. This
increase primarily can be attributed to a workover performed on the Company's
Rabourn Well, which accounted for $118,000 of the increase, added production
from the purchase of producing properties in the first quarter of the current
year, which accounted for $43,000 of the increase, and the recompletion of the
Britz Federal Well in a different zone, which accounted for $18,000 of the
increase. Because there was no gas balancing agreement adjustment in 1996,
revenues were not increased as they were by $19,000 in 1995.
Production costs and taxes increased by approximately $46,600 due to the
increase in oil and gas production and sales revenue.
Exploration costs decreased by $7,000 during the year ended August 31, 1996
when compared to the year ended August 31, 1995. The decrease primarily is
attributable to lower geological expenses.
Overall costs and expenses decreased by approximately $241,300 during the
year ended August 31, 1996 when compared to the prior year, due primarily to a
decrease in the cost of properties sold and a decrease in write-offs and
abandonments of $120,000, a decrease in dry hole costs of $28,000, and a
decrease in exploration costs of $7,000 due to lower geological expenses.
Interest income decreased by approximately $13,000 from 1995 to 1996 due to
a decrease in funds being available for investments as they were used for
property workovers as described above. The Company also incurred interest
expense of $10,000 in 1996 in connection with its bank line of credit.
Depreciation and depletion expense increased by approximately $28,000
during the year ended August 31, 1996 compared to the previous year. This
increase can be attributed to increased production from properties acquired in
1995 and increased production and costs from recompletions and development
activities in 1996 described above.
Other income increased $65,000 in 1996 compared to 1995 primarily to
charging a management fee of $37,000 to joint interest parties for the Company's
operations on development of a major prospect. The Company also recognized
$32,000 in revenue as a result of the determination that the Buck Creek Field
sold in 1994 is settled with no further liability by the Company.
General and administrative expenses were up slightly during fiscal 1996
as a result of additional travel costs by Company personnel for purposes
associated with raising additional capital and monitoring workover and
recompletion well projects and showing a developmental prospect to interested
individuals.
-15-
<PAGE>
Year Ended August 31, 1995 Compared To August 31, 1994.
The Company experienced net income for the year ended August 31, 1995 of
approximately $18,400 compared to a net loss of approximately $(203,000) for the
year ended August 31, 1994. The change is due primarily to sales of nonproducing
properties in 1995 that were substantially greater than sales in 1994. Without
considering proceeds from sales of properties and producing wells, the Company
had a net loss from operations of $(387,583) in the year ended August 31, 1995
compared to a net loss from operations of $(337,502) in 1994 primarily as a
result of higher production, and correspondingly higher sales from production,
and higher interest income in 1995.
Revenues from sales of oil and gas were up slightly during the year ended
August 31, 1995 as compared with the year ended August 31, 1994. The decrease in
price per Mcf of gas was partly offset by an increase in the production of gas.
Production of gas increased by 10,000 Mcf of gas and $16,000 as a result of the
Company's acquisition of an additional working interest in producing properties
in the Whiskey Butte Field during the year ended August 31, 1995 and by 7,650
Mcf of gas and $14,000 as a result of the acquisition of an overriding royalty
interest in the Farson Road Unit near the end of the year ended August 31, 1994.
Revenue from the sales of oil and gas decreased by $7,000 from the Graham Unit's
having been shut in and $32,000 from the sale of the Buck Creek Field in 1994.
The revenue from the Rabourn Well was stable as the $2.50 decrease in per barrel
price was equally offset by an 825 barrel increase in production. Lastly,
production from the Long Butte property decreased by 40% and the lower price
from the 1-36 State Well resulted in $10,000 less revenue. 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.
During the year ended August 31, 1995, the Company recognized $19,500 in
oil and gas sales as a result of the gas balancing agreement on the Whiskey
Butte Field.
Sales and gains on sales of non-producing properties increased
significantly when compared with 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.
Interest income increased approximately $11,500 in fiscal 1995 compared to
fiscal 1994, due to increased interest rates and the Company's 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 $22,000 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
by $13,000 as a result of higher rental requirements for some of the Company's
newer properties. Also, geological expenses increased by $9,000 as the Company
was aggressively evaluating the production capabilities of its properties.
-16-
<PAGE>
General and administrative expenses remained relatively stable during the
two years.
Depreciation and depletion increased by $6,500 during the year ended August
31, 1995 compared with the prior fiscal year, 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, which was formed on January 13, 1972, 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 184
producing wells, with oil constituting approximately 55 percent and natural gas
constituting approximately 45 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
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
-17-
<PAGE>
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.
The Company owns varying interests in its oil and gas prospects. These
interests and prospects are described below under "--Principal Areas Of Oil And
Gas Activity". These interests are owned directly by the Company and the
remaining interests in these prospects are owned by various industry partners.
The Company intends to develop its prospects utilizing the proceeds of this
Offering as well as cash flow from operations and sales of a portion of the
Company's interests to industry partners. See "USE OF PROCEEDS". The estimated
amounts to be expended by the Company for its interests to bring prospect
properties into revenue producing operation are set forth below. If the Offering
is not completed or if the Company's available cash from operations or from
sales of interests to industry partners are lower than anticipated, the
Company's activities will decrease. The Company anticipates the decreased
activities will include expending smaller amounts in the Company's principal
areas of activity and attempting to sell a larger portion of the Company's
interests in its prospects and retaining a royalty interest or a smaller working
interest in those prospects than the Company believes it would be able to retain
if the Company had more funds for developing these prospects and was not
required to sell additional interests.
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 developed acreage on
the Moxa Arch range from 0.3 percent to 3.5 percent and cover approximately
15,500 gross acres. Amoco Production Company, Marathon Oil Co., and Coastal Oil
& Gas Corp. each owns working interests in excess of 10 percent in this acreage.
The Company has a 100 percent working interest in an additional approximately
8,800 undeveloped acres on which there currently is no planned activity. Hollis
Oil & Gas Co. owns a 3.5 percent working interest in 640 of the gross developed
acres in which the Company has a 3.5 percent working interest. Stephen H.
Hollis, the President and a Director of the Company, is a Vice President,
Director and stockholder of Hollis Oil & Gas Co. and William N. Heiss, a
Director of the Company, is the President, a Director and stockholder of Hollis
Oil & Gas Co. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS". 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 on approximately 4,000 gross acres, all of
which are located on the Moxa Arch. Through August 31, 1996, the Company had
expended approximately $372,000 on its Moxa Arch prospects, including
approximately $330,000 for leasehold acquisition, rental payments and drilling
costs on the 15,500 gross developed acres, and $42,050 for leasehold acquisition
and rental payments on the 8,800 undeveloped acres. 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.
-18-
<PAGE>
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. The
Company has expended more than $452,000 to acquire and develop this prospect,
including approximately $46,000 for lease acquisition and rental payments and
$406,000 for drilling, completion, and recompletion costs, plus additional
amounts for two unsuccessful wells that were attempted prior to 1985.
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. In addition
to Ensign, Basin Exploration, Inc. and EOS, Inc. each owns working interests in
excess of 10 percent in this unit. 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. Through
August 31, 1996, the Company had expended approximately $5,500 to acquire and
develop its interests in this prospect.
Washakie Basin
James Creek Area. Each of the Company, Credo Petroleum Corp., Farleigh Oil
Properties and R.K. O'Connell 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
formation at approximately 4,405 feet. An offset location targeting the Frontier
formation 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. Through August 31,
1996, the Company had spent approximately $115,000 to acquire and develop its
interests in this prospect.
