<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 21, 1997.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EVERGREEN RESOURCES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
COLORADO 84-0834147
(State or other jurisdiction (I.R.S. Employer
of Identification
incorporation or organization) No.)
</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)
MARK S. SEXTON, CHIEF EXECUTIVE OFFICER
EVERGREEN RESOURCES, INC.
1000 WRITER SQUARE, 1512 LARIMER STREET
DENVER, COLORADO 80202
(303) 534-0400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
WILLIAM P. CRAWFORD, JR., ESQ. ROBERT H. WHILDEN, JR., ESQ.
WYCHE, BURGESS, FREEMAN & PARHAM, P.A. VINSON & ELKINS L.L.P.
POST OFFICE BOX 728 1001 FANNIN STREET, SUITE 2300
GREENVILLE, SOUTH CAROLINA 29602-0728 HOUSTON, TEXAS 77002-6760
(864) 242-8200 (TELEPHONE) (713) 758-2222 (TELEPHONE)
(864) 235-8900 (FACSIMILE) (713) 758-2346 (FACSIMILE)
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
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, other than securities offered only in connection with dividend or interest
reinvestment plans, 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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
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(1) PER UNIT(2) OFFERING PRICE REGISTRATION FEE(2)
<S> <C> <C> <C> <C>
Common Stock(3)................................ 3,162,500 $15.81 $49,999,125 $15,152
</TABLE>
(1) Includes 412,500 shares subject to the Underwriters' over-allotment option.
(2) Determined pursuant to Rule 457(c) under the Securities Act of 1933, as
amended, solely for the purpose of calculating the registration fee. Based
on the average of the high and low sales prices of the shares of Common
Stock reported on the Nasdaq National Market on November 20, 1997.
(3) Includes associated Common Stock purchase rights issuable pursuant to the
Company's Shareholder Rights Plan dated as of June 30, 1997. Prior to the
occurrence of certain events, the Common Stock purchase rights will not be
evidenced or traded separately from the Common Stock.
--------------------------
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 THAT 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>
SUBJECT TO COMPLETION -- DATED NOVEMBER 21, 1997
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>
PROSPECTUS
- --------------------------------------------------------------------------------
2,750,000 Shares
EVERGREEN RESOURCES, INC.
Common Stock
- ---------------------------------------------------------------
Of the 2,750,000 shares of common stock, no par value per share (the "Common
Stock"), offered hereby (the "Offering"), 2,000,000 shares are being sold by
Evergreen Resources, Inc. (the "Company") and 750,000 shares are being sold by
certain shareholders of the Company (the "Selling Shareholders"). See "Principal
and Selling Shareholders." The Company will not receive any of the proceeds from
the sale of shares of Common Stock by the Selling Shareholders.
The Common Stock is included in The Nasdaq Stock Market's National Market (the
"Nasdaq National Market") under the market symbol "EVER." On November , 1997,
the last reported sales price of the Common Stock on the Nasdaq National Market
was $ per share. See "Price Range of Common Stock."
SEE "RISK FACTORS" PAGES 10 TO 16 FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS
THAT SHOULD
BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK OFFERED
HEREBY.
- --------------------------------------------------------------------------------
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>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Shareholders
<S> <C> <C> <C> <C>
Per Share............................ $ $ $ $
Total(3)............................. $ $ $ $
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $ .
(3) The Company has granted the several Underwriters a 30-day over-allotment
option to purchase up to 412,500 additional shares of Common Stock on the
same terms and conditions as set forth above. If all such additional shares
are purchased by the Underwriters, the total Price to Public will be
$ , the total Underwriting Discounts and Commissions will be
$ , the total Proceeds to Company will be $ , and the total
Proceeds to Selling Shareholders will be $ . See "Underwriting."
- --------------------------------------------------------------------------------
The shares of Common Stock are offered by the several Underwriters, subject to
delivery by the Company and the Selling Shareholders and acceptance by the
Underwriters, to prior sale and to withdrawal, cancellation or modification of
the offer without notice. Delivery of the shares to the Underwriters is expected
to be made at the office of Prudential Securities Incorporated, One New York
Plaza, New York, New York, on or about November , 1997.
PRUDENTIAL SECURITIES INCORPORATED
HOWARD, WEIL, LABOUISSE, FRIEDRICHS
INCORPORATED
HANIFEN, IMHOFF INC.
November , 1997
<PAGE>
[MAP]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS, IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M
UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION, CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO AND OTHER
DATA APPEARING ELSEWHERE IN THIS PROSPECTUS. AS USED HEREIN, THE "COMPANY" OR
"EVERGREEN" MEANS EVERGREEN RESOURCES, INC. AND ITS SUBSIDIARIES UNLESS THE
CONTEXT REQUIRES OTHERWISE. UNLESS OTHERWISE INDICATED, INFORMATION INCLUDED IN
THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE
EXERCISED. CERTAIN TERMS USED HEREIN RELATING TO THE OIL AND GAS INDUSTRY ARE
DEFINED IN THE "GLOSSARY" BEGINNING ON PAGE 55 OF THIS PROSPECTUS.
THE COMPANY
Evergreen is an independent energy company engaged in the exploration,
development, operation and acquisition of oil and gas properties. The Company's
current operations are principally focused on developing and expanding its
coalbed methane project located in the Raton Basin in southern Colorado.
Evergreen also holds exploration licenses onshore in the United Kingdom, a net
2% interest in a consortium exploring offshore in the Falkland Islands, and an
oil and gas exploration license on approximately 2.4 million acres in northern
Chile.
Evergreen is one of the largest holders of oil and gas leases in the Raton
Basin with approximately 135,000 gross acres. In addition, the Company's daily
gas sales represent approximately 68% of the gas currently sold from the Raton
Basin. Evergreen currently has 78 producing gas wells on its Raton Basin
properties and has drilled an additional 24 wells, 20 of which are expected to
be placed into production by December 31, 1997 and four of which are exploratory
and subject to further evaluation. The Company has identified approximately 560
drilling locations on its Raton Basin acreage, of which 136 were included in the
Company's proved reserve base at September 30, 1997. These 136 proven locations
comprise approximately 20% of the Company's total acreage in the Raton Basin.
Evergreen intends to spend approximately $80 million over the next three years
on the further development of the Raton Basin, including drilling approximately
210 wells and expanding and upgrading its gathering and compression facilities.
At September 30, 1997, Evergreen had estimated net proved reserves of 203
Bcfe with a PV-10 of approximately $146 million. Natural gas constituted
substantially all of Evergreen's estimated net proved reserves, 99% of which
were located in the Raton Basin and 67% of which were developed. Evergreen has a
100% working interest in its Raton Basin acreage and wells, and also owns the
gathering systems and related equipment associated with these wells. The Company
acts as operator for all of its Raton Basin properties, as well as for certain
third party producing properties.
Since the completion of a pipeline from the Raton Basin and the
corresponding commencement of Company gas sales in early 1995, the Company has
achieved substantial growth in reserves, production, and EBITDA. Evergreen's
estimated net proved reserves have increased from approximately 63 Bcfe at March
31, 1995 to 203 Bcfe at September 30, 1997. Over this period, the number of
producing wells and average gross daily production increased from 9 wells and
1.5 MMcf to 73 wells and 25 MMcf, respectively. Similarly, EBITDA increased from
$718,000 for the nine month period ended September 30, 1996 to $5.5 million for
the nine month period ended September 30, 1997. Since inception of the Company's
drilling efforts in the Raton Basin, the Company has drilled and tested a total
of 98 wells and achieved a 99% success rate.
Evergreen believes that it has gained significant experience in coalbed
methane exploration and development, including the utilization of enhanced
drilling, completion and production techniques developed over a number of years.
This experience has enabled the Company to increase per well production and to
achieve low finding and development costs. From inception of its Raton Basin
project through September 30, 1997, the Company has spent approximately $43
million on the drilling and completion of its wells, pipelines, gathering
systems, compression equipment and the acquisition of acreage, which represents
a total finding and development cost of $0.21 per Mcfe.
3
<PAGE>
In addition, the Company's lease operating expenses ("LOE") and general and
administrative costs per Mcfe have declined steadily since gas sales began in
early 1995. For the year ended December 31, 1995, Evergreen's LOE and general
and administrative costs were $0.88 per Mcfe and $0.94 per Mcfe, respectively,
as compared to $0.31 per Mcfe and $0.19 per Mcfe, respectively, for the nine
months ended September 30, 1997.
RATON BASIN
The Raton Basin is an onshore depositional and structural basin that is
approximately 80 miles long and 50 miles wide, located in southern Colorado and
northern New Mexico. The Raton Basin contains two horizons of coalbeds, the
Vermejo coalbeds located at depths of between 450 and 3,500 feet and the
shallower Raton coalbeds, located at depths from the surface to approximately
2,000 feet. To date, Evergreen's primary production has been from the Vermejo
coalbeds; however, Evergreen believes that the Raton coalbeds may be profitably
exploited as well.
Approximately 100,000 acres of the Company's 135,000 gross acres in the
Raton Basin have been included in two federal units, which simplifies lease
maintenance for the Company. Formation of these federal units allows Evergreen,
as unit operator, to base development decisions within the unit on technical,
geologic and geophysical data, rather than on the fulfillment of lease term
obligations.
INTERNATIONAL PROJECTS
UNITED KINGDOM. Evergreen holds licenses on approximately 371,000 acres
onshore in the United Kingdom. The Company believes that there are potential
opportunities to develop coalbed methane reserves within these license areas. To
date, Evergreen has spent approximately $7.5 million on this project and is
holding discussions with potential industry partners for the purpose of further
evaluating and developing the licensed areas. Evergreen will be required to pay
$1.2 million over the next three years to maintain these licenses.
FALKLAND ISLANDS. Evergreen has a net 2% interest in a consortium that has
been awarded an exploration license for an offshore area north of the Falkland
Islands. A subsidiary of Amerada Hess Corporation is the operator of the
consortium, which includes Fina Exploration Atlantic BV, Murphy South Atlantic
Oil Company and Teikoku Oil Co. Ltd. The license covers 626 square miles in
water depths ranging up to 1,575 feet. The first test well of this project is
scheduled to be drilled in April 1998. The Company expects to spend
approximately $1.4 million on this project over the next three years.
CHILE. In March 1997, the Government of Chile awarded an oil and gas
exploration license to Evergreen on two 5,000 square kilometer (approximately
1.2 million acre) blocks in northern Chile. Evergreen has a 75% working interest
in the blocks and will serve as operator. Empresa Nacional del Petroleo
("ENAP"), the Chilean-owned energy company, holds the remaining 25% working
interest. Evergreen expects to engage in seismic geologic mapping and gravity
surveys over the next three years at an aggregate cost to the Company of
approximately $1.8 million.
BUSINESS STRATEGY
Evergreen's objective is to increase reserves, production, cash flow and net
asset value per share. To accomplish this objective, Evergreen intends to
utilize its competitive strengths, which include (i) its experience and
operating expertise in coalbed methane properties, (ii) its significant acreage
position in the Raton Basin, (iii) its position as a low-cost finder, developer
and producer of natural gas and (iv) the potential of its international
projects.
In order to implement its strategy, Evergreen will seek to:
- ACCELERATE DEVELOPMENT OF THE RATON BASIN. Since commencement of the
Company's drilling program in 1993, the Company has drilled a total of 102
wells in the Raton Basin. Of this total, 78 are
4
<PAGE>
currently in production, 20 are expected to be placed into production by
December 31, 1997 and four are exploratory and subject to further
evaluation. The Company plans to drill approximately 50 wells in 1998.
During 1999 and 2000, the Company plans to drill approximately 160 wells
and expand its gathering and compression facilities. The Company's capital
budget for this three year drilling and expansion program is approximately
$80 million.
- MAINTAIN CONTROL OF OPERATIONS. The Company acts as operator for all of
its producing properties within the Raton Basin, and controls all phases
of drilling, completion and well stimulation. The Company also constructs
and operates all of its gas gathering systems, which have been
specifically designed to optimize production from coalbed methane wells.
By operating its producing properties, Evergreen believes it has greater
control over its expenses and the timing of exploration and development of
such properties. The Company is also the designated operator for its
United Kingdom and Chilean projects, and operates certain third party
producing properties.
- IMPROVE AND EXPAND GAS MARKETING CAPABILITIES IN THE RATON BASIN.
Evergreen's natural gas sales from the Raton Basin commenced upon the
completion of a pipeline system in January 1995, which connected the
Company's gathering system to the Colorado Interstate Gas Co. ("CIG")
pipelines. In August 1997, Evergreen entered into a new agreement with CIG
pursuant to which CIG will construct a new, 115-mile, 16-inch pipeline
from Trinidad, Colorado to Campo, Colorado. When completed, this new
pipeline will have initial capacity of up to 100 MMcf per day and may be
further expanded through the use of additional compression facilities. The
new pipeline will more than double the pipeline capacity currently
available from the Raton Basin. This agreement has a term of 15 years and
entitles the Company to firm transportation of its Raton Basin gas from
the field to the CIG interconnection with other interstate pipelines in
Texas. The Company has committed to transport natural gas from the Raton
Basin through CIG's pipelines commencing on or about August 1998. The
initial commitment is 25 MMcf per day, increasing every six months to a
maximum of 41 MMcf per day 18 months after commencement. Subject to
available capacity in the pipeline, the Company has the first right to
increase its volumes up to 100 MMcf per day. Evergreen believes that the
CIG agreement will expand the range of customers to which it can market
its gas, thereby favorably impacting the prices Evergreen will receive for
its gas. See "Business and Properties -- Customers and Markets."
- PURSUE INTERNATIONAL OPPORTUNITIES. The Company seeks to identify
attractive international oil and gas projects that require relatively
small capital investments but which have potential for favorable returns.
Since 1992, the Company has obtained onshore exploration licenses covering
approximately 371,000 acres in the United Kingdom, a net 2% interest in a
consortium exploring offshore in the Falkland Islands and an oil and gas
exploration license on approximately 2.4 million acres in northern Chile.
The Company expects to spend approximately $5 million over the next three
years for the development of its international projects. Evergreen will
seek additional partners to help minimize the Company's upfront capital
requirements and other costs associated with development of these
projects.
- ACQUIRE ADDITIONAL PROPERTY INTERESTS. In August 1996, Evergreen acquired
the remaining 25% working interest in its Raton Basin lease holdings
(representing approximately 37 Bcf of estimated net proved reserves) at an
average acquisition cost of approximately $0.30 per Mcf. The Company
expects that it will continue to evaluate and make acquisitions of oil and
gas properties located in its principal areas of operation and in other
areas that provide attractive investment opportunities. The Company seeks
to acquire properties which meet one or more of the following criteria:
(i) an attractive purchase price that, when combined with the anticipated
capital expenditures, exceeds an acceptable internal rate of return, (ii)
the potential to increase reserves and production through the application
of lower risk exploration and development techniques and (iii) the
opportunity for improved operating efficiency.
5
<PAGE>
RECENT DEVELOPMENTS
AMOCO JUDGMENT
On June 25, 1997, Evergreen filed an action in the Las Animas County,
Colorado District Court seeking a declaratory judgment against Amoco Production
Company ("Amoco") regarding the proposed sale by Amoco of certain property
located in the Raton Basin, Las Animas County. Included in this property was
approximately 22,000 gross non-producing acres which is located within the
Cottontail Pass Federal Unit, situated near the center of Evergreen's present
135,000 gross acreage position in the Raton Basin. Evergreen, as a working
interest owner in the unit, had a preferential right under the applicable unit
operating agreement to purchase these 22,000 gross acres for $3,179,000.
Evergreen tendered to Amoco notice of its intention to exercise this
preferential right to purchase. Amoco contended that it did not receive valid
notice of the preferential purchase rights from Evergreen. In its action,
Evergreen sought a declaratory judgment that Evergreen had properly exercised
its preferential right of purchase, and that Amoco was obligated to sell the
properties covered by that right of purchase to Evergreen. On November 12, 1997,
the court granted Evergreen's motion for summary judgment and ruled that
Evergreen properly exercised its right of purchase for the subject properties.
Amoco has the right to appeal this ruling.
CONVERSION OF PREFERRED STOCK
Effective November 1, 1997, all of the Company's outstanding shares of 8%
Convertible Preferred Stock were converted into 905,660 shares of Common Stock.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock Offered by the Company............................... 2,000,000 shares
Common Stock Offered by the Selling Shareholders.................. 750,000 shares
Common Stock to be Outstanding after the Offering(1).............. 12,395,915 shares
Use of Proceeds................................................... To repay all indebtedness under the Company's
existing revolving credit facility, to fund
the continued development of the Company's
Raton Basin properties and for general
corporate purposes. See "Use of Proceeds."
Nasdaq National Market Symbol..................................... EVER
</TABLE>
- ------------------------
(1) Does not include 956,086 shares of Common Stock issuable upon exercise of
warrants outstanding as of November 20, 1997. See "Capitalization" and
"Description of Capital Stock."
RISK FACTORS
Investors should consider the material risk factors involved in connection
with an investment in the Common Stock and the impact to investors from various
events that could adversely affect the Company's business. See "Risk Factors."
6
<PAGE>
SUMMARY FINANCIAL DATA
The following table sets forth certain summary historical and recast
consolidated financial data of Evergreen for the periods indicated, which have
been derived from the consolidated financial statements of the Company. The
recast consolidated financial data is unaudited and is presented to reflect the
results of operations as if the Company had adopted a December 31 year end for
all periods presented. Effective with the period ended December 31, 1996, the
Company began utilizing a December 31 year end. All prior historical audited
financial statements of the Company were prepared on a March 31 fiscal year end.
The summary consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements,
the Notes thereto and other information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ----------------------
RECAST RECAST HISTORICAL
------------------------------- --------- -----------
1994 1995 1996 1996 1997
--------- --------- --------- --------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Oil and gas production............................................. $ 2,065 $ 1,291 $ 3,986 $ 2,139 $ 8,195
Oil and gas services............................................... 839 789 751 572 577
Interest and dividends............................................. 121 183 207 147 101
Other.............................................................. 439 591 46 44 228
--------- --------- --------- --------- -----------
Total revenues................................................... 3,464 2,854 4,990 2,902 9,101
--------- --------- --------- --------- -----------
Costs and expenses:
Lease operating expenses........................................... 968 777 826 489 1,444
Gas gathering costs................................................ 264 211 159 125 112
Cost of oil & gas services......................................... 795 705 805 585 622
Depreciation, depletion and amortization........................... 667 652 1,137 671 2,043
General and administrative......................................... 911 830 717 531 886
Interest........................................................... 23 45 193 110 511
Other.............................................................. 370 (6) 18 5 146
--------- --------- --------- --------- -----------
Total costs and expenses......................................... 3,998 3,214 3,855 2,516 5,764
--------- --------- --------- --------- -----------
Net income (loss).................................................... (534) (360) 1,135 386 3,337
Preferred stock dividends............................................ 19 430 590 450 360
--------- --------- --------- --------- -----------
Net income (loss) attributable to Common Stock....................... $ (553) $ (790) $ 545 $ (64) $ 2,977
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
Net income (loss) per common share................................. $ (0.10) $ (0.14) $ 0.08 $ (0.01) $ 0.32
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
STATEMENT OF CASH FLOWS DATA:
Net cash provided by (used by):
Operating activities............................................... $ 1,131 $ (668) $ 2,229 $ 1,424 $ 4,136
Investing activities............................................... (2,702) (2,808) (9,303) (5,686) (14,533)
Financing activities............................................... 3,968 2,904 6,122 1,803 9,856
OTHER FINANCIAL DATA:
Capital expenditures................................................. $ 7,510 $ 3,870 $ 9,597 $ 18,457 $ 14,927
EBITDA(1)............................................................ 137 (93) 1,875 718 5,531
Cash flow(2)......................................................... 114 (138) 1,682 607 5,020
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------
HISTORICAL AS ADJUSTED(3)
----------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................................................................... $ 2,099
Working capital.................................................................................... 30
Total assets....................................................................................... 81,912
Total long-term debt............................................................................... 11,376
Total stockholders' equity......................................................................... 55,755
</TABLE>
- ------------------------------
(1) EBITDA is defined as net income (loss) attributable to Common Stock, plus
interest, income taxes, depreciation, depletion and amortization. EBITDA is
a financial measure commonly used in the Company's industry and should not
be considered in isolation or as a substitute for net income, net cash
provided by operating activities or other income or cash flow data prepared
in accordance with generally accepted accounting principles or as a measure
of a company's profitability or liquidity. Because EBITDA excludes some,
but not all, items that affect net income and may vary among companies, the
EBITDA presented above may not be comparable to similarly titled measures
of other companies.
(2) Cash flow is defined as net income (loss) attributable to Common Stock plus
depreciation, depletion and amortization.
(3) Adjusted to give effect to the sale of 2,000,000 shares of Common Stock
offered by the Company hereby and the application of the estimated net
proceeds therefrom and the conversion of the Company's 8% Convertible
Preferred Stock into 905,660 shares of Common Stock. See "Use of Proceeds"
and "Capitalization."
7
<PAGE>
SUMMARY OPERATING DATA
The following table sets forth summary data with respect to the production
and sales of oil and natural gas by Evergreen for the periods indicated. The
recast operating data is presented to reflect the operating data as if the
Company had adopted a December 31 year end for all periods presented. Effective
with the period ended December 31, 1996, the Company began utilizing a December
31 fiscal year end. All prior historical operating data was prepared on a March
31 fiscal year end.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ----------------------
RECAST RECAST HISTORICAL
------------------------------- --------- -----------
1994 1995 1996 1996 1997
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
PRODUCTION DATA:
Natural gas (MMcf)........................................... 772 793 2,408 1,421 4,564
Oil (MBbls).................................................. 40 15 2 -- --
Total (MMcfe)................................................ 1,019 885 2,422 1,421 4,564
AVERAGE SALES PRICE PER UNIT:
Natural gas (per Mcf)........................................ $ 1.92 $ 1.34 $ 1.63 $ 1.46 $ 1.80
Oil (per Bbl)................................................ 14.54 14.79 24.65 -- --
Mcfe......................................................... 2.04 1.46 1.65 1.46 1.80
COSTS PER MCFE:
Average LOE.................................................. $ 0.96 $ 0.88 $ 0.34 $ 0.32 $ 0.31
General and administrative................................... 0.90 0.94 0.30 0.37 0.19
Depreciation, depletion and amortization..................... 0.66 0.74 0.47 0.47 0.45
</TABLE>
The following table sets forth finding and development costs with respect to
the Company's United States properties, except properties acquired in
acquisitions, for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, NINE MONTHS ENDED
------------------------------- ------------------------------------------
1994 1995 1996 DECEMBER 31, 1996 SEPTEMBER 30, 1997
--------- --------- --------- ------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Finding and Development Costs (per Mcfe)........... $ 0.18 $ 0.24 $ 0.12 $ 0.32 $ 0.25
</TABLE>
8
<PAGE>
SUMMARY RESERVE AND ACREAGE DATA
The reserve estimates and present value data at September 30, 1997 for
Evergreen's properties were audited by both Netherland, Sewell & Associates,
Inc. and Resource Services International, Inc., independent petroleum
engineering consultants. Resource Services International, Inc. also prepared the
reserve estimates for March 31, 1994, 1995 and 1996, and December 31, 1996. The
summaries of the reports dated September 30, 1997 of Netherland, Sewell &
Associates, Inc. and Resource Services International, Inc. are included as
Appendix A and Appendix B, respectively, to this Prospectus. See "Risk Factors
- -- Uncertainty of Reserve Information and Future Net Revenue Estimates,"
"Business and Properties -- Oil and Gas Reserves" and Note 17 of the Notes to
the Consolidated Financial Statements of the Company.
<TABLE>
<CAPTION>
AS OF SEPTEMBER
AS OF MARCH 31, AS OF DECEMBER 31, 30,
------------------------------- ------------------ ------------------
ESTIMATED PROVED RESERVES: 1994 1995 1996 1996 1997
--------- --------- --------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Natural gas (MMcf)........................... 51,588 57,882 80,926 150,720 203,192
Oil (MBbls).................................. 1,643 843 5 3 3
MMcfe........................................ 61,447 62,939 80,955 150,735 203,210
Percent proved developed..................... 42% 31% 51% 59% 67%
PV-10(1)(2) (in thousands)................... $ 32,444 $ 23,313 $ 30,163 $70,499 $146,329
ACREAGE:
Gross acres:
Developed................................ 64,400 22,900 22,900 26,800 18,800
Undeveloped.............................. 761,100 653,800 753,000 3,546,600 3,288,400
Net acres:
Developed................................ 24,000 13,100 13,100 20,000 14,200
Undeveloped.............................. 713,200 705,300 704,300 2,531,900 2,276,500
</TABLE>
- ------------------------------
(1) These amounts reflect the future effects of Evergreen's year end prices
and/or open hedging contracts at the end of the periods presented. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Hedging Transactions."
(2) Weighted average natural gas prices used in the estimation of net proved
reserves and the calculation of PV-10 were $1.75, $1.24, $1.49, $1.61 and
$1.84 per Mcf at March 31, 1994, 1995 and 1996, December 31, 1996 and
September 30, 1997, respectively. Weighted average oil prices used in the
estimation of net proved reserves and the calculation of PV-10 were $14.00,
$17.37, $18.00, $18.00 and $18.00 per Bbl, at March 31, 1994, 1995 and
1996, December 31, 1996 and September 30, 1997, respectively.
9
<PAGE>
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. Prospective investors should carefully consider the following risk
factors, in addition to other information contained in this Prospectus, in
connection with an investment in the Common Stock offered hereby.
This Prospectus, including the information incorporated by reference herein,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including
statements regarding, among other items, (i) the Company's growth strategies,
(ii) anticipated trends in the Company's business and its future results of
operations, (iii) market conditions in the oil and gas industry, (iv) the
ability of the Company to make and integrate acquisitions and (v) the outcome of
litigation and the impact of governmental regulation. These forward-looking
statements are based largely on the Company's expectations and are subject to a
number of risks and uncertainties, many of which are beyond the Company's
control, including those described below. Actual results could differ materially
from these forward-looking statements as a result of, among other things, a
decline in natural gas production, a decline in natural gas prices, incorrect
estimations of required capital expenditures, increases in the cost of drilling,
completion and gas gathering, an increase in the cost of production and
operations, an inability to meet growth projections, and/or changes in general
economic conditions. Actual results could materially differ and could be
adversely affected by the information set forth below and under the headings
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business and Properties." In light of these risks and
uncertainties, there can be no assurance that actual results will be as
projected in the forward-looking statements.
VOLATILITY OF OIL AND GAS PRICES. The Company's revenues, operating
results, profitability, future rate of growth and the carrying value of its oil
and gas properties are substantially dependent upon prevailing market prices for
oil and gas. Historically, the markets for oil and gas have been volatile and in
certain periods have been depressed by excess domestic and imported supplies.
Such volatility is expected to recur in the future. Various factors beyond the
control of the Company will affect prices of oil and gas, including worldwide
and domestic supplies of oil and gas, the ability of the members of the
Organization of Petroleum Exporting Countries to agree to and maintain oil price
and production controls, political instability or armed conflict in oil or gas
producing regions, the price and level of foreign imports, the level of consumer
demand, the price, availability and acceptance of alternative fuels, the
availability of pipeline capacity, and weather conditions. In addition to market
factors, actions of state and local agencies and the United States and foreign
governments affect oil and gas prices. These external factors and the volatile
nature of the energy markets make it difficult to estimate future prices of oil
and gas. Any substantial or extended decline in the price of oil or gas would
have a material adverse effect on the Company's financial condition and results
of operations. Such decline could reduce the Company's cash flow and borrowing
capacity and both the value and the amount of the Company's gas reserves.
In order to reduce its exposure to short-term fluctuations in the price of
natural gas, the Company enters into hedging arrangements from time to time. The
Company's hedging arrangements apply to only a portion of its production and
provide only partial price protection against declines in natural gas prices. In
addition, the Company's hedging arrangements limit the benefit to the Company of
increases in the price of natural gas. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Hedging Transactions."
The Company periodically reviews the carrying value of its oil and gas
properties under the full cost accounting rules of the Securities and Exchange
Commission. Under these rules, capitalized costs of proved oil and gas
properties may not exceed the present value of estimated future net revenues
from proved reserves, discounted at 10%. Application of the ceiling test
generally requires pricing future revenue at the unescalated prices in effect as
of the end of each fiscal quarter and requires a write-down for accounting
purposes if the ceiling is exceeded, even if prices were depressed for only a
short period of
10
<PAGE>
time. The Company may be required to write down the carrying value of its oil
and gas properties when oil and gas prices are depressed or unusually volatile.
If a write-down is required, it would result in a charge to earnings, but would
not impact cash flow from operating activities. Once incurred, a write-down of
oil and gas properties is not reversible at a later date.
SUBSTANTIAL CAPITAL REQUIREMENTS. The Company's current development plans
will require it to make substantial capital expenditures in connection with the
exploration and development of its natural gas properties. Also, exploration and
development of the Company's international projects is dependent upon the
Company securing the necessary capital. Historically, the Company has funded its
capital expenditures through a combination of funds generated internally from
sales of production or properties, equity contributions, long-term debt
financing and short-term financing arrangements. The Company anticipates that
the net proceeds from this Offering and internal cash flow will be sufficient to
meet its estimated capital expenditure requirements for approximately 18 months
following the Offering. The Company believes that after such 18-month period it
may require a combination of additional financing and cash flow from operations
to implement its future development plans. The Company currently does not have
any arrangements with respect to, or sources of, additional financing other than
the Company's existing $30 million credit facility (the "Credit Facility") and
its $6 million equipment lease facility (the "Equipment Lease Facility"), both
with Hibernia National Bank. There can be no assurance that any additional
financing will be available to the Company on acceptable terms or at all. Future
cash flows and the availability of financing will be subject to a number of
variables, such as the level of production from existing wells, prices of oil
and natural gas, the Company's success in locating and producing new reserves
and the success of its coalbed methane project in the Raton Basin. To the extent
that future financing requirements are satisfied through the issuance of equity
securities, the Company's existing shareholders may experience dilution that
could be substantial. The incurrence of debt financing could result in a
substantial portion of the Company's operating cash flow being dedicated to the
payment of principal and interest on such indebtedness, could render the Company
more vulnerable to competitive pressures and economic downturns and could impose
restrictions on the Company's operations. If revenue were to decrease as a
result of lower oil and natural gas prices, decreased production or otherwise,
and the Company had no availability under the Credit Facility or any other
credit facility, the Company's ability to execute its development plans, replace
its reserves or maintain production levels could be materially limited. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
UNCERTAINTY OF RESERVE INFORMATION AND FUTURE NET REVENUE ESTIMATES. There
are numerous uncertainties inherent in estimating quantities of proved oil and
natural gas reserves and their values, including many factors beyond the
Company's control. Estimates of proved undeveloped reserves and reserves
recoverable through enhanced recovery techniques, which comprise a significant
portion of the Company's reserves, are by their nature uncertain. The reserve
information set forth in this Prospectus represents estimates only. Although the
Company believes such estimates to be reasonable, reserve estimates are
imprecise and may materially change as additional information becomes available.
Estimates of oil and natural gas reserves, by necessity, are projections
based on geologic and engineering data, and there are uncertainties inherent in
the interpretation of such data as well as the projection of future rates of
production and the timing of development expenditures. Reserve engineering is a
subjective process of estimating underground accumulations of oil and natural
gas that are difficult to measure. The accuracy of any reserve estimate is a
function of the quality of available data, engineering and geological
interpretation and judgment. Estimates of economically recoverable oil and
natural gas reserves and future net cash flows necessarily depend upon a number
of variable factors and assumptions, such as historical production from the area
compared with production from other producing areas, the assumed effects of
regulations by governmental agencies and assumptions governing future oil and
natural gas prices, future operating costs, severance and excise taxes,
development costs and workover and remedial costs, all of which may in fact vary
considerably from actual results. For these reasons, estimates
11
<PAGE>
of the economically recoverable quantities of oil and natural gas attributable
to any particular group of properties, classifications of such reserves based on
risk of recovery, and estimates of the future net cash flows expected therefrom
may vary substantially. Any significant variance in the assumptions could
materially affect the estimated quantity and value of the reserves. Actual
production, revenues and expenditures with respect to the Company's reserves
will likely vary from estimates, and such variances may be material. See
"Business and Properties -- Oil and Gas Reserves."
PV-10, as referred to in this Prospectus, should not be construed as the
current market value of the estimated oil and natural gas reserves attributable
to the Company's properties. In accordance with applicable regulations, the
estimated discounted future net cash flows from proved reserves are based on
prices and costs as of the date of the estimate, whereas actual future prices
and costs may be materially higher or lower. Actual future net cash flows also
will be affected by factors such as the amount and timing of actual production,
supply and demand for natural gas, curtailments or increases in consumption by
natural gas purchasers and changes in governmental regulations or taxation. The
timing of actual future net cash flows from proved reserves, and thus their
actual present value, will be affected by the timing of both the production and
the incurrence of expenses in connection with development and production of oil
and natural gas properties. In addition, the 10% discount factor, which is
required to be used to calculate PV-10 for reporting purposes, is not
necessarily the most appropriate discount factor based on interest rates in
effect from time to time and risks associated with the Company or the oil and
natural gas industry in general.
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 and subjective judgments that are speculative. Although available
geological and geophysical information can provide information with respect to
the potential of an oil or gas property, it is impossible to predict 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. A variety of factors, both
geological and market-related, can cause a well to become uneconomic or
marginally economic.
OPERATING HAZARDS. The oil and natural gas business involves certain
operating hazards such as well blowouts, craterings, explosions, uncontrollable
flows of oil, natural gas or well fluids, fires, formations with abnormal
pressures, pipeline ruptures or spills, pollution, releases of toxic gas and
other environmental hazards and risks, any of which could result in substantial
losses to the Company. The availability of a ready market for the Company's
natural gas production also depends on the proximity of reserves to, and the
capacity of, natural gas gathering systems and pipelines. The Company delivers
natural gas through gas pipelines that it does not own. Federal and state
regulation of natural gas and oil production and transportation, tax and energy
policies, changes in supply and demand and general economic conditions all could
adversely affect the Company's ability to produce and market its oil and natural
gas. In addition, the Company may be liable for environmental damage caused by
previous owners of property purchased or leased by the Company. As a result,
substantial liabilities to third parties or governmental entities may be
incurred, the payment of which could reduce or eliminate the funds available for
exploration, development or acquisitions or result in losses to the Company. In
accordance with customary industry practices, the Company maintains insurance
against some, but not all, of such risks and losses. The Company carries
business interruption insurance in varying amounts based upon the estimated time
to cause the covered facilities to become operational. The Company may elect to
self-insure if management believes that the cost of insurance, although
available, is excessive relative to the risks presented. The occurrence of an
event that is not covered, or not fully covered, by insurance could have a
material adverse effect on the Company's financial condition and results of
operations. In addition, pollution and environmental risks generally are not
fully insurable.
12
<PAGE>
RISKS OF EXPLORATORY DRILLING. Exploratory drilling involves numerous
risks, including the risk that no commercially productive natural gas or oil
reservoirs will be encountered. The cost of drilling, completing and operating
wells is often uncertain, and drilling operations may be curtailed, delayed or
canceled as a result of a variety of factors, including unexpected drilling
conditions, pressure or irregularities in formations, equipment failures or
accidents, adverse weather conditions, compliance with governmental requirements
and shortages or delays in the availability of drilling rigs and the delivery of
equipment. The Company's future drilling activities may not be successful. There
can be no assurance that the Company's overall drilling success rate or its
drilling success rate for activity within a particular area will not decline.
Unsuccessful drilling activities could have a material adverse effect on the
Company's results of operations and financial condition. The Company may not
have any option or lease rights in potential drilling locations it identifies.
Although the Company has identified numerous potential drilling locations, there
can be no assurance that they will ever be drilled or that natural gas will be
produced from these or any other potential drilling locations.
