<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 11, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
EVERGREEN RESOURCES, INC.
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C>
COLORADO 84-0834147
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
</TABLE>
1000 WRITER SQUARE, 1512 LARIMER STREET
DENVER, COLORADO 80202
(303) 534-0400
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
JAMES S. WILLIAMS, CHAIRMAN
1000 WRITER SQUARE, 1512 LARIMER STREET
DENVER, COLORADO 80202
(303) 534-0400
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPIES OF ALL COMMUNICATIONS TO:
JOHN B. WILLS, ESQ. JOHN J. HALLE, ESQ.
410 SEVENTEENTH STREET KURT E. SCHEUERMAN, ESQ.
SUITE 1940 STOEL RIVES LLP
DENVER, COLORADO 80202 900 SW FIFTH AVENUE
(303) 628-0747 PORTLAND, OREGON 97204-1268
(303) 592-1846 (FAX) (503) 224-3380
(503) 220-2480 (FAX)
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER EFFECTIVE DATE OF THIS REGISTRATION STATEMENT
------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: / /
If the Registrant elects to deliver its latest Annual Report to security
holders or a complete and legible facsimile thereof pursuant to Item 11(a)(1) of
this Form, check the following box: / /
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 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: / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
2,300,000
Common Stock, No Par Value........................ Shares (2) $6.4375 $14,806,250 $5,105.60
</TABLE>
(1) Estimated solely for calculation of the amount of the registration fee
calculated pursuant to Rule 457(c) as of September 9, 1996.
(2) Includes 300,000 shares to cover over-allotments, if any.
------------------------------
The Exhibit Index appears on Page II-9 of the sequentially numbered pages of
this Registration Statement. This Registration Statement, including exhibits
contains 168 pages.
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>
EVERGREEN RESOURCES, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM
NO. LOCATION IN PROSPECTUS
- --------- -----------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus........................ Cover Page; Inside Cover Page
2. Inside Front and Outside Back Cover Pages of Inside Front Cover Page; Back
Prospectus............................................ Cover Page
3. Summary Information, Risk Factors and Ratio of Prospectus Summary, Risk
Earnings to Fixed Charges............................. Factors
4. Use of Proceeds....................................... Use of Proceeds
5. Determination of Offering Price....................... *
6. Dilution.............................................. Dilution
7. Selling Security Holders.............................. *
8. Plan of Distribution.................................. Cover Page, Underwriting
9. Description of Securities to be Registered............ Description of Capital Stock
10. Interests of Named Experts and Counsel................ *
11. Information with respect to the Registrant
(a) Business.......................................... Business and Properties
(b) Financial Statements.............................. Consolidated Financial
Statements
(c) Industry Segments................................. *
(d) Market price and Dividends of Registrant's Common
Equity and Related Stockholder Matters............ Price Range of Common Stock,
Dividend Policy, Principal
Stockholders, Description of
Capital Stock
(e) Selected Financial Data........................... Selected Financial Data
(f) Supplementary Financial Information............... *
(g) Management's Discussion and Analysis.............. Management's Discussion and
Analysis of Financial
Condition and Results of
Operations
(h) Changes In and Disagreements with Accountants..... *
12. Incorporation of Certain Information by Reference..... Inside Cover Page
13. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities........................ *
</TABLE>
- ------------------------
*Omitted because item is inapplicable or answer is in the negative.
<PAGE>
SUBJECT TO COMPLETION DATED SEPTEMBER 11, 1996
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>
2,000,000 SHARES
[LOGO]
COMMON STOCK
The 2,000,000 shares of Common Stock offered hereby are being sold by
Evergreen Resources, Inc. ("Evergreen" or the "Company"). The Company's Common
Stock is listed on the Nasdaq National Market under the symbol "EVER." On
September 9, 1996, the last sale price of the Common Stock as reported by the
NASDAQ National Market System was $6.25.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
Per Share................................ $ $ $
Total (3)................................ $ $ $
</TABLE>
(1) The Company has agreed to reimburse Paulson Investment Company, Inc., for
accountable expenses incurred by it in connection with this offering in an
amount not to exceed $75,000. The Company has also agreed to issue to
Paulson Investment Company, Inc. and Capital West Securities, Inc., the
representatives of the several Underwriters (the "Representatives") warrants
to purchase up to 200,000 shares of Common Stock for $ per share
(120% of the initial public offering price of the Common Stock offered
hereby) (the "Representatives' Warrants") and to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $275,000
(including the accountable expenses referenced in Note 1, above).
(3) Assumes no exercise of the Underwriters' option to purchase up to 300,000
additional shares of Common Stock to cover over-allotments. See
"Underwriting." If all such shares are purchased, the total Price to Public
will be $ , the total Underwriting Commissions will be $ and
the total Proceeds to the Company will be $ .
The shares of Common Stock are offered by the several Underwriters named
herein when, as and if delivered to and accepted by the Underwriters and subject
to their right to reject any order in whole or in part. It is expected that
delivery of certificates representing such shares of the Common Stock will be
made against payment therefor on or about , 1996.
Paulson Investment Company, Inc.
Capital West Securities, Inc.
The date of this Prospectus is , 1996
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS
MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE
NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE 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" OR "EVERGREEN" MEANS EVERGREEN RESOURCES, INC. AND ITS
SUBSIDIARIES UNLESS THE CONTEXT REQUIRES OTHERWISE. UNLESS OTHERWISE INDICATED,
(I) INFORMATION INCLUDED IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVERALLOTMENT OPTION OR OF ANY OTHER OPTIONS OR WARRANTS DESCRIBED
HEREIN AS OUTSTANDING AND NO CONVERSION OF PREFERRED STOCK; AND (II) ALL
HISTORICAL INFORMATION RELATING TO NET ACREAGE, NET WELLS AND RESERVES GIVES
RETROACTIVE PRO-FORMA EFFECT TO THE ACQUISITION BY THE COMPANY ON AUGUST 14,
1996, EFFECTIVE AUGUST 1, 1996, OF THE LP INTERESTS OF ENERGY INVESTORS FUND, LP
AND ENERGY INVESTORS FUND II, LP IN PBI FUELS, LP AND THE MERGER WITH
POWERBRIDGE, INC., (ALL COLLECTIVELY REFERRED TO AS "PBI") WHOSE ASSETS
CONSISTED OF PERCENTAGE INTERESTS IN CERTAIN OF THE COMPANY'S RATON BASIN GAS
WELLS, ACREAGE AND RELATED GAS GATHERING AND MARKETING FACILITIES. CERTAIN TERMS
USED HEREIN RELATING TO THE OIL AND GAS INDUSTRY ARE DEFINED IN "CERTAIN
DEFINITIONS" INCLUDED ON PAGE 44 OF THIS PROSPECTUS.
THE COMPANY
Evergreen Resources, Inc. explores for and acquires, develops, produces and
sells oil and gas. Evergreen is currently developing coalbed methane properties
located on over 120,000 acres in the Raton Basin of southern Colorado. As of the
date of this prospectus, Evergreen has completed 31 gas wells in its Raton Basin
property. An additional 11 wells have been drilled, 10 of which are awaiting
completion. These ten additional wells are expected to be completed and placed
into production in October 1996. The eleventh well is located at some distance
from the other drilled wells and will be produced when the area in which it is
located is developed. Evergreen believes that its Raton Basin properties will
ultimately support over 500 wells which Evergreen expects to develop over the
next 10 years. Evergreen also retains an interest in and operates properties in
the San Juan Basin of northwest New Mexico. Evergreen operates all of its own
producing properties and also acts as operator on a contract basis for
properties owned by others.
Effective August 1, 1996, Evergreen purchased the interests of PBI and its
affiliates in the Raton Basin. The Company issued to PBI and its affiliates
1,162,266 restricted shares of Evergreen common stock and assumed $3.6 million
of long term debt owed by the PBI affiliates to Hibernia National Bank. In
return Evergreen received approximately 37.5 BCF of proved gas reserves (PBI's
interest in existing proved reserves in the Raton Basin), PBI's 25% working
interest in all Raton Basin leases, and PBI's 50% interest in the Primero Gas
Marketing Company. With the completion of this acquisition Evergreen owns a 100%
working interest in its Raton Basin properties. See "Business Properties -- PBI
Agreements."
During the last ten years, new drilling, completion and production
techniques have led to the establishment of substantial new reserves of coalbed
methane gas in the United States. Coal is formed from plant remains accumulated
in a swampy environment and subsequently buried deeply between sands and other
sediments. Coals typically contain significant quantities of methane, the
primary constituent of natural gas, which is generated in the coal-forming
process. This gas is adsorbed onto the coal surfaces and can be liberated by
reducing the pressure in the coal. Drilling wells into the coal and removing gas
and water from the coal reduces the pressure and liberates the gas.
All of Evergreen's producing Raton Basin wells have been drilled to exploit
the Vermejo coal beds located at a depth of between 500 and 1,800 feet. With the
exception of the ten wells being completed and the one well awaiting a pipeline
hook-up as described above, all of the wells drilled to the Vermejo coal beds
have been completed and are producing. Evergreen believes that the shallower
Raton coal beds, located at a depth of between 250 and 1,500 feet, can also be
exploited. As a preliminary, exploratory project, Evergreen has drilled three
Raton coal wells, two of which are currently pump testing and selling gas and
the third of which is awaiting further evaluation. Both the Vermejo and Raton
coal beds were formed approximately 65 million years ago in the Late Cretaceous
- -- Early Tertiary Period, in coastal and deltaic swamp environments.
3
<PAGE>
Since the formation of the coal beds, the entire area has been deformed and
fractured by mountain-building forces and has been intruded by hot liquid rock
(magma). The Company believes this history of heating and deformation makes the
Raton Basin coals superior producers of coalbed methane.
Coalbed methane wells tend to produce gas at moderate rates but over a
substantial period of time (typically 30 to 40 years). Well productivity depends
primarily on the permeability of the coal seam and the effective use of
drilling, completion, production, and maintenance techniques designed to
maximize gas flow into the wellbore. Frequently, water within the coal seams
must be produced for several months or years before the trapped natural gas will
flow at maximum rates. Evergreen believes that, in the 6 years that it has been
developing coalbed methane gas wells, it has developed various techniques that
will enhance its ability to generate economic production from such wells. The
coals are somewhat variable, with individual coal seams ranging from 1 to 12
feet in thickness, separated by layers of sandstone, shale and siltstone.
Typically, the Company's wells are completed to produce gas from intervals
containing five to fifteen individual coal seams. See "Business and Properties
- -- Coalbed Methane Geology."
Evergreen management believes that the Company's Raton Basin Project is
worthy of full scale development for these reasons:
- DRILLING RESULTS ON TARGET -- The first 31 producing wells now exceed 8.8
million cubic feet of combined gross daily gas production -- in line with
Evergreen's forecasts.
- LOW FINDING AND DEVELOPMENT COSTS -- Wells drilled, completed and
hooked-up for gas sales to date in the Raton Basin have average reserves
estimated at 1.8 BCF of gas at a cost per well of approximately $300,000,
implying a finding and development cost of $0.17 per MCF.
- LOW LIFTING COSTS -- Lifting costs were approximately $0.33 per MCF in the
quarter ended June 30, 1996. Although some additional economies of scale
may be achievable, lifting costs should decline modestly in the future as
more wells are developed.
- LARGE ACREAGE POSITION -- Evergreen has over 120,000 gross acres under
lease in the Raton Basin. This acreage will support a multi-year
development project of over 500 wells.
- IMPROVED GAS PRICES -- Recent higher gas volumes have permitted access to
new gas markets resulting in significantly improved gas prices than were
obtained in the Summer of 1995. (See discussion of the CIG Agreement below
and "Business and Properties -- Material Agreements.")
Evergreen has recently entered into an agreement with Colorado Interstate
Gas Pipeline ("CIG") which entitles it to firm transportation of its Raton Basin
gas between the field and the interconnection between CIG's pipelines and other
interstate pipelines in Texas. The Company has committed to transport at least
ten million cubic feet per day through CIG's pipelines commencing October 1,
1996 and may increase its volumes to as much as 25 million cubic feet per day
from the Raton Basin. The Company has recently drilled ten new wells which it
expects will increase production to over ten million cubic feet per day by the
contract date. Evergreen believes that the CIG agreement will expand the range
of customers to which it can market its gas and will result in Evergreen
realizing higher gas sales prices. See "Business and Properties -- Gas
Marketing."
Historically, Evergreen had been a producer of oil and gas from a variety of
different areas of the United States. In 1994, Evergreen decided to concentrate
on gas production in the Raton Basin and began divesting most of its other
producing assets. All of Evergreen's producing properties are now located in the
Raton and San Juan Basins and consist exclusively of gas wells. Primarily as a
result of this decision, production and service revenues declined from a high of
$3,310,000 in fiscal 1994 to $2,172,000 in fiscal 1996 but have been increasing
since the 3rd quarter of fiscal 1996 as additional Raton Basin wells have been
completed. Production and service revenues were $717,200 in the quarter ended
June 30, 1996, as compared to $469,700 in the comparable quarter of the prior
year, reflecting the completion of 22 additional Raton Basin wells during the
last twelve months.
4
<PAGE>
While Evergreen has been developing coalbed methane resources in the Raton
Basin, it has sold its producing coalbed methane wells in the San Juan Basin.
Higher royalties and operating costs as well as lower production rates per well
made Evergreen's San Juan Basin wells much less economical than the Raton Basin
wells. Though Evergreen's producing San Juan Basin wells have been sold,
Evergreen retains a stream of payments in respect of future production. In
connection with the San Juan Basin wells, Evergreen remains subject to a 1992
agreement for connection of the wells to the El Paso Field Services ("El Paso")
pipeline in the area. The agreement requires Evergreen to transport an average
of 11,000 MMBtu of gas per day through the El Paso pipeline for a period of 5
years. Evergreen has not been able to meet the volume obligation with production
from the San Juan Basin and expects to incur additional shortfall payment
obligations through 1997. Through June 30, 1996, the amount of the shortfall
liability is $1,831,000 and Evergreen expects the total liability to reach
approximately $3.0 million. Evergreen is currently in discussions concerning
alternative resolutions of the shortfall, including a possible purchase of a
portion of the pipeline system. See "Business and Properties -- El Paso
Agreement."
Changes to proved reserves reflect the divestiture of Evergreen's properties
outside the Raton and San Juan basins and their replacement with Raton Basin
wells. Proved gas reserves increased from 51.6 billion cubic feet at the end of
fiscal 1994 to 128 BCF as of August 1, 1996. Proved oil reserves declined from
1,643,073 Bbls to 0 on August 1, 1996. Evergreen expects that proved gas
reserves will continue to increase as additional Raton Basin wells are drilled
and completed.
Evergreen is the licensee under seven onshore United Kingdom hydrocarbon
exploration licenses for the development of coalbed methane gas and conventional
hydrocarbons. The licenses cover substantially all of six coal-bearing basins
located in England. The U.K. has recently passed legislation revising the
licensing scheme for mineral properties. Evergreen is negotiating to convert its
licenses to the new form of licenses, which will allow exploration, development
and production. The term of the new licenses will be 30 years, though there will
likely be requirements to release portions of the licensed lands periodically as
they are explored and determined not to be sufficiently attractive for further
development. Over 400,000 acres of the properties covered by the licenses ("U.K.
Properties") are currently considered prospective specifically for coalbed
methane.
Evergreen has preliminarily evaluated the U.K. Properties by reviewing
existing geological and geophysical data by conducting limited seismic testing
and by drilling three test wells, none of which has produced gas in economic
quantities. Approximately $7.5 million has been expended over 5 years in
acquiring and evaluating the U.K. Properties. Evergreen is unable to assess the
ultimate value, if any, of the U.K. Properties. Successful exploitation of the
U.K. Properties will depend on various factors, including the physical
characteristics of coal on the properties, drilling, completion and production
costs in the local area (which are considerably higher than comparable
production costs in the Raton Basin) and local gas prices, none of which can be
accurately predicted. Successful exploitation of the U.K. Properties may require
techniques different from those that Evergreen is successfully employing in the
Raton Basin. Accordingly, the successful exploitation of the U.K. Properties
must be viewed as speculative. Evergreen does not expect to use any of the
proceeds from this offering to develop the U.K. Properties and will require
additional capital to fund any such development. See "Use of Proceeds" and
"Business and Properties -- Other Activities."
Evergreen also continues to investigate potential opportunities to develop
or participate in the development of other oil and gas properties throughout the
world and may expand the scope of its activities to accommodate one or more such
opportunities. It is likely that any significant expenditure required of
Evergreen in connection with any such opportunity would require additional
capital.
Evergreen Resources, Inc. is incorporated in Colorado and its corporate
offices are located at 1000 Writer Square, 1512 Larimer Street, Denver, Colorado
80202. Its telephone number at that address is (303) 534-0400.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered 2,000,000 shares
Common Stock to be outstanding 9,102,002 shares
after the offering (1)(2)
Use of proceeds Development of the Company's acreage in the Raton Basin;
reduction of borrowings and general working capital. See
"Use of Proceeds."
NASDAQ National Market Symbol "EVER"
</TABLE>
- ------------------------
(1) Does not include 497,800 shares of Common Stock issuable upon exercise of
options and warrants outstanding as of September 1, 1996, and 1,132,075
shares of Common Stock issuable upon conversion of outstanding preferred
stock. See "Management -- Executive Compensation" and "Description of
Securities."
(2) Includes 1,162,266 shares issued in the PBI transaction and 40,000 shares
issued subsequent to June 30, 1996.
SUMMARY GAS AND OIL RESERVE INFORMATION
The following table sets forth summary information with respect to the
Company's estimated net proved gas and oil reserves and the discounted present
value of the estimated future net revenues therefrom as of August 1, 1996. For
additional information relating to the Company's gas and oil reserves, see
"Business and Properties", "-- Production", "-- Reserves", the Supplemental Gas
and Oil Information included after the Consolidated Financial Statements and
"Risk Factors -- Engineers' Estimates of Reserves and Future Net Revenues"
included elsewhere in this Prospectus. The Company's reserve report as of August
1, 1996 was prepared by Resource Services International, Inc., an independent
reservoir engineering firm and reflects the PBI acquisition.
<TABLE>
<CAPTION>
AS OF AUGUST 1, 1996
-----------------------------------------
DEVELOPED UNDEVELOPED TOTAL
<S> <C> <C> <C>
ESTIMATED PROVED RESERVES
Gas (BCF) 75.3 52.7 128.0
Total (BCFE)
Present Value of Estimated Future Net Revenues before
income taxes discounted at 10% (millions) $ 35.2 $ 16.0 $ 51.2
</TABLE>
The Present Value of Estimated Future Net Revenues is based on a weighted
average price of $1.52 per MCF of gas realized by the Company at August 1, 1996.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth the summary historical consolidated financial
data of Evergreen for each period indicated. The historical financial data of
Evergreen for the three-year period ended March 31, 1996, have been derived from
Evergreen's audited consolidated financial statements. The historical financial
data for the three months ended June 30, 1996 and 1995 are derived from
unaudited financial statements of the Company. Production data for all periods
are unaudited. The summary consolidated financial and operating data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Financial Statements,
notes thereto and other information included elsewhere in this Prospectus and
the documents incorporated herein by reference. The pro forma financial data set
forth below reflect the acquisition by the Company of Powerbridge, Inc. and
certain affiliated interests and has been derived from the unaudited pro forma
consolidated financial statements included elsewhere herein. See "Evergreen
Resources, Inc. and Subsidiaries Pro Forma Consolidated Financial Statements
(unaudited)."
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, FISCAL YEARS ENDED MARCH 31,
--------------------------------- ----------------------------------------------
PRO FORMA PRO FORMA
1996 1996 1995 1996 1996 1995 1994
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
AND PRODUCTION AND SALES PRICE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues $ 1,073 $ 779 $ 508 $ 3,210 $ 2,935 $ 3,351 $ 4,342
Depreciation, depletion and
amortization 281 202 167 685 590 709 660
Interest expense 105 9 9 214 37 30 --
Net income (loss) attributable
to common stock (61) (90) (439) (895) (607) (705) 44
Net income (loss) per common
share (1) (0.01) (0.02) (0.08) (0.13) (0.10) (0.13) 0.01
BALANCE SHEET DATA
Working capital 1,030 1,017 694 2,479 1,857 3,206
Total assets 57,069 44,555 39,244 44,172 39,140 32,880
Preferred stock 7,500 7,500 3,750 7,500 3,750 --
Long-term debt 4,413 409 -- -- -- --
Stockholders' equity 39,223 31,523 31,635 31,589 32,202 30,413
PRODUCTION DATA
Production
Gas (MMCF) 600 394 208 1,267 941 782 638
Oil and condensate (Mbbls) -- -- 2 10 10 37 58
Average sales price
Gas ($/MCF) $ 1.39 $ 1.33 $ 1.18 $ 1.23 $ 1.28 $ 1.70 $ 2.15
Oil and condensate ($/Bbl) -- -- 19.62 18.40 18.40 15.96 14.50
Average production cost per
equivalent MCF 0.35 0.33 0.93 0.77 0.77 1.10 1.21
CASH FLOW STATEMENT DATA
Cash flow from operations (542) (160) 1,130 408 485
Cash flow from investments (1,520) (863) (2,764) (2,958) (307)
Cash flow from financing (196) 424 3,329 3,635 242
</TABLE>
- ------------------------
(1) Net income (loss) per common share has been computed by dividing net income
(loss), after reduction for preferred stock dividends, by the weighted
average number of common shares and common share equivalents outstanding
during each of the periods presented. Options and warrants to purchase stock
are included as common stock equivalents when dilutive. In 1994, common
stock equivalents of 221,029 shares are included in the weighted average
number of common shares outstanding. Common stock equivalents are not
included in 1996 and 1995 as their effect is antidilutive.
7
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933. SUCH FORWARD-LOOKING STATEMENTS MAY
BE FOUND IN THIS SECTION AND UNDER "PROSPECTUS SUMMARY," "USE OF PROCEEDS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS AND PROPERTIES." ACTUAL EVENTS OR RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF
VARIOUS FACTORS INCLUDING, WITHOUT LIMITATION, THE RISK FACTORS SET FORTH BELOW
AND ELSEWHERE IN THIS PROSPECTUS. IN ADDITION TO THE OTHER INFORMATION CONTAINED
IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED WHEN
EVALUATING AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY.
VOLATILITY OF OIL AND GAS PRICES. The Company's revenues, profitability and
future rate of growth are substantially dependent upon prevailing market prices
for natural gas and oil, which can be extremely volatile and in recent years
have been depressed by excess domestic and imported supplies. In addition to
market factors, actions of state and local agencies, the United States and
foreign governments, and international cartels affect oil and gas prices. All of
these factors are beyond the control of the Company. These external factors and
the volatile nature of the energy markets make it difficult to estimate future
prices of natural gas and oil. There is no assurance that current price levels
can be sustained or that the Company will be able to produce oil or gas on an
economic basis in light of prevailing market prices. Any substantial or extended
decline in the price of natural gas would have a material adverse effect on the
Company's financial condition and results of operations, including reduced cash
flow and borrowing capacity and could reduce both the value and the amount of
the Company's oil and gas reserves.
RECENT LOSSES. The Company was unprofitable in fiscal 1995 and 1996 and
experienced a net loss attributable to the common stock in the first quarter of
its current fiscal year. Although the Company expects profitability to improve
as additional Raton Basin wells are completed, there is no assurance that this
will occur or that the Company will achieve, or be able to sustain, profitable
operations.
FUTURE CAPITAL REQUIREMENTS. The Company will require additional equity or
debt capital, as well as the anticipated cash flow from operation of its
developed properties, to fund the full development of the Raton Basin. Any
development of other properties, including the Company's United Kingdom
properties, is expected to require substantial additional capital. There is no
assurance that any required capital will be available or that it will be
available on terms acceptable to the Company. The inability of the Company to
fund development of its properties could cause the Company to lose all or
portions of such properties through failure to comply with minimum lease or
license requirements or could require the Company to farm out or otherwise
dispose of or abandon such properties. There is no assurance that the Company
could successfully farm out or dispose of any such properties.
EL PASO AGREEMENT. In August 1992, Evergreen entered into a series of
agreements with El Paso concerning the connection of Evergreen's San Juan Basin
wells to El Paso's non-jurisdictional gathering system. Under the agreements, El
Paso paid for construction of a gathering pipeline to a central point in
Evergreen's producing area. Evergreen paid for construction of its own gathering
system to the wells beyond that point, which was sold to Associated Natural Gas,
Inc. in 1993. Evergreen dedicated 90% of its San Juan Basin production to El
Paso's gathering line for a period of 10 years following completion of the line
and agreed to deliver a minimum of 11,000 MMBtu per day for five years to El
Paso's gathering line or pay a shortfall payment of $0.25 per MMBtu. Production
from the wells has been substantially less than 11,000 MMBtu per day and
Evergreen has accrued a shortfall obligation of $1,831,000 as of June 30, 1996
that may grow to in excess of $3.0 million by the end of the five year period.
El Paso is discussing alternate resolutions with Evergreen, including the sale
of El Paso's gathering line to Evergreen. However, there is no assurance that an
alternative agreement will be reached.
SPECULATIVE NATURE OF OIL AND GAS EXPLORATION. The business of exploring
for and, to a lesser extent, of developing oil and gas properties is an
inherently speculative activity that involves a high degree of business and
financial risk. Property acquisition decisions generally are based on various
assumptions
8
<PAGE>
and subjective judgments that are speculative. Although available geological and
geophysical information can provide information with respect to a potential oil
or gas property, it is impossible to determine accurately the ultimate
production potential, if any, of a particular property or well. Moreover, the
successful completion of an oil or gas well does not ensure a profit on the
Company's investment therein. While the portion of the Company's Raton Basin
property in which the Company is currently operating appears to present only
moderate risk in this regard, the remainder of the Raton Basin property, the
Company's United Kingdom properties and any properties in which the Company may
invest in the future are or may be largely untested and therefore subject to
more substantial risk that they will be uneconomic or marginally economic.
OPERATING HAZARDS. Oil and gas operations involve a high degree of risk.
Natural hazards, such as excessive underground pressures, may cause a costly or
dangerous blowout or make further operations on a well financially or physically
impractical. Equipment failures, human errors and other factors can result in
the substantial impairment or destruction of property, environmental damage
and/or human injury. The Company is subject to all the risks inherent in the
exploration for, and development of, oil and gas, including blowouts, fires and
other casualties. Any such event can result in the exposure of the Company to
claims of individuals or governmental agencies or to the loss or impairment of
the value of its properties, or both. The Company maintains insurance coverage
as is customary for entities of a similar size engaged in similar operations but
losses can occur from uninsurable risks or in amounts in excess of existing
insurance coverage.
UNCERTAINTY OF ESTIMATED RESERVES. This Prospectus contains estimates of
reserves and future net revenues which have been prepared by independent
petroleum engineers. However, petroleum engineering is not an exact science and
involves estimates based on many variable and uncertain factors. Estimates of
reserves and future net revenues prepared by different petroleum engineers 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 engineers' estimates. The Company's reserve values remain
sensitive to gas prices in the current environment of fluctuating commodities
prices.
REGULATION. The oil and gas industry is extensively regulated by federal,
state and local authorities. Legislation and regulation affecting the industry
are under constant review for amendment or expansion, raising the possibility of
changes that may affect, among other things, the pricing or marketing of oil and
gas production. Substantial penalties may be assessed for noncompliance with
various applicable statutes and regulations, and the overall regulatory burden
on the industry increases its cost of doing business and, in turn, decreases its
profitability.
State and local authorities regulate various aspects of oil and gas drilling
and production activities, including the drilling of wells (through permit and
bonding requirements), the spacing of wells, the unitization or pooling of oil
and gas properties, environmental matters, safety standards, the sharing of
markets, production limitations, plugging and abandonment, and restoration.
ENVIRONMENTAL CONSIDERATIONS. Various federal, state and local laws and
regulations covering the discharge of materials into the environment, or
otherwise relating to the protection of the environment, may affect the
operations and costs of the Company. For example, the Company operates under
permits issued by the State of Colorado to discharge water provided from its
coalbed methane wells. Inasmuch as such laws and regulations are frequently
changed, the Company is unable to predict the ultimate cost of compliance.
LIMITED PROTECTION FOR TECHNOLOGY; DEPENDENCE ON TECHNOLOGY OWNED BY
OTHERS. The Company employs operating methods that it believes to be
proprietary and of significant value in exploiting coal bed methane resources.
In most cases, patent or other intellectual property protection is unavailable
for such technology and the Company relies on non-disclosure agreements and
similar processes to protect its technology. The Company's use of independent
contractors in most aspects of its drilling and
9
<PAGE>
completion operations makes the protection of such technology more difficult.
Moreover, the Company relies on the technological know how of the independent
contractors that it retains in connection with its oil and gas operations. The
Company has no long-term agreements with such contractors and there is no
assurance that the Company will continue to have access to such know how.
DEPENDANCE ON GATHERING AND TRANSPORTATION FACILITIES. Substantially all of
the Company's current production consists of natural gas. 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 gas and oil production and transportation,
general economic conditions, changes in supply and changes in demand all could
adversely affect the Company's ability to produce, gather and transport its
natural gas and oil. If market factors were to change materially, the financial
impact on the Company could be substantial. The Company is a party to two gas
transportation contracts that require the Company to transport minimum volumes.
If the Company ships smaller volumes, it may be liable for damages proportional
to the shortfall. See "Business and Properties -- Agreements." Under the San
Juan Basin contract, the Company is subject to claims for $1.831 million in
shortfall payments through June 30, 1996, which may grow to $3 million by 1998.
The Company expects to meet its volume obligations with respect to the Raton
Basin transportation agreement. The Company is exploring ways to resolve the San
Juan Basin claims, including the possibility of purchasing the subject pipeline.
There is no assurance that the San Juan Basin claims can be resolved without a
loss to the Company. While the Company believes that its production in the Raton
Basin will be more than adequate to meet volume requirements, unforeseen events,
including production problems or substantial decreases in the price for natural
gas, could cause the Company to ship less than the required volumes, resulting
in losses on the transportation contracts.
COMPETITION. Major oil companies, independent producers, institutional and
individual investors and various oil and gas income funds are actively seeking
to acquire oil and gas properties throughout the world, as well as the
equipment, labor, and materials required to operate such properties. Many of the
Company's competitors have financial and technological resources vastly
exceeding those available to the Company. Many oil and gas properties are sold
in a competitive bidding process in which the Company, if it is making an
independent bid, may lack technological information or expertise available to
other bidders. There is no assurance that the Company will be successful in
acquiring and developing profitable properties in the face of such competition.
OIL AND GAS LEASES. The Company's right to explore and produce oil and gas
from its properties derives from its oil and gas leases with the owners of the
properties. There are many versions of oil and gas leases in use. The Company
has acquired most of its current leases from other companies who first acquired
the leases from the landowners. Oil and gas leases generally call for annual
rental payments and the payment of a percentage royalty on the oil and gas
produced. Courts in many states have interpreted oil and gas leases to include
various implied covenants, including the lessee's implied obligation to develop
the lease diligently, to prevent drainage of oil and gas by wells on adjacent
land, to seek diligently a market for production, and to operate prudently
according to industry standards. Oil and gas leases with similar language may be
interpreted quite differently depending on the state in which the property is
located. Issues decided differently in two states may not yet have been decided
by the courts of a third state, leading to uncertainty as to the proper
interpretation. For instance, royalty calculations can be substantially
different from state to state, depending on each state's interpretation of
typical lease language concerning the costs of production. The Company believes
it has followed industry standards in interpreting its oil and gas leases in the
states where it operates. However, there can be no assurance that the leases
will be free from litigation concerning the proper interpretation of the lease
terms. Adverse decisions could result in material costs to the Company or the
loss of one or more leases.
TITLE TO PROPERTIES. As is customary in the oil and gas industry, the
Company conducts only a preliminary title examination at the time properties
believed to be suitable for drilling operations are acquired. Prior to the
commencement of drilling operations, a title examination of the drill site tract
is
10
<PAGE>
conducted. The Company believes that titles to its leasehold properties are good
and defensible in accordance with standards generally acceptable in the oil and
gas industry, but there is no assurance that the Company could defend title to
its undeveloped properties.
ACCOUNTING RISKS. The Company reports its operations using the full cost
method of accounting for gas and oil properties. Under full cost accounting
rules, all productive and non-productive costs incurred in connection with the
exploration for and development of oil and gas reserves are capitalized. Normal
dispositions of oil and gas properties are accounted for as adjustments of
capitalized costs, with no gain or loss recognized. See "Notes to Financial
Statements." Under full cost accounting rules, the net capitalized costs of gas
and oil properties may not exceed a "ceiling" limit of the present value of
estimated future net revenues from proved reserves, discounted at 10%, plus the
lower of cost or fair market value of unproved properties. If the net investment
in oil and gas properties exceeds an amount equal to the sum of (1) the
standardized measure of discounted future net cash flows from proved reserves,
and (2) the lower of cost or fair market value of properties in process of
development and unexplored acreage, the excess is charged to expense as
additional depletion. Natural gas prices are often volatile, varying
substantially from quarter to quarter depending on weather conditions,
quantities of gas in storage, and supply variations. Since the "ceiling test"
must be applied quarterly, the company may be forced to write down the value of
its oil and gas properties during a quarter when gas prices are substantially
below present levels. Full cost accounting rules would not allow the Company to
increase the value of its oil and gas properties in a subsequent quarter when
gas prices improved.
PREFERRED STOCK. The Board of Directors of Evergreen is authorized, without
action by the Shareholders, to issue up to 25,000,000 shares of Preferred Stock
from time to time in one or more series. The Board may also fix for each series
the number of shares, designation, liquidation and dividend rights, preferences,
voting rights, redemption rights and other rights, restrictions and
qualifications or sinking fund provisions. As of September 9, 1996, the Company
has issued 7,500,000 shares of ten year term 8% Convertible Preferred Stock,
$1.00 par value ("the Preferred"). The Company is obligated to pay cumulative
annual cash dividends of 8% quarterly on the Preferred. The Preferred is
convertible at any time, or from time to time, in whole or in part, at the
option of the holders into 1,132,075 shares of Common Stock, at $6.625 per
share. All outstanding shares of the Preferred must be redeemed by Evergreen on
the tenth anniversary of original issuance at par value, plus accrued dividends.
Commencing in December 1999, through December 2003, the Company is required to
make annual mandatory redemption payments of $1,250,000 to redeem the Preferred
at a rate of 1,250,000 shares per year. No dividends may be paid on the Common
Stock unless all accrued dividends and redemption obligations on the Preferred
have been paid in full. Liquidation preference for the Preferred Stock is par
value plus accrued and unpaid dividends prior to distributions on the Common
Stock upon any voluntary or involuntary liquidation, dissolution or winding up
of Evergreen. The payment of dividends on the Preferred or mandatory redemption
payments could have a material adverse effect on the Company's financial
condition. See "Business and Properties -- Agreements."
The conversion of the outstanding Preferred into Common Stock and any future
issuances of Preferred Stock could, under certain circumstances, be dilutive to
holders of Common Stock and would result in a reduction in percentage ownership
interest in the Company by holders of Common Stock. In the event of a proposed
merger, tender offer, proxy contest or other attempt to gain control of the
Company not approved by the Board of Directors, it would be possible, subject to
any limitations imposed by applicable law, the Company's Articles of
Incorporation, the terms and conditions of any outstanding class or series of
Preferred Stock and the applicable rules of any securities exchanges upon which
securities of the Company are at any time listed or of other markets in which
securities of the Company are at any time listed, for the Board of Directors to
authorize the issuance of one or more series of Preferred Stock with voting
rights or other rights and preferences which would impede the success of the
proposed merger, tender offer, proxy contest or other attempt to gain control of
the Company. The issuance of Preferred Stock may have an adverse effect on the
rights (including voting rights) of holders of Common Stock. See "Description of
Capital Stock."
11
<PAGE>
POTENTIAL FUTURE SALES PURSUANT TO RULE 144. Of the 7,102,002 shares of
Common Stock of the Company outstanding as of the date of this Prospectus,
3,004,500 shares, including 392,400 shares issuable on exercise of immediately
exercisable stock purchase warrants, are "restricted securities" as that term is
defined in Rule 144 promulgated under the Securities Act of 1933, as amended. Of
these shares, 1,845,630 are currently eligible for sale subject to the volume
restrictions set forth under Rule 144. The holders of these shares have agreed
not to sell or otherwise dispose publicly of any of their shares of Common Stock
for a period of three months from the date of this Prospectus without the
written consent of Paulson Investment Company, Inc. However, no prediction can
be made as to the effect, if any, the future sale of these or other shares of
Common Stock or the availability of such shares for sale pursuant to the
provisions of Rule 144 will have on the market price of the Common Stock of the
Company prevailing from time to time.