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. The Company received
an amount in excess of the Company's accumulated costs for the Red Creek
property when the Company sold its working interest to Conoco. Because the
Company holds an overriding royalty interest, the Company is not required to
make any additional expenditures with respect to this prospect.
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. The Company received an amount in excess of the Company's accumulated
costs for the Rock Island property when the Company sold its working interest to
Yates. Because the Company holds an overriding royalty interest, the Company is
not required to make any additional expenditures with respect to this prospect.
-19-
<PAGE>
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 in which
Credo Petroleum Corporation, Farleigh Oil Properties, and R.K. O'Connell have
significant interests. The Company has spent approximately $21,250 to acquire
and develop its interests in this prospect.
State 1-36 Well. The Company owns a 75 percent working interest, and Hollis
Oil & Gas a 25 percent, working interest in the State 1-36 Well located on a
640-acre lease in Sweetwater County, Wyoming. The Company has spent
approximately $276,000 to acquire and develop its interest in this well.
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.
Other significant interest owners include W.A. Moncrief, Jr., BHP Petroleum,
Inc. and Texaco, Inc. 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 drilled a test on an undeveloped 480-acre
lease in which the Company currently owns a 32.5 percent working interest on the
Madden Anticline at an estimated net cost to the Company of $40,000. The Company
initially planned to plug this well because it did not appear to be capable of
commercial production. However, the Company is reevaluating its plans as a
result of a build up of gas pressure during the commencement of plugging and
because there are existing gas wells producing on both sides of this lease.
Hollis Oil & Gas Co. owns a 15 percent, Prima Oil & Gas Co. owns a 35 percent,
and Lockridge Operating Co. owns a 17.5 percent working interest in this lease.
In addition, Hollis Oil & Gas Co. owns a 25 percent working interest in 402.9
gross acres in the Long Butte Field in which the Company holds a 50 percent
working interest.
There currently is significant drilling activity on Madden Anticline and
the Company plans to be involved in up to two development wells in this area
through fiscal 1997 at a cost to the Company of approximately $79,600 per well.
The Company has expended approximately $271,000 to date to acquire and
develop its interests in the Madden Anticline area.
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, resulting in aggregate expenditures of $15,000 on
this prospect. 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, for which no expenditures would be
required, in this acreage.
-20-
<PAGE>
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 remaining 25 percent working interest is owned by J.N.
Incorporated. The Company originally drilled this well in 1981. The initial
zones were depleted and the well was shut-in in 1992 after paying out in excess
of its costs of approximately $441,000. 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. Hollis Oil &
Gas Co. owns a five percent working interest in this acreage. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS". The remaining 75 percent of working
interests are owned by Prima Oil & Gas Co., Lockridge Operating Co., and Alpha
Development. 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.
To date, the Company has expended approximately $2,600 on this prospect,
primarily for lease acquisition and rental payment costs. The Company is
marketing this prospect to prospective partners and, based on discussions with
the owners 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.
Waltman Field. The Company owns a 20 percent working interest, and Hollis
Oil & Gas a five percent working interest, in 1,120 gross acres in the Waltman
Field immediately north of the Cooper Reservoir Field. A well drilled on this
acreage in 1995 was a dry hole. Through August 31, 1996, the Company had
expended approximately $59,000 for its interest in this acreage and the well.
Utah
Christmas Meadows. The Company owns a 100 percent working interest in 1,363
acres that are included in a pool of approximately 23,000 acres in the Table Top
Unit, Summit County, Utah. The Company's working interest in the pooled acreage
is approximately 5.8 percent. Through various farm out arrangements with the
holders of other pooled acreage, the Company has the right to earn a 25 percent
working interest in all the pooled acreage by drilling a test well on the pooled
acreage. Holders of 10 percent or greater working interests in the pooled
acreage consist of Prima Oil & Gas Co. and Lockridge Operating Co. Seismic work
has been undertaken and drilling permits received for an initial test well.
However, approximately 400 acres that 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 the lease period on 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. Through August 31, 1996, the Company had
expended approximately $323,000 with respect to its Christmas Meadows interests,
including costs for lease acquisitions, rental payments, and road construction,
and has received approximately $236,000 from sales of interests in this
prospect.
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<PAGE>
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 commercially
for small 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, these
properties are carried at a total of $385 on the Company's financial statements.
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 $100,000 beginning in
September 1998. These advance royalties will be credited against the amount of
the royalty otherwise payable in the case of any production.
The lessee currently is attempting to develop markets for sale of zeolite
from these properties. There is no assurance that any such markets can be
developed or that any such sales will occur.
Production
The table below sets forth oil and gas production from the Company's net
interests in producing properties for each of its last three fiscal years.
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<PAGE>
Oil And Gas Production
-----------------------------------------
Year Ended
August 31,
-----------------------------------------
1994 1995 1996
-------- -------- ---------
Quantities
Oil (Bbls)................... 11,107 9,528 17,352
Gas (Mcf).................... 53,287 68,862 140,179
Average Sales Price
Oil ($/Bbls)................. $16.37 $16.52 $21.42
Gas ($/Mcf).................. $1.32 $1.40 $ 1.16
Average Production Cost
($/BOE)....................... $3.14 $2.74 $ 2.98
The Company's oil and gas production is sold on the spot market and the
Company does not have any production that is subject to firm commitment
contracts. During the year ended August 31, 1996, purchases by each of two
customers represented more than 10 percent of total Company revenues. The
Company believes that it would be able to locate alternate customers in the
event of the loss of one or both of these customers.
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 1.36
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, 1996, the Company added proved
reserves from acquisitions, extensions, discoveries and reserve revisions of
approximately 197,358 BOE. Capital expenditures during this period were
approximately $994,945, resulting in an average annual reserve replacement cost
of approximately $5.04 per BOE over that three year period.
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<PAGE>
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
---------------------------------------------------------------------------
Year Ended August 31,
---------------------------------------------------------------------------
1994 1995 1996
------------------- ------------------ --------------------
Gross Net Gross Net Gross Net
<S> <C> <C> <C> <C> <C> <C>
Exploratory
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 8 .154
== == == == = ====
</TABLE>
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,
prices 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,
-----------------------------------------------
1994 1995 1996
---------- --------- ---------
<S> <C> <C> <C>
Proved Developed Oil Reserves (Bbls)....................... 104,612 95,383 188,580
Proved Undeveloped Oil Reserves (Bbls)..................... --- --- ---
Total Proved Oil Reserves (Bbls)...................... 104,612 95,383 188,580
Proved Developed Gas Reserves (Mcf)........................ 1,844,343 1,935,164 2,082,591
Proved Undeveloped Gas Reserves (Mcf)...................... --- --- ---
Total Proved Gas Reserves (Mcf)....................... 1,844,343 1,935,164 2,082,591
Total Proved Crude Oil Equivalents (BOE)................... 289,046 288,899 396,839
Present Value Of Estimated Future Net Revenues before
income taxes (in thousands), discounted
at 10%.................................................... $1,243,115 $863,312 $2,449,299
</TABLE>
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<PAGE>
- --------------------
(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-11 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.
<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
</TABLE>
-25-
<PAGE>
<TABLE>
<CAPTION>
ROYALTY 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............................. 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:
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
-26-
<PAGE>
MANAGEMENT
Directors And Executive Officers
The directors and executive officers of the Company are as follows:
Name Age Positions
- ---- --- ---------
Richard B. Laudon 62 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. 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.