RESERVE REPLACEMENT RISK. The Company's future success depends upon its
ability to find, develop or acquire additional oil and natural gas reserves in
the Raton Basin that are economically recoverable. The proved reserves of the
Company will generally decline as reserves are depleted, except to the extent
that the Company conducts successful exploration or development activities or
acquires properties containing proved reserves. At September 30, 1997, the
Company had proved undeveloped reserves of approximately 67 Bcfe, which
constituted approximately 33% of the Company's total proved reserves at
September 30, 1997. The Company's current development plan includes increasing
its reserve base through continued drilling and development of its existing
properties in the Raton Basin. There can be no assurance, however, that the
Company's planned development projects in the Raton Basin will result in
significant additional reserves or that the Company will have continuing success
drilling productive wells at anticipated finding and development costs. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
WATER DISPOSAL. The Company believes that the water produced from the Raton
Basin coal seams will continue to be low in total dissolved solids, allowing the
Company, operating under permits issuable by the State of Colorado, to discharge
the water into well site pits and evaporation ponds. However, if non-potable
water is discovered, it may be necessary to install and operate evaporators or
to drill disposal wells to reinject the produced water back into the underground
rock formations adjacent to the coal seams or to lower sandstone horizons. In
the event the Company is unable to obtain permits from the State of Colorado in
the future, non-potable water is discovered or if applicable future laws or
regulations require water to be disposed of in an alternative manner, the costs
to dispose of produced water will increase, which increase could have a material
adverse effect on the Company's operations in this area. See "Business and
Properties -- Domestic Properties and Operations."
PRIOR OPERATING LOSSES. The Company experienced losses in fiscal 1995 and
1996 and through September 30, 1997, had an accumulated deficit of $6,221,000.
The Company had net income of $675,000 for the nine month period ended December
31, 1996 and had net income of $2,977,000 for the nine months ended September
30, 1997. Although the Company expects its results of operations to continue to
improve as additional Raton Basin wells are completed, there can be no assurance
that this will occur or that the Company will achieve, or be able to sustain,
profitable operations.
LIMITED PROTECTION FOR TECHNOLOGY; DEPENDENCE ON TECHNOLOGY OWNED BY
OTHERS. The Company employs operating practices that it believes to be of
significant value in developing coal bed methane resources. In most cases,
patent or other intellectual property protection is unavailable for such
technology. The Company's use of independent contractors in most aspects of its
drilling and completion operations makes the protection of such technology more
difficult. Moreover, the Company relies on certain technological know-how of the
independent contractors that it retains in connection with its oil and
13
<PAGE>
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.
DEPENDENCE 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. If market factors were to change materially, the financial impact
on the Company could be substantial. The Company is a party to 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. The Company expects to meet its volume obligations with
respect to the Raton Basin transportation agreement. 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.
PENALTY PAYMENTS UNDER THE EL PASO AGREEMENT. In August 1992, Evergreen
entered into a series of agreements with El Paso Field Services Company ("El
Paso Services") concerning the connection of Evergreen's San Juan Basin wells to
El Paso Services's non-jurisdictional gathering system. Under the agreements, El
Paso Services paid for construction of a gathering pipeline to a central point
in Evergreen's producing area. Evergreen dedicated 90% of its San Juan Basin
production to El Paso Services'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 Services's gathering line or pay a shortfall
payment of $0.25 per MMBtu. The Company's production payment obligation began in
August 1993 and will conclude in July 1998. Production from the wells has been
substantially less than 11,000 MMBtu per day, and Evergreen has accrued a
shortfall obligation of $2,431,000 as of September 30, 1997, that may grow to in
excess of $3.0 million by the end of the five year period. Evergreen's
cumulative delivery shortfall through September 30, 1997 was approximately 12.1
billion MMBtu. In November 1997, Evergreen entered into a binding agreement with
a third party which has agreed to acquire Evergreen's interest in its San Juan
Basin properties. In this agreement, this third party has also agreed to assume
all of Evergreen's liabilities under its agreements with El Paso. El Paso's
consent, among other conditions, are necessary to consummation of this
agreement. No assurance can be given with respect to whether El Paso's consent
will be received or other conditions will be met.
REGULATION. The oil and gas industry is extensively regulated by federal,
state and local authorities. Legislation and regulations 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. See "Business and Properties -- Government Regulation of the Oil
and Gas Industry."
RISKS OF INTERNATIONAL OPERATIONS. Evergreen holds exploration licenses
onshore in the United Kingdom and in northern Chile, and an interest in a
consortium exploring offshore in the Falkland Islands. International operations
are subject to political, economic and other uncertainties, including, among
others, risk of war, revolution, border disputes, expropriation, renegotiation
or modification of existing contracts, import, export and transportation
regulations and tariffs, taxation policies, including royalty and tax increases
and retroactive tax claims, exchange controls, limits on allowable levels of
production,
14
<PAGE>
currency fluctuations, labor disputes and other uncertainties arising out of
foreign government sovereignty over the Company's international operations.
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS. The Company's operations are
subject to complex and constantly changing environmental laws and regulations
adopted by federal, state and local governmental authorities. The implementation
of new, or the modification of existing, laws or regulations could have a
material adverse effect on the Company. The discharge of oil, natural gas or
other pollutants into the air, soil or water may give rise to significant
liabilities on the part of the Company to the government and third parties and
may require the Company to incur substantial costs of remediation. No assurance
can be given that existing environmental laws or regulations, as currently
interpreted or reinterpreted in the future, or future laws or regulations will
not materially adversely affect the Company's results of operations and
financial condition or that material indemnity claims will not arise against the
Company with respect to properties acquired by or from the Company. See
"Business and Properties -- Government Regulation of the Oil and Gas Industry."
COMPETITION. Major oil companies, independent producers, institutional and
individual investors 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. See "Business and Properties -- Competition."
DEPENDANCE ON KEY PERSONNEL. The Company's success has been and will
continue to be highly dependent on the continued services of its executive
officers, and a limited number of other senior management and technical
personnel. Loss of the services of one or more of these individuals could have a
material adverse effect on the Company's operations. The Company maintains "key
man" insurance on the lives of Mark S. Sexton and Dennis R. Carlton in the
amount of $1,000,000 each. The Company does not have employment agreements with
any of its executive officers.
RISKS OF HEDGING TRANSACTIONS. In order to manage its exposure to price
risks in the marketing of its oil and natural gas, the Company may enter into
oil and natural gas price hedging arrangements with respect to a portion of its
expected production. These arrangements may include futures contracts on the New
York Mercantile Exchange, fixed price delivery contracts and financial collars
and swaps. While intended to reduce the effects of the volatility of the price
of oil and natural gas, such transactions may limit potential gains by the
Company if oil and natural gas prices were to rise substantially over the price
established by the hedge. In addition, such transactions may expose the Company
to the risk of financial loss in certain circumstances, including instances in
which (i) production is less than expected, (ii) the counterparties to the
Company's future contracts fail to perform the contract, or (iii) a sudden,
unexpected event materially impacts oil or natural gas prices. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Hedging Transactions."
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of this Offering, the
Company will have 12,395,915 shares of Common Stock outstanding (12,808,415
shares if the Underwriters' over-allotment option is exercised in full), and
outstanding options and warrants to purchase an aggregate of 956,086 shares of
Common Stock at prices ranging from $4.25 to $9.875 per share. Of the shares to
be outstanding after this Offering 10,722,039 shares will be freely tradeable
without substantial restriction or the requirement of future registration under
the Securities Act. In addition, following this Offering, various Company
stockholders will have registration rights with respect to an aggregate of
1,948,376 shares of Common Stock. The Company, its directors and officers, the
Selling Shareholders and certain other shareholders have agreed not to, directly
or indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge,
15
<PAGE>
grant of any option to purchase or other sale or disposition) of any shares of
Common Stock or other capital stock of the Company or any securities convertible
into or exchangeable for any shares of Common Stock or other capital stock of
the Company, for a period of 120 days from the date of this Prospectus without
the prior written consent of Prudential Securities Incorporated on behalf of the
Underwriters (except that such agreements do not prevent the Company from
granting additional shares, warrants or options under any employee benefit
plan). Prudential Securities Incorporated may, in its sole discretion, at any
time and without notice, release all or any portion of the shares of Common
Stock subject to such agreements. Sales of substantial amounts of Common Stock,
or a perception that such sales could occur, and the existence of options or
warrants to purchase shares of Common Stock at prices that may be below the then
current market price of the Common Stock could adversely affect the market price
of the Common Stock and could impair the Company's ability to raise capital
through the sale of its equity securities. See "Principal and Selling
Shareholders," "Shares Eligible for Future Sale," "Description of Capital Stock
- -- Registration Rights" and "Underwriting."
NO DIVIDENDS. The Company has never declared or paid any cash dividends to
the holders of Common Stock and has no present intention to pay cash dividends
to such holders in the foreseeable future.
CERTAIN ANTI-TAKEOVER MATTERS. The Company's Articles of Incorporation and
Bylaws contain provisions that may have the effect of delaying, deferring or
preventing a change in control of the Company. These provisions, among other
things, provide for noncumulative voting in the election of the Board of
Directors and impose certain procedural requirements on shareholders of the
Company who wish to make nominations for the election of directors or propose
other actions at shareholders' meetings. In addition, the Company's Articles of
Incorporation authorize the Board to issue up to 25,000,000 shares of preferred
stock without shareholder approval and to set the rights, preferences and other
designations, including voting rights, of those shares as the Board of Directors
may determine. These provisions, alone or in combination with each other and
with the Rights Plan described below, may discourage transactions involving
actual or potential changes of control of the Company, including transactions
that otherwise could involve payment of a premium over prevailing market prices
to holders of Common Stock. See "Description of Capital Stock -- Anti-takeover
Provisions."
On July 7, 1997 the Board of Directors adopted a Shareholder Rights
Agreement ("Rights Plan"), pursuant to which uncertificated stock purchase
rights were distributed to its common shareholders at a rate of one Right for
each share of Common Stock held of record as of July 22, 1997. The Rights Plan
is designed to enhance the Board's ability to prevent an acquirer from depriving
shareholders of the long-term value of their investment and to protect
shareholders against attempts to acquire the Company by means of unfair or
abusive takeover tactics. However, the existence of the Rights Plan may impede a
takeover of the Company not supported by the Board of Directors, including a
takeover which may be desired by a majority of the Company's shareholders or
involving a premium over the prevailing stock price. See "Description of Capital
Stock -- Antitakeover Provisions."
16
<PAGE>
THE COMPANY
Evergreen is an independent energy company engaged in the exploration,
development, operation and acquisition of oil and gas properties. Evergreen's
current operations are principally focused on developing and expanding its
coalbed methane project located in the Raton Basin in southern Colorado. The
Company also holds exploration licenses onshore in the United Kingdom, a net 2%
interest in a consortium exploring offshore in the Falkland Islands, and an oil
and gas exploration license on approximately 2.4 million acres in northern
Chile. At various times, Evergreen has owned interests in oil and gas leases and
producing wells in several states. However, since 1995, the Company has divested
substantially all of its domestic properties located outside the Raton Basin and
focused its domestic efforts in that area. At September 30, 1997, Evergreen had
estimated net proved reserves of 203 Bcfe with a PV-10 of approximately $146
million.
Evergreen Operating Corporation ("EOC") is a wholly-owned subsidiary of the
Company that is primarily responsible for drilling, evaluation, production and
sales activities associated with Evergreen's properties. Although the
substantial majority of its operations are associated with properties in which
Evergreen holds a 100% working interest, EOC also operates certain wells in
Colorado that are owned in whole or in part by unaffiliated third parties. At
September 30, 1997, EOC was serving as operator for a total of approximately 180
producing gas wells. EOC presently operates all of the Company's wells.
Primero Gas Marketing Company ("Primero") is a wholly-owned subsidiary of
the Company that operates the gathering system that connects the Company's Raton
Basin wells to the CIG's pipelines. Primero was formed to construct and operate
the Company's gathering system and market and sell the Company's gas.
In September 1996, Maverick Stimulation Company, LLC ("Maverick"), was
formed to provide pressure pumping and other oilfield services to the petroleum
industry, primarily in the Rocky Mountain region. The Company owns 49% of the
equity of Maverick. Maverick's pressure pumping services consist of well
stimulation and process and pipeline services. Stimulation services include
fracturing, acidizing and nitrogen services. Process and pipeline services
involve pressure testing and testing integrity of pipe connections.
Evergreen was incorporated in Colorado in 1981. Evergreen's principal
executive offices are located at 1000 Writer Square, 1512 Larimer Street,
Denver, Colorado 80202 and its telephone number is (303) 534-0400.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$ ($ if the Underwriters' over-allotment option is exercised in
full), based on an assumed public offering price of $ per share (the last
reported sales price of the Common Stock in the Nasdaq National Market on
November , 1997) and after deducting underwriting discounts and commissions
and estimated offering expenses payable by the Company. The Company will not
receive any proceeds from the sale of shares of Common Stock offered hereby by
the Selling Shareholders.
The Company will use the net proceeds of this Offering to repay all
outstanding indebtedness under the Credit Facility, thereby creating additional
borrowing capacity which, together with the remaining net proceeds of this
Offering, will be used to fund the Company's planned exploration and development
activities in the Raton Basin, as well as other corporate purposes. Pending such
uses, 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.
The Company expects that the total debt under the Credit Facility which will
be repaid with a portion of the proceeds will be approximately $10 million. This
debt bears interest at a rate of prime minus 1/4 percent (which was 8 1/4% as of
November 20, 1997) and matures in May of 1999. This debt was incurred to fund
the development of the Company's Raton Basin properties.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is included for quotation in the Nasdaq National
Market under the market symbol "EVER." The following table sets forth the range
of high and low sales prices per share for the periods indicated, as reported by
the Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Year Ended December 31, 1995
First Quarter................................................................................ $ 6.00 $ 4.00
Second Quarter............................................................................... 5.75 4.00
Third Quarter................................................................................ 5.75 3.88
Fourth Quarter............................................................................... 5.38 3.50
Year Ended December 31, 1996
First Quarter................................................................................ $ 6.13 $ 4.88
Second Quarter............................................................................... 7.38 5.38
Third Quarter................................................................................ 7.25 5.50
Fourth Quarter............................................................................... 8.38 5.50
Year Ended December 31, 1997
First Quarter................................................................................ $ 8.50 $ 7.38
Second Quarter............................................................................... 10.50 6.75
Third Quarter................................................................................ 16.13 9.75
Fourth Quarter (through November , 1997)...................................................
</TABLE>
On November , 1997, the last reported sales price for the Common Stock as
reported by the Nasdaq National Market was $ per share. At November 20, 1997,
there were approximately 4,000 holders of record of the Company's Common Stock.
DIVIDEND POLICY
Holders of Common Stock are entitled to dividends when, as and if declared
by the Company's Board of Directors, subject to any preferential rights of any
outstanding preferred stock and any contractual agreements of the Company
limiting the payment of dividends. The Company has not declared or 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 or paid in the foreseeable future.
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1997, and as adjusted to give effect to the conversion on November
1, 1997 of the Company's 8% Convertible Preferred Stock to 905,660 shares of
Common Stock and to reflect the Offering and the application of the estimated
net proceeds to the Company therefrom as described in the "Use of Proceeds"
section. The table should be read in conjunction with the Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------------
ACTUAL POST-CONVERSION AS ADJUSTED
--------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt:
Note payable........................................................... $ 8,400 $ 8,400 $
Obligations under capital leases....................................... 2,976 2,976
--------- ------- -----------
Total long-term debt................................................. 11,376 11,376
--------- ------- -----------
Redeemable preferred stock, $1.00 par value, 25,000,000 shares
authorized; 6,000,000 issued and outstanding........................... 6,000 --
--------- ------- -----------
Stockholders' equity:
Common Stock, $0.01 stated value, 50,000,000 shares authorized;
9,469,544 issued and outstanding;
10,375,204 issued and outstanding post-conversion; and
issued and outstanding as adjusted(1)................................ 95 104
Additional paid-in capital............................................. 61,887 67,878
Foreign currency adjustment............................................ (6) (6)
Accumulated deficit.................................................... (6,221) (6,221)
--------- ------- -----------
Total stockholders' equity........................................... 55,755 61,755
--------- ------- -----------
Total capitalization..................................................... $ 73,131 $ 73,131 $
--------- ------- -----------
--------- ------- -----------
</TABLE>
- ------------------------
(1) Does not include 956,086 shares of Common Stock issuable upon exercise of
warrants outstanding as of September 30, 1997. See "Capitalization" and
"Description of Capital Stock."
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial information presented below for each of
the years in the four-year period ended March 31, 1996 and the nine months ended
December 31, 1996, are derived from the consolidated financial statements of the
Company. The recast consolidated financial data is unaudited and is presented to
reflect the results of operations as if the Company had adopted a December 31
year end for the years ended December 31, 1995 and 1996. The selected recast and
historical financial information presented below for the nine month periods
ended September 30, 1996 and 1997 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 the 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. Effective with the period ended December 31, 1996,
the Company began utilizing a December 31 year end. Therefore, the historical
period ended December 31, 1996, represents a nine-month short period as compared
to the twelve month fiscal years ended March 31, 1993, 1994, 1995, and 1996.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, NINE MONTHS
------------------------------------------ ENDED
DECEMBER 31,
-------------
HISTORICAL
---------------------------------------------------------
1993 1994 1995 1996 1996
--------- --------- --------- --------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Oil and gas production..................................... $ 1,596 $ 2,207 $ 1,916 $ 1,393 $ 3,502
Oil and gas services....................................... 914 1,103 858 779 545
Interest and dividend...................................... 729 238 117 207 143
Other...................................................... 1,708 794 460 556 38
--------- --------- --------- --------- -------------
Total revenues........................................... 4,947 4,342 3,351 2,935 4,228
--------- --------- --------- --------- -------------
Costs and expenses:
Lease operating expenses................................... 1,244 1,040 994 657 701
Gas gathering.............................................. -- 219 238 219 110
Cost of oil and gas services............................... 1,032 929 790 727 621
Depreciation, depletion and amortization................... 449 660 709 590 966
General and administrative................................. 1,017 1,350 850 819 505
Interest................................................... -- -- 29 37 193
Other...................................................... 479 100 351 (11) 17
--------- --------- --------- --------- -------------
Total costs and expenses................................. 4,221 4,298 3,961 3,037 3,113
--------- --------- --------- --------- -------------
Net income (loss)............................................ 726 44 (610) (102) 1,115
Preferred stock dividends.................................... -- -- 94 505 440
--------- --------- --------- --------- -------------
Net income (loss) attributable to Common Stock............... $ 726 $ 44 $ (704) $ (607) $ 675
--------- --------- --------- --------- -------------
--------- --------- --------- --------- -------------
Net income (loss) per common share........................... $ 0.15 $ 0.01 $ (0.13) $ (0.10) $ 0.10
--------- --------- --------- --------- -------------
--------- --------- --------- --------- -------------
STATEMENT OF CASH FLOWS DATA:
Net cash provided by (used in):
Operating activities....................................... $ 170 $ 485 $ 408 $ 1,130 $ 1,524
Investing activities....................................... (563) (307) (2,958) (2,764) (8,559)
Financing activities....................................... 388 241 3,635 3,329 5,977
OTHER FINANCIAL DATA:
Capital expenditures......................................... $ 5,577 $ 6,181 $ 8,040 $ 4,371 $ 21,078
EBITDA (1)................................................... 1,175 704 34 20 1,834
Cash flow (2)................................................ 1,175 704 5 (17) 1,641
<CAPTION>
YEAR ENDED DECEMBER NINE MONTHS
31, ENDED SEPTEMBER 30,
-------------------- ----------------------
RECAST RECAST HISTORICAL
-------------------- --------- -----------
1995 1996 1996 1997
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Oil and gas production..................................... $ 1,291 $ 3,986 $ 2,139 $ 8,195
Oil and gas services....................................... 789 751 572 577
Interest and dividend...................................... 183 207 147 101
Other...................................................... 591 46 44 228
--------- --------- --------- -----------
Total revenues........................................... 2,854 4,990 2,902 9,101
--------- --------- --------- -----------
Costs and expenses:
Lease operating expenses................................... 777 826 489 1,444
Gas gathering.............................................. 211 159 125 112
Cost of oil and gas services............................... 705 805 585 622
Depreciation, depletion and amortization................... 652 1,137 671 2,043
General and administrative................................. 830 717 531 886
Interest................................................... 45 193 110 511
Other...................................................... (6) 18 5 146
--------- --------- --------- -----------
Total costs and expenses................................. 3,214 3,855 2,516 5,764
--------- --------- --------- -----------
Net income (loss)............................................ (360) 1,135 386 3,337
Preferred stock dividends.................................... 430 590 450 360
--------- --------- --------- -----------
Net income (loss) attributable to Common Stock............... $ (790) $ 545 $ (64) $ 2,977
--------- --------- --------- -----------
--------- --------- --------- -----------
Net income (loss) per common share........................... $ (0.14) $ 0.08 $ (0.01) $ 0.32
--------- --------- --------- -----------
--------- --------- --------- -----------
STATEMENT OF CASH FLOWS DATA:
Net cash provided by (used in):
Operating activities....................................... $ (668) $ 2,229 $ 1,424 $ 4,136
Investing activities....................................... (2,808) (9,303) 5,686 (14,533)
Financing activities....................................... 2,904 6,122 1,803 9,856
OTHER FINANCIAL DATA:
Capital expenditures......................................... $ 3,870 $ 9,597 $ 18,457 $ 14,927
EBITDA (1)................................................... (93) 1,875 718 5,531
Cash flow (2)................................................ (138) 1,682 607 5,020
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER
DECEMBER 31, 1996 30, 1997
------------------- -----------
HISTORICAL HISTORICAL
------------------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................................................. $ 2,640 $ 2,099
Working capital............................................................................ (318) 30
Total assets............................................................................... 68,244 81,912
Total long term debt....................................................................... 1,174 11,376
Total stockholders' equity................................................................. 52,364 55,755
<CAPTION>
AS ADJUSTED(3)
---------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................................................................
Working capital............................................................................
Total assets...............................................................................
Total long term debt.......................................................................
Total stockholders' equity.................................................................
</TABLE>
- ------------------------------
(1) EBITDA is defined as net income (loss) attributable to Common Stock, plus
interest, income taxes, depreciation, depletion and amortization. EBITDA is
a financial measure commonly used in the Company's industry and should not
be considered in isolation or as a substitute for net income, net cash
provided by operating activities or other income or cash flow data prepared
in accordance with generally accepted accounting principles or as a measure
of a company's profitability or liquidity. Because EBITDA excludes some, but
not all, items that affect net income and may vary among companies, the
EBITDA presented above may not be comparable to similarly titled measures of
other companies.
(2) Cash flow is defined as net income (loss) attributable to Common Stock plus
depreciation, depletion and amortization.
(3) Adjusted to give effect to the sale of 2,000,000 shares of Common Stock
offered by the Company hereby and the application of the estimated net
proceeds therefrom and the conversion of the 8% Convertible Preferred Stock
into 905,660 shares of Common Stock. See "Use of Proceeds" and
"Capitalization."
20
<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 IN NOTE 1 TO THE
CONSOLIDATED FINANCIAL STATEMENTS.
GENERAL
Evergreen is an independent energy company engaged in the exploration,
development and acquisition of oil and gas properties. Evergreen's primary focus
is on developing coalbed methane properties located on approximately 135,000
gross acres in the Raton Basin in southern Colorado. The Company also holds
exploration licenses on approximately 371,000 acres onshore in the United
Kingdom, a net 2% interest in a consortium exploring offshore in the Falkland
Islands, and an oil and gas exploration contract on approximately 2.4 million
acres in northern Chile. Evergreen operates all of its own producing properties
and also acts as operator on a contract basis for properties owned by others.
The following table sets forth certain operating data of the Company for the
periods presented. The recast operating data is presented to reflect the
operations as if the Company had adopted a December 31 year end for the years
ended December 31, 1995 and 1996 and the nine months ended September 30, 1996.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 NINE MONTHS YEAR ENDED NINE MONTHS ENDED
--------------------- ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, --------------------- ----------------------
------------
HISTORICAL RECAST RECAST HISTORICAL
----------------------------------- --------------------- ---------- ----------
1995 1996 1996 1995 1996 1996 1997
---------- --------- ------------ --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PRODUCTION DATA:
Natural gas (Mcf)...... 781,700 941,100 2,104,400 792,700 2,407,800 1,421,200 4,564,300
Oil (Bbls)............. 36,660 9,600 -- 15,300 2,300 3,759 --
Total (Mcfe)........... 1,001,300 999,000 2,104,400 884,500 2,421,600 1,443,775 4,564,300
AVERAGE SALES PRICE PER
UNIT:
Natural gas (per
Mcf)................. $1.67 $1.29 $1.66 $1.34 $1.63 $1.46 $1.80
Oil (per Bbl).......... 15.97 18.40 -- 14.79 24.65 -- --
Mcfe................... 1.91 1.39 1.66 1.46 1.65 1.46 1.80
COST PER MCFE:
Average LOE............ $0.99 $0.65 $0.33 $0.88 $0.34 $0.34 $0.31
General and
administrative....... 0.71 0.87 0.24 0.94 0.30 0.37 0.19
Depreciation, depletion
and amortization..... 0.85 0.59 0.46 0.74 0.47 0.46 0.45
</TABLE>
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. Such capitalized costs
include lease acquisition, geological and geophysical work, delay rentals,
drilling, completing and equipping oil and gas wells and other related costs.
Under full cost accounting rules, the net capitalized costs of oil and gas
properties may not exceed a "ceiling" limit of the PV-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
21
<PAGE>
(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. See Note 17 to the Company's Consolidated Financial Statements
included herein.
RECENT DEVELOPMENTS
AMOCO JUDGMENT
On June 25, 1997, Evergreen filed an action in the Las Animas County,
Colorado District Court seeking a declaratory judgment against Amoco regarding
the proposed sale by Amoco of certain property located in the Raton Basin, Las
Animas County. Included in this property was approximately 22,000 gross
non-producing acres which is located within the Cottontail Pass Federal Unit,
situated near the center of Evergreen's present 135,000 gross acreage position
in the Raton Basin. Evergreen, as a working interest owner in the unit, had a
preferential right under the applicable unit operating agreement to purchase
these 22,000 gross acres for $3,179,000. Evergreen tendered to Amoco notice of
its intention to exercise this preferential right to purchase. Amoco contended
that it did not receive valid notice of the preferential purchase rights from
Evergreen. In its action, Evergreen sought a declaratory judgment that Evergreen
had properly exercised its preferential right of purchase, and that Amoco was
obligated to sell the properties covered by that right of purchase to Evergreen.
On November 12, 1997, the Court granted Evergreen's motion for summary judgment
and ruled that Evergreen properly exercised its right of purchase for the
subject properties. Amoco has the right to appeal this ruling.
CONVERSION OF PREFERRED STOCK
Effective November 1, 1997, all outstanding shares of the Company's 8%
Convertible Preferred Stock were converted into 905,660 shares of Common Stock.
RESULTS OF OPERATIONS
HISTORICAL NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE RECAST NINE
MONTHS ENDED SEPTEMBER 30, 1996
The Company reported net income of $2,977,000, or $0.32 per common share,
for the nine months ended September 30, 1997, compared to a net loss of $64,000,
or $0.01 per common share, for the same period in 1996. The significant increase
in net income during the nine months ended September 30, 1997 as compared to the
prior year was attributable to sharply higher Raton Basin production volumes and
improved natural gas prices.
Oil and gas revenues increased to $8,195,000 during the nine months ended
September 30, 1997 from $2,140,000 for the nine months ended September 30, 1996.
The oil and gas revenues for 1996 included $59,000 in oil sales. The significant
increase in oil and gas revenues for the nine months ended September 30, 1997
was due to a combination of the increase in gas production volumes and gas
prices. The number of producing Raton Basin wells increased to 73 wells at
September 30, 1997 from 31 wells at September 30, 1996. This increase was the
primary factor for the increase in production volumes, even though the average
production rate per well also increased from period to period. Natural gas
production increased to 4,564,000 Mcf for the nine months ended September 30,
1997 as compared to 1,421,000 Mcf for the same period in 1996. The average gas
prices increased to $1.80 for the nine months ended September 30, 1997 as
compared to $1.46 per Mcf in 1996 due to an improvement in the overall market
for natural gas. In addition, during the nine months ended September 30, 1997,
the Company was able to access improved gas markets in the mid-continent through
firm transportation agreements with CIG.
LOE for the nine months ended September 30, 1997, were $1,444,000 compared
to $489,000 for the same period in 1996. On an equivalent Mcf basis ("Mcfe"),
LOE declined moderately to $0.31 per Mcfe in
22
<PAGE>
the nine months ended September 30, 1997, as compared to $0.34 per Mcfe in the
prior year. The decrease in LOE on an Mcfe basis was due to the economies of
scale resulting from the increase in producing wells in the Ration Basin.
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 September 30, 1997, EOC was serving as operator for
approximately 180 producing gas wells owned by the Company and unaffiliated
third parties.
During the nine months ended September 30, 1997, oil and gas service
revenues were $577,000, compared to $572,000 for the nine months ended September
30, 1996. The modest increase in oil and gas service revenue for the nine months
ended September 30, 1997 was due to the relatively constant number of wells the
Company operates for third parties. Costs of oil and gas services during the
nine months ended September 30, 1997 were $621,000 compared to $585,000 for the
prior year.
Other income increased to $228,000 for the nine months ended September 30,
1997 from $44,000 for the nine months ended September 30, 1996. This increase
was primarily due to the Company's 49% ownership in Maverick, an oil and gas
well servicing company. The Company accounts for the investment in Maverick
under the equity method of accounting. Prior to the current reporting period,
the Company's share of Maverick profits after intercompany eliminations was not
material. For the nine months ended September 30, 1997, the Company's share of
profits from Maverick was $226,000 and is included in other income. The increase
in Maverick net income was due to the increase in its oil and gas stimulation
services for third party entities.
Depreciation, depletion and amortization expense increased to $2,043,000 for
the nine months ended September 30, 1997 from $671,000 for the nine months ended
September 30, 1996. This increase was due to the significant increase in gas
production in the Raton Basin and the increase in capital costs for drilling and
the gas gathering system.
General and administrative expenses increased to $886,000 for the nine
months ended September 30, 1997 from $531,000 for the nine months ended
September 30, 1996. This $355,000 increase was due to the general increase in
overall corporate activity, including salaries and professional services.
Although the overall expense increased for the nine months ended September 30,
1997, the cost per Mcfe decreased to $0.19 from the prior year cost per Mcfe of
$0.37.
Interest income decreased to $101,000 for the nine months ended September
30, 1997 from $147,000 for the nine months ended September 30, 1996. This
decrease was due to less cash to invest as a result of the continued Raton Basin
development.
Interest expense increased to $511,000 for the nine months ended September
30, 1997 from $110,000 for the nine months ended September 30, 1996. This
$401,000 increase was due to increased borrowings under the Company's Credit
Facility to $8.4 million at September 30, 1997 from $6.0 million at September
30, 1996 and an increase in the Equipment Lease Facility to $3.7 million at
September 30, 1997 from $1.5 million at September 30, 1996. The increased
borrowings were made to fund the Raton Basin development.
Other expense increased to $146,300 for the nine months ended September 30,
1997 from $6,000 for the nine months ended September 30, 1996. The increase in
other expense was due primarily to the write off of a receivable that was deemed
uncollectible.
23
<PAGE>
RECAST FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO RECAST FISCAL YEAR ENDED
DECEMBER 31, 1995
Net income for the year ended December 31, 1996 was $545,000, or $0.08 per
common share, as compared to a net loss of $790,000, or $0.14 per common share,
for the year ended December 31, 1995. The increase in net income was the result
of the increases in natural gas revenues and gas production.
Oil and gas revenues were $3,986,000 during the year ended December 31, 1996
as compared to $1,291,000 for the year ended December 31, 1995. The significant
increase in oil and gas revenue during 1996, as compared to 1995, was
attributable to substantially higher Raton Basin production volumes, higher
natural gas prices, the acquisition of Powerbridge, Inc. and certain limited
partnership interests owned by Energy Investor Funds I and II (collectively,
"PBI") and the monetization of certain Section 29 tax credits. The average gas
prices were $1.63 per Mcf for the year ended December 31, 1996 as compared to
$1.34 per Mcf in 1995. Natural gas production increased to 2,407,800 Mcf for the
year ended December 31, 1996 as compared to 792,700 for 1995.
At December 31, 1996 there were 42 producing Raton Basin wells compared to
16 producing wells at December 31, 1995.
Lease operating expenses for the year ended December 31, 1996 were $826,000
compared to $777,000 for the year ended December 31, 1995. Lease operating
expenses per Mcfe declined to $0.34 during the year ended December 31, 1996 from
$0.88 in 1995. The decrease in the average lease operating expense per Mcfe was
due to the sale or shut-in of uneconomical oil and gas properties with high
lifting costs during the year ended December 31, 1995. In addition the
significant increase in production in the Raton Basin over the prior year
contributed to the decrease in lease operating expenses.
Oil and gas service revenues were $751,000 during the year ended December
31, 1996 as compared to $789,000 for the year ended December 31, 1995. Cost of
oil and gas services for the year ended December 31, 1996 increased to $805,000
from $705,000 in 1995. The increase of $100,000 was due to increased staffing
and salaries.
Other income decreased to $46,000 during the year ended December 31, 1996 as
compared to $591,000 in 1995. The decrease of $545,000 was due primarily to the
sale in 1995 of the Company's 25% interest in ANGI, Ltd., a U.K. gas marketing
company.
Depreciation, depletion and amortization expense for the year ended December
31, 1996 increased to $1,137,000 as compared to $652,000 for the year ended
December 31, 1995. The increase of $485,000 was due to the substantial increase
in natural gas production.
General and administrative expenses decreased to $717,000 for the year ended
December 31, 1996 as compared to $830,000 for year ended December 31, 1995. The
decrease of $113,000 was due to general overhead reductions.
Interest expense for the year ended December 31, 1996 increased to $193,000
as compared to $45,000 for the year ended December 31, 1995. The increase of
$148,000 was due to the debt assumed by the Company as a result of the PBI
acquisition, interest on the line of credit borrowings, and the interest on the
capital lease obligations.
NINE-MONTH FISCAL PERIOD ENDED DECEMBER 31, 1996 COMPARED TO THE FISCAL YEAR
ENDED MARCH 31, 1996
The Company reported net income of $675,000, or $0.10 per common share, for
the nine months ended December 31, 1996, compared to a net loss of $607,000, or
$0.10 per common share, for the year ended March 31, 1996. This increase in net
income resulted principally from substantial increases in oil and gas revenues
and declining costs per Mcfe.
Oil and gas revenues increased to $3,502,000 for the nine months ended
December 31, 1996 compared to $1,393,000 for the fiscal year ended March 31,
1996. This significant increase was attributable to
24
<PAGE>
substantially higher Raton Basin production volumes, sharply higher natural gas
prices, the acquisition of PBI and the monetization of certain Section 29 tax
credits. The average gas prices were $1.66 per Mcf for the nine month fiscal
period ended December 31, 1996 as compared to $1.29 per Mcf in the fiscal year
ended March 31, 1996.
During the nine months ended December 31, 1996, Raton Basin gas production
represented over 88% of the Company's total gas production, compared to 51% for
the year ended March 31, 1996. At December 31, 1996, the Company had 42
producing Raton Basin wells compared to 21 producing wells at March 31, 1996.
Natural gas production increased to 2,104,000 Mcf for the nine months ended
September 30, 1997 as compared to 941,000 Mcf for the twelve months ended March
31, 1996.