12
<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1996 (i) the actual
capitalization of the Company, (ii) the capitalization on a pro forma basis,
giving effect to the acquisition of PBI, and (iii) on a pro forma as adjusted
basis giving effect to the receipt of the estimated net proceeds to be received
by the Company from the sale of the 2,000,000 shares of Common Stock being
offered hereby at an assumed offering price of $6.25 per share. The table should
be read in conjunction with the Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------------------
(in thousands) PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
(Unaudited)
<S> <C> <C> <C>
Long-term debt $ 409 $ 4,413 $ 4,413
------------- ----------- -------------
Redeemable preferred stock, $1.00 par value:
25,000,000 shares authorized, 7,500,000 issued and
outstanding 7,500 7,500 7,500
------------- ----------- -------------
Shareholders' equity:
Common Stock, no par value, 50,000,000 shares
authorized; 5,899,736 issued and outstanding,
and 7,102,002 issued and outstanding pro forma
and 9,102,002 issued and outstanding pro forma
as adjusted 59 71 91
Additional paid-in capital 41,822 49,510 60,715
Foreign currency adjustment (394) (394) (394)
Retained earnings (deficit) (9,964) (9,964) (9,964)
------------- ----------- -------------
Total shareholders' equity 31,523 39,223 50,448
------------- ----------- -------------
Total capitalization $ 39,432 $ 51,136 $ 62,361
------------- ----------- -------------
------------- ----------- -------------
</TABLE>
13
<PAGE>
DILUTION
The net tangible book value of Evergreen as of June 30, 1996 was $31,177,000
or $5.28 per share of Common Stock. After giving effect to the PBI acquisition
as of August 1, 1996, the pro forma net tangible book value of Evergreen as of
June 30, 1996 is $38,824,000 or $5.47 per share. Net tangible book value per
share represents the amount of total tangible assets of the Company less total
liabilities, divided by the number of shares of Common Stock outstanding. After
giving effect to the sale of the 2,000,000 shares of Common Stock offered hereby
at an assumed initial public offering price of $6.25 (after deducting the
underwriting discount and estimated other offering expenses payable by the
Company in connection therewith), the pro forma net tangible book value as
adjusted of the Company at June 30, 1996, would have been approximately
$50,048,000 or $5.50 per share. This represents an immediate increase in net pro
forma tangible book value of $.03 per share to existing shareholders and a $.75
per share (12%) dilution to new investors. Dilution is determined by subtracting
(i) pro forma net tangible book value per share after the offering from (ii) the
amount of cash paid by a new investor for a share of Common Stock. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share $ 6.25
Net tangible book value at June 30, 1996 $ 5.28
Increase in net tangible book value from the acquisition of PBI .19
---------
Pro forma net tangible book value after acquisition of PBI 5.47
Increase in net tangible book value per share attributable to new
investors .03
---------
Pro forma net tangible book value after this offering (1) 5.50
---------
Dilution of net tangible book value per share of Common Stock to new
investors $ .75(1)
---------
---------
</TABLE>
- ------------------------
(1) The above table assumes no conversion of Preferred Stock or exercise of
outstanding options or warrants.
Assuming the Underwriters' over-allotment option is exercised in full, the
pro forma net tangible book value per share after the offering would be
$5.51 which would result in a dilution to new investors of $.74 per share.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered hereby are estimated to be approximately $11,225,000
($12,950,000 if the Underwriters' over-allotment option is exercised in full)
assuming that the shares of Common Stock offered hereby are sold at an assumed
initial public offering price of $6.25 per share.
The Company expects to use substantially all of the net proceeds for
development of the Raton Basin Project. Such development includes the drilling
and completion of 30-40 new wells and upgrading and expansion of existing
gathering and compression facilities. For cash management purposes the Company
may initially apply a portion of the proceeds to reduce the outstanding balance
on its revolving credit line.
Based on current and forecast drilling and operating costs in the Raton
Basin and current gas prices, the Company believes that, if an additional 30-40
wells are successfully drilled and completed in the Raton Basin, cash flow from
Raton Basin operations and available bank borrowing facilities will be
sufficient to support the Company's planned further development plans for the
Raton Basin. However, a variety of factors, over many of which the Company has
no control, could cause the Company's costs to be higher or its revenues to be
lower than currently estimated. See "Risk Factors -- Other Industry and Business
Risks." The Company does not expect that the proceeds from this offering will be
sufficient to fund significant development costs related to other projects,
including but not limited to the Company's United Kingdom properties. See "Risk
Factors -- Need for Additional Capital" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The Company may
elect to use the proceeds from this offering for purposes other than those
described above if it determines that such alternative use (not presently
contemplated) would be more beneficial to the Company.
Until funds are needed for the uses referred to above, the net proceeds of
this offering will be invested in deposits with banks, investment-grade
securities and short-term income-producing investments, including governmental
obligations and money market instruments.
15
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "EVER." The range of high and low prices for the periods indicated, as
reported by Nasdaq, is as follows:
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
Fiscal 1995
First Quarter $ 8.75 $ 6.50
Second Quarter 8.25 6.50
Third Quarter 8.25 5.25
Fourth Quarter 6.00 4.00
Fiscal 1996
First Quarter $ 5.75 $ 4.25
Second Quarter 5.50 4.00
Third Quarter 5.37 3.50
Fourth Quarter 6.16 5.00
Fiscal 1997
First Quarter $ 7.25 $ 5.75
Second Quarter (through September 9, 1996) 7.22 5.75
</TABLE>
On September 9, 1996, the closing sale price for the common stock as
reported by Nasdaq was $6.25 per share.
At September 9, 1996, there were approximately 4,000 holders of record of
the Company's Common Stock.
DIVIDEND POLICY
Subject to the preferential rights of the Preferred Stock, holders of Common
Stock are entitled to receive such dividends as may be declared by the Company's
Board of Directors. The Company has not paid any cash dividends since its
inception. The Company anticipates that future earnings will be retained for the
development of its business and that no cash dividends will be declared in the
foreseeable future.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected data presented below for each of the years in the three-year
period ended March 31, 1996 are derived from the consolidated financial
statements of the Company, which financial statements have been audited by BDO
Seidman, LLP, Certified Public Accountants. The selected data presented below
for the three month periods ended June 30, 1996 and 1995 are derived from the
Company's unaudited consolidated financial statements and include, in the
opinion of management, all normal and recurring adjustments necessary to present
fairly the data for such periods. This information should be read in conjunction
with the "Consolidated 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 consolidated financial data
provided below are not necessarily indicative of the future results of
operations or financial performance of the Company. The pro forma financial data
set forth below reflect the acquisition by the Company of Powerbridge, Inc. and
certain affiliated interests and has been derived from the Company's unaudited
pro forma consolidated financial statements included elsewhere herein. See
"Evergreen Resources, Inc. and Subsidiaries Pro Forma Consolidated Financial
Statements (unaudited)."
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, YEARS ENDED MARCH 31,
--------------------------------- ----------------------------------------------
PRO FORMA PRO FORMA
1996 1996 1995 1996 1996 1995 1994
(in thousands except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues:
Oil and gas production $ 835 $ 526 $ 284 $ 1,740 $ 1,393 $ 1,916 $ 2,207
Oil and gas services 172 191 186 701 779 858 1,102
Other 66 62 38 769 763 577 1,033
----------- --------- --------- ------------- --------- --------- ---------
TOTAL $ 1,073 $ 779 $ 508 $ 3,210 $ 2,935 $ 3,351 $ 4,342
Cost of production 209 132 248 908 656 993 1,041
Depreciation, depletion and
amortization 280 202 167 685 590 709 660
Gas gathering 44 44 58 219 219 238 219
Cost of oil and gas services 197 185 195 767 727 790 929
General and administrative 149 149 202 819 819 850 1,350
Interest 105 9 9 214 37 30 --
Preferred Dividends 150 150 75 505 505 94 --
Net Income (Loss)
attributable to common
stock (61) (90) (439) (895) (607) (705) 44
Net Income (Loss) per common
share (1) (0.01) (0.02) (0.08) (0.13) (0.10) (0.13) 0.01
BALANCE SHEET DATA
Working capital 1,030 1,017 694 2,479 1,857 3,206
Total assets 57,069 44,555 39,244 44,172 39,140 32,880
Preferred Stock 7,500 7,500 3,750 7,500 3,750 --
Long-term debt 4,413 409 -- -- -- --
Common Stockholders equity 39,223 31,523 31,635 31,589 32,202 30,413
CASH FLOW STATEMENT DATA
Cash flow from operations 542 (160) 1,130 408 485
Cash flow from investments (1,520) (863) (2,764) (2,958) (307)
Cash flow from financing 196 424 3,329 3,635 242
</TABLE>
- ------------------------
(1) Net income (loss) per common share has been computed by dividing net income
(loss), after reduction for preferred stock dividends, by the weighted
average number of common shares and common share equivalents outstanding
during each of the periods presented. Options and warrants to purchase stock
are included as common stock equivalents when dilutive. In 1994, common
stock equivalents of 221,029 shares are included in the weighted average
number of common shares outstanding. Common stock equivalents are not
utilized in 1996 and 1995 as their effect is antidilutive.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO PRESENTED ELSEWHERE IN THIS
PROSPECTUS. THE COMPANY FOLLOWS THE FULL-COST METHOD OF ACCOUNTING FOR OIL AND
GAS PROPERTIES. SEE "SUMMARY OF ACCOUNTING POLICIES," INCLUDED WITH THE
CONSOLIDATED FINANCIAL STATEMENTS BEGINNING AT PAGE F-12 OF THIS PROSPECTUS.
RECENT DEVELOPMENTS
On August 14, 1996, Evergreen acquired, effective as of August 1, 1996,
approximately 37 BCF of proved natural gas reserves, approximately 24 BCF of
which are developed, together with 25% working interest in 120,000 gross acres
and 50% interest in an associated gas gathering and marketing system. All of
these assets are located on Evergreen's present acreage position in the Raton
Basin. Evergreen issued 1,162,266 restricted shares of Evergreen Common Stock
and assumed $3.6 million of long term bank debt owed to Hibernia National Bank.
The acquisition of these assets increased Evergreen's interest to 100% in
all leases, reserves, production, and associated gathering facilities on the
Company's 120,000 gross acres in the Raton Basin.
At March 31, 1996, Evergreen reported 80 BCF of proved reserves, based on an
independent engineering study, which has now been updated. As of August 1, 1996,
Evergreen's proved reserves increased to 128 BCF, through the above reported
acquisition and other development activity in the Raton Basin. Approximately 59%
of these proved reserves are developed. Present value of future net revenues
before income taxes discounted at 10% increased from $30 million at March 31,
1996, to $51 million as of August 1, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Evergreen currently has a $15.0 million revolving line of credit with
Hibernia National Bank of New Orleans with interest at the Bank's prime rate.
Advances pursuant to this line of credit are limited to the borrowing base,
which is presently $15.0 million. There are no restrictions associated with
advances under the line. An annual fee of one half of one percent is paid
quarterly for any unused portion of the credit line. The borrowing base is
redetermined semi-annually by the bank based upon reserve evaluations of the
Company's oil and gas properties. As of September 1, 1996 the amount outstanding
under the line of credit was $1,000,000. The Company intends to consolidate the
$3.6 million of long term debt assumed in the PBI acquisition into the $15.0
million revolving credit line with Hibernia National Bank.
The Company anticipates drilling 30 to 40 wells and expanding and upgrading
gas gathering facilities during fiscal 1997. Capital requirements for the
remainder of fiscal 1997 are estimated to be approximately $10 million, which
includes an increase as a result of the PBI acquisition. The Company believes
that cash flow from operations, the availability of funds under its line of
credit, and the funds from this offering will be sufficient to fulfill the 1997
development objectives.
Leases expiring in fiscal 1997 are not material and do not require
significant drilling expenditures.
Cash flows used by operating activities were $542,000 for the three months
ended June 30, 1996 as compared to $160,600 in the prior year. The increase in
cash used by operating activities is due primarily to the significant increase
in drilling activities in the first quarter of fiscal 1997 compared to the same
period in fiscal 1996.
Cash flows used by investing activities were $1,520,400 during the three
months ended June 30, 1996 versus $863,200 during the same period in 1995. The
increase was primarily due to the continued development of the Raton Basin.
During the three month period ended June 30, 1996 the Company completed and
placed into production an additional ten wells.
18
<PAGE>
Cash flows used by financing activities were $195,900 in the first quarter
of 1996 as compared to cash flows provided by financing activities of $423,700
in the prior period. The decrease was primarily due to the net change in cash
held for future distribution to third party interest owners of $565,000.
The Company's production from its San Juan basin properties has not met the
minimum volume requirements under its transporation agreements with El Paso. See
"Risk Factors -- El Paso Agreement" and "Business and Properties -- El Paso
Agreement." As of June 30, 1996, the cumulative obligation of the Company to El
Paso resulting from this shortfall was $1,831,000. At current rates of
production, this liability would increase to over $3 million by the end of the
contract term in July 1998. The Company has had discussions with El Paso with
respect to various potential arrangements, including the purchase by the Company
of El Paso's gathering facilities. El Paso has not attempted to collect the
shortfall payments, pending further negotiations with the Company. Accordingly,
this obligation has been accounted for as a long term liability. However, there
is no assurance that agreement will be reached on any such arrangement. Should
El Paso seek to enforce its right to the shortfall payment, which may occur at
any time, the amount may be held to be immediately due and payable and may
constitute an expense in the quarter in which the payment was requested. If the
Company purchases the pipeline, there is no assurance that the Company would be
able to recoup its investment through operation of the pipeline.
RESULTS OF OPERATIONS -- THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THE THREE
MONTHS ENDED JUNE 30, 1995
During the three months ended June 30, 1996, Evergreen recorded net income
of $60,000 on revenues of $779,000 versus a net loss of $364,500 on revenues of
$508,000 for the same period in 1995. After preferred stock dividends, the
Company reported a net loss of $90,000 or two cents per common share in the
current quarter versus a net loss of $440,000 or eight cents per common share in
the same quarter in the prior year.
The improved performance in the current quarter is a result of increased
production and revenue from the Raton Basin, reduced production (lifting) costs
due to the sale of marginal and/or non-strategic properties and reduced overhead
costs.
Production revenues during the three months ended June 30, 1996 were
$526,300 versus $283,700 for the same period in 1995, an increase of $242,600 or
86%.
Natural gas production increased to 394.3 million cubic feet in the quarter
ended June 30, 1996, compared to 207.7 million cubic feet during the same period
in the prior year. This increase is attributable to substantial growth in Raton
Basin production.
During the current quarter, Raton Basin gas production represented over 80%
of the Company's total gas production, compared to 30% for the same period in
the prior year. At June 30, 1996, there were 31 producing Raton Basin wells
compared to 9 producing wells at June 30, 1995.
Natural gas prices averaged $1.33 per MCF during the three months ended June
30, 1996 versus $1.18 per MCF in the prior year quarter. The Company currently
enters into contracts with various purchasers for periods ranging from one to
six months.
The Company has no significant oil reserves, production or revenues.
Production costs and taxes for the three months ended June 30, 1996 were
$131,900 compared to $248,200 for the same period in 1995. This 47% reduction is
due to the sale or shutting-in of marginal, non-strategic properties with high
lifting costs. Shut-in wells will be returned to production if economically
justifiable, or plugged.
During the Company's last four fiscal years, production (lifting) costs have
declined:
<TABLE>
<CAPTION>
1993 1994 1995 1996
<S> <C> <C> <C> <C>
Equivalent MCF lifting cost $ 1.91 $ 1.21 $ 1.10 $ 0.77
</TABLE>
19
<PAGE>
During the quarter ended June 30, 1996, average lifting cost was $0.33 per
equivalent MCF versus $0.93 per equivalent MCF during the same period in 1995.
The Company anticipates Raton Basin lifting costs to decline further as
additional wells are brought into production.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30
--------------------
1996 1995
<S> <C> <C>
GAS
Revenues $ 523,300 $ 245,300
Production (MCF) 394,300 207,700
Avg. Price per MCF $ 1.33 $ 1.18
OIL
Revenues $ 3,300 $ 38,400
Production (Barrels) 141 2,000
Avg. Price per Barrel $ 23.06 $ 19.62
Production Cost
Per Equivalent MCF $ 0.33 $ 0.93
</TABLE>
Oil and gas service revenues and cost of oil and gas services are
attributable to the Company's wholly owned subsidiary Evergreen Operating
Corporation ("EOC"), which is primarily responsible for drilling, evaluation and
production activities associated with various properties and for negotiating the
sales of oil and gas production from the properties. As of August 2, 1996, EOC
was serving as Operator for approximately 150 producing wells owned by the
Company, unaffiliated and affiliated parties.
During the three months ended June 30, 1996 oil and gas service revenues and
expenses were basically unchanged from the prior year's levels.
Interest income was $51,600 during the three months ended June 30, 1996 as
compared to $23,200 during the three months ended June 30, 1995. The increase in
interest is due to an increase in cash from the proceeds of the preferred stock
and sales of properties.
Depreciation, depletion and amortization was $201,800 during 1996 as
compared to $167,200 in 1995. The increase is due to the increase in gas
production and added gas gathering equipment in the Raton Basin.
General and administrative expenses were $149,300 during the three months
ended June 30, 1996 versus $202,300 during the same period in 1995. The decrease
of $53,000 was due to a reduction in personnel and the related salary expense,
the consolidation of the corporate offices in Denver and general overhead
reductions.
RESULTS OF OPERATIONS -- FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO THE FISCAL
YEAR ENDED MARCH 31, 1995
The Company reported a net loss of $606,800 (after preferred stock dividends
of $504,600) or $.10 per common share for the year ended March 31, 1996,
compared to a net loss of $704,700 (after preferred stock dividends of $94,200)
or $.13 per share for the year ended March 31, 1995.
Production revenues during 1996 were $1,392,700 as compared to $1,916,300 in
1995, a decrease of $523,600 or 27%. The decrease in production revenues is due
primarily to lower gas prices and the sale of oil and gas properties. Gas
production increased to 941,174 MCF in 1996 from 782,000 MCF in 1995. However,
average gas prices decreased approximately $.41 per MCF to $1.29 per MCF in 1996
as compared to $1.70 during 1995. The decrease in gas prices more than offset
the increased production and reduced gas revenues to $1,211,000 in 1996 from
$1,331,000 in 1995 for a reduction of $120,000 or
20
<PAGE>
9%. Oil revenues decreased to $178,000 in 1996 versus $584,000 in 1995 for a
reduction of $406,000 or 70%. This reduction is due to the sale of substantially
all oil properties.
Cost of production and operations was $875,500 for the year ended March 31,
1996 versus $1,231,700 for the same period in 1995. The decrease in cost of
production and operations of $356,200 or 29% is due primarily to the sale or
shut-in of uneconomical oil and gas properties with high lifting costs. The
average production cost per Mcfe was $.77 in 1996 as compared to $1.10 in 1995.
During the year ended March 31, 1996, the lifting costs have continued on a
downward trend. As previously noted the Company has focused its efforts on the
Raton Basin and as additional wells are drilled, the Company expects the lifting
costs for the Raton Basin to continue to decrease.
Oil and gas service revenues and cost of oil and gas services are
attributable to the Company's wholly owned subsidiary EOC, which is primarily
responsible for drilling, evaluation and production activities associated with
various properties and for negotiating the sales of oil and gas production from
the properties. As of March 31, 1996, EOC was serving as operator for
approximately 150 producing wells owned by the Company, unaffiliated third
parties and affiliated parties.
Oil and gas service revenues during 1996 were $779,100 versus $858,300 in
the same period during 1995. The $79,000 decrease was primarily due to
non-recurring special service fees of approximately $201,000, which were offset
by increased operating fees of approximately $111,000 in 1996.
Interest and dividend income was $206,800 during the year ended March 31,
1996 as compared to $116,300 during the year ended March 31, 1995. The increase
in interest and dividends of $90,500 is due to an increase in cash from the
proceeds of the preferred stock offering.
Other income was $556,200 during the year ended March 31, 1996 versus
$460,000 for the same period in 1995. In 1996 the Company sold its interest in
ANGI Ltd. to an unaffiliated entity for $580,000, which resulted in a gain of
$525,000.
Costs of oil and gas services were $727,100 during the year ended March 31,
1996 as compared to $789,800 during the year ended March 31, 1995. The decrease
of $62,700 or 8% was primarily due to a reduction in personnel and related
salary expense.
Depreciation, depletion and amortization was $590,000 during the year ended
March 31, 1996 as compared to $709,000 in 1995. While there was no significant
change in total production from the prior year, the decrease in depreciation,
depletion and amortization is due primarily to the increase in estimated
reserves of approximately 30%.
General and administrative expenses were $819,800 during the year ended
March 31, 1996 as compared to $850,100 during the same period in 1995. The
decrease of $30,300 was due to general overhead reductions.
RESULTS OF OPERATIONS -- FISCAL YEAR ENDED MARCH 31, 1995 COMPARED TO THE FISCAL
YEAR ENDED MARCH 31, 1994
The Company reported a net loss of $704,700 attributable to Common Stock
(which includes $94,200 of Preferred Stock dividends) or $0.13 per share of
Common Stock for the year ended March 31, 1995, compared to net income of
$43,500 or $0.01 per share of Common Stock in 1994.
Principal factors in the year to year earnings decline were lower gas
prices, reduced oil production and service revenues, lower interest and other
income and Preferred Stock dividends during the year ended March 31, 1995.
Oil prices averaged $15.96 per barrel during the year ended March 31, 1995
versus $14.50 per barrel during the same period in 1994. Gas prices averaged
$1.70 per MCF in 1995 versus $2.15 per MCF in 1994.
Natural gas production increased 23% during the year ended March 31, 1995,
to 782,000 million cubic feet.
21
<PAGE>
Oil production declined 36% during the year ended March 31, 1995 versus the
prior year, principally due to the sale of non-strategic properties.
Oil and gas service revenues and cost of oil and gas services are
attributable to EOC, which is primarily responsible for drilling, evaluation and
production activities associated with various properties and for negotiating the
sales of oil and gas production from the properties. As of March 31, 1995, EOC
was serving as operator for approximately 150 producing wells owned by the
Company and also by other unaffiliated third parties.
Oil and gas service revenues were $244,300 lower in 1995 than 1994, due
primarily to non-recurring special service fees received in the prior year.
Interest and dividend income declined from $238,000 in 1994 to $116,300 in
1995 because of less cash available for investment.
Other income totaled $459,900 in the fiscal year ended March 31, 1995,
principally from a gain on the sale of oil and gas assets of $330,900.
Oil and gas production costs and taxes for the year ended March 31, 1995
were 6% lower than in the prior fiscal year. On a production equivalent unit
basis, costs and taxes declined to $1.10 per MCF equivalent in 1995 from $1.21
in 1994.
Cost of oil and gas services in 1995 declined by 15% from 1994 primarily
because of reduced staffing.
General and Administrative expenses for the year ended March 31, 1995 were
37% lower than the prior year primarily because of non-recurring legal fees in
the prior year and an ongoing overhead reduction program.
Depreciation, depletion and amortization expenses for 1995 were
approximately 7% higher than in 1994, due to increased production.
Other expenses increased to $351,200 in the fiscal year ended March 31, 1995
from $34,500 in the fiscal year ended March 31, 1994, due primarily to a loss on
the sale of marketable securities ($122,100) and a write-down on the valuation
of certain non-oil and gas assets ($217,000).
PRO FORMA COMBINED RESULTS OF OPERATIONS
The Company's pro forma combined operating results reflect the PBI
acquisition as if it had occurred at the beginning of each period presented. The
pro forma operating results for the 12 months ended March 31, 1996 include the
12 months ended March 31, 1996 for the Company and the 12 months ended December
31, 1995 for PBI. The pro forma operating results for the three months ended
June 30, 1996 include the operating results of the Company, and PBI for such
period. Adjustments to the pro forma combined operating results include changes
to reflect the elimination of overhead charges and management fees billed by the
Company to PBI; elimination of non Raton Basin related income, reclassification
of gas revenue and production expenses related to PBI to conform to the
Company's financial statement presentation and to eliminate PBI expenses
eliminated as a result of the merger; changes in depletion, depreciation and
amortization to reflect the new cost basis of assets acquired; changes to
general and administrative expenses to eliminate expenses of PBI as a result of
the merger; changes to interest expense to eliminate interest on debt not
assumed and adjust interest on bank debt to the Company's borrowing rate. In
addition, the weighted average shares outstanding have been adjusted to reflect
the acquisition of PBI and the number of shares issued in the offering as of the
beginning of the periods presented.
The pro forma combined results of operations for the 12 months ended March
31, 1996 and June 30, 1996 are not indicative of the future results the Company
anticipates as a result of the acquisition. The periods presented for PBI
reflect the increase in the number of producing wells in which PBI had a working
interest ( from 0 to 26) and increased production from 0 to approximately 2,300
MCF's
22
<PAGE>
per day at an average sales price of approximately $1.00 per MCF. Also, during
the periods presented there were significant start-up costs from PBI's 50%
interest in the Primero Gas Marketing Company.
The Company anticipates that the acquisition of PBI will have a positive
impact on future operating results. This is due to PBI's current net production
of 2,600 MCF per day at an average gas price of $1.52 per MCF. The Company does
not anticipate incurring any significant general and administrative expenses as
a result of the acquisition.
INCOME TAXES AND NET OPERATING LOSSES
As discussed in Note 4 in the accompanying consolidated financial
statements, the Company has net operating loss carry forwards for income tax
purposes of approximately $12,000,000, certain of which are limited due to stock
issuances in 1988 and 1990. At March 31, 1996, the Company established a 100%
valuation allowance on the net deferred tax asset arising from the loss carry
forwards in excess of the deferred tax liability resulting from depreciation and
amortization differences. The valuation allowance was recorded as it was more
likely than not that any part of the deferred tax assets would be realized. With
improved operating results for the three months ended March 31, 1996 and June
30, 1996, a re-evaluation of the valuation allowance was made. The probability
of future taxable income was evaluated based on current projections of future
operating results through 1999. While the Company believes that it will continue
to improve its profitability, the use of net operating losses may be dependent
upon the successful completion of the proposed underwriting and or other
potential funding alternatives, which will provide the Company with financing to
continue its drilling program. As a result of the re-evaluation, the Company has
decided that no adjustment to the deferred tax valuation allowance should be
made at June 30, 1996 since the Company cannot determine that it is more likely
than not such tax benefits will be realized.
ACCOUNTING STANDARDS
The Financial Accounting Standards Board has recently issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets" and SFAS No. 123, "Accounting for the Stock Based
Compensation." SFAS No. 121 provides standards for accounting for the impairment
of various long-lived assets. The Company uses the full cost method which
requires an impairment to be recorded when total capitalized costs exceed the
present value, discounted at 10%, of estimated future net cash flows from proved
oil and gas reserves. Therefore, the adoption of SFAS No. 121 is not expected to
have a material effect on the financial position or results of operations of the
Company.
SFAS No. 123 encourages the accounting for stock-based employee compensation
programs to be reported within the financial statements on a fair value based
method. If the fair value based method is not adopted, then the statement
requires pro-forma disclosure of net income and earnings per share as if the
fair value based method had been adopted. The Company has not yet determined how
SFAS No. 123 will be adopted nor its impact on the financial statements. Both
statements are effective for fiscal years beginning after December 15, 1995.
23
<PAGE>
BUSINESS AND PROPERTIES
HISTORY OF THE COMPANY
Evergreen Resources, Inc. ("Evergreen" or "the Company"), is a Colorado
corporation organized on January 14, 1981. Evergreen was formed to engage in
exploration for, and acquisition, development, production and sale of, oil and
gas. At various times Evergreen has owned interests in oil and gas leases and
producing wells in several states. Currently, the majority of Evergreen's
reserves and production are derived from leases in the Raton Basin of Colorado.
These leases are being explored and developed for the production of coalbed
methane (natural gas) produced from gas wells drilled into coal seams. Evergreen
has sold the majority of its interests in wells outside the Raton Basin.
Evergreen Operating Corporation ("EOC") is a wholly owned subsidiary of the
Company that is primarily responsible for drilling, evaluation and production
activities associated with Evergreen's properties. To the extent that third
parties own undivided interests in Evergreen's properties, EOC operates on
behalf of those third party owners. EOC also operates certain wells in Colorado
in which Evergreen does not own an interest, though that constitutes a minority
of EOC's business. EOC negotiates the sales of oil and gas production from the
wells that it operates. As of March 31, 1996, EOC was serving as operator for
approximately 150 producing wells owned by the Company and also by other
affiliated and unaffiliated third parties. The Company believes that, as
operator, it is in a better position to control costs, safety, orderly
development and timeliness of work as well as other critical factors affecting
the economics of a well or a property. EOC presently operates all of the
Company's wells.
Primero Gas Marketing Company ("Primero") formerly known as Primero Gas
Gathering Company, is a Colorado joint venture formed in August of 1994 between
the Company and third parties to construct and operate a gathering system to
connect the Company's Raton Basin wells to the pipelines of Colorado Interstate
Gas Company ("CIG"). The joint venture financed and constructed the gathering
system and has entered into contracts to purchase all gas produced at the
wellhead from the Company's wells, including the interests of other working
interest owners in the wells. Primero has entered into a contract with CIG for
firm transportation on CIG's pipelines of up to 25 million cubic feet of gas per
day for a term of 10 years. See "Business and Properties -- Agreements -- CIG
Agreement." The Company expects to have access to higher price gas markets as a
result of this transportation agreement. See "Business and Properties --
Marketing." As a result of the Company's recent acquisition of the interests of
co-owners in its Raton Basin projects, the Company's subsidiaries now own all of
Primero Gas Marketing Company. See "Business and Properties -- Agreements -- PBI
Agreements."
In 1991 and 1992, the Company's wholly owned subsidiary, Evergreen Resources
(U.K.) Ltd. ("ERUK"), was awarded seven onshore U.K. hydrocarbon Exploration
Licenses for the development of coalbed methane gas and conventional
hydrocarbons (the "Licenses"). The Licenses provide ERUK with the largest
onshore acreage position in the U.K., and cover substantially all of six
distinct onshore U.K. basins. Over 400,000 acres are considered prospective
specifically for coalbed methane.
In August 1994, Management decided to focus the Company's domestic efforts
and resources on development of coalbed methane natural gas in the Raton Basin
of Colorado. The Company has divested all of its oil and gas properties outside
of the San Juan and Raton Basins.
During the last ten years, new technology has led to the development of
substantial new reserves of coalbed methane gas in the U.S. Coalbed methane gas
is expected to make a significant contribution to future U.S. energy
requirements and, if successfully developed, may be of equal importance to many
countries. Since 1990, Evergreen has participated in coalbed methane gas
projects through various activities including drilling new wells and acquiring
substantial leases in the U.S. and U.K. for future development.
24
<PAGE>
FOCUS
Over the last two years Management has re-positioned Evergreen in order to
focus the Company's domestic efforts and resources on development of coalbed
methane gas in the Raton Basin of Colorado. The number of states in which
Evergreen owns or operates oil and gas properties has now been reduced from
twelve to two states, through sales of non-strategic and/or marginal properties.
The oil and gas production and reserves lost through these property sales have
now been more than replaced by new production and reserves in the Raton Basin.
Overhead has been reduced by approximately one-third since 1994 and should
remain near present levels for the foreseeable future. Operations are now fully
consolidated into Evergreen's Denver offices.
The Company currently is experiencing significant growth in its gas
production volumes, revenues and cash flow primarily as a result of its
development drilling in the Raton Basin. For the quarter ended June 30, 1996,
the Company's average net daily gas production increased to 4.4 million cubic
feet from 2.2 million cubic feet for the same period in the prior year. As of
September 1, 1996, the Raton Basin represented approximately 90% of Evergreen's
net daily production of natural gas. All of the Company's proved reserves, oil
and gas production and revenues are now attributable to natural gas.
COALBED METHANE VERSUS TRADITIONAL NATURAL GAS PRODUCTION
Coalbed methane production is similar to traditional natural gas production
in terms of the physical producing facilities and the product produced. However,
the subsurface mechanisms that allow the gas to move to the wellbore and the
producing characteristics of coalbed methane wells are very different from
traditional natural gas production.
Coal beds produce nearly pure methane gas while traditional gas wells
normally produce gas that contains small portions of ethane, propane, and other,
heavier, hydrocarbon gases. Methane normally constitutes more than 90% of the
total gases in the production from traditional gas wells. The Raton Basis gas
does not contain significant amounts of contaminants, such as hydrogen sulfide,
carbon dioxide or nitrogen, that are sometimes present in traditional natural
gas production. Therefore the properties of the Raton Basin gas, such as heat
content per unit volume (Btu), are very close to the average properties of
pipeline gas from traditional gas wells.
Coal is a black organic mineral formed from buried deposits of plant
material from ancient coastal swamps. Methane, or natural gas, is a common
component of coal, though coals vary in their methane content per ton. Rather
than being limited to open spaces in the coal structure, methane is adsorbed on
to the inner coal surfaces. When the coal is fractured and exposed to lower
pressures (near a well or in a coal mine) the gas leaves (desorbs from) the
coal. Whether a coal bed will produce commercial quantities of natural gas
depends on its original content of gas per ton of coal, the thickness of the
coal beds, the reservoir pressure and the existence of fractures through which
the released gas can flow to the wellhead (permeability). Frequently, coal beds
are partly or completely saturated with water. As the water is produced, space
is created for gas to leave the coal and flow to the well. Contrary to
traditional gas wells, new coalbed methane wells often produce water for several
months and then, as the water production decreases because the coal seams are
being drained, and the pressure decreases, natural gas production increases.
WATER PRODUCTION AND DISPOSAL
Fortunately, most of the water produced from the Raton Basin coal seams to
date has been low in dissolved solids, allowing the Company, operating under
permits issued by the State of Colorado, to discharge the water into streambeds
or stockponds. If more brackish water is discovered in subsequent wells, it may
be necessary to install and operate evaporators or drill specialized injection
wells to re-inject the produced water back into the underground rock formations
adjacent to the coal seams or to lower sandstone horizons. While alternate
methods of water disposal may increase the Company's operating
25
<PAGE>
expenses, the Company does not expect that such costs would have a material
impact on its lifting costs in the Raton Basin.
RATON BASIN GEOLOGY
In the Raton Basin, Evergreen produces methane from the Vermejo coals,
consisting of several individual seams ranging in thickness between 1 and 12
feet, and at drilling depths between 550 and 1,800 feet below the surface. The
entire Vermejo coal interval ranges from 5 to 50 feet thick through the Raton
Basin, being thickest in the center of the Basin, which the Company's acreage
surrounds. The coal beds and surrounding sedimentary rocks formed during the
late Cretaceous to early Tertiary period, between 65 and 40 million years before
the present. The Raton Basin is an elongated downward fold in the earth's crust
formed at this time that is approximately 80 miles long north to south and about
50 miles wide east to west. Plant material accumulated in thick layers in
coastal swamps in the Raton Basin and was subsequently buried and subjected to
heat and pressure which formed the coals. Since these coals were buried,
continued mountain building forces compressed the Basin, creating an extensive
series of fractures in the coal and surrounding rocks. Later, the area was
intruded by hot liquid rock or "magma" from lower in the earth's crust, which
cooled to form two large structures in the center of the Raton Basin known as
the Spanish Peaks. The magma moved up through existing fractures and created
additional fractures that radiate outward from the Spanish Peaks. As the magma
cooled, its heat altered the surrounding rocks, including the Vermejo and Raton
coals beds. The Company believes that the compression of mountain building and
the intrusion of magma into the Raton Basin have enhanced the ability of the
Vermejo and Raton coals to yield coalbed methane. The Company's geological
interpretation has been borne out by its first 31 wells, all of which have
economic gas production. Radiating out from the Spanish Peaks is a network of
vertical and horizontal cracks in the surrounding sedimentary rocks (including
the Vermejo coals) that were filled with magma, called dikes and sills. The
dikes and sills of solidified magma are resistant to erosion and now form ridges
in the area. The Company believes that the formation of the Spanish Peaks and
the dikes and sills has made the nearby Vermejo coals particularly suited to
coalbed methane production. The radiating dikes and sills have broken up the
coal beds, increasing permeability, and the magma presence has thermally matured
the coals so that they have generated more volatile gases, such as methane. The
Company's geological interpretation has been borne out by its first 31 wells,
all of which have economic gas production.