-27-
<PAGE>
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 $100,000 during any of the last three
fiscal years.
Annual Compensation
<TABLE>
<CAPTION>
Long-Term Other Annual
Name and Fiscal Year Salary Bonus Compensation- Compen-
Principal Position Ended ($)(1) ($) Options (#) sation ($)
- ----------------------- --------------- -------------- ----------- -------------- ----------
<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 $53,700 -0- -0- -0-
</TABLE>
- ------------------
(1) The dollar value of base salary (cash and non-cash) received.
-28-
<PAGE>
Option Grants Table
The following table sets forth information concerning individual grants of
stock options made during the fiscal year ended August 31, 1996 to the Company's
President and Chairman Of The Board. See "--Stock Option Plans".
<TABLE>
<CAPTION>
Option Grants For Fiscal Year Ended August 31, 1996
% of Total
Options Granted
Options to Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
- ---------------------------- ----------- ----------------- ------------------ ----
<S> <C> <C> <C> <C> <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.
<TABLE>
<CAPTION>
Aggregated Option Exercises
For Fiscal Year Ended August 31, 1996
And Year-End Option Values
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.
-29-
<PAGE>
(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 closing
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 November 1992, 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
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 did not
obtain an independent appraisal of the interest purchased from Hollis Oil & Gas
Co., however, it is the Company's position that this transaction was on as
favorable terms as could have been obtained from an independent third party.
-30-
<PAGE>
The Company and certain directors, officers and stockholders of the Company
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. See also, "BUSINESS--Principal Areas Of Oil And Gas Activity--
Moxa Arch", "--Washakie Basin--State 1-36 Well", "--Wind River Basin--Madden
Anticline", and "--Wind River Basin--Waltman Field".
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.
<TABLE>
<CAPTION>
As Of August 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(5)
- ---------------- ---------- -------------- --------- ------------
<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 1,192,950(1)(4) 41.4% 1,192,950(1)(4) 30.7%
a group (Six Persons)
Hollis Oil & Gas Co. (4) 350,000 12.9% 350,000 9.4%
</TABLE>
- ---------------
* Less than one percent.
-31-
<PAGE>
(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 percent 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.
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.
-32-
<PAGE>
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.
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.
-33-
<PAGE>
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.
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.
-34-
<PAGE>
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 $1.50 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
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
-35-
<PAGE>
this Prospectus. Thereafter, for a period of four years, the Underwriter's
Warrants will be exercisable at $1.50 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.
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
-36-
<PAGE>
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.
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.
-37-
<PAGE>
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.
-38-
<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.
* * * * *
-39-
<PAGE>
FINANCIAL STATEMENTS
Page
Number
Report of Independent Certified Public Accountants F-1
Financial Statements:
Balance Sheets as of August 31, 1996 and 1995 ...................F-2
Statements of Operations for the years ended
August 31, 1996, 1995, and 1994.................................F-3
Statements of Stockholders' Equity for the years
ended August 31, 1996, 1995, and 1994 ..........................F-4
Statements of Cash flows for the years ended
August 31, 1996, 1995, and 1994 ................................F-5
Supplemental Schedule Of Noncash Investing And
Financing Activities............................................F-5
Notes to Financial Statements.....................................F-6
-40-
<PAGE>
HOCKER, LOVELETT, HARGENS & YENNIE, P.C.
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, 1996 and 1995, and the related statements of operations,
stockholders' equity, and cash flows for the years ended August 31, 1996, 1995
and 1994. 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, 1996 and 1995, and the results of its operations
and its cash flows for the years ended August 31, 1996, 1995 and 1994, in
conformity with generally accepted accounting principles.
/S/ Hocker, Lovelett, Hargens & Yennie, P.C.
Casper, Wyoming
October 18, 1996
<PAGE>
<TABLE>
<CAPTION>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
BALANCE SHEETS
AUGUST 31, 1996 AND 1995
1996 1995
-------------- --------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents - Note 2 $ 41,232 $ 268,385
Accounts receivable - Note 8 119,465 41,337
Prepaid expense 41,731 -
-------------- --------------
Total 202,428 309,722
OTHER ASSETS
Accounts receivable - Note 3 82,277 82,277
Investment, at cost 8,541 9,000
Other 11,500 11,500
-------------- --------------
Total 102,318 102,777
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) 2,236,172 1,822,721
-------------- --------------
Total $ 2,540,918 $ 2,235,220
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 185,474 $ 110,432
Accrued production taxes 30,633 25,900
Note payable - Note 14 250,000 -
-------------- --------------
Total 466,107 136,332
DEFERRED TAX LIABILITY, net - Note 5 152,799 155,733
-------------- --------------
Total 618,906 292,065
STOCKHOLDERS' EQUITY - Notes 6 and 8 Common stock,
$.10 par value; authorized - 10,000,000 shares;
issued and outstanding - 2,712,371 shares 271,237 271,237
Capital in excess of par value 886,254 886,254
Retained earnings 764,521 785,664
-------------- --------------
Total 1,922,012 1,943,155
-------------- --------------
Total $ 2,540,918 $ 2,235,220
============== ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31, 1996, 1995, AND 1994
1996 1995 1994
-------------- -------------- ---------------
<S> <C>
REVENUES - Note 7
Sales of oil and gas $ 417,114 $ 247,461 $ 235,411
Sales of nonproducing properties 130,000 634,979 78,244
Sale of wells - - 136,495
Interest 4,474 18,122 6,621
Other, primarily zeolite royalties in 1995 and 1994 98,063 32,924 30,000
Gain on sale of investments - - 12,586
-------------- -------------- ---------------
Total 649,651 933,486 499,357
COSTS AND EXPENSES
Production 79,532 45,009 51,600
Production taxes 41,750 29,679 18,667
Cost of nonproducing properties sold 14,439 228,992 10,540
Cost of wells sold - - 69,736
Exploration 84,685 91,705 69,341
Write offs and abandonments 92,793 213,090 195,457
Interest 10,594 - -
General and administrative 243,035 228,021 214,947
Depreciation and depletion 106,900 78,586 72,108
-------------- -------------- ---------------
Total 673,728 915,082 702,396
-------------- -------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES (24,077 ) 18,404 (203,039 )
INCOME TAX EXPENSE (CREDIT) - Note 5
Current - - -
Deferred (2,934 ) 3,113 (30,011 )
-------------- -------------- ---------------
Total (2,934 ) 3,113 (30,011 )
-------------- -------------- ---------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE (21,143 ) 15,291 (173,028 )
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
- Note 5 - - (168,588 )
-------------- -------------- ---------------
NET INCOME (LOSS) $ (21,143 ) $ 15,291 $ (341,616 )
============== ============== ===============
INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE
Before cumulative effect of accounting
change $ (.01 ) $ .01 $ (.08 )
Cumulative effect of accounting change .00 .00 (.07 )
-------------- -------------- ---------------
After cumulative effect of accounting
change $ (.01 ) $ .01 $ (.15 )
============== ============== ===============
COMMON STOCK AND COMMON STOCK
EQUIVALENT SHARES OUTSTANDING 2,712,371 2,450,590 2,317,166
============== ============== ===============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 1996, 1995, AND 1994
Capital Total
Shares in Excess Stock-
Out- Common of Par Retained holders'
standing Stock Value Earnings Equity
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
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
Net Loss - - - (21,143 ) (21,143 )
-------------- -------------- -------------- -------------- --------------
Balance,
August 31, 1996 2,712,371 $ 271,237 $ 886,254 $ 764,521 $ 1,922,012
============== ============== ============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1996, 1995, AND 1994
1996 1995 1994
-------------- -------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash from oil and gas sales $ 437,508 $ 232,803 $ 295,394
Cash paid for production, exploration
and general and administrative (434,833 ) (394,269 ) (333,124 )
Interest received 4,474 18,122 6,621
Interest paid (10,594 ) - -
-------------- -------------- ---------------
Net Cash Used in Operating
Activities (3,445 ) (143,344 ) (31,109 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of properties 130,000 634,979 214,739
Proceeds from sale of investments - - 14,810
Purchases of properties (603,708 ) (322,710 ) (411,660 )
Purchase of investment - (9,000 ) -
-------------- -------------- ---------------
Net Cash Provided by (Used in)
Investing Activities (473,708 ) 303,269 (182,111 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock - - 210,000
Proceeds from bank loan 392,500 - -
Repayment of bank loan (142,500 ) - -
-------------- -------------- ---------------
Net Cash Provided by Financing Activities 250,000 -
-------------- -------------- ---------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (227,153 ) 159,925 (3,220 )
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 268,385 108,460 111,680
-------------- -------------- ---------------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 41,232 $ 268,385 $ 108,460
============== ============== ===============
</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.