LOE increased to $701,000 for the nine months ended December 31, 1996
compared to $657,000 for the twelve months ended March 31, 1996. On a Mcfe
basis, however, LOE declined from $0.65 per Mcfe during the twelve month fiscal
year ended March 31, 1996 to $0.33 per Mcfe for the nine months ended December
31, 1996. The decrease in the average LOE of $0.32 per Mcfe was due to the sale
or shut-in of uneconomical oil and gas properties with high LOE during the year
ended March 31, 1996. Additionally, the significant increase in production in
the Raton Basin over the prior year contributed to the decrease in LOE per Mcfe.
Oil and gas service revenues decreased to $545,000 for the nine months ended
December 31, 1996 from $779,000 for the twelve months ended March 31, 1996.
Costs of oil and gas services also decreased to $622,000 for the nine months
ended December 31, 1996 as compared to $727,000 for the twelve months ended
March 31, 1996. The decrease in both oil and gas service revenues and cost of
oil and gas services expense was due primarily to a nine month reporting period
versus a twelve month reporting period.
Depreciation, depletion and amortization expense increased to $966,000 for
the nine months ended December 31, 1996 from $590,000 for the twelve months
ended March 31, 1996. The increase was due to the significantly higher gas
production in the Raton Basin.
General and administrative expenses decreased to $504,000 for the nine
months ended December 31, 1996, from $819,000 for the twelve months ended March
31, 1996. This decrease was due to expenses incurred during a nine month
reporting period versus a twelve month reporting period.
Interest income decreased to $143,000 for the nine months ended December 31,
1996 from $207,000 for the twelve months ended March 31, 1996. This decrease was
due primarily to the nine month reporting period versus a twelve month reporting
period.
Interest expense increased to $193,000 for the nine months ended December
31, 1996 from $37,000 for the twelve months ended March 31, 1996. This increase
was due to the debt assumed by the Company as a result of the PBI acquisition,
the interest on the Company's line of credit borrowings, and the interest on the
Company's capital lease obligations.
Other income decreased to $38,000 for the nine months ended December 31,
1996 compared to $556,000 for the twelve months ended March 31, 1996. The income
in the twelve months ended March 31, 1996 resulted primarily from the sale of
the Company's 25% interest in ANGI, Ltd., a United Kingdom gas marketing
company.
FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO THE FISCAL YEAR ENDED MARCH 31,
1995
The Company reported a net loss of $607,000, or $0.10 per share of common
share, for the year ended March 31, 1996, compared to a net loss of $705,000, or
$0.13 per common share, for the year ended March 31, 1995.
Oil and gas revenues decreased to $1,393,000 for the year ended March 31,
1996 from $1,916,000 for the year ended March 31, 1995. The decrease in oil and
gas revenues was due primarily to lower gas prices and the Company's sale of oil
and gas properties. Gas production increased to 941,100 Mcf in 1996 from
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781,700 Mcf in 1995. However, average gas prices decreased approximately $0.41
per Mcf to $1.29 per Mcf in 1996 from $1.67 per Mcf in 1995. The decrease in gas
prices more than offset the increased production. Consequently, gas revenues
decreased $120,000, or 9%, to $1,211,000 in 1996 from $1,331,000 in 1995. Oil
revenues decreased $403,000, or 70%, to $182,000 in 1996 from $585,000 to 1995.
The reduction in oil reserves was due to the sale of substantially all oil
properties.
Lease operating expenses decreased to $657,000 for the year ended March 31,
1996 from $994,000 for the year ended March 31, 1995. This decrease in lease
operating expenses was due primarily to the sale or shut-in of uneconomical oil
and gas properties with high LOE. The average LOE per Mcfe decreased to $0.65 in
1996 from $0.99 in 1995.
Oil and gas service revenues decreased to $779,000 for the year ended March
31, 1996 from $858,000 for the year ended March 31, 1995. This 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 increased to $207,000 for the year March 31,
1996 from $116,000 for the year ended March 31, 1995. This increase in interest
and dividends was due to an increase in cash from the proceeds from the sale of
the Company's 8% Convertible Preferred Stock.
Other income increased to $556,000 for the year ended March 31, 1996 from
$460,000 for the year ended March 31, 1995. In 1996, the Company sold its 25%
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 decreased slightly to $727,000 for the year
ended March 31, 1996 from $790,000 for the year ended March 31, 1995. This
decrease was primarily due to a reduction in personnel and related salary
expense.
Depreciation, depletion and amortization decreased to $590,000 for the year
ended March 31, 1996 from $709,000 in 1995. There was no significant change in
total production over these periods; the decrease in depreciation, depletion and
amortization resulted primarily from the increase in estimated reserves of
approximately 30%.
General and administrative expenses were $819,000 during the year ended
March 31, 1996 as compared to $850,000 during the same period in 1995. The
decrease of $31,000 was due to general overhead reductions.
LIQUIDITY AND CAPITAL RESOURCES
Evergreen currently has a $30.0 million revolving Credit Facility with
Hibernia National Bank of New Orleans, Louisiana. The Credit Facility matures in
May 1999. Advances under the Credit Facility are limited to the borrowing base,
which is presently $30.0 million. Interest accrues at prime (8.5% at September
30, 1997) plus or minus a margin of .25%, with margins determined on the average
outstanding borrowings under the Credit Facility. The borrowing base is
redetermined semi-annually by Hibernia National Bank based upon reserve
evaluations of the Company's oil and gas properties. As of November 20, 1997,
the Company had $9.5 million of borrowings under the line.
The Company has a $6.0 million Equipment Lease Facility with Hibernia
National Bank with interest at prime (8.5% at September 30, 1997). This
Equipment Lease Facility has a term of five years ending April 2002, with an
option to purchase the equipment at nominal amounts at the end of the lease
term. The Company primarily leases compressors for the Raton Basin gas gathering
system and other related production equipment. At November 20, 1997, the Company
had utilized approximately $4.0 million under the lease line.
The Company is a guarantor of a line of credit and a capital lease for
Maverick for an aggregate amount of $2.5 million. The guaranteed obligations
amounted to $1.3 million at September 30, 1997.
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The Company anticipates drilling 50 new wells, expanding and upgrading gas
gathering facilities in the Raton Basin and proceeding with international
exploration activities through the end of 1998. Budgeted capital expenditures
for this program are approximately $20 million. The Company believes that cash
flow from operations and available borrowings under its Credit Facility will be
sufficient to fund budgeted 1998 capital expenditures. Oil and gas leases
expiring in fiscal 1997 and 1998 are not material.
Cash flows provided by operating activities were $4,136,000 for the nine
months ended September 30, 1997 as compared to cash flows provided by operating
activities of $1,424,000 in the same period of the prior year. The significant
increase in the cash flows provided by operating activities was due primarily to
improved operating results as a result of higher gas production and higher gas
prices.
Cash flows used by investing activities were $14,533,000 during the nine
months ended September 30, 1997 versus $5,686,000 during the same period in
1996. The increase was due to the continued development of the Raton Basin
including an upgrade of the gas gathering system.
Cash flows provided by financing activities were $9,856,000 during the nine
months ended September 30, 1997 as compared to cash flows provided by financing
activities of $1,802,600 in the prior period. The increase was due primarily to
increased borrowings to fund the development of the drilling and gathering
system in the Raton Basin.
The Company's production from its San Juan basin properties has not met the
minimum volume requirements under its transportation agreements with El Paso
Services. As of September 30, 1997, the cumulative obligation of the Company to
El Paso Services resulting from this shortfall was calculated by the Company to
be $2,431,000. At current rates of production, this liability would increase to
over $3 million by the end of the contract term in July 1998. In November 1997,
the Company entered into a binding agreement with a third party which has agreed
to assume all of the Company's interest in its San Juan Basin properties. In
this agreement, this third party has also agreed to assume all of the Company's
liabilities under its agreements with El Paso. El Paso's consent is necessary,
among other conditions, to consummation of this agreement. No assurance can be
given with respect to whether El Paso's consent will be received or other
conditions will be met.
HEDGING TRANSACTIONS
The Company enters into contractual obligations that require future physical
delivery of its natural gas production to attempt to manage price risk with
regard to a portion of its natural gas production. As of October 31, 1997, the
Company had entered into contracts to sell approximately 21.5 MMcf per day
(substantially all of its current production available for sale) for the period
November 1997 through March 1998 at $2.05 per Mcf and approximately 10 MMcf per
day (approximately half of its current production available for sale) for the
period April 1998 through October 1998 at $2.05 per Mcf.
The Company identifies minimum internal price targets and, assuming other
market conditions are deemed favorable, the Company will enter in hedging
contracts to manage price risk.
INCOME TAXES AND NET OPERATING LOSSES
As discussed in Note 5 of the Notes to the Company's Consolidated Financial
Statements, the Company has net operating loss carryforwards for income tax
purposes of approximately $17 million, certain of which are limited due to stock
issuances in 1988 and 1990. A valuation allowance of $3.86 million has been
recorded at September 30, 1997 for the net deferred tax asset arising from the
loss carryforward in excess of the deferred tax liability resulting from
depreciation and amortization differences. The valuation allowance was recorded
as the Company was unable to determine that these tax benefits are more likely
than not to be realized.
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ACCOUNTING STANDARDS
On March 3, 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS
No. 128"). This pronouncement provides a different method of calculating
earnings per share than is currently used in accordance with Accounting
Principles Board Opinion (APB) No. 15, "Earnings Per Share". SFAS No. 128
provides for the calculation of "Basic" and "Diluted" earnings per share. Basic
earnings per share includes no dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution of securities that could share in the earnings of an entity, similar to
fully diluted earnings per share. The Company will adopt SFAS No. 128 in 1997
and its implementation is not expected to have a material effect on the
consolidated financial statements.
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income"
which establishes standards for reporting and display of comprehensive income,
its components and accumulated balances. Comprehensive income is defined to
include all changes in equity except those resulting from investments by owners
and distributions to owners. Among other disclosures, SFAS No. 130 requires that
all items that are required to be recognized under current accounting standards
as components of comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial statements.
Also, in June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" which supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." SFAS No. 131 establishes
standards for the way that public companies report information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial statements issued to
the public. It also establishes standards for disclosure regarding products and
services, geographic areas and major customers. SFAS No. 131 defines operating
segments as components of a company about which separate financial information
is available that is evaluated regularly by the chief operating decision maker
in deciding how to allocate resources and in assessing performance.
Both SFAS No. 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, they may have
on future financial statement disclosures. Results of operations and financial
position, however, will be unaffected by implementation of these standards.
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BUSINESS AND PROPERTIES
GENERAL
Evergreen is an independent energy company engaged in the exploration,
development, operation and acquisition of oil and gas properties. The Company's
current operations are prinicipally focused on developing and expanding its
coalbed methane project located in the Raton Basin in southern Colorado.
Evergreen also holds exploration licenses onshore in the United Kingdom, a net
2% interest in a consortium exploring offshore in the Falkland Islands, and an
oil and gas exploration license on approximately 2.4 million acres in northern
Chile.
Evergreen is one of the largest holders of oil and gas leases in the Raton
Basin with approximately 135,000 gross acres. In addition, the Company's daily
gas sales represent approximately 68% of the gas currently sold from the Raton
Basin. Evergreen currently has 78 producing gas wells on its Raton Basin
properties and has drilled an additional 24 wells, 20 of which are expected to
be placed into production by December 31, 1997 and four of which are exploratory
and subject to further evaluation. The Company has identified approximately 560
drilling locations on its Raton Basin acreage, of which 136 were included in the
Company's proved reserve base at September 30, 1997. These 136 proven locations
comprise approximately 20% of the Company's total acreage in the Raton Basin.
Evergreen intends to spend approximately $80 million over the next three years
on the further development of the Raton Basin, including drilling approximately
210 wells and expanding and upgrading its gathering and compression facilities.
At September 30, 1997, Evergreen had estimated net proved reserves of 203
Bcfe with a PV-10 of approximately $146 million. Natural gas constituted
substantially all of Evergreen's estimated net proved reserves, 99% of which
were located in the Raton Basin and 67% of which were developed. Evergreen has a
100% working interest in its Raton Basin acreage and wells, and also owns the
gathering systems and related equipment associated with these wells. The Company
acts as operator for all of its Raton Basin properties, as well as for certain
third party producing properties.
Since the completion of a pipeline from the Raton Basin and the
corresponding commencement of Company gas sales in early 1995, the Company has
achieved substantial growth in reserves, production, and EBITDA. Evergreen's
estimated net proved reserves have increased from approximately 63 Bcfe at March
31, 1995 to 203 Bcfe at September 30, 1997. Over this period, the number of
producing wells and average gross daily production increased from 9 wells and
1.5 MMcf to 73 wells and 25 MMcf, respectively. Similarly, EBITDA increased from
$718,000 for the nine month period ended September 30, 1996 to $5.5 million for
the nine month period ended September 30, 1997. Since inception of the Company's
drilling efforts in the Raton Basin, the Company has drilled and tested a total
of 98 wells and achieved a 99% success rate.
Evergreen believes that it has gained significant experience in coalbed
methane exploration and development, including the utilization of enhanced
drilling, completion and production techniques developed over a number of years.
This experience has enabled the Company to increase per well production and to
achieve low finding and development costs. From inception of its Raton Basin
project through September 30, 1997, the Company has spent approximately $43
million on the drilling and completion of its wells, pipelines, gathering
systems, compression equipment and the acquisition of acreage, which represents
a total finding and development cost of $0.21 per Mcfe.
In addition, the Company's LOE and general and administrative costs per Mcfe
have declined steadily since gas sales began in early 1995. For the year ended
December 31, 1995, Evergreen's LOE and general and administrative costs were
$0.88 per Mcfe and $0.94 per Mcfe, respectively, as compared to $0.31 per Mcfe
and $0.19 per Mcfe, respectively, for the nine months ended September 30, 1997.
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BUSINESS STRATEGY
Evergreen's objective is to increase reserves, production, cash flow and net
asset value per share. To accomplish this objective, Evergreen intends to
utilize its competitive strengths, which include (i) its experience and
operating expertise in coalbed methane properties, (ii) its significant acreage
position in the Raton Basin, (iii) its position as a low-cost finder, developer
and producer of natural gas and (iv) the potential of its international
projects.
In order to implement its strategy, Evergreen will seek to:
- ACCELERATE DEVELOPMENT OF THE RATON BASIN. Since commencement of the
Company's drilling program in 1993, the Company has drilled a total of 102
wells in the Raton Basin. Of this total, 78 are currently in production,
20 are expected to be placed into production by December 31, 1997 and four
are exploratory and subject to further evaluation. The Company plans to
drill approximately 50 wells in 1998. During 1999 and 2000, the Company
plans to drill approximately 160 wells and expand its gathering and
compression facilities. The Company's capital budget for this three year
drilling and expansion program is approximately $80 million.
- MAINTAIN CONTROL OF OPERATIONS. The Company acts as operator for all of
its producing properties within the Raton Basin, and controls all phases
of drilling, completion and well stimulation. The Company also constructs
and operates all of its gas gathering systems, which have been
specifically designed to optimize production from coalbed methane wells.
By operating its producing properties, Evergreen believes it has greater
control over its expenses and the timing of exploration and development of
such properties. The Company is also the designated operator for its
United Kingdom and Chilean projects, and operates certain third party
producing properties.
- IMPROVE AND EXPAND GAS MARKETING CAPABILITIES IN THE RATON BASIN.
Evergreen's natural gas sales from the Raton Basin commenced upon the
completion of a pipeline system in January 1995, which connected the
Company's gathering system to the CIG pipelines. In August 1997, Evergreen
entered into a new agreement with CIG pursuant to which CIG will construct
a new, 115-mile, 16-inch pipeline from Trinidad, Colorado to Campo,
Colorado. When completed, this new pipeline will have initial capacity of
up to 100 MMcf per day and may be further expanded through the use of
additional compression facilities. The new pipeline will more than double
the pipeline capacity currently available from the Raton Basin. This
agreement has a term of 15 years and entitles the Company to firm
transportation of its Raton Basin gas from the field to the CIG
interconnection with other interstate pipelines in Texas. The Company has
committed to transport natural gas from the Raton Basin through CIG's
pipelines commencing on or about August 1998. The initial commitment is 25
MMcf per day, increasing every six months to a maximum of 41 MMcf per day
18 months after commencement. Subject to available capacity in the
pipeline, the Company has the first right to increase its volumes up to
100 MMcf per day. Evergreen believes that the CIG agreement will expand
the range of customers to which it can market its gas, thereby favorably
impacting the prices Evergreen will receive for its gas. See "Business and
Properties -- Customers and Markets."
- PURSUE INTERNATIONAL OPPORTUNITIES. The Company seeks to identify
attractive international oil and gas projects that require relatively
small capital investments but which have potential for favorable returns.
Since 1992, the Company has obtained onshore exploration licenses covering
approximately 371,000 acres in the United Kingdom, a net 2% interest in a
consortium exploring offshore in the Falkland Islands and an oil and gas
exploration license on approximately 2.4 million acres in northern Chile.
The Company expects to spend approximately $5 million over the next three
years for the development of its international projects. Evergreen will
seek additional partners to help minimize the Company's upfront capital
requirements and other costs associated with development of these
projects.
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- ACQUIRE ADDITIONAL PROPERTY INTERESTS. In August 1996, Evergreen acquired
the remaining 25% working interest in its Raton Basin lease holdings
(representing approximately 37 Bcf of estimated net proved reserves) at an
average acquisition cost of approximately $0.30 per Mcf. The Company
expects that it will continue to evaluate and make acquisitions of oil and
gas properties located in its principal areas of operation and in other
areas that provide attractive investment opportunities. The Company seeks
to acquire properties which meet one or more of the following criteria:
(i) an attractive purchase price that, when combined with the anticipated
capital expenditures, exceeds an acceptable internal rate of return, (ii)
the potential to increase reserves and production through the application
of lower risk exploration and development techniques and (iii) the
opportunity for improved operating efficiency.
COALBED METHANE VERSUS TRADITIONAL NATURAL GAS
Methane is the primary commercial component of the natural gas stream
produced from traditional gas wells. Methane also exists in its natural state in
seams or deposits in coalbeds. Natural gas produced from traditional wells also
contains, in varying amounts, other hydrocarbons. However, the natural gas
produced from coalbeds generally contains only methane, and after simple
dehydration, is pipeline-quality gas.
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. Unlike conventional gas wells which require
a porous and permeable reservoir, hydrocarbon migration and a natural structural
or stratigraphic trap, the coalbed methane gas is trapped in the molecular
structure of the coal itself until released by pressure changes resulting from
the removal of insitu water.
Methane is a common component of coal, though coals vary in their methane
content per ton. In addition to being in open spaces in the coal structure,
methane is adsorbed into the inner coal surfaces. When the coal is fracture
stimulated and exposed to lower pressures through the de-watering process, the
gas leaves (desorbs from) the coal. Whether a coalbed will produce commercial
quantities of methane 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 natural fractures (permeability) through which the released gas can flow to
the wellbore. Frequently, coalbeds are partly or completely saturated with
water. As the water is produced, internal pressures on the coal are released,
allowing the gas to desorb from the coal and flow to the wellbore. Contrary to
traditional gas wells, new coalbed methane wells often produce water for several
months and then, as the water production decreases, natural gas production
increases because the coal seams are being de-watered and the resultant pressure
on the coal decreases.
In order to establish commercial gas production rates, a permanent conduit
between the individual coal seams and the wellbore must be created. This is
accomplished by hydraulically creating and propping open with special quality
sand, artificial fractures within the coal seams (known as "fracing" in the
industry) so the pathway for gas migration to the wellbore is enhanced. These
fractures are filled (propped) with coarse sand and become the conduits for
coalbed methane to reach the well. 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.
RATON BASIN PROPERTIES AND OPERATIONS
The Raton Basin is an onshore depositional and structural basin that is
approximately 80 miles long and 50 miles wide, located in southern Colorado and
northern New Mexico. The Raton Basin contains two horizons of coal beds, the
Vermejo coal beds located at depths of between 450 and 3,500 feet and the
shallower Raton coal beds, located at depths from the surface to approximately
2,000 feet. To date,
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Evergreen's primary production has been from the Vermejo coal beds; however,
Evergreen believes that the Raton coalbeds may be profitably exploited as well.
DEVELOPMENT HISTORY AND EXPECTED FUTURE DEVELOPMENT. Exploration for
coalbed methane began in the Raton Basin in the late 1970's and continued
through the late 1980's, with several companies drilling and testing over 100
wells during this period. The absence of a pipeline to transport gas out of the
Raton Basin prevented full scale development until January 1995 when CIG's
Picketwire Lateral became operational.
Since December 1991, Evergreen has acquired oil and gas leases covering
approximately 135,000 gross acres in the Raton Basin. The initial 70,000 acres
were acquired from Amoco Production Company in 1991 by direct purchase without
overriding royalties. The remainder of the acreage was purchased during 1992 and
1993 from individual owners under various lease terms. Generally, the lease
terms provide for a 12 1/2% royalty interest to the owner of the mineral rights.
In August 1993, a four well evaluation program was conducted by the Company.
Based on positive results from the initial four wells, the Company made the
decision, in August 1994, to focus all domestic efforts on development of the
Raton Basin. Evergreen currently has 78 producing gas wells on its Raton Basin
properties, and has drilled an additional 24 wells, 20 of which are expected to
be placed into production by December 31, 1997 and four of which are exploratory
and subject to further evaluation.
In March 1995, the Bureau of Land Management (the "BLM") designated
approximately 67,000 acres of Evergreen's leases in the Raton Basin as a federal
unit called the Spanish Peaks Unit. In January 1997, the BLM designated an
additional 33,000 acres of Evergreen's leases as a federal unit called the
Sangre de Cristo Unit. Evergreen has been named the operator for both of these
units. Formation of a unit simplifies lease maintenance so that Evergreen, as
the operator, can base development decisions within the unit on technical,
geologic and geophysical data rather than the fulfillment of lease term
obligations.
Because of the inclusion of federal leases in the unit, operation and
production within a federal unit is governed by federal rules. Production from
any well in the unit area will maintain all of the leases beyond their primary
terms. In October 1997, the first "participating area" was designated by the BLM
under the Unit Agreement. Gas production in the participating area will be
pooled and shared by the royalty owners, overriding royalty owners and working
interest owners in that area in proportion to their acreage ownership of the
mineral estate in the area. The participating area will be adjusted annually to
encompass additional acreage as additional wells are completed.
To date, the Company's principal development activities in the Raton Basin
have been in the Spanish Peaks Unit. It currently has 77 wells in this Unit and
expects to drill approximately 75 wells during the remainder of 1997 and in
1998. Currently, all of the Company's gas production comes from this Unit, which
has the gathering and compression infrastructure necessary to deliver the gas.
The Company has identified approximately 400 drilling locations in its Spanish
Peaks Unit, of which 136 were included in the Company's proved reserve base at
September 30, 1997. These identified locations comprise approximately 34% of the
Company's total acreage in the Spanish Peaks Unit. The Company has also drilled
two exploratory wells in the northern portion of the Spanish Peaks Unit to
determine the development potential for commercial production of the shallower
Raton coalbeds, as well as the Vermejo coalbeds.
The Company's development activities in the Sangre de Cristo Unit have
consisted solely of the drilling of two exploratory wells. These exploratory
wells will test production levels, provide additional geologic control, and also
will fulfill unit obligations. The Company will be required to construct a
compression facility and a gathering facility to enable gas production and sales
from this unit. No reserves from wells in the Sangre de Cristo Unit are included
in the Company's reserve base.
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 450 and 3,500 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
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surrounds. The coal beds and surrounding sedimentary rocks formed during the
late Cretaceous to early Tertiary period, between 65 and 40 million years ago.
The Raton Basin is a highly asymetric downward fold in the earth's crust that is
approximately 80 miles long north to south and about 50 miles wide east to west.
Plant material accumulated in thick layers in combination with 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 in combination with basin downwarping have, created an extensive series
of faults and 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 mountain structures in the center of the Raton Basin
known as the Spanish Peaks. The magma moved up through existing faults and
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 coal beds. The Company believes that the simultaneous
downwarping of the Raton trough and Larimide age mountain building with
subsequent relaxation (extension) and the subsequent intrusion of magma into the
Raton Basin have matured the coals and enhanced the ability of the Vermejo and
Raton coals to yield coalbed methane.
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.
COALBED METHANE TECHNOLOGY. The Company, working in conjunction with its
contractors, has developed what it believes to be effective procedures for
fracing the Vermejo coals in its Raton Basin wells. In addition, the Company has
developed well completion and specialized drilling techniques that are suited to
its Raton Basin wells. 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 natural permeability of the coals.
Exposing the Raton Basin coals to drilling mud appears to significantly reduce
the permeability of the coals by plugging the cleat system 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.
WATER PRODUCTION AND DISPOSAL. To date, the majority of the water produced
from the Company's Raton Basin coal seams has been low in total dissolved
solids, allowing the Company, operating under permits issued by the State of
Colorado, to discharge the water into well-site pits and evaporation ponds. 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.
RATON BASIN PRODUCTION. Evergreen's natural gas sales from the Raton Basin
did not commence until the completion of a pipeline system in January 1995,
which connected the Company's Raton Basin wells to the CIG pipelines. From
January 1995 through September 1997, Evergreen sold an aggregate of
approximately 6.9 Bcf of coalbed methane gas from the Raton Basin. Gross daily
production from the field currently exceeds 25 MMcf per day, for an average of
over 320 Mcf per well per day. Because of the importance of removing water from
the coal seams to enhance gas production, Evergreen expects to continue
production from more modest wells because of the beneficial ambient 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.
The Raton Basin 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 conventional gas wells.
33
<PAGE>
INTERNATIONAL PROPERTIES AND OPERATIONS
UNITED KINGDOM. In 1991 and 1992, the Company's wholly-owned subsidiary,
Evergreen Resources (U.K.) Ltd. ("ERUK"), was awarded seven onshore United
Kingdom hydrocarbon exploration licenses for the development of coalbed methane
gas and conventional hydrocarbons (the "Original Licenses"). The Original
Licenses provided ERUK with the largest onshore acreage position in the United
Kingdom, and covered substantially all six distinct onshore United Kingdom
basins.
Selection of the licensed areas was made after evaluating 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, which shared relevant available data
on the six basins and granted use 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 from 1992 to 1994, Evergreen conducted seismic work and
drilled three wells under two of the Original Licenses. The wells encountered 30
feet to 80 feet 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.
In 1997, under a new onshore licensing regime implemented by the U.K.
Department of Trade and Industry, Evergreen converted its Original Licenses to
new onshore Licenses, called Petroleum Exploration and Development Licenses (the
"Current Licenses"). In connection with such conversion, the Company
relinquished rights to approximately 259,000 acres, which were not considered
highly prospective for coalbed methane development. Under the Current Licenses,
the Company retains approximately 371,000 acres, which were high-graded for
coalbed methane and conventional hydrocarbon potential. The Current Licenses
provide up to a 30 year term with optional periodic relinquishment of portions
of the licenses, subject to future development plans. There are no royalties or
burdens encumbering these Licenses. Work commitments for acreage retained will
include remote sensing studies, additional seismic studies and the drilling of
three wells, one per year beginning in 1999. Work commitments on the Current
Licenses have been fulfilled through 1997 as a result of Evergreen's prior U.K.
activity.
Evergreen believes that major coalbed methane reserves exist within the
areas subject to the Current Licenses. However, further evaluation will be
required to confirm such belief and determine the economic viability of
extracting any such reserves. Evaluation is expected to occur on a License by
License basis, since success or lack of success on one License may not be
translated to similar results on other Licenses or separate geologic basins. The
Company expects to pay approximately $1.2 million over the next three years to
maintain the Current Licenses.
Evergreen is holding discussions with potential industry partners for the
purpose of evaluating and developing the Current Licenses.
FALKLAND ISLANDS. Evergreen has a net 2% interest in a consortium that has
been awarded an exploration license for an offshore area north of the Falkland
Islands. A subsidiary of Amerada Hess Corporation is the operator of the
consortium, which includes Fina Exploration Atlantic BV, Murphy South Atlantic
Oil Company, Teikoku Oil Co. Ltd. and Argos Evergreen Limited. Argos Evergreen
Limited, a 5% working interest owner in the consortium, is a joint venture
company formed in the Falkland Islands and owned 60% by Argos Resources Limited
and 40% by ERUK. The license covers 626 square miles and lies approximately 225
miles to the north of the islands in water depths ranging up to 1,575 feet. This
area incorporates part of a major unexplored sedimentary basin which has not yet
been tested by drilling, and represents an opportunity for the Company to be
involved during the early phase of exploration in an unexplored basin. The
Company expects to incur capital expenditures of approximately $1.4 million over
the next three years in connection with this project.
CHILE. In March 1997, the Government of Chile awarded an oil and gas
exploration license to Evergreen on two 5,000 square kilometer (approximately
1.2 million acre) blocks in northern Chile.
34
<PAGE>
Evergreen has a 75% working interest in the blocks and will serve as operator.
ENAP, the Chilean-owned energy company, holds the remaining 25% working
interest. The Chilean government will initially receive a 10% royalty on
production up to 10,000 barrels per day, which increases up to a maximum of 35%
on production in excess of 100,000 barrels per day.
Evergreen and ENAP will share work commitments proportionately, stated as
Exploration Periods for each block as set forth in the table below:
<TABLE>
<CAPTION>
EXPLORATION
PERIOD* TERM WORK COMMITMENT
- ------------- ------------- -----------------------------------------------------------
<C> <S> <C>
1 1 year Geologic mapping, aeromagnetic and gravity surveys
2 2 years 200 km seismic data
3 2 years 1 exploratory well
4-9 1 year each 1 exploratory well
</TABLE>
- ------------------------
* commencing June 1997
Evergreen and ENAP may relinquish up to 100% of the blocks at the end of
each exploration period. If the blocks go into production, the contracts will
last 35 years.
Evergreen expects that the foregoing activities will require capital
expenditures over the next three years of approximately $1.8 million.
CUSTOMERS AND MARKETS
Primero is a wholly-owned subsidiary of the Company that was formed to
market and sell natural gas for the Company and third parties. To date, Primero
has only marketed and sold gas on behalf of the Company and working interest
partners. Primero also operates the Company's gathering system and purchases all
the Company's production from its Raton Basin wells.
In November 1996, Evergreen entered into an agreement with CIG which
provided firm transportation for 10 MMcf per day of the Company's Raton Basin
gas from the field to the CIG interconnection with other interstate pipelines in
Texas. Beginning November 1, 1997, the Company obtained the right to firm
transportation for an additional 10 MMcf per day (reserving total firm
transportation of up to 20 MMcf per day). The Company has not exercised the
rights with respect to the additional 10 MMcf, however, it has elected to
transport its gas in excess of 10 MMcf per day using other parties' firm
transportation commitments. The Company is generally required to sell all gas in
excess of approximately 20 MMcf to third parties that have their own
transportation.
The expanding production in the Raton Basin led CIG to file with the Federal
Energy Regulatory Commission (the "FERC") for approval to construct a new,
115-mile, 16-inch pipeline connecting CIG's Picketwire Lateral pipeline near
Trinidad, Colorado to its mainline compressor station at Campo, Colorado (the
"Campo Lateral"). When completed, the Campo Lateral will have initial capacity
of up to approximately 100 MMcf per day, which will more than double the
pipeline capacity currently available from the Raton Basin. The pipeline
capacity may be further expanded through the use of additional compression
facilities. The Campo Lateral is expected to be completed by August 1998. In
August 1997, the Company entered into a new agreement with CIG having a term of
15 years which entitles the Company to firm transportation of its Raton Basin
gas through the Campo Lateral. The Company has committed to transport natural
gas from the Raton Basin through this new pipeline commencing on or about August
1998. The initial commitment is 25 MMcf per day, increasing every six months to
41 MMcf per day 18 months after the commencement. Subject to available capacity
in the pipeline, has the first right to increase its volumes up to 100 MMcf per
day. Evergreen believes that the CIG agreement will expand the range of
customers to which it can market its gas, thereby potentially increasing the
prices Evergreen will receive for its gas. The CIG contract provides for
delivery of the Company's gas into interstate
35
<PAGE>
pipelines in Texas, from which it can be transported to Midwest and East Coast
markets. Absent the Campo Lateral, the Company would be restricted in the total
production that could be transported from the Raton Basin.
Prior to November 1996, only short term contracts were available to the
Company for the sale of its gas. Also, prior to November 1996, Primero could
only access markets outside the Rocky Mountain region when pipeline
transportation was available from other producers or gas marketers.
MAJOR CUSTOMERS. Evergreen has three major customers, Natural Gas
Transmission Services, Inc., Enserco Energy, Inc. and Aquila Energy Corporation
which purchased approximately 53%, 20% and 10%, respectively, of the Company's
gas production for the nine months ended September 30, 1997. Based on the
general demand for gas, the loss of one or more of these customers would not be
expected to 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 12 months. 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 of one year or less.
OIL AND GAS RESERVES
The tables below set forth the Company's quantities of estimated net proved
reserves and the future net cash flows from the Company's estimated net proved
reserves as of the three fiscal years ended March 31, 1996, December 31, 1996
and as of September 30, 1997, all of which reserves were located in the
continental United States. The reserve estimates and present value data at
September 30, 1997 for Evergreen's properties was audited by both Netherland,
Sewell & Associates, Inc. and Resource Services International, Inc., independent
petroleum engineering consultants. Resource Services International, Inc. also
prepared the reserve estimates for March 31, 1994, 1995 and 1996, and December
31, 1996. The summaries of the reports dated September 30, 1997 of Netherland,
Sewell & Associates, Inc. and Resource Services International, Inc. are included
as Appendix A and Appendix B, respectively, to this Prospectus.
<TABLE>
<CAPTION>
AS OF AS OF
AS OF MARCH 31, DECEMBER 31, SEPTEMBER 30,
------------------------------- ------------ -------------
1994 1995 1996 1996 1997
--------- --------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Estimated proved developed:
Natural gas (MMcf)................................... 23,721 18,007 41,360 88,751 136,955
Oil (MBbls).......................................... 350 290 5 3 3
Estimated proved undeveloped:
Natural gas (MMcf)................................... 27,867 39,875 39,566 61,969 66,237
Oil (MBbls).......................................... 1,293 553 -- -- --
--------- --------- --------- ------------ -------------
Total proved (MMcfe)................................... 61,447 62,939 80,955 150,535 203,210
</TABLE>
The following table sets forth the future net cash flows from the Company's
estimated proved reserves:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31, DECEMBER 31, SEPTEMBER 30,
------------------------------- ------------ -------------
1994 1995 1996 1996 1997
--------- --------- --------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Future net cash flows before income taxes.......... $ 77,638 $ 56,535 $ 83,019 $ 172,428 $ 312,408
Future net cash flows before income taxes,
discounted at 10%................................ 32,444 23,313 30,163 70,499 146,329
</TABLE>
36
<PAGE>
DRILLING ACTIVITIES
The Company's drilling activities for the nine months ended September 30,
1997, December 31, 1996 and for the years ended March 31, 1996 and 1995, are set
forth below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------------
YEARS ENDED MARCH 31,
DECEMBER 31, SEPTEMBER 30,
------------------------------------- ----------------- -----------------
1994 1995 1996 1996 1997
----- ----- ----- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
EXPLORATORY:
Gross:
Productive............................... 4 -- -- -- 4*
Dry...................................... -- -- -- -- --
-- -- -- -- --
Total.................................. 4 -- -- -- 4*
Net:
Productive............................... 2 -- -- -- 4*
Dry...................................... -- -- -- -- --
-- -- -- -- --
Total.................................. 2 -- -- -- 4*
DEVELOPMENT:
Gross:
Productive............................... -- 6 12 32 19
Dry...................................... -- -- -- -- --
-- -- -- -- --
Total.................................. -- 6 12 32 19
Net:
Productive............................... -- 6 12 32 19
Dry...................................... -- -- -- -- --
-- -- -- -- --
Total.................................. -- 6 12 32 19
</TABLE>
- ------------------------
* currently testing
PRODUCTION
The following table sets forth the Company's net oil and gas production for
the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS ENDED
YEAR ENDED MARCH 31, ENDED DECEMBER
31, SEPTEMBER 30,
------------------------------------- --------------- --------------------
1994 1995 1996 1996 1996 1997
----- ----- ----- --------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Natural gas (MMcf)............................ 638 782 941 2,104 1,421 4,564
Crude oil and condensate (MBbls).............. 58 37 10 -- 4 --
</TABLE>
37
<PAGE>
AVERAGE SALES PRICES AND LOE
The following table sets forth the average sales price and the average LOE
per Mcfe, for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS ENDED
ENDED DECEMBER
YEAR ENDED MARCH 31, 31, SEPTEMBER 30,
------------------------------- --------------- --------------------
1994 1995 1996 1996 1996 1997
--------- --------- --------- --------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Average sales price
Natural gas (per Mcf).......... $ 2.15 $ 1.67 $ 1.29 $ 1.66 $ 1.46 $ 1.80
Oil (per Bbl).................. 14.50 15.97 18.40 -- -- --
Average LOE (per Mcfe)........... $ 0.81 $ 0.99 $ 0.65 $ 0.33 $ 0.34 $ 0.31
</TABLE>
PRODUCTIVE WELLS
The following table sets forth, as of September 30, 1997, the number of
gross and net productive oil and gas wells. Productive wells are producing wells
and wells capable of production, including shut-in wells.