COALBED METHANE TECHNOLOGY
Coalbed methane wells are drilled and completed in a manner similar to
traditional gas wells, but exploration is easier because coalbeds are relatively
continuous underground and because it is not essential to find folded or faulted
structures that create natural traps. The coalbed methane is trapped in the
molecular structure of the coal itself until released by pressure changes. In
the Raton Basin, the Company has found some coal seams to be continuous between
wells over distances of several miles, though the thickness of the beds is
variable. Evergreen is currently completing its wells in the Vermejo coal beds.
Individual wells are often completed to produce gas from five to fifteen
individual coal beds with individual thicknesses between 1 and 12 feet.
The ability of gas to move through the coal or rocks to the wellbore from
its place of origination in the formation is the key determinant of the rate at
which a well will produce. Coal often provides very little ability for the gas
to move through it to the wellbore. Permeability is the measure of the ability
of fluids to move through the rock (coal) under the influence of a differential
pressure.
The Raton Basin coals exhibit very good to excellent permeability. However,
in order to establish commercial gas production rates, Evergreen must create a
permanent conduit between the individual coal seams and the wellbore. This is
accomplished by creating and propping open artificial fractures within the coal
seams so the pathway for gas migration to the wellbore is enhanced. After a well
is drilled, instruments are lowered to identify the individual rock layers and
to measure the location and thickness of individual coal seams. Then, steel
casing is cemented into the wellbore, to prevent gas or water from one rock
formation from migrating upward or downward into another formation. A special
blasting
26
<PAGE>
device is lowered to the desired zone of production and detonated, producing a
series of perforations in the well casing at that depth. Then fluids containing
coarse sand are pumped through the perforations to create and fill fractures in
the coal seam radiating outward from the wellbore. These fractures filled
(propped) with coarse sand become the conduits for coalbed methane to reach the
well. Similar techniques of fracturing (known as "fracing" in the industry) are
used on traditional gas and oil wells and are often performed by independent
well service contractors. The Company, working in conjunction with its
contractors, has developed effective procedures for fracing the Vermejo coals in
its Raton Basin wells. Although individual wells vary, the average production
from the wells is in excess of 280,000 cubic feet of gas per day, with
individual wells producing as much as 800,000 cubic feet per day.
In addition to developing well completion and fracing techniques
particularly suited to its Raton Basin wells, the Company has used specialized
drilling techniques in the Raton Basin. Traditional gas wells are drilled with
the use of rotary drill bits cooled and lubricated by drilling fluids or "mud."
Coalbed methane production is particularly sensitive to the permeability of the
coals. Exposing the Raton Basin coals to drilling mud appears to significantly
lower the permeability of the coals by plugging the pores and natural fractures
in the coals. The Company has, therefore, used percussion air drilling (similar
to a jackhammer) without traditional drilling muds in drilling its wells.
RATON BASIN PRODUCTION
Since December 1991, Evergreen has acquired oil and gas leases covering over
120,000 gross acres in the Raton Basin, Las Animas County in Southeastern
Colorado. The initial 70,000 acres were acquired from Amoco Production Company
by direct purchase without overriding royalties. The remainder of the acreage
has been purchased from individual owners under various lease terms. Over 67,000
acres of the total have been included in a Federal Unit Agreement which
simplifies lease maintenance for the Company. Operation and production within a
federal Unit is governed by federal rules based on the inclusion of federal
leases within the Unit. Under the Unit Agreement, Evergreen's subsidiary EOC is
the operator of all wells drilled in the Unit area. Production from any well in
the Unit area will maintain all of the leases beyond their primary terms. By the
end of 1996, Evergreen will designate a "participating area" under the Unit
agreement. Gas production in the participating area will be pooled and shared by
the lessors and lessees in that area in proportion to their acreage ownership of
the mineral estate in the area. The participating area is likely to be amended
annually, or new participating areas created, as additional wells are completed.
The Company may form other federal Units for much of its remaining acreage in
the Raton Basin.
Evergreen's acreage position in the Raton Basin will support over 500 wells
on 160 acre spacing. Since 1994 Evergreen has completed 32 wells capable of
commercial production and is currently producing from 31 of those wells. An
additional group of 10 wells has been drilled since March 31, 1996, but those
wells are not yet completed and connected to the system of gas gathering
pipelines. The Company currently expects that the newest 10 wells will be in
production during October of 1996. Thirty to forty wells are scheduled to be
drilled during 1997.
Daily production from the field currently exceeds 8.8 million cubic feet per
day, for an average of over 280,000 cubic feet per well per day. The range of
production from individual wells is from 50 to 800 thousand cubic feet per day.
Because of the importance of removing water from the coal seams to enhance gas
production, Evergreen will continue production from more modest wells because of
the beneficial effect of pressure reduction in adjacent, more productive wells.
Each well creates its own "cone of depression" in the water saturation around
the wellbore. The Company believes that some of its Raton Basin wells on
adjacent 160 acre drill sites have already created overlapping cones of
depression, enhancing gas production in each well. Independent engineering
estimates attribute proved reserves of approximately 1.5 - 2.0 BCF of gas per
well for the approximately 80 locations to which proved reserves were assigned
in the most recent evaluation by independent consulting engineers. The
productive lives of the wells are expected to be in excess of 30 years.
27
<PAGE>
CUSTOMERS AND MARKETS
Substantially all of the Company's oil and gas production is sold at the
well site as it is produced. Primero Gas Marketing Company ("Primero"), is a
Colorado joint venture owned by subsidiaries of the Company that owns the
gathering system to and purchases all the Company's production from its Raton
Basin wells. For the first years of Raton Basin production, Primero had a series
of short term contracts for the sale of Raton Basin gas. Primero could only
access markets outside the Rocky Mountains region when pipeline transportation
was available from customers or other brokers. Wellhead gas prices in the Rocky
Mountain region have been substantially lower in the Midwestern and Eastern
regions of the United States for the last several years.
Primero recently entered into a contract with CIG for firm transportation on
CIG's pipelines of up to 25 million cubic feet of gas per day for a term of 10
years beginning October 1, 1996. See "Business and Properties -- Agreements --
CIG Agreement." This transportation capacity will accommodate the Company's
expected gas production from existing and new wells in the Raton Basin for the
next 18 months to two years. The CIG contract provides for delivery of the
Company's gas into interstate pipelines in Texas. From there, the gas can be
transported to Midwest and East Coast markets.
The Company expects to have consistent access to higher price gas markets as
a result of the CIG transportation agreement. In addition, as the Company's base
of production grows in the Raton Basin, the Company hopes to be able to enter
into long term contracts with end users at favorable prices. Currently, the
Company's gas is sold at spot market prices or under contracts for terms less
than one year.
Evergreen's business is not seasonal in nature, except to the extent that
weather conditions at certain times of the year may affect Evergreen's access to
its oil and gas properties and its ability to drill oil and gas wells. The
impact of inflation on the Company's activities is minimal. While gas prices
have historically fluctuated between winter and summer seasons, changes in the
market during the last few years have made such fluctuations unpredictable. For
instance, because local gas utilities around the country need to refill their
gas storage facilities in the summer, prices may be higher during spring or
summer months than during subsequent winter months when temperatures are warmer
than normal.
Evergreen had two major customers for the sale of oil and gas as of June 30,
1996, who purchased approximately 68% (NGTS, Inc.) and 19% (Conoco), of the
Company's gas production. The loss of these customers would not have a material
adverse effect on Evergreen's business. None of the Company's existing marketing
agreements obligates the Company to continue sales to any particular gas
purchaser for a period longer than 7 months.
COMPETITION
The Company competes with numerous other companies and individuals,
including many that have significantly greater resources, in virtually all
facets of its business. Such competitors may be able to pay more for desirable
leases and to evaluate, bid for and purchase a greater number of properties than
the financial or personnel resources of the Company permit. The ability of the
Company to increase reserves in the future will be dependent on its ability to
select and acquire suitable producing properties and prospects for future
exploration and development. The availability of a market for oil and natural
gas production depends upon numerous factors beyond the control of producers,
including but not limited to the availability of other domestic or imported
production, the locations and capacity of pipelines, and the effect of federal
and state regulation on such production. Domestic oil and natural gas must
compete with imported oil and natural gas, coal, atomic energy, hydroelectric
power and other forms of energy. The Company does not hold a significant
competitive position in the oil and gas industry.
FUTURE DEVELOPMENT IN THE RATON BASIN
Evergreen management believes that the Company's Raton Basin Project is
worthy of full scale development for these reasons:
28
<PAGE>
DRILLING RESULTS ON TARGET -- The first 31 producing wells now exceed 8.8
million cubic feet of combined gross daily gas production -- in line with
Evergreen's original forecasts.
LOW FINDING AND DEVELOPMENT COSTS -- Each well drilled to date has
established 1.5 - 2.0 BCF of gas at a cost per well of approximately
$300,000. The result is a finding cost of approximately $0.15 - $0.20 per
MCF, among the lowest finding costs in the industry.
LOW LIFTING COSTS -- Management expected that by disposing of the Company's
marginal properties and developing new Raton production, overall Company
lifting costs would decline sharply. On an equivalent MCF basis (6 MCF = 1
barrel of oil), Evergreen's lifting cost trend is favorable:
<TABLE>
<CAPTION>
1993 1994 1995 1996
<S> <C> <C> <C>
$ 1.91 $ 1.21 $ 1.10 $ 0.77
</TABLE>
In the quarter ended June 30, 1996, the lifting cost in the Raton Basin was
$0.33 per MCF. This cost should decline modestly as more wells are
developed.
LARGE ACREAGE POSITION -- Evergreen has over 120,000 gross acres under lease
in the Raton Basin. This acreage will support a multi-year development
project of over 500 wells.
IMPROVED GAS PRICES -- Recent higher gas volumes have permitted access to
new gas markets resulting in better gas prices than those obtained in the
Summer of 1995. (See discussion of the CIG Agreement below in "Business and
Properties -- Material Agreements.")
The Company plans to develop the Raton Basin project in three broad stages,
each comprising 150 - 200 wells. The stages will require separate gathering and
compression facilities. For reasons of geologic control, logistics and
reasonable levels of capital expenditure, the Company expects to proceed at a
pace of 40 - 50 wells per year.
AGREEMENTS
CIG AGREEMENT
On September 5, 1996, Evergreen (through its marketing joint venture with
Primero Gas Marketing Company) entered into a letter agreement with Colorado
Interstate Gas Company ("CIG") providing for CIG's construction of a gas
blending facility in Trinidad, Colorado, 10 miles from Evergreen's wells and a
firm transportation agreement for a ten year term. Evergreen's gas production is
relatively pure methane and to meet CIG pipeline specifications, CIG desires to
have small quantities of nitrogen blended with the methane. CIG will construct a
nitrogen blending facility capable of blending 20 million cubic feet of gas per
day, to be in service on or about October 1, 1996. Evergreen has entered into a
firm transportation agreement at CIG's current tariff rates to transport gas to
either Dumas, Texas or to El Paso's Big Blue meter station in Moore County,
Texas. Evergreen will be obligated to transport at least 10,000 MMBtu per day
(approximately 10 million cubic feet of gas), and will be allowed to transport
an additional 15,000 MMBtu per day at a fixed charge. The Company's wells
presently produce approximately 8.8 million cubic feet of gas per day. The
Company has drilled an additional 10 wells and expects to have those wells
producing at approximately the same time that the transportation agreement takes
effect. This transportation agreement will provide Evergreen access to Midwest
markets and the Company believes that it will receive higher gas prices as a
result.
SAN JUAN BASIN AGREEMENTS
Evergreen recently sold its interest in 6 producing coalbed methane wells in
the Rosa Unit of the San Juan Basin, Rio Arriba County, New Mexico. Evergreen
began operations in the Rosa Unit in 1990. Due to high royalties payable to
landowners, less productive wells, and high operating costs in the San Juan
Basin, Evergreen has concluded that the economic conditions for coalbed methane
production are much more favorable in the Raton Basin. Accordingly, as of June
1, 1996, Evergreen entered into an
29
<PAGE>
agreement transferring six producing San Juan Basin wells to EP San Juan Limited
Partnership, affiliated with Banque Paribas. In addition to $53,046 in initial
consideration, Evergreen retains a production payment equal to 99% of net
profits until 1.1 BCF of gas has been produced from the wells. At present
production levels, the production payment will end in 4-5 years. Evergreen will
receive additional payments of approximately $0.65 per MMBtu of gas produced
through December, 2002, adjusted annually according to a formula considering
inflation and changes in gas prices. Evergreen also retains (a) its interest in
and the right to develop the remaining portions of its San Juan Basin leases,
(b) the right to repurchase a 100% interest in the wells between December 31,
2002 and January 1, 2008, and (c) an automatic reversion to a 75% interest in
the wells if they continue production in excess of 1.8 Bcf of gas. In return,
Evergreen will operate the wells for the new owner for $400 per month plus
reimbursement of third party costs. The entire transaction is subject to
rescission up until November 30, 1996 pending the purchaser obtaining favorable
rulings from the IRS in connection with the transaction. Evergreen owns an
additional 16 wells in the San Juan Basin, of which 12 are shut in due to low
production volumes and gas prices.
EL PASO AGREEMENT
In August 1992, Evergreen entered into a series of agreements with El Paso
concerning the connection of Evergreen's San Juan Basin wells to El Paso's
pipeline system. Under the agreements, El Paso paid for construction of a
gathering pipeline to a central point in Evergreen's producing area. Evergreen
paid for construction of its own gathering system to the wells beyond that
point, which was sold to Associated Natural Gas, Inc. in 1993. Evergreen
dedicated 90% of its San Juan Basin production to El Paso's gathering line for a
period of 10 years following completion of the line and agreed to deliver a
minimum of 11,000 MMBtu per day for five years to El Paso's gathering line or
pay a shortfall payment of $0.25 per MMBtu. Production from the wells has been
substantially less than 11,000 MMBtu per day and Evergreen has accrued a
shortfall obligation of $1,831,000 as of June 30, 1996 which may grow to in
excess of $3.0 million by the end of the five year period. El Paso is discussing
alternate resolutions with Evergreen, including the sale of El Paso's gathering
line to Evergreen. However, there is no assurance that agreement will be
reached.
UNITED KINGDOM
In 1991 and 1992, the Company's wholly-owned subsidiary, ERUK, was awarded
seven onshore U.K. hydrocarbon Exploration Licenses for the development of
coalbed methane gas and conventional hydrocarbons (the "Licenses").
The Licenses provide ERUK with the largest onshore acreage position for
coalbed methane exploration in the U.K., and cover substantially all of six
distinct onshore U.K. basins. Over 400,000 acres are considered prospective
specifically for coalbed methane. Selection of the licensed areas was made after
evaluating extensive geological, geophysical, petrophysical and measured methane
gas content data bases. The majority of the original data base was acquired
through technology sharing agreements with British Coal Corporation, who shared
all relevant available data on the six basins and granted ownership of this data
to ERUK. ERUK has augmented this data with proprietary seismic and coalbed
methane well data and also geologic data from the British Geologic Survey, and
other sources.
During the period 1992 to 1994, Evergreen conducted seismic work and drilled
three wells on two of the Licenses. The wells encountered 30' to 80' of gross
coal. Two of the wells were hydraulically fracture stimulated and one was tested
for permeability. Following extensive production testing, none of the three
wells produced gas in economic quantities. The three wells are presently
shut-in. Approximately $7.5 million has been invested to date in acquiring,
maintaining and evaluating the Licenses. This amount is included in the
statement of the Company's assets.
Under a new onshore Licensing regime implemented by the U.K. Department of
Trade and Industry, Evergreen will convert its existing Licenses to new onshore
licenses, called Petroleum Exploration and
30
<PAGE>
Development Licenses. These new licenses will provide up to a 30 year term with
periodic relinquishment, approximately every 5 years, of up to 50% of the
acreage subject to future development plans. Work commitments on the existing
Licenses have been fulfilled through 1997 as a result of Evergreen's prior U.K.
activity. There are no royalties or burdens encumbering the Licenses.
Management believes, based on the data evaluated, that the coal seams in the
license areas contain significant quantities of gas. Further evaluation will be
required to determine the economic viability of extracting this gas. Each
license area must be evaluated separately since success or lack of success on
one License may not be translated to similar results on other Licenses or
separate geologic basins. Over 500 drilling locations are feasible on the
Licenses.
The U.K. market for the purchase and sale of natural gas became fully
deregulated in April 1996. The impact of deregulation to date has been a sharp
decline in short term or "spot" gas prices. Evergreen continues to believe that
higher prices justifying onshore coalbed methane development are available by
supplying local end users directly under long term contracts.
Evergreen is continuing to hold discussions with various funding sources,
including potential industry partners, for the purpose of resuming evaluation
and development of the Licenses.
OPERATIONS
The Company's wholly-owned subsidiary, EOC, is primarily responsible for
drilling, evaluation and production activities associated with various
properties and for negotiating the sales of oil and gas production from the
properties. As of September 9, 1996, EOC was serving as operator for
approximately 150 producing wells owned by the Company and also by other
affiliated and unaffiliated third parties. The Company believes that, as
operator, it is in a better position to control costs, safety, and timeliness of
work as well as other critical factors affecting the economics of a well or a
property. EOC presently operates wells which represent virtually 100% of
Evergreen's proved reserves.
OIL AND GAS RESERVES
The table below sets forth the Company's quantities of proved reserves, as
estimated by independent petroleum engineers, all of which were located in the
continental U.S., and the present value of estimated future net revenues from
these reserves on a non-escalated basis discounted by 10 percent per year as of
the last three fiscal years ending March 31, 1996 and as of August 1, 1996.
<TABLE>
<CAPTION>
AUGUST 1, YEARS ENDED MARCH 31,
----------- -------------------------------------
<S> <C> <C> <C> <C>
1996 1996 1995 1994
Estimated Proved Gas Reserves
(MCF) 128,029,100 80,926,000 57,882,000 51,588,100
Estimated Proved Oil Reserves
(Bbls) -- 4,800 842,900 1,643,100
Present Value of Future Net
Revenues (before future
income tax expense) $51,214,300 $30,163,400 $23,312,330 $32,443,800
</TABLE>
Reference should be made to Supplemental Oil and Gas Information on pages
F-21 - F-25 of this Prospectus for additional information pertaining to the
Company's proved oil and gas reserves. During fiscal 1996 the Company did not
file any reports that include estimates of total proved net oil or gas reserves
with any federal agency other than the Securities and Exchange Commission.
31
<PAGE>
PRODUCTION
The following table sets forth the Company's net oil and gas production for
the last three fiscal years and for the first quarter of the last two fiscal
years.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, YEAR ENDED MARCH 31,
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1996 1995 1994
Natural Gas (MCF) 394,300 207,700 941,200 781,700 637,900
Crude Oil & Condensate (Bbls) 141 1,957 9,700 36,600 57,500
</TABLE>
AVERAGE SALES PRICES AND PRODUCTION COSTS
The following table sets forth the average gross sales price and the average
production cost per unit of oil and gas produced, including production taxes,
for the last three fiscal years and for the first quarter of the last two fiscal
years. For purposes of calculating production cost per equivalent MCF, barrels
of oil have been converted at a ratio of six MCF of gas for each barrel of oil:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30 YEAR ENDED MARCH 31
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1996 1995 1994
Average Sales Price
Gas (per MCF) $ 1.33 $ 1.18 $ 1.28 $ 1.70 $ 2.15
Oil (per Bbl) 23.06 19.62 18.40 15.96 14.50
Average Production Cost Per Equivalent MCF $ 0.33 $ 0.93 $ 0.77 $ 1.10 $ 1.21
</TABLE>
PRODUCING WELLS AND DEVELOPED ACREAGE
The following table sets forth, as of September 9, 1996, the approximate
number of gross and net producing oil and gas wells and their related developed
acres owned by the Company. Productive wells are producing wells and wells
capable of production, including shut-in wells. Developed acreage consists of
acres spaced or assignable to productive wells.
<TABLE>
<CAPTION>
PRODUCING WELLS DEVELOPED ACRES
- ------------------------------------------------ --------------------
<S> <C> <C> <C> <C> <C>
OIL GAS GROSS NET
- ------------------------ ---------------------- --------- ---------
<CAPTION>
GROSS NET GROSS NET
<S> <C> <C> <C> <C> <C>
-0- -0- 53 42.50 22,917 17,478
</TABLE>
UNDEVELOPED ACREAGE
At September 9, 1996, Evergreen held undeveloped acreage as set forth below:
<TABLE>
<CAPTION>
UNDEVELOPED ACRES
--------------------
<S> <C> <C>
LOCATION GROSS NET
Colorado 121,925 98,050
New Mexico 640 324
--------- ---------
TOTAL U.S. 122,565 98,374
United Kingdom 630,480 630,480
</TABLE>
32
<PAGE>
The following table sets forth the expiration dates of the gross and net
acres subject to Colorado leases summarized in the table of undeveloped acreage.
<TABLE>
<CAPTION>
ACRES EXPIRING
--------------------
<S> <C> <C>
GROSS NET
Twelve Months Ending:
March 31, 1997 12,356 7,165
March 31, 1998 18,405 12,584
March 31, 1999 15,124 7,212
March 31, 2000 and later 4,316 2,262
</TABLE>
DRILLING ACTIVITIES
The Company's drilling activities for the years ended March 31, 1996, 1995,
and 1994 are set forth below:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ------------------------ ------------------------
GROSS NET GROSS NET GROSS NET
<S> <C> <C> <C> <C> <C> <C>
Exploratory:
Productive 0 0.00 0 0.00 4 2.00
Dry 0 0.00 0 0.00 0 0.00
-- - -
--------- --------- ---
0 0.00 0 0.00 4 2.00
Development:
Productive 22 15.75 6 3.00 6 2.25
Dry 0 0.00 0 0.00 0 0.00
-- - -
--------- --------- ---
22 15.75 6 3.00 6 2.25
</TABLE>
GOVERNMENT REGULATION OF THE OIL AND GAS INDUSTRY
GENERAL
The Company's exploration, production and marketing operations are regulated
extensively at the federal, state and local levels. Gas and oil exploration,
development and production activities are subject to various laws and
regulations governing a wide variety of matters. For example,
hydrocarbon-producing states have statutes or regulations addressing
conservation practices and the protection of correlative rights, and such
regulations may affect Evergreen's operations and limit the quantity of
hydrocarbons Evergreen may produce and sell. Other regulated matters include
marketing, pricing, transportation, and valuation of royalty payments.
At the U.S. federal level, the Federal Energy Regulatory Commission ("FERC")
regulates interstate transportation of natural gas under the Natural Gas Act and
regulates the maximum selling prices of certain categories of gas sold in "first
sales" in interstate and intrastate commerce under the Natural Gas Policy Act.
Effective January 1, 1993, the Natural Gas Wellhead Decontrol Act deregulated
natural gas prices for all "first sales" of natural gas, which includes sales by
Evergreen of its own production. As a result, all sales of the Company's natural
gas produced in the U.S. may be sold at market prices, unless otherwise
committed by contract.
The Company's gas sales are affected by regulation of intrastate and
interstate gas transportation. In an attempt to promote competition, the FERC
has issued a series of orders which have altered significantly the marketing and
transportation of natural gas. The Company believes that these changes have
generally improved the Company's access to transportation and have enhanced the
marketability of its natural gas production. To date, Evergreen has not
experienced any material adverse effect on gas marketing as a result of these
FERC orders; however, the Company cannot predict what new regulations may be
adopted by the FERC and other regulatory authorities, or what effect subsequent
regulations may have on its future gas marketing.
33
<PAGE>
The Company also is subject to laws and regulations concerning occupational
safety and health. It is not anticipated that the Company will be required in
the near future to expend amounts that are material in the aggregate to the
Company's overall operations by reason of occupational safety and health laws
and regulations, but inasmuch as such laws and regulations are frequently
changed, the Company is unable to predict the ultimate cost of compliance.
ENVIRONMENTAL REGULATIONS
Various federal, state and local laws and regulations covering the discharge
of materials into the environment, or otherwise relating to the protection of
the environment, may affect the operations and costs of the Company. The Company
discharges water produced from coal formations in the Raton Basin pursuant to
various permits. It is not anticipated that the Company will be required in the
near future to expend amounts that are material in relation to its total capital
expenditure program by reason of environmental laws and regulations. However,
inasmuch as such laws and regulations are frequently changed, the Company is
unable to predict the ultimate cost of compliance.
STATE REGULATION OF OIL AND GAS PRODUCTION
State statutes and regulations require permits for drilling operations,
drilling bonds and reports concerning operations. Most states in which the
Company owns and operates properties have statutes, rules or regulations
governing conservation matters, including the unitization or pooling of oil and
gas properties, establishing of maximum rates of production from oil and gas
wells and the spacing of such wells. Many states also restrict production to the
market demand for oil and gas. Such statutes and regulations may limit the rate
at which oil and gas could otherwise be produced from the Company's properties.
Some states have enacted statutes prescribing ceiling prices for gas sold within
their state. The Company's Raton Basin production is not currently subject to
price regulation. However, the Company is unable to predict whether production
rate limitations or price regulations may be imposed in the future.
TITLE TO PROPERTIES
As is customary in the oil and gas industry, only a preliminary title
examination is conducted at the time properties believed to be suitable for
drilling operations are acquired by the Company. Prior to the commencement of
drilling operations, a thorough title examination of the drill site tract is
conducted by independent attorneys. Once production from a given well is
established, the Company prepares a division order title report indicating the
proper parties and percentages for payment of production proceeds, including
royalties. The Company believes that titles to its leasehold properties are good
and defensible in accordance with standards generally acceptable in the oil and
gas industry.
OFFICE AND OPERATIONS FACILITIES
The Company's corporate offices are in Denver, Colorado. The lease covers
approximately 11,800 square feet and is month-to-month. The current monthly
rental rate is approximately $12,800.
The Company believes its office space is sufficient for the foreseeable
future.
LEGAL PROCEEDINGS
The Company is not engaged in any material pending legal proceedings to
which the Company or its subsidiary is a party or to which any of its property
is subject.
EMPLOYEES
At September 9, 1996, the Company and its subsidiaries employed 25 full time
and 3 part time persons.
34
<PAGE>
MANAGEMENT
The Executive Officers and Directors of the Company and their respective
positions and ages are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
James S. Williams 61 Chairman of the Board and Director
Mark S. Sexton 40 President, CEO and Director
CEO, Evergreen Operating Corp.
Dennis R. Carlton 45 Vice President Exploration and Director
President, Evergreen Operating Corp.
John J. Ryan III 68 Vice President and Director
Chairman, Evergreen Resources (U.K.) Ltd.
Alain Blanchard 55 Director
Larry D. Estridge 51 Director
Scott D. Sheffield 44 Director
Kevin R. Collins 39 Vice President Finance, CFO and Treasurer
J. Keither Martin 62 Secretary
Ian M. Thomson 56 Managing Director
Evergreen Resources (U.K.) Ltd.
</TABLE>
There is no arrangement, known to the Company, including any pledge by any
person of securities of the Company or any of its parents, the operation of
which may at a subsequent date result in a change in control of the Company.
All Directors hold office until the election and qualification of their
successors. Officers serve at the discretion of the Board.
JAMES S. WILLIAMS has been the Chairman and a Director of Evergreen since
founding the Company in 1981. Mr. Williams graduated in 1956 from Columbia
College and has been engaged in U.S. oil and gas activities for over twenty
years. Mr. Williams resides in Denver, Colorado and devotes full time to
Evergreen.
MARK S. SEXTON was named a Director of Evergreen in March 1995 and President
and CEO in June 1995. He has managed the daily activities of Evergreen Operating
Corporation ("EOC") since 1987 and was named Vice President Operations for
Evergreen and President of EOC in 1989. A Registered Professional Engineer in
Colorado, Mr. Sexton graduated in 1978 from Stanford University with a B.S.
degree in Mechanical Engineering. From 1978 to 1982, he was employed in various
engineering and financial positions with Amoco Production Company. From 1982 to
1985, he was employed with Norwest Bank Minneapolis as Manager of Engineering
and Evaluations. From January 1986 to June 1987, he was President of Sound
Energy Development Co. and Managing Director of the Carbon River Energy
Partnership. He resides in Evergreen, Colorado and devotes full time to
Evergreen.
DENNIS R. CARLTON was named a Director of Evergreen in March 1995. He
received a Bachelor of Science degree in Geology in 1972 and a Master of Science
degree in Geology in 1975 from Wichita State University. He joined Evergreen in
December 1981 as Vice President Geology. He was named a Director in March 1985
and President in December 1986. He served as President and a Director until May
1989 when he was named Executive Vice President of EOC. In May 1991 he was named
Vice President Exploration of Evergreen. In June 1995 he was named President of
EOC. He resides in Denver, Colorado and devotes full time to Evergreen.
35
<PAGE>
JOHN J. RYAN III was named Vice President and a Director of Evergreen in May
1989. Since 1982 he has been engaged in international tax and investment
activities. Mr. Ryan, a resident of Geneva, Switzerland, is also Chairman of
Evergreen Resources (U.K.) Ltd.
ALAIN BLANCHARD was named Director of Evergreen in May 1989. From 1983 until
1988 Mr. Blanchard was an Associate and shareholder of Laidlaw Adams and Peck. A
resident of Brussels, Belgium, he has managed discretionary funds for private
and institutional clients for over 15 years and continues to do so.
LARRY D. ESTRIDGE was named a Director of Evergreen in May 1989. He resides
in Greenville, South Carolina, and is a partner in the law firm of Wyche,
Burgess, Freeman & Parham, P.A. He has been affiliated with the Wyche law firm
since July 1972. He has represented EOC and a number of affiliated companies for
the last six years.
SCOTT D. SHEFFIELD was named a Director of Evergreen in September 1996. Mr.
Sheffield is currently Chairman, President and CEO of Parker & Parsley Petroleum
Company (NYSE "PDP") and has been since April of 1985. From 1979 to April 1985
he was employed by Parker & Parsley in various engineering positions, serving
from 1981-1985 as Vice President of Engineering. Mr. Sheffield obtained a
Bachelor of Science Degree in Petroleum Engineering from the University of Texas
in 1975. He resides in Midland, Texas.
KEVIN R. COLLINS joined Evergreen as Vice President Finance, CFO and
Treasurer in July 1995. He received a B.S. in Business Administration and
Accounting from the University of Arizona in 1980, and became a CPA in 1983. Mr.
Collins has been involved in public accounting for over twelve years. From 1986
to 1994 he was employed by BDO Seidman, LLP, Denver where he was Senior Manager.
He was with Ehrhardt Keefe Steiner & Hottman, CPA's, Denver from October 1994 to
June 1995. He resides in Littleton, Colorado and devotes full time to Evergreen.
J. KEITHER MARTIN was named Secretary of Evergreen in June 1995. He has
served as Controller for EOC since 1984. During the previous sixteen years, Mr.
Martin was employed by Anderson Oil Company as Director of Financial
Information. He resides in Golden, Colorado and devotes full time to Evergreen.
IAN M. THOMSON graduated in 1961 from Edinburgh University with a BSc (Hons)
degree in engineering followed by post-graduate studies at Imperial College,
London. He was a Board Director of the Laird Group PLC, a leading U.K.
industrial conglomerate, responsible for a mining equipment subsidiary in the
U.K., U.S. and other countries. He presently holds various non-executive
directorships in U.K. industrial and manufacturing companies. Mr. Thomson
resides in Oxford, England.
BOARD COMMITTEES
The Audit Committee is presently composed of Larry D. Estridge, Alain
Blanchard and James S. Williams. The Committee recommends to the Board the firm
to be employed as the Company's independent auditors and consults with and
reviews the reports of the Company's independent auditors and the Company's
internal financial staff. One meeting was held during the fiscal year ended
March 31, 1996.
The Compensation Committee is presently composed of Mark S. Sexton and Larry
D. Estridge. The Compensation Committee assists the Board in establishing
compensation for key employees. Two meetings were held during the fiscal year
ended March 31, 1996.
36
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The information contained in the following
Summary Compensation Table for the fiscal years 1996, 1995 and 1994 is furnished
with respect to the named executives.
<TABLE>
<CAPTION>
RESTRICTED
STOCK
NAME AND PRINCIPAL SALARY OTHER ANNUAL AWARD(S) WARRANTS LTIP PAYOUTS
POSITION FISCAL YEAR ($) BONUS ($) COMPENSATION ($)(1) ($)(2) (#) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
James S. Williams 1996 86,742 0 0 39,463 0 0
Chairman and a 1995 68,333 0 0 37,220 0 0
Director 1994 76,250 0 0 35,000 5,000 0
Mark S. Sexton 1996 86,750 0 0 31,875 0 0
President, CEO and 1995 73,334 0 0 32,917 0 0
a Director 1994 78,625 0 0 35,000 5,000 0
Dennis R. Carlton 1996 86,750 0 0 31,875 0 0
Vice President and 1995 73,334 0 0 32,917 0 0
a Director 1994 78,625 0 0 52,500 5,000 0
<CAPTION>
NAME AND PRINCIPAL ALL OTHER
POSITION COMPENSATION ($)
<S> <C>
James S. Williams 0
Chairman and a 0
Director 0
Mark S. Sexton 0
President, CEO and 0
a Director 0
Dennis R. Carlton 0
Vice President and 0
a Director 0
</TABLE>
- ------------------------
(1) For each of the named executives, the aggregate amount of perquisites and
other personal benefits did not exceed 10% of the executive's total annual
salary and bonus.
(2) At March 31, 1996, aggregate restricted stock holding for each of the named
executives were 15,000 shares. Market price at March 31, 1996 was $5.75.
WARRANT GRANTS. No stock purchase warrants were granted to the named
executives during the fiscal year ended March 31, 1996.
WARRANT/OPTION EXERCISES AND HOLDINGS. The following table sets forth
information with respect to the named executives of the Company concerning the
exercise of options/warrants during the last fiscal year and unexercised
warrants held as of the end of the fiscal year.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
WARRANTS/OPTIONS WARRANTS/OPTIONS
SHARES VALUE FY END (#) FY END ($)
ACQUIRED ON REALIZED EXERCISABLE (E)/ EXERCISABLE (E)/
NAME EXERCISE (#) ($) UNEXERCISABLE (U) UNEXERCISABLE (U)
<S> <C> <C> <C> <C>
James S. Williams 0 0 45,450 (E) $ 86,481 (E)
Mark S. Sexton 23,125 40,468 45,450 (E) $ 86,481 (E)
Dennis R. Carlton 10,625 18,594 45,450 (E) $ 86,481 (E)
</TABLE>
During the fiscal year ended March 31, 1996, the Company deferred no
compensation to the persons named in the preceding tables.
COMPENSATION OF DIRECTORS
Directors of the Company receive fees of $100 per meeting for their
attendance at meetings of the Company's Board of Directors and have currently
waived these fees. All Directors are reimbursed for reasonable out-of-pocket
expenses incurred in connection with attending Board and Shareholders' meetings.
Directors who are not Officers or are not on salary with the Company receive
$15,000 per year.
37
<PAGE>
CERTAIN TRANSACTIONS
No Director or Executive Officer of the Company, nominee for election as a
Director, security holder who is known to the Company to own of record or
beneficially more than 5% of any class of the Company's voting securities, or
any member of the immediate family of any of the foregoing persons, has had any
material transaction since the beginning of the Company's last fiscal year, or
has any currently proposed material transaction, to which the Company was or is
to be a party, in any amount except EOC provides well services to an affiliated
entity for which it receives fees pursuant to written operating agreements. For
the years ended March 31, 1996 and 1995, such fees totalled approximately
$450,000 and $316,000. Additionally, EOC provides non-operating services to
affiliates, as requested by them for engineering, evaluation, acquisition and
similar services for which EOC was compensated approximately $24,000 and
$229,000 during the years ended March 31, 1996 and 1995.