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
NOTES TO FINANCIAL STATEMENTS
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. Producing 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.
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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. Significant Accounting Policies (Continued)
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. The earnings (loss) from the investment is reflected
as other income in the Statement of Operations due to immateriality
to the financial statements.
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. Income (Loss) Per Share - Earnings per share is based on the
weighted-average number of shares of common stock outstanding in
each year. There would have been no material dilutive effect on net
income per share for 1995 if outstanding stock options had been
exercised.
h. Revenue Recognition - Revenue includes sales to unaffiliated
organizations in connection with net working interests and royalty
interests. Excluded from gross revenue are royalty payments to
owners and net profit disbursements to partners. Production and
severance taxes are included as part of production costs and are not
deducted in determining gross revenue.
In accordance with EITF 90-22, the gas-balancing arrangement is
accounted for by the entitlements method. The Company has reflected
sales revenue and a corresponding receivable for its proportionate
share of the gas sold by Amoco. The receivable is valued at the
lower of the price in effect at the time of production or the
current market value.
2. Off Balance Sheet Risk of Financial Instruments
Interest bearing time deposits are held by the Company in a commercial
bank which at times may be in excess of the Federal Deposit Insurance
Corporation's maximum limits. The following is a summary of the insured
and uninsured bank balances at August 31:
<TABLE>
<CAPTION>
1996 1995
------------------------------- ------------------------------
Carrying Bank Carrying Bank
Amount Balance Amount Balance
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Insured $ 41,232 $ 82,627 $ 100,962 $ 100,962
Uninsured - - 167,423 185,750
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 was estimated to be 40,000
mcf's and at August 31, 1995 and 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:
<TABLE>
<CAPTION>
1996 1995
----------------------------------- ----------------------------------
Accumulated Accumulated
Depreciation Depreciation
Cost & Depletion Cost & Depletion
---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Zeolite mining properties $ 385 $ - $ 385 $ -
Unproved oil and gas interests 423,482 - 488,278 -
Proved oil interests 653,267 200,857 516,055 161,407
Completed wells and related
equipment 2,356,059 1,204,456 1,977,564 1,146,453
Wells in process 125,431 - 71,570 -
Condominium office facility 130,049 65,067 130,049 62,447
Office equipment 53,465 35,586 37,886 28,759
---------------- ---------------- --------------- ----------------
Total $ 3,742,138 $ 1,505,966 $ 3,221,787 $ 1,399,066
================ ================ =============== ================
</TABLE>
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.
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Income Tax Expense (Credit)
Current $ - $ - $ -
Deferred (2,934 ) 3,113 (30,011 )
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. Income Taxes (Continued)
Deferred tax liabilities (assets) are comprised of the following at August
31:
<TABLE>
<CAPTION>
1996 1995
---------------- ----------------
Tax effects of temporary differences
------------------------------------------------
<S> <C> <C>
1st year federal lease rentals $ 2,821 $ 3,850
Intangible drilling costs 381,698 332,826
Percentage depletion 133,083 133,083
Depreciation 2,193 2,193
Tax basis surrendered property 113 113
Production taxes 2,844 2,844
---------------- ----------------
Total Long Term Deferred Tax Liabilities 522,752 474,909
Depletion of intangible drilling costs (240,283 ) (233,279 )
Net operating loss carryforwards (128,703 ) (84,941 )
Other (967 ) (956 )
---------------- ----------------
Total Long Term Deferred Tax Assets (369,953 ) (319,176 )
---------------- ----------------
Net Long Term Deferred Tax Liabilities $ 152,799 $ 155,733
================ ================
At August 31, 1996, the Company has unused deductions and credits which
may be applied against future taxable income and which expire as follows:
Percent Depletion
In Excess of Net Operating
Year Ending Cost Depletion Loss Investment
August 31, Carryforward Tax Credits
------------------ ------------------ ----------------- ------------------
<S> <C> <C> <C>
1997 $ - $ - $ 11,643
1998 - - 19,397
1999 - - 9,630
2000 - - 4,306
2001 - - 580
2003 - 191,551 -
2004 - 49,017 -
2007 - 78,344 -
2008 - 28,442 -
2009 - 143,210 -
2010 - 73,765 -
2011 - 293,691 -
Indefinite 1,467,244 - -
--------------- -------------- ---------------
Total $ 1,467,244 $ 858,020 $ 45,556
=============== ============== ===============
</TABLE>
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, 1996, 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. As of May 1996, the
Board approved the Company's 1996 Stock Option Plan covering options to
acquire an aggregate of 200,000 shares of common stock. No options have
been granted under the 1996 Stock Option Plan, which was approved by the
Company's stockholders in June 1996.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. Common Stock (Continued)
Changes in the exercisable status of options outstanding under the 1993
plan at August 31, are as follows:
<TABLE>
<CAPTION>
Shares
----------------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Beginning of year 200,000 120,000 60,000
Granted 60,000 80,000 60,000
Expired/Exercised (60,000 ) - -
---------------- ---------------- ----------------
End of year 200,000 200,000 120,000
Option price $.75, $.875 $.75, $.875 $.875 and $1.1875
and $1.18 and $1.1875
</TABLE>
Subsequent to August 31, 1996, the Company purchased the stock options for
30,000 shares from one employee.
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
August 31, 1996, 27,960 shares have been purchased to date and retired at
a per share cost of $1.50 to $10.00. Subsequent to August 31, 1996, the
Board of Directors terminated authorization of this stock repurchase
program.