<TABLE>
<CAPTION>
PRODUCTIVE WELLS
- ------------------------------------------------
OIL GAS
- ---------------------- ------------------------
GROSS NET GROSS NET
- --------- --- ----------- ---
<S> <C> <C> <C>
-- -- 73 73
</TABLE>
ACREAGE
At September 30, 1997, Evergreen held developed and undeveloped acreage as
set forth below:
<TABLE>
<CAPTION>
DEVELOPED ACRES UNDEVELOPED ACRES TOTAL
-------------------- ---------------------- ----------------------
LOCATION GROSS NET GROSS NET GROSS NET
- ----------------------- --------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Colorado............... 18,811 14,247 116,764 97,504 135,575 111,751
United Kingdom......... -- -- 371,018 371,018 371,018 371,018
Falkland Islands....... -- -- 400,640 8,012 400,640 8,012
Chile.................. -- -- 2,400,000 1,800,000 2,400,000 1,800,000
--------- --------- ---------- ---------- ---------- ----------
Total................ 18,811 14,247 3,288,422 2,276,534 3,307,233 2,290,781
--------- --------- ---------- ---------- ---------- ----------
--------- --------- ---------- ---------- ---------- ----------
</TABLE>
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
--------------------
GROSS NET
--------- ---------
<S> <C> <C>
Twelve Months Ended:
December 31, 1998............................................................ 4,884 4,648
December 31, 1999............................................................ 4,150 2,343
December 31, 2000 and later.................................................. 1,489 1,415
</TABLE>
COMPETITION
The Company competes with numerous other companies in virtually all facets
of its business, including many that have significantly greater resources. 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
38
<PAGE>
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.
GOVERNMENT REGULATION OF THE OIL AND GAS INDUSTRY
GENERAL. The Company's business is affected by numerous governmental laws
and regulations, including energy, environmental, conservation, tax and other
laws and regulations relating to the energy industry. Changes in any of these
laws and regulations could have a material adverse effect on the Company's
business. In view of the many uncertainties with respect to current and future
laws and regulations, including their applicability to the Company, the Company
cannot predict the overall effect of such laws and regulations on its future
operations.
The Company believes that its operations comply in all material respects
with all applicable laws and regulations and that the existence and enforcement
of such laws and regulations have no more restrictive effect on the Company's
method of operations than on other similar companies in the energy industry.
The following discussion contains summaries of certain laws and regulations
and is qualified in its entirety by the foregoing.
FEDERAL REGULATION OF THE SALE AND TRANSPORTATION OF OIL AND GAS. Various
aspects of the Company's oil and natural gas operations are regulated by
agencies of the Federal government. The FERC regulates the transportation and
sale for resale of natural gas in interstate commerce pursuant to the Natural
Gas Act of 1938 ("NGA") and the Natural Gas Policy Act of 1978 ("NGPA"). In the
past, the Federal government has regulated the prices at which oil and gas could
be sold. While "first sales" by producers of natural gas, and all sales of crude
oil, condensate and natural gas liquids can currently be made at uncontrolled
market prices, Congress could reenact price controls in the future. Deregulation
of wellhead sales in the natural gas industry began with the enactment of the
NGPA in 1978. In 1989, Congress enacted the Natural Gas Wellhead Decontrol Act
(the "Decontrol Act"). The Decontrol Act removed all NGA and NGPA price and
nonprice controls affecting wellhead sales of natural gas effective January 1,
1993.
Commencing in April 1992, the FERC issued Order Nos. 636, 636-A, 636-B and
636-C (Order No. 636), which require interstate pipelines to provide
transportation services separate, or "unbundled," from the pipelines' sales of
gas. Also, Order No. 636 requires pipelines to provide open access
transportation on a nondiscriminatory basis that is equal for all natural gas
shippers. Although Order No. 636 does not directly regulate the Company's
production activities, the FERC has stated that it intends for Order No. 636 to
foster increased competition within all phases of the natural gas industry. It
is unclear what impact, if any, increased competition within the natural gas
industry under Order No. 636 will have on the Company's activities. Although
Order No. 636, assuming it is upheld in its entirety, could provide the Company
with additional market access and more fairly applied transportation service
rates, Order No. 636 could also subject the Company to more restrictive pipeline
imbalance tolerances and greater penalties for violation of those tolerances.
Order 636 and subsequent FERC orders issued in individual pipeline restructuring
proceedings have been the subject of appeals, the results of which have
generally supported the FERC's open-access policy. Last year, the United States
Court of Appeals for the District of Columbia Circuit largely upheld Order No.
636. Because further review of certain of these orders is still possible and
other appeals remain pending, it is difficult to predict the ultimate impact of
the orders on the Company and its production efforts.
The FERC has announced several important transportation-related policy
statements and proposed rule changes, including the appropriate manner in which
interstate pipelines release capacity under Order No. 636 and, more recently,
the price which shippers can charge for their released capacity. In addition, in
39
<PAGE>
1995, FERC issued a policy statement on how interstate natural gas pipelines can
recover the costs of new pipeline facilities. In January 1996, the FERC issued a
policy statement and a request for comments concerning alternatives to its
traditional cost-of-service rate making methodology. A number of pipelines have
obtained FERC authorization to charge negotiated rates as one such alternative.
In February 1997, the FERC announced a broad inquiry into issues facing the
natural gas industry to assist the FERC in establishing regulatory goals and
priorities in the post-Order No. 636 environment. While these changes would
affect the Company only indirectly, they are intended to further enhance
competition in the natural gas markets. The Company cannot predict what action
the FERC will take on these matters, nor can it predict whether the FERC's
actions will achieve its stated goal of increasing competition in natural gas
markets. However, the Company does not believe that it will be treated
materially differently than other natural gas producers and markets with which
it competes.
Commencing in October 1993, the FERC issued a series of rules (Order Nos.
561 and 561-A) establishing an indexing system under which oil pipelines will be
able to change their transportation rates, subject to prescribed ceiling levels.
The indexing system, which allows or may require pipelines to make rate changes
to track changes in the Producer Price Index for Finished Goods, minus one
percent, became effective January 1, 1995. The Company is not able at this time
to predict the effects of Order Nos. 561 and 561-A, if any, on the
transportation costs associated with oil production from the Company's oil
producing operations. The effects, if any, of these policies on the Company's
operations are uncertain.
The FERC has also recently issued numerous orders confirming the sale and
abandonment of natural gas gathering facilities previously owned by interstate
pipelines and acknowledging that if the FERC does not have jurisdiction over
services provided thereon, then such facilities and services may be subject to
regulation by state authorities in accordance with state law. A number of states
have either enacted new laws or are considering the adequacy of existing laws
affecting gathering rates and/or services. Other state regulation of gathering
facilities generally includes various safety, environmental, and in some
circumstances, nondiscriminatory take requirements, but does not generally
entail rate regulation. Thus, natural gas gathering may receive greater
regulatory scrutiny of state agencies in the future. The Company's gathering
operations could be adversely affected should they be subject in the future to
increased state regulation of rates or services, although the Company does not
believe that it would be affected by such regulation any differently than other
natural gas producers or gatherers. In addition, FERC's approval of transfers of
previously-regulated gathering systems to independent or pipeline affiliated
gathering companies that are not subject to FERC regulation may affect
competition for gathering or natural gas marketing services in areas served by
those systems and thus may affect both the costs and the nature of gathering
services that will be available to interested producers or shippers in the
future.
The Company owns certain natural gas pipeline facilities that it believes
meet the traditional tests the FERC has used to establish a pipeline's status as
a gatherer not subject to the FERC jurisdiction. Whether on state or federal
land or in offshore waters subject to the Outer Continental Shelf Land Act
("OCSLA"), natural gas gathering may receive greater regulatory scrutiny in the
post-Order No. 636 environment.
The Company conducts certain operations on federal oil and gas leases, which
are administered by the Minerals Management Service (the "MMS"). The MMS issued
a notice of proposed rulemaking in which it proposes to amend its regulations
governing the calculation of royalties and the valuation of crude oil produced
from federal leases. This proposed rule would modify the valuation of procedures
for both arm's length and non-arm's length crude oil transactions to decrease
reliance on oil posted prices and assign a value to crude oil that better
reflects market value, establish a new MMS form for collecting value
differential data, and amend the valuation procedure for the sale of federal
royalty oil. Similar rulemaking regarding natural gas royalties have also been
considered by the agency, but there is no current proposed rule on this issue
for natural gas. The Company cannot predict what action the MMS will take on
this matter, nor can it predict at this stage of the rulemaking proceeding how
the Company might be affected by this amendment to the MMS' regulations.
40
<PAGE>
Additional proposals and proceedings that might affect the oil and gas
industry are pending before Congress, the FERC, the MMS, state commissions and
the courts. The Company cannot predict when or whether any such proposals may
become effective. In the past, the natural gas industry has been heavily
regulated. There is no assurance that the regulatory approach currently pursued
by various agencies will continue indefinitely. Notwithstanding the foregoing,
the Company does not anticipate that compliance with existing federal, state and
local laws, rules and regulations will have a material or significantly adverse
effect upon the capital expenditures, earnings or competitive position of the
Company or its subsidiaries. No material portion of Evergreen's business is
subject to renegotiation of profits or termination of contracts or subcontracts
at the election of the Federal government.
STATE REGULATION -- UNITED STATES. The Company's operations are also
subject to regulation at the state level. Such regulation includes requiring
permits for the drilling of wells, maintaining bonding requirements in order to
drill or operate wells and regulating the location of wells, the method of
drilling and casing wells, the surface use and restoration of properties upon
which wells are drilled, the plugging and abandoning of wells and the disposal
of fluids used in connection with operations. The Company's operations are also
subject to various conservation laws and regulations. These include the size of
drilling and spacing units or proration units and the density of wells which may
be drilled and the unitization or pooling of oil and gas properties. In
addition, state conservation laws establish maximum rates of production from oil
and gas wells, generally prohibit the venting or flaring of gas and impose
certain requirements regarding the ratability of production. To the extent any
of the Company's natural gas gathering facilities are subject to state
regulation, regulation of gathering facilities generally includes various
safety, environmental, and in some circumstances, nondiscriminatory take
requirements, but does not generally entail rate regulation. These regulatory
burdens may affect profitability, and the Company is unable to predict the
future cost or impact of complying with such regulations.
ENVIRONMENTAL MATTERS. Extensive federal, state and local laws affecting
oil and natural gas operations, including those carried on by the Company,
regulate the discharge of materials into the environment or otherwise protect
the environment. Numerous governmental agencies issue rules and regulations to
implement and enforce such laws which are often difficult and costly to comply
with and which carry substantial penalties for failure to comply. Some laws,
rules and regulations relating to the protection of the environment may, in
certain circumstances, impose "strict liability" for environmental
contamination, rendering a person liable for environmental damages, cleanup
costs and, in the case of oil spills in certain states, consequential damages
without regard to negligence or fault on the part of such person. Other laws,
rules and regulations may restrict the rate of oil and natural gas production
below the rate that would otherwise exist or even prohibit exploration or
production activities in environmentally sensitive areas. In addition, state and
provincial laws often require some form of remedial action to prevent pollution
from former operations, such as closure of inactive pits and plugging of
abandoned wells. Legislation has been proposed in Congress from time to time
that would reclassify certain oil and gas exploration and production wastes as
"hazardous wastes," which would make the reclassified wastes subject to much
more stringent handling, disposal and clean-up requirements. If such legislation
were to be enacted, it could have a significant impact on the operating costs of
the Company, as well as the oil and gas industry in general. Initiatives to
further regulate the disposal of oil and gas wastes are also pending in certain
states, and these various initiatives could have a similar impact on the
Company. The regulatory burden on the oil and natural gas industry increases its
cost of doing business and consequently affects its profitability.
Compliance with these environmental requirements, including financial
assurance requirements and the costs associated with the cleanup of any spill,
could have a material averse effect upon the capital expenditures, earnings or
competitive position of the Company and its subsidiaries. The Company believes
that it is in substantial compliance with current applicable environmental laws
and regulations and that continued compliance with existing requirements will
not have a material adverse impact on the Company. Nevertheless, changes in
environmental law have the potential to adversely affect the Company's
operations.
41
<PAGE>
For example, the U.S. Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), also known as the "Superfund" law, imposes liability,
without regard to fault or the legality of the original conduct, on certain
classes of persons with respect to the release of a "hazardous substance" into
the environment. These persons include the owner or operator of the disposal
site or sites where the release occurred and companies that disposed or arranged
for the disposal of the hazardous substances found at the site. Persons who are
or were responsible for releases of hazardous substances under CERCLA may be
subject to joint and several liability for the costs of cleaning up the
hazardous substances that have been released into the environment and for
damages to natural resources, and it is not uncommon for neighboring landowners
and other third parties to file claims for personal injury or property damages
allegedly caused by the hazardous substances released into the environment. At
least two federal courts have held that certain wastes associated with the
production of crude oil may be classified as hazardous substances under CERCLA.
In addition, the Company generates or has generated in the past wastes,
including hazardous wastes, that are subject to the federal Resource
Conservation and Recovery Act ("RCRA") and comparable state statutes. The U.S.
Environmental Protection Agency and various state agencies have promulgated
regulations that limit the disposal options for certain hazardous and
nonhazardous wastes.
The Company has in the past owned or leased several properties that for many
years have been used to store and maintain equipment that was regularly used to
explore for and produce oil and gas. In particular, current and prior operations
of the Company included oil and gas production in the Rocky Mountain states and
the portion of the Permian Basin within the State of New Mexico. Although the
Company utilized operating and disposal practices that were standard for the
industry at the time, hydrocarbons or other wastes may have been disposed of or
released on or under the properties owned or leased by the Company or on or
under other locations where such wastes have been taken for disposal. In
addition, many of these properties have from time to time been operated by third
parties whose treatment and disposal or release of hydrocarbons or other wastes
was not under the Company's control. These properties and the waste disposed
thereon may be subject to CERCLA, RCRA, and analogous state laws. Under such
laws, the Company could be required to remove or remediate previously disposed
wastes (including wastes disposed of or released by prior owners or operators)
or property contamination (including groundwater contamination).
In connection with its coalbed methane gas production, the Company from time
to time conducts production enhancement techniques, including various activities
designed to fracture the coalbed formation. While production enhancement
techniques are performed by the Company in substantial compliance with the
requirements set forth by the State of Colorado, neither Colorado nor the U.S.
Environmental Protection Agency ("EPA") regulates this coalbed formation
fracturing as a form of underground injection. On August 7, 1997, the Eleventh
Circuit Court of Appeals held, in a case brought by a citizens environmental
organization, that hydraulic fracturing performed in coalbed methane gas
production in Alabama falls within the definition of "underground injection" as
defined in the federal Safe Drinking Water Act and, therefore, EPA is required
to regulate this activity. As a consequence of this holding, the Eleventh
Circuit also granted a petition filed by the plaintiff in the case to review
EPA's refusal to initiate proceedings that would withdraw federal approval of
Alabama's UIC program. It is not known whether EPA will apply the court's ruling
in this decision outside of the Eleventh Circuit (Alabama, Georgia, and
Florida). Nevertheless, it is possible that hydraulic fracturing of coalbeds for
methane gas production will become regulated within the United States as a form
of underground injection, resulting in the imposition of stricter performance
standards (which, if not met, could result in diminished opportunities for
methane gas production enhancement) and increased administrative and operating
costs for the Company. Management of the Company cannot predict at this time
whether regulation of hydraulic fracturing as a form of underground injection
will have an adverse material effect on the Company's operations or financial
position. However, such regulation is not expected to be any more burdensome to
the Company than it will be to other similarly situated companies involved in
coalbed methane gas production within the United States.
42
<PAGE>
Although the Company maintains insurance against some, but not all, of the
risks described above, including insuring the costs of clean-up operations,
public liability and physical damage, there is no assurance that such insurance
will be adequate to cover all such costs, that such insurance will continue to
be available in the future or that such insurance will be available at premium
levels that justify its purchase. The occurrence of a significant event not
fully insured or indemnified against could have a material adverse effect on the
Company's financial condition and operations.
TITLE TO PROPERTIES
As is customary in the oil and gas industry, only a preliminary title
examination is conducted at the time leases of 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 leases its corporate offices 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 and, in the event, that its lease
is terminated, other suitable space will generally be available.
The Company operates a low pressure gathering system and a three stage
compression station with 306,000 feet of steel pipe ranging in size from three
inches to 24 inches. Currently, the compressor station discharges at a pressure
of 750 psi from four 950 horsepower compressors and two 3,000 horsepower
compressors. Current maximum throughput is approximately 35 MMcf per day at a
maximum pressure of 1,000 psi. The compressor station is designed for an
anticipated maximum throughput of 50 MMcf per day for sales into CIG's
Picketwire Lateral pipeline.
LEGAL PROCEEDINGS
Except for the Amoco proceedings referenced below, the Company is not
involved 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.
On June 25, 1997, Evergreen filed an action in the Las Animas County,
Colorado District Court seeking a declaratory judgment against Amoco regarding
the proposed sale by Amoco of certain property located in the Raton Basin, Las
Animas County. Included in this property was approximately 22,000 gross
non-producing acres which is located within the Cottontail Pass Federal Unit,
situated near the center of Evergreen's present 135,000 gross acreage position
in the Raton Basin. Evergreen, as a working interest owner in the unit, had a
preferential right under the applicable unit operating agreement to purchase
these 22,000 gross acres for $3,179,000. Evergreen tendered to Amoco notice of
its intention to exercise this preferential right to purchase. Amoco contended
that it did not receive valid notice of the preferential purchase rights from
Evergreen. In its action, Evergreen sought a declaratory judgment that Evergreen
had properly exercised its preferential right of purchase, and that Amoco was
obligated to sell the properties covered by that right of purchase to Evergreen.
On November 12, 1997, the court granted Evergreen's motion for summary judgment
and ruled that Evergreen properly exercised its right of purchase for the
subject properties. Amoco has the right to appeal this ruling.
EMPLOYEES
At September 30, 1997, the Company employed 35 full time and 1 part time
persons.
43
<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>
Mark S. Sexton 41 President, Chief Executive Officer and Director
Dennis R. Carlton 46 Senior Vice President Exploration & Operations and Director
Kevin R. Collins 40 Vice President Finance, Chief Financial Officer and Treasurer
Alain G. Blanchard 56 Director
Larry D. Estridge 52 Director
John J. Ryan III 70 Director
Scott D. Sheffield 45 Director
J. Keither Martin 63 Secretary
Ian M. Thomson 57 Managing Director, ERUK
James S. Williams 62 Director
</TABLE>
MARK S. SEXTON was named a Director of Evergreen in March 1995 and
President and Chief Executive Officer in June 1995. He 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 1986 to 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 as 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. In July 1997 he was named Senior Vice President Exploration
and Operations.
KEVIN R. COLLINS joined Evergreen as Vice President Finance, Chief
Financial Officer 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.
ALAIN G. BLANCHARD was named a 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 20 years and continues to do so. Mr.
Blanchard graduated from the University of Paris with a doctorate in economics
and a degree in political science.
LARRY D. ESTRIDGE was named a Director of Evergreen in May 1989. He is a
partner in the law firm of Wyche, Burgess, Freeman & Parham, P.A., Greenville,
South Carolina. Mr. Estridge graduated from Harvard Law School in 1969 and has
been affiliated with Wyche, Burgess, Freeman & Parham, P.A. since July 1972.
44
<PAGE>
JOHN J. RYAN III was named a Director of Evergreen in May 1989. Since 1982
he has been engaged in international tax and investment activities through his
firm, Corporate Investment Services. Mr. Ryan is Chairman of ERUK. Mr. Ryan
serves as a director of Vail Resorts, Inc., and Converse, Inc.
SCOTT D. SHEFFIELD was named a Director of Evergreen in September 1996.
Since April 1985, Mr. Sheffield has served as President and Chief Executive
Officer of Pioneer Natural Resources Company, an energy company traded on the
New York Stock Exchange, and its predecessor company, Parker & Parsley Petroleum
Company. From 1979 to April 1985 he was employed by Parker & Parsley Petroleum
Company 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.
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.
IAN M. THOMSON has served as Managing Director of ERUK since its formation
in 1991. He 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 United Kingdom industrial
conglomerate, responsible for a mining equipment subsidiary in the United
Kingdom, United States and other countries. He presently holds various
non-executive directorships in United Kingdom industrial and manufacturing
companies.
JAMES S. WILLIAMS has been a Director of Evergreen since founding the
Company in 1981 and served as Chairman until July 1, 1997. Mr. Williams
graduated in 1956 from Columbia College and has been engaged in U.S. oil and gas
activities for over twenty years.
45
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership and voting power of the Common Stock at September 30, 1997 (except as
otherwise noted) before and after giving effect to the Offering, held, and the
shares of Common Stock included in the Offering, by (i) each person known by the
Company to own beneficially more than 5% of the outstanding shares of Common
Stock, (ii) the Selling Shareholders, (iii) each named executive officer and
director and (iv) all executive officers and directors as a group. Share
calculations are based on the assumption that the Underwriters' over-allotment
option is not exercised. Unless otherwise noted, each person has sole voting and
investment power with respect to such person's shares owned. All share amounts
in the table include shares which are not outstanding but which are the subject
of options exercisable in the 60 days following the date hereof. All percentages
are calculated based on the total number of outstanding shares, plus the number
of shares for the particular person or group which are not outstanding but which
are the subject of options or other convertible securities exercisable or
convertible in the 60 days following the date hereof.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OFFERING SHARES OWNED AFTER OFFERING
----------------------- TO BE -----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------------------------------------------------- ---------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Heartland Advisors, Inc. ................................. 1,034,000 9.95% -- 1,034,000 8.34%
790 North Milwaukee St.
Milwaukee, WI 54303
Wellington Management Co. ................................ 671,000 6.45 -- 671,000 5.41
75 State Street
Boston, MA 02109
Gerald R. Forsythe ....................................... 1,592,716(1) 15.03 125,000(9) 1,467,716 11.65
1075 Noel Aveneue
Whelling, IL 60090
John Hancock Mut. Life Ins. Co. ......................... 2,498,376(2) 23.58 625,000(9) 1,873,376 14.87
Post Office Box 111
Boston, MA 02117
John J. Ryan III.......................................... 277,300(3) 2.66 -- 277,300(3) 2.23
James S. Williams......................................... 163,540(4) 1.56 -- 163,540(4) 1.31
Mark S. Sexton............................................ 177,944(5) 1.70 -- 177,944(5) 1.43
Dennis R. Carlton......................................... 147,846(6) 1.41 -- 147,846(6) 1.19
J. Keither Martin......................................... 7,500 * -- 7,500 *
Kevin R. Collins.......................................... 39,750(7) * -- 39,750(7) *
Alain Blanchard........................................... 56,920(8) * -- 56,920(8) *
Scott F. Sheffield........................................ 4,700 * -- 4,700 *
Larry D. Estridge......................................... 21,000(8) * -- 21,000(8) *
All Officers and Directors as a .......................... 896,500 8.34 -- 896,500 7.03
Group (9 persons)
</TABLE>
- ------------------------------
* Less than 1%.
(1) Consists of shared voting and dispositive power over 364,500 shares and
14,452 shares issuable under stock purchase warrants currently exercisable
held by Energy Investors Fund I ("Fund I") and 1,028,216 shares and 185,548
shares issuable under stock purchase warrants currently exercisable held by
Energy Investors Fund II ("Fund II"). Fund I is controlled by its general
partner Energy Investors Partners, L.P. ("Partners I"). Fund II is
controlled by its general partner Energy Investors Partners II, L.P.
("Partners II"). Partners I and Partners II are each 50%-owned by John
Hancock Energy Resources Management, Inc. ("JHERM"), an indirect,
wholly-owned subsidiary of John Hancock Mutual Life Insurance Co. ("John
Hancock"), and by EIF Investors, Inc. ("Investors"). Investors is
100%-owned by EIF Acquisition, L.L.C., which in turn is 99%-owned by Indeck
Capital, Inc., which in turn is 80%-owned by Gerald R. Forsythe. North
American Funding, L.L.C. owns the other 1% of Investors.
(2) Consists of 905,660 shares held directly and voting and dispositive power
over 1,592,716 shares held by JHERM as described in note (1) above. JHERM
is a wholly-owned subsidiary of John Hancock Subsidiaries, Inc., which in
turn is a wholly-owned subsidiary of John Hancock.
(3) Includes 30,000 shares issuable pursuant to stock purchase warrants
currently exercisable.
(4) Includes 105,000 shares issuable pursuant to stock purchase warrants
currently exercisable.
(5) Includes 82,250 shares issuable pursuant to stock purchase warrants
currently exercisable.
(6) Includes 77,500 shares issuable pursuant to stock purchase warrants
currently exercisable.
(7) Includes 23,750 shares issuable pursuant to stock purchase warrants
currently exercisable.
(8) Includes 20,000 shares issuable pursuant to stock purchase warrants
currently exercisable.
(9) Fund I and Fund II intend to sell approximately 250,000 shares in
aggregate. Since Gerald R. Forsythe and John Hancock are each 50%
beneficial owners of both Fund I and Fund II, 125,000 of the aggregate
shares to be offered by the funds are attributed to each of Gerald R.
Forsythe and John Hancock.
46
<PAGE>
The Company has issued to the executive officers listed below warrants to
purchase Common Stock. These warrants have a term of five years and an exercise
price of $7.00 per share. They vest in 1998, 1999 and 2000 if the Company
experiences at least 20% 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 exercise the warrants, the warrant
holders must be employed by the Company as of the last day of the relevant
fiscal year.
<TABLE>
<CAPTION>
NUMBER OF WARRANTS TO BE ISSUED
-------------------------------
NAME 1998 1999 2000
- ----------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Mark S. Sexton................................................... 19,250 19,250 19,250
Dennis R. Carlton................................................ 17,500 17,500 17,500
Kevin R. Collins................................................. 8,750 8,750 8,750
</TABLE>
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 12,395,915 shares of
Common Stock outstanding, excluding shares underlying warrants (12,808,415
shares if the Underwriters' over-allotment option is exercised in full), of
which 10,722,039 shares (11,134,539 shares if the Underwriters' over-allotment
option is exercised in full) will be freely tradeable without substantial
restriction or the requirement of future registration under the Securities Act.
All of the remaining 1,673,876 shares will be held by "affiliates" of the
Company, as that term is defined in Rule 144 under the Securities Act ("Rule
144"), and may be sold subject to the provisions of Rule 144. Of these shares,
405,660 shares will be held by John Hancock and be subject to registration
rights. In addition, security holders other than John Hancock will hold
registration rights covering 1,542,716 shares of Common Stock, including 400,000
shares underlying warrants. See "Description of Common Stock--Registration
Rights." The Company has reserved an aggregate of 10% of its outstanding Common
Stock (calculated at any given point in time) for issuance of shares, warrants
or options under its Key Employee Equity Plan (the "Key Employee Plan"), and has
filed a registration statement to register the issuance of the currently
outstanding shares under the Key Employee Plan.
The Company, the executive officers, directors of the Company, the Selling
Shareholders and certain other Company shareholders have agreed that they will
not (except pursuant to the Offering), for a period of 120 days from the date of
this Prospectus, directly or indirectly, offer, sell, offer to sell, contract to
sell, pledge, grant any option to purchase or otherwise sell or dispose (or
announce any offer, sale, offer of sale, contract of sale, pledge, grant of any
option to purchase or other sale or disposition) of any shares of Common Stock
or other capital stock of the Company or any securities convertible into, or
exercisable or exchangeable for, any shares of Common Stock or other capital
stock of the Company without the prior written consent of Prudential Securities
Incorporated, on behalf of the Underwriters, except that such agreement does not
prevent the Company from granting additional shares, warrants or options under
the Key Employee Plan. Upon the expiration of the lockup agreements, 2,811,501
shares (which include 358,500 shares reserved for issuance under options granted
or that may be granted pursuant to the Key Employee Plan and warrants to
purchase 367,125 shares) held by such executive officers, directors and Selling
Stockholders will become eligible for sale in the public market, subject (where
relevant) to the applicable volume and manner-of-sale limitations of Rule 144
and vesting requirements with respect to options or the filing of a registration
statement pursuant to demand registration rights. Prudential Securities
Incorporated may, in its sole discretion, at any time and without notice,
release all or any portion of the shares of Common Stock subject to such
agreements.
Under Rule 144, the volume limitations permit the sale of a number of shares
during any three month period by each seller (aggregated into sales of certain
related persons) that does not exceed the greater of (a) 1% of the then
outstanding shares of Common Stock (approximately 128,084 shares immediately
after this Offering, assuming no exercise of the over-allotment options) or (b)
the average weekly trading volume of the Common Stock on the Nasdaq National
Market during the four calendar weeks preceding the sale, subject to the filing
of a Form 144 with respect to such sale and certain other limitations and
restrictions.
Sales of substantial amounts of Common Stock in the public market could
adversely affect the prevailing market price and could impair the Company's
future ability to raise capital through an offering of its equity securities.
48
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, $0.01 stated value per share, and 25,000,000 shares of preferred
stock, $1.00 par value per share (the "Preferred Stock"). Of such authorized
shares, 10,395,915 shares of Common Stock were issued and outstanding on
November 20, 1997 and no shares of Preferred Stock were issued and outstanding.
The following description of certain matters relating to the capital stock
of the Company is summary in nature and is qualified in its entirety by the
provisions of the Company's Articles of Incorporation (the "Articles") and
Bylaws (the "Bylaws"), copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to the stockholders. Holders of Common Stock are
entitled to receive such dividends as the Board of Directors may from time to
time declare out of Company funds legally available for the payment of
dividends. The Company has not paid any cash dividends since its inception. The
Company anticipates that future earnings will be retained for development of its
business and that no cash dividends will be declared in the foreseeable future.
Upon liquidation, dissolution or winding up of the Company, holders of Common
Stock are entitled to receive pro rata all of the assets of the Company
available for distribution to shareholders subject to any prior rights of
holders of any outstanding Preferred Stock. Holders of Common Stock are not
entitled to fractional votes for fractional shares held, and holders of Common
Stock do not have cumulative voting rights in the election of directors of the
Company. Holders of Common Stock do not have any preemptive rights to acquire
any additional shares or securities of the Company, including shares or
securities held in the treasury of the Company. Issuance of Preferred Stock
could adversely affect the voting power of holders of Common Stock and restrict
their rights to receive payments upon liquidation of the Company. See " --
Preferred Stock."
PREFERRED STOCK
The Board is authorized by the Articles, without action of 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, distribution rights, redemption
rights and obligations including obligations of the Company pursuant to a
sinking fund, conversion rights, voting rights, liquidation and dissolution
rights and other rights, powers, preferences, qualifications, limitations or
restrictions permitted by Colorado law.
Future issues 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, it would be possible, subject
to any limitations imposed by applicable law, the Articles, the terms and
conditions of outstanding classes 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 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.
WARRANTS AND OPTIONS
At November 20, 1997, the Company had outstanding warrants to purchase a
total of 956,086 shares of Common Stock. Of this total, warrants covering
200,000 shares having an exercise price of $6.90 per share and which expire
October 22, 2001 were issued to the underwriters who participated in the
Company's public offering of Common Stock in October 1996. Additional warrants
covering 250,000 shares were issued to Energy Investors Fund II, LP, warrants
covering 100,000 of which are exercisable at
49
<PAGE>
$7.80 per share and warrants covering 150,000 of which are exercisable at $7.00
per share, and all of which expire on December 1, 2001. The remaining warrants
covering 506,086 shares have been issued to Company employees pursuant to the
Key Employee Plan. These warrants have five year terms and are exercisable at
prices per share ranging from $4.25 to $9.875.
REGISTRATION RIGHTS AGREEMENTS
Certain shareholders of the Company have registration rights with respect to
the Company's stock which they hold.
The Company granted registration rights in connection with the issuance of
the 8% Convertible Preferred Stock, all of which was converted on November 1,
1997 into 905,660 shares of Common Stock. Such holders have the right to one
demand registration right (and in certain cases an additional demand right) and
unlimited piggy-back rights.
The Company granted certain registration rights in connection with the
issuance of an aggregate of 1,162,266 shares of Common Stock issued to Energy
Investors Fund I, L.P., Energy Investors Fund II, L.P. and Powerbridge, Inc.
(the "EIF/Powerbridge Shareholders") issued under acquisition agreements
executed in August 1996. These registration rights provide the EIF/Powerbridge
Shareholders with three demand registration rights and certain piggy-back
registration rights. None of the demand registration rights have been exercised.
In connection with the issuance of Common Stock in October 1996, the Company
entered into a registration rights agreement which requires that the Company
file a selling shareholder registration statement beginning October 21, 1997 and
keep it continuously effective for a five-year period with respect to the
200,000 shares of Common Stock issuable pursuant to warrants granted to the
underwriters for that issuance. This registration statement has been filed.
ANTI-TAKEOVER PROVISIONS
SHAREHOLDER RIGHTS PLAN. On July 7, 1997, the Board adopted the Rights Plan,
pursuant to which stock purchase rights were distributed as a dividend to
holders of Common Stock at a rate of one Right for each share of Common Stock
held of record as of July 22, 1997. The Rights Plan provides, among other
things, that the rights become exercisable only if a "triggering event" occurs.
A triggering event occurs if (i) a person or group (except for Existing 20%
Shareholders as defined below) acquires or commences a tender offer for 20% or
more of the Common Stock or (ii) an Existing 20% Shareholder acquires Common
Stock resulting in, or commences a tender offer which would result in, such
person's ownership of 30% or more of the Common Stock (each an "Acquiring
Person"). Upon the occurrence of a triggering event, each right (not held by an
Acquiring Person) then represents the right to receive in exchange for the
exercise price of $42.50 per share, Common Stock having a value worth twice the
exercise price. Alternatively, the Board of Directors, in lieu of receipt of the
exercise price, could exchange one share of Common Stock for each outstanding
right (except rights held by the Acquiring Person). An Existing 20% Shareholder
is a person or group holding 20% or more of the Common Stock prior to the
adoption of the Rights Plan.
Also, in the event that the Company is involved in a merger or other
business combination at any time after a triggering event, the Rights will be
modified so as to entitle a holder to buy a number of shares of Common Stock of
the acquiring entity having a market value of twice the exercise price of each
Right.
Until the Rights become exercisable, they attach to and trade with the
Common Stock. The Rights will expire July 22, 2007. The Rights may be redeemed
by the Company at a price of $0.001 per Right if the redemption is approved by
the members of the Board who were members of the Board prior to any "triggering
event."