38
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table summarizes as of September 9, 1996 (i) the number and
percentage of shares of Common Stock owned of record and beneficially by each
person known by the Company to be the beneficial owner of more than five percent
of the Company's Common Stock, (ii) the number and percentage of shares owned
beneficially by each Director, (iii) the number and percentage of shares owned
beneficially by all Officers and Directors as a group, and (iv) the percentage
of shares to be owned by each person listed upon completion of this offering:
<TABLE>
<CAPTION>
PERCENT OF CLASS
-----------------------------
NUMBER OF SHARES PRIOR TO AFTER OFFERING
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING (1)
<S> <C> <C> <C>
Heartland Advisors, Inc. 926,500 13.0% 10.2%
Gold Energy Inc. 1,043,000(2) 14.7% 11.5%
Energy Investors Fund, LP 364,500 5.1% 4.0%
Energy Investors Fund II, LP 1,020,784(3) 13.9% 10.9%
Energy Investors Partners, L.P. 364,500(4) 5.1% 4.0%
Energy Investors Partners II,
L.P. 1,020,784(5) 13.9% 10.9%
EIF Investors, Inc. 1,385,284(6) 18.9% 14.9%
EIF Acquisition L.L.C. 1,385,284(6) 18.9% 14.9%
Indeck Capital, Inc. 1,385,284(6) 18.9% 14.9%
Gerald R. Forsythe 1,385,284(6) 18.9% 14.9%
John Hancock Mutual Life
Insurance Company 2,290,994(7) 27.8% 22.4%
John J. Ryan III 255,032(8) 3.6% 3.6%
James S. Williams 120,040(9) 1.7% 1.3%
Mark S. Sexton 156,672(10) 2.2% 1.7%
Dennis R. Carlton 135,796(11) 1.9% 1.5%
J. Keither Martin 9,500(12) 0.1% 0.1%
Kevin R. Collins 23,000(13) 0.3% 0.3%
Alain Blanchard 59,590(14) 0.8% 0.7%
Larry D. Estridge 21,000(14) 0.3% 0.2%
Ian M. Thomson 35,000(15) 0.5% 0.4%
All Officers and Directors as a
Group (9 Persons) 815,630 10.3% 8.2%
</TABLE>
- ------------------------
(1) Assumes that the Underwriters' over-allotment option will not be exercised,
and that the beneficial owners will not purchase any shares in the offering.
(2) Gold Energy Inc., a Delaware corporation, is 100% owned by Goldenergy
Investments, Inc. ("Goldenergy"), a Panama corporation. The ultimate
beneficial owners of the Company's shares held by Goldenergy are unknown to
the management of the Company, which has no direct or indirect ownership of
Goldenergy. The Company is unaware of any additional shares of Evergreen to
which Goldenergy has the right to acquire beneficial ownership.
(3) Includes 226,415 shares of common stock issuable upon conversion of
presently convertible outstanding Convertible Preferred Stock.
(4) Consists of shared voting and dispositive power over 364,500 shares held
directly by Energy Investors Fund, L.P. ("Fund I").
(5) Consists of shared voting and dispositive power over (i) 794,369 shares held
directly by Energy Investors Fund II, L.P. ("Fund II") and (ii) 226,415
shares issuable to Fund II upon conversion of presently convertible
Convertible Preferred Stock.
(6) Consists of shared voting and dispositive power over (i) 364,500 shares
owned by Fund I, (ii) 794,369 shares held directly by Fund II, and (iii)
226,415 shares issuable to Fund II upon conversion of presently convertible
Convertible Preferred Stock.
39
<PAGE>
(7) Consists of 905,660 shares issuable upon conversion of presently convertible
outstanding Convertible Preferred Stock. Also includes shared voting and
dispositive power over (i) 364,500 shares directly owned Fund I, (ii)
794,369 shares held directly by Fund II, and (iii) 226,415 shares issuable
to Fund II upon conversion of presently convertible Convertible Preferred
Stock.
(8) Includes 30,000 shares issuable pursuant to stock purchase warrants
presently exercisable.
(9) Includes 62,500 shares issuable pursuant to stock purchase warrants
presently exercisable.
(10) Includes 78,450 shares issuable pursuant to stock purchase warrants
presently exercisable.
(11) Includes 75,450 shares issuable pursuant to stock purchase warrants
presently exercisable.
(12) Includes 2,000 shares issuable pursuant to stock purchase warrants
presently exercisable.
(13) Includes 15,000 shares issuable pursuant to stock purchase warrants
presently exercisable.
(14) Includes 20,000 shares issuable pursuant to stock purchase warrants
presently exercisable.
(15) Includes 35,000 shares issuable pursuant to stock purchase warrants
presently exercisable.
The Company will issue to the Officers and/or Directors listed below new
five year warrants to purchase Common Stock exercisable at $7.00 per share
following the completion of the next four fiscal years, as follows:
<TABLE>
<CAPTION>
NUMBER OF WARRANTS TO BE ISSUED
------------------------------------------
FISCAL YEAR 1997 1998 1999 2000
- ---------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Mark S. Sexton 19,250 19,250 19,250 19,250
Dennis R. Carlton 17,500 17,500 17,500 17,500
James S. Williams 13,125 13,125 13,125 13,125
Kevin R. Collins 8,750 8,750 8,750 8,750
</TABLE>
The warrants will be issued in 1997, 1998, 1999 and 2000 only if the Company
experiences at least twenty percent growth over the previous fiscal year in each
of the following three categories: total proved developed reserves, total
production, and cash flow. Additionally, in order to qualify for the warrants,
the Officers and/or Directors must be employed by the Company as of the last day
of each fiscal year.
40
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Evergreen is authorized to issue 50,000,000 shares of Common Stock, no par
value, and 25,000,000 shares of Preferred Stock, $1.00 par value per share,
which are issuable in one or more series. A total of 7,102,002 shares of Common
Stock are issued and outstanding, and a total of 7,500,000 shares of Preferred
Stock are outstanding as of September 9, 1996.
COMMON STOCK
VOTING RIGHTS--Holders of shares of Common Stock are entitled to one vote
per share. Shares of Common Stock do not have cumulative voting rights. No
fractional shares are presently outstanding.
DIVIDEND RIGHTS--Holders of shares of Common Stock are entitled to receive
such dividends as the Board of Directors may from time to time declare out of
funds of Evergreen legally available for the payment of dividends.
LIQUIDATION RIGHTS--Upon any liquidation, dissolution or winding up of
Evergreen, holders of shares of Common Stock are entitled to receive pro rata
all of the assets of Evergreen available for distribution to shareholders
subject to any prior rights of holders of any outstanding Preferred Stock.
PREEMPTIVE RIGHTS--Shareholders of Evergreen do not have any preemptive
rights to subscribe for or purchase any stock, obligations, warrants or other
securities of Evergreen.
SHAREHOLDER ACTION--All Shareholder action must be taken at a meeting and
not by written consent.
TRANSFER AGENT--The transfer agent and registrar for the Common Stock is
Keycorp Shareholder Services, Inc., Denver, Colorado. Evergreen furnishes its
shareholders with annual reports containing audited financial statements and
with quarterly reports containing unaudited financial information.
PREFERRED STOCK
The Board of Directors of Evergreen is authorized, without action by the
Shareholders, to issue Preferred Stock from time to time in one or more series.
The Board may also fix for each series the number of shares, designation,
liquidation and dividend rights, preferences, voting rights, redemption rights
and other rights, restrictions and qualifications or sinking fund provisions.
On December 8, 1994, the Company received $3.75 million through the private
placement, with institutional investors, of 3,750,000 shares of ten year term 8%
Convertible Preferred Stock, $1.00 par value ("the Preferred"). The Company
received an additional $3.75 million on July 26, 1995 by issuing an additional
3,750,000 shares. All proceeds have been used for development of the Company's
oil and gas leases in the Raton Basin of Colorado.
Cumulative annual cash dividends of 8% are payable quarterly. At Evergreen's
option, two quarterly dividends over the ten year life of the issue may be
satisfied through the issuance of Common Stock valued at its then current market
value.
No dividends may be paid on the Common Stock unless all accrued dividends,
sinking fund and redemption obligations on the Preferred have been paid in full.
Overdue dividends shall bear interest at the rate of 10% until paid in full.
The Preferred is convertible at any time, or from time to time, in whole or
in part, at the option of the holders into 1,132,075 shares of Common Stock, at
$6.625 per share. Evergreen can require the conversion of all, but not less than
all, of the Preferred into Common Stock on any date, provided the Common Stock
has traded at not less than $16 per share for the 30 consecutive days
immediately preceding the date of conversion and on the date of conversion. The
shares of the Preferred are callable, in whole or in part (minimum call being
20% of original issue, expressed in shares), at Evergreen's option
41
<PAGE>
at a call price equal to par value, plus accrued dividends, payable in cash,
plus the warrants as described below.
A mandatory preferred redemption payment of $1,250,000 is due annually
commencing in December 1999. Overdue payments shall bear interest at the rate of
10% until paid in full. All outstanding shares of the Preferred must be redeemed
by Evergreen on the tenth anniversary of original issuance at par value, plus
accrued dividends. Liquidation preference is par value plus accrued and unpaid
dividends prior to distributions on any junior stock upon any voluntary or
involuntary liquidation, dissolution or winding up of Evergreen.
Evergreen has issued warrants which will be triggered and will become
exercisable for 10 years at $6.625 per share if Evergreen exercises its call
option. Holders of the Preferred may exercise stock purchase warrants equal in
number to the underlying common shares called, up to a maximum of 1,132,075
shares.
Future issuances of Preferred Stock could, under certain circumstances, be
dilutive to holders of common stock and would result in a reduction in
percentage ownership interest in the Company by holders of common stock. In the
event of a proposed merger, tender offer, proxy contest or other attempt to gain
control of the Company not approved by the Board of Directors, it would be
possible, subject to any limitations imposed by applicable law, the Company's
Articles of Incorporation, the terms and conditions of any outstanding class or
series of preferred stock and the applicable rules of any securities exchanges
upon which securities of the Company are at any time listed or of other markets
in which securities of the Company are at any time listed, for the Board of
Directors to authorize the issuance of one or more series of preferred stock
with voting rights or other rights and preferences which would impede the
success of the proposed merger, tender offer, proxy contest or other attempt to
gain control of the Company. The issuance of preferred stock may have an adverse
effect on the rights (including voting rights) of holders of Common Stock.
42
<PAGE>
UNDERWRITING
The Underwriters named below (collectively, the "Underwriters"), for whom
Paulson Investment Company, Inc. and Capital West Securities, Inc. are acting as
the representatives (the "Representatives") have severally agreed subject to the
terms and conditions of the Underwriting Agreement with the Company (the
"Underwriting Agreement"), to purchase from the Company and the Company has
agreed to sell to the Underwriters the number of shares of Common Stock set
forth opposite their respective names below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
<S> <C>
Paulson Investment Company, Inc.
Capital West Securities, Inc.
----------
TOTAL 2,000,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters are subject to certain conditions precedent and that the
Underwriters purchase all of the shares of Common Stock offered hereby, if any
such shares are purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the initial public
offering price set forth on the cover page of this Prospectus and to certain
selected dealers at such price less a concession within the discretion of the
Representatives, of which an amount also within the discretion of the
Representatives may be reallowed to other dealers. The public offering price and
concessions and discounts to dealers may be changed by the Representative after
the initial public offering.
The Company has granted to the Underwriters an option, exercisable not later
than 45 days after the date of this Prospectus, to purchase up to 300,000
additional shares of Common Stock at the initial public offering price, less
underwriting discounts and commissions. The Underwriters may exercise this
option only to cover any over-allotments in the sale of the 2,000,000 shares of
Common Stock offered hereby.
The Company has agreed to reimburse Paulson Investment Company, Inc., up to
a maximum amount of $75,000, for accountable expenses incurred by it in
connection with this offering.
Certain executive officers, directors and 5% shareholders of the Company
have agreed not to sell any Common Stock of the Company owned by such person,
pursuant to Rule 144 under the Securities Act or otherwise, without the prior
written consent of Paulson Investment Company, Inc., for a period of 90 days
after the date of this Prospectus.
The Underwriting Agreement contains indemnity provisions among the
Underwriters, the Company and the controlling persons thereof against certain
liabilities, including liabilities arising under the Securities Act of 1933, as
amended.
The Company has agreed to issue to the Representatives warrants (the
"Representatives' Warrants") to purchase up to 200,000 shares of Common Stock.
The Representatives' Warrants are exercisable for a period of four years
beginning one year from the date of this Prospectus at a price of $ per
share (120% of the initial public offering price of the Common Stock offered
hereby) and are
43
<PAGE>
nontransferable for a period of one year following the date of this Prospectus,
except (a) to any of the Underwriters or to individuals who are either an
officer or a partner of an Underwriter of (b) by will or the laws of descent and
distribution. The holders of the Representatives' Warrants will have, in that
capacity, no voting, dividend or other shareholder rights. Any profits realized
by the Representatives on the sale of the securities issuable on exercise of the
Representatives' Warrants may be deemed to be additional underwriting
compensation.
The foregoing is a brief summary of the provisions of the Underwriting
Agreement and does not purport to be a complete statement of its terms and
conditions. A copy of the Underwriting Agreement has been filed as an exhibit to
the Registration Statement of which this Prospectus is a part.
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 DEG. Fahrenheit. Natural gas equivalents are determined using the
ratio of six MCF of natural gas to one barrel of crude oil, condensate or
natural gas liquids so that one barrel of oil is referred to as six MCF of
natural gas equivalent or "MCFE."
As used in this Prospectus, the following terms have the following specific
meanings: "MCF" means thousand cubic feet, "MMCF" means million cubic feet,
"BCF" means billion cubic feet, "Bbl" means barrel, "MBbl" means thousand
barrels, "MMBbl" means million barrels, "MCFE" means thousand cubic feet
equivalent, "MMCFE" means million cubic feet equivalent, "BCFE" means billion
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.
"CAPITAL EXPENDITURES" means costs associated with exploratory and
development drilling (including exploratory dry holes); leasehold acquisitions;
seismic data acquisitions; geological, geophysical and land related overhead
expenditures; delay rentals; producing property acquisitions; and other
miscellaneous capital expenditures.
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.
"UNDEVELOPED ACREAGE" is considered to be those lease acres 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.
"COALBED METHANE" is methane gas from coals in the ground, extracted using
conventional oil and gas industry drilling and completion methodology. The gas
produced is usually over 90% methane, with a small percentage of ethane and
impurities such as carbon dioxide and nitrogen. Methane is the principal
component of natural gas. Coalbed methane shares the same markets as
conventional natural gas, via the natural gas pipeline infrastructure.
44
<PAGE>
"PROVED OIL AND GAS RESERVES" are the estimated quantities of crude oil,
condensate, natural gas and natural gas liquids which geological and engineering
data demonstrate with reasonable certainty to be recoverable in future years
from known reservoirs under existing economic and operating conditions. "PROVED
DEVELOPED RESERVES" are those reserves expected to be recovered through existing
wells, with existing equipment and operating methods. "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 re-completion.
"PRESENT VALUE OF ESTIMATED FUTURE NET REVENUES" means the present value of
estimated future revenues to be generated from the production of proved reserves
calculated in accordance with SEC guidelines, net of estimated production and
future development costs, using prices and costs as of the date of estimation
without future escalation, without giving effect to non-property related
expenses such as general and administrative expenses, debt service, future
income tax expense and depreciation, depletion and amortization, and discounted
using an annual discount rate of 10%.
LEGAL MATTERS
John B. Wills, Attorney at Law, Denver, Colorado, has acted as counsel for
the Company in connection with this offering. Stoel Rives LLP, Portland, Oregon,
have acted as counsel for the Underwriter in connection with certain legal
matters relating to the securities offered hereby.
EXPERTS
The consolidated financial statements of Evergreen Resources, Inc. included
in this Prospectus and the Registration Statement have been audited by BDO
Seidman, LLP, independent certified public accountants, to the extent and for
the periods set forth in their report appearing elsewhere herein and in the
Registration Statement, and are included herein in reliance upon such report
given upon the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Powerbridge, Inc. as of December
31, 1995 and 1994 and for each of the three years in the period ended December
31, 1995, incorporated in this Prospectus by reference from Evergreen Resources
Inc.'s Form 8-K/A dated September 6, 1996, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference (which report expresses an unqualified opinion
and includes an explanatory paragraph relating to substantial doubt about
Powerbridge Inc.'s ability to continue as a going concern), and have been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
The estimated reserve evaluations and related calculations of Resource
Services International, Inc. set forth in the Prospectus have been included
herein in reliance upon the authority of said firm as experts in petroleum
engineering.
AVAILABLE INFORMATION
This Prospectus constitutes a part of a Registration Statement on Form S-2
(herein together with all amendments thereto referred to as the Registration
Statement) filed by the Company with the Securities and Exchange Commission (the
Commission) under the Securities Act of 1933, as amended. This Prospectus does
not contain all of the information set forth in the Registration Statement and
exhibits thereto, certain portions of which are omitted as permitted by the
rules and regulations of the Commission. For further information with respect to
the Company and the shares of Common Stock offered hereby, reference is made to
the Registration Statement including the exhibits thereto, which may be
inspected at the Commission's offices without charge, or copies of which may be
obtained from the Commission upon payment of prescribed fees.
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
45
<PAGE>
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 Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, Room 1024 and at the following Regional Offices of the
Commission: Everett McKinley Dirksen Building, 219 South Dearborn Street,
Chicago, Illinois 60604, Room 1204, and Jacob K. Javits Building, 75 Park Place,
14th Floor, New York, New York 10007. Copies of such material also can be
obtained at prescribed rates by writing to the Commission, Public Reference
Section, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The
Company's Common Stock is quoted on NASDAQ, and financial reports, proxy
statements and other information concerning the Company may be inspected at the
National Association of Securities Dealers, Inc., Washington, D.C.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, all of which were previously filed with the
Commission, are hereby incorporated by reference in this Prospectus:
The Company's Annual Report on Form 10K for the year ended March 31, 1996.
The Company's Quarterly Report on Form 10Q for the three months ended June
30, 1996.
The Company's Proxy Statement dated July 15, 1996, concerning the Company's
Annual Meeting of Stockholders held August 15, 1996.
The Company's Form 8-K dated August 21, 1996 and Form 8-K/A dated September
6, 1996 concerning the acquisition of certain limited partnership interests
owned by Energy Investors Fund, LP and Energy Investors Fund, II and the merger
of Powerbridge, Inc. with a subsidiary of the Company.
All documents filed by the Company prior to the date of this Prospectus
pursuant to Sections 13(a),13(c), 14 or 15(d) of the 1934 Act prior to the
termination of the offering of the shares of Common Stock shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of those documents.
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that such statement is modified or replaced by a statement contained in
this Prospectus or in any other subsequently filed document that also is or is
deemed to be incorporated by reference into this Prospectus. Any such statement
so modified or superseded shall not be deemed, except as so modified or
replaced, to constitute a part of this Prospectus. The Company undertakes to
provide without charge to each person to whom a copy of this Prospectus has been
delivered, upon the written or oral request of any such person, including any
beneficial owner, a copy of any or all of the documents referred to above that
have been or may be incorporated in this Prospectus by reference, other than
exhibits to such documents. Written or oral requests for such copies should be
directed to James S. Williams, Chairman, Evergreen Resources, Inc., 1512 Larimer
Street, Suite 1000, Denver, Colorado, 80202, (303) 534-0400.
46
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
EVERGREEN RESOURCES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Financial Statements:
Pro Forma Explanatory Headnote F-2
For the Three Months Ended June 30, 1996 (Unaudited)
Unaudited Pro Forma Consolidated Balance Sheet F-3
Unaudited Pro Forma Consolidated Statement of Operations F-4
For the Year Ended March 31, 1996 (Unaudited)
Unaudited Pro Forma Consolidated Statement of Operations F-5
Notes to Pro Forma Consolidated Financial Statements F-6
EVERGREEN RESOURCES, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants F-7
Consolidated Balance Sheets, June 30, 1996 (unaudited) and March 31, 1996 and 1995 F-8
Consolidated Statements of Operations for the Three Months Ended June 30, 1996 and
1995 (unaudited) and for the Years Ended March 31, 1996, 1995 and 1994 F-9
Consolidated Statements of Stockholders' Equity for the Three Months Ended June 30,
1996 (unaudited) and for the Years Ended March 31, 1996, 1995 and 1994 F-10
Consolidated Statements of Cash Flows for the Three Months Ended June 30, 1996 and
1995 (unaudited) and for the Years Ended March 31, 1996, 1995 and 1994 F-11
Notes to Consolidated Financial Statements F-15
</TABLE>
F-1
<PAGE>
EVERGREEN RESOURCES, INC AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The accompanying unaudited pro forma consolidated financial statements give
effect to the acquisition by Evergreen Resources, Inc. ("the Company" or
"Evergreen") of 100% of the outstanding common stock of Powerbridge, Inc. and
the limited partnership interests of Energy Investors Funds I and II
(collectively "PBI") pursuant to the Agreement between the parties; to reflect
the issuance of 1,162,266 of the Company's common stock and the assumption of
$3.6 million in long-term debt, and are based on the estimates and assumptions
set forth herein. This unaudited pro forma information has been prepared
utilizing the historical financial statements and notes thereto, which are
incorporated by reference herein. The unaudited pro forma financial data does
not purport to be indicative of the results which actually would have been
obtained had the purchase been effected on the dates indicated or of the results
which may be obtained in the future. The unaudited pro forma financial
statements should be read in conjunction with the historical financial
statements set forth herein.
The pro forma consolidated balance sheet assumes the acquisition was
consummated at June 30, 1996. The accompanying unaudited pro forma statements of
operations have been derived from the statements of operations of the Company
for the three months ended June 30, 1996 and PBI for the three months ended June
30, 1996 and statements of operations of the Company for the fiscal year ended
March 31, 1996 and PBI for the year ended December 31, 1995, and adjust such
information to give effect to the acquisition as if the acquisition had occurred
as of the beginning of each of the periods presented.
F-2
<PAGE>
EVERGREEN RESOURCES, INC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
<TABLE>
<CAPTION>
POWERBRIDGE, INC.
------------------------------
PRO FORMA CONSOLIDATED
EVERGREEN ACTUAL ADJUSTMENTS PRO FORMA
----------- ---------- ------------------ -------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,440,449 $ 176,852 $ $ 1,617,301
Accounts receivable:
Oil and gas sales 265,455 439,211 704,666
Other 1,240,464 66,850 1,307,314
Prepaid expenses 303,172 139,817 442,989
----------- ---------- ------------------ -------------
TOTAL CURRENT ASSETS 3,249,540 822,730 4,072,270
----------- ---------- ------------------ -------------
PROPERTY AND EQUIPMENT, AT COST
Proved oil and gas properties, full
cost 37,357,042 3,965,153 3,568,389(a) 44,890,584
Unevaluated properties 7,946,873 600,000(a) 8,546,873
Gas gathering equipment 5,310,184 3,478,563 8,788,747
Support equipment 622,838 51,819 674,657
----------- ---------- ------------------ -------------
Total cost 51,236,937 7,495,535 4,168,389 62,900,861
Less accumulated dd & a (11,746,864) (208,321) 208,321(a) (11,746,864)
----------- ---------- ------------------ -------------
NET PROPERTY AND EQUIPMENT 39,490,073 7,287,214 4,376,710 51,153,997
DESIGNATED CASH 1,059,233 1,059,233
OTHER ASSETS 756,106 206,187 (178,689)(b) 783,604
----------- ---------- ------------------ -------------
$44,554,952 $8,316,131 $ 4,198,021 $57,069,104
----------- ---------- ------------------ -------------
----------- ---------- ------------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 769,154 $ 530,797 $ 100,000(a) 1,399,951
Accrued expenses and other 287,936 428,555 (250,000)(b) 466,491
Amounts payable to oil and gas
property owners 1,176,194 1,176,194
----------- ---------- ------------------ -------------
TOTAL CURRENT LIABILITIES 2,233,284 959,352 (150,000) 3,042,636
PRODUCTION TAXES PAYABLE 1,059,233 1,059,233
LONG-TERM LIABILITIES 2,239,678 4,589,701 (584,901)(b) 6,244,478
----------- ---------- ------------------ -------------
TOTAL LIABILITIES 5,532,195 5,549,053 (734,901) 10,346,347
----------- ---------- ------------------ -------------
REDEEMABLE PREFERRED STOCK 7,500,000 7,500,000
----------- ---------- ------------------ -------------
MINORITY INTERESTS 3,434,330 (3,434,330)(a) --
----------- ---------- ------------------ -------------
COMMON STOCKHOLDERS' EQUITY
Common stock 58,998 5,470 6,153(a) 70,621
Additional paid-in capital 41,822,026 7,688,377(a) 49,510,403
Foreign exchange gain (loss) (394,582) (394,582)
Deficit (9,963,685) (672,722) 672,722 (a),(b (9,963,685)
----------- ---------- ------------------ -------------
TOTAL COMMON STOCKHOLDERS' EQUITY 31,522,757 (667,252) 8,367,252 39,222,757
----------- ---------- ------------------ -------------
$44,554,952 $8,316,131 $ 4,198,021 $57,069,104
----------- ---------- ------------------ -------------
----------- ---------- ------------------ -------------
</TABLE>
See accompanying Headnote and Notes to Pro Forma Consolidated
Financial Statements.
F-3
<PAGE>
EVERGREEN RESOURCES, INC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
POWERBRIDGE, INC. PERIOD ENDED
EVERGREEN JUNE 30, 1996
THREE MONTHS -------------------------------
ENDED JUNE 30, PRO FORMA CONSOLIDATED
1996 ACTUAL(I) ADJUSTMENTS PRO FORMA
-------------- --------- -------------------- -------------
<S> <C> <C> <C> <C>
REVENUE
Oil and gas production $ 526,344 $ 499,741 $ (190,427)(i) $ 835,658
Oil and gas services 190,909 (18,945)(c) 171,964
Interest 51,599 7,114 (3,229)(i) 55,484
Other income 10,028 17,069 (17,069)(d),(i) 10,028
-------------- --------- ---------- -------------
TOTAL REVENUE 778,880 523,924 (229,670) 1,073,134
-------------- --------- ---------- -------------
COSTS AND EXPENSES
Cost of production 131,953 150,365 (73,097)(c),(e),(i) 209,221
Gas gathering costs 43,898 43,898
Cost of oil and gas
services 184,841 12,884(e) 197,725
Depreciation, depletion
and amortization 201,840 86,284 (7,301)(f),(i) 280,823
General and administrative 149,270 233,893 (233,893)(g),(i) 149,270
Interest expense 9,385 255,906 (160,022)(h),(i) 105,269
Other (2,337) (2,337)
-------------- --------- ---------- -------------
TOTAL EXPENSES 718,850 726,448 (461,429) 983,869
-------------- --------- ---------- -------------
NET INCOME (LOSS) 60,030 $(202,524) $ 231,759 89,265
--------- ----------
--------- ----------
PREFERRED STOCK CASH
DIVIDENDS 150,000 150,000
-------------- -------------
NET LOSS ATTRIBUTABLE TO
COMMON STOCK $ (89,970) $ (60,735)
-------------- -------------
-------------- -------------
LOSS PER SHARE OF COMMON
STOCK $ (0.02) $ (0.01)
-------------- -------------
-------------- -------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
(J) 5,899,736 7,062,002
-------------- -------------
-------------- -------------
</TABLE>
See accompanying Headnote and Notes to Pro Forma Consolidated
Financial Statements.
F-4
<PAGE>
EVERGREEN RESOURCES, INC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
POWERBRIDGE, INC. YEAR ENDED
DECEMBER 31, 1995
EVERGREEN YEAR -------------------------------
ENDED MARCH PRO FORMA CONSOLIDATED
31, 1996 ACTUAL ADJUSTMENTS PRO FORMA
-------------- ----------- ------------------ -------------
<S> <C> <C> <C> <C>
REVENUE
Oil and gas production $ 1,392,695 $ 189,829 $ 156,945(e) $ 1,739,469
Oil and gas services 779,146 (77,954)(c) 701,192
Interest 206,769 6,728(e) 213,497
Other income 556,221 122,389 (122,389)(d) 556,221
-------------- ----------- ------------------ -------------
TOTAL REVENUE 2,934,831 312,218 (36,670) 3,210,379
-------------- ----------- ------------------ -------------
COSTS AND EXPENSES
Cost of production 875,543 297,058 (45,281)(c),(e) 1,127,320
Cost of oil and gas
services 727,121 39,442(e) 766,563
Depreciation, depletion
and amortization 589,936 270,285 (175,546)(f) 684,675
General and administrative 818,805 760,311 (760,311)(g),(e) 818,805
Interest expense 36,620 294,756 (117,417)(h) 213,959
Other (10,997) (10,997)
-------------- ----------- ------------------ -------------
TOTAL EXPENSES 3,037,028 1,622,410 (1,059,113) 3,600,325
-------------- ----------- ------------------ -------------
NET LOSS (102,197) $(1,310,192) $ 1,022,443 (389,946)
----------- ------------------
----------- ------------------
PREFERRED STOCK CASH
DIVIDENDS 504,620 504,620
-------------- -------------
-------------- -------------
NET LOSS ATTRIBUTABLE TO
COMMON STOCK $ (606,817) $ (894,566)
-------------- -------------
-------------- -------------
LOSS PER SHARE OF COMMON
STOCK $ (0.10) $ (0.13)
-------------- -------------
-------------- -------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
(J) 5,800,036 6,962,302
-------------- -------------
-------------- -------------
</TABLE>
See accompanying Headnote and Notes to Pro Forma Consolidated
Financial Statements.
F-5
<PAGE>
EVERGREEN RESOURCES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(a) Reflects the allocation of PBI's purchase price, consisting of 1,162,266
shares of the Company's common stock at $7,700,000 ($6.625 per share). The
purchase price has been allocated as follows:
<TABLE>
<S> <C>
Proved oil and gas properties 3,776,000
Unevaluated properties 600,000
Amounts attributable to minority interest, PBI deficit and
miscellaneous 3,324,000
----------
Total $7,700,000
----------
----------
</TABLE>
(b) Reflects the forgiveness of debt and accrued interest (total $835,000)
negotiated as part of the acquisition and elimination of intangible assets
not related to the business combination.
(c) Reflects the elimination of overhead charges and management fees billed by
Evergreen to PBI for which billing discontinued with the acquisition.
(d) Reflects the elimination of PBI non-operating income amounts which
discontinue with the Evergreen acquisition and amounted to $17,000 for the
six months ended June 30, 1996 and $122,000 for the year ended December 31,
1995.
(e) To reclassify PBI's gas revenue and production expenses to conform to
Evergreen's financial statement presentation and to eliminate PBI's
production expenses ($30,250 for the three month period and $111,000 for the
year) which terminated as a result of the acquisition.
(f) To adjust depreciation, depletion and amortization for additional
$3,776,000 of purchase price allocation to proved oil and gas properties and
converting PBI to full cost method of accounting utilizing combined
Evergreen and PBI reserve amounts.
(g) Reflects elimination of general and administrative expenses terminated as a
result of the acquisition.
(h) To eliminate interest expense on $750,000 in debt forgiven as part of the
acquisition which bore interest at rates ranging from prime to 20%.
(i) Actual results for PBI encompass the six months ended June 30, 1996 and
therefore results for the three months ended March 31, 1996 are eliminated
to make the PBI period presented correspond with those for Evergreen.
(j) Pro forma weighted average shares reflect the issuance of 1,162,266 shares
of Evergreen's common stock for the acquisition of PBI for all periods
presented.
F-6
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
Evergreen Resources, Inc.
Denver, Colorado
We have audited the accompanying consolidated balance sheets of Evergreen
Resources, Inc. and subsidiaries as of March 31, 1996 and 1995 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended March 31, 1996. 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 amounts 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Evergreen
Resources, Inc. and subsidiaries as of March 31, 1996 and 1995 and the results
of their operations and their cash flows for each of the three years in the
period ended March 31, 1996 in conformity with generally accepted accounting
principles.