7. Major Customers
Certain customers who accounted for more than 10% individually of the
Company's oil and gas sales are as follows:
<TABLE>
<CAPTION>
Year Ended August 31,
----------------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Company A $ - $ - $ 21,308
Company B 256,114 91,120 89,668
Company C - 27,761 27,946
Company D 58,131 52,522 66,057
</TABLE>
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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
10. Statements of Cash Flows
Reconciliation of Net Income (Loss) to Net Cash Used By Operating
Activities at August 31,:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- ---------------- ---------------
<S> <C> <C> <C>
Net Income (Loss) $ (21,143 ) $ 15,291 $ (341,616 )
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and depletion 106,900 78,586 72,108
Sales of properties (130,000 ) (634,979 ) (214,739 )
Sale of investments - - (14,810 )
Costs of properties disposed 83,357 387,068 278,687
Cost of investments sold - - 2,224
Deferred taxes - net (2,934 ) 3,113 138,577
(Increase) Decrease In:
Accounts receivable (78,128 ) (50,080 ) 22,481
Prepaid expense (41,731 ) - -
Other 459 2,498 7,502
(Decrease) Increase In:
Accounts payable 75,042 57,959 32,677
Accrued production taxes 4,733 (2,800 ) (14,200 )
--------------- ---------------- ---------------
Total Adjustments 17,698 (158,635 ) 310,507
--------------- ---------------- ---------------
Net Cash Used In Operating Activities $ (3,445 ) $ (143,344 ) $ (31,109 )
=============== ================ ===============
</TABLE>
Costs of properties disposed is further scheduled as follows for the
years ended August 31,:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- ---------------- ---------------
<S> <C> <C> <C>
Cost of wells sold $ - $ - 69,736
Cost of leases sold 14,439 228,992 10,540
Surrendered and expired leases 64,420 157,821 136,982
Write off of prior year capitalized dry hole
costs or abandonments 4,498 255 61,429
--------------- ---------------- ---------------
Cash flow adjustment $ 83,357 $ 387,068 $ 278,687
=============== ================ ===============
</TABLE>
11. Oil and Gas Producing Activities
Capitalized costs relating to oil and gas activities at August 31:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- ---------------- ---------------
<S> <C> <C> <C>
Proved properties $ 3,009,326 $ 2,493,619 $ 2,221,394
Unproved properties 548,913 559,848 779,649
--------------- ---------------- ---------------
3,558,239 3,053,467 3,001,043
Accumulated depreciation and depletion 1,405,313 1,307,860 1,240,855
--------------- ---------------- ---------------
Net $ 2,152,926 $ 1,745,607 $ 1,760,188
=============== ================ ===============
</TABLE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. Oil and Gas Producing Activities (Continued)
Costs incurred in oil and gas property acquisition, exploration, and
development activities for the years ended August 31,:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- ---------------- ---------------
<S> <C> <C> <C>
Property acquisition:
Proved $ 123,440 $ 207,346 $ 13,433
Unproved 27,834 95,442 343,795
Exploration 177,478 304,795 264,798
Development 436,855 143,649 24,960
--------------- ---------------- ---------------
Total $ 765,607 $ 751,232 $ 646,986
=============== ================ ===============
</TABLE>
Results of operations for oil and gas producing activities, excluding
corporate overhead and interest costs, for the years ended August 31,:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- ---------------- ---------------
<S> <C> <C> <C>
Revenues $ 417,114 $ 247,461 $ 235,411
Production costs (121,282 ) (74,688 ) (70,267 )
Exploration expenses (177,478 ) (304,795 ) (264,798 )
Depreciation and depletion (97,453 ) (73,949 ) (67,607 )
Income tax (expense) credit 2,934 (3,113 ) 30,011
--------------- ---------------- ---------------
Results of operations from producing activities $ 23,835 $ (209,084 ) $ (137,250 )
=============== ================ ===============
Reserve quantity information (unaudited) for the years ended August 31,
(all located in the United States):
1996
----------------------------------------
Proved developed reserves: Oil (bbl's) Gas (mcf's)
----------------- ------------------
Beginning of year 95,383 1,935,164
Revisions of previous estimates 110,049 22,940
Discoveries 500 50,500
Purchased - 214,166
Production (17,352 ) (140,179 )
----------------- ------------------
End of year 188,580 2,082,591
================= ==================
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
================= ==================
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. Oil and Gas Producing Activities (Continued)
<TABLE>
<CAPTION>
1994
----------------------------------------
Proved developed reserves: Oil (bbl's) Gas (mcf's)
----------------- ------------------
<S> <C> <C>
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
================= ==================
</TABLE>
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.
Standardized measure of discounted future net cash flows and changes
therein relating to proved oil and gas reserves at August 31,
(unaudited):
<TABLE>
<CAPTION>
1996 1995 1994
--------------- ---------------- ---------------
<S> <C> <C> <C>
Future cash flows $ 6,455,189 $ 3,349,951 $ 4,147,146
Future production costs (1,595,675 ) (1,481,310 ) (1,456,421 )
Future income taxes (1) (1,360,515 ) (635,338 ) (914,847 )
--------------- ---------------- ---------------
Future net cash flows 3,498,999 1,233,303 1,775,878
10% annual discount (1,049,700 ) (369,991 ) (532,763 )
--------------- ---------------- ---------------
Discounted future net cash flows $ 2,449,299 $ 863,312 $ 1,243,115
=============== ================ ===============
</TABLE>
(1) The income tax is 34% of the future cash flows less the future
production costs adjusted for net operating loss carryforwards.
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>
1996 1995 1994
--------------- ---------------- ---------------
<S> <C> <C> <C>
Sales, net of production costs $ (295,832 ) $ (142,966 ) $ (268,931 )
Net changes in prices and production costs 304,917 (344,196 ) 379,995
Discoveries and purchases 183,900 57,054 37,296
Development costs (737,773 ) (76,577 ) (59,481 )
Revisions of previous quantity estimates 2,044,444 2,570 55,675
Accretion of discount 86,331 124,312 125,265
--------------- ---------------- ---------------
Net changes $ 1,585,987 $ (379,803 ) $ 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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. Oil and Gas Producing Activities (Continued)
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.
12. Subsequent Event
On October 11, 1996 the Company filed a Registration Statement on Form
SB-2 with the Securities and Exchange Commission with respect to the
sale of additional shares of stock.
13. Fair Values of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of fair value
information for certain financial instruments. The carrying amounts for
trade receivables and payables are considered to be their fair values.
The difference between the carrying amounts and the estimated fair
values of the Company's other financial instruments at August 31, 1996
and 1995 were immaterial.
14. Note Payable
The Company owes $250,000 on a bank line of credit which is due
December 1, 1996 at an initial variable interest rate of 8.75%.
Subsequent to year end, the line-of-credit was increased to $350,000.
<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
CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE 1,000,000 Units
SECURITIES IN ANY STATE IN WHICH SUCH Of Common Stock And
OFFER, SOLICITATION OR SALE WOULD BE Common Stock Purchase Warrants
UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
- ----------------------------------------
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............ 12
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........ 14 ---------------
BUSINESS AND PROPERTIES............ 17
MANAGEMENT......................... 27 PROSPECTUS
EXECUTIVE COMPENSATION............. 28
CERTAIN RELATIONSHIPS AND RELATED ---------------
TRANSACTIONS...................... 30
PRINCIPAL STOCKHOLDERS............. 31
DESCRIPTION OF SECURITIES.......... 32
CERTAIN PROVISIONS OF WYOMING
LAW AND OF THE COMPANY'S
ARTICLES OF INCORPORATION......... 34
UNDERWRITING....................... 35
SECURITIES AND EXCHANGE
COMMISSION POSITION ON
CERTAIN INDEMNIFICATION........... 37
LEGAL MATTERS...................... 37
EXPERTS .......................... 38
CERTAIN DEFINITIONS................ 39
FINANCIAL STATEMENTS............... 40
------------------------------
UNTIL 90 DAYS AFTER THE EFFECTIVE DATE
OF THE REGISTRATION STATEMENT OF WHICH
THIS PROSPECTUS IS A PART, ALL DEALERS Rocky Mountain Securities
EFFECTING TRANSACTIONS IN THE REGISTERED & Investments, Inc.
SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO ------------, 1996
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.
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
1.1 Form of 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.
</TABLE>
- --------------
*Previousely filed.
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;
II-2
<PAGE>
(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 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 Amendment to
Registration Statement to be signed on its behalf by the undersigned, in the
City of Casper, State of Wyoming on November 26, 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
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.
Signatures Title Date
- ---------- ----- ----
/s/ Richard B. Laudon Chairman Of The Board; Director; November 26,
- ----------------------------- Treasurer (Principal Accounting 1996
Richard B. Laudon and Financial Officer)
/s/ Richard B. Laudon* Director November 26,
- ----------------------------- 1996
John R. Kerns
/s/ Stephen H. Hollis President; (Principal Executive November 26,
- ----------------------------- Officer); Director 1996
Stephen H. Hollis
/s/ Richard B. Laudon* Director November 26,
- ----------------------------- 1996
Tom R. Creager
/s/ Richard B. Laudon* Director November 26,
- ----------------------------- 1996
William N. Heiss
- ---------------
* As Attorney in fact.
II-4
WARRANT AGREEMENT
Double Eagle Petroleum And Mining Co., a Wyoming corporation (the
"Company"), and American Securities Transfer & Trust, Inc. (the "Warrant Agent")
agree, effective as of __________, 199_, as follows:
1. Purpose. The Company proposes to publicly offer 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").
2. Warrants. For each Warrant held, the registered holder of the Warrant
(the "Warrant Holder") is entitled to purchase from the Company one Share at
$3.00 per Share (the "Exercise Price"). A Warrant Holder may exercise all or any
number of Warrants resulting in the purchase of a whole number of Shares.
3. Warrant Exercise And Expiration Dates
(a) Exercise Date. Warrant Holders may exercise the Warrants beginning
the date that the registration statement (the "IPO Registration Statement")
with respect to the initial public offering of the Warrants is declared
effective by the U.S. Securities And Exchange Commission ("SEC"). The
Company immediately will notify the Warrant Agent of the date that any such
registration statement is declared effective by the SEC.
(b) Exercise. The Warrants may be exercised at any time commencing on
the date determined in accordance with Section 3(a) (the "Exercise Date")
and ending at 5:00 p.m., Denver, Colorado time, on the fifth anniversary of
the Exercise Date (the "Expiration Date"), subject to Sections 12, 14, and
15 of this Agreement. After the Expiration Date, any unexercised Warrants
will be void, and all rights of Warrant Holders shall cease.
4. Separate Sale And Trading Of Warrants. Upon issuance by the Company, the
Warrants will be sold separately from the Common Stock.
5. Certificates. The Warrant Certificates shall be in registered form only
and shall be substantially in the form set forth in Exhibit "A" attached to and
made a part of this Agreement. Warrant Certificates shall be signed by, or shall
bear the facsimile signature of, the President or a Vice President of the
Company and the Secretary or an Assistant Secretary of the Company and shall
bear a facsimile of the Company's corporate seal. If any person whose facsimile
signature has been placed upon any Warrant Certificate as the signature of an
officer of the Company shall have ceased to be such officer before such Warrant
Certificate is countersigned, issued and delivered, such Warrant Certificate
shall be countersigned, issued and delivered with the same effect as if such
person had not ceased to be such officer. Any Warrant Certificate may be signed
by, or made to bear the facsimile signature of, any person who at the actual
date of the preparation of such Warrant Certificate shall be a proper officer of
the Company to sign such Warrant Certificate even though such person was not
such an officer upon the date of this Agreement.
<PAGE>
6. Countersigning. Warrant Certificates shall be manually countersigned by
the Warrant Agent and shall not be valid for any purpose unless so
countersigned. The Warrant Agent hereby is authorized to countersign and deliver
to, or in accordance with the instructions of, any Warrant Holder, any Warrant
Certificate which is properly issued.
7. Registration Of Transfers And Exchanges. The Warrant Agent shall from
time to time register the transfer of any outstanding Warrant Certificate upon
records maintained by the Warrant Agent for such purpose upon surrender of such
Warrant Certificate to the Warrant Agent for transfer, accompanied by
appropriate instruments of transfer in form satisfactory to the Company and the
Warrant Agent and duly executed by the Warrant Holder, or a duly authorized
attorney. Upon any such registration of transfer, a new Warrant Certificate
shall be issued in the name of and to the transferee, and the surrendered
Warrant Certificate shall be cancelled.
8. Exercise Of Warrants.
(a) Subject to the provisions of Sections 12 and 15 of this Agreement,
each Warrant evidenced by a Warrant Certificate may be exercised upon any
single occasion on or after the Exercise Date, and on or before the
Expiration Date. A Warrant shall be exercised by the Warrant Holder by
surrendering to the Warrant Agent the Warrant Certificate evidencing such
Warrant with the exercise form on the reverse of such Warrant Certificate
duly completed and executed and delivering to the Warrant Agent, by good
check or bank draft payable to the order of the Company, the Exercise Price
for each Share to be purchased.
(b) Upon receipt of a Warrant Certificate with the exercise form
thereon duly executed together with payment in full of the Exercise Price
for the Shares for which Warrants are then being exercised, the Warrant
Agent shall requisition from any transfer agent for the Shares, and upon
receipt shall make delivery of, certificates evidencing the total number of
whole Shares for which Warrants are then being exercised in such names and
denominations as are required for delivery to, or in accordance with the
instructions of, the Warrant Holder. Such certificates for the Shares shall
be deemed to be issued, and the person to whom such Shares are issued of
record shall be deemed to have become a holder of record of such Shares, as
of the date of the surrender of such Warrant Certificate and payment of the
Exercise Price, whichever shall last occur, provided that if the books of
the Company with respect to the Shares shall be closed as of such date, the
certificates for such Shares shall be deemed to be issued, and the person
to whom such Shares are issued of record shall be deemed to have become a
record holder of such Shares, as of the date on which such books shall next
be open (whether before, on or after the Expiration Date) but at the
Exercise Price and upon the other conditions in effect upon the date of
surrender of the Warrant Certificate and payment of the Exercise Price,
whichever shall have last occurred, to the Warrant Agent.
(c) If less than all of the Warrants evidenced by a Warrant
Certificate are exercised upon a single occasion, a new Warrant Certificate
for the balance of the Warrants not so exercised shall be issued and
delivered to, or in accordance with transfer instructions properly given
by, the Warrant Holder until the Expiration Date.
(d) All Warrant Certificates surrendered upon exercise of Warrants
shall be cancelled.
-2-
<PAGE>
(e) Upon the exercise or conversion of any Warrant, the Warrant Agent
shall promptly deposit the payment into an escrow account established by
mutual agreement of the Company and the Warrant Agent. All funds deposited
in the escrow account will be disbursed on a weekly basis to the Company
once they have been determined by the Warrant Agent to be collected funds.
Once the funds are determined to be collected, the Warrant Agent shall
cause the share certificate(s) representing the exercised Warrants to be
issued.