The Rights Plan is designed to enhance the Board's ability to prevent an
acquirer from depriving shareholders of the long-term value of their investment
and to protect shareholders against attempts to acquire the Company by means of
unfair or abusive takeover tactics. However, the existence of the Rights Plan
may impede a takeover of the Company not supported by the Board of Directors,
including a
50
<PAGE>
takeover that may be desired by a majority of the Company's shareholders or
involving a premium over the prevailing stock price.
STRUCTURE OF THE BOARD OF DIRECTORS. The Articles provide for a Board of
directors with staggered terms of office. The Company must have at least six
directors serving three year terms. The Board itself may increase the number of
directors and fill the vacancies thus created by majority resolution subject to
certain statutory limitations. One-third of the directors are subject to
reelection in any given year. Directors chosen by the Board to fill vacancies on
the Board are subject to reelection at the next annual meeting of shareholders
following their initial election by the Board. The Articles also provide that
directors may be removed from office for cause by a vote of holders of 80% of
the shares entitled to vote thereon taken at a meeting called and held for the
purpose of removing directors. Thus, were a hostile acquiror to obtain a
majority of the outstanding voting shares of the Company, the acquiror could not
be certain it could immediately gain control of the Board by removing existing
directors and replacing them with directors of its own choosing.
STOCKHOLDER ACTION
The Articles provide that a majority of shares entitled to vote on a matter,
present either in person or by proxy, constitutes a quorum. Once a share is
represented at a meeting, it is considered present for quorum purposes for the
remainder of that meeting or any adjournment of that meeting. If a quorum
exists, action on a matter is generally approved if the votes cast for the
action exceed that votes cast against the action unless relevant law or the
Articles provide otherwise. Colorado law and the Articles require that certain
extraordinary corporate transactions, including but not necessarily limited to
mergers, share exchanges, sale of substantially all assets, and dissolution, be
approved by a majority of the votes entitled to be cast on the matter. Shares
entitled to vote as a separate voting group may take action on a matter at a
meeting only if a quorum of those shares exists.
Pursuant to Colorado law, stockholders may take action by consent without
the holding of a meeting unless the Articles provide otherwise. For stockholders
to take action by consent, the Company must receive written consents approving
the action signed by holders of all of the shares entitled to vote on the
matter.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Securities
Transfer & Trust, Inc., Denver, Colorado.
51
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters") for whom Prudential
Securities Incorporated, Howard, Weil, Labouisse, Friedrichs Incorporated and
Hanifen, Imhoff Inc. are acting as the representatives (collectively, the
"Representatives") have severally agreed, subject to the terms and conditions
contained in the underwriting agreement, to purchase from the Company and the
Selling Shareholders the number of shares of Common Stock set forth below
opposite their respective names:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ------------------------------------------------------------------------------------------- ----------
<S> <C>
Prudential Securities Incorporated.........................................................
Howard, Weil, Labouisse, Friedrichs Incorporated...........................................
Hanifen, Imhoff Inc........................................................................
----------
Total.................................................................................... 2,750,000
----------
----------
</TABLE>
The Company and the Selling Shareholders are obligated to sell, and the
Underwriters are obligated to purchase, all of the shares of Common Stock
offered hereby if any are purchased.
The Underwriters, through the Representatives, have advised the Company and
the Selling Shareholders that they propose to offer the Common Stock initially
at the public offering price set forth on the cover page of this Prospectus;
that the Underwriters may allow to selected dealers a concession of $ per
share; and that such dealers may reallow a concession of $ per share to certain
other dealers. After the Offering, the offering price and the concessions may be
changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 412,500 additional
shares of Common Stock at the public offering price less underwriting discounts
and commissions, as set forth on the cover page of this Prospectus. The
Underwriters may exercise such option solely for the purpose of covering
over-allotments incurred in the sale of the shares of Common Stock offered
hereby. To the extent such option to purchase is exercised, such Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number of shares set forth
opposite each underwriter's name and in the preceding table bears to 2,750,000.
The Company, its executive officers and directors, the Selling Shareholders
and certain of the Company's shareholders have agreed that they will not (except
pursuant to any employee plan), directly or indirectly, offer, sell, offer to
sell, contract to sell, pledge, grant any option to purchase, or otherwise sell
or dispose (or announce any offer, sale, offer of sale, contract of sale,
pledge, grant of any option to purchase or other sale or disposition) of any
shares of Common Stock or other capital stock of the Company or any securities
convertible into, or exercisable or exchangeable for, any shares of Common Stock
or other capital stock of the Company without the prior written consent of
Prudential Securities Incorporated, on behalf of the Underwriters, for a period
of 120 days after the date of this Prospectus. Prudential Securities
Incorporated may, in its sole discretion, at any time and without notice,
release all or any portion of the securities subject to such agreements.
The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters or to contribute to losses incurred by the several
Underwriters arising out of certain liabilities, including liabilities under the
Securities Act.
52
<PAGE>
In connection with this offering, certain Underwriters (and selling group
members, if any) and their respective affiliates who are qualified market makers
on the Nasdaq National Market may engage in passive market making transactions
in the Common Stock of the Company on the Nasdaq National Market in accordance
with Rule 103 of Regulation M under the Exchange Act during the business day
prior to the pricing of the Offering before the commencement of offers and sales
of Common Stock. Passive market makers must comply with applicable volume and
price limitations and must be identified as such. In general, a passive market
maker must display its bid at a price in excess of the highest independent bid
for such security; if all independent bids are lowered below the passive market
maker's bid, however, such bid must then be lowered when certain purchase limits
are exceeded.
In connection with this Offering, certain Underwriters (and selling group
members, if any) and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offering than
they are committed to purchase from the Company and the Selling Shareholders,
and in such case may purchase Common Stock in the open market following
completion of the Offering to cover all or a portion of such short position. The
Underwriters may also cover all or a portion of such short position, up to
412,500 shares of Common Stock, by exercising the Underwriters' over-allotment
option referred to above. In addition, Prudential Securities Incorporated, on
behalf of the Underwriters, may impose "penalty bids" under contractual
arrangements with the Underwriters whereby it may reclaim from an Underwriter
(or selling group member participating in the Offering) for the account of the
other Underwriters, the selling concession with respect to Common Stock that is
distributed in the Offering but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if they are
undertaken, they may be discontinued at any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Wyche, Burgess, Freeman & Parham, P.A., Greenville,
South Carolina. Larry D. Estridge, a director of the Company, is a member of
that firm and beneficially owns 21,000 shares of Common Stock. Certain matters
will be passed upon for the Underwriters by Vinson & Elkins L.L.P., Houston,
Texas.
EXPERTS
The financial statements incorporated by reference in this Prospectus have
been audited by BDO Seidman, LLP, independent certified public accountants, to
the extent and for the periods set forth in their report incorporated herein by
reference, and are incorporated 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. and subsidiaries
for the year ended December 31, 1995 incorporated in this prospectus by
reference from the Company's Form 8-K/A dated September 6, 1996, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report (which expresses an unqualified opinion and includes an explanatory
paragraph relating to substantial doubt about Powerbridge, Inc.'s ability to
continue as a going concern), which is incorporated herein by reference, and
have been so incorporated in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
53
<PAGE>
The estimated reserve evaluations and related calculations of Resource
Services International, Inc., independent petroleum engineering consultants, set
forth in the Prospectus have been included herein in reliance upon the authority
of said firm as experts in petroleum engineering.
The estimated reserve evaluations and related calculations of Netherland,
Sewell & Associates, Inc., independent petroleum engineering consultants, set
forth in the Prospectus have been included herein in reliance upon the authority
of said firm as experts in petroleum engineering.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, file reports, proxy statements and other
information with the Securities and Exchange Commission ("Commission"). Such
reports, proxy statements and other information filed with the Commission may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following Regional Offices of the Commission: New York
Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048 and
Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material may also be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
upon the payment of fees at prescribed rates. The Commission maintains a Web
site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants (including the Company)
that file electronically with the Commission. The Company's Common Stock is
quoted on The Nasdaq Stock Market, and financial reports, proxy statements and
other information concerning the Company may be inspected at the National
Association of Securities Dealers, Inc., Washington, DC.
The Company has filed with the Commission a Registration Statement (which
shall include any amendments thereto) on Form S-3 (the "Registration Statement")
under the Securities Act, with respect to the Common Stock offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. The Registration Statement and the exhibits and
schedules thereto are available for inspection and copying as set forth in the
preceding paragraph. For further information with respect to the Company and the
Common Stock offered hereby, reference is hereby made to the Registration
Statement, including the exhibits and schedules thereto.
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 Transition Report on Form 10-K for the transition period from
March 31, 1996 to December 31, 1996, as amended by Form 10-K/A.
The Company's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1997, June 30, 1997 and September 30, 1997, as amended by Form 10-Q/A.
The Company's Current Report on Form 8-K dated August 21, 1996, as amended
by the Form 8-K/A dated September 6, 1996 and the Form 8-K/A(2) dated November
24, 1997.
The Company's Current Report on Form 8-K dated July 7, 1997.
The description of the Company's Common Stock that is contained in the
Company's Form 8-A filed with the Commission on or about December 21, 1981,
including any amendment or report filed for the purpose of updating such
description.
All documents filed by the Company 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
54
<PAGE>
by reference in this Prospectus and to be a part hereof from the date of filing
of those documents. Any statement contained herein or in a document incorporated
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently-filed document which also is incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, 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 Evergreen Resources, Inc., 1512
Larimer Street, Suite 1000, Denver, Colorado, 80202, Attn: Chief Financial
Officer. (303) 534-0400.
GLOSSARY
As used in this Prospectus, the terms listed below have the specific
meanings set forth:
The following are abbreviations and definitions of terms commonly used in
the oil and natural gas industry and this Prospectus. 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 and at 60 degrees
Fahrenheit.
AVERAGE FINDING COST. The average amount of total capital expenditures,
including acquisition costs, and exploration and abandonment costs, for oil and
natural gas activities divided by the amount of proved reserves added in the
specified period (including the effect on proved reserves or reserve revisions).
BBL. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein in
reference to oil or other liquid hydrocarbons.
BCF. One billion cubic feet.
BCFE. One billion cubic feet equivalent, determined using the ratio of six
Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
BTU OR BRITISH THERMAL UNIT. The quantity of heat required to raise the
temperature of one pound of water by one degree Fahrenheit.
CAPITAL EXPENDITURES. 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.
COALBED METHANE. Methane gas from coals in the ground, extracted using
conventional oil and natural 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.
COMPLETION. The installation of permanent equipment for the production of
oil or natural gas.
CONDENSATE. A hydrocarbon mixture that becomes liquid and separates from
natural gas when the natural gas is produced and is similar to oil.
DEVELOPED ACREAGE. The number of acres which are allocated or assignable to
producing wells or wells capable of production.
55
<PAGE>
DEVELOPMENT WELL. A well drilled within the proved area of an oil or natural
gas reservoir to the depth of a stratigraphic horizon known to be productive.
DRY WELL. A well found to be incapable of producing either oil or natural
gas in sufficient quantities to justify completion of an oil or natural gas
well.
EBITDA. Net income (loss) attributable to Common Stock, plus interest,
income taxes, depreciation, depletion and amortization.
EXPLORATORY WELL. A well drilled to find and produce oil or natural gas in
an unproved area, to find a new reservoir in a field previously found to be
productive of oil or natural gas in another reservoir, or to extend a known
reservoir.
GROSS ACRES OR GROSS WELLS. The total acres or wells, as the case may be, in
which the Company has a working interest.
LOE. Lease operating expenses, which includes, among other things,
extraction costs and production and property taxes.
MBBL. One thousand barrels of crude oil or other liquid hydrocarbons.
MCF. One thousand cubic feet of natural gas.
MCFE. One thousand cubic feet of natural gas equivalent, determined using
the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or
natural gas liquids.
MMCF. One million cubic feet of natural gas.
MMCFE. One million cubic feet of natural gas equivalent, determined using
the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or
natural gas liquids.
NET ACRES OR NET WELLS. Gross acres or wells multiplied, in each case, by
the percentage working interest owned by the Company.
NET PRODUCTION. Production that is owned by the Company less royalties and
production due others.
OIL. Crude oil or condensate.
OPERATOR. The individual or company responsible for the exploration,
development and production of an oil or natural gas well or lease.
PRESENT VALUE OF FUTURE NET REVENUES OR PV-10. The present value of
estimated future net revenues to be generated from the production of proved
reserves, net of estimated production and ad valorem taxes, future capital costs
and operating expenses, using prices and costs in effect as of the date
indicated, without giving effect to federal income taxes. The future net
revenues have been discounted at an annual rate of 10% to determine their
"present value." The present value is shown to indicate the effect of time on
the value of the revenue stream and should not be construed as being the fair
market value of the properties.
PROVED DEVELOPED RESERVES. Reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods. Additional
oil and natural gas expected to be obtained through the application of fluid
injection or other improved recovery techniques for supplementing the natural
forces and mechanisms of primary recovery will be included as "proved developed
reserves" only after testing by a pilot project or after the operation of an
installed program has confirmed through production response that increased
recovery will be achieved.
PROVED RESERVES. The estimated quantities of crude oil, 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, i.e., prices and costs as of
the
56
<PAGE>
date the estimate is made. Prices include consideration of changes in existing
prices provided only by contractual arrangements, but not on escalations based
upon future conditions.
i. Reservoirs are considered proved if economic producibility is supported
by either actual production or conclusive formation test. The area of a
reservoir considered proved includes: (A) that portion delineated by
drilling and defined by natural gas-oil and/or oil-water contacts, if
any; and (B) the immediately adjoining portions not yet drilled, but
which can be reasonably judged as economically productive on the basis of
available geological and engineering data. In the absence of information
on fluid contacts, the lowest known structural occurrence of hydrocarbons
controls the lower proved limit of the reservoir.
ii. Reserves which can be produced economically through application of
improved recovery techniques (such as fluid injection) are included in
the "proved" classification when successful testing by a pilot project,
or the operation of an installed program in the reservoir, provides
support for the engineering analysis on which the project or program was
based.
iii. Estimates of proved reserves do not include the following: (A) oil that
may become available from known reservoirs but is classified separately
as "indicated additional reserves"; (B) crude oil, natural gas and
natural gas liquids, the recovery of which is subject to reasonable doubt
because of uncertainty as to geology, reservoir characteristics, or
economic factors; (C) crude oil, natural gas and natural gas liquids that
may occur in undrilled prospects; and (D) crude oil, natural gas and
natural gas liquids that may be recovered from oil shales, coal,
gilsonite and other such sources.
PROVED UNDEVELOPED RESERVES. Reserves that are expected to be recovered from
new wells on undrilled acreage, or from existing wells where a relatively major
expenditure is required for recompletion. Reserves on undrilled acreage shall be
limited to those drilling units offsetting productive units that are reasonably
certain of production when drilled. Proved reserves for other undrilled units
can be claimed only where it can be demonstrated with certainty that there is
continuity of production from the existing productive formation. Under no
circumstances should estimates for proved undeveloped reserves be attributable
to any acreage for which an application of fluid injection or other improved
recovery technique is contemplated, unless such techniques have been proved
effective by actual tests in the area and in the same reservoir.
RECOMPLETION. The recompletion for production of an existing well bore in
another formation form that in which the well has been previously completed.
RESERVE PLACEMENT COST. Total cost incurred for exploration and development,
divided by reserves added from all sources, including reserve discoveries,
extensions and improved recovery additions, net revisions to reserve estimates
and purchases of reserves-in-place.
RESERVES. Proved reserves.
ROYALTY. An interest in an oil and natural gas lease that gives the owner of
the interest the right to receive a portion of the production from the leased
acreage (or of the proceeds of the sale thereof), but generally does not require
the owner to pay any portion of the costs of drilling or operating the wells on
the leased acreage. Royalties may be either landowner's royalties, which are
reserved by the owner of the leased acreage at the time the lease is granted, or
overriding royalties, which are usually reserved by an owner of the leasehold in
connection with a transfer to a subsequent owner.
TCF. One trillion cubic feet of natural gas.
UNDEVELOPED ACREAGE. 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 natural gas regardless of whether or not such acreage contains proved
reserves. Included within undeveloped acreage are those lease acres (held by
57
<PAGE>
production under the terms of a lease) that are not within the spacing unit
containing, or acreage assigned to, the productive well holding such lease.
WORKING INTEREST. An interest in an oil and natural gas lease that gives the
owner of the interest the right to drill and produce oil and natural gas on the
leased acreage and requires the owner to pay a share of the costs of drilling
and production operations. The share of production to which a working interest
owner is entitled will always be smaller than the share of costs that the
working interest owner is required to bear, with the balance of the production
accruing to the owners of royalties. For example, the owner of a 100% working
interest in a lease burdened only by a landowner's royalty of 12.5% would be
required to pay 100% of the costs of a well but would be entitled to retain
87.5% of the production.
WORKOVER. Operations on a producing well to restore or increase production.
58
<PAGE>
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF EVERGREEN RESOURCES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Certified Public Accountants......................................................... F-2
Consolidated Balance Sheets, March 31, 1996, December 31, 1996 and September 30, 1997 (unaudited).......... F-3
Consolidated Statements of Operations for the years ended March 31, 1995 and 1996, the nine months ended
December 31, 1996, and the nine months ended September 30, 1996 and 1997 (unaudited)..................... F-4
Consolidated Statements of Stockholders' Equity for the years ended March 31, 1995 and 1996, the nine
months ended December 31, 1996 and the nine months ended September 30, 1997 (unaudited).................. F-5
Consolidated Statements of Cash Flows for the years ended March 31, 1995 and 1996, the nine months ended
December 31, 1996 and the nine months ended September 30, 1996 and 1997 (unaudited)...................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<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 December 31, 1996 and
the related consolidated statements of operations, stockholders' equity, and
cash flows and for each of the two years in the period ended March 31, 1996 and
for the nine month period ended December 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 December 31, 1996 and
the results of their operations and their cash flows for each of the two years
in the period ended March 31, 1996 and for the nine month period ended December
31, 1996, in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Denver, Colorado
March 18, 1997
F-2
<PAGE>
EVERGREEN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
------------- ------------- SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current:
Cash and cash equivalents.......................................... $ 3,702,511 $ 2,640,300 $ 2,099,333
Accounts receivable:
Oil and gas sales................................................ 237,178 1,182,635 1,675,433
Joint interest billings and other................................ 897,142 727,283 609,209
Other current assets............................................... 132,446 113,964 207,497
------------- ------------- -------------
Total current assets........................................... 4,969,277 4,664,182 4,591,472
Property and equipment (Notes 3, 15 and 17):
Proved oil and gas properties, based on full-cost accounting....... 36,378,828 49,323,572 55,958,826
Unevaluated properties not subject to amortization................. 7,792,739 8,579,220 9,260,850
Gas gathering equipment............................................ 4,415,439 13,952,381 20,777,033
Support equipment.................................................. 595,656 1,422,955 2,208,955
------------- ------------- -------------
49,182,662 73,278,128 88,205,664
Less accumulated depreciation, depletion and amortization.......... 11,558,516 12,578,205 14,498,709
------------- ------------- -------------
Net property and equipment......................................... 37,624,146 60,699,923 73,706,955
Designated cash (Note 4)............................................. 770,076 1,493,114 1,789,088
Other assets......................................................... 808,218 1,386,376 1,824,681
------------- ------------- -------------
$ 44,171,717 $ 68,243,595 $81,912,196
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 1,204,378 $ 3,223,047 $ 683,790
Amounts payable to oil and gas property owners..................... 1,123,465 1,068,532 2,676,578
Accrued expenses and other......................................... 75,507 415,748 490,751
Current portion -- capital lease (Note 15)......................... 86,620 275,348 710,256
------------- ------------- -------------
Total current liabilities...................................... 2,489,970 4,982,675 4,561,375
Production taxes payable (Note 4).................................. 770,076 1,493,114 1,789,088
Obligations under capital lease (Note 15).......................... 191,956 1,173,500 2,976,086
Note payable (Note 3).............................................. -- -- 8,400,000
Long-term liabilities (Note 11).................................... 1,630,878 2,230,798 2,430,878
------------- ------------- -------------
Total liabilities.............................................. 5,082,880 9,880,087 20,157,427
Redeemable preferred stock (Note 6).................................. 7,500,000 6,000,000 6,000,000
Commitments (Note 11)
Stockholders' equity (Notes 7, 8 and 16):
Common stock, $.01 stated value; shares authorized, 50,000,000;
shares issued and outstanding, 5,899,736, 9,336,320 and
9,469,544........................................................ 58,998 93,636 94,695
Additional paid-in capital......................................... 41,822,026 61,369,368 61,887,511
Accumulated deficit................................................ (9,873,715) (9,198,780) (6,221,500)
Foreign currency translation adjustment............................ (418,472) 99,284 (5,937)
------------- ------------- -------------
Total stockholders' equity..................................... 31,588,837 52,363,508 55,754,769
------------- ------------- -------------
$ 44,171,717 $ 68,243,595 $81,912,196
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS ENDED
YEARS ENDED MARCH 31, ENDED SEPTEMBER 30,
-------------------------- DECEMBER 31, --------------------------
1995 1996 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas production (Note 9).......... $ 1,916,262 $ 1,392,695 $3,502,385 $ 2,139,689 $ 8,194,717
Oil and gas services (Note 13)........... 858,298 779,146 545,079 571,800 576,913
Interest and dividends................... 116,320 206,769 142,521 146,694 100,965
Other (Note 12).......................... 459,948 556,221 37,953 43,855 228,459
------------ ------------ ------------ ------------ ------------
Total revenues............................. 3,350,828 2,934,831 4,227,938 2,902,038 9,101,054
------------ ------------ ------------ ------------ ------------
Costs and expenses:
Lease operating expense.................. 993,838 656,899 700,875 489,236 1,443,849
Gas gathering costs...................... 237,831 218,644 110,363 124,561 112,358
Cost of oil and gas services............. 789,778 727,121 621,521 584,536 621,383
Depreciation, depletion and
amortization........................... 709,008 589,936 965,794 670,712 2,042,508
General and administrative expenses...... 850,088 818,805 504,456 530,610 886,019
Interest expense......................... 29,688 36,620 192,685 110,456 511,359
Other.................................... 351,158 (10,997) 17,309 5,515 146,298
------------ ------------ ------------ ------------ ------------
Total costs and expenses................... 3,961,389 3,037,028 3,113,003 2,515,626 5,763,774
------------ ------------ ------------ ------------ ------------
Net income (loss).......................... (610,561) (102,197) 1,114,935 386,412 3,337,280
Preferred stock dividends (Note 6)......... 94,167 504,620 440,000 450,000 360,000
------------ ------------ ------------ ------------ ------------
Net income (loss) attributable to common
stock.................................... $ (704,728) $ (606,817) $ 674,935 $ (63,588) $ 2,977,280
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net income (loss) per common share......... $ (.13) $ (.10) $ 0.10 (0.01) $ 0.32
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Weighted average common shares
outstanding.............................. 5,446,741 5,800,036 7,043,141 6,172,916 9,403,543
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1995 AND 1996,
NINE MONTHS ENDED DECEMBER 31, 1996
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (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, 1994....................... 5,058,501 $ 50,585 $ 39,434,048 $(8,562,171) $(509,323) $30,413,139
Issuance of common stock for well
interests................................ 501,040 5,010 1,748,630 -- -- 1,753,640
Issuance of common stock (Note 7).......... 81,368 813 158,688 -- -- 159,501
Exercise of stock purchase warrants (Note
7)....................................... 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........ 159,059 1,592 302,315 -- -- 303,907
Common stock issued to ESOP (Note 11)...... 10,000 100 19,900 -- -- 20,000
Issuance of common stock for services (Note
7)....................................... 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
Issuance of common stock pursuant to public
offering (Note 7)........................ 2,000,000 20,000 10,226,780 -- -- 10,246,780
Issuance of common stock for acquisition of
PBI and limited partnership interests
(Note 7)................................. 1,162,266 11,623 7,688,377 -- -- 7,700,000
Issuance of common stock in exchange for
redeemable preferred stock (Note 6)...... 230,770 2,308 1,497,692 -- -- 1,500,000
Issuance of common stock for preferred
stock dividend payment................... 3,077 307 19,693 -- -- 20,000
Common stock issued to ESOP (Note 11)...... 10,000 100 28,700 -- -- 28,800
Issuance of common stock for services...... 30,000 300 86,100 -- -- 86,400
Other...................................... 471 -- -- -- -- --
Preferred stock dividends.................. -- -- -- (440,000) (440,000)
Foreign currency translation............... -- -- -- -- 517,756 517,756
Net income................................. -- -- -- 1,114,935 -- 1,114,935
--------- --------- ------------ ------------ ----------- ------------
Balance, December 31, 1996................... 9,336,320 93,636 61,369,368 (9,198,780) 99,284 52,363,508
Issuance of common stock for services
(unaudited).............................. 63,940 366 239,499 -- -- 239,865
Exercise of stock purchase warrants
(unaudited).............................. 69,284 693 278,644 -- -- 279,337
Preferred stock dividends (unaudited)...... -- -- -- (360,000) -- (360,000)
Foreign currency translation (unaudited)... -- -- -- (105,221) (105,221)
Net income (unaudited)..................... -- -- -- 3,337,280 -- 3,337,280
--------- --------- ------------ ------------ ----------- ------------
Balance, September 30, 1997 (unaudited)...... 9,469,544 $ 94,695 $ 61,887,511 $(6,221,500) $ (5,937) $55,754,769
--------- --------- ------------ ------------ ----------- ------------
--------- --------- ------------ ------------ ----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED NINE MONTHS ENDED
YEARS ENDED MARCH 31, DECEMBER 31, SEPTEMBER 30,
------------------------ ------------ --------------------------
1995 1996 1996 1996 1997
----------- ----------- ------------ ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)............................... $ (610,561) $ (102,197) $1,114,935 $ 386,412 $ 3,337,280
Adjustments to reconcile net income (loss) to
cash provided by operating activities:
Depreciation, depletion and amortization.... 708,933 589,936 965,794 670,712 2,042,508
Gain on sale of subsidiaries................ (330,856) (525,287) -- -- --
Writedown of investments.................... 217,438 -- -- -- --
Equity in earnings of investment............ -- -- -- -- (226,159)
Loss on sale of marketable securities....... 113,074 -- -- -- --
Stock issued for services................... 50,837 31,555 86,400 82,123 89,895
Changes in operating assets and liabilities:
Accounts receivable....................... 770,058 106,209 (184,957) 88,380 (374,768)
Other current assets...................... 82,881 (56,520) 82,712 (280,537) (93,549)
Accounts payable.......................... (633,403) 1,010,077 (645,908) 529,476 (714,271)
Accrued expenses.......................... 39,228 76,178 105,012 (52,911) 75,002
----------- ----------- ------------ ----------- -------------
Net cash provided by operating activities......... 407,629 1,129,951 1,523,988 1,423,655 4,135,938
----------- ----------- ------------ ----------- -------------
Investing activities:
Investment in property and equipment............ (6,844,206) (3,988,233) (8,342,545) (6,109,205) (14,338,817)
Proceeds from sale of oil and gas assets and
support equipment............................. 1,324,390 540,413 420,549 821,279 --
Proceeds from sale of subsidiary................ -- 580,000 -- -- --
Sale of marketable securities................... 2,014,708 -- -- -- --
Designated cash................................. (144,307) (177,052) (723,038) (415,879) (295,974)
Change in production taxes payable.............. 144,307 177,052 723,038 415,879 295,974
Change in other assets.......................... 546,843 104,058 (636,868) (397,662) (193,722)
----------- ----------- ------------ ----------- -------------
Net cash used by investing activities............. (2,958,265) (2,763,762) (8,558,864) (5,685,588) (14,532,539)
----------- ----------- ------------ ----------- -------------
Financing activities:
Proceeds from Notes Payable..................... -- -- -- 2,493,000 8,777,120
Principal payment............................... -- -- (3,596,000) -- --
Proceeds from issuance of redeemable preferred
stock......................................... 3,685,532 3,714,736 -- -- --
Dividends paid on preferred stock............... (94,167) (504,620) (420,000) (450,000) (360,000)
Proceeds from issuance of common stock, net..... 77,584 303,904 10,246,780 303,904 279,076
Principal payments on capital lease
obligations................................... -- (46,526) (118,705) (75,435) (448,608)
Debt issue costs................................ (57,541) (49,037) (79,149) (23,259) --
Change in cash held from operating oil and gas
properties.................................... 23,964 (89,880) (54,933) (445,581) 1,608,046
----------- ----------- ------------ ----------- -------------
Net cash provided by financing activities......... 3,635,372 3,328,577 5,977,993 1,802,629 9,855,634
----------- ----------- ------------ ----------- -------------
Effect of exchange rate changes on cash........... 23,148 (30,412) (5,328) (55,560) --
----------- ----------- ------------ ----------- -------------
Increase (Decrease) in cash and cash equivalents.. 1,107,884 1,664,354 (1,062,211) (2,514,864) (540,967)
Cash and cash equivalents, beginning of period.... 930,273 2,038,157 3,702,511 3,646,492 2,640,300
----------- ----------- ------------ ----------- -------------
Cash and cash equivalents, end of period.......... $ 2,038,157 $ 3,702,511 $2,640,300 $ 1,131,628 $ 2,099,333
----------- ----------- ------------ ----------- -------------
----------- ----------- ------------ ----------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1995 AND 1996 AND
NINE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED AS TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997)
(1) 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., Powerbridge, Inc., and
Primero Gas Marketing Co. (Primero). The companies are engaged in the operation,
acquisition, exploration and development of oil and gas properties and also the
marketing of natural gas. All significant intercompany balances and transactions
have been eliminated in consolidation.
The consolidated financial statements also include the Company's equity
investment, a 49% ownership in Maverick Stimulation Company, LLC ("Maverick")
and a 40% ownership in Argos Evergreen Limited ("AEL"). The Company accounts for
these investments by the equity method of accounting. All significant
intercompany balances and transactions have been eliminated.
CHANGE IN FISCAL YEAR
Effective with the period ended December 31, 1996, the Company elected to
begin utilizing a December 31 year end. Therefore, the period ended December 31,
1996 represents a nine month short period and the years ended March 31, 1996 and
1995 represent twelve month periods.
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.
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 17), and (2) the
lower of cost or fair market value of properties in process of development and
unexplored acreage,
F-7
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1995 AND 1996 AND
NINE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED AS TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997)
(1) SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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 Raton Basin 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.
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.
OPERATOR FEES
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. Common stock equivalents are not
utilized for the years ended March 31, 1995 and 1996 as their effect was
antidilutive.
F-8
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1995 AND 1996 AND
NINE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED AS TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997)
(1) SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
FINANCIAL INSTRUMENTS
Unless otherwise specified, the Company believes the book value of the
financial instruments approximates their fair value.
STOCK PLAN OPTIONS
The Company applies APB Opinion 25, Accounting for Stock Issued to
Employees, and related Interpretations in accounting for all stock option plans.
Under APB Opinion 25, no compensation cost has been recognized for stock options
granted as the option price equals or exceeds the market price of the underlying
common stock on the date of grant.
SFAS No. 123, Accounting for Stock-Based Compensation, requires the Company
to provide pro forma information regarding net income as if compensation cost
for the Company's stock option plans had been determined in accordance with the
fair value based method prescribed in SFAS No. 123. To provide the required pro
forma information, the Company estimates the fair value of each stock option at
the grant date by using the Black-Scholes option-pricing model.
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.
RECLASSIFICATIONS
Certain items included in prior years financial statements have been
reclassified to conform to current year presentation.
DEFERRED OFFERING COSTS
Costs incurred in connection with the Company's anticipated public offering
are deferred and will be charged against stockholders' equity upon the
successful completion of the offering or charged to expense if the offering is
not consummated.
ACCOUNTING PRONOUNCEMENTS
On March 3, 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS
No. 128). This pronouncement provides a
F-9
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1995 AND 1996 AND
NINE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED AS TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997)
(1) SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
different method of calculating earnings per share than is currently used in
accordance with Accounting Principles Board Opinion (APB) No. 15, "Earnings Per
Share." SFAS No. 128 provides for the calculation of "Basic" and "Diluted"
earnings per share. Basic earnings per share includes no dilution and is
computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution of securities that could share in the
earnings of an entity, similar to fully diluted earnings per share. The Company
will adopt SFAS No. 128 in 1997 and its implementation is not expected to have a
material effect on the consolidated financial statements.
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and display of comprehensive income,
its components and accumulated balances. Comprehensive income is defined to
include all changes in equity except those resulting from investments by owners
and distributions to owners. Among other disclosures, SFAS No. 130 requires that
all items that are required to be recognized under current accounting standards
as components of comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial statements.
Also, in June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." SFAS No. 131 establishes
standards for the way that public companies report information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial statements issued to
the public. It also establishes standards for disclosure regarding products and
services, geographic areas and major customers. SFAS No. 131 defines operating
segments as components of a company about which separate financial information
is available that is evaluated regularly by the chief operating decision maker
in deciding how to allocate resources and in assessing performance.
Both SFAS No. 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, they may have
on future financial statement disclosures. Results of operations and financial
position, however, will be unaffected by implementation of these standards.
UNAUDITED PERIODS
The financial information with respect to the nine months ended September
30, 1996 and 1997 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-10
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1995 AND 1996 AND
NINE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED AS TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997)
(2) ACQUISITION AGREEMENT
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 37.0 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 50%
interest in an associated gas gathering and marketing system. All of these
assets are located on the Company's present acreage position in the Raton Basin,
Las Animas County, Colorado. The acquisition has been 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
periods would have been:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
MARCH 31, 1996 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
Revenues.................................................. $ 3,210,400 $ 4,599,000
Net income (loss)......................................... (389,900) 1,201,170
Net income (loss) attributable to common stock............ (894,600) 761,170
Income (loss) per share of common stock................... $ (0.13) $ 0.11
</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.
(3) FINANCING AGREEMENTS
The Company has a revolving line of credit with a bank. Interest on any
borrowings outstanding is at the bank's prime rate and is paid monthly. On June
1, 1997, the available borrowing base (derived from oil and gas reserves) was
increased to $30 million. The line of credit matures in May 1999. Advances
pursuant to this line of credit are limited to the borrowing base, which is
presently $30.0 million. Interest accrues at prime (8.5% at September 30, 1997)
plus or minus a margin of .25%, with margins determined on the average
outstanding borrowings under the line of credit. The borrowing base is
redetermined semi-annually by the bank based upon reserve evaluations of the
Company's oil and gas properties. 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. At September 30, 1997, $8,400,000 was
outstanding and no amounts were outstanding under the line of credit at March
31, 1996 and December 31, 1996.
(4) DESIGNATED CASH AND RELATED PRODUCTION TAXES PAYABLE
Designated cash represents the cash withheld for payment of production taxes
from the Company and third party revenue interest owners. The non-current
portion of production taxes payable relates to ad valorem taxes collected for
production through December 1996 which is not payable until fiscal 1998 or
F-11
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1995 AND 1996 AND
NINE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED AS TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997)
(4) DESIGNATED CASH AND RELATED PRODUCTION TAXES PAYABLE (CONTINUED)
later. The related cash collected from the Company and third party revenue
interest owners designated for payment of non-current ad valorem taxes is
reflected as a non-current asset.
(5) 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, 1995
and 1996, the nine months ended December 31, 1996, and the nine months ended
September 30, 1996 and 1997.