BDO SEIDMAN, LLP
Denver, Colorado
May 24, 1996
F-7
<PAGE>
EVERGREEN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
JUNE 30, ------------------------
1996 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
(Unaudited)
CURRENT:
Cash and cash equivalents $ 1,440,449 $ 3,702,511 $ 2,038,157
Accounts receivable:
Joint interest billings and other 1,240,464 897,142 945,557
Oil and gas sales 265,455 237,178 297,602
Other current assets 303,172 132,446 76,341
----------- ----------- -----------
Total current assets 3,249,540 4,969,277 3,357,657
----------- ----------- -----------
PROPERTY AND EQUIPMENT (NOTE 15):
Proved oil and gas properties, based on full-cost
accounting 37,357,042 36,378,828 33,442,534
Unevaluated properties not subject to amortization 7,946,873 7,792,739 8,136,519
Gas gathering equipment 5,310,184 4,415,439 3,417,086
Support equipment 622,838 595,656 676,051
----------- ----------- -----------
51,236,937 49,182,662 45,672,190
Less accumulated depreciation, depletion and amortization 11,746,864 11,558,516 11,140,276
----------- ----------- -----------
Net property and equipment 39,490,073 37,624,146 34,531,914
DESIGNATED CASH (NOTE 3) 1,059,233 770,076 593,024
OTHER ASSETS 756,106 808,218 657,573
----------- ----------- -----------
$44,554,952 $44,171,717 $39,140,168
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 769,154 $ 1,204,378 $ 700,201
Amounts payable to oil and gas property owners 1,176,194 1,123,465 711,307
Accrued expenses and other 287,936 162,127 89,646
----------- ----------- -----------
Total current liabilities 2,233,284 2,489,970 1,501,154
Production taxes payable 1,059,233 770,076 593,024
Long-term liabilities (Notes 10 and 14) 2,239,678 1,822,834 1,094,128
----------- ----------- -----------
Total liabilities 5,532,195 5,082,880 3,188,306
----------- ----------- -----------
REDEEMABLE PREFERRED STOCK (NOTE 5) 7,500,000 7,500,000 3,750,000
----------- ----------- -----------
COMMITMENTS (NOTES 10 AND 14)
STOCKHOLDERS' EQUITY (Notes 6 and 7):
Common stock, $.01 stated value; shares authorized,
50,000,000; shares issued and outstanding, 5,899,736,
5,899,736 and 5,672,159 58,998 58,998 56,721
Additional paid-in capital 41,822,026 41,822,026 41,419,179
Accumulated deficit (9,963,685) (9,873,715) (9,266,898)
Foreign currency translation adjustment (394,582) (418,472) (7,140)
----------- ----------- -----------
Total stockholders' equity 31,522,757 31,588,837 32,201,862
----------- ----------- -----------
$44,554,952 $44,171,717 $39,140,168
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-8
<PAGE>
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, YEAR ENDED MARCH 31,
---------------------- ----------------------------------
1996 1995 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(Unaudited)
REVENUES:
Oil and gas production (Note
7) $ 526,344 $ 283,739 $1,392,695 $1,916,262 $2,207,102
Oil and gas services (Note
11) 190,909 185,890 779,146 858,298 1,102,572
Interest and dividends 51,599 23,190 206,769 116,320 238,135
Other (Note 11) 10,028 15,210 556,221 459,948 794,378
---------- ---------- ---------- ---------- ----------
Total revenues 778,880 508,029 2,934,831 3,350,828 4,342,187
---------- ---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of production and
operations 131,953 248,213 875,543 1,231,669 1,259,478
Gas gathering costs 43,898 58,275 -- -- --
Cost of oil and gas services 184,841 195,095 727,121 789,778 928,890
Depreciation, depletion and
amortization 201,840 167,150 589,936 709,008 659,820
General and administrative
expenses 149,270 202,260 818,805 850,088 1,349,768
Interest expense 9,385 9,214 36,620 29,688 --
Other (2,337) (7,709) (10,997) 351,158 100,682
---------- ---------- ---------- ---------- ----------
Total costs and expenses 718,850 872,498 3,037,028 3,961,389 4,298,638
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS) 60,030 (364,469) (102,197) (610,561) 43,549
Preferred stock dividends
(Note 5) 150,000 75,000 504,620 94,167 --
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS) ATTRIBUTABLE
TO COMMON STOCK $ (89,970) $ (439,469) $ (606,817) $ (704,728) $ 43,549
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS) PER COMMON
SHARE $ (.02) $ (.08) $ (.10) $ (.13) $ .01
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 5,899,736 5,672,159 5,800,036 5,446,741 5,234,636
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-9
<PAGE>
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
AND FOR THE THREE MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------
FOREIGN
$.01 STATED VALUE ADDITIONAL CURRENCY TOTAL
---------------------- PAID-IN ACCUMULATED TRANSLATION STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT EQUITY
--------- ----------- ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, April 1, 1993 4,958,120 $ 49,581 $39,086,812 $(8,605,720) $(504,113) $ 30,026,560
Exercise of stock purchase
warrants 18,750 188 46,688 -- -- 46,876
Common stock issued to ESOP 30,000 300 125,325 -- -- 125,625
Issuance of common stock as
employee bonus 51,500 515 175,798 -- -- 176,313
Other increases 131 1 (575) -- -- (574)
Foreign currency translation -- -- -- -- (5,210) (5,210)
Net income -- -- -- 43,549 -- 43,549
--------- ----------- ----------- ------------- ----------- --------------
Balance, March 31, 1994 5,058,501 50,585 39,434,048 (8,562,171) (509,323) 30,413,139
Issuance of common stock for
well interests (Note 6) 501,040 5,010 1,748,630 -- -- 1,753,640
Issuance of common stock (Note
6) 81,368 813 158,688 -- -- 159,501
Exercise of stock purchase
warrants (Note 6) 31,250 313 77,813 -- -- 78,126
Foreign currency translation -- -- -- -- 502,183 502,183
Preferred stock dividends -- -- -- (94,167) -- (94,167)
Net loss -- -- -- (610,560) -- (610,560)
--------- ----------- ----------- ------------- ----------- --------------
Balance, March 31, 1995 5,672,159 56,721 41,419,179 (9,266,898) (7,140) 32,201,862
Exercise of stock purchase
warrants (Note 6) 159,059 1,592 302,315 -- -- 303,907
Common stock issued to ESOP 10,000 100 19,900 -- -- 20,000
Issuance of common stock for
services 55,000 550 116,840 -- -- 117,390
Other 3,518 35 (36,208) -- -- (36,173)
Preferred stock dividends -- -- -- (504,620) -- (504,620)
Foreign currency translation -- -- -- -- (411,332) (411,332)
Net loss -- -- -- (102,197) -- (102,197)
--------- ----------- ----------- ------------- ----------- --------------
Balance, March 31, 1996 5,899,736 58,998 41,822,026 (9,873,715) (418,472) 31,588,837
Preferred stock dividends
(unaudited) -- -- -- (150,000) -- (150,000)
Foreign currency translation
(unaudited) -- -- -- -- 23,890 23,890
Net income (unaudited) -- -- -- 60,030 -- 60,030
--------- ----------- ----------- ------------- ----------- --------------
Balance, June 30, 1996
(unaudited) 5,899,736 $ 58,998 $41,822,026 $(9,963,685) $(394,582) $ 31,522,757
--------- ----------- ----------- ------------- ----------- --------------
--------- ----------- ----------- ------------- ----------- --------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-10
<PAGE>
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE
30, YEAR ENDED MARCH 31,
------------------------ -------------------------------------
1996 1995 1996 1995 1994
------------ ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
OPERATING ACTIVITIES:
Net income (loss) $ 60,030 $ (364,469) $ (102,197) $ (610,561) $ 43,549
Adjustments to reconcile net income (loss)
to cash (used in) provided by operating
activities:
Depreciation, depletion and amortization 201,840 167,150 589,936 708,933 659,820
Gain on sale of subsidiaries -- -- (525,287) (330,856) --
Writedown of investments -- -- -- 217,438 --
(Gain) loss on sale of marketable
securities -- -- -- 113,074 (24,996)
Stock issued for services -- -- 31,555 50,837 131,871
Other 13,792 10,280 -- -- --
Changes in operating assets and
liabilities:
Accounts receivable (374,671) (126,204) 106,209 770,058 (1,153,551)
Other current assets (169,264) (16,762) (56,520) 82,881 (140,437)
Accounts payable (435,396) 219,571 1,010,077 (633,403) 1,021,449
Accrued expenses 161,694 (50,208) 76,178 39,228 (52,521)
------------ ---------- ----------- ----------- -----------
Net cash (used in) provided by operating
activities (541,975) (160,642) 1,129,951 407,629 485,184
------------ ---------- ----------- ----------- -----------
INVESTING ACTIVITIES:
Purchase of marketable securities -- -- -- -- (5,281,930)
Sale of marketable securities -- -- -- 2,014,708 10,204,140
Investment in property and equipment (1,882,324) (997,067) (3,988,233) (6,844,206) (6,278,393)
Proceeds from sale of oil and gas assets and
support equipment 350,000 21,000 540,413 1,324,390 1,125,875
Proceeds from sale of subsidiary -- -- 580,000 -- --
Designated cash (289,157) 207,562 (177,052) (144,307) (165,405)
Change in production taxes payable 289,157 (207,562) 177,052 144,307 158,655
Change in other assets 11,880 112,889 104,058 546,843 (69,821)
------------ ---------- ----------- ----------- -----------
Net cash used in investing activities (1,520,444) (863,178) (2,763,762) (2,958,265) (306,879)
------------ ---------- ----------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from issuance of redeemable
preferred stock, net -- -- 3,714,736 3,685,532 --
Dividends paid on preferred stock (150,000) (75,000) (504,620) (94,167) --
Proceeds from issuance of common stock -- -- 303,904 77,584 47,117
Principal payments on capital lease
obligations (16,033) (13,283) (46,526) -- --
Debt issue costs -- (23,546) (49,037) (57,541) (33,689)
Change in cash held from operating oil and
gas properties (29,897) 535,567 (89,880) 23,964 228,071
------------ ---------- ----------- ----------- -----------
Net cash (used in) provided by financing
activities (195,930) 423,738 3,328,577 3,635,372 241,499
------------ ---------- ----------- ----------- -----------
Effect of exchange rate changes on cash (3,713) 10,425 (30,412) 23,148 (1,081)
------------ ---------- ----------- ----------- -----------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (2,262,062) (589,657) 1,664,354 1,107,884 418,723
CASH AND CASH EQUIVALENTS, beginning of period 3,702,511 2,038,742 2,038,157 930,273 511,550
------------ ---------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period $1,440,449 $1,449,085 $ 3,702,511 $ 2,038,157 $ 930,273
------------ ---------- ----------- ----------- -----------
------------ ---------- ----------- ----------- -----------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-11
<PAGE>
EVERGREEN RESOURCES, INC.
SUMMARY OF ACCOUNTING POLICIES
CONSOLIDATION
The financial statements include the accounts of Evergreen Resources, Inc.
(ERI) and its wholly-owned subsidiaries (the "Company"); Evergreen Operating
Corporation (EOC) and Evergreen Resources (UK) Ltd. EOC has a 50% ownership in a
joint venture, Primero Gas Marketing Co., formerly known as Primero Gas
Gathering Co., (Primero), which is recorded on a pro-rata consolidation basis.
The companies are engaged in the operation, acquisition, exploration and
development of oil and gas properties. All significant intercompany balances and
transactions have been eliminated in consolidation.
CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash equivalents.
The Company's cash equivalents are cash investment funds which are placed
with a major financial institution. The investment policy limits the Company's
exposure to concentrations of credit risk.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
OIL AND GAS PROPERTIES
The Company follows the full-cost method of accounting for oil and gas
properties. Under this method, all productive and nonproductive costs incurred
in connection with the exploration for and development of oil and gas reserves
are capitalized. Such capitalized costs include lease acquisition, geological
and geophysical work, delay rentals, drilling, completing and equipping oil and
gas wells and other related costs. If the net investment in oil and gas
properties exceeds an amount equal to the sum of (1) the standardized measure of
discounted future net cash flows from proved reserves (see Note 15), and (2) the
lower of cost or fair market value of properties in process of development and
unexplored acreage, the excess is charged to expense as additional depletion.
Normal dispositions of oil and gas properties are accounted for as adjustments
of capitalized costs, with no gain or loss recognized.
Depreciation and depletion of proved oil and gas properties is computed on
the units-of-production method based upon estimates of proved reserves with oil
and gas being converted to a common unit of measure based on their relative
energy content. Unproved oil and gas properties, including any related
capitalized interest expense, are not amortized, but are assessed for impairment
either individually or on an aggregated basis.
GAS GATHERING AND SUPPORT EQUIPMENT
Gas gathering and support equipment are stated at cost. Depreciation and
amortization for the gas gathering system is computed on the units-of-production
method based upon estimated gas production over a twenty-year life. Certain gas
gathering system components and other support equipment are depreciated using
the straight-line method over the estimated useful lives of the assets of 3 to
20 years.
F-12
<PAGE>
EVERGREEN RESOURCES, INC.
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
AMOUNTS PAYABLE TO OIL AND GAS PROPERTY OWNERS
Amounts payable to oil and gas property owners consist of cash calls from
working interest owners to pay for development costs of properties being
currently developed, production revenue that the Company, as operator, is
collecting and distributing to revenue interest owners and production revenue
taxes that the Company, as operator, has withheld for timely payment to the tax
agencies.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
requires the use of the "liability method". Accordingly, deferred tax
liabilities and assets are determined based on the temporary differences between
the financial statement and tax bases of assets and liabilities, using enacted
tax rates in effect for the year in which the differences are expected to
reverse.
MANAGEMENT AND OPERATOR FEES
The Company receives management fees for services performed as the managing
venturer and operator for a gas gathering and pipeline joint venture. Such fees
are included in income. Income from operating wells for third parties is
recognized pursuant to the applicable operating agreements when the services are
performed.
NET INCOME (LOSS) PER SHARE
Net income (loss) per common share has been computed by dividing net income
(loss), after reduction for preferred stock dividends, by the weighted average
number of common shares and common share equivalents outstanding during each of
the periods presented. Options and warrants to purchase stock are included as
common stock equivalents when dilutive. In 1994, common stock equivalents of
221,029 shares are included in the weighted average number of common shares
outstanding. Common stock equivalents are not utilized in 1996 and 1995 as their
effect is antidilutive.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
FOREIGN CURRENCY TRANSLATION
The functional currency for the Company's foreign operations is the
applicable local currency. The translation of the applicable foreign currency
into U.S. dollars is performed for balance sheet accounts using current exchange
rates in effect at the balance sheet date and for revenue and expense accounts
using a weighted average exchange rate during the period. The gains or losses
resulting from such translation are included in stockholders' equity.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets" and SFAS No. 123, "Accounting for Stock Based
Compensation". SFAS No. 121 provides standards for accounting for the impairment
of various long-lived assets. The Company uses the full cost method of
accounting for its oil and gas properties, which requires an impairment to be
recorded when total capitalized costs exceed the present value, discounted at
10%, of estimated future net cash flows from proved oil and gas
F-13
<PAGE>
EVERGREEN RESOURCES, INC.
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
reserves. Therefore, the adoption of SFAS 121 is not expected to have a material
effect on the financial position or results of operations of the Company.
SFAS No. 123 encourages the accounting for stock-based employee compensation
programs to be reported within the financial statements on a fair value based
method. If the fair value based method is not adopted, then the statement
requires pro-forma disclosure of net income and earnings per share as if the
fair value based method had been adopted. The Company has not yet determined how
SFAS No. 123 will be adopted nor its impact on the financial statements. Both
statements are effective for fiscal years beginning after December 15, 1995.
DEFERRED OFFERING COSTS
Costs incurred in connection with the Company's anticipated public offering
are deferred and will be charged against stockholder's equity upon the
successful completion of the offering or charged to expense if the offering is
not consummated.
RECLASSIFICATIONS
Certain items included in prior years financial statements have been
reclassified to conform to current year presentation.
UNAUDITED PERIODS
The financial information with respect to the three months ended June 30,
1996 and 1995, is unaudited. In the opinion of management, such information
contains all adjustments, consisting only of normal recurring accruals necessary
for a fair presentation of the results for such period. The results of
operations for interim periods are not necessarily indicative of the results of
operations for the full fiscal year.
F-14
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AS TO THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995)
1. ACQUISITION AGREEMENT
On August 15, 1996, effective August 1, 1996, the Company acquired the
limited partnership interests of Energy Investors Fund, LP and Energy Investors
Fund II, LP in PBI Fuels, LP and 100% of the common stock of Powerbridge Inc.
for a purchase price of $11.3 million. The purchase price is comprised of
1,162,266 shares of restricted common stock valued at $7.7 million and the
assumption of $3.6 million of long-term debt. The assets acquired included 37.5
billion cubic feet (BCF) of proved natural gas reserves, approximately 24 BCF of
which are developed, together with 25% working interest in 120,000 gross acres
and a 50% interest in an associated gas gathering and marketing system, Primero,
which EOC already owns a 50% interest in. All of these assets are located on the
Company's present acreage position in the Raton Basin, Las Animas County,
Colorado. The acquisition will be accounted for under the purchase method of
accounting.
Assuming the Company's acquisition as discussed above had been completed at
the beginning of the periods below, pro forma results of operations for such
period would have been:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30, YEAR ENDED
1996 MARCH 31, 1996
-------------- ---------------
<S> <C> <C>
Revenues $ 1,073,134 $ 3,210,379
Net income (loss) 89,265 (389,946)
Net loss attributable to common stock (60,735) (894,566)
Loss per share of common stock (.01) (.13)
</TABLE>
The pro forma information is not necessarily indicative of the combined
results of operations that would have occurred had the acquisition been
completed for such periods.
2. FINANCING AGREEMENTS
The Company has a revolving line of credit with a bank. Subsequent to March
31, 1996 the available borrowing base (derived from oil and gas reserves) was
increased to $15,000,000. Interest on any borrowings outstanding is at the
bank's prime rate and is paid monthly. The line of credit matures in August
1997. There are no restrictions associated with advances under the line. An
annual facility fee of one-half of one percent is charged quarterly for any
unused portion of the credit line. The agreement is collateralized by oil and
gas properties and also contains certain net worth and ratio requirements. No
amounts were outstanding under the line of credit at June 30, 1996, March 31,
1996 and 1995.
3. DESIGNATED CASH AND RELATED PRODUCTION TAXES PAYABLE
Designed cash represents the cash withheld for payment of production taxes
from third party revenue interest owners. The non-current portion of production
taxes payable relates to ad valorem taxes collected for production through
March, 1996 which is not payable until fiscal 1997 or later. The related cash
collected from third party revenue interest owners designated for payment of
non-current ad valorem taxes is reflected as a non-current asset.
4. INCOME TAXES
Due primarily to the availability of net operating loss carryovers, the
Company had no significant taxable income during the years ended March 31, 1996,
1995 and 1994.
F-15
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995)
4. INCOME TAXES (CONTINUED)
A reconciliation of the effective tax rates and the statutory U.S. federal
income tax rates is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, YEAR ENDED MARCH 31,
---------------------- ----------------------------------
1996 1995 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Percent of pre-tax income tax at
U.S. federal statutory rates (34.0)% (34.0)% (34.0)% (34.0)% 34.0%
State income taxes, net of
federal tax benefit (3.3) (3.3) (3.3) (3.3) 3.3
Expenses not deductible for taxes -- -- -- 2.2 1.8
Increase in deferred tax asset
valuation allowance 37.3 37.3 37.3 35.1 (39.1)
----- ----- ----- ----- -----
Effective tax rate --% --% --% --% --%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
The components of the net deferred income tax in the accompanying balance
sheets are as follows:
<TABLE>
<CAPTION>
MARCH 31,
JUNE 30, ------------------------
1996 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets $ 2,354,000 $ 2,064,000 $ 1,224,000
Valuation allowance $(2,354,000) (2,064,000) (1,224,000)
----------- ----------- -----------
Net deferred tax asset $ -- $ -- $ --
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The Company recorded a valuation allowance at June 30, 1996 and March 31,
1996 and 1995 equal to the excess of deferred tax assets over deferred tax
liabilities as they are unable to determine that these tax benefits are more
likely than not to be realized.
The components of the net deferred tax assets and liabilities are shown
below:
<TABLE>
<CAPTION>
MARCH 31,
JUNE 30, ------------------------
1996 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net operating loss carryforward $ 4,903,000 $ 4,551,000 $ 3,680,000
Revenues and other 151,000 201,000 9,000
----------- ----------- -----------
Total gross deferred tax assets 5,054,000 4,752,000 3,689,000
Valuation allowance (2,354,000) (2,064,000) (1,224,000)
----------- ----------- -----------
Net deferred tax asset 2,700,000 2,688,000 2,465,000
Deferred tax liability--
depreciation, depletion and
amortization (2,700,000) (2,688,000) (2,465,000)
----------- ----------- -----------
Net deferred taxes $ -- $ -- $ --
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-16
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995)
4. INCOME TAXES (CONTINUED)
As of June 30, 1996, the Company has net operating loss carryforwards for
tax purposes of approximately $12,000,000. Issuances of common stock and common
stock equivalents during 1988 and 1990 limits a portion of this amount to
approximately $330,000 per year (additional amounts would be available to offset
gains on the sale of assets) through 2003. In addition, unused investment tax
credits of $89,000 are available to offset income taxes payable through 2001.
5. REDEEMABLE PREFERRED STOCK
In December 1994, the Company issued $3,750,000 in redeemable preferred
stock. The Company received an additional $3,750,000 in July 1995 by issuing an
additional 3,750,000 shares.
All outstanding shares of the preferred stock plus accrued dividends must be
redeemed by the Company on the tenth anniversary of the original issuance.
Commencing in December 1999, the Company is required to fund an annual mandatory
sinking fund of $1,250,000. The preferred stock is also callable at the
Company's option at a call price equal to par value, plus accrued dividends.
Cumulative annual cash dividends of 8% are payable quarterly. During the
year ended March 31, 1996 and 1995, the Company paid $504,620 and $94,167 in
dividends. The preferred stock is convertible at a price of $8.34 per share into
899,281 shares of the Company's common stock.
During the three months ended June 30, 1996 and 1995 the Company paid
$150,000 and $75,000 in dividends.
6. STOCKHOLDERS' EQUITY
During the year ended March 31, 1996, pursuant to the exercise of certain
stock purchase warrants, 71,250 shares of common stock were issued at $2.50 per
share, in exchange for 30,941 shares of common stock currently issued and
outstanding with a market value of approximately $5.50. In addition, 118,750
shares of common stock were issued under terms of warrants previously granted,
resulting in proceeds to the Company of $303,907. In 1996, the Company issued
common stock valued at $117,390 as a bonus to certain employees. Subsequent to
June 30, 1996, the Company issued common stock as a bonus to certain employees
and 10,000 shares were distributed to the Company's Employee Stock Ownership
Plan.
During the year ended March 31, 1995, 31,250 shares of common stock were
issued under terms of warrants previously granted, yielding proceeds to the
Company of $78,126. Additionally, the Company issued common stock valued at
$168,000 as a bonus to employees and $50,000 as payment in lieu of salary.
In August 1994, the Company issued 501,040 shares of common stock valued at
$1,753,640 in exchange for certain working interest in wells in the San Juan
Basin in a non-cash transaction.
In 1994, the Company issued common stock valued at $125,625 to the Employee
Stock Ownership Plan and issued common stock as a bonus valued at $176,313 to
employees.
F-17
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995)
7. STOCK OPTIONS
Under the terms of its Key Employee Equity Plan, options and/or warrants are
granted to key employees at not less than the market price of the Company's
common stock on the date of grant. The presently outstanding warrants expire in
1997 to 2000.
<TABLE>
<CAPTION>
EXERCISE
PRICE PER
WARRANTS SHARE
----------- -----------
<S> <C> <C>
April 1, 1993 468,300 $ 2.50-8.75
Granted 79,000 9.50
Exercised (18,750) 2.50
----------- -----------
March 31, 1994 528,550 2.50-9.50
Exercised (31,250) 2.50
----------- -----------
March 31, 1995 497,300 2.50-9.50
Granted 20,000 4.25
Exercised (190,000) 2.50
----------- -----------
March 31, 1996 327,300 $3.625-9.50
----------- -----------
----------- -----------
</TABLE>
There were no warrants granted or exercised during the three months ended
June 30, 1996. Subsequent to June 30, 1996, the Company granted 10,000 warrants
to an employee at the market price on the date of grant. The warrants expire in
July 2001.
8. MAJOR CUSTOMERS
During the three months ended June 30, 1996 and 1995 and the years ended
March 31, 1996, 1995 and 1994, the Company made sales to unrelated entities
which individually comprised greater than 10% of total oil and gas sales. The
following is a table summarizing the percentage provided by each customer:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, A B C D E
- ---------------------------------------------------- --- --- --- --- ---
<S> <C> <C> <C> <C> <C>
1996 41% 11% 25% --% --%
1995 35 10 -- -- --
1994 18 14 -- 16 --
Three months ended June 30,
1996 19 -- -- -- 68
1995 47 14 12 -- --
</TABLE>
9. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the years ended March 31, 1996, 1995 and 1994, for interest
was approximately $37,000, $22,000 and $4,000. Cash paid during the three months
ended June 30, 1996 and 1995, for interest was approximately $9,000 and $9,000.
During the year ended March 31, 1995, approximately $1,978,000 of common stock
was issued for services and acquisition of well interests. Also in 1995, the
Company assumed approximately $267,000 in liabilities for the acquisition of
certain equipment. See Notes 6 and 10 for additional noncash transactions.
F-18
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995)
10. COMMITMENTS
The Company leases its primary office space for approximately $12,800 a
month under a lease expiring in March 1998. The Company has the option to cancel
the lease at anytime subsequent to March 31, 1996. Rental expense, net of
sublease income, for all facilities was approximately $32,000, $37,000,
$143,000, $177,000 and $178,000 for the three months ended June 30, 1996 and
1995 and the years ended March 31, 1996, 1995 and 1994.
The Company had leased additional office space from an affiliated entity
under a month-to-month operating lease which was cancelled during fiscal 1996.
Rent expense was approximately $2,300 and $28,000 for this facility in 1996 and
1995.
The Company has an Employee Stock Ownership Plan (ESOP), with contributions
to the ESOP determined at the discretion of the Company. For the years ended
March 31, 1996, 1995 and 1994, the Company contributed $20,000, $0 and $125,625
to the plan. No contributions were made during the periods ended June 30, 1996
and 1995.
Under the terms of certain gas gathering and tie-in agreements, EOC is
committed to meeting certain minimum volume levels during the term of the
agreement. Through June 30, 1996 and March 31, 1996, volume levels have been
below the required minimums and EOC has accrued approximately $1,831,000 and
$1,631,000 for this shortfall, which is included with long-term liabilities.
Such amount is refundable if future volumes exceed the minimums and EOC is
currently having discussions with the owner of the system concerning obtaining
additional volumes or other possible alternatives which includes the purchase of
a portion of the system.
11. OTHER INCOME
Other income consisted of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, YEAR ENDED MARCH 31,
-------------------- -------------------------------
1996 1995 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Gain on sales of subsidiaries/assets $ -- $ -- $ 525,287 $ 330,856 $ --
Lawsuit settlement -- -- -- -- 561,050
Other 10,028 15,210 30,934 129,092 233,328
--------- --------- --------- --------- ---------
$ 10,028 $ 15,210 $ 556,221 $ 459,948 $ 794,378
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
In September 1995, the Company sold its interest in ANGI Limited for
$580,000 which resulted in a gain of approximately $525,000.
The income related to a lawsuit settlement for the year ended March 31,
1994, resulted from the allocated settlement of a dispute regarding previous
gathering fees.
In December 1994, the Company sold certain assets and its 100% interest in a
former subsidiary which had been acquired in March 1993. Prior to the
consummation of the sale, oil and gas properties with a cost of approximately
$300,000 were transferred by the Company into the subsidiary. The sales price
was $1,000,000 cash and a gain of approximately $331,000 was recognized from the
transaction. Included in the group acquiring these properties and JCI, was an
affiliate of the Company, which represented approximately 39% of the group.
F-19
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995)
12. RELATED PARTIES
EOC provides well services to an affiliated entity for which it receives
fees pursuant to written operating agreements. For the three months ended June
30, 1996 and 1995 and the year ended March 31, 1996 and 1995, such fees totalled
approximately $126,000, $96,000, $450,000 and $316,000. Additionally, EOC
provides non-operating services to affiliates, as requested by them for
engineering, evaluation, acquisition and similar services for which EOC was
compensated approximately $0, $19,000, $24,000 and $229,000 during the three
months ended June 30, 1996 and 1995 and the years ended March 31, 1996 and 1995.
As of June 30, 1996 and March 31, 1996 and 1995, approximately $41,000, $40,000
and $103,000 was payable to EOC from the affiliates for fees and other services.
13. SECTION 29 TAX CREDITS
Effective June 1, 1996, the Company sold, pending a favorable IRS ruling,
its working interests in six producing wells in the San Juan Basin. The wells
qualify for the Section 29 tax credit.
The Company will receive $53,000 cash and a volumetric production payment
under which the Company will receive 99% of the cash flow from the wells until
approximately 1.1 billion cubic feet of gas have been produced and sold net to
the well interests.
In addition to the production payment, Evergreen will receive monthly
payments based on production from the wells through 2002.
If no favorable IRS ruling is obtained by November 30, 1996, the transaction
is subject to cancellation at the option of the purchaser.
14. PUBLIC OFFERING
The Company has entered into a letter of intent with an underwriter for a
proposed public offering of 2,000,000 shares of common stock.
F-20
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995)
15. SUPPLEMENTAL INFORMATION OF OIL AND GAS PRODUCING ACTIVITIES
The Company's oil and gas activities are conducted in the United States and
the United Kingdom. The following costs were incurred in oil and gas
acquisition, exploration, development and producing activities at March 31:
<TABLE>
<CAPTION>
UNITED UNITED
STATES KINGDOM TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
1996
Acquisition costs:
Proved $ -- $ -- $ --
Unproved -- -- --
Exploration 155,000 -- 155,000
Development 3,476,707 516,659 3,993,366
1995
Acquisition costs:
Proved $1,753,640 $ -- $1,753,640
Unproved -- -- --
Exploration 317,890 -- 317,890
Development 1,565,690 1,841,964 3,407,654
1994
Acquisition costs:
Proved $ -- $ -- $ --
Unproved -- -- --
Exploration 4,176,809 -- 4,176,809
Development 233,145 1,770,908 2,004,053
</TABLE>
F-21
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995)
15. SUPPLEMENTAL INFORMATION OF OIL AND GAS PRODUCING ACTIVITIES (CONTINUED)
Aggregate capitalized costs and related accumulated depreciation, depletion
and amortization relating to oil and gas producing activities at March 31 are as
follows:
<TABLE>
<CAPTION>
UNITED UNITED
STATES KINGDOM TOTAL
------------- ---------- -------------
<S> <C> <C> <C>
1996
Proved properties $ 36,378,828 $ -- $ 36,378,828
Unproved properties 896,301 6,896,438 7,792,739
------------- ---------- -------------
37,275,129 6,896,438 44,171,567
Accumulated depletion,
depreciation and amortization (11,169,882) -- (11,169,882)
------------- ---------- -------------
Net capitalized costs $ 26,105,247 $6,896,438 $ 33,001,685
------------- ---------- -------------
------------- ---------- -------------
1995
Proved properties $ 33,442,534 $ -- $ 33,442,534
Unproved properties 1,127,475 7,009,044 8,136,519
------------- ---------- -------------
34,570,009 7,009,044 41,579,053
Accumulated depletion,
depreciation and amortization (10,776,960) -- (10,776,960)
------------- ---------- -------------
Net capitalized costs $ 23,793,049 $7,009,044 $ 30,802,093
------------- ---------- -------------
------------- ---------- -------------
</TABLE>
Costs of oil and gas properties excluded from the amortization base, at
March 31, are as follows:
<TABLE>
<CAPTION>
UNITED UNITED
STATES KINGDOM TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
1996
Leasehold costs $ 896,301 $2,232,588 $3,128,889
Development costs -- 4,663,850 4,663,850
---------- ---------- ----------
$ 896,301 $6,896,438 $7,792,739
---------- ---------- ----------
---------- ---------- ----------
1995
Leasehold costs $1,127,475 $2,225,064 $3,352,539
Development costs -- 4,783,980 4,783,980
---------- ---------- ----------
$1,127,475 $7,009,044 $8,136,519
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Depreciation and depletion per equivalent MCF was $.39, $.51 and $.51 for
the years ended March 31, 1996, 1995 and 1994.
Results of operations from United States production activities for 1996,
1995 and 1994 are presented below in accordance with Financial Accounting
Standards No. 69, "Disclosures About Oil and
F-22
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995)
15. SUPPLEMENTAL INFORMATION OF OIL AND GAS PRODUCING ACTIVITIES (CONTINUED)
Gas Activities," which excludes consideration of general and administrative, and
interest expense. There was no production activity in the United Kingdom.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1996 1995 1994
- --------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Oil and gas sales $1,392,695 $1,916,262 $2,207,102
---------- ---------- ----------
Cost of production and operations 875,543 1,231,669 1,259,478
Depreciation and depletion 393,581 510,538 503,222
---------- ---------- ----------
1,269,124 1,742,207 1,762,700
---------- ---------- ----------
Results of operations from producing
activities (excluding corporate
overhead and interest costs) $ 123,571 $ 174,055 $ 444,402
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
OIL AND GAS RESERVE INFORMATION (UNAUDITED)
The estimates of the Company's proved reserves and related future net cash
flows that are presented in the following tables are based upon estimates made
by independent petroleum engineering consultants for the United States only. The
Company is in the process of developing properties in the United Kingdom and is
unable to prepare reserve information in this area. The Company's reserve
information was prepared as of March 31, 1996, 1995 and 1994. The Company
cautions that there are many inherent uncertainties in estimating proved reserve
quantities, projecting future production rates, and timing of development
expenditures. Accordingly, these estimates are likely to change as future
information becomes available.
Proved oil and gas reserves are the estimated quantities of crude oil,
condensate, natural gas and natural gas liquids which geological and engineering
data demonstrate with reasonable certainty to be recoverable in future years
from known reservoirs under existing economic and operating conditions.
Proved developed reserves are those reserves expected to be recovered
through existing wells, with existing equipment and operating methods.
F-23
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995)
OIL AND GAS RESERVE INFORMATION (UNAUDITED) (CONTINUED)
Estimated quantities of proved reserves and proved developed reserves of
crude oil and natural gas (all of which are located within the United States),
as well as the changes in proved reserves, are as follows:
<TABLE>
<CAPTION>
OIL AND
NATURAL GAS
LIQUIDS NATURAL GAS
PROVED RESERVES (BBLS) (MCF)
- ------------------------------------------------ ------------ ------------
<S> <C> <C>
At April 1, 1993 2,457,900 36,663,100
Revisions of previous estimates (746,300) (9,275,000)
Extensions and discoveries -- 24,903,900
Sales of reserves (11,000) (66,000)
Production (57,500) (637,900)
------------ ------------
At March 31, 1994 1,643,100 51,588,100
Revisions of previous estimates (609,300) (12,474,600)
Extensions and discoveries -- 18,441,300
Sales of reserves (154,300) (3,891,100)
Purchases of reserves -- 5,000,000
Production (36,600) (781,700)
------------ ------------
At March 31, 1995 842,900 57,882,000
Revisions of previous estimates -- (3,482,000)
Extensions and discoveries -- 31,163,500
Sales of reserves (828,400) (3,696,300)
Production (9,700) (941,200)
------------ ------------
At March 31, 1996 4,800 80,926,000
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
OIL AND
NATURAL GAS
LIQUIDS NATURAL GAS
PROVED DEVELOPED RESERVES (BBLS) (MCF)
- ------------------------------------------------ ------------- ------------
<S> <C> <C>
March 31, 1994 349,600 23,721,000
March 31, 1995 289,800 18,007,300
March 31, 1996 4,800 41,359,700
</TABLE>
The following table sets forth a standardized measure of the estimated
discounted future net cash flows attributable to the Company's proved oil and
gas reserves. Estimated future cash inflows were computed by applying year-end
prices of oil and gas to the estimated future production of proved oil and gas
reserves at March 31, 1996, 1995 and 1994. The future production and development
costs represent the estimated future expenditures to be incurred in developing
and producing the proved reserves, assuming continuation of existing economic
conditions. Future income tax expense was computed by applying statutory income
tax rates to the difference between pretax net cash flows relating to the
Company's proved oil and gas reserves and the tax basis of proved oil and gas
properties and available
F-24
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995)
OIL AND GAS RESERVE INFORMATION (UNAUDITED) (CONTINUED)
operating loss and excess statutory depletion carryovers, reduced by investment
tax and Section 29 credits.
In 1995, the Company determined that the likelihood of paying income tax in
the future was minimal due to net operating losses and future drilling plans. As
such, the effects of income taxes were excluded from this calculation.
In 1996, future income taxes were included in the standardized measure of
the future net cash flows due to the monetization of the Section 29 tax credits
and the increase in future cash inflows which are the result of additional
reserves.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1996 1995 1994
- ------------------------------------------------- ------------- ------------ -------------
<S> <C> <C> <C>
Future cash inflows $ 121,049,400 $ 86,666,340 $ 113,077,100
Future cash outflows:
Production costs (30,640,700) (20,671,010) (23,959,500)
Development costs (7,389,400) (9,460,563) (11,479,300)
------------- ------------ -------------
Future net cash flows before future income
taxes 83,019,300 56,534,767 77,638,300
Future income taxes (13,789,400) -- (16,117,900)
------------- ------------ -------------
Future net cash flows 69,229,900 56,534,767 61,520,400
Effect of discounting future annual net cash
flows at 10% (44,076,600) (33,222,437) (35,811,500)
------------- ------------ -------------
Standardized measure of discounted future net
cash flows $ 25,153,300 $ 23,312,330 $ 25,708,900
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
The following summarizes the principal factors comprising the changes in the
standardized measure of discounted future net cash flows for the years ended
March 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1996 1995 1994
- --------------------------------------------------- ----------- ----------- ------------
<S> <C> <C> <C>
Standardized measure, beginning of period $23,312,300 $25,708,900 $ 29,403,300
Sales of oil and gas, net of production costs (517,100) (684,600) (947,600)
Extensions and discoveries 10,500,400 6,110,500 11,419,300
Net change in sales prices, net of production costs 2,866,900 (9,124,600) (2,921,300)
Purchase of reserves -- 2,073,700 --
Sale of reserves (5,542,300) (2,901,100) (75,900)
Revisions of quantity estimates (1,567,000) (9,536,000) (12,854,000)
Accretion of discount 1,664,300 3,244,400 3,510,300
Net change in income taxes (5,010,100) 6,735,500 (1,034,800)
Changes in future development costs 2,293,900 3,628,100 --
Changes in rates of production and other (2,848,000) (1,942,500) (790,400)
----------- ----------- ------------
Standardized measure, end of period $25,153,300 $23,312,300 $ 25,708,900
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
F-25
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALES PERSON REPRESENTATIVE, 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 REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES BY, ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE HEREOF.
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
- -----------------------------------------------------
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 8
Capitalization............................ 13
Dilution.................................. 14
Use Of Proceeds........................... 15
Price Range Of Common Stock............... 16
Dividend Policy........................... 16
Selected Consolidated Financial Data...... 17
Management's Discussion and Analysis of
Financial Condition And Results Of
Operations.............................. 18
Business And Properties................... 24
Management................................ 35
Compensation Of Executive Officers And
Directors............................... 37
Certain Transactions...................... 38
Beneficial Owners Of Securities........... 39
Description Of Capital Stock.............. 41
Underwriting.............................. 43
Certain Definitions....................... 44
Legal Matters............................. 45
Experts................................... 45
Available Information..................... 45
Incorporation Of Certain Documents By
Reference............................... 46
Index to Financial Statements............. F-1
</TABLE>
2,000,000 SHARES
[LOGO]
COMMON STOCK
---------------
PROSPECTUS
------------------------
Paulson Investment Company, Inc.
Capital West Securities, Inc.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Registration Fee--Securities and Exchange Commission.......... $ 5,105.60
Filing Fee--NASD.............................................. 1,981.00
Blue Sky Fees................................................. 5,000.00*
Printing...................................................... 50,000.00*
Legal Fees.................................................... 30,000.00*
Accounting Fees............................................... 25,000.00*
Due Diligence and Travel...................................... 40,000.00*
Miscellaneous................................................. 42,913.40*
-----------
Total....................................................... $ 200,000
-----------
-----------
</TABLE>
- ------------------------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The only charter provision, bylaw, contract, arrangement or statute under
which any Director or Officer of the Registrant is insured or indemnified in any
manner against any liability which he may incur in his capacity as such, is as
follows:
(a) Section 7-109-102, 103, 104, 105, 106, 107, 108, 109 and 110 of the
Colorado Business Corporation Act provides that each corporation shall have the
following powers:
"7-109-102. Authority to Indemnify directors
(1) Except as provided in subsection (4) of this section, a corporation
may indemnify a person made a party to a proceeding because the
person is or was a director against liability incurred in the
proceeding if:
(a) The person conducted himself or herself in good faith; and
(b) The person reasonably believed:
(I) In the case of conduct in an official capacity with the
corporation, that his or her conduct was in the
corporation's best interests; and
(II) In all other cases, that his or her conduct was at
least not opposed to the corporation's best interests;
and
(c) In the case of any criminal proceeding, the person had no
reasonable cause to believe his or her conduct was unlawful.