9. Taxes. The Company will pay all documentary, stamp or similar taxes
attributable to the initial issuance of Shares upon exercise of Warrants. The
Company shall not, however, be required to pay any such tax or charge which may
be payable in respect of any transfer involved in any issue of Warrant
Certificates or in the issue of any certificates for Shares in a name other than
that of the Warrant Holder upon the exercise of any Warrant.
10. Mutilated Or Missing Warrant Certificates. If any Warrant Certificate
is mutilated, lost, stolen or destroyed, the Company and the Warrant Agent may,
on such terms as to indemnity or otherwise as they may in their discretion
impose (which shall, in the case of a mutilated Warrant Certificate, include the
surrender thereof), and upon receipt of evidence satisfactory to the Company and
the Warrant Agent of such mutilation, loss, theft or destruction, issue a
substitute Warrant Certificate of like denomination and tenor as the Warrant
Certificate so mutilated, lost, stolen or destroyed. Applicants for such
substitute Warrant Certificate also shall comply with such other reasonable
regulations and pay any reasonable charges as the Company or the Warrant Agent
may prescribe.
11. Reservation Of Shares. For the purpose of enabling the Company to
satisfy all obligations to issue Shares upon exercise of Warrants, the Company
will at all times reserve and keep available free from preemptive rights, out of
the aggregate of its authorized and unissued Shares, the full number of Shares
issuable upon the exercise of all outstanding Warrants. Shares which may be
issued upon the exercise of Warrants will upon issue be fully paid and
nonassessable by the Company and free from all taxes, liens, charges and
security interests with respect to the issue thereof.
12. Governmental Restrictions. The Company and the Warrant Agent
acknowledge that no Warrants may be exercised by a Warrant Holder unless the
Company has currently in effect a Registration Statement under the Securities
Act covering the Shares of Common Stock issuable upon exercise of the Warrants.
Therefore, no Warrants may be exercised by Warrant Holders nor may any Shares be
issued by the Warrant Agent to Warrant Holders pursuant to exercise of the
Warrants by Warrant Holders unless, on the date of exercise: (i) the Company has
a currently effective Registration Statement covering the issuance of the Shares
by exercise of the Warrants under the Act; (ii) the Warrant Agent has copies of
the Prospectus which is a part of such effective Registration Statement and
which the Warrant Agent hereby agrees to deliver to the Warrant Holder and (iii)
the Shares issuable upon exercise of the Warrants may be legally issued to the
exercising Warrant Holder under the securities laws of the state in which such
Warrant Holder resides.
13. Adjustments. If prior to the exercise of any Warrants the Company shall
have effected one or more stock splits or subdivisions of shares, stock
dividends, or reclassifications or recapitalizations involving its common stock,
the number of Shares subject to the Warrant granted shall, (i) if a net increase
shall have been effected in the number of outstanding shares of the Company's
common stock, be proportionately increased, and the Exercise Price shall be
proportionately reduced, and, (ii) if a net reduction shall have been effected
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in the number of outstanding shares of the Company's common stock, be
proportionately reduced and the Exercise Price shall be proportionately
increased.
14. Notice To Warrant Holders. If the Company proposes to enter into any
reorganization, reclassification, sale of substantially all of its assets,
consolidation, merger, dissolution, liquidation or winding up, the Company shall
give notice of such fact at least 20 days prior to such action to all Warrant
Holders, which notice shall set forth such facts as indicate the effect of such
action (to the extent such effect may be known at the date of such notice) on
the Exercise Price and the kind and amount of the shares or other securities and
property deliverable upon exercise of the Warrants. At any time, and from time
to time, upon notice to the Warrant Holders, the Company at its option may
extend the Exercise Period and/or reduce the Exercise Price for the Warrants.
Without limiting the obligation of the Company hereunder to provide notice to
each Warrant Holder, failure of the Company to give notice shall not invalidate
corporate action taken by the Company.
15. Redemption By The Company. At any time after the Exercise Date, the
Company shall have the right and option, upon 30 days' written or published
notice to the Warrant Holders, to call, redeem and acquire all of the Warrants
remaining outstanding and unexercised at the date fixed for such redemption in
such notice (the "Redemption Date"), which Redemption Date shall be 30 days
after the date of such notice, for an amount equal to $.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 date of the Company's giving
notice of redemption has been at least $4.00 per share; and further provided,
however, that the Warrant Holders shall in any event have the right during the
30 day period immediately following the date of such notice to exercise the
Warrants in accordance with the provisions of Section 8 of this Agreement. In
the event any Warrants are exercised during such 30 day period, this call option
shall be deemed not to have been exercised by the Company as to the Warrants
exercised by holders thereof. The notice of redemption shall require each
Warrant Holder to surrender to the Company on the Redemption Date at the
corporate office of the Warrant Agent his certificate or certificates
representing the Warrants to be redeemed. Notwithstanding the fact that any
Warrants called for redemption have not been surrendered for redemption and
cancellation on the Redemption Date, after the Redemption Date, such Warrants
shall be deemed to be expired and all rights of the Warrant Holders of such
unsurrendered Warrants shall cease and terminate, other than the right to
receive the redemption price of $.02 per Warrant for such Warrants, without
interest; provided, however, that such right to receive the redemption price of
$.02 per Warrant shall itself expire one year from the Redemption Date. In the
event the Exercise Price is adjusted pursuant to Section 13 of this Agreement,
then a corresponding adjustment shall be made in the redemption price pursuant
to this Section 15.
16. No Fractional Warrants Or Shares. The Company shall not be required to
issue fractions of Warrants upon the reissue of Warrants, or pursuant to any
adjustments as described in Section 13 or otherwise; but the Company, in lieu of
issuing any such fractional interest, shall round up or down to the nearest full
Warrant. If the total Warrants surrendered by exercise would result in the
issuance of a fractional share, the Company shall not be required to issue a
fractional share but rather the aggregate number of shares issuable will be
rounded up or down to the nearest full share.
17. Rights Of Warrant Holders. No Warrant Holder, as such, shall have any
rights of a stockholder of the Company, either at law or equity, and the rights
of the Warrant Holders, as such, are limited to those rights expressly provided
in this Agreement or in the Warrant Certificates. The Company and the Warrant
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Agent may treat the registered Warrant Holder in respect of any Warrant
Certificate as the absolute owner thereof for all purposes notwithstanding any
notice to the contrary.
18. Warrant Agent. The Company hereby appoints the Warrant Agent to act as
the agent of the Company and the Warrant Agent hereby accepts such appointment
upon the following terms and conditions by all of which the Company and every
Warrant Holder, by acceptance of his Warrants, shall be bound:
(a) Statements contained in this Agreement and in the Warrant
Certificates shall be taken as statements of the Company. The Warrant Agent
assumes no responsibility for the correctness of any of the same except
such as describe the Warrant Agent or for action taken or to be taken by
the Warrant Agent.
(b) The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the Company's covenants contained in this
Agreement or in the Warrant Certificates.
(c) Upon three business days prior notice to the Company, the Warrant
Agent may consult at any time with counsel satisfactory to it (who may be
counsel for the Company) and the Warrant Agent shall incur no liability or
responsibility to the Company or to any Warrant Holder in respect of any
action taken, suffered or omitted by it hereunder in good faith and in
accordance with the opinion or the advice of such counsel, provided the
Warrant Agent shall have exercised reasonable care in the selection and
continued employment of such counsel.