A reconciliation of the effective tax rates and the statutory U.S. federal
income tax rates is as follows:
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS ENDED
YEARS ENDED ENDED
MARCH 31, DECEMBER 31, SEPTEMBER 30,
-------------------- --------------- --------------------
1995 1996 1996 1996 1997
--------- --------- --------------- --------- ---------
(UNAUDITED)
<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 --
Expenses deductible for taxes -- -- (37.3) (37.3) (37.3)
Increase in deferred tax asset valuation allowance................ 35.1 37.3 -- -- --
--------- --------- ----- --------- ---------
Effective tax rate................................................ --% --% --% --% --%
--------- --------- ----- --------- ---------
--------- --------- ----- --------- ---------
</TABLE>
The components of the net deferred income tax in the accompanying balance
sheets are as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, 1996 DECEMBER 31, 1996 SEPTEMBER 30, 1997
-------------- ----------------- ------------------
<S> <C> <C> <C>
Deferred tax assets................... $ 2,064,000 $ 2,885,000 $ 3,855,000
Valuation allowance................... (2,064,000) (2,885,000) (3,855,000)
-------------- ----------------- ------------------
Net deferred tax asset................ $ -- $ -- $ --
-------------- ----------------- ------------------
-------------- ----------------- ------------------
</TABLE>
The Company recorded a valuation allowance at March 31, 1996, December 31,
1996, and September 30, 1997, equal to the excess of deferred tax assets over
deferred tax liabilities as it is unable to determine that these tax benefits
are more likely than not to be realized.
F-12
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1995 AND 1996 AND
NINE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED AS TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997)
(5) INCOME TAXES (CONTINUED)
The components of the net deferred tax assets and liabilities are shown
below:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
------------- ------------- SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C> <C>
Net operating loss carryforward.................. $ 4,551,000 $ 5,371,000 $ 6,341,000
Revenues and other............................... 201,000 150,000 129,000
------------- ------------- -------------
Total gross deferred tax assets.................. 4,752,000 5,521,000 6,470,000
Valuation allowance.............................. (2,064,000) (2,885,000) (3,855,000)
------------- ------------- -------------
Net deferred tax asset........................... 2,688,000 2,636,000 2,615,000
Deferred tax liability -- depreciation, depletion
and amortization............................... (2,688,000) (2,636,000) (2,615,000)
------------- ------------- -------------
Net deferred taxes............................... $ -- $ -- $ --
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
As of September 30, 1997, the Company has net operating loss carryforwards
for tax purposes of approximately $17,000,000. 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.
(6) REDEEMABLE PREFERRED STOCK
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 were used for development of the Company's oil
and gas leases in the Raton Basin of Colorado.
As of December 1, 1996, 1,500,000 shares of the Preferred were converted to
230,770 shares of common stock and 250,000 five-year stock purchase warrants.
100,000 of the warrants are exercisable at $7.80 per share and 150,000 are
exercisable at $7.00 per share.
Cumulative annual cash dividends of 8% were payable quarterly. During the
years ended March 31, 1995 and 1996 and the nine months ended December 31, 1996,
the Company paid $94,167, $504,620 and $440,000 in dividends, respectively.
During the nine months ended September 30, 1996 and 1997, the Company paid
$450,000 and $360,000 in dividends, respectively.
Effective November 1, 1997, all of the Company's outstanding 8% Convertible
Preferred Stock was converted into approximately 905,660 shares of common stock.
Under the terms of the Preferred Stock Agreement, the Company had the right to
convert all of the preferred stock into common stock provided the common stock
closing price was not less than $16 per share for 30 consecutive days. The
closing price of the Company's common stock as reported by NASDAQ was above
$16.00 per share for the 30 consecutive days ending November 1, 1997.
F-13
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1995 AND 1996 AND
NINE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED AS TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997)
(7) STOCKHOLDERS' EQUITY
In August 1994, the Company issued 501,040 shares of common stock valued at
$1,753,640 in exchange for certain working interests in wells in the San Juan
Basin in a non-cash transaction.
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.
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. During the year ended March
31, 1996 and the nine months ended December 31, 1996, the Company issued common
stock valued at $117,390 and $86,400 as a bonus to certain employees.
On October 28, 1996, the Company completed a public offering of its common
shares, whereby it sold 2,000,000 shares at $5.75 per share. Proceeds, net of
underwriters' commissions and their expenses of $1,253,220, were $10,246,780.
During the nine months ended September 30, 1997, 69,284 shares of common
stock were issued under terms of warrants previously granted, yielding proceeds
to the Company of $278,600. In addition, the Company issued common stock valued
at $239,900 as compensation and bonuses.
(8) 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. During the nine months ended December 31,
1996, the Company granted 170,500 warrants to officers and directors at exercise
prices ranging from $5.75 to $7.00. In connection with the 1996 public offering,
the Company issued 200,000 warrants to the underwriters at an exercise price of
$6.90 per share. The presently outstanding warrants expire in 1997 to 2001.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------
MARCH 31, 1996 WEIGHTED
--------------------------- AVERAGE
RANGE OF EXERCISE RANGE OF EXERCISE
SHARES PRICES SHARES PRICE
----------- -------------- ---------- -----------
<S> <C> <C> <C> <C>
Outstanding, beginning of period......... 497,300 $ 2.50 - 9.50 327,300 $ 7.47
Granted................................ 20,000 4.25 620,500 7.08
Exercised.............................. (190,000) 2.50 -- --
----------- -------------- ---------- -----
Outstanding, end of period............... 327,300 3.625 - 9.50 947,800 7.21
----------- -------------- ---------- -----
Options and warrants exercisable, end of
period................................. 327,300 $ 3.625 - 9.50 947,800 $ 7.21
----------- -------------- ---------- -----
Weighted average fair value of options
and warrants granted during the
period................................. $ -- $ 1.51
----------- ----------
----------- ----------
</TABLE>
F-14
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1995 AND 1996 AND
NINE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED AS TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997)
(8) STOCK OPTIONS (CONTINUED)
FASB Statement 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123"), requires the Company to provide pro forma information regarding net
income and net income per share as if compensation costs for the Company's stock
option plans and other stock awards had been determined in accordance with the
fair value based method prescribed in SFAS No. 123. The Company estimated the
fair value of each stock award at the grant date by using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in the nine months ended December 31, 1996: dividend yield of 0 percent
for all years; expected volatility of 9 percent; risk-free interest rate of 6.6
percent; and expected lives of five years for the warrants.
Under the accounting provisions for SFAS No. 123, the Company's net income
and net income per share would have been adjusted to the following pro forma
amounts:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
MARCH 31, 1996 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
Net income (loss)
As reported............................................. $ (606,800) $ 674,500
Pro forma............................................... (606,800) 597,500
Net income (loss) per share
As reported............................................. $ (.10) $ .10
Pro forma............................................... (.10) .08
</TABLE>
(9) MAJOR CUSTOMERS
During the years ended March 31, 1995 and 1996 and the nine months ended
December 31, 1996, 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>
A B C D E F G
CUSTOMER -- -- -- -- -- -- --
- ---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Years ended March 31
1995............................................. --% --% --%% 35% 10% --%
1996............................................. -- -- -- 41 11 25
Nine months ended December 31, 1996................ 59 12 12 -- -- -- --
Nine months ended September 30,
1996............................................. 44 18 -- -- 12 -- --
1997............................................. 50 -- 10 19 -- -- --
</TABLE>
(10) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the years ended March 31, 1995 and 1996 and the nine months
ended December 31, 1996, and September 30, 1996 and 1997 for interest was
approximately, $22,000, $37,000, $192,700, $110,500, and $511,400. During the
nine months ended December 31, 1996, and September 30, 1997, the Company
incurred capital lease obligations of $841,000 and $2,100,000 in connection with
the master lease agreement to acquire equipment. Included in accounts payable at
December 31, 1996, and September 30,
F-15
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1995 AND 1996 AND
NINE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED AS TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997)
(10) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (CONTINUED)
1997, is approximately $2,251,000 and $426,000 for drilling, completion and gas
gathering construction costs.
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 2, 6, 7, 11, and 15 and for additional noncash
transactions at March 31, 1995 and 1996, December 31, 1996, and September 30,
1997.
(11) 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 any time subsequent to March 31, 1996. Rental expense, net of
sublease income, for all facilities was approximately $177,000 and $143,000 for
the years ended March 31, 1995 and 1996 and $99,000 for each of the nine months
ended December 31, 1996 and September 30, 1996 and 1997.
The Company had leased additional office space from an affiliated entity
under a month-to-month operating lease which is now cancelled. Rent expense was
approximately $28,000 and $2,300 for this facility for the years ended March 31,
1995 and 1996.
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, 1995 and 1996 and nine months ended December 31, 1996, the Company
contributed $0, $20,000, and $28,800 to the plan.
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. The Company's production payment obligation began on August 1, 1993
and will conclude on July 31, 1998. At March 31, 1996, December 31, 1996 and
September 30, 1997, volume levels have been below the required minimums and EOC
has accrued approximately $1,831,000, $2,231,000 and $2,431,000 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. Evergreen's cumulative delivery shortfall through September 30, 1997 was
approximately 12.1 billion MMBtu. Evergreen has entered into a binding agreement
with a third party which has agreed to acquire Evergreen's interest in its San
Juan Basin properties. In this agreement, this third party has also agreed to
assume all of Evergreen's liabilities under its agreements with El Paso. El
Paso's consent among other conditions are necessary to consummation of this
agreement. No assurance can be given with respect to whether El Paso's consent
will be received or other conditions will be met.
The Company is a guarantor of a line of credit and a capital lease for
Maverick for an aggregate amount of $2.5 million. The guaranteed obligations
amounted to $1.3 million at September 30, 1997.
F-16
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1995 AND 1996 AND
NINE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED AS TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997)
(12) OTHER INCOME
Other income consisted of the following:
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED MARCH 31, ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- ------------ ---------------------
1995 1996 1996 1996 1997
---------- ---------- ------------ --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Equity in earnings of investment........ $ -- $ -- $ -- $ -- $ 226,159
Gain on sales of subsidiaries/assets.... 330,856 525,287 -- -- --
Other................................... 129,092 30,934 37,953 43,855 2,300
---------- ---------- ------------ --------- ----------
$ 459,948 $ 556,221 $ 37,953 $ 43,855 $ 228,459
---------- ---------- ------------ --------- ----------
---------- ---------- ------------ --------- ----------
</TABLE>
In September 1995, the Company sold its interest in ANGI Limited for
$580,000 which resulted in a gain of approximately $525,000.
In December 1994, the Company sold certain assets and its 100% interest in
JCI 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 into JCI. 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.
(13) RELATED PARTIES
EOC provides well services to a former affiliated entity for which it
receives fees pursuant to written operating agreements. For the years ended
March 31, 1995 and 1996, and the nine months ended December 31, 1996 such fees
totalled approximately $316,000, $575,600 and $340,000. Additionally, EOC
provides non-operating services to the former affiliate, as requested by them
for engineering, evaluation, acquisition and similar services for which EOC was
compensated $229,000 and $24,000 during the years ended March 31, 1995 and 1996.
As of March 31, 1996 and December 31, 1996, approximately $50,500 and $272,900
was payable to EOC from the former affiliate for fees and other services.
(14) SECTION 29 TAX CREDITS
Effective June 1, 1996, the Company sold its working interests in six
producing wells in the San Juan Basin. The wells qualify for the Section 29 tax
credit.
The Company received $53,000 cash and receives a volumetric production
payment of 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 receives monthly payments
based on production from the wells through 2002.
F-17
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1995 AND 1996 AND
NINE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED AS TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997)
(15) CAPITAL LEASE OBLIGATIONS
The Company has a $4.0 million equipment lease line with a bank with
interest at prime (8.5% at September 30, 1997) for a term of five years,
including options to purchase the equipment at a nominal amount at the end of
the lease term. The Company primarily leases compressors for the Raton Basin gas
gathering system and other related production equipment.
Future minimum lease payments are as follows:
<TABLE>
<S> <C>
Years ending December 31:
1997.......................................................... $ 387,900
1998.......................................................... 387,900
1999.......................................................... 387,900
2000.......................................................... 387,900
2001.......................................................... 219,200
---------
Total future minimum lease payments............................. 1,770,800
Less amount representing interest............................... 322,000
---------
Present value of minimum lease payments......................... 1,448,800
Less current portion............................................ 275,300
---------
Capital lease obligation less current portion................... $1,173,500
---------
---------
</TABLE>
Included in fixed assets are the following assets under capital leases:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
---------- ------------ SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C> <C>
Gas gathering equipment............................. $ 531,800 $1,652,196 $ 4,261,881
Less accumulated amortization....................... 37,986 92,113 271,763
---------- ------------ -------------
$ 493,814 $1,560,083 $ 3,990,118
---------- ------------ -------------
---------- ------------ -------------
</TABLE>
Subsequent to December 31, 1996, the equipment lease line was increased to
$6.0 million. At September 30, 1997, the Company had approximately $3,700,000
outstanding under the equipment lease line.
(16) SHAREHOLDER RIGHTS PLAN
On July 7, 1997 the Board of Directors adopted a Shareholder Rights Plan
("Rights Plan"), pursuant to which stock purchase rights will be distributed as
a dividend to its common stockholders at a rate of one Right for each share of
common stock held of record as of July 22, 1997.
The Rights Plan is designed to enhance the Board's ability to prevent an
acquiror from depriving stockholders of the long-term value of their investment
and to protect shareholders against attempts to acquire the Company by means of
unfair or abusive takeover tactics that have been prevalent in many unsolicited
takeover attempts.
F-18
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1995 AND 1996 AND
NINE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED AS TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997)
(16) SHAREHOLDER RIGHTS PLAN (CONTINUED)
Under the Rights Plan, the rights will become exercisable only if a person
or a group (except for existing 20% shareholders) acquires or commences a tender
offer for 20% or more of the Company's common stock. Until they become
exercisable, the Rights attach to and trade with the Company's common stock. The
Rights will expire July 22, 2007. The Rights may be redeemed by the continuing
members of the Board at $.001 per Right prior to the day after a person or group
has accumulated 20% or more of the Company's common stock.
In the event that a person or group acquires 20% of the Company's common
stock, the rights would then be modified to represent the right to receive for
the exercise price Company common stock having a value worth twice the exercise
price.
In the event that the Company is involved in a merger or other business
combination at any time after a person or group has acquired 20% or more of the
Company's common stock, the Rights will be modified so as to entitle a holder to
buy a number of shares of common stock of the acquiring entity having a market
value of twice the exercise price of each Right.
All Rights held or acquired by a person or group holding 20% or more of the
Company's shares are void. The Rights are not triggered by continued stock
ownership of the Company's existing 20% shareholders, unless these Shareholders
increase their holdings in the Company above 30%.
(17) SUPPLEMENTAL INFORMATION OF OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
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, gas gathering and producing activities
at:
<TABLE>
<CAPTION>
UNITED
STATES UNITED KINGDOM TOTAL
------------ --------------- ------------
<S> <C> <C> <C>
March 31, 1995
Acquisition costs:
Proved........................................ $1,753,600 $ -- $ 1,753,600
Exploration..................................... 317,700 -- 317,900
Development..................................... 1,565,700 1,842,000 3,407,700
Gas gathering................................... 2,560,700 -- 2,560,700
March 31, 1996
Acquisition costs............................... $ -- $ -- $ --
Exploration..................................... 155,000 -- 155,000
Development..................................... 3,476,700 516,700 3,993,400
Gas gathering................................... 223,000 -- 223,000
December 31, 1996
Acquisition costs:
Proved........................................ $7,215,400 $ -- $ 7,215,400
Unproved...................................... 600,000 -- 600,000
Gas gathering................................. 3,484,600 -- 3,484,600
Development..................................... 4,229,900 96,000 4,325,900
Gas gathering................................... 5,452,400 -- 5,452,400
</TABLE>
F-19
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1995 AND 1996 AND
NINE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED AS TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997)
(17) SUPPLEMENTAL INFORMATION OF OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(CONTINUED)
Aggregate capitalized costs and related accumulated depreciation, depletion
and amortization relating to oil and gas producing activities are as follows:
<TABLE>
<CAPTION>
UNITED UNITED
STATES KINGDOM TOTAL
-------------- ------------ --------------
<S> <C> <C> <C>
March 31, 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
-------------- ------------ --------------
-------------- ------------ --------------
December 31, 1996
Proved properties.............................. $ 49,323,572 $ -- $ 49,323,572
Unproved properties............................ 1,086,629 7,492,591 8,579,220
-------------- ------------ --------------
50,410,201 7,492,591 57,902,792
Accumulated depletion, depreciation and
amortization................................. (11,867,582) -- (11,867,582)
-------------- ------------ --------------
Net capitalized costs.......................... $ 38,542,619 $ 7,492,591 $ 46,035,210
-------------- ------------ --------------
-------------- ------------ --------------
</TABLE>
Costs of oil and gas properties excluded from the amortization base, at
March 31, and December 31, are as follows:
<TABLE>
<CAPTION>
UNITED UNITED
STATES KINGDOM TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
March 31, 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
------------ ------------ ------------
------------ ------------ ------------
December 31, 1996
Leasehold costs..................................... $ 1,086,629 $ 2,460,560 $ 3,547,189
Development costs................................... -- 5,032,031 5,032,031
------------ ------------ ------------
$ 1,086,629 $ 7,492,591 $ 8,579,220
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Depreciation and depletion per equivalent MCF was $.51, $.39 and $.33, for
the years ended March 31, 1995 and 1996, and.the nine months ended December 31,
1996.
F-20
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1995 AND 1996 AND
NINE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED AS TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997)
(17) SUPPLEMENTAL INFORMATION OF OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(CONTINUED)
Results of operations from United States production activities for the years
ended March 31, 1995 and 1996, and the nine months ended December 31, 1996, are
presented in accordance with Financial Accounting Standards No. 69, "Disclosures
About Oil and Gas Activities," which excludes consideration of general and
administrative, and interest expense. There was no production activity in the
United Kingdom.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
-------------------------- ------------
1995 1996 1996
------------ ------------ ------------
<S> <C> <C> <C>
Oil and gas sales.................................. $ 1,916,262 $ 1,392,695 $3,502,385
------------ ------------ ------------
Lease operating expense............................ 993,838 656,899 700,875
Gas gathering costs................................ 237,831 218,644 110,363
Depreciation and depletion......................... 510,538 393,581 697,700
------------ ------------ ------------
1,742,207 1,269,124 1,508,938
------------ ------------ ------------
Results of operations from producing activities
(excluding corporate overhead and interest
costs)........................................... $ 174,055 $ 123,571 $1,993,447
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
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, 1995 and 1996, and December 31, 1996.
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-21
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1995 AND 1996 AND
NINE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED AS TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997)
(17) SUPPLEMENTAL INFORMATION OF OIL AND GAS PRODUCING ACTIVITIES (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 NATURAL GAS
GAS LIQUIDS
PROVED RESERVES (MCF) (BBLS)
- ----------------------------------------------------------------- ------------- -----------
<S> <C> <C>
At April 1, 1994................................................. 51,588,100 1,643,100
Revisions of previous estimates................................ (12,474,600) (609,300)
Extensions and discoveries..................................... 18,441,300 --
Sales of reserves.............................................. (3,891,100) (154,300)
Purchases of reserves.......................................... 5,000,000 --
Production..................................................... (781,700) (36,600)
------------- -----------
At March 31, 1995................................................ 57,882,000 842,900
Revisions of previous estimates................................ (3,482,000) --
Extensions and discoveries..................................... 31,163,500 --
Sales of reserves.............................................. (3,696,300) (828,400)
Production..................................................... (941,200) (9,700)
------------- -----------
At March 31, 1996................................................ 80,926,000 4,800
Revisions of previous estimates................................ 4,625,400 (2,200)
Extensions and discoveries..................................... 30,109,100 --
Sales of reserves.............................................. -- --
Purchases of reserves.......................................... 37,163,600 --
Production..................................................... (2,104,400) --
------------- -----------
At December 31, 1996............................................. 150,719,700 2,600
------------- -----------
------------- -----------
</TABLE>
<TABLE>
<CAPTION>
OIL AND
NATURAL NATURAL GAS
GAS LIQUIDS
PROVED DEVELOPED RESERVES (MCF) (BBLS)
- ------------------------------------------------------------------ ------------ -----------
<S> <C> <C>
March 31, 1995.................................................... 18,007,300 289,800
March 31, 1996.................................................... 41,359,700 4,800
December 31, 1996................................................. 88,751,500 2,600
</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 period-end
prices of oil and gas to the estimated future production of proved oil and gas
reserves at March 31, 1995 and 1996, and December 31, 1996. 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
F-22
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1995 AND 1996 AND
NINE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED AS TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997)
(17) SUPPLEMENTAL INFORMATION OF OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(CONTINUED)
Company's proved oil and gas reserves and the tax basis of proved oil and gas
properties and available operating loss and excess statutory depletion
carryovers, reduced by investment tax and Section 29 credits.
At March 31, 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.
During the year ended March 31, 1996 and the nine months ended December 31,
1996 future income taxes were included in the standardized measure of the future
net cash flows due to the increase in future cash inflows which are the result
of additional reserves.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
------------------------------ ------------------
1995 1996 1996
-------------- -------------- ------------------
<S> <C> <C> <C>
Future cash inflows...................... $ 86,666,340 $ 121,049,400 $ 242,761,200
Future cash outflows:
Production costs....................... (20,671,010) (30,640,700) (58,542,800)
Development costs...................... (9,460,563) (7,389,400) (11,790,300)
-------------- -------------- ------------------
Future net cash flows before future
income taxes........................... 56,534,767 83,019,300 172,428,100
Future income taxes...................... -- (13,789,400) (34,865,300)
-------------- -------------- ------------------
Future net cash flows.................... 56,534,767 69,229,900 137,562,800
Effect of discounting future annual net
cash flows at 10%...................... (33,222,467) (44,076,600) (81,319,200)
-------------- -------------- ------------------
Standardized measure of discounted future
net cash flows......................... $ 23,312,300 $ 25,153,300 $ 56,243,600
-------------- -------------- ------------------
-------------- -------------- ------------------
</TABLE>
F-23
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1995 AND 1996 AND
NINE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED AS TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997)
(17) SUPPLEMENTAL INFORMATION OF OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(CONTINUED)
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, 1995 and 1996, and for the nine months ended December 31, 1996.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
---------------------------- ------------------
1995 1996 1996
------------- ------------- ------------------
<S> <C> <C> <C>
Standardized measure, beginning of
period................................... $ 25,708,900 $ 23,312,300 $ 25,153,300
Sales of oil and gas, net of production
costs.................................... (684,600) (517,100) (2,691,200)
Extensions and discoveries................. 6,110,500 10,500,400 10,546,000
Net change in sales prices, net of
production costs......................... (9,124,600) 2,866,900 4,434,700
Purchase of reserves....................... 2,073,700 -- 20,122,700
Sale of reserves........................... (2,901,100) (5,542,300) --
Revisions of quantity estimates............ (9,536,000) (1,567,000) 2,478,000
Accretion of discount...................... 3,244,400 1,664,300 3,016,300
Net change in income taxes................. 6,735,500 (5,010,100) (9,244,800)
Changes in future development costs........ 3,628,100 2,293,900 4,212,800
Changes in rates of production and other... (1,942,500) (2,848,000) (1,784,200)
------------- ------------- ------------------
Standardized measure, end of period........ $ 23,312,300 $ 25,153,300 $ 56,243,600
------------- ------------- ------------------
------------- ------------- ------------------
</TABLE>
F-24
<PAGE>
APPENDIX A
[NETHERLAND, SEWELL & ASSOCIATES, INC. LETTERHEAD]
November 11, 1997
Mr. Mark S. Sexton
Evergreen Resources, Inc.
1000 Writer Square
1512 Larimer Street
Denver, Colorado 80202
Dear Mr. Sexton:
In accordance with your request, we have audited the estimates prepared by
Evergreen Resources, Inc. (Evergreen), as of September 30, 1997, of the proved
oil and gas reserves and future net revenue to the Evergreen interest in certain
oil and gas properties located in Colorado and New Mexico. These estimates are
based on constant prices and costs. The following table sets forth Evergreen's
estimates of the proved reserves and future net revenue, as of September 30,
1997, for the audited properties:
<TABLE>
<CAPTION>
FUTURE NET REVENUE (M$)
NET RESERVES -------------------------
------------------------- PRESENT WORTH
CATEGORY OIL (MBBL) GAS (MMCF) TOTAL AT 10%
- -------------------------------------------------------------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Proved Developed
Producing................................................... 2.4 115,896.6 184,420.6 94,374.9
Non-Producing............................................... 0.0 21,057.8 33,807.2 15,936.3
Proved Undeveloped............................................ 0.0 66,237.7 94,179.8 36,017.9
--
---------- ---------- -------------
Total Proved.............................................. 2.4 203,192.1 312,407.6 146,329.1
</TABLE>
The oil reserves shown include crude oil and condensate. Oil volumes are
expressed in thousands of barrels (MBBL); a barrel is equivalent to 42 United
States gallons. Gas volumes are expressed in millions of standard cubic feet
(MMCF) at the contract temperature and pressure bases.
When compared on a property-by-property basis, some of the estimates of
Evergreen are greater and some are lesser than the estimates of Netherland,
Sewell & Associates, Inc.; however, in our opinion, Evergreen's estimates of net
proved oil and gas reserves and future net revenue, as shown herein and in
certain computer printouts on file in our office, are in the aggregate
reasonable and have been prepared in accordance with generally accepted
petroleum engineering and evaluation principles. These principles are set forth
in the Standards Pertaining to the Estimating and Auditing of Oil and Gas
Reserve Information promulgated by the Society of Petroleum Engineers. We are
satisfied with the methods and procedures utilized by Evergreen in preparing the
September 30, 1997 net reserve and future net revenue estimates, and we saw
nothing of an unusual nature that would cause us to take exception with the
estimates, in the aggregate, as prepared by Evergreen.
The estimated reserves and future revenue shown herein are for proved
developed producing, proved developed non-producing, and proved undeveloped
reserves. Evergreen's estimates do not include value for probable or possible
reserves which may exist for these properties, nor does it include any
consideration of undeveloped acreage beyond those tracts for which undeveloped
reserves have been estimated.
The oil and gas prices used by Evergreen are $18.00 per barrel and $1.84 per
MCF, respectively, and are held constant throughout the life of the properties.
A-1
<PAGE>
Evergreen's estimates of lease and well operating costs are based on
historical operating expense records. For non-operated properties, these costs
include the per-well overhead expenses allowed under joint operating agreements
along with costs estimated to be incurred at and below the district and field
levels. Lease and well operating costs for the operated properties include only
direct lease and field level costs. For the Spanish Peaks Unit wells, Evergreen
used direct lease and field level costs of $1,025 per well per month for the
first year of production, then $725 per well per month for the next 3 years, and
$425 per well per month for the remaining well life. The reductions account for
the declining water production during the life of the wells. A gathering fee of
$0.05 per MCF was also included for the Spanish Peaks Unit wells. Headquarters
general and administrative overhead expenses of Evergreen are not included.
Lease and well operating costs are held constant throughout the life of the
properties. Evergreen's estimates of capital costs are included as required for
workovers, new development wells, and production equipment.
It should be understood that our audit does not constitute a complete
reserve study of Evergreen's oil and gas properties. Our audit consisted of a
detailed review of major properties making up 90 percent of the present worth
for the total proved reserves. In our audit, we accepted without independent
verification the accuracy and completeness of the historical information and
data furnished by Evergreen with respect to ownership interest, oil and gas
production, well test data, oil and gas prices, operating and development costs,
and any agreements relating to current and future operations of the properties
and sales of production. However, if in the course of our examination something
came to our attention which brought into question the validity or sufficiency of
any such information or data, we did not rely on such information or data until
we had satisfactorily resolved our questions relating thereto or had
independently verified such information or data.
We are independent petroleum engineers, geologists, and geophysicists with
respect to Evergreen Resources, Inc. as provided in the Standards Pertaining to
the Estimating and Auditing of Oil and Gas Reserve Information promulgated by
the Society of Petroleum Engineers. We do not own an interest in these
properties and are not employed on a contingent basis.
Very truly yours,
/s/ Frederic D. Sewell
DDS:PJA
A-2
<PAGE>
APPENDIX B
[RESOURCE SERVICES INTERNATIONAL, INC. LETTERHEAD]
November 12, 1997
Evergreen Resources, Inc.
1000 Writer Square
1512 Larimer Street
Denver, Colorado 80202
Gentlemen:
We have audited the estimates, prepared by Evergreen Resources, Inc.
("Evergreen"), of the extent and value of the proved reserves of crude oil,
natural gas, and natural gas liquids for certain leases owned by Evergreen, as
of September 30, 1997. The appraised properties are located in Colorado and New
Mexico.
Evergreen's estimates of proved reserves, future net revenue, and present
value of net proved reserves summarized in this report may be submitted to the
Securities and Exchange Commission ("SEC") as part of a proposal for a new issue
of Evergreen's securities. The reserve estimates are prepared according to
applicable SEC rules and utilize conventional and generally accepted engineering
methods.
Our review of Evergreen's reserve estimates is based upon a study of
Evergreen's properties. During this investigation, we consulted with the
officers and employees of Evergreen and were given access to such accounts,
records, geological and engineering reports, and other data as were desired for
examination. We previously have prepared studies of oil and gas properties in
areas where Evergreen's properties are located. Property interests owned,
production from such properties, current prices for production, agreements
relating to current and future operations and sale of production, gas tax credit
sales agreements, and various other information and data were furnished to RSII
by Evergreen and are accepted as factual without independent verification of
such facts. We did not make a field examination of the operations or physical
condition of the appraised properties.
Crude oil and natural gas reserves included in this report are classified as
proved and are judged to be economically producible in future years from known
reservoirs under existing economic and operating conditions, assuming
continuation of the current regulatory practices, and using conventional
production methods and equipment.
Definitions of proved reserves used in this evaluation are those set forth
in Rule 4-10(a) of Regulation S-X, as adopted by the SEC:
"PROVED OIL AND GAS RESERVES. Proved oil and gas reserves are the
estimated quantities of crude oil, 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, i.e., prices and costs as of the date the
estimate is made. Prices include consideration of changes in existing prices
provided only by contractual arrangements, but not on escalations based upon
future conditions.
"(i) Reserves are considered proved if economic producibility is
supported by either actual production or conclusive formation tests. The
area of a reservoir considered proved includes (A) that portion delineated
by drilling and defined by gas-oil and/or oil-water contacts, if any, and
(B) the immediately adjoining portions not yet drilled, but which can be
reasonably judged as economically
B-1
<PAGE>
productive on the basis of available geological and engineering data. In the
absence of information on fluid contacts, the lowest known structural
occurrence of hydrocarbons controls the lower proved limit of the reservoir.
"(ii) Reserves which can be produced economically through application of
improved recovery techniques (such as fluid injection) are included in the
'proved' classification when successful testing by a pilot project, or the
operation of an installed program in the reservoir, provides support for the
engineering analysis on which the project or program was based.
"(iii) Estimates of proved reserves do not include the following: (A)
oil that may become available from known reservoirs but is classified
separately as 'indicated additional reserves'; (B) crude oil, natural gas,
and natural gas liquids, the recovery of which is subject to reasonable
doubt because of uncertainty as to geology, reservoir characteristics, or
economic factors; (C) crude oil, natural gas, and natural gas liquids, that
may occur in undrilled prospects; and (D) crude oil, natural gas, and
natural gas liquids, that may be recovered from oil shales, gilsonite and
other such sources.
"PROVED DEVELOPED OIL AND GAS RESERVES. Proved developed oil and gas
reserves are reserves that can be expected to be recovered through existing
wells with existing equipment and operating methods. Additional oil and gas
expected to be obtained through the application of fluid injection or other
improved recovery techniques for supplementing the natural forces and
mechanisms of primary recovery should be included as 'proved developed
reserves' only after testing by a pilot project or after the operation of an
installed program has confirmed through production response that increased
recovery will be achieved.
"PROVED UNDEVELOPED OIL AND GAS RESERVES. Proved undeveloped oil and gas
reserves are reserves that are expected to be recovered from new wells on
undrilled acreage, or from existing wells where a relatively major
expenditure is required for recompletion. Reserves on undrilled acreage
shall be limited to those drilling units offsetting productive units that
are reasonably certain of production when drilled. Proved reserves for other
undrilled units can be claimed only where it can be demonstrated with
certainty that there is continuity of production from the existing
productive formation. Under no circumstances should estimates for proved
undeveloped reserves be attributable to any acreage for which an application
of fluid injection or other improved recovery technique is contemplated
unless such techniques have been proved effective by actual tests in the
area and in the same reservoir."
Natural gas volumes are expressed at standard conditions of temperature and
pressure applicable in the area the gas is purchased. Condensate reserves
estimated are those obtained from normal separator recovery. Crude oil is stated
as standard barrels of 42 U.S. gallons per barrel.
Estimated net proved reserves of crude oil and natural gas liquids, as of
September 30, 1997.
<TABLE>
<CAPTION>
CRUDE OIL NATURAL GAS
----------- -----------
MBL MMCF
<S> <C> <C>
Total Proved Developed Producing Reserves................................................ 2,366 115,793
Total Proved Developed Non-Producing Reserves............................................ 0 21,058
Total Proved Undeveloped Reserves........................................................ 0 66,231
----- -----------
TOTAL PROVED RESERVES.................................................................... 2,366 203,082
----- -----------
----- -----------
</TABLE>
Value of net proved reserves is expressed in terms of estimated future net
revenue and present value of future net revenue. Future net revenue is
calculated by deducting estimated operating expenses, future development costs,
and severance and ad valorem taxes from the future gross revenue.
Present value of future net revenue is calculated by discounting the future
net revenue at the arbitrary rate of 10 percent per year compounded monthly over
the expected period of realization. Present value, as
B-2
<PAGE>
expressed herein, should not be construed as fair market value since no
consideration has been given to many factors which influence the prices at which
petroleum properties are traded, such as taxes on operating profits, allowance
for return on the investment, and normal risks incident to the oil business.
Estimated future net revenue and net present value of future net revenue
from proved crude oil, natural gas, and natural gas liquid reserves, as of
September 30, 1997 follow:
<TABLE>
<CAPTION>
10% DISC.
FUTURE NET FUTURE NET
REVENUE $ REVENUE $
----------- -----------
<S> <C> <C>
Total Proved Developed Producing Reserves................................................ 184,372 94,375
Total Proved Developed Non-Producing Reserves............................................ 33,807 15,936
Total Proved Undeveloped Reserves........................................................ 94,204 36,057
----------- -----------
TOTAL PROVED RESERVES.................................................................... 312,383 146,368
----------- -----------
----------- -----------
</TABLE>
Virtually all of Evergreen's gas reserves are coal gas located in the Raton
Basin, Colorado, and the San Juan Basin, New Mexico. Projection of coalbed
methane gas reserves is generally more complicated than projection of
conventional hydrocarbon reservoirs due to complex reservoir properties and the
dewatering process required to develop producible natural gas reservoirs.
Therefore, reserve estimates and gas production rates for coalbed methane wells
are modified frequently as gas and water production data becomes available.
Resource Services International, Inc. and its principals are unrelated to
Evergreen, its officers, shareholders, and properties evaluated in this report.
Submitted,
RESOURCE SERVICES INTERNATIONAL, INC.
B-3
<PAGE>
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY OF THE SELLING SHAREHOLDERS OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF ANY OFFER TO BUY, ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. 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 TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
-------------------
P R O S P E C T U S
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary........................................... 3
Risk Factors................................................. 10
The Company.................................................. 17
Use of Proceeds.............................................. 18
Price Range of Common Stock.................................. 18
Dividend Policy.............................................. 18
Capitalization............................................... 19
Selected Consolidated Financial and Operating Data........... 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 21
Business and Properties...................................... 29
Management................................................... 44
Principal and Selling Shareholders........................... 46
Shares Eligible for Future Sale.............................. 48
Description of Capital Stock................................. 49
Underwriting................................................. 52
Legal Matters................................................ 53
Experts...................................................... 53
Available Information........................................ 54
Incorporation of Certain Documents by Reference.............. 54
Glossary..................................................... 55
Index to Financial Statements................................ F-1
Reports of Independent Petroleum Engineers................... A-1
Reports of Independent Petroleum Engineers................... B-1
</TABLE>
2,750,000 Shares
[LOGO]
Common Stock
PRUDENTIAL SECURITIES INCORPORATED
HOWARD, WEIL,
LABOUISSE, FRIEDRICHS
INCORPORATED
HANIFEN, IMHOFF INC.