(2) A director's conduct with respect to an employee benefit plan for a
purpose the director reasonably believed to be in the interests of
the participants in or beneficiaries of the plan is conduct that
satisfies the requirement of subparagraph (II) of paragraph (b) of
subsection (1) of this section. A director's conduct with respect to
an employee benefit plan for a purpose that the director did not
reasonably believe to be in the interests of the participants in or
beneficiaries of the plan shall be deemed not to satisfy the
requirements of paragraph (a) of subsection (1) of this section.
(3) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is
not, of itself, determinative that the director did not meet the
standard of conduct described in this section.
II-1
<PAGE>
(4) A corporation may not indemnify a director under this section:
(a) In connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the
corporation; or
(b) In connection with any other proceeding charging that the
director derived an improper personal benefit, whether or not
involving action in an official capacity, in which proceeding the
director was adjudged liable on the basis that he or she derived
an improper personal benefit.
(5) Indemnification permitted under this section in connection with a
proceeding by or in the right of the corporation is limited to
reasonable expenses incurred in connection with the proceeding.
"7-109-103. Mandatory indemnification of directors
Unless limited by its articles of incorporation, a corporation shall
indemnify a person who was wholly successful, on the merits or otherwise, in
the defense of any proceeding to which the person was a party because the
person is or was a director, against reasonable expenses incurred by him or
her in connection with the proceeding.
"7-109-104. Advance of expenses to directors
(1) A corporation may pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding in advance of
final disposition of the proceeding if:
(a) The director furnishes to the corporation a written affirmation
of the director's good faith belief that he or she has met the
standard of conduct described in section 7-109-102;
(b) The director furnishes to the corporation a written undertaking,
executed personally or on the director's behalf, to repay the
advance if it is ultimately determined that he or she did not
meet the standard of conduct; and
(c) A determination is made that the facts then known to those making
the determination would not preclude indemnification under this
article.
(2) The undertaking required by paragraph (b) of subsection (1) of this
section shall be an unlimited general obligation of the director but
need not be secured and may be accepted without reference to
financial ability to make repayment.
(3) Determinations and authorizations of payments under this section
shall be made in the manner specified in section 7-109-106.
"7-109-105. Court-ordered indemnification of directors
(1) Unless otherwise provided in the articles of incorporation, a
director who is or was a party to a proceeding may apply for
indemnification to the court conducting the proceeding or to another
court of competent jurisdiction. On receipt of an application, the
court, after giving any notice the court considers necessary, may
order indemnification in the following manner:
(a) If it determines that the director is entitled to mandatory
indemnification under section 7-109-103, the court shall order
indemnification, in which case the court shall also order the
corporation to pay the director's reasonable expenses incurred to
obtain court-ordered indemnification.
(b) If it determines that the director is fairly and reasonably
entitled to indemnification in view of all the relevant
circumstances, whether or not the director met the standard of
conduct set forth in section 7-109-102(1) or was adjudged liable
in the circumstances described in section 7-109-102(4), the court
may order such indemnification as the court deems proper; except
that the indemnification with respect to any proceeding in
II-2
<PAGE>
which liability shall have been adjudged in the circumstances
described in section 7-109-102(4) is limited to reasonable
expenses incurred in connection with the proceeding and
reasonable expenses incurred to obtain court-ordered
indemnification.
"7-109-106. Determination and authorization of indemnification of directors
(1) A corporation may not indemnify a director under section 7-109-102
unless authorized in the specific case after a determination has been
made that indemnification of the director is permissible in the
circumstances because the director has met the standard of conduct
set forth in section 7-109-102. A corporation shall not advance
expenses to a director under section 7-109-104 unless authorized in
the specific case after the written affirmation and undertaking
required by section 7-109-104(1)(a) and (1)(b) are received and the
determination required by section 7-109-104(1)(c) has been made.
(2) The determinations required by subsection (1) of this section shall
be made:
(a) By the board of directors by a majority vote of those present at
a meeting at which a quorum is present, and only those directors
not parties to the proceeding shall be counted in satisfying the
quorum; or
(b) If a quorum cannot be obtained, by a majority vote of a committee
of the board of directors designated by the board of directors,
which committee shall consist of two or more directors not
parties to the proceeding; except that directors who are parties
to the proceeding may participate in the designation of directors
for the committee.
(3) If a quorum cannot be obtained as contemplated in paragraph (a) of
subsection (2) of this section, and a committee cannot be established
under paragraph (b) of subsection (2) of this section, or, even if a
quorum is obtained or a committee is designated, if a majority of the
directors constituting such quorum or such committee so directs, the
determination required to be made by subsection (1) of this section
shall be made:
(a) By independent legal counsel selected by a vote of the board of
directors or the committee in the manner specified in paragraph
(a) or (b) of subsection (2) of this section or, if a quorum of
the full board cannot be obtained and a committee cannot be
established, by independent legal counsel selected by a majority
vote of the full board of directors; or
(b) By the shareholders.
(4) Authorization of indemnification and advance of expenses shall be
made in the same manner as the determination that indemnification or
advance of expenses is permissible; except that, if the determination
that indemnification or advance of expenses is permissible is made by
independent legal counsel, authorization of indemnification and
advance of expenses shall be made by the body that selected such
counsel.
"7-109-107. Indemnification of officers, employees, fiduciaries, and agents
(1) Unless otherwise provided in the articles of incorporation:
(a) An officer is entitled to mandatory indemnification under section
7-109-103, and is entitled to apply for court-ordered
indemnification under section 7-109-105, in each case to the same
extent as a director;
(b) A corporation may indemnify and advance expenses to an officer,
employee, fiduciary, or agent of the corporation to the same
extent as to a director; and
(c) A corporation may also indemnify and advance expenses to an
officer, employee, fiduciary, or agent who is not a director to a
greater extent, if not inconsistent with
II-3
<PAGE>
public policy, and if provided for by its bylaws, general or
specific action of its board of directors or shareholders, or
contract.
"7-109-108. Insurance
A corporation may purchase and maintain insurance on behalf of a person
who is or was a director, officer, employee, fiduciary, or agent of the
corporation, or who, while a director, officer, employee, fiduciary, or
agent of the corporation, is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee, fiduciary,
or agent of another domestic or foreign corporation or other person or of an
employee benefit plan, against liability asserted against or incurred by the
person in that capacity or arising from his or her status as a director,
officer, employee, fiduciary, or agent, whether or not the corporation would
have power to indemnify the person against the same liability under section
7-109-102, 7-109-103, or 7-109-107. Any such insurance may be procured from
any insurance company designated by the board of directors, whether such
insurance company is formed under the laws of this state or any other
jurisdiction of the United States or elsewhere, including any insurance
company in which the corporation has an equity or any other interest through
stock ownership or otherwise.
"7-109-109. Limitation of indemnification of directors
(1) A provision treating a corporation's indemnification of, or advance
of expenses to, directors that is contained in its articles of
incorporation or bylaws, in a resolution of its shareholders or board
of directors, or in a contract, except an insurance policy, or
otherwise, is valid only to the extent the provision is not
inconsistent with sections 7-109-101 to 7-109-108. If the articles of
incorporation limit indemnification or advance of expenses,
indemnification and advance of expenses are valid only to the extent
not inconsistent with the articles of incorporation.
(2) Sections 7-109-101 to 7-109-108 do not limit a corporation's power to
pay or reimburse expenses incurred by a director in connection with
an appearance as a witness in a proceeding at a time when he or she
has not been made a named defendant or respondent in the proceeding.
"7-109-110. Notice to shareholders of indemnification of director
If a corporation indemnifies or advances expenses to a director under
this article in connection with a proceeding by or in the right of the
corporation, the corporation shall give written notice of the
indemnification or advance to the shareholders with or before the notice of
the next shareholders' meeting. If the next shareholder action is taken
without a meeting at the instigation of the board of directors, such notice
shall be given to the shareholders at or before the time the first
shareholders signs a writing consenting to such action.
(b) Articles VII and XIII of Registrant's Articles of Incorporation
provide as follows:
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OTHERS
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
(other than an action by or in the right of the corporation), by reason of the
fact that he is or was a director, officer, employee, or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit, or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduce was unlawful. The
termination of any action, suit, or proceeding by judgment, order, settlement,
or conviction or upon a plea of NOLO CONTENDERE or its
II-4
<PAGE>
equivalent shall not of itself create a presumption that the person did not act
in good faith and in a manner which he reasonably believed to be in the best
interests of the corporation and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee, or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation; but no indemnification shall be made in respect of any claim,
issue, or matter as to which such person shall have been adjudged to be liable
for negligence or misconduct in the performance of his duty to the corporation
unless and only to the extent that the court in which such action or suit was
brought determines upon application that, despite the adjudication of liability,
but in view of all circumstances of the case, such person is fairly and
reasonably entitled to indemnification for such expenses which such court deems
proper.
To the extent that a director, officer, employee, or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit, or proceeding referred to in this article or in defense of any
claim, issue, or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
Any indemnification under paragraph 1 or 2 of this article (unless ordered
by a court) shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee, or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in said paragraphs 1 or 2 of this
article. Such determination shall be made by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or, if such a quorum is not obtainable or even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or by the shareholders.
Expenses (including attorneys' fees) incurred in defending a civil or
criminal action, suit, or proceeding may be paid by the corporation in advance
of the final disposition of such action, suit, or proceeding as authorized in
paragraph 4 of this article upon receipt of an undertaking by or on behalf of
the director, officer, employee, or agent to repay such amount unless it shall
ultimately as authorized in this article.
The indemnification provided by this article shall not be deemed exclusive
of any other rights to which those indemnified may be entitled under the
Articles of Incorporation, any bylaw, agreement, vote of shareholders or
disinterested directors, or otherwise, and any procedure provided for by any of
the foregoing, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee, or agent and shall inure to
the benefit of heirs, executors, and administrators of such a person.
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee, or agent of the corporation or who
is or was serving at the request of the corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust, or
other enterprise against any liability asserted against him and incurred by him
in any such capacity or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provision of this article.
A unanimous vote of each class of shares entitled to vote shall be required
to amend this article.
II-5
<PAGE>
ARTICLE XIII
LIMITATION OF LIABILITY OF DIRECTORS
TO CORPORATIONS AND SHAREHOLDERS
No director shall be liable to the Corporation or any shareholder for
monetary damages for breach of fiduciary duty as a director, except for any
matter in respect of which such director (a) shall be liable under C.R.S.
Section 7-5-114 or any amendment thereto or successor provision thereto; (b)
shall have breached the director's duty of loyalty to the Corporation or its
shareholders; (c) shall have not acted in good faith; (d) shall have acted or
failed to act in a manner involving intentional misconduct or a knowing
violation of law; or (e) shall have derived an improper personal benefit.
Neither the amendment nor repeal of this Article, nor the adoption of any
provision in the Articles of Incorporation inconsistent with this Article, shall
eliminate or reduce the effect of this Article in respect of any matter
occurring prior to such amendment, repeal or adoption of any inconsistent
provision. This Article shall apply to the full extent now permitted by Colorado
law or as may be permitted in the future by changes or enactments in Colorado
law, including without limitation C.R.S. Section 7-2-102 and/or C.R.S. Section
7-3-101.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following Exhibits, Financial Statements and Financial Statement
Schedules are filed as part of this Registration Statement:
(a) Exhibits.
<TABLE>
<C> <S>
1.1 Proposed Form of Underwriting Agreement.
1.2 Form of Representatives' Warrants
4.1 Articles of Incorporation (filed as Exhibit 3.1 of the Registrant's
Registration Statement on Form S-1 (No. 33-273035)).
4.2 Articles of Incorporation as amended, (incorporated herein by reference to
Exhibit I of Registrant's Report on Form 8-K dated December 9, 1994).
4.3 Bylaws (filed as Exhibit 3.2 to the Registrant's Registration Statement on
Form S-1 (No. 33-273035)).
5. Opinion of John B. Wills, Attorney at Law, regarding the legality of shares
being sold.
10.1 Office Lease dated April 1, 1989 (filed as Exhibit 10.1 to the Registrant's
Registration Statement on Form S-2 (No. 33-37267)).
10.5 Hibernia Bank Credit Agreement (filed as Exhibit 10.1 to the Registrant's
Registration Statement on Form S-2 (No. 33-37267)).
10.7 U.K. Licenses. (filed as an exhibit to the Registrant's Registration
Statement on Form S-2 (No. 33-44885)).
10.8 Agreement and Plan of Merger dated August 14, 1996 by and among Power-
bridge, Inc., Evergreen Resources, Inc. and Evergreen Raton Properties,
Inc. (Filed as Exhibits 1, 2 and 3 to the Registrant's Form 8-K dated
August 21, 1996.)
10.9 Agreement for Acquisition of Limited Partnership Interests between
Evergreen Resources, Inc. and both Energy Investors Fund LP and Energy
Investors Fund II, LP dated August 14, 1996. (Filed as Exhibits 1, 2 and 3
to the Registrant's Form 8-K dated August 21, 1996.)
10.11 Amended Hibernia Bank Credit Agreement
10.12 Agreement between the Registrant and Coastal Interstate Gas Company.
10.13 Agreement between Registrant and Colorado Interstate Gas Company
23.1 Consent of John B. Wills, Attorney at Law, counsel to the Registrant.
</TABLE>
II-6
<PAGE>
<TABLE>
<C> <S>
23.2 Consent of BDO Seidman, LLP, Independent Certified Public Accountants.
23.3 Consent of Deloitte & Touche LLP, Independent Auditors.
23.4 Consent of Resource Services International, Inc., Independent Engineers.
99.1 Reserve Report by Resource Services International, Inc. (filed as an
exhibit to the Registrant's Form 10-K dated March 31, 1996).
99.2 August 14, 1996 Reserve Report prepared by Resources Services
International, Inc. (Filed as Exhibits 1, 2 and 3 to the Registrant's Form
8-K dated August 21, 1996.)
</TABLE>
(b) Financial Statements and Schedules.
(i) The Financial Statements included in the Prospectus are listed on
page F-1 hereof.
ITEM 17. UNDERTAKINGS.
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 foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification 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 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.
The undersigned Registrant hereby undertakes:
(1) For purpose of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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.
(3) 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.
(4) 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.
(5) The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required
by the Underwriter to permit prompt delivery to each purchaser.
II-7
<PAGE>
SIGNATURES
Pursuant to 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 for filing on Form S2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Denver, State of Colorado on September 10, 1996.
EVERGREEN RESOURCES, INC.
By: /s/ MARK S. SEXTON
-----------------------------------------
Mark S. Sexton, President and CEO
By: /s/ KEVIN R. COLLINS
-----------------------------------------
Kevin R. Collins, Vice President,
Treasurer and Principal Financial
Officer, Principal Accounting Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ ALAIN BLANCHARD
- ------------------------------ Director September 10, 1996
Alain Blanchard
/s/ DENNIS R. CARLTON
- ------------------------------ Director September 10, 1996
Dennis R. Carlton
/s/ LARRY D. ESTRIDGE
- ------------------------------ Director September 10, 1996
Larry D. Estridge
/s/ JOHN J. RYAN III
- ------------------------------ Director September 10, 1996
John J. Ryan III
/s/ MARK S. SEXTON
- ------------------------------ Director September 10, 1996
Mark S. Sexton
/s/ SCOTT D. SHEFFIELD
- ------------------------------ Director September 10, 1996
Scott D. Sheffield
/s/ JAMES S. WILLIAMS
- ------------------------------ Director September 10, 1996
James S. Williams
II-8
<PAGE>
EVERGREEN RESOURCES, INC.
FORM S-2 REGISTRATION STATEMENT
EXHIBIT INDEX
The following Exhibits are filed as part of this Registration Statement
pursuant to Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
EXHIBIT NUMBER
IN REGISTRATION SEQUENTIALLY
STATEMENT DESCRIPTION NUMBERED PAGE
- --------------- ------------------------------------------------------------------------------ ---------------------
<C> <S> <C>
1.1 Proposed Form of Underwriting Agreement.
1.2 Form of Representatives' Warrants
4.1 Articles of Incorporation (filed as Exhibit 3.1 of the Registrant's
Registration Statement on Form S-1 (No. 33-273035)).
4.2 Articles of Incorporation as amended, (incorporated herein by reference to
Exhibit I of Registrant's Report on Form 8-K dated December 9, 1994).
4.3 Bylaws (filed as Exhibit 3.2 to the Registrant's Registration Statement on
Form S-1 (No. 33-273035)).
5. Opinion of John B. Wills, Attorney at Law, regarding the legality of shares
being sold.
10.1 Office Lease dated April 1, 1989 (filed as Exhibit 10.1 to the Registrant's
Registration Statement on Form S-2 (No. 33-37267)).
10.5 Hibernia Bank Credit Agreement (filed as Exhibit 10.1 to the Registrant's
Registration Statement on Form S-2 (No. 33-37267)).
10.7 U.K. Licenses. (filed as an exhibit to the Registrant's Registration Statement
on Form S-2 (No. 33-44885)).
10.8 Agreement and Plan of Merger dated August 14, 1996 by and among Powerbridge,
Inc., Evergreen Resources, Inc. and Evergreen Raton Properties, Inc. (Filed as
Exhibits 1, 2 and 3 to the Registrant's Form 8-K dated August 21, 1996.)
10.9 Agreement for Acquisition of Limited Partnership Interests between Evergreen
Resources, Inc. and both Energy Investors Fund LP and Energy Investors Fund
II, LP dated August 14, 1996. (Filed as Exhibits 1, 2 and 3 to the
Registrant's Form 8-K dated August 21, 1996.)
10.11 Amended Hibernia Bank Credit Agreement
10.12 Agreement between the Registrant and Coastal Interstate Gas Company.
10.13 Agreement between Registrant and Colorado Interstate Gas Company
23.1 Consent of John B. Wills, Attorney at Law, counsel to the Registrant.
23.2 Consent of BDO Seidman, LLP, Independent Certified Public Accountants.
</TABLE>
II-9
<PAGE>
<TABLE>
<C> <S> <C>
23.3 Consent of Deloitte & Touche LLP, Independent Auditors.
23.4 Consent of Resource Services International, Inc., Independent Engineers.
99.1 Reserve Report by Resource Services International, Inc. (filed as an exhibit
to the Registrant's Form 10-K dated March 31, 1996).
99.2 August 14, 1996 Reserve Report prepared by Resources Services International,
Inc. (Filed as Exhibits 1, 2 and 3 to the Registrant's Form 8-K dated August
21, 1996.)
</TABLE>
II-10
<PAGE>
2,000,000 SHARES
OF COMMON STOCK OF
EVERGREEN RESOURCES, INC.
UNDERWRITING AGREEMENT
____________, 1996
Paulson Investment Company, Inc.
Capital West Securities, Inc.
As Representatives of the
Several Underwriters
c/o Paulson Investment Company, Inc.
811 SW Front Avenue
Portland, Oregon 97204
Gentlemen:
Evergreen Resources, Inc., a Colorado corporation (the "Company"),
proposes to sell to the several underwriters (the "Underwriters") named in
Schedule I hereto for whom you are acting as Representatives (the
"Representatives") an aggregate of 2,000,000 Shares (the "Firm Shares"). The
respective number of the Firm Shares to be so purchased by the several
Underwriters are set forth opposite their names in Schedule I hereto. The
Company also proposes to grant to the Representatives an option to purchase in
aggregate up to 300,000 additional Shares, identical to the Firm Shares, (the
"Option Shares") as set forth below.
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement for yourself as Representatives and on
behalf of the several Underwriters, and (b) that the several Underwriters are
willing, acting severally and not jointly, to purchase the numbers of Firm
Shares set forth opposite their respective names in Schedule I. The Firm Shares
and the Option Shares (to the extent the aforementioned option is exercised) are
herein collectively called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
-1-
<PAGE>
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Underwriters as follows:
(a) A registration statement on Form SB-2 (File No. 333-- )
with respect to the Shares has been carefully prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended (the
"Act"), and the Rules and Regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder and has been
filed with the Commission. Copies of such registration statement, including any
amendments thereto, the preliminary prospectuses (meeting the requirements of
the Rules and Regulations) contained therein and the exhibits, financial
statements and schedules, as finally amended and revised, have heretofore been
delivered by the Company to you. Such registration statement, together with any
registration statement filed by the Company pursuant to Rule 462 (b) of the Act,
herein referred to as the "Registration Statement," which shall be deemed to
include all information omitted therefrom in reliance upon Rule 430A and
contained in the Prospectus referred to below, has become effective under the
Act and no post-effective amendment to the Registration Statement has been filed
as of the date of this Agreement. "Prospectus" means (a) the form of
prospectus first filed with the Commission pursuant to Rule 424(b) or (b) the
last preliminary prospectus included in the Registration Statement filed prior
to the time it becomes effective or filed pursuant to Rule 424(a) under the Act
that is delivered by the Company to the Underwriters for delivery to purchasers
of the Shares, together with the term sheet or abbreviated term sheet filed with
the Commission pursuant to Rule 424(b)(7) under the Act. Each preliminary
prospectus included in the Registration Statement prior to the time it becomes
effective is herein referred to as a "Preliminary Prospectus."
(b) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Colorado, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. The Company, directly or
indirectly wholly owns or has the specified percentage ownership of each of the
corporations or other business entities set forth in Schedule II, attached
hereto (each a "Subsidiary" and, collectively the "Subsidiaries" and, with the
Company, collectively, the "Group") and does not own and never has owned a
controlling interest in any other corporation or other business entity that has
or ever has had any material assets, liabilities or operations. Each Subsidiary
has been duly organized and is validly existing as a corporation or other entity
in good standing under the laws of its jurisdiction of organization, with power
and authority to own or lease its properties and conduct its business as
described in the Registration Statement. The Company and each Subsidiary is duly
qualified to transact business in all jurisdictions in which the conduct of its
business requires such qualification. .
(c) The outstanding shares of Common Stock of the Company and each
Subsidiary have been duly authorized and validly issued and are fully paid and
non-assessable
-2-
<PAGE>
and have been issued and sold by the Company or such Subsidiary, as the case may
be, in compliance in all material respects with applicable securities laws; the
issuance and sale of the Shares have been duly authorized by all necessary
corporate action and, when issued and paid for as contemplated herein, the
Shares will be validly issued, fully paid and non-assessable; and no preemptive
rights of stockholders exist with respect to any security of the Company or the
issue and sale thereof. Neither the filing of the Registration Statement nor
the offering or sale of the Shares as contemplated by this Agreement gives rise
to any rights, other than those which have been waived or satisfied, for or
relating to the registration of any shares of Common Stock or other securities
of the Company.
(d) The information set forth under the caption "Capitalization" in
the Prospectus is true and correct. The Common Stock conforms to the
description thereof contained in the Registration Statement. The form of
certificates for the Shares conforms to the corporate law of Colorado.
(e) The Commission has not issued an order preventing or suspending
the use of any Prospectus relating to the proposed offering of the Shares nor
instituted proceedings for that purpose. The Registration Statement contains,
and the Prospectus and any amendments or supplements thereto will contain, all
statements which are required to be stated therein by, and will conform, to the
requirements of the Act and the Rules and Regulations. The Registration
Statement and any amendment thereto do not contain, and will not contain, any
untrue statement of a material fact and do not omit, and will not omit, to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus and any amendments and
supplements thereto do not contain, and will not contain, any untrue statement
of material fact; and do not omit, and will not omit, to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that the Company makes no representations or warranties as to
information contained in or omitted from the Registration Statement or the
Prospectus, or any such amendment or supplement, in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf of
any Underwriter through the Representatives, specifically for use in the
preparation thereof.
(f) The consolidated financial statements of the Company and its
consolidated Subsidiaries, together with related notes and schedules as set
forth in the Registration Statement, present fairly the financial position and
the results of operations and cash flows of the Company and such Subsidiaries at
the indicated dates and for the indicated periods. Such financial statements
and related schedules have been prepared in accordance with generally accepted
principles of accounting, consistently applied throughout the periods involved,
except as disclosed herein, and all adjustments necessary for a fair
presentation of results for such periods have been made. The summary
consolidated financial and statistical data of the Company and its Subsidiaries
included in the Registration Statement presents fairly the
-3-
<PAGE>
information shown therein and such data has been compiled on a basis consistent
with the financial statements presented therein and the books and records of the
Company.
(g) BDO Seidman, who have certified certain of the financial
statements filed with the Commission as part of the Registration Statement, are
independent public accountants as required by the Act and the Rules and
Regulations.
(h) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against any member of the Group before any
court or administrative agency or otherwise which if determined adversely to the
Group might result in any material adverse change in the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Group or to prevent the consummation of the
transactions contemplated hereby, except as set forth in the Registration
Statement.
(i) The Group has title that is defendable or customary in the oil
and gas industry to all properties and assets, tangible and intangible,
reflected in the financial statements (or as described in the Registration
Statement) hereinabove described, subject to no lien, mortgage, pledge, charge
or encumbrance of any kind except those reflected in such financial statements
(or as described in the Registration Statement) or which are not material in
amount. All of the leases and subleases under which the Company or any
Subsidiary holds properties are in full force and effect (with only such
exceptions as are commonly accepted by prudent companies in the oil and gas
business) and neither the Company nor any Subsidiary has received notice of any
material claim of any sort that has been asserted by anyone materially adverse
to the rights of the Company or such Subsidiary under any of such leases or
subleases, or affecting or questioning the rights of the Company or such
Subsidiary to the continued possession of the leased or subleased premises or
property under any such lease or sublease.
(j) Each of the Company and its Subsidiaries has filed all Federal,
State, local and foreign income tax returns which have been required to be filed
and have paid all taxes indicated by said returns and all assessments received
by it to the extent that such taxes have become due and are not being contested
in good faith. All tax liabilities have been adequately provided for in the
consolidated financial statements of the Company and its consolidated
Subsidiaries.
(k) Since the respective dates as of which information is given in
the Registration Statement, as it may have been amended or supplemented, there
has not been any material adverse change or any development involving a
prospective material adverse change in or affecting the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise), or prospects of the Group, whether or not occurring in the ordinary
course of business, and there has not been any material transaction entered into
or any material transaction that is probable of being entered into by the Group,
other than transactions
-4-
<PAGE>
in the ordinary course of business and changes and transactions described in the
Registration Statement, as it may be amended or supplemented. The Group has no
material contingent obligations which are not disclosed in the Company's
financial statements or elsewhere in the Prospectus which are included in the
Registration Statement.
(l) Neither the Company nor any Subsidiary is, nor, with the giving
of notice or lapse of time or both, will it be, in violation of or in default
under its Charter or By-Laws or under any agreement, lease, contract, indenture
or other instrument or obligation to which it is a party or by which it, or any
of its properties, is bound and which default is of material significance in
respect of the condition, financial or otherwise of the Group or the business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Group. The execution and delivery of this
Agreement and the consummation of the transactions herein contemplated and the
fulfillment of the terms hereof will not conflict with or result in a breach of
any of the terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust or other agreement or instrument to which any member of
the Group is a party, or of the Charter or by-laws of any member of the Group or
any order, rule or regulation applicable to any member of the Group of any court
or of any regulatory body or administrative agency or other governmental body
having jurisdiction.
(m) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Shares for public offering
by the Underwriters under state securities or Blue Sky laws) has been obtained
or made and is in full force and effect.
(n) The Group holds all material patents, patent rights trademarks,
trade names, copyrights, trade secrets and licenses of any of the foregoing
(collectively, "Intellectual Property Rights") that are necessary to the conduct
of its businesses; there is no claim pending or, to the best knowledge of the
Company, threatened against any member of the Group alleging any infringement of
Intellectual Property Rights, or any violation of the terms of any licence
relating to Intellectual Property Rights, nor does the Company know of any basis
for any such claim. The Company knows of no material infringement by others of
Intellectual Property Rights owned by or licensed to any member of the Group.
The Group has obtained, is in compliance in all material respect with and
maintains in full force and effect all material licenses, certificates, permits,
orders or other, similar authorizations granted or issued by any governmental
agency (collectively "Government Permits") required to conduct its business as
it is presently conducted. In particular, and without limiting the generality of
the foregoing, the Group is in compliance with all conditions, limitations,
restrictions or other provisions of all Government Permits related to the
exploration for, development of, extraction, transportation or sale of
hydrocarbons. All applications for additional Government Permits
-5-
<PAGE>
described in the Prospectus as having been made by the Group have been properly
and effectively made in accordance with the applicable laws and regulations with
respect thereto and such applications constitute, in the best judgment of the
Company's management, those reasonably required to have been made in order to
carry out the Company's business plan as described in the Prospectus. No
proceeding to revoke, limit or otherwise materially change any Government Permit
has been commenced or, to the Company's best knowledge, is threatened against
the Company or any supplier to the Group with respect to materials supplied to
the group, and the Company has no reason to anticipate that any such proceeding
will be commenced against any member of the Group or any such supplier. Except
as disclosed or contemplated in the Prospectus, the Company has no reason to
believe that any pending application for a Government Permit will be denied or
limited in a manner inconsistent with the Company's business plan as described
in the Prospectus.
(o) The Group is in all material respects in compliance with all
applicable Environmental Laws. The Company has no knowledge of any past,
present or, as anticipated by the Company, future events, conditions,
activities, investigation, studies, plans or proposals that (i) would interfere
with or prevent compliance with any Environmental Law by the Group or (ii) could
reasonably be expected to give rise to any common law or other liability, or
otherwise form the basis of a claim, action, suit, proceeding, hearing or
investigation, involving the Group and related in any way to Hazardous
Substances or Environmental Laws. Except for the prudent and safe use and
management of Hazardous Substances in the ordinary course of the Group's
business, (i) no Hazardous Substance is or has been used, treated, stored,
generated, manufactured or otherwise handled on or at any Facility and (ii) to
the Company's best knowledge, no Hazardous Substance has otherwise come to be
located in, on or under any Facility. No Hazardous Substances are stored at any
Facility except in quantities necessary to satisfy the reasonably anticipated
use or consumption by the Group. No litigation, claim, proceeding or
governmental investigation is pending regarding any environmental matter for
which any member of the Group has been served or otherwise notified or, to the
knowledge of the Company threatened or asserted against any member of the Group,
or the officers or directors of any such member in their capacities as such, or
any Facility or the Group's business. There are no orders, judgments or decrees
of any court or of any governmental agency or instrumentality under any
Environmental Law which specifically apply to any member of the Group, any
Facility or any of the Group's operations. No member of the Group has received
from a governmental authority or other person (i) any notice that it is a
potentially responsible person for any Contaminated site or (ii) any request for
information about a site alleged to be Contaminated or regarding the disposal of
Hazardous Substances. There is no litigation or proceeding against any other
person by the Group regarding any environmental matter. The Company has
disclosed in the Prospectus or made available to the Underwriters and their
counsel true, complete and correct copies of any reports, studies,
investigations, audits, analysis, tests or monitoring in the possession of or
initiated by the Company pertaining to any environmental matter relating to the
Company, its past or present operations or any Facility.
-6-
<PAGE>
For the purposes of the foregoing paragraph, "Environmental Laws" means any
applicable federal, state or local statute, regulation, code, rule, ordinance,
order, judgment, decree, injunction or common law pertaining in any way to the
protection of human health or the environment, including without limitation, the
Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act, the Toxic Substances Control Act, the
Clean Air Act, the Federal Water Pollution Control Act and any similar or
comparable state or local law; "Hazardous Substance" means any hazardous,
toxic, radioactive or infectious substance, material or waste as defined, listed
or regulated under any Environmental Law; "Contaminated" means the actual
existence on or under any real property of Hazardous Substances, if the
existence of such Hazardous Substances triggers a requirement to perform any
investigatory, remedial, removal or other response action under any
Environmental Laws or if such response action legally could be required by any
governmental authority; "Facility" means any property currently owned, leased
or occupied by the Company.
(p) Neither the Company, nor to the Company's best knowledge, any of
its affiliates, has taken or intends to take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of the
Shares.
(q) The Company is not an "investment company" within the meaning of
such term under the Investment Company Act of 1940 and the rules and regulations
of the Commission thereunder.
(r) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(s) The Group carries, or is covered by, insurance in such amounts
and covering such risks as is adequate for the conduct of their respective
businesses and the value of their respective properties and as is customary for
companies engaged in similar industries.
(t) Each member of the Group is in compliance in all material
respects with all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for
which the Company would have any liability; the Company has not
-7-
<PAGE>
incurred and does not expect to incur liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "pension plan" or (ii)
Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including
the regulations and published interpretations thereunder (the "Code"); and each
"pension plan" for which the Company would have any liability that is intended
to be qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act, which
would cause the loss of such qualification.
(u) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
AN ACT RELATING TO DISCLOSURE OF DOING BUSINESS WITH CUBA, and the Company
further agrees that if it commences engaging in business with the government of
Cuba or with any person or affiliate located in Cuba after the date the
Registration Statement becomes or has become effective with the Commission or
with the Florida Department of Banking and Finance (the "Department"),
whichever date is later, or if the information reported or incorporated by
reference in the Prospectus, if any, concerning the Company's business with Cuba
or with any person or affiliate located in Cuba changes in any material way, the
Company will provide the Department notice of such business or change, as
appropriate, in a form acceptable to the Department.
(v) Each member of the Group is in material compliance with all laws,
rules, regulations, orders of any court or administrative agency, operating
licenses or other requirements imposed by any governmental body applicable to
it, including, without limitation, all applicable laws, rules, regulations,
licenses or other governmental standards applicable to the oil and gas industry;
and the conduct of the business of the Group, as described in the Prospectus,
will not cause the Company to be in violation of any such requirements.
(w) The Representatives' Warrants (as defined in Paragraph (d) of
Section 2 hereof) have been authorized for issuance to the Representatives and
will, when issued, possess rights, privileges, and characteristics as
represented in the most recent form of Representatives' Warrants filed as an
exhibit to the Registration Statement; the securities to be issued upon exercise
of the Representatives' Warrants, when issued and delivered against payment
therefor in accordance with the terms of the Representatives' Warrants, will be
duly and validly issued, fully paid, nonassessable and free of preemptive
rights, and all corporate action required to be taken for the authorization and
issuance of the Representatives' Warrants, and the securities to be issued upon
their exercise, have been validly and sufficiently taken.
(x) Except as disclosed in the Prospectus, neither the Company nor any
of its officers, directors or affiliates have caused any person, other than the
Underwriters, to be entitled to reimbursement of any kind, including, without
limitation, any compensation that would be includable as underwriter
compensation under the NASD's Corporate Financing Rule with respect to the
offering of the Shares, as a result of the consummation of such offering based
on any activity of such person as a finder, agent, broker, investment adviser or
other financial service provider.
-8-
<PAGE>
(y) The Company has timely filed with the Commission all reports
required to be filed by it during the last three years under the Securities
Exchange Act of 1934, as amended, (the "Exchange Act") and the rules and
regulations thereunder, including, but not limited to, any such reports
incorporated by reference in the Registration Statement. All such reports have
been in proper form and have included all information required to be disclosed
therein. No such report has contained a misstatement of any material fact or
omitted to state any fact necessary to make the statements therein not
materially misleading. During the last three years, the Company has complied in
all material respects with regulations of the NASD applicable to it as a NASDAQ
listed company. The Company has not taken, in anticipation of the offering of
the Shares, directly or indirectly, any action designed to cause or result in,
or that has constituted or might reasonably be expected to constitute, the
stabilization or manipulation of the price of any securities of the Company.
(z) Resource Services International, Inc., which has rendered its
report with respect to the net proved oil and gas reserves and the estimated
future net revenues from proved oil and gas reserves (the "Reserve
Information"), is professionally qualified to issue a report with respect to the
Reserve Information and has no material relationship with the Company or any
Subsidiary; the Reserve Information is fairly presented in a manner consistent
with industry practice with respect to such information; subsequent to the date
of the Reserve Information, and except as disclosed in the Prospectus, there has
been no material adverse change in the net proved oil and gas reserves and the
estimated future net revenues from proved oil and gas reserves of the Company.