(d) The Warrant Agent shall incur no liability or responsibility to
the Company or to any Warrant Holder for any action taken in reliance upon
any notice, resolution, waiver, consent, order, certificate or other paper,
document or instrument believed by it to be genuine and to have been
signed, sent or presented by the proper party or parties.
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent pursuant to
this Agreement, to reimburse the Warrant Agent for all expenses, taxes and
governmental charges and all other charges of any kind and nature incurred
by the Warrant Agent in the execution of this Agreement and to indemnify
the Warrant Agent and save it harmless against any and all liabilities,
including judgments, costs and counsel fees, for anything done or omitted
by the Warrant Agent in the execution of this Agreement except as a result
of the Warrant Agent's negligence or bad faith.
(f) The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to
involve expense unless the Company or one or more Warrant Holders shall
furnish the Warrant Agent with reasonable security and indemnity for any
costs and expenses which may be incurred in connection with such action,
suit or legal proceeding, but this provision shall not affect the power of
the Warrant Agent to take such action as the Warrant Agent may consider
proper, whether with or without any such security or indemnity. All rights
of action under this Agreement or under any of the Warrants may be enforced
by the Warrant Agent without the possession of any of the Warrant
Certificates or the production thereof at any trial or other proceeding
relative thereto, and any such action, suit or proceeding instituted by the
Warrant Agent shall be brought in its name as Warrant Agent, and any
recovery of judgment shall be for the ratable benefit of the Warrant
Holders as their respective rights or interests may appear.
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(g) The Warrant Agent and any stockholder, director, officer or
employee of the Warrant Agent may buy, sell or deal in any of the Warrants
or other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or
lend money to the Company or otherwise act as fully and freely as though it
were not Warrant Agent under this Agreement. Nothing herein shall preclude
the Warrant Agent from acting in any other capacity for the Company or for
any other legal entity.
19. Successor Warrant Agent. Any corporation into which the Warrant Agent
may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Warrant Agent shall be a party, or any corporation succeeding to the corporate
trust business of the Warrant Agent, shall be the successor to the Warrant Agent
hereunder without the execution or filing of any paper or any further act of a
party or the parties hereto. In any such event or if the name of the Warrant
Agent is changed, the Warrant Agent or such successor may adopt the
counter-signature of the original Warrant Agent and may countersign such Warrant
Certificates either in the name of the predecessor Warrant Agent or in the name
of the successor Warrant Agent.
20. Change Of Warrant Agent. The Warrant Agent may resign or be discharged
by the Company from its duties under this Agreement by the Warrant Agent or the
Company, as the case may be, giving notice in writing to the other, and by
giving a date when such resignation or discharge shall take effect, which notice
shall be sent at least 30 days prior to the date so specified. If the Warrant
Agent shall resign, be discharged or shall otherwise become incapable of acting,
the Company shall appoint a successor to the Warrant Agent. If the Company shall
fail to make such appointment within a period of 30 days after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Warrant Agent or by any Warrant Holder or after discharging the
Warrant Agent, then any Warrant Holder may apply to the District Court for the
City and County of Denver, Colorado, for the appointment of a successor to the
Warrant Agent. Pending appointment of a successor to the Warrant Agent, either
by the Company or by such Court, the duties of the Warrant Agent shall be
carried out by the Company. After appointment, the successor Warrant Agent shall
be vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Warrant Agent without further act or deed and the
former Warrant Agent shall deliver and transfer to the successor Warrant Agent
any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for effecting the delivery
or transfer. Failure to give any notice provided for in this section, however,
or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Warrant Agent or the appointment of the successor
Warrant Agent, as the case may be.
21. Notices. Any notice or demand authorized by this Agreement to be given
or made by the Warrant Agent or by any Warrant Holder to or on the Company shall
be sufficiently given or made if sent by mail, first class, certified or
registered, postage prepaid, addressed (until another address is filed in
writing by the Company with the Warrant Agent), as follows:
Double Eagle Petroleum And Mining Co.
777 Overland Trail (P.O. Box 766)
Casper, Wyoming 82602
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Any notice or demand authorized by this Agreement to be given or made by any
Warrant Holder or by the Company to or on the Warrant Agent shall be
sufficiently given or made if sent by mail, first class, certified or
registered, postage paid, addressed (until another address is filed in writing
by the Warrant Agent with the Company), as follows:
American Securities Transfer & Trust, Inc.
938 Quail Street, Suite 101
Lakewood, Colorado 80215
Any distribution, notice or demand required or authorized by this Agreement to
be given or made by the Company or the Warrant Agent to or on the Warrant Holder
shall be sufficiently given or made if sent by mail, first class, certified or
registered, postage prepaid, addressed to the Warrant Holders at their last
known addresses as they shall appear on the registration books for the Warrant
Certificates maintained by the Warrant Agent.
22. Supplements And Amendments. The Company and the Warrant Agent may from
time to time supplement or amend this Agreement without the approval of any
Warrant Holders in order to cure any ambiguity or to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provision herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Warrant Agent may deem
necessary or advisable.
23. Successors. All the covenants and provisions of the Agreement by or for
the benefit of the Company or the Warrant Agent shall bind and inure to the
benefit of their respective successors and assigns.
24. Termination. This Agreement shall terminate on the Expiration Date (as
provided in Section 3, including extensions thereof) or such earlier date upon
which all Warrants have been exercised; provided, however, that if exercise of
the Warrants is suspended pursuant to Section 12 and such suspension continues
past the Expiration Date, this Agreement shall terminate at the close of
business on the business day immediately following the expiration of such
suspension. The provisions of Section 17 shall survive such termination.
25. Governing Law. This Agreement and each Warrant Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of
Colorado and for all purposes shall be construed in accordance with the laws of
said State.
26. Benefits Of This Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the
Warrant Agent and the Warrant Holders any legal or equitable right, remedy or
claim under this Agreement. This Agreement shall be for the sole and exclusive
benefit of the Company, the Warrant Agent and the Warrant Holders.
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27. Counterparts. This Agreement may be executed in any number of
counterparts, each of such counterparts shall for all purposes be deemed to be
an original and all such counterparts shall together constitute but one and the
same instrument.
DOUBLE EAGLE PETROLEUM AND MINING CO.
(a Wyoming corporation)
Dated: , 1996 By:
------------ --------------------------------
Stephen H. Hollis, President
[SEAL]
ATTEST:
By:
---------------------------------
Carol A. Osborne
AMERICAN SECURITIES TRANSFER & TRUST, INC.
Dated , 1996 By:
---------------- --------------------------------------
Authorized Officer
---------------------------------------
(Printed Name and Title)
* * * * *
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EXHIBIT A
(Attached To And Made A Part Of
The Warrant Agreement Dated ________, 1996
Between Double Eagle Petroleum And Mining Co. And
American Securities Transfer & Trust, Inc.
Form Of Common Stock Purchase Warrant Certificate
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EXHIBIT B
(Attached To And Made A Part Of
The Warrant Agreement Dated __________, 1996
Between Double Eagle Petroleum And Mining Co. And
American Securities Transfer & Trust, Inc.)
Fee Schedule
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HOCKER, LOVELETT, HARGENS & YENNIE, P.C.
Certified Public Accountants
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Double Eagle Petroleum
and Mining Co. on Amendment No. 1 to Form SB-2 of our report dated October 18,
1996 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
November 27, 1996