November , 1997
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Registration Fee -- Securities and Exchange Commission.............. $
Filing Fee -- NASD..................................................
Blue Sky Fees.......................................................
Printing............................................................
Legal Fees..........................................................
Accounting Fees.....................................................
Miscellaneous.......................................................
Total............................................................. $
</TABLE>
- ------------------------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) Reference is made to Section 7-109-102, 103, 104, 105, 106, 107, 108,
109 and 110 of the Colorado Business Corporation Act, which provides as follows:
"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.
(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.
II-1
<PAGE>
(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
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.
II-2
<PAGE>
(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 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.
II-3
<PAGE>
"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
1. 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 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 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.
2. 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 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 has 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.
II-4
<PAGE>
3. To the extent that a director, officer, employee, or agent of the
corporation has been successful on the merits 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.
4. 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. 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.
5. 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 is
ultimately determined that he is entitled to be indemnified by the corporation
as authorized in this article.
6. 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.
7. 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.
8. A unanimous vote of each class of shares entitled to vote shall be
required to amend this article.
Article XIII
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 an 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.
II-5
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following Exhibits, Financial Statements and Financial Statement
Schedules are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBITS
- -----------
<C> <S>
*1.1 Form of Underwriting Agreement between Evergreen Resources, Inc. and Prudential Securities Incorporated,
Howard, Weil, Labouisse, Friedrichs Incorporated, and Hanifen, Imhoff, Inc.
3.1 Articles of Incorporation as amended: Incorporated by reference to Exhibit 3.1 of the Company's
Registration Statement on Form S-1, Commission File No. 33-273035 and by reference to Exhibit I to the
Company's Current Report on Form 8-K dated December 9, 1994).
3.2 Bylaws: Incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1,
Commission File No. 33-273035.
4.1 Shareholders' Rights Agreement: Incorporated by reference to Exhibit 2 of the Company's Current Report
on Form 8-K dated July 7, 1997.
*5.1 Opinion of Wyche, Burgess, Freeman & Parham, P.A. regarding the legality of shares being sold.
*10.1 Revolving Note by and among Evergreen Resources, Inc. and Hibernia National Bank, Dated June 19, 1997.
*10.2 Firm Transportation Service Agreement Rate Schedule TF-1 between Colorado Interstate Gas Company and
Primero Gas Marketing Company, Dated August 22, 1997.
*10.3 Participation Agreement by and between Evergreen Resources, Inc. and Empresa Nacional del Petrolo, Dated
April 1, 1996.
*10.4 Statutory Instrument 1995/1434: The Hydrocarbons Licensing Directive Regulations 1995, dated May 25,
1995, coming into force June 30, 1995.
*10.5 Statutory Instrument 1995/1436: The Petroleum (Production) (Landward Areas) Regulations 1995, dated May
25, 1995, coming into force June 30, 1995.
*10.6 Deeds of Variation between The Secretary of State for Trade and Industry and Evergreen Resources (UK)
Limited dated January 9, 1997.
*10.7 Joint Evaluation and Licence Application Agreement, Falkland Islands, between Amerada Hess (Falklands
Islands) Limited, El Dorado Exploration, S.A., Fina Research S.A. and Argos Evergreen Limited, Dated
December 29, 1995 as amended.
23.1 Consent of Wyche, Burgess, Freeman & Parham, P.A.: Included in Exhibit 5.1.
*23.2 Consent of BDO Seidman, LLP, independent certified public accountants.
*23.3 Consent of Resource Services International, Inc., Independent Engineers.
*23.4 Consent of Netherland, Sewell and Associates, Inc., Independent Engineers.
23.5 Consent of Deloitte & Touche LLP, independent certified public accountants.
24.1 Power of Attorney: Located on the signature page of the initial filing of this Registration Statement on
Form S-3.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* Filed herewith
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
II-6
<PAGE>
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement 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.
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.
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 S-3 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 November 21, 1997.
<TABLE>
<S> <C> <C>
EVERGREEN RESOURCES, INC.
By:
-----------------------------------------
Mark S. Sexton
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mark M. Sexton and Kevin Collins, and each of
them, as true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him or her and in his or her name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all which said attorneys-in-fact and
agents or any of them, or their or his or her substitute or substitutes, may
lawfully do, or cause to be done by virtue hereof.
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:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Director; President and
/s/ MARK M. SEXTON Chief Executive Officer
- ------------------------------ (principal executive November 21, 1997
Mark M. Sexton officer)
/s/ KEVIN R. COLLINS Chief Financial Officer
- ------------------------------ (principal financial and November 21, 1997
Kevin R. Collins accounting officer)
- ------------------------------ Director November , 1997
Alain Blanchard
/s/ DENNIS R. CARLTON
- ------------------------------ Director November 21, 1997
Dennis R. Carlton
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ LARRY D. ESTRIDGE
- ------------------------------ Director November 21, 1997
Larry D. Estridge
- ------------------------------ Director November , 1997
John J. Ryan III
- ------------------------------ Director November , 1997
Scott D. Sheffield
/s/ JAMES S. WILLIAMS
- ------------------------------ Director November 21, 1997
James S. Williams
</TABLE>
II-9
<PAGE>
Evergreen Resources, Inc.
2,750,000 Shares(1)
Common Stock
FORM OF UNDERWRITING AGREEMENT
_____________, 1997
PRUDENTIAL SECURITIES INCORPORATED
HOWARD, WEIL, LABOUISSE, FRIEDRICHS INCORPORATED
HANIFEN, IMHOFF INC.
As a Representatives of the several Underwriters
c/o Prudential Securities Incorporated
One New York Plaza
New York, New York 10292
Dear Sirs:
Evergreen Resources, Inc., a Colorado corporation (the "Company"), and
the persons named in Schedule 1 hereto (the "Selling Securityholders") hereby
confirm their agreement with the several underwriters named in Schedule 2
hereto (the "Underwriters"), for whom you have been duly authorized to act as
representatives (in such capacities, the "Representatives"), as set forth
below.
1. SECURITIES. Subject to the terms and conditions herein contained,
the Company proposes to issue and sell to the several Underwriters an
aggregate of 2,000,000 shares and the Selling Securityholders propose to sell
to the several Underwriters an aggregate of 750,000 shares (the "Firm
Securities") of the Company's Common Stock, without par value ("Common
Stock"). The Company also proposes to grant to the several Underwriters an
option to purchase not more than 412,500 additional shares of Common Stock if
requested by the Representatives as provided in Section 3 of this Agreement.
Any and all shares of Common Stock to be purchased by the Underwriters
pursuant to such option are referred to herein as the "Option Securities",
and the Firm Securities and any Option Securities are collectively referred
to herein as the "Securities".
2. REPRESENTATIONS AND WARRANTIES.
(a) The Company represents and warrants to, and agrees with, each of
the several Underwriters that:
- -------------
(1) Plus an option to purchase from the Company up to 412,500 additional
shares to cover over-allotments.
<PAGE>
(i) The Company meets the requirements for use of Form S-3 under
the Securities Act of 1933, as amended (the "Act"). A registration
statement on such Form (File No. 333__________) with respect to the
Securities, including a prospectus subject to completion, has been filed
by the Company with the Securities and Exchange Commission (the
"Commission") under the Act, and one or more amendments to such
registration statement may have been so filed. After the execution of
this Agreement, the Company will file with the Commission either (i) if
such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, either (A) if
the Company relies on Rule 434 under the Act, a Term Sheet (as
hereinafter defined) relating to the Securities, that shall identify the
Preliminary Prospectus (as hereinafter defined) that it supplements and,
if required to be filed pursuant to Rules 434(c)(2) and 424(b), an
Integrated prospectus (as hereinafter defined), in either case,
containing such information as is required or permitted by Rule 434,
430A and 424(b) under the Act or (B) if the Company does not rely on
Rule 434 under the Act, a prospectus in the form most recently included
in an amendment to such registration statement (or, if no such amendment
shall have been filed, in such registration statement), with such
changes or insertions as are required by Rule 430A under the Act or
permitted by Rule 424(b) under the Act, and in the case of clause (i)(A)
or (i)(B) of this sentence as have been provided to and approved by the
Representatives prior to the execution of this Agreement, or (ii) if
such registration statement, as it may have been amended, has not been
declared by the Commission to be effective under the Act, an amendment
to such registration statement, including a form of prospectus, a copy
of which amendment has been furnished to and approved by the
Representatives prior to the execution of this Agreement. The Company
may also file a related registration statement with the Commission
pursuant to Rule 462(b) under the Act for the purpose of registering
certain additional Securities, which registration shall be effective
upon filing with the Commission. As used in this Agreement, the term
"Original Registration Statement" means the registration statement
initially filed relating to the Securities, as amended at the time when
it was or is declared effective, including (A) all financial schedules
and exhibits thereto, (B) all documents incorporated by reference
therein filed under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and (C) any information omitted therefrom pursuant to
Rule 430A under the Act and included in the Prospectus (as hereinafter
defined) or, if required to be filed pursuant to Rule 434(c)(2) and
424(b), in the Integrated Prospectus; the term "Rule 462(b) Registration
Statement" means any registration statement filed with the Commission
pursuant to Rule 462(b) under the Act (including the Registration
Statement and any Preliminary Prospectus or Prospectus incorporated
therein at the time such Registration Statement becomes effective); the
term "Registration Statement" includes both the Original Registration
Statement and any Rule 462(b) Registration Statement; the term
"Preliminary Prospectus" means each prospectus subject to completion
filed with such registration statement or any amendment thereto
(including the prospectus subject to completion, if any, included in the
Registration Statement or any amendment thereto at the time it was or is
declared effective), including all documents incorporated by reference
therein filed under the Exchange Act;
2
<PAGE>
(A) if the Company relies on Rule 434 under the Act, the Term
Sheet relating to the Securities that is first filed pursuant to
Rule 424(b)(7) under the Act, together with the preliminary
Prospectus identified therein that such Term Sheet supplements:
(B) if the Company does not rely on Rule 434 under the Act,
the prospectus first filed with the Commission pursuant to Rule
424(b) under the Act; or
(C) if the Company does not rely on Rule 434 under the Act
and if no prospectus is required to be filed pursuant to Rule
424(b) under the Act, the prospectus included in the Registration
Statement, including, in the case of clauses (A), (B) or (C) of
this sentence, all documents incorporated by reference therein
filed under the Exchange Act; the term "Integrated Prospectus"
means a prospectus first filed with the Commission pursuant to
Rules 434(c)(2) and 424(b) under the Act; and the Term "Term Sheet"
means any term sheet that satisfies the requirements of Rule 434
under the Act. Any reference in this Agreement to an "amendment or
supplement" to any Preliminary Prospectus, the Prospectus or any
Integrated Prospectus or an "amendment" to any registration
statement (including the Registration Statement) shall be deemed to
include any document incorporated by reference therein that is
filed with the Commission under the Exchange Act after the date of
such Preliminary Prospectus, Prospectus, Integrated Prospectus or
registration statement, as the case may be; any reference herein to
the "date" of a Prospectus that includes a Term Sheet shall mean
the date of such Term Sheet. For purposes of the preceding
sentence, any reference to the "effective date" of an amendment to
a registration statement shall, if such amendment is effected by
means of the filing with the Commission under the Exchange Act of a
document incorporated by reference in such registration statement,
be deemed to refer to the date on which such document was so filed
with the Commission.
(ii) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. When any Preliminary
Prospectus and any amendment or supplement thereto was filed with the
Commission, it (i) contained all statements required to be stated
therein in accordance with, and complied in all material respects with
the requirements of, the Act, the Exchange Act and the respective rules
and regulations of the Commission thereunder, and (ii) did not include
any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. When the
Registration Statement or any amendment thereto was or is declared
effective, it (i) contained or will contain all statements required to
be stated therein in accordance with, and complied or will comply in all
material respects with the requirements of, the Act, the Exchange Act
and the respective rules and regulations of the Commission thereunder
and (ii) did not or will not include any untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein not misleading. When the Prospectus or any Term Sheet that is a
part thereof or any Integrated Prospectus or any amendment or supplement
to the Prospectus is filed with the Commission pursuant to
3
<PAGE>
Rule 424(b) (or, if the Prospectus or part thereof or such amendment or
supplement is not required to be so filed, when the Registration
Statement or the amendment thereto containing such amendment or
supplement to the Prospectus was or is declared effective), on the date
when the Prospectus is otherwise amended or supplemented and on the Firm
Closing Date and any Option Closing Date (both as hereinafter defined),
each of the Prospectus, and, if required to be filed pursuant to Rules
434(c)(2) and 424(b) under the Act, the Integrated Prospectus as amended
or supplemented at any such time, (i) contained or will contain all
statements required to be stated therein in accordance with, and
complied or will comply in all material respects with the requirements
of, the Act, the Exchange Act and the respective rules and regulations
of the Commission thereunder and (ii) did not or will not include any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The foregoing
provisions of this paragraph (b) do not apply to statements or omissions
made in any Preliminary Prospectus or any amendment or supplement
thereto, the Registration Statement or any amendment thereto, the
Prospectus or, if required to be filed pursuant to Rules 434(c)(2) and
424(b) and the Act, the Integrated Prospectus or any amendment or
supplement thereto in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein.
(iii) If the Company has elected to rely on Rule 462(b) and the Rule
462(b) Registration has not been declared effective (i) the Company has
filed a Rule 462(b) Registration Statement in compliance with and that
is effective upon filing pursuant to Rule 462(b) and has received
confirmation of its receipt and (ii) the Company has given irrevocable
instructions for transmission of the applicable filing fee in connection
with the filing of the Rule 462(b) Registration Statement, in compliance
with Rule 111 promulgated under the Act or the Commission has received
payment of such filing fee.
(iv) The Company and each of its subsidiaries have been duly organized
and are validly existing as corporations in good standing under the laws
of their respective jurisdictions of incorporation and are duly
qualified to transact business as foreign corporations and are in good
standing under the laws of all other jurisdictions where the ownership
or leasing of their respective properties or the conduct of their
respective businesses requires such qualification, except where the
failure to be so qualified does not amount to a material liability or
disability to the Company and its subsidiaries, taken as a whole.
(v) The Company and each of its subsidiaries have full power
(corporate and other) to own or lease their respective properties and
conduct their respective businesses as described in the Registration
Statement, the Prospectus and any Integrated Prospectus or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus;
and the Company has full power (corporate and other) to enter into this
Agreement and to carry out all the terms and provisions hereof to be
carried out by it.
4
<PAGE>
(vi) The issued shares of capital stock of each of the Company's
subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable and, except for directors' qualifying shares and
as otherwise set forth in the Prospectus and any Integrated Prospectus
or, if the Prospectus and any required Integrated Prospectus are not in
existence, the most recent Preliminary Prospectus, are owned
beneficially by the Company free and clear of any security interests,
liens, encumbrances, equities or claims.
(vii) The Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus or, if the Prospectus and
any Integrated Prospectus or, if the Prospectus and any required
Integrated Prospectus are not in existence, the most recent Preliminary
Prospectus. All of the issued shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable. The Firm Securities and the Option Securities have been
duly authorized and at the Firm Closing Date or the related Option
Closing Date (as the case may be), after payment therefor in accordance
herewith, will be validly issued, fully paid and nonassessable. No
holders of outstanding shares of capital stock of the Company are
entitled as such to any preemptive or other rights to subscribe for any
of the Securities, and no holder of securities of the Company has any
right which has not been fully exercised or waived to require the
Company to register the offer or sale of any securities owned by such
holder under the Act in the public offering contemplated by this
agreement.
(viii) The capital stock of the Company conforms to the
description thereof contained in the Prospectus and any Integrated
Prospectus or, if the Prospectus and any required Integrated Prospectus
are not in existence, the most recent Preliminary Prospectus.
(ix) Except as disclosed in the Prospectus and any Integrated
Prospectus (or, if the Prospectus and any required Integrated Prospectus
are not in existence, the most recent Preliminary Prospectus), there are
not outstanding (A) securities or obligations of the Company or any of its
subsidiaries convertible into or exchangeable for any capital stock of
the Company or any such subsidiary, (B) warrants, rights or options to
subscribe for or purchase from the Company or any such subsidiary any
such capital stock or any such convertible or exchangeable securities or
obligations, or (C) obligations of the Company or any such subsidiary to
issue any shares of capital stock, any such convertible or exchangeable
securities or obligations, or any such warrants, rights or options.
(x) The consolidated financial statements and schedules of the
Company and its consolidated subsidiaries included in the Registration
Statement and the Prospectus and any Integrated Prospectus (or, if the
Prospectus and any required Integrated Prospectus are not in existence,
the most recent Preliminary Prospectus) fairly present the financial
position of the Company and its consolidated subsidiaries and the
results of operations and changes in financial condition as of the dates
and periods therein specified. Such financial statements and schedules
have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved (except
as otherwise noted therein). The selected financial data set forth
under the caption "Selected Financial Information" in the Prospectus and
any Integrated Prospectus (or, if the
5
<PAGE>
Prospectus and any required Integrated Prospectus are not in existence, the
most recent Preliminary Prospectus) fairly present, on the basis stated
in the Prospectus and any Integrated Prospectus (or such Preliminary
Prospectus), the information included therein.
(xi) BDO Seidman, LLP, who have certified certain financial statements
of the Company and its consolidated subsidiaries and delivered their report
with respect to the audited consolidated financial statements and
schedules included in the Registration Statement, the Prospectus and
Integrated Prospectus (or, if the Prospectus or any required Integrated
Prospectus are not in existence, the most recent Preliminary
Prospectus), are independent public accountants as required by the Act,
the Exchange Act and the related published rules and regulations
thereunder.
(xii) The execution and delivery of this Agreement have been duly
authorized by the Company and this Agreement has been duly executed and
delivered by the Company, and is the valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms.
(xiii) No legal or governmental proceedings are pending to which
the Company or any of its subsidiaries is a party or to which the
property of the Company or any of its subsidiaries is subject that are
required to be described in the Registration Statement or the Prospectus
and any Integrated Prospectus (or, if the Prospectus and any required
Integrated Prospectus are not in existence, the most recent Preliminary
Prospectus), and no such proceedings have been threatened against the
Company or any of its subsidiaries or with respect to any of their
respective properties; and no contract or if other document is required
to be described in the Registration Statement or the Prospectus or any
Integrated Prospectus or to be filed as an exhibit to the Registration
Statement that is not described therein (or, if the Prospectus and any
required Integrated Prospectus are not in existence, the most recent
Preliminary Prospectus) or filed as required.
(xiv) The issuance, offering and sale of the Securities to the
Underwriters by the Company pursuant to this Agreement, the compliance
by the Company with the other provisions of this Agreement and the
consummation of the other transactions herein contemplated do not (i)
require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as have
been obtained, such as may be required under state securities or blue
sky laws and, if the registration statement filed with respect to the
Securities (as amended) is not effective under the Act as of the time of
execution hereof, such as may be required (and shall be obtained as
provided in this Agreement) under the Act, or (ii) conflict with or
result in a breach or violation of any of the terms and provisions of,
or constitute a default under, any indenture, mortgage, deed of trust,
lease or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its
subsidiaries or any of their respective properties are bound, or the
charter documents or by-laws of the Company or any of its subsidiaries,
or any statute or any judgment, decree, order, rule or regulation of any
court or other governmental authority or any arbitrator applicable to
the Company or any of its subsidiaries.
6
<PAGE>
(xv) Subsequent to the respective dates as of which information is
given in the Registration Statement, the Prospectus or any Integrated
Prospectus or, if the Prospectus and any required Integrated Prospectus
are not in existence, the most recent Preliminary Prospectus, neither
the Company nor any of its subsidiaries has sustained any material loss
or interference with their respective businesses or properties from
fire, flood, hurricane, accident or other calamity, whether or not
covered by insurance, or from any labor dispute or any legal or
governmental proceeding and there has not been any material adverse
change, or any development involving a prospective material adverse
change, in the condition (financial or otherwise), management, business
prospects, net worth, or results of operations of the Company or any of
its subsidiaries, except in each case as described in or contemplated by
the Prospectus or, if the Prospectus and any Integrated Prospectus is
not in existence, the most recent Preliminary Prospectus.
(xvi) The Company has not, directly or indirectly, (i) taken any
action designed to cause or to result in, or that has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Securities or (ii) since the filing of the
Registration Statement (A) sold, bid for, purchased, or paid anyone any
compensation for soliciting purchases of, the Securities or (B) paid or
agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company (except for the sale of
Securities by the Selling Securityholders under this Agreement).
(xvii) The Company has not distributed and, prior to the later of
(i) the Closing Date and (ii) the completion of the distribution of the
Securities, will not distribute any offering material in connection with
the offering and sale of the Securities other than the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or other materials,
if any permitted by the Act.
(xviii) No labor dispute with the employees of the Company or any
of its subsidiaries exists or is threatened or imminent that could
result in a material adverse change in the condition (financial or
otherwise), business prospects, net worth or results of operations of
the Company and its subsidiaries, except as described in or contemplated
by the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus).
(xix) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses
in which they are engaged; neither the Company nor any such subsidiary
has been refused any insurance coverage sought or applied for; and
neither the Company nor any such subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that
would not materially and adversely affect the condition (financial or
otherwise), business prospects, net worth or results of operations of
the Company and its subsidiaries, except as described in or contemplated
by the Prospectus (or, if the Prospectus is not in
7
<PAGE>
existence, the most recent Preliminary Prospectus).
(xx) No subsidiary of the Company is currently prohibited, directly
or indirectly, from paying any dividends to the Company, from making any
other distribution on such subsidiary's capital stock, from repaying to
the Company any loans or advances to such subsidiary from the Company or
from transferring any of such subsidiary's property or assets to the
Company or any other subsidiary of the Company, except as described in
or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(xxi) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or
foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such subsidiary has received
any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would result in a material adverse change in the condition (financial or
otherwise), business prospects, net worth or results of operations of
the Company and its subsidiaries, except as described in or contemplated
by the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus).
(xxii) The Company will conduct its operations in a manner that
will not subject it to registration as an investment company under the
Investment Company Act of 1940, as amended, and this transaction will
not cause the Company to become an investment company subject to
registration under such Act.
(xxiii) The Company has filed all foreign, federal, state and local
tax returns that are required to be filed or has requested extensions
thereof (except in any case in which the failure so to file would not
have a material adverse effect on the Company and its subsidiaries) and
has paid all taxes required to be paid by it and any other assessment,
fine or penalty levied against it, to the extent that any of the
foregoing is due and payable, except for any such assessment, fine or
penalty that is currently being contested in good faith or as described
in or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(xxiv) Neither the Company nor any of its subsidiaries is in
violation of any federal or state law or regulation relating to
occupational safety and health or to the storage, handling or
transportation of hazardous or toxic materials and the Company and its
subsidiaries have received all permits, licenses or other approvals
required of them under applicable federal and state occupational safety
and health and environmental laws and regulations to conduct their
respective businesses, and the Company and each such subsidiary is in
compliance with all terms and conditions of any such permit, license or
approval, except any such violation of law or regulation, failure to
receive required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits, licenses or
approvals which would not, singly or in the aggregate, result in a
material adverse change in the condition (financial or otherwise),
business prospects, net worth or results of operations of the Company
and its subsidiaries, except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
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(xxv) Each certificate signed by any officer of the Company and
delivered to the Representatives or counsel for the Underwriters shall
be deemed to be a representation and warranty by the Company to each
Underwriter as to the matters covered thereby.
(xxvi) Except for the shares of capital stock of each of the
subsidiaries owned by the Company and such subsidiaries, neither the
Company nor any such subsidiary owns any shares of stock or any other
equity securities of any corporation or has any equity interest in any
firm, partnership, association or other entity, except as described in
or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(xxvii) There are no holders of securities of the Company, who, by
reason of the filing of the Registration Statement, have the right (and
have not waived such right) to request the Company to register under the
Act, or to include in the Registration Statement, securities held by
them.
(xxviii) The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (1) transactions are executed in accordance with
management's general or specific authorizations; (2) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
asset accountability; (3) access to assets is permitted only in
accordance with management's general or specific authorization; and (4)
the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(xxix) No default exists, and no event has occurred which, with
notice or lapse of time or both, would constitute a default in the due
performance and observance of any term, covenant or condition of any
indenture, mortgage, deed of trust, lease or other agreement or
instrument to which the Company or any of its subsidiaries is a party or
by which the Company or any of its subsidiaries or any of their
respective properties is bound or may be affected in any material
adverse respect with regard to property, business or operations of the
Company and its subsidiaries.
(xxx) to the respective dates as of which information is given in
the Registration Statement and the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), (1) the
Company and its subsidiaries have not incurred any material liability or
obligation, direct or contingent, nor entered into any material
transaction not in the ordinary course of business; (2) the Company has
not purchased any of its outstanding capital stock, nor declared, paid
or otherwise made any dividend or distribution of any kind on its
capital stock; and (3) there has not been any material change in the
capital stock, short-term debt or long-term debt of the Company and its
consolidated subsidiaries, except in each case as described in or
contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
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(xxxi) The Company and each of its subsidiaries have good and
marketable title in fee simple to all items of real property and
marketable title to all personal property owned by each of them, in each
case free and clear of any security interests, liens, encumbrances,
equities, claims and other defects, except such as do not materially and
adversely affect the value of such property and do not interfere with
the use made or proposed to be made of such property by the Company or
such subsidiary, and any real property and buildings held under lease by
the Company or any such subsidiary are held under valid, subsisting and
enforceable leases, with such exceptions as are not material and do not
interfere with the use made or proposed to be made of such property and
buildings by the Company or such subsidiary, in each case except as
described in or contemplated by the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus).
(xxxii) The Company and its subsidiaries own or possess, or can
acquire on reasonable terms, all material patents, patent applications,
trademarks, service marks, trade names, licenses, copyrights and
proprietary or other confidential information currently employed by them
in connection with their respective businesses, and neither the Company
nor any such subsidiary has received any notice of infringement of or
conflict with asserted rights of third party with respect to any of the
foregoing which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a material
adverse change in the condition (financial or otherwise), business
prospects, net worth or results of operations of the Company and its
subsidiaries, except as described in or contemplated by the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus).
(b) Each Selling Securityholder represents and warrants to, and agrees
with, each of the several Underwriters that:
(i) Such Selling Securityholder has full power (corporate and
other) to enter into this Agreement and to sell, assign, transfer and
deliver to the Underwriters the Securities to be sold by such Selling
Securityholder hereunder in accordance with the terms of this Agreement;
the execution and delivery of this Agreement have been duly authorized
by all necessary corporate action of such Selling Securityholder; and
this Agreement has been duly executed and delivered by such Selling
Securityholder.
(ii) Such Selling Securityholder has duly executed and delivered a
power of attorney and custody agreement (with respect to such Selling
Securityholder, the "Power-of-Attorney" and the "Custody Agreement",
respectively), each in the form heretofore delivered to the
Representatives, appointing ____________ as such Selling
Securityholder's attorney-in-fact (the "Attorney-in-Fact") with
authority to execute, deliver and perform this Agreement on behalf of
such Selling Securityholder and appointing ____________, as custodian
thereunder (the "Custodian"). Certificates in negotiable form, endorsed
in blank or accompanied by blank stock powers duly executed, with
signatures appropriately guaranteed, representing the Securities to be
sold by such Selling Securityholder hereunder have been deposited with
the Custodian pursuant to the Custody Agreement for the purpose of
delivery pursuant to this Agreement. Such Selling Securityholder has
full power (corporate and other) to enter into the Custody Agreement
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and the Power-of-Attorney and to perform its obligations under the Custody
Agreement. The execution and delivery of the Custody Agreement and the
Power-of-Attorney have been duly authorized by all necessary corporate
action of such Selling Securityholder; the Custody Agreement and the
Power-of-Attorney have been duly executed and delivered by such Selling
Securityholder and, assuming due authorization, execution and delivery
by the Custodian, are the legal, valid, binding and enforceable
instruments of such Selling Securityholder. Such Selling Securityholder
agrees that each of the Securities represented by the certificates on
deposit with the Custodian is subject to the interests of the
Underwriters hereunder, that the arrangements made for such custody, the
appointment of the Attorney-in-Fact and the right, power and authority
of the Attorney-in-Fact to execute and deliver this Agreement, to agree
on the price at which the Securities (including such Selling
Securityholder's Securities) are to be sold to the Underwriters, and to
carry out the terms of this Agreement, are to that extent irrevocable
and that the obligations of such Selling Securityholder hereunder shall
not be terminated, except as provided in this Agreement or the Custody
Agreement, by any act of such Selling Securityholder, by operation of
law or otherwise, whether in the case of any individual Selling
Securityholder by the death or incapacity of such Selling
Securityholder, in the case of a trust or estate by the death of the
trustee or trustees or the executor or executors or the termination of
such trust or estate, or in the case of a corporate or partnership
Selling Securityholder by its liquidation or dissolution or by the
occurrence of any other event. If any individual Selling Securityholder,
trustee or executor should die or become incapacitated or any such trust
should be terminated, or if any corporate or partnership Selling
Securityholder shall liquidate or dissolve, or if any other event should
occur, before the delivery of such Securities hereunder, the
certificates for such Securities deposited with the Custodian shall be
delivered by the Custodian in accordance with the respective terms and
conditions of this Agreement as if such death, incapacity, termination,
liquidation or dissolution or other event had not occurred, regardless
of whether or not the Custodian or the Attorney-in-Fact shall have
received notice thereof.
(iii) Selling Securityholder is the lawful owner of the Securities
to be sold by such Selling Securityholder hereunder and upon sale and
delivery of, and payment for, such Securities, as provided herein, such
Selling Securityholder will convey good and marketable title to such
Securities, free and clear of any security interests, liens,
encumbrances, equities, claims or other defects.
(iv) Such Selling Securityholder has not, directly or indirectly,
(i) taken any action designed to cause or result in, or that has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities or (ii) since
the filing of the Registration Statement (A) sold, bid for, purchased,
or paid anyone any compensation for soliciting purchases of, the
Securities or (B) paid or agreed to pay to any person any compensation
for soliciting another to purchase any other securities of the Company
(except for the sale of Securities by the Selling Securityholders under
this Agreement.
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(v) To the extent that any statements or omissions are made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto in reliance upon and in conformity
with written information furnished to the Company by such Selling
Securityholder specifically for use therein, such Preliminary Prospectus
did, and the Registration Statement and the Prospectus and any
amendments or supplements thereto, when they become effective or are
filed with the Commission, as the case may be, will conform in all
material respects to the requirements of the Act, the Exchange Act and
the respective rules and regulations of the Commission thereunder and
will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under
which they are made, not misleading.
(vi) The sale by such Selling Securityholder of Securities pursuant
hereto is not prompted by any adverse information concerning the Company
that is not set forth in the Registration Statement or the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus).
(vii) sale of the Securities to the Underwriters by such Selling
Securityholder pursuant to this Agreement, the compliance by such
Selling Securityholder with the other provisions of this Agreement, the
Custody Agreement and the consummation of the other transactions herein
contemplated do not (i) require the consent, approval, authorization,
registration or qualification of or with any governmental authority,
except such as have been obtained, such as may be required under state
securities or blue sky laws and, if the registration statement filed
with respect to the Securities (as amended) is not effective under the
Act as of the time of execution hereof, such as may be required (and
shall be obtained as provided in this Agreement) under the Act and the
Exchange Act, or (ii) conflict with or result in a breach or violation
of any of the terms and provisions of, or constitute a default under any
indenture, mortgage, deed of trust, lease or other agreement or
instrument to which such Selling Securityholder is a party or by which
such Selling Securityholder or any of such Selling Securityholder's
properties are bound, or the charter documents or by-laws of such
Selling Securityholder or any statute or any judgment, decree, order,
rule or regulation of any court or other governmental authority or any
arbitrator applicable to such Selling Securityholder.
3. PURCHASE, SALE AND DELIVERY OF THE SECURITIES.
(a) On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the terms and conditions herein set
forth, the Company and the Selling Securityholders severally agree to sell to
each of the Underwriters, and each of the Underwriters, severally and not
jointly, agrees to purchase from the Company and the Selling Securityholders,
at a purchase price of $____________ per share, the number of Firm
Securities set forth opposite the name of such Underwriter in Schedule 2
hereto. One or more certificates in definitive form for the Firm Securities
that the several Underwriters have agreed to purchase hereunder, and in such
denomination or denominations and registered in such name or names as the
Representatives request upon notice to the Company at least 48 hours prior to
the Firm Closing Date, shall be delivered by or on behalf of the Company to
the Representatives for the respective accounts of the
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Underwriters, against payment by or on behalf of the Underwriters of the
purchase price therefor by wire transfer in same-day funds (the "Wired
Funds") to the account of the Company and the Selling Securityholders. Such
delivery of and payment for the Firm Securities shall be made at the offices
of Messrs. Vinson & Elkins L.L.P., 1001 Fannin, Houston, Texas 77002, at 9:30
a.m., New York time, on ____________, 1997, or at such other place, time or
date as the Representatives and the Company may agree upon or as the
Representatives may determine pursuant to Section 9 hereof, such time and
date of delivery against payment being herein referred to as the "Firm
Closing Date". The Company will make such certificate or certificates for
the Firm Securities available for checking and packaging by the
Representatives at the offices in New York, New York of the Company's
transfer agent or registrar or of Prudential Securities Incorporated at least
24 hours prior to the Firm Closing Date.
(b) For the purpose of covering any over-allotments in connection with
the distribution and sale of the Firm Securities as contemplated by the
Prospectus, the Company hereby grants to the several Underwriters an option
to purchase, severally and not jointly, the Option Securities. The purchase
price to be paid for any Option Securities shall be the same price per share
as the price per share for the Firm Securities set forth above in paragraph
(a) of this Section 3. The option granted hereby may be exercised as to all
or any part of the Option Securities from time to time within thirty days
after the date of the Prospectus (or, if such 30th day shall be a Saturday or
Sunday or a holiday, on the next business day thereafter when the New York
Stock Exchange is open for trading). The Underwriters shall not be under any
obligation to purchase any of the Option Securities prior to the exercise of
such option. The Representatives may from time to time exercise the option
granted hereby by giving notice in writing or by telephone (confirmed in
writing) to the Company setting forth the aggregate principal amount of
Option Securities as to which the several Underwriters are then exercising
the option and the date and time for delivery of and payment for such Option
Securities. Any such date of delivery shall be determined by the
Representatives but shall not be earlier than two business days or later than
five business days after such exercise of the option and, in any event, shall
not be earlier than the Firm Closing Date. The time and date set forth in
such notice, or such other time on such other date as the Representatives and
the Company may agree upon or as the Representatives may determine pursuant
to Section 9 hereof, is herein called the "Option Closing Date" with respect
to such Option Securities. Upon exercise of the option as provided herein,
the Company shall become obligated to sell to each of the several
Underwriters, and, subject to the terms and conditions herein set forth, each
of the Underwriters (severally and not jointly) shall become obligated to
purchase from the Company, the same percentage of the total number of the
Option Securities as to which the several Underwriters are then exercising
the option as such Underwriter is obligated to purchase of the aggregate
number of Firm Securities, as adjusted by the Representatives in such manner
as they deem advisable to avoid fractional Shares. If the option is
exercised as to all or any portion of the Option Securities, one or more
certificates in definitive form for such Option Securities, and payment
therefor, shall be delivered on the related Option Closing Date in the
manner, and upon the terms and conditions, set forth in paragraph (a) of this
Section 3, except that reference therein to the Firm Securities and the Firm
Closing Date shall be deemed, for purposes of this paragraph (b), to refer to
such Option Securities and Option Closing Date, respectively.