2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Company
agrees to sell to the Underwriters and each Underwriter agrees, severally and
not jointly, to purchase, at a price of $______ per Share, the number of Firm
Shares set forth opposite the name of each Underwriter in Schedule I hereof,
subject to adjustments in accordance with Section 9 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be made in
New York Clearing House funds and, at the option of the Representatives, by
certified or bank cashier's checks drawn to the order of the Company or bank
wire to an account specified by the Company against either uncertificated
delivery of Firm Shares or of certificates therefor (which delivery, if
certificated, shall take place in such location in New York, New York as may be
specified by the Representatives) to the Representatives for the several
accounts of the Underwriters. Such payment is to be made at the offices of the
Representatives at the address set forth on the first page of this agreement, at
7:00 a.m., Pacific time, on the third business day after the date of this
Agreement or at such other time and date not later than five business days
thereafter as you and the Company shall agree upon, such time and date being
herein referred to as the "Closing Date." (As used herein, "business day" means
a day on which the New York Stock Exchange is open for trading and on which
banks in New York are open for
-9-
<PAGE>
business and not permitted by law or executive order to be closed.) Except to
the extent uncertificated Firm Shares are delivered at closing, the certificates
for the Firm Shares will be delivered in such denominations and in such
registrations as the Representatives requests in writing not later than the
second full business day prior to the Closing Date, and will be made available
for inspection by the Representatives at least one business day prior to the
Closing Date.
(c) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company hereby grants an option to the Representatives to purchase the Option
Shares at the price per Share as set forth in the first paragraph of this
Section 2. The option granted hereby may be exercised in whole or in part by
giving written notice (i) at any time before the Closing Date and (ii) only once
thereafter within 45 days after the date of this Agreement, by the
Representatives to the Company setting forth the number of Option Shares as to
which the Representatives is exercising the option, the names and denominations
in which the Option Shares are to be registered and the time and date at which
certificate representing such Shares are to be delivered. The time and date at
which certificates for Option Shares are to be delivered shall be determined by
the Representatives but shall not be earlier than three nor later than 10 full
business days after the exercise of such option, nor in any event prior to the
Closing Date (such time and date being herein referred to as the "Option Closing
Date"). If the date of exercise of the option is three or more days before the
Closing Date, the notice of exercise shall set the Closing Date as the Option
Closing Date. The option with respect to the Option Shares granted hereunder
may be exercised only to cover over-allotments in the sale of the Firm Shares by
the Underwriters. The Representatives may cancel such option at any time prior
to its expiration by giving written notice of such cancellation to the Company
and the Attorney-in-Fact. To the extent, if any, that the option is exercised,
payment for the Option Shares shall be made on the Option Closing Date in New
York Clearing House funds and, at the option of the Representatives, by
certified or bank cashier's check drawn to the order of the Company for the
Option Shares to be sold by the Company or bank wire to an account specified by
the Company against delivery of certificates therefor at the offices of Paulson
Investment Company, Inc. set forth on the first page of this Agreement.
(d) In addition to the sums payable to the Representatives as
provided elsewhere herein, the Representatives shall be entitled to receive at
the Closing, for themselves alone and not as Representatives of the
Underwriters, as additional compensation for their services, purchase warrants
(the "Representatives' Warrants") for the purchase of up to 200,000 shares of
Common Stock at a price of $_____ per share, upon the terms and subject to
adjustment and conversion as described in the form of Representatives' Warrants
filed as an exhibit to the Registration Statement.
3. OFFERING BY THE UNDERWRITERS.
-10-
<PAGE>
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deems it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Shares are purchased pursuant
to Section 2 hereof, the Representatives will offer them to the public on the
foregoing terms.
It is further understood that you will act as the Representatives for
the Underwriters in the offering and sale of the Shares in accordance with an
Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the several Underwriters that:
(a) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations, and (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations.
(b) The Company will advise the Representatives promptly (A) when the
Registration Statement or any post-effective amendment thereto shall have become
effective, (B) of receipt of any comments from the Commission, (C) of any
request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, and (D) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such
-11-
<PAGE>
statements, reports, and other documents, as are or may be required to continue
such qualifications in effect for so long a period as the Representatives may
reasonably request for distribution of the Shares.
(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or
before the Closing Date, four signed copies of the Registration Statement and
all amendments thereto including all exhibits filed therewith, and will deliver
to the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representatives
may reasonably request.
(e) The Company will comply with the Act and the Rules and
Regulations, and the Exchange Act, and the rules and regulations of the
Commission thereunder, so as to permit the completion of the distribution of the
Shares as contemplated in this Agreement and the Prospectus. If during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, any event shall occur as a result of which, in the
judgment of the Company or in the reasonable opinion of the Underwriters, it
becomes necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances existing at the time the
Prospectus is delivered to a purchaser, not misleading, or, if it is necessary
at any time to amend or supplement the Prospectus to comply with any law, the
Company promptly will prepare and file with the Commission an appropriate
amendment to the Registration Statement or supplement to the Prospectus so that
the Prospectus as so amended or supplemented will not, in the light of the
circumstances when it is so delivered, be misleading, or so that the Prospectus
will comply with the law.
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
15 months after the effective date of the Registration Statement, an earning
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earning statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will
advise you in writing when such statement has been so made available.
(g) The Company will, for a period of five years from the Closing
Date, deliver to the Representatives copies of annual reports and copies of all
other documents, reports and information furnished by the Company to its
stockholders or filed with any securities exchange pursuant to the requirements
of such exchange or with the Commission pursuant to the Act or the Securities
Exchange Act of 1934, as amended. The Company will deliver to the
-12-
<PAGE>
Representatives similar reports with respect to significant subsidiaries, as
that term is defined in the Rules and Regulations, which are not consolidated in
the Company's financial statements.
(h) No offering, sale, short sale or other disposition of any shares
of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of Common
Stock (or agreement for such) will be made for a period of one year after the
date of this Agreement, directly or indirectly, by the Company otherwise than
hereunder or with the prior written consent of the Representatives, which
consent will not be unreasonably withheld.
(i) The Company will use its best efforts to list, subject to notice
of issuance, the Shares on The NASDAQ National Market.
(j) The Company has caused each officer and director and each person
who owns, beneficially or of record, 5% or more of the Common Stock outstanding
immediately prior to this offering to furnish to you, on or prior to the date of
this agreement, a letter or letters, in form and substance satisfactory to the
Underwriters ("Lockup Agreements"), pursuant to which each such person shall
agree (A) not to offer, sell, sell short or otherwise dispose of any shares of
Common Stock of the Company or other capital stock of the Company, or any other
securities convertible, exchangeable or exercisable for Common Stock or
derivatives of Common Stock owned by such person or request the registration for
the offer or sale of any of the foregoing (or as to which such person has the
right to direct the disposition of) for a period of one year after the date of
this Agreement, directly or indirectly, except with the prior written consent of
the Representatives, provided, however, that, on or after the 61st day following
the effective date of the date of this Agreement, each such person may, without
restriction imposed hereby, sell or otherwise dispose of a number of shares not
greater than ten percent of the number of shares owned by such person on the
date of this Agreement; and (B) to give prior written notice to the
Representatives for a period of five years from the effective date of the
Registration Statement, with respect to any sales of Common Stock of the Company
pursuant to Rule 144 under the Securities Act or any similar rule.
(k) The Company shall apply the net proceeds of its sale of the
Shares as set forth in the Prospectus and shall file such reports with the
Commission with respect to the sale of the Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the Act.
(l) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Shares in such a manner as would
require the Company or any of the Subsidiaries to register as an investment
company under the Investment Company Act of 1940, as amended (the "1940 Act").
-13-
<PAGE>
(m) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for the
Common Stock.
(n) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.
5. COSTS AND EXPENSES.
(a) Paulson Investment Company, Inc. shall be entitled to
reimbursement from the Company, for itself alone and not as Representative of
the Underwriters, for its accountable expenses up to a maximum amount of
$75,000. The Representatives shall be entitled to withhold this allowance on
the Closing Date.
(b) In addition to the payment described in Paragraph (a) of this
Section 5, the Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting
fees of the Company; the fees and disbursements of counsel for the Company; the
cost of printing and delivering to, or as requested by, the Underwriters copies
of the Registration Statement, Preliminary Prospectuses, the Prospectus, this
Agreement, the Underwriters' Selling Memorandum, the Underwriters' Invitation
Letter, the Listing Application, the Blue Sky Survey and any supplements or
amendments thereto; the filing fees of the Commission; the filing fees and
expenses (including legal fees and disbursements) incident to securing any
required review by the National Association of Securities Dealers, Inc. (the
"NASD") of the terms of the sale of the Shares; the Listing Fee of The NASDAQ
Stock Market; and the expenses, including the fees and disbursements of counsel
for the Underwriters, incurred in connection with the qualification of the
Shares under State securities or Blue Sky laws. Any transfer taxes imposed on
the sale of the Shares to the several Underwriters will be paid by the Company.
The Company agrees to pay all costs and expenses of the Underwriters, including
the fees and disbursements of counsel for the Underwriters, incident to the
offer and sale of directed shares of the Common Stock by the Underwriters to
employees and persons having business relationships with the Company. The
Company shall not, however, be required to pay for any of the Underwriters'
expenses (other than those related to qualification under NASD regulation and
State securities or Blue Sky laws) except that, if this Agreement shall not be
consummated, then the Company shall reimburse the several Underwriters for
accountable out-of-pocket expenses, including fees and disbursements of counsel,
reasonably incurred in connection with investigating, marketing and proposing to
market the Shares or in contemplation of performing their obligations hereunder
up to $75,000; but the Company shall not in any event be liable to any of the
several Underwriters for damages on account of loss of anticipated profits from
the sale by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
-14-
<PAGE>
The several obligations of the Underwriters to purchase the Firm
Shares on the Closing Date and the Option Shares, if any, on the Option Closing
Date are subject to the accuracy, as of the Closing Date or the Option Closing
Date, as the case may be, of the representations and warranties of the Company
contained herein, and to the performance by the Company of their covenants and
obligations hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any request
of the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company, shall be contemplated by the Commission and no
injunction, restraining order, or order of any nature by a Federal or state
court of competent jurisdiction shall have been issued as of the Closing Date
which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinion of John B. Wills, Esq.,
counsel for the Company, dated the Closing Date or the Option Closing Date, as
the case may be, addressed to the Underwriters (and stating that it may be
relied upon by counsel to the Underwriters) to the effect that:
(i) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of Colorado, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement; each Subsidiary has been
duly organized and is validly existing as a corporation or other business entity
in good standing under the laws of its jurisdiction of organization, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement; the Company and each
Subsidiary is duly qualified to transact business in all jurisdictions in which
the conduct of its business requires such qualification, or in which the failure
to qualify would have a materially adverse effect upon the business of the
Group.
(ii) The Company has authorized and outstanding capital stock as
set forth under the caption "Capitalization" in the Prospectus; the authorized
shares of the Company's Common Stock have been duly authorized; the outstanding
shares of the Company's Common Stock have been duly authorized and validly
issued and are fully paid and non-assessable; all of the securities of the
Company conform to the description thereof contained in the Prospectus; the
certificates for the Common Stock, assuming they are in the form filed with the
Commission, are in due and proper form; the shares of Common Stock to be sold by
the Company pursuant to this Agreement, including shares of Common Stock to be
-15-
<PAGE>
sold as a part of the Option Shares have been duly authorized and, upon issuance
and delivery thereof as contemplated in this Agreement and the Registration
Statement, will be validly issued, fully paid and non-assessable; no preemptive
rights of stockholders exist with respect to any of the Common Stock of the
Company or the issuance or sale thereof pursuant to any applicable statute or
the provisions of the Company's charter documents or, to such counsel's best
knowledge, pursuant to any contractual obligation. The Representatives' Warrants
have been authorized for issuance to the Representatives and will, when issued,
possess rights, privileges, and characteristics as represented in the most
recent form of Representatives' Warrants filed as an exhibit to the Registration
Statement; the securities to be issued upon exercise of the Representatives'
Warrants, when issued and delivered against payment therefor in accordance with
the terms of the Representatives' Warrants, will be duly and validly issued,
fully paid, nonassessable and free of preemptive rights, and all corporate
action required to be taken for the authorization and issuance of the
Representatives' Warrants, and the securities to be issued upon their exercise,
has been validly and sufficiently taken.
(iii) Except as described in or contemplated by the Prospectus,
to the knowledge of such counsel, there are no outstanding securities of the
Company convertible or exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and there are no
outstanding or authorized options, warrants or rights of any character
obligating the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right to purchase
or subscribe for any shares of such stock; and except as described in the
Prospectus, to the knowledge of such counsel, no holder of any securities of the
Company or any other person has the right, contractual or otherwise, which has
not been satisfied or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, any of the
Shares or the right to have any Common Stock or other securities of the Company
included in the Registration Statement or the right, as a result of the filing
of the Registration Statement, to require registration under the Act of any
shares of Common Stock or other securities of the Company.
(iv) The Registration Statement has become effective under the
Act and, to the best of the knowledge of such counsel, no stop order proceedings
with respect thereto have been instituted or are pending or threatened under the
Act.
(v) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material respects with
the requirements of the Act and the applicable rules and regulations thereunder
(except that such counsel need express no opinion as to the financial statements
and related schedules therein).
(vi) The statements under the captions "Shares Eligible for
Future Sale" and "Description of Capital Stock" in the Prospectus and in Item 15
of the Registration Statement, insofar as such statements constitute a summary
of documents referred to therein
-16-
<PAGE>
or matters of law, fairly summarize in all material respects the information
called for with respect to such documents and matters.
(vii) Such counsel does not know of any contracts or documents
required to be filed as exhibits to the Registration Statement or described in
the Registration Statement or the Prospectus which are not so filed or described
as required, and such contracts and documents as are summarized in the
Registration Statement or the Prospectus are fairly summarized in all material
respects.
(viii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company.
(ix) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, the Charter or by-laws of the Company, or any
agreement or instrument known to such counsel to which the Company is a party or
by which the Company may be bound.
(x) This Agreement has been duly authorized, executed and
delivered by the Company.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and delivery of
this Agreement and the consummation of the transactions herein contemplated
(other than as may be required by the NASD or as required by State securities
and Blue Sky laws as to which such counsel need express no opinion) except such
as have been obtained or made, specifying the same.
(xii) The Company is not, and will not become, as a result of
the consummation of the transactions contemplated by this Agreement, and
application of the net proceeds therefrom as described in the Prospectus,
required to register as an investment company under the 1940 Act.
In rendering such opinion, such counsel may rely as to matters
governed by the laws of states other than Colorado or Federal laws on local
counsel in such jurisdictions, provided that in each case such counsel shall
state that they believe that they and the Underwriters are justified in relying
on such other counsel. In addition to the matters set forth above, the opinion
of John B. Wills, Esq. shall also include a statement to the effect that nothing
has come to the attention of such counsel that has caused him to believe that
(i) the Registration Statement, at the time it became effective under the Act
(but after giving effect to any modifications incorporated therein pursuant to
Rule 430A under the Act) and as of the Closing Date or the Option Closing Date,
as the case may be, contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary
-17-
<PAGE>
to make the statements therein not, and (ii) the Prospectus, or any supplement
thereto, on the date it was filed pursuant to the Rules and Regulations and as
of the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements, in the light of the circumstances
under which they are made, not misleading (except that such counsel need express
no view as to financial statements, schedules and statistical information
therein).
(c) The Representatives shall have received from Stoel Rives LLP,
counsel for the Underwriters, an opinion dated the Closing Date or the Option
Closing Date, as the case may be, substantially to the effect specified in
subparagraphs (i), (iv) and (v) of Paragraph (b) of this Section 6. In
rendering such opinion Stoel Rives LLP may rely as to all matters governed other
than by the laws of the State of Oregon or Federal laws on the opinion of
counsel referred to in Paragraph (b) of this Section 6. In addition to the
matters set forth above, such opinion shall also include a statement to the
effect that nothing has come to the attention of such counsel that has caused
them to believe that (i) the Registration Statement, or any amendment thereto,
as of the time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act) as of
the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and (ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact, necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements, schedules and statistical information therein). With respect to
such statement, Stoel Rives LLP may state that their belief is based upon the
procedures set forth therein, but is without independent check and verification.
(d) The Representatives shall have received at or prior to the
Closing Date from Stoel Rives LLP a memorandum or summary, in form and substance
satisfactory to the Representatives, with respect to the qualification for
offering and sale by the Underwriters of the Shares under the State securities
or Blue Sky laws of such jurisdictions as the Representatives may reasonably
have designated to the Company.
(e) The Representatives, on behalf of the several Underwriters, shall
have received, on each of the dates hereof, the Closing Date and the Option
Closing Date, as the case may be, a letter dated the date hereof, the Closing
Date or the Option Closing Date, as the case may be, in form and substance
satisfactory to the Representative, of BDO Seidman confirming that they are
independent public accountants within the meaning of the Act and the applicable
published Rules and Regulations thereunder and stating that in their opinion the
financial statements and schedules examined by them and included in the
Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the related published Rules
and Regulations and containing such other statements and
-18-
<PAGE>
information as is ordinarily included in accountants' "comfort letters" to
Underwriters with respect to the financial statements and certain financial and
statistical information contained in the Registration Statement and Prospectus.
(f) The Representative shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of the
Chief Executive Officer and the Acting Chief Financial Officer of the Company to
the effect that, as of the Closing Date or the Option Closing Date, as the case
may be, each of them severally represents as follows:
(i) The Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the Registration Statement
has been issued, and no proceedings for such purpose have been taken or are, to
his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company contained
in Section 1 hereof are true and correct as of the Closing Date or the Option
Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to Rules
424 or 430A under the Act have been made;
(iv) He or she has carefully examined the Registration Statement
and the Prospectus and, in his or her opinion, as of the effective date of the
Registration Statement, the statements contained in the Registration Statement
were true and correct, and such Registration Statement and Prospectus did not
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, and since the effective
date of the Registration Statement, no event has occurred which should have been
set forth in a supplement to or an amendment of the Prospectus which has not
been so set forth in such supplement or amendment; and
(v) Since the respective dates as of which information is given
in the Registration Statement and Prospectus, there has not been any material
adverse change or any development involving a prospective material adverse
change in or affecting the condition, financial or otherwise, of the Company or
the earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company, whether or not
arising in the ordinary course of business.
(g) The Company shall have furnished to the Representatives such
further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related matters as the
Representatives may reasonably have requested.
-19-
<PAGE>
(h) The Firm Shares and Option Shares, if any, have been approved for
designation upon notice of issuance on the NASDAQ National Market.
(i) The Lockup Agreements described in Section 4(j) are in full force
and effect.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects satisfactory to the Representatives and to Stoel Rives LLP,
counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company of such termination in writing or
by telegram at or prior to the Closing Date or the Option Closing Date, as the
case may be.
In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 8
hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act, against any losses, claims, damages or liabilities to which
such Underwriter or any such controlling person may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; and will reimburse each Underwriter and
each such controlling person upon demand for any legal or other expenses
reasonably incurred by such Underwriter or such controlling person in connection
with investigating or defending any such loss, claim, damage or liability,
action or proceeding or in responding to a subpoena or governmental inquiry
related to the offering of the Shares, whether or not such Underwriter or
controlling person is a party to any action or proceeding; provided, however,
that the Company will not be liable in any such case to the extent that any
-20-
<PAGE>
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement, or omission or alleged omission made in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which the Company may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made; and
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding; provided, however, that each Underwriter will be liable in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a) or (b) shall be available to any party who shall fail to give notice as
provided in this Section 8(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of Section 8(a) or (b). In case any
such proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party and
shall pay as incurred the fees and disbursements of such counsel related
-21-
<PAGE>
to such proceeding. In any such proceeding, any indemnified party shall have
the right to retain its own counsel at its own expense. Notwithstanding the
foregoing, the indemnifying party shall pay as incurred (or within 30 days of
presentation) the fees and expenses of the counsel retained by the indemnified
party in the event (i) the indemnifying party and the indemnified party shall
have mutually agreed to the retention of such counsel, (ii) the named parties to
any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both parties
by the same counsel would be inappropriate due to actual or potential differing
interests between them or (iii) the indemnifying party shall have failed to
assume the defense and employ counsel acceptable to the indemnified party within
a reasonable period of time after notice of commencement of the action. It is
understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm for all such
indemnified parties. Such firm shall be designated in writing by you in the
case of parties indemnified pursuant to Section 8(a) and by the Company in the
case of parties indemnified pursuant to Section 8(b). The indemnifying party
shall not be liable for any settlement of any proceeding effected without its
written consent but if settled with such consent or if there be a final judgment
for the plaintiff, the indemnifying party agrees to indemnify the indemnified
party from and against any loss or liability by reason of such settlement or
judgment. In addition, the indemnifying party will not, without the prior
written consent of the indemnified party, settle or compromise or consent to the
entry of any judgment in any pending or threatened claim, action or proceeding
of which indemnification may be sought hereunder (whether or not any indemnified
party is an actual or potential party to such claim, action or proceeding)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action
or proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bears to the total
underwriting discounts and commissions received
-22-
<PAGE>
by the Underwriters, in each case as set forth in the table on the cover page of
the Prospectus. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the Underwriters on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 8(d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) referred
to above in this Section 8(d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Shares purchased by such Underwriter, and (ii) no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations in this
Section 8(d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
-23-
<PAGE>
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case may be,
any Underwriter shall fail to purchase and pay for the portion of the Shares
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company), you, as
Representatives of the Underwriters, shall use your reasonable efforts to
procure within 36 hours thereafter one or more of the other Underwriters, or any
others, to purchase from the Company such amounts as may be agreed upon and upon
the terms set forth herein, the Firm Shares or Option Shares, as the case may
be, which the defaulting Underwriter or Underwriters failed to purchase. If
during such 36 hours you, as such Representatives, shall not have procured such
other Underwriters, or any others, to purchase the Firm Shares or Option Shares,
as the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of Shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of Firm Shares or Option Shares, as the case may be, with
respect to which such default shall occur exceeds 10% of the Firm Shares or
Option Shares, as the case may be, covered hereby, the Company or you as the
Representatives of the Underwriters will have the right, by written notice given
within the next 36-hour period to the parties to this Agreement, to terminate
this Agreement without liability on the part of the non-defaulting Underwriters
or of the Company except to the extent provided in Section 8 hereof. In the
event of a default by any Underwriter or Underwriters, as set forth in this
Section 9, the Closing Date or Option Closing Date, as the case may be, may be
postponed for such period, not exceeding seven days, as you, as Representatives,
may determine in order that the required changes in the Registration Statement
or in the Prospectus or in any other documents or arrangements may be effected.
The term "Underwriter" includes any person substituted for a defaulting
Underwriter. Any action taken under this Section 9 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows: if to the Underwriters, to Paulson Investment
Company, Inc., 811 SW Front Avenue, Portland, Oregon 97204, Attention: Chester
L.F. Paulson; with a copy to Stoel Rives LLP, 900 SW 5th Avenue, Portland,
Oregon 97204, Attention: John J. Halle; if to the Company, to Evergreen
Resources, Inc., 1000 Writer Square, 1512 Larimer Street, Denver Colorado 80202
Attention: James S. Williams; with a copy to John B. Wills, Esq., 410
Seventeenth Street, Suite 1940, Denver, Colorado 80202.
-24-
<PAGE>
11. TERMINATION.
This Agreement may be terminated by you by notice to the Company as
follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m. on
the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or any
development involving a prospective material adverse change in or affecting the
condition, financial or otherwise, of the Company and its Subsidiaries taken as
a whole or the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company and
its Subsidiaries taken as a whole, whether or not arising in the ordinary course
of business, (ii) any outbreak or escalation of hostilities or declaration of
war or national emergency or other national or international calamity or crisis
or change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the financial
markets of the United States would, in your reasonable judgment, make it
impracticable to market the Shares or to enforce contracts for the sale of the
Shares, (iii) the Dow Jones Industrial Average shall have fallen by 15 percent
or more from its closing price on the day immediately preceding the date that
the Registration Statement is declared effective by the Commission, (iv)
suspension of trading in securities generally on the New York Stock Exchange or
the American Stock Exchange or limitation on prices (other than limitations on
hours or numbers of days of trading) for securities on either such Exchange, (v)
the enactment, publication, decree or other promulgation of any statute,
regulation, rule or order of any court or other governmental authority which in
your opinion materially and adversely affects or may materially and adversely
affect the business or operations of the Company, (vi) declaration of a banking
moratorium by United States or New York State authorities, (vii) any downgrading
in the rating of the Company's debt securities by any "nationally recognized
statistical rating organization" (as defined for purposes of Rule 436(g) under
the Exchange Act); (viii) the suspension of trading of the Company's common
stock by the Commission on the NASDAQ Stock Market or (ix) the taking of any
action by any governmental body or agency in respect of its monetary or fiscal
affairs which in your reasonable opinion has a material adverse effect on the
securities markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company and their respective successors, executors,
administrators, heirs and assigns, and
-25-
<PAGE>
the officers, directors and controlling persons referred to herein, and no other
person will have any right or obligation hereunder. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign merely because
of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the Registration Statement consists of the
information set forth in the last paragraph on the front cover page (insofar as
such information relates to the Underwriters), legends required by Item 502(d)
of Regulation S-K under the Act and the information under the caption
"Underwriting" in the Prospectus.
-26-
<PAGE>
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Oregon. All disputes relating to this Underwriting
Agreement shall be adjudicated before a court located in Multnomah county,
Oregon to the exclusion of all other courts that might have jurisdiction.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
EVERGREEN RESOURCES, INC.
By:___________________________
President
The foregoing Underwriting Agreement s hereby confirmed and accepted as of the
date first above written.
PAULSON INVESTMENT COMPANY, INC.
As Representatives of the several
Underwriters listed on Schedule I
By:
-------------------------------------
Authorized Officer
-27-
<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
Number of Firm Shares
Underwriter to be Purchased
----------- ---------------------
Paulson Investment Company, Inc.
Total 2,000,000
---------
---------
-28-
<PAGE>
SCHEDULE II
LIST OF SUBSIDIARIES
-29-
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933
AND IS NOT TRANSFERABLE
EXCEPT AS PROVIDED HEREIN
EVERGREEN RESOURCES, INC.
PURCHASE WARRANT
Issued to:
PAULSON INVESTMENT COMPANY, INC.
AND
CAPITAL WEST SECURITIES, INC.
Exercisable to Purchase
200,000 Shares
of
EVERGREEN RESOURCES, INC.
<PAGE>
Void after _________, 2001
This is to certify that, for value received and subject to the terms and
conditions set forth below, the Warrantholder (hereinafter defined) is entitled
to purchase, and the Company promises and agrees to sell and issue to the
Warrantholder, at any time on or after _________, 1997 and on or
before___________, 2001, up to 300,000 Shares (hereinafter defined) at the
Exercise Price (hereinafter defined).
This Warrant Certificate is issued subject to the following terms and
conditions:
1. DEFINITIONS OF CERTAIN TERMS. Except as may be otherwise clearly
required by the context, the following terms have the following meanings:
(a) "Act" means the Securities Act of 1933, as amended.
(b) "Closing Date" means the date on which the Offering is closed.
(c) "Commission" means the Securities and Exchange Commission.
(d) "Common Stock" means the common stock, no par value, of the Company.
(e) "Company" means Evergreen Resources, Inc., a Colorado corporation.
(f) "Company's Expenses" means any and all expenses payable by the Company
or the Warrantholder in connection with an offering described in Section 6
hereof, except Warrantholder's Expenses.
(g) "Effective Date" means the date on which the Registration Statement is
declared effective by the Commission.
(h) "Exercise Price" means the price at which the Warrantholder may
purchase one Share upon exercise of Warrants as determined from time to time
pursuant to the provisions hereof. The initial Exercise Price is $_____ per
Share.
(i) "Offering" means the public offering of Shares made pursuant to the
Registration Statement.
(j) "Participating Underwriter" means any underwriter participating in the
sale of the Securities pursuant to a registration under Section 6 of this
Warrant Certificate.
(k) "Registration Statement" means the Company's registration statement
(File No. 333-_____) as amended on the Closing Date.
(l) "Rules and Regulations" means the rules and regulations of the
Commission adopted under the Act.
2
<PAGE>
(m) "Securities" means the securities obtained or obtainable upon exercise
of the Warrant or securities obtained or obtainable upon exercise, exchange, or
conversion of such securities.
(n) "Share" means, as the case may require, either one of the Shares of
Common Stock offered to the Public pursuant to the Registration Statement or one
of the Shares of Common Stock obtainable on exercise of a Warrant.
(p) "Warrant Certificate" means a certificate evidencing the Warrant.
(q) "Warrantholder" means a record holder of the Warrant or Securities.
The initial Warrantholder is Paulson Investment Company, Inc. and Capital West
Securities, Inc.
(r) "Warrantholder's Expenses" means the sum of (i) the aggregate amount
of cash payments made to an underwriter, underwriting syndicate, or agent in
connection with an offering described in Section 6 hereof multiplied by a
fraction the numerator of which is the aggregate sales price of the Securities
sold by such underwriter, underwriting syndicate, or agent in such offering and
the denominator of which is the aggregate sales price of all of the securities
sold by such underwriter, underwriting syndicate, or agent in such offering and
(ii) all out-of-pocket expenses of the Warrantholder, except for the fees and
disbursements of one firm retained as legal counsel for the Warrantholder that
will be paid by the Company.
(s) "Warrant" means the warrant evidenced by this certificate, any similar
certificate issued in connection with the Offering, or any certificate obtained
upon transfer or partial exercise of the Warrant evidenced by any such
certificate.
2. EXERCISE OF WARRANTS. All or any part of the Warrant may be exercised
commencing on the first anniversary of the Effective Date and ending at 5 p.m.
Pacific Time on the fifth anniversary of the Effective Date by surrendering this
Warrant Certificate, together with appropriate instructions, duly executed by
the Warrantholder or by its duly authorized attorney, at the office of the
Company, 1000 Writer Square, 1512 Larimer Street, Denver, Colorado 80202, or at
such other office or agency as the Company may designate. Upon receipt of
notice of exercise, the Company shall immediately instruct its transfer agent to
prepare certificates for the Securities to be received by the Warrantholder upon
completion of the Warrant exercise. When such certificates are prepared, the
Company shall notify the Warrantholder and deliver such certificates to the
Warrantholder or as per the Warrantholder's instructions immediately upon
payment in full by the Warrantholder, in lawful money of the United States, of
the Exercise Price payable with respect to the Securities being purchased. If
the Warrantholder shall represent and warrant that all applicable registration
and prospectus delivery requirements for their sale have been complied with upon
sale of the Securities received upon exercise of the Warrant, such certificates
shall not bear a legend with respect to the Securities Act of 1933.
If fewer than all the Securities purchasable under the Warrant are
purchased, the Company will, upon such partial exercise, execute and deliver to
the Warrantholder a new Warrant Certificate (dated the date hereof), in form and
tenor similar to this Warrant Certificate, evidencing that portion of the
Warrant not exercised. The Securities to be obtained on exercise
3
<PAGE>
of the Warrant will be deemed to have been issued, and any person exercising the
Warrants will be deemed to have become a holder of record of those Securities,
as of the date of the payment of the Exercise Price.
3. ADJUSTMENTS IN CERTAIN EVENTS. The number, class, and price of
Securities for which this Warrant Certificate may be exercised are subject to
adjustment from time to time upon the happening of certain events as follows:
(a) If the outstanding shares of the Company's Common Stock are divided
into a greater number of shares or a dividend in stock is paid on the Common
Stock, the number of shares of Common Stock for which the Warrant is then
exercisable will be proportionately increased and the Exercise Price will be
proportionately reduced; and, conversely, if the outstanding shares of Common
Stock are combined into a smaller number of shares of Common Stock, the number
of shares of Common Stock for which the Warrant is then exercisable will be
proportionately reduced and the Exercise Price will be proportionately
increased. The increases and reductions provided for in this subsection 3(a)
will be made with the intent and, as nearly as practicable, the effect that
neither the percentage of the total equity of the Company obtainable on exercise
of the Warrants nor the price payable for such percentage upon such exercise
will be affected by any event described in this subsection 3(a).
(b) In case of any change in the Common Stock through merger,
consolidation, reclassification, reorganization, partial or complete
liquidation, purchase of substantially all the assets of the Company, or other
change in the capital structure of the Company, then, as a condition of such
change, lawful and adequate provision will be made so that the holder of this
Warrant Certificate will have the right thereafter to receive upon the exercise
of the Warrant the kind and amount of shares of stock or other securities or
property to which he would have been entitled if, immediately prior to such
event, he had held the number of shares of Common Stock obtainable upon the
exercise of the Warrant. In any such case, appropriate adjustment will be made
in the application of the provisions set forth herein with respect to the rights
and interest thereafter of the Warrantholder, to the end that the provisions set
forth herein will thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the exercise of the Warrant. The Company will not permit any change in its
capital structure to occur unless the issuer of the shares of stock or other
securities to be received by the holder of this Warrant Certificate, if not the
Company, agrees to be bound by and comply with the provisions of this Warrant
Certificate.
(c) When any adjustment is required to be made in the number of shares of
Common Stock, other securities, or the property purchasable upon exercise of the
Warrant, the Company will promptly determine the new number of such shares or
other securities or property purchasable upon exercise of the Warrant and (i)
prepare and retain on file a statement describing in reasonable detail the
method used in arriving at the new number of such shares or other securities or
property purchasable upon exercise of the Warrant and (ii) cause a copy of such
statement to be mailed to the Warrantholder within thirty (30) days after the
date of the event giving rise to the adjustment.
4
<PAGE>
(d) No fractional shares of Common Stock or other securities will be
issued in connection with the exercise of the Warrant, but the Company will pay,
in lieu of fractional shares, a cash payment therefor on the basis of the mean
between the bid and asked prices of the Common Stock in the over-the-counter
market or the closing price on a national securities exchange on the day
immediately prior to exercise.
(e) If securities of the Company or securities of any subsidiary of the
Company are distributed pro rata to holders of Common Stock, such number of
securities will be distributed to the Warrantholder or his assignee upon
exercise of his rights hereunder as such Warrantholder or assignee would have
been entitled to if this Warrant Certificate had been exercised prior to the
record date for such distribution. The provisions with respect to adjustment of
the Common Stock provided in this Section 3 will also apply to the securities to
which the Warrantholder or his assignee is entitled under this subsection 3(e).
(f) Notwithstanding anything herein to the contrary, there will be no
adjustment made hereunder on account of the sale of the Common Stock or other
Securities purchasable upon exercise of the Warrant.
4. RESERVATION OF SECURITIES. The Company agrees that the number of shares
of Common Stock or other Securities sufficient to provide for the exercise of
the Warrant upon the basis set forth above will at all times during the term of
the Warrant be reserved for exercise.
5. VALIDITY OF SECURITIES. All Securities delivered upon the exercise of
the Warrant will be duly and validly issued in accordance with their terms, and
the Company will pay all documentary and transfer taxes, if any, in respect of
the original issuance thereof upon exercise of the Warrant.
6. REGISTRATION OF SECURITIES ISSUABLE ON EXERCISE OF WARRANT CERTIFICATE.
(a) The Company will register the Securities with the Commission pursuant
to the Act so as to allow the unrestricted sale of the Securities to the public
from time to time commencing on the first anniversary of the Effective Date and
ending at 5:00 p.m. Pacific Time on the fifth anniversary of the Effective Date
(the "Registration Period"). The Company will also file such applications and
other documents necessary to permit the sale of the Securities to the public
during the Registration Period in those states in which the Shares were
qualified for sale in the Offering or such other states as the Company and the
Warrantholder agree to. In order to comply with the provisions of this Section
6(a), the Company is not required to file more than one registration statement.
No registration right of any kind, "piggyback" or otherwise, will last longer
than five years from the Closing Date.
(b) The Company will pay all of the Company's Expenses and each
Warrantholder will pay its pro rata share of the Warrantholder's Expenses
relating to the registration, offer, and sale of the Securities.
(c) Except as specifically provided herein, the manner and conduct of the
registration, including the contents of the registration, will be entirely in
the control and at the discretion of
5
<PAGE>
the Company. The Company will file such post-effective amendments and
supplements as may be necessary to maintain the currency of the registration
statement during the period of its use. In addition, if the Warrantholder
participating in the registration is advised by counsel that the registration
statement, in their opinion, is deficient in any material respect, the Company
will use its best efforts to cause the registration statement to be amended to
eliminate the concerns raised.
(d) The Company will furnish to the Warrantholder the number of copies of
a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as it may reasonably request
in order to facilitate the disposition of Securities owned by it.
(e) The Company will, at the request of Warrantholders holding at least 50
percent of the then outstanding Warrants, (i) furnish an opinion of the counsel
representing the Company for the purposes of the registration pursuant to this
Section 6, addressed to the Warrantholders and any Participating Underwriter,
(ii) furnish an appropriate letter from the independent public accountants of
the Company, addressed to the Warrantholders and any Participating Underwriter,
and (iii) make representations and warranties to the Warrantholders and any
Participating Underwriter. A request pursuant to this subsection (e) may be
made on three occasions. The documents required to be delivered pursuant to
this subsection (e) will be dated within ten days of the request and will be, in
form and substance, equivalent to similar documents furnished to the
underwriters in connection with the Offering, with such changes as may be
appropriate in light of changed circumstances.
7. INDEMNIFICATION IN CONNECTION WITH REGISTRATION.
(a) If any of the Securities are registered, the Company will indemnify
and hold harmless each selling Warrantholder, any person who controls any
selling Warrantholder within the meaning of the Act, and any Participating
Underwriter against any losses, claims, damages, or liabilities, joint or
several, to which any Warrantholder, controlling person, or Participating
Underwriter may be subject under the Act or otherwise; and it will reimburse
each Warrantholder, each controlling person, and each Participating Underwriter
for any legal or other expenses reasonably incurred by the Warrantholder,
controlling person, or Participating Underwriter in connection with
investigating or defending any such loss, claim, damage, liability, or action,
insofar as such losses, claims, damages, or liabilities, joint or several (or
actions in respect thereof), arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained, on the effective
date thereof, in any such registration statement or any preliminary prospectus
or final prospectus, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; PROVIDED, HOWEVER, that the Company will not be liable in any case
to the extent that any loss, claim, damage, or liability arises out of or is
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in any registration statement, preliminary prospectus,
final prospectus, or any amendment or supplement thereto, in reliance upon and
in conformity with written information furnished by a Warrantholder for use in
the preparation thereof. The indemnity agreement contained in this subparagraph
(a) will not apply to amounts paid to any claimant in settlement of any suit or
claim
6
<PAGE>
unless such payment is first approved by the Company, such approval not to be
unreasonably withheld.
(b) Each selling Warrantholder, as a condition of the Company's
registration obligation, will indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed any registration statement
or other filing or any amendment or supplement thereto, and any person who
controls the Company within the meaning of the Act, against any losses, claims,
damages, or liabilities to which the Company or any such director, officer, or
controlling person may become subject under the Act or otherwise, and will
reimburse any legal or other expenses reasonably incurred by the Company or any
such director, officer, or controlling person in connection with investigating
or defending any such loss, claim, damage, liability, or action, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue or alleged untrue statement of any material
fact contained in said registration statement, any preliminary or final
prospectus, or other filing, or any amendment or supplement thereto, or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission was made in said
registration statement, preliminary or final prospectus, or other filing, or
amendment or supplement, in reliance upon and in conformity with written
information furnished by such Warrantholder for use in the preparation thereof;
PROVIDED, HOWEVER, that the indemnity agreement contained in this subparagraph
(b) will not apply to amounts paid to any claimant in settlement of any suit or
claim unless such payment is first approved by the Warrantholder, such approval
not to be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under subparagraphs (a)
or (b) above of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party,
notify the indemnifying party of the commencement thereof; but the omission to
notify the indemnifying party will not relieve it from any liability that it may
have to any indemnified party otherwise than under subparagraphs (a) and (b).
(d) If any such action is brought against any indemnified party and it
notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party; and after
notice from the indemnifying party to such indemnified party of its election to
assume the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
8. RESTRICTIONS ON TRANSFER. This Warrant Certificate and the Warrant may
not be sold, transferred, assigned or hypothecated for a one-year period after
the Effective Date except to underwriters of the Offering or to individuals who
are either a partner or an officer of such an underwriter or by will or by
operation of law. The Warrant may be divided or combined, upon
7
<PAGE>
request to the Company by the Warrantholder, into a certificate or certificates
evidencing the same aggregate number of Warrants.
9. NO RIGHTS AS A SHAREHOLDER. Except as otherwise provided herein, the
Warrantholder will not, by virtue of ownership of the Warrant, be entitled to
any rights of a shareholder of the Company but will, upon written request to the
Company, be entitled to receive such quarterly or annual reports as the Company
distributes to its shareholders.
10. NOTICE. Any notices required or permitted to be given hereunder will
be in writing and may be served personally or by mail; and if served will be
addressed as follows:
If to the Company:
Evergreen Resources, Inc.
1000 Writer Square, 1512 Larimer Street
Denver, Colorado 80202
Attn: Treasurer
If to the Warrantholder:
at the address furnished
by the Warrantholder to the
Company for the purpose of
notice.
Any notice so given by mail will be deemed effectively given 48 hours after
mailing when deposited in the United States mail, registered or certified mail,
return receipt requested, postage prepaid and addressed as specified above. Any
party may by written notice to the other specify a different address for notice
purposes.
11. APPLICABLE LAW. This Warrant Certificate will be governed by and
construed in accordance with the laws of the State of Oregon, without reference
to conflict of laws principles thereunder. All disputes relating to this
Warrant Certificate shall be tried before the courts of Oregon located in
Multnomah County, Oregon to the exclusion of all other courts that might have
jurisdiction.
Dated as of __________, 1996
EVERGREEN RESOURCES, INC..
By:____________________________
_____________________
8
<PAGE>
Agreed and Accepted as of __________, 1996
PAULSON INVESTMENT COMPANY, INC.
By:_________________________
_________________________
CAPITAL WEST SECURITIES, INC.
By:_________________________
_________________________
9
<PAGE>
[LETTERHEAD]
September 9, 1996
Evergreen Resources, Inc.
1000 Writer Square
1512 Lamar Street
Denver, Colorado 80202
RE: SEC REGISTRATION STATEMENT ON FORM S-2
Gentlemen:
I am counsel for Evergreen Resources, Inc., a Colorado corporation (the
"Company"), in connection with its proposed public offering under the
Securities Act of 1933, as amended, of up to 2,300,000 shares of the
Company's Common Stock through a Registration Statement on Form S-2 as to
which this opinion is a part, to be filed with the Securities and Exchange
Commission (the "Commission").
In connection with rendering my opinion as set forth below, I have
reviewed and examined originals or copies identified to my satisfaction of
the following:
(1) Articles and Amended Articles of Incorporation of the Company as
filed with the Secretary of State of the State of Colorado.
(2) Minute Book containing the written deliberations and resolutions of
the Board of Directors and Shareholders of the Company.
(3) The Registration Statement on Form S-2 and the Preliminary
Prospectus contained within the Registration Statement.
(4) The other exhibits to the Registration Statement filed with the
Commission.
I have examined such other documents and records, instruments and
certificates of public officials, officers and representatives of the
Company, and have made such other investigations as I have deemed necessary
or appropriate under the circumstances.
EXHIBIT 5
<PAGE>
Based upon the foregoing and in reliance thereon, it is my opinion that
up to 2,300,000 shares of Common Stock, no value, have been duly and validly
authorized, legally issued, and are fully paid and non-assessable.
I hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the use of my name under the caption "Legal
Matters" in the Prospectus constituting a part thereof.
Very truly yours,
John B. Wills
-------------------------------------
John B. Wills
JBW/db
<PAGE>
Exhibit 10.11
HIBERNIA
September 6, 1996
Mr. Mark S. Sexton
President and Chief Executive Officer
Evergreen Resources, Inc.
1000 Writer Square
1512 Larimer Street
Denver, Colorado 80202
Dear Mark:
On behalf of Hibernia National Bank ("Lender"), I am authorized
to extend Lender's commitment to make revolving loans to
Evergreen Resources, Inc., a Colorado Corporation ("Borrower")
subject to the basic terms and conditions set forth below, upon
your acceptance of this commitment on or before the date set
forth below. The following terms and conditions are not intended
to be exhaustive, since final documentation of the facility will
require further discussions between Lender and Borrower and
approval by Lender's and Borrower's legal counsel. This
commitment letter supersedes all prior commitment letters and
represents an extension and amendment to the Credit Agreement
dated 11/15/90 between Evergreen Resources, Inc. and Hibernia
National Bank as amended from time to time.
The following are the amended provisions.
NOTE AMOUNT: The lesser of $15,000,000 or the Borrowing Base
value then in effect (See attached Borrowing Base Schedule).
CLOSING CONDITION: Closing under the $15,000,000 note shall
occur concurrently with repayment of approximately $3,600,000 of
debt outstanding at Lender from Raton Gas Company, LLC (a
subsidiary of Evergreen Resources).
MATURITY DATE: July 31, 1998
COMMITMENT FEE: Upon acceptance, a commitment fee of $56,250
will be due and payable.
FINANCIAL COVENANT: The company shall maintain a ratio of Total
Liabilities to Tangible Net Worth at a maximum of 0.50:1.00 at
all times.
In addition to the above amended provisions, the following
provisions continue to apply.
INTEREST RATE: Interest rate on borrowings shall be at Lender's
Prime Rate.
UNUSED FEE: The Borrower will pay to Bank an unused fee of 0.50%
per annum on the average daily unused commitment amount, payable
quarterly.
ENGINEERING FEE: The Borrower will pay to Bank an Engineering
fee of $7,000 per annum.
DETAILS OF REPAYMENT: Details of repayment mirror those
described in the Credit Agreement, in that interest payments are
due monthly with principal due at maturity. Borrowing Base
schedule redeterminations will be at Lender's sold discretion,
but not less often than semi-annually. Principal
<PAGE>
Mr. Mark S. Sexton
Evergreen Resources, Inc.
payments will be due if the loan outstanding exceeds the amount
permitted under the Borrowing Base schedule.
CLOSING COSTS: Borrower shall pay all reasonable fees of
Lender's counsel and all other fees and expenses incurred by
Lender or Borrower in connection with this commitment or the
facility, whether or not the facility closes, including without
limitation, inspection fees, legal fees, brokerage fees,
appraisal fees, and travel expenses. Borrower understands that
Lender will begin incurring these expenses upon acceptance of
this letter and that these charges are in addition to the
commitment fee referred to hereinabove and that they will be
billed to the Borrower regardless of whether the facility closes.
SECURITY: First priority mortgage and assignment of production
covering 100% of the value of the Raton Basin leases and certain
San Juan Basin leases. Title opinions acceptable to Lender will
be required on the leases.
COMMITMENT LETTER EXPIRY: The commitment described in this
letter shall expire and be null and void at the close of business
on September 27, 1996, unless an accepted copy of this letter is
received by Lender prior to said Expiration Date.
ACCEPTED COMMITMENT EXPIRY: The accepted commitment will expire
on October 28, 1996 unless the facility closes. Any extensions
to the closing deadline must be confirmed in writing by Lender.
The above stated conditions encompass only a partial lest of
conditions that may appear in the Loan Agreement, and should not
be deemed to be exhaustive or all inclusive. Lender's obligation
to make the facility described herein shall be subject to
Borrower's agreement to conditions, affirmative and negative
covenants, and default provisions which are standard in loan
documentation for similar loans made by Lender or which in
Lender's discretion are required for purposes of this
transaction.
If these terms and conditions are acceptable, please evidence
your acceptance by signing below in the space indicated, and
return the executed original of this letter along with the
commitment fee to the undersigned. We look forward to working
with you on this and future opportunities.
Sincerely,
Colleen B. Smith Lyndsay P Job
Assistant Vice President Senior Vice President
Energy/Maritime Division Manager Energy/Maritime Division
Acceptance: The foregoing commitment is hereby accepted, and the
undersigned agrees to accept the facility described therein, this
10th day of September, 1996.
Evergreen Resources, Inc.
By: /s/ Mark S. Sexton
---------------------------------------------------------
Title: Mark S. Sexton, President and Chief Executive Officer
HIBERNIA NATIONAL BANK - P.O. BOX 61540 - NEW ORLEANS, LA 70161 - 504-533-5395
PAGE 2
<PAGE>
Evergreen Resources - 8/96
Borrowing Base Schedule, at month end
# Month Borrowing
MM-YY Base
$M
15,000.0
1 Sep-96 14,633.0
2 Oct-96 14,275.0
3 Nov-96 13,914.0
4 Dec-96 13,555.0
5 Jan-97 13,349.0
6 Feb-97 13,131.0
7 Mar-97 12,928.0
8 Apr-97 12,735.0
9 May-97 12,549.0
10 Jun-97 12,357.0
11 Jul-97 12,165.0
12 Aug-97 11,975.0
13 Sep-97 11,779.0
14 Oct-97 11,579.0
15 Nov-97 11,367.0
16 Dec-97 11,146.0
17 Jan-98 10,900.0
18 Feb-98 10,643.0
19 Mar-98 10,403.0
20 Apr-98 10,175.0
21 May-98 9,956.0
22 Jun-98 9,732.0
23 Jul-98 9,508.0
<PAGE>
Exhibit 10.12
COASTAL INTERSTATE GAS COMPANY
A Subsidiary of the Coastal Corporation
PO Box 1087 - Colorado Springs, CO 80944 - 719/473/2300
August 28, 1996
Primero Gas Marketing Company
1000 Writer Square
1512 Larimer St.
Denver, CO 80202
RE: PICKETWIRE LATERAL
Ladies and Gentlemen:
This letter sets forth the agreement between Primero Gas
Marketing Company ("Primero") and Colorado Interstate Gas Company
("CIG") with respect to firm transportation of Primero's gas
received on CIG's Picketwire Lateral in Las Animas County,
Colorado. For and in consideration of the mutual promises of the
parties and other good and valuable consideration, Primero and
CIG agree as follows:
1. As a condition to CIG constructing the Central Blending Facility,
described in Section 6.6 of the proposed Firm Transportation
Service Agreement ("FTSA") dated October 1, 1996 (CIG Contract
No. 33125000), Primero shall execute the FTSA by September 6,
1996,
2. CIG shall verify the schedule of out-of-pocket expenses (detailed
in Primero's letter dated July 18, 1996) incurred by Primero
or any of its affiliates as part of the construction of the
Picketwire Lateral and the Burro Canyon tap and meter station
by September 20, 1996. CIG shall reimburse Primero for all of
these out-of-pocket expenses, subject to the verification of
the expenditures, up to a maximum of $225,000.
3. Primero shall immediately submit to CIG a firm transportation
service request along with the appropriate fee for up to an
additional 10,000 Dth per day from the Burro Canyon Point of
Receipt. CIG shall then hold this request in abeyance. To
assist Primero in its capacity planning, CIG shall advise
Primero when either Amoco Energy Trading Company or Apache
Canyon LLC, or their respective successors or assigns,
contract with CIG for additional firm capacity from the
Picketwire Lateral. CIG shall notify Primero when a request
for firm capacity is received from any other party. This
notification process shall not apply to capacity currently
under negotiation (CIG has received two requests to begin
negotiations for volumes of approximately 25,000 Dth per day
in aggregate. These volumes are subject to change as the
negotiation process proceeds). Primero will have the right to
exercise this request, subject to available capacity, at the
Approved Rate (but not the overrun rate) established for
Primero's volumes under the FTSA. The Approved Rate is
defined as Transporter's maximum rates under Rate Schedule TF-1
in the Tariff as of October 1, 1996, subject to refund.
Should CIG's maximum TF-1 rate be above the Approved Rate at
the time Primero seeks to increase its MDQ under this
provision, Primero may elect to pay the maximum TF-1 rate for the
<PAGE>
Primero Gas Gathering Company
August 28, 1996
Page 2
additional volumes provided no additional facilities are
required by CIG to provide the service. Should Primero elect
to pay the Approved Rate, Primero will have the same rights as
a maximum rate shipper under Rate Schedule TF-1 for the
additional volumes provided CIG is not receiving a higher rate
than the Approved Rate from another party for service on the
Picketwire Lateral at the time Primero elects to exercise its
request. CIG's obligations under this paragraph shall cease
once it has 40,000 Dth per day of firm capacity on the
Picketwire Lateral (the current capacity of the Picketwire
Lateral) under contract, including any new volumes of
Primero's.
If the foregoing is acceptable to Primero, please signify by
signing and returning one copy of this Letter Agreement to CIG.
Sincerely,
COLORADO INTERSTATE GAS COMPANY
/s/ Donald J. Zinko
---------------------------------------
Donald J. Zinko
Senior Vice President
Accepted and agreed to this
5th day of September, 1996.
PRIMERO GAS MARKETING COMPANY
By: EVERGREEN OPERATING CORPORATION, MANAGER
By: /s/ Mark S. Sexton
-------------------------------
Name: Mark S. Sexton
-----------------------------
Title: Director
----------------------------
<PAGE>
Exhibit 10.13
Contract No. 33125000
Firm Transportation Service Agreement
Rate Schedule TF-1
between
COLORADO INTERSTATE GAS COMPANY
and
PRIMERO GAS MARKETING COMPANY
Dated: OCTOBER 1, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE PAGE NO.
- --------------------------------------------------------------------------------
I Quantities of Gas to Be Transported . . . . . . . . . . . . . . 1
II Point(s) of Receipt and Point(s) of Delivery. . . . . . . . . . 1
III Applicable Rate Schedule, Incorporation by Reference. . . . . . 2
IV Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
V Cancellation of Prior Contracts . . . . . . . . . . . . . . . . 3
VI Other Operating Provisions. . . . . . . . . . . . . . . . . . . 3
VII Modifications . . . . . . . . . . . . . . . . . . . . . . . . . 5
VIII Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
EXHIBIT "A"
EXHIBIT "B"
<PAGE>
FIRM TRANSPORTATION SERVICE AGREEMENT
RATE SCHEDULE TF-1
THIS AGREEMENT is made and entered into as of this 1st day of October,
1996, by and between COLORADO INTERSTATE GAS COMPANY, hereinafter called
"Transporter," and PRIMERO GAS MARKETING COMPANY, hereinafter called "Shipper."
In consideration of the mutual promises hereinafter contained, Shipper and
Transporter agree as follows:
ARTICLE I
QUANTITIES OF GAS TO BE TRANSPORTED
1.1 MAXIMUM DELIVERY QUANTITY ("MDQ"). Shipper's MDQ is 10,000 Dth per
Day.
1.2 TRANSPORTATION SERVICE. Transportation Service at and between Primary
Point(s) of Receipt and Primary Point(s) of Delivery shall be on a firm basis.
Service involving and at Secondary Point(s) of Receipt and Delivery shall be
scheduled, subject to capacity availability, following all firm transportation
services between Primary Point(s) of Receipt and Delivery and ahead of any
interruptible Transportation Service at such point(s).
1.3 AUTHORIZED OVERRUN QUANTITY. On any Day, upon request of Shipper and
with Transporter's consent, Shipper may Tender and Transporter may accept for
Transportation quantities of gas in excess of Shipper's MDQ or Shipper's Point
of Receipt or Delivery Quantities at each Point of Receipt or Delivery. For any
authorized overrun volumes up to 5,000 Dth per Day, Shipper shall pay a rate of
$.15 per Dth, plus Fuel Reimbursement and applicable surcharges.
ARTICLE II
POINT(S) OF RECEIPT AND POINT(S) OF DELIVERY
2.1 RECEIPT. Transporter agrees to accept Receipt Quantities at the
Primary Point(s) of Receipt identified in Exhibit "A," which is incorporated
herein by reference.
2.2 DELIVERY. Transporter agrees to transport and Deliver Delivery
Quantities to Shipper (or for Shipper's account) at the Primary Point(s) of
Delivery identified in Exhibit "A."
<PAGE>
2.3 SECONDARY POINT(S) OF RECEIPT AND DELIVERY. Receipt and Delivery of
quantities at Secondary Point(s) of Receipt and/or Secondary Point(s) of
Delivery will be scheduled and allocated capacity pursuant to Article 5 of the
General Terms and Conditions of Transporter's FERC Gas Tariff, First Revised
Volume No. 1 ("The Tariff"). Shipper shall be entitled to receive service at
Secondary Point(s) of Receipt and Delivery by nominating for service at such
locations.
ARTICLE III
APPLICABLE RATE SCHEDULE, INCORPORATION BY REFERENCE
3.1 RATE SCHEDULE. Each Month, Shipper shall pay Transporter for
Transportation Service provided hereunder at the rates and surcharges set forth
in Exhibit "B," which is incorporated herein by reference, for the Term of Rate
provided therein. Once the Term of Rate has expired, payment shall be at the
maximum rates and surcharges set forth on the Schedule of Rates Sheets of The
Tariff unless otherwise agreed.
3.2 INCORPORATION BY REFERENCE. This Agreement in all respects shall be
subject to Rate Schedule TF-1 and the General Terms and Conditions of The Tariff
filed with, and made effective by, the FERC (as they may be superseded, or as
they may be amended pursuant to Article VII of this Agreement) all of which are
by reference made a part hereof. Provided, however, that gas tendered at the
Primary Point of Receipt will not be subject to the Valley Line input factor
specifications set forth in Section 9.6 of the General Terms and Conditions of
The Tariff upon Transporter installing the Central Blending Facility described
in Section 6.6 of this Agreement.
3.3 CHANGES IN RATES AND TERMS. Transporter shall have the right to
propose to the FERC changes in its rates and terms of service, and this
Agreement shall be deemed to include any changes which are made effective
pursuant to FERC Order or regulation or provisions of law, without prejudice to
Shipper's right to protest the same.
ARTICLE IV
TERM
4 1 EFFECTIVE DATE. This Agreement shall become effective on October 1,
1996.
2
<PAGE>
4.2 TERMINATION DATE. This Agreement shall continue in full force and
effect for a term extending through September 30, 2006.
4.3 TERMINATION OBLIGATIONS. Termination of this Agreement shall not
relieve Transporter and Shipper of the obligation to correct any quantity
imbalances, or relieve Shipper of the obligation to pay money due to
Transporter. All warranties and indemnities shall survive the termination of
this Agreement.
ARTICLE V
CANCELLATION OF PRIOR CONTRACTS
5.1 CANCELLATION OF PRIOR CONTRACTS. When this Agreement becomes
effective, it shall supersede and cancel the following contract(s) between the
Parties: None.
ARTICLE VI
OTHER OPERATING PROVISIONS
6.1 Shippers under this Rate Schedule TF-1 shall be subject to the Joint
Monthly Operating Plan and Operational Flow Orders as provided in Article 7 of
the General Terms and Conditions of The Tariff.
6.2 FIRST-OF-THE-MONTH NOMINATIONS. By 10:00 a.m., Mountain Time, at
least four Business Days, or, for Shippers using Transporter's electronic
bulletin board, by 10:00 a.m., Mountain Time, two Business Days, before the
first Day of each Month (e.g., 10:00 a.m., Mountain Time, Tuesday, for gas
Tendered beginning 12:00 p.m., Mountain Standard Time, Thursday, or 10:00 a.m.,
Mountain Time, Thursday, for gas Tendered beginning 12:00 p.m., Mountain
Standard Time, Monday), Shipper shall provide Transporter with a schedule (in
writing or by Electronic Transmission) showing the daily quantity to be Tendered
to Transporter during the first four Days of the Month at each Point of Receipt
including the producing area (including county and state) of the gas to be
Tendered and an allocation of such quantity at each Point of Delivery.
Nominations shall be addressed as set forth in Article VIII of this Agreement.
6.3 DAILY NOMINATIONS. Unless otherwise agreed, Shipper shall submit
daily nominations to Transporter, by Electronic Transmission, or in writing, by
10:00 a.m., Mountain
3
<PAGE>
Time, of the day prior to the Day of Delivery (e.g., nominations shall be made
by 10:00 a.m., Mountain Time, on Monday for gas to be Tendered beginning at
12:00 p.m., Mountain Standard Time, on Tuesday). For each Agreement, Shipper
shall nominate in writing or by Electronic Transmission the quantity which
Shipper intends to Tender at the Point(s) of Receipt and to receive at the
Point(s) of Delivery, including an allocation of Point of Receipt Quantities to
each Point of Delivery in the event of multiple Delivery Points.
In situations involving Northwest Pipeline Corporation, Transporter's
nomination deadline is 9:30 a.m. Mountain Time, 30 minutes before Northwest
Pipeline Corporation's nomination deadline.
Transporter shall exercise reasonable efforts to accommodate changes to
Shipper's nomination for injection into and, where applicable, withdrawal from
Transporter's Storage Fields under Rate Schedule FS-1 and/or NNT-1 up to 4:00
p.m., Mountain Time, on the Day in which nominations are effective. Transporter
shall only accept such changes if they do not affect other already scheduled
quantities and subject to confirmation at the Point(s) of Receipt or Point(s) of
Delivery, where applicable.
Transporter shall attempt to verify all nominations and confirm service to
Shipper no later than four hours prior to the Day for which the Nominations are
to be effective.
Transporter is not responsible for assuring that the nominated quantities
are actually Tendered to Transporter at the Point(s) of Receipt.
All service performed under this Agreement shall be performed pursuant to
18 CFR 284.221 authority, unless Shipper elects service to be performed pursuant
to 18 CFR 284.101 (Section 311) .
6.4 ESTIMATES. For planning purposes, Transporter may, from time to time,
request estimates of Shipper's annual quantity, average daily quantity, or peak
Day quantities. In the event that such a request is made, Shipper shall reply
in writing within 45 days of the request.
6.5 PLANNING INFORMATION. Transporter may request other planning
information as needed from time to time and Shipper shall comply with all
reasonable requests.
4
<PAGE>
6.6 NEW FACILITIES. Transporter agrees to construct a nitrogen blending
facility that will have the capability of conditioning all volumes flowing
through the Picketwire Lateral to the input factor specifications as stated in
Article 9 in Transporter's FERC Gas Tariff. Transporter shall use commercially
reasonable efforts to install either the ("Central Blending Facility") or an
interim facility capable of blending 20,000 Dth per Day by October 1, 1996. If
the necessary blending facilities are not in service by October 1, 1996 (subject
to force majeure as defined in The Tariff), Transporter will make firm
deliveries for Shipper at Shipper's Primary Point of Delivery until such time as
the necessary blending facilities are in-servlce.
ARTICLE VII
MODIFICATIONS
7.1 MODIFICATIONS. Certain provisions of the General Terms and Conditions
of The Tariff and/or Rate Schedule TF-1 are modified for the purpose of this
Agreement, as specified below: None.
ARTICLE VIII
NOTICES
8.1 NOTICES, STATEMENTS, AND BILLS. Any notice, statement, or bill
provided for in this Agreement shall be in writing and shall be considered as
having been given if hand carried, telecopied, or if mailed by United States
mail, postage prepaid, to the following addresses, respectively:
TO SHIPPER:
Invoices for Transportation:
Primero Gas Marketing Company
1000 Writer Square
1512 Larimer Street
Denver, Colorado 80202
Attention: Kevin Collins
Phone No. (303) 534-0400
Telecopy No. (303) 534-0420
All Notices:
Primero Gas Marketing Company
1000 Writer Square
1512 Larimer Street
5
<PAGE>
Denver, Colorado 80202
Attention: Mark Sexton
Phone No. (303) 534-0400
Telecopy No. (303) 534-0420
TO TRANSPORTER:
Payments for Transportation:
Colorado Interstate Gas Company
Department 208
Denver, Colorado 80291
All Notices:
Colorado Interstate Gas Company
P. O. Box 1087
Colorado Springs, Colorado 80944
Attention: Account Management, Transmission & Storage
Telecopy No. (719) 520-4810
All Nominations:
Colorado Interstate Gas Company
Colorado Springs, Colorado 80944
Attention: Volume Management, Transmission & Storage
Telecopy No. (719) 520-4411
8.2 AGENTS. Shipper must provide written notice to Transporter of the
name, and any other pertinent information, of another person ("Agent") that has
agency authority to act for Shipper in connection with (1) the Joint Monthly
Operating Plan as discussed in Article 7 of the General Terms and Conditions of
The Tariff, (2) operation of pipelines, facilities, and wells in connection with
this Agreement, (3) Operational Flow Orders as discussed in Article 7 of the
General Terms and Conditions of The Tariff, and/or (4) other matters covered by
this Agreement. If the Agent has the authority in (2) and (3), above, operating
notices shall be served upon the Agent alone. The Shipper remains bound by its
obligations under the Agreement, and commitments made by the Agent on behalf of
the Shipper are binding on the Shipper as if made by the Shipper. The Shipper
must provide prompt written notice of the termination of the agency.
6
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement.
COLORADO INTERSTATE GAS COMPANY
(Transporter)
By /s/ Donald J. Zinko
-------------------------------
Donald J. Zinko
Senior Vice President
PRIMERO GAS MARKETING COMPANY
(Shipper)
ATTEST: BY: EVERGREEN OPERATING CORP., MANAGER
By /s/ Mark S. Sexton
-------------------------------
By /s/ J. Keither Martin Mark S. Sexton
--------------------- -------------------------------
Title (Print or type name)
Evergreen Operating Corp.
Corporate Secretary
Director
-------------------------------
(Print or type title)
7
<PAGE>
EXHIBIT "A"
to
FIRM TRANSPORTATION SERVICE AGREEMENT
between
COLORADO INTERSTATE GAS COMPANY (Transporter)
and
PRIMERO GAS MARKETING COMPANY (Shipper)
DATED: October 1, 1996
1. Shipper's Maximum Delivery Quantity ("MDQ"): 10,000 Dth per Day.
PRIMARY POINT(S) OF MAXIMUM
PRIMARY POINT(S) OF RECEIPT RECEIPT QUANTITY RECEIPT
(NOTE 1) (DTH PER DAY) PRESSURE
(NOTE 2) P.S.I.G.
- --------------------------------------------------------------------------------
Burro Canyon 10,000 1,220
MAXIMUM
PRIMARY POINT(S) OF DELIVERY PRIMARY POINT(S) OF DELIVERY
DELIVERY QUANTITY PRESSURE
(NOTE 1) (DTH PER DAY) P.S.I.G.
- --------------------------------------------------------------------------------
Dumas 10,000 650
NOTES: (1) Information regarding Point(s) of Receipt and Point(s) of Delivery,
including legal descriptions, measuring parties, and interconnecting
parties, shall be posted on Transporter's electronic bulletin board.
Transporter shall update such information from time to time to
include additions, deletions, or any other revisions deemed
appropriate by Transporter.
(2) Each Point of Receipt Quantity may be increased by an amount equal to
Transporter's Fuel Reimbursement percentage. Shipper shall be
responsible for providing such Fuel Reimbursement at each Point of
Receipt on a pro rata basis based on the quantities received on any
Day at a Point of Receipt divided by the total quantity Delivered at
all Point(s) of Delivery under this Transportation Service Agreement.
<PAGE>
Page 1 of 2
EXHIBIT "B"
to
FIRM TRANSPORTATION SERVICE AGREEMENT
between
COLORADO INTERSTATE GAS COMPANY (Transporter)
and
PRIMERO GAS MARKETING COMPANY (Shipper)
DATED: OCTOBER 1, 1996
PRIMARY PRIMARY R1 RES- COMMOD- FUEL
POINT(S) OF POINT(S) OF ERVATION ITY TERM OF REIMBURSE- SUR-
RECEIPT DELIVERY RATE RATE RATE MENT CHARGES
- --------------------------------------------------------------------------------
Burro Dumas (Notes 4 (Note 5) 10/1/96 (Note 2) (Note 3)
Canyon and 5) through
9/30/2006
SECONDARY SECONDARY R1 RES- COMMOD- FUEL
POINT(S) OF POINT(S) OF ERVATION ITY TERM OF REIMBURSE- SUR-
RECEIPT DELIVERY RATE RATE RATE MENT CHARGES
- --------------------------------------------------------------------------------
All All (Note 1) (Note 1) 10/1/96 (Note 2) (Note 3)
through
9/30/2006
NOTES: (1) Unless otherwise agreed by the Parties in writing, the rates for
service hereunder shall be Transporter's maximum rates for service
under Rate Schedule TF-1, or other superseding Rate Schedule, as such
rates may be changed from time to time.
(2) Fuel Reimbursement shall be as stated on Transporter's Schedule of
Surcharges and Fees in The Tariff, as they may be changed from time
to time, unless otherwise agreed between the Parties.
(3) Surcharges, if applicable:
All applicable surcharges, unless otherwise specified, shall be the
maximum surcharge rate as stated in the Schedule of Surcharges and
Fees in The Tariff, as such surcharges may be changed from time to
time.
<PAGE>
Page 2 of 2
EXHIBIT "B"
NOTES:
GQC:
The Gas Quality Control Surcharge shall be assessed pursuant to
Article 20 of the General Terms and Conditions as set forth in The
Tariff.
GRI:
The GRI Surcharge shall be assessed pursuant to Article 18 of the
General Terms and Conditions as set forth in The Tariff.
HFS:
The Hourly Flexibility Surcharge will be assessed pursuant to Article
20 of the General Terms and Conditions as set forth in The Tariff.
ORDER NO. 636 TRANSITION COST MECHANISM:
Surcharge(s) shall be assessed pursuant to Article 21 of the General
Terms and Conditions as set forth in The Tariff.
ACA:
The ACA Surcharge shall be assessed pursuant to Article 19 of the
General Terms and Conditions as set forth in The Tariff.
(4) If Shipper releases any of its capacity (i.e., becomes a Releasing
Shipper under Transporter's Capacity Release Program) and the
Replacement Shipper is paying more than the Releasing Shipper,
Transporter shall be entitled to the difference, if any, between the
reservation charge(s), including all applicable surcharges, being paid
by the Replacement Shipper, and the reservation charges, including all
applicable surcharges, being paid by the Releasing Shipper.
(5) The rates for service shall be Transporter's maximum rates under Rate
Schedule TF- l in The Tariff as of October 1, 1996, subject to refund.
Once the maximum TF-1 rates are approved by the FERC in Rate
Proceeding Docket No. RP96-190 ("Approved Rate ) such rate shall
remain fixed for the remainder of the term of this Agreement. In the
event Transporter is not permitted (by virtue of the Tariff, FERC
ruling, or otherwise) to collect the Approved Rate, Transporter and
Shipper shall negotiate an amendment to this Agreement or other
arrangement which places the Parties in the same economic position
they would have been in had Transporter been permitted to collect the
full Approved Rate.
<PAGE>
CONSENT OF ATTORNEYS
Reference is made to the Registration Statement on Form S-2 of Evergreen
Resources, Inc.
I hereby consent to the use of my opinion concerning the legality of the
securities being registered dated September 9, 1996 filed as an exhibit to
the Registration Statement, and to being named in the Registration Statement
as having advised Evergreen Resources, Inc. as to the legality of its
securities proposed to be sold.
JOHN B. WILLS
Attorney at Law
By: /s/ JOHN B. WILLS
-------------------------------
John B. Wills
Denver, Colorado
September 9, 1996
EXHIBIT 23.1
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Evergreen Resources, Inc.
Denver, Colorado
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated May 24, 1996, relating to the
consolidated financial statements of Evergreen Resources, Inc., which is
contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO SEIDMAN, LLP
Denver, Colorado
September 10, 1996
<PAGE>
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Evergreen Resources, Inc. on Form S-2 of our report on the consolidated
financial statements of Powerbridge, Inc. dated April 12, 1996 (August 15,
1996 as to Note 9) (which expresses an unqualified opinion and includes an
explanatory paragraph relating to substantial doubt about Powerbridge, Inc.'s
ability to cointinue as a going concern) for the year ended December 31, 1995
appearing in Form 8-K/A dated September 6, 1996, of Evergreen Resources, Inc.
and to the reference to us under the heading ""Experts'' in the Prospectus,
which is a part of this Registration Statement.
Dallas, Texas
September 9, 1996
<PAGE>
Exhibit 23.4
RESOURCE SERVICES INTERNATIONAL, INC.
September 9, 1996
Mr. James S. Williams
Evergreen Resources, Inc.
1512 Larimer Street Suite 1000
Denver, Colorado 80202
Gentlemen:
We hereby consent to the use in the Prospectus constituting a part of your
Registration Statement on Form S-2 of our estimates as of March 31, 1996 and
August 1, 1996, relating to the extent and value of the proved oil and gas
reserves of Evergreen Resources, Inc.
We also consent to the reference to us under the caption "Experts" in the
prospectus.
Sincerely,
RESOURCE SERVICES INTERNATIONAL, INC.