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(c) The Company hereby acknowledges that the wire transfer by or on
behalf of the Underwriters of the purchase price for any Shares does not
constitute closing of a purchase and sale of the Shares. Only execution and
delivery of a receipt for Shares by the Underwriters indicates completion of
the closing of a purchase of the Shares from the Company. Furthermore, in
the event that the Underwriters wire funds to the Company prior to the
completion of the closing of a purchase of Shares, the Company hereby
acknowledges that until the Underwriters execute and deliver a receipt for
the Shares, by facsimile or otherwise, the Company will not be entitled to
the wired funds and shall return the wired funds to the Underwriters as soon
as practicable (by wire transfer of same-day funds) upon demand. In the
event that the closing of a purchase of Shares is not completed and the wire
funds are not returned by the Company to the Underwriters on the same day the
wired funds were received by the Company, the Company agrees to pay to the
Underwriters in respect of each day the wire funds are not returned by it, in
same-day funds, interest on the amount of such wire funds in an amount
representing the Underwriters' cost of financing as reasonably determined by
Prudential Securities Incorporated.
(d) It is understood that any of you, individually and not as one of
the Representatives, may (but shall not be obligated to) make payment on
behalf of any Underwriter or Underwriters for any of the Securities to be
purchased by such Underwriter or Underwriters. No such payment shall relieve
such Underwriter or Underwriters from any of its or their obligations
hereunder.
4. OFFERING BY THE UNDERWRITERS. Upon your authorization of the
release of the Firm Securities, the several Underwriters propose to offer the
Firm Securities for sale to the public upon the terms set forth in the
Prospectus.
5. COVENANTS OF THE COMPANY AND THE SELLING SECURITYHOLDERS. The
Company and the Selling Securityholders covenant and agree with each of the
Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, and
any amendments thereto to become effective as promptly as possible. If
required, the Company will file the Prospectus or any Term Sheet that
constitutes a part thereof or, if the Prospectus and any amendment or
supplement thereto with the Commission in the manner and within the time
period required by Rule 434 and 424(b) under the Act. During any time when a
prospectus relating to the Securities is required to be delivered under the
Act, the Company (i) will comply with all requirements imposed upon it by the
Act, the Exchange Act and the Trust Indenture Act and the respective rules
and regulations of the Commission thereunder to the extent necessary to
permit the continuance of sales of or dealings in the Securities in
accordance with the provisions hereof and any Integrated Prospectus, as then
amended or supplemented, and (ii) will not file with the Commission the
prospectus or the amendment referred to in the third sentence of Section 2(a)
hereof, any amendment or supplement to such prospectus or any amendment to
the Registration Statement or any Rule 462(b) Registration Statement of which
the Representatives shall not previously have been advised and furnished with
a copy for a reasonable period of time prior to the proposed filing and as to
which filing the Representatives shall not have given their consent. The
Company will prepare and file with the Commission, in accordance with the
rules and regulations of the Commission, promptly upon request by the
Representatives or counsel for the Underwriters, any amendments to the
Registration Statement or amendments or supplements to the Prospectus and any
Integrated
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Prospectus that may be necessary or advisable in connection with the
distribution of the Securities by the several Underwriters, and will use its
best efforts to cause any such amendment to the Registration Statement to be
declared effective by the Commission as promptly as possible. The Company
will advise the Representatives, promptly after receiving notice thereof, of
the time when the Registration Statement or any amendment thereto has been
filed or declared effective or the Prospectus and any Integrated Prospectus
or any amendment or supplement thereto has been filed and will provide
evidence satisfactory to the Representatives of each such filing or
effectiveness.
(b) The Company will advise the Representatives, promptly after
receiving notice or obtaining knowledge thereof, of (i) the issuance by the
Commission of any stop order suspending the effectiveness of the Original
Registration Statement or any Rule 462(b) Registration Statement or any
post-effective amendment thereto or any order directed at any document
incorporated by reference in the Registration Statement or if the Prospectus
and any required Integrated Prospectus are or any amendment or supplement
thereto or any order preventing or suspending the use of any Preliminary
Prospectus, the Prospectus and any Integrated Prospectus or any amendment or
supplement thereto, (ii) the suspension of the qualification of the
Securities for offering or sale in any jurisdiction, (iii) the institution,
threatening or contemplation of any proceeding for any such purpose or (iv)
any request made by the Commission for amending the Original Registration
Statement or any Rule 462(b) Registration Statement, for amending or
supplementing any Preliminary Prospectus, and any Integrated Prospectus or
for additional information. The Company will use its best efforts to prevent
the issuance of any such stop order and, if any such stop order is issued, to
obtain the withdrawal thereof as promptly as possible.
(c) The Company will arrange for the qualification of the Securities for
offering and sale under the securities or blue sky laws of such jurisdictions
as the Representatives may designate and will continue such qualifications in
effect for as long as may be necessary to complete the distribution of the
Securities, PROVIDED, HOWEVER, that in connection therewith the Company shall
not be required to qualify as a foreign corporation or to execute a general
consent to service of process in any jurisdiction.
(d) If, at any time prior to the later of (i) the final date when a
prospectus relating to the Securities is required to be delivered under the
Act or (ii) the Option Closing Date, any event occurs as a result of which
the Prospectus, as then amended or supplemented, would include any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if for any other reason it is
necessary at any time to amend or supplement the Prospectus to comply with
the Act, the Exchange Act or the respective rules or regulations of the
Commission thereunder, the Company will promptly notify the Representatives
thereof and, subject to Section 5(a) hereof, will prepare and file with the
Commission, at the Company's expense, an amendment to the Registration
Statement, an amendment or supplement to the Prospectus or any Integrated
Prospectus that corrects such statement or omission or effects such
compliance.
(e) The Company will, without charge, provide (i) to the Representatives
and to counsel for the Underwriters a signed copy of the registration
statement originally filed with respect to the Securities and each amendment
thereto (in each case including exhibits thereto), (ii) to each other
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Underwriter, a conformed copy of such registration statement or any Rule
462(b) Registration Statement and each amendment thereto (in each case
without exhibits thereto) and (iii) so long as a prospectus relating to the
Securities is required to be delivered under the Act, as many copies of each
Preliminary Prospectus, the Prospectus or any Integrated Prospectus or any
amendment or supplement thereto as the Representatives may reasonably
request; without limiting the application of clause (iii) of this sentence,
the Company, not later than (A) 6:00 p.m., New York City time, on the date of
determination of the public offering price, if such determination occurred at
or prior to 10:00 a.m., New York City time on such date of (B) 2:00 p.m., New
York City time, on the business day following the date of determination of
the public offering price, if such determination occurred after 10:00 a.m.,
New York City time, on such date, will deliver to the Underwriters, without
charge, as many copies of the Prospectus and any amendment or supplement
thereto as the Representatives may reasonably request for purposes of
confirming orders that are expected to settle on the Firm Closing Date.
(f) The Company, as soon as practicable, will make generally available
to its securityholders and to the Representatives a consolidated earnings
statement of the Company and its subsidiaries that satisfies the provisions
of Section 11(a) of the Act and Rule 158 thereunder.
(g) The Company will apply the net proceeds from the sale of the
Securities as set forth under "Use of Proceeds" in the Prospectus or any
Integrated Prospectus.
(h) The Company and the Selling Securityholders will not, directly or
indirectly, without the prior written consent of Prudential Securities
Incorporated, on behalf of the Underwriters, offer, sell, offer to sell,
contract to sell, pledge, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale, contract of sale,
pledge, grant of any option to purchase or other sale or disposition) of any
shares of Common Stock or any securities convertible into, or exchangeable or
exercisable for, shares of Common Stock for a period of 180 days after the
date hereof, except pursuant to this Agreement and except for issuances
pursuant to the exercise of employee stock options outstanding on the date
hereof.
(i) The Company and the Selling Securityholders will not, directly or
indirectly, (i) take any action designed to cause or to result in, or that
has constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or (ii) (A) sell, bid for,
purchase, or pay anyone any compensation for soliciting purchases of, the
Securities or (B) pay or agree to pay to any person any compensation for
soliciting another to purchase any other securities of the Company (except
for the sale of Securities by the Selling Securityholders under this
Agreement).
(j) The Company will obtain the agreements described in Section 7(f)
hereof prior to the Firm Closing Date.
(k) If at any time during the 25-day period after the Registration
Statement becomes effective or the period prior to the Option Closing Date,
any rumor, publication or event relating to or affecting the Company shall
occur as a result of which in your opinion the market price of the Common
Stock has been or is likely to be materially affected (regardless of whether
such rumor, publication or event necessitates a supplement to or amendment of
the Prospectus and any
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Integrated Prospectus), the Company will, after notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of, and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on
such rumor, publication or event.
(l) If the Company elects to rely on Rule 462(b), the Company shall both
file a Rule 462(b) Registration Statement with the Commission in compliance
with Rule 462(b) and pay the applicable fees in accordance with Rule 111
promulgated under the Act by the earlier of (i) 10:00 p.m. Eastern time on
the date of this Agreement and (ii) the time confirmations are sent or given,
as specified by Rule 462(b)(2).
(m) The Company will ensure that the Securities remain included for
quotation on the Nasdaq National Market following the Firm Closing Date.
6. EXPENSES. The Company will pay all costs and expenses incident to
the performance of its obligations under this Agreement, whether or not the
transactions contemplated herein are consummated or this Agreement is
terminated pursuant to Section 11 hereof, including all costs and expenses
incident to (i) the printing or other production of documents with respect to
the transactions, including any costs of printing the registration statement
originally filed with respect to the Securities and any amendment thereto,
any Rule 462(b) Registration Statement, any Preliminary Prospectus, the
Prospectus and any Integrated Prospectus and any amendment or supplement
thereto, this Agreement and any blue sky memoranda, (ii) all arrangements
relating to the delivery to the Underwriters of copies of the foregoing
documents, (iii) the fees and disbursements of the counsel, accountants and
any other experts or advisors retained by the Company, (iv) preparation,
issuance and delivery to the Underwriters of any certificates evidencing the
Securities, including transfer agent's and registrar's fees, (v) the
qualification of the Securities under state securities and blue sky laws,
including filing fees and fees and disbursements of counsel for the
Underwriters relating thereto, (vi) the filing fees of the Commission (and
the National Association of Securities Dealers, Inc.) relating to the
Securities, (vii) the listing of the Securities on the Nasdaq National Market
and, (viii) meetings with prospective investors in the Securities (other than
shall have been specifically approved by the Representatives to be paid for
by the Underwriters). If the sale of the Securities provided for herein is
not consummated because any condition to the obligations of the Underwriters
set forth in Section 7 hereof is not satisfied, because this Agreement is
terminated pursuant to Section 11 hereof or because of any failure, refusal
or inability on the part of the Company to perform all obligations and
satisfy all conditions on its part to be performed or satisfied hereunder
other than by reason of a default by any of the Underwriters, the Company
will reimburse the Underwriters severally upon demand for all out-of-pocket
expenses (including fees and disbursements of counsel) that shall have been
incurred by them in connection with the proposed purchase and sale of the
Securities. The Company shall not in any event be liable to any of the
Underwriters for the loss of anticipated profits from the transactions
covered by this Agreement.
7. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Firm Securities shall be
subject, in the Representatives' sole discretion, to the accuracy of the
representations and warranties of the Company contained herein as of the date
hereof and as of the Firm
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Closing Date, as if made on and as of the Firm Closing Date, to the accuracy
of the statements of the Company's officers made pursuant to the provisions
hereof, to the performance by the Company of its covenants and agreements
hereunder and to the following additional conditions:
(a) If the Original Registration Statement or any amendment thereto
filed prior to the Firm Closing Date has not been declared effective as of
the time of execution hereof, Original Registration Statement or such
amendment and, if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have been declared effective not later
than the earlier of (i) 11:00 a.m., New York time, on the date on which the
amendment to the registration statement originally filed with respect to the
Securities or to the Registration Statement, as the case may be, containing
information regarding the initial public offering price of the Securities has
been filed with the Commission and (ii) the time confirmations are sent or
given as specified by Rule 462(b)(2), or with respect to the Original
Registration Statement, or such later time and date as shall have been
consented to by the Representatives; if required, the Prospectus or any Term
Sheet that constitutes a part thereof and any Integrated Prospectus and any
amendment or supplement thereto shall have been filed with the Commission in
the manner and within the time period required by Rule 434 and 424(b) under
the Act; no stop order suspending the effectiveness of the Registration
Statement or any post-effective amendment thereto and no order directed at
any document incorporated by reference in the Registration Statement, the
Prospectus or any Integrated Prospectus or any amendment or supplement
thereto shall have been issued and no proceedings for that purpose shall have
been instituted or threatened or, to the knowledge of the Company or the
Representatives, shall be contemplated by the Commission; and the Company
shall have complied with any request of the Commission for additional
information (to be included in the Registration Statement, the Prospectus or
any Integrated Prospectus or otherwise).
(b) The Representatives shall have received an opinion, dated the Firm
Closing Date, of Wyche, Burgess, Freeman & Parham, P.A., counsel for the
Company, to the effect that:
(i) the Company and each of its subsidiaries listed in Schedule 3
hereto (the "Subsidiaries") have been duly incorporated and are validly
existing as corporations in good standing under the laws of their
respective jurisdictions of incorporation and are duly qualified to
transact business as foreign corporations and are in good standing under
the laws of all other jurisdictions where the ownership or leasing of
their respective properties or the conduct of their respective
businesses requires such qualification, except where the failure to be
so qualified does not amount to a material liability or disability to
the Company and the Subsidiaries, taken as a whole;
(ii) the Company and each of the Subsidiaries have corporate power
to own or lease their respective properties and conduct their respective
businesses as described in the Registration Statement and the Prospectus
or any Integrated Prospectus, and the Company has corporate power to
enter into this Agreement and to carry out all the terms and provisions
hereof and thereof to be carried out by it;
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(iii) the issued shares of capital stock of each of the Subsidiaries
have been duly authorized and validly issued, are fully paid and
nonassessable and, except for directors' qualifying shares and as
otherwise set forth in the Prospectus and any Integrated Prospectus, are
owned beneficially by the Company free and clear of any perfected
security interests or, to the best knowledge of such counsel, any other
security interests, liens, encumbrances, equities or claims;
(iv) the Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus or any Integrated
Prospectus; all of the issued shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all applicable
federal and state securities laws and were not issued in violation of or
subject to any preemptive rights or other rights to subscribe for or
purchase securities; the Firm Securities have been duly authorized by
all necessary corporate action of the Company and, when issued and
delivered to and paid for by the Underwriters pursuant to this
Agreement, will be validly issued, fully paid and nonassessable; the
Securities have been duly included for trading on the Nasdaq National
Market; no holders of outstanding shares of capital stock of the Company
are entitled as such to any preemptive or other rights to subscribe for
any of the Securities; and no holders of securities of the Company are
entitled to have such securities registered under the Registration
Statement;
(v) the statements set forth under the heading "Description of
Capital Stock" in the Prospectus and any Integrated Prospectus, insofar
as such statements purport to summarize certain provisions of the
capital stock of the Company, provide a fair summary of such provisions,
insofar as such statements constitute a summary of the legal matters,
documents or proceedings referred to therein, provide a fair summary of
such legal matters, documents and proceedings,
(vi) the execution and delivery of this Agreement have been duly
authorized by all necessary corporate action of the Company and this
Agreement has been duly executed and delivered by the Company;
(vii) no legal or governmental proceedings are pending to which the
Company or any of the Subsidiaries is a party or to which the property
of the Company or any of the Subsidiaries is subject that are required
to be described in the Registration Statement, the Prospectus and any
Integrated Prospectus and are not described therein, and, to the best
knowledge of such counsel, no such proceedings have been threatened
against the Company or any of the Subsidiaries or with respect to any of
their respective properties; and no contract or other document is
required to be described in the Registration Statement, the Prospectus
and any Integrated Prospectus or to be filed as an exhibit to the
Registration Statement that is not described therein or filed as
required;
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(viii) issuance, offering and sale of the Securities to the
Underwriters by the Company pursuant to this Agreement, the compliance
by the Company with the other provisions of this Agreement and the
consummation of the other transactions herein contemplated do not (A)
require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as have
been obtained and such as may be required under state securities or blue
sky laws, or (B) conflict with or result in a breach or violation of any
of the terms and provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, lease or other agreement or
instrument, known to such counsel, to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the
Subsidiaries or any of their respective properties are bound, or the
charter documents or by-laws of the Company or any of the Subsidiaries,
or any statute or any judgment, decree, order, rule or regulation of any
court or other governmental authority or any arbitrator known to such
counsel and applicable to the Company or any of the Subsidiaries;
(ix) the Registration Statement is effective under the Act; any
required filing of the Prospectus, or any Term Sheet that constitutes a
part thereof, and any Integrated Prospectus pursuant to Rules 434 and
424(b) has been made in the manner and within the time period required
by Rules 434 and 424(b); and no stop order suspending the effectiveness
of the Registration Statement or any post-effective amendment thereto
and no order directed at any document incorporated by reference in the
Registration Statement, the Prospectus and any Integrated Prospectus or
any amendment or supplement thereto has been issued, and no proceedings
for that purpose have been instituted or threatened or, to the best
knowledge of such counsel, are contemplated by the Commission; and
(x) the Registration Statement originally filed with respect to the
Securities and each amendment thereto and any Rule 462(b) Registration
Statement, the Prospectus and any Integrated Prospectus (in each case,
including the documents incorporated by reference therein but not
including the financial statements and other financial information
contained therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the applicable
requirements of the Act, the Exchange Act and the respective rules and
regulations of the Commission thereunder.
(xi) If the Company elects to rely on Rule 434, the Prospectus is
not "materially different", as such term is used in Rule 434, from the
prospectus included in the Registration Statement at the time of its
effectiveness or any effective post-effective amendment thereto
(including such information that is permitted to be omitted pursuant to
Rule 430A).
Such counsel shall also state that they have no reason to believe that the
Registration Statement, as of its effective date, contained any untrue
statement of a material fact or omitted to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus and any Integrated Prospectus, as of its
date or the date of such opinion, included or includes any untrue statement
of a material fact or omitted or omits to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
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<PAGE>
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials and, as to matters involving the
application of laws of any jurisdiction other than the State of Colorado or
the United States, to the extent satisfactory in form and scope to counsel
for the Underwriters, upon the opinion of Counsel acceptable to the
Representatives. The foregoing opinion shall also state that the Underwriters
are justified in relying upon such other opinion of Counsel acceptable to the
Representatives, and copies of such opinion shall be delivered to the
Representatives and counsel for the Underwriters.
References to the Registration Statement and the Prospectus and any
Integrated Prospectus in this paragraph (b) shall include any amendment or
supplement thereto at the date of such opinion.
(c) The Representatives shall have received an opinion, dated the Firm
Closing Date, of Vinson & Elkins L.L.P., counsel for the Underwriters, with
respect to the issuance and sale of the Firm Securities, the Registration
Statement, the Prospectus or any Integrated Prospectus, and such other
related matters as the Representatives may reasonably require, and the
Company shall have furnished to such counsel such documents as they may
reasonably request for the purpose of enabling them to pass upon such matters.
(d) The Representatives shall have received from BDO Seidman, LLP a
letter or letters dated, respectively, the date hereof and the Firm Closing
Date, in form and substance satisfactory to the Representatives, to the
effect that:
(i) they are independent accountants with respect to the Company and
its consolidated subsidiaries within the meaning of the Act, the Exchange
Act and the applicable rules and regulations thereunder;
(ii) in their opinion, the audited consolidated financial
statements and schedules and pro forma financial statements examined by
them and included in the Registration Statement, the Prospectus and any
Integrated Prospectus comply in form in all material respects with the
applicable accounting requirements of the Act, the Exchange Act and the
related published rules and regulations thereunder;
(iii) on the basis of a reading of the latest available interim
unaudited consolidated condensed financial statements of the Company and
its consolidated subsidiaries, carrying out certain specified procedures
(which do not constitute an examination made in accordance with
generally accepted auditing standards) that would not necessarily reveal
matters of significance with respect to the comments set forth in this
paragraph (iii), a reading of the minute books of the shareholders, the
board of directors and any committees thereof of the Company and each of
its consolidated subsidiaries, and inquiries of certain officials of the
Company and its consolidated subsidiaries who have responsibility for
financial and accounting matters, nothing came to their attention that
caused them to believe that:
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(A) the unaudited consolidated condensed financial statements of
the Company and its consolidated subsidiaries included in the
Registration Statement, the Prospectus and any Integrated
Prospectus do not comply in form in all material respects with the
applicable accounting requirements of the Act, the Exchange Act and
the related published rules and regulations thereunder, or are not
in conformity with generally accepted accounting principles applied
on a basis substantially consistent with that of the audited
consolidated financial statements included in the Registration
Statement and the Prospectus and any Integrated Prospectus;
(B) at a specific date not more than five business days prior to
the date of such letter, there were any changes in the capital
stock or long-term debt of the Company and its consolidated
subsidiaries or any decreases in net current assets or
stockholders' equity of the Company and its consolidated
subsidiaries, in each case compared with amounts shown on the
____________, 1997 unaudited consolidated balance sheet included in
the Registration Statement, the Prospectus and any Integrated
Prospectus, or for the period from ____________, 1997 to such
specified date there were any decreases, as compared with the
comparable prior year period, in net revenues, net income before
income taxes or total or per share amounts of net income of the
Company and its consolidated subsidiaries, except in all instances
for changes, decreases or increases set forth in such letter; and
(iv) they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages and
financial information that are derived from the general accounting
records of the Company and its consolidated subsidiaries and are
included in the Registration Statement, the Prospectus and any
Intergrated Prospectus and have compared such amounts, percentages and
financial information with such records of the Company and its
consolidated subsidiaries and with information derived from such
records and have found them to be in agreement, excluding any questions
of legal interpretation; and
(v) on the basis of a reading of the unaudited pro forma
consolidated condensed financial statements included in the
Registration Statement, the Prospectus, and any Intergrated Prospectus,
carrying out certain specified procedures that would not necessarily
reveal matters of significance with respect to the comments set forth
in this paragraph (v), inquiries of certain officials of the Company
and its consolidated subsidiaries who have responsibility for financial
and accounting matters and proving the arithmetic accuracy of the
application of the pro forma adjustments to the historical amounts in
the unaudited pro forma consolidated condensed financial statements,
nothing came to their attention that caused them to believe that the
unaudited pro forma consolidated condensed financial statements do not
comply in form in all material respects with the applicable accounting
requirements of Rule 11-02 of Regulation S-X or that the pro forma
adjustments have not been properly applied to the historical amounts in
the compilation of such statements.
In the event that the letters referred to above set forth any such
changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that (i) such letters shall be accompanied by
a written explanation of the Company as to the significance thereof,
22
<PAGE>
unless the Representatives deem such explanation unnecessary, and (ii such
changes, decreases or increases do not, in the sole judgment of the
Representatives, make it impractical or inadvisable to proceed with the
purchase and delivery of the Securities as contemplated by the Registration
Statement, as amended as of the date hereof.
References to the Registration Statement, the Prospectus and any
Integrated Prospectus in this paragraph (d) with respect to either letter
referred to above shall include any amendment or supplement thereto at the
date of such letter.
(e) The Representatives shall have received a certificate, dated the
Firm Closing Date, of the principal executive officer and the principal
financial or accounting officer of the Company to the effect that:
(i) the representations and warranties of the Company in this
Agreement are true and correct as if made on and as of the Firm Closing
Date; the Registration Statement, as amended as of the Firm Closing
Date, does not include any untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein not
misleading, the Prospectus and any Integrated Prospectus, as amended or
supplemented as of the Firm Closing Date, does not include any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and the
Company has performed all covenants and agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to the
Firm Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto and no
order directed at any document incorporated by reference in the
Registration Statement or the Prospectus or any amendment or supplement
thereto has been issued, and no proceedings for that purpose have been
instituted or threatened or, to the best of the Company's knowledge, are
contemplated by the Commission; and
(iii) subsequent to the respective dates as of which
information is given in the Registration Statement, the Prospectus and
any Integrated Prospectus, neither the Company nor any of its
Subsidiaries has sustained any material loss or interference with their
respective businesses or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or from
any labor dispute or any legal or governmental proceeding, and there has
not been any material adverse change, or any development involving a
prospective material adverse change, in the condition (financial or
otherwise), management, business prospects, net worth or results of
operations of the Company or any of its subsidiaries, except in each
case as described in or contemplated by the Prospectus and any
Integrated Prospectus.
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(f) The Representatives shall have received from each person who is a
director or officer of the Company and from ________ an agreement to the
effect that such person will not, directly or indirectly, without the prior
written consent of Prudential Securities Incorporated, on behalf of the
Underwriters, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of an option to purchase or
other sale or disposition) of any shares of Common Stock or any securities
convertible into, or exchangeable or exercisable for, shares of Common Stock
for a period of 120 days after the date of this Agreement.
(g) On or before the Firm Closing Date, the Representatives and counsel
for the Underwriters shall have received such further certificates, documents
or other information as they may have reasonably requested from the Company.
(h) Prior to the commencement of the offering of the Securities, the
Securities shall have been included for trading on the Nasdaq National Market.
(i) The Representatives shall have received from each Selling
Securityholder a Form W-9 indicating such Selling Securityholders correct
taxpayer identification number.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Representatives and
counsel for the Underwriters. The Company shall furnish to the
Representatives such conformed copies of such opinions, certificates, letters
and documents in such quantities as the Representatives and counsel for the
Underwriters shall reasonably request.
The respective obligations of the several Underwriters to purchase and
pay for any Option Securities shall be subject, in their discretion, to each
of the foregoing conditions to purchase the Firm Securities, except that all
references to the Firm Securities and the Firm Closing Date shall be deemed
to refer to such Option Securities and the related Option Closing Date,
respectively.
(i) The Selling Securityholders shall have furnished to the
Representatives the opinion of ____________, counsel for the Selling
Securityholders, dated the Closing Date, to the effect that:
(i) Each Selling Securityholder has full corporate power to enter
into this Agreement, the Custody Agreement and the Power-of-Attorney and
to sell, transfer and deliver the Securities being sold by such Selling
Securityholder hereunder in the manner provided in this Agreement and to
perform its obligations under the Custody Agreement; the execution and
delivery of this Agreement, the Custody Agreement and the
Power-of-Attorney have been duly authorized by all necessary corporate
action of each Selling Securityholder; this Agreement, the Custody
Agreement and the Power-of-Attorney have been duly executed and
delivered by each Selling Securityholder; assuming due authorization,
execution and delivery by the Custodian, the Custody Agreement and the
Power-of-Attorney are the legal, valid, binding and enforceable
instruments of such Selling Securityholder, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights
generally and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding in
equity or at law);
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<PAGE>
(ii) the delivery by each Selling Securityholder to the several
Underwriters of certificates for the Securities being sold hereunder by
such Selling Securityholder against payment therefor as provided herein,
will convey good and marketable title to such Securities to the several
Underwriters, free and clear of all security interests, liens,
encumbrances, equities, claims or other defects;
(iii) the sale of the Securities to the Underwriters by such
Selling Securityholder pursuant to this Agreement, the compliance by
such Selling Securityholder with the other provisions of this Agreement,
the Custody Agreement and the consummation of the other transactions
herein contemplated do not (i) require the consent, approval,
authorization, registration or qualification of or with any governmental
authority, except such as have been obtained and such as may be required
under state securities or blue sky laws, or (ii) conflict with or result
in a breach or violation of any of the terms and provisions of, or
constitute a default under any indenture, mortgage, deed of trust, lease
or other agreement or instrument to which such Selling Securityholder is
a party or by which such Selling Securityholder or any of such Selling
Securityholder's properties are bound, or the charter documents or
by-laws of such Selling Securityholder or any statute or any judgment,
decree, order, rule or regulation of any court or other governmental
authority or any arbitrator applicable to such Selling Securityholder.
In rendering such opinion, such counsel may rely, as to matters of fact,
to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials. References to the
Registration Statement and the Prospectus in this paragraph (i) shall include
any amendment or supplement thereto at the date of such opinion.
(j) The Representatives shall have received a certificate from each
Selling Securityholder, signed by the principal executive officer and the
principal financial or accounting officer of such Selling Securityholder,
dated the Closing Date, to the effect that:
(i) the representations and warranties of such Selling
Securityholder in this Agreement are true and correct as if made on and
as of the Closing Date;
(ii) to the extent that any statements or omissions are made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto in reliance upon and in conformity
with written information furnished to the Company by such Selling
Securityholder specifically for use therein, the Registration Statement,
as amended as of the Closing Date, does not include any untrue statement
of a material fact or omit to state any material fact necessary to make
the statements therein not misleading, and the Prospectus, as amended or
supplemented as of the Closing Date, does not include any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and
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<PAGE>
(iii) such Selling Securityholder has performed all covenants and
agreements on its part to be performed or satisfied at or prior to the
Closing Date.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter
or such controlling person may become subject under the Act, the Exchange Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement made by the
Company in Section 2 of this Agreement,
(ii) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any
amendment thereto, any Preliminary Prospectus, the Prospectus and any
Integrated Prospectus or any amendment or supplement thereto or (B) any
application or other document, or any amendment or supplement thereto,
executed by the Company or based upon written information furnished by
or on behalf of the Company filed in any jurisdiction in order to
qualify the Securities under the securities or blue sky laws thereof or
filed with the Commission or any securities association or securities
exchange (each an "Application")
(iii) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary
Prospectus, the Prospectus, and any Integrated Prospectus or any
amendment or supplement thereto, or any Application a material fact
required to be stated therein or necessary to make the statements
therein not misleading or
(iv) any untrue statement or alleged untrue statement of any
material fact contained in any audio or visual materials used in
connection with the marketing of the Securities, including without
limitation, slides, videos, films, tape recordings and will reimburse,
as incurred, each Underwriter and each such controlling person for any
legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating, defending against
or appearing as a third-party witness in connection with any such loss,
claim, damage, liability or action; PROVIDED, HOWEVER, that the Company
will not be liable in any such case to the extent that any such 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 such registration statement or any amendment thereto, any
Preliminary Prospectus, the Prospectus and any Integrated Prospectus or
any amendment or supplement thereto, or any Application in reliance
upon and in conformity with written information furnished to the
Company by such Underwriter through the Representatives specifically
for use therein. This indemnity agreement will be in addition to any
liability which the Company may otherwise have. The Company will not,
without the prior written consent of the Underwriter or Underwriters
purchasing, in the aggregate, more than fifty percent (50%) of the
Securities, settle or compromise or consent to the entry of any
judgment in any
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pending or threatened claim, action, suit or proceeding in respect
of which indemnification may be sought hereunder (whether or not
any such Underwriter or any person who controls any such
Underwriter within the meaning of Section 15 of the Act or Section 20
of the Exchange Act is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of all of the Underwriters and such controlling
persons from all liability arising out of such claim, action, suit or
proceeding.
(b) Each Selling Securityholder severally agrees to indemnify and hold
harmless the Company, each of its directors, each of its officers who signs
the Registration Statement, each Underwriter and each person who controls the
Company or any Underwriter within the meaning of the Act or the Exchange Act
against any losses, claims, damages or liabilities to which the Company, any
such director, officer, such Underwriter or any such controlling person may
become subject under the Act, the Exchange Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions 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 or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or any Application or (ii) the omission or the alleged
omission to state therein a material fact required to be stated in the
Registration Statement or any amendment thereto, any Preliminary Prospectus
or the Prospectus or any amendment or supplement thereto, or any Application
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such Selling
Securityholder for use therein, and will reimburse, as incurred, any legal or
other expenses reasonably incurred by the Company, any such director,
officer, such Underwriter or any such controlling person in connection with
investigating or defending any such loss, claim, damage, liability or any
action in respect thereof. This indemnity agreement will be in addition to
any liability which any Selling Securityholder may otherwise have. Each
Selling Securityholder will not, without the prior written consent of the
Underwriter or Underwriters purchasing, in the aggregate, more than fifty
percent (50%) of the Securities, settle or comprise or consent to the entry
of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder
(whether or not any such Underwriter or any person who controls any such
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act is a party to such claim, action, suit or proceeding), unless
such settlement, compromise or consent includes as unconditional release of
all of the Underwriters and such controlling persons from all liability
arising out of such claim, action, suit or proceeding.
(c) Each Underwriter will, severally and not jointly, indemnify and hold
harmless the Company, each of its directors, each of its officers who signed
the Registration Statement, each Selling Securityholder and each person, if
any, who controls the Company or such Selling Securityholder within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act against
any losses, claims, damages or liabilities to which the Company, any such
director or officer of the Company, such Selling Securityholder or any such
controlling person of the Company or such Selling Securityholder may become
subject under the Act, the Exchange Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions 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 or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or any Application or (ii) the omission or the alleged
27
<PAGE>
omission to state therein a material fact required to be stated in the
Registration Statement or any amendment thereto, any Preliminary Prospectus
or the Prospectus or any amendment or supplement thereto, or any Application
or necessary to make the statements therein not misleading, in each case to
the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon
and in conformity with written information furnished to the Company by any
Underwriter through the Representatives specifically for use therein; and,
subject to the limitation set forth immediately preceding this clause, will
reimburse, as incurred, any legal or other expenses reasonably incurred by
the Company, any such director, officer or controlling person or such Selling
Securityholder in connection with investigating or defending any such loss,
claim, damage, liability or any action in respect thereof. This indemnity
agreement will be in addition to any liability which such Underwriter may
otherwise have.
(d) Promptly after receipt by an indemnified party under this Section 8
of notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against the indemnifying party under
this Section 8, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section 8. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof,
the indemnifying party will be entitled to participate therein 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; PROVIDED, HOWEVER, that if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be one or
more legal defenses available to it and/or other indemnified parties which
are different from or additional to those available to the indemnifying
party, the indemnifying party shall not have the right to direct the defense
of such action on behalf of such indemnified party or parties and such
indemnified party or parties shall have the right to select separate counsel
to defend such action on behalf of such indemnified party or parties. After
notice from the indemnifying party to such indemnified party of its election
so to assume the defense thereof and approval by such indemnified party of
counsel appointed to defend such action, the indemnifying party will not be
liable to such indemnified party under this Section 8 for any legal or other
expenses, other than reasonable costs of investigation, subsequently incurred
by such indemnified party in connection with the defense thereof, unless (i)
the indemnified party shall have employed separate counsel in accordance with
the proviso to the next preceding sentence (it being understood, however,
that in connection with such action the indemnifying party shall not be
liable for the expenses of more than one separate counsel (in addition to
local counsel) in any one action or separate but substantially similar
actions in the same jurisdiction arising out of the same general allegations
or circumstances, designated by the Representatives in the case of paragraph
(a) of this Section 8, representing the indemnified parties under such
paragraph (a) who are parties to such action or actions) or (ii) the
indemnifying party does not promptly retain counsel satisfactory to the
indemnified party or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. After such notice from the indemnifying party to such
indemnified party, the indemnifying party will not be liable for the costs
and expenses of any settlement of such action effected by such indemnified
party without the consent of the indemnifying party.
28
<PAGE>
(e) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this Section 8 is unavailable or insufficient,
for any reason, to hold harmless an indemnified party in respect of any
losses, claims, damages or liabilities (or actions in respect thereof), each
indemnifying party, in order to provide for just and equitable contribution,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (i) the relative
benefits received by the indemnifying party or parties on the one hand and
the indemnified party on the other from the offering of the Securities or
(ii) if the allocation provided by the foregoing clause (i) is not permitted
by applicable law, not only such relative benefits but also the relative
fault of the indemnifying party or parties on the one hand and the
indemnified party on the other in connection with the statements or omissions
or alleged statements or omissions that resulted in such losses, claims,
damages or liabilities (or actions 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 proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters. The relative fault
of the parties 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 or the Underwriters, the parties' relative intents,
knowledge, access to information and opportunity to correct or prevent such
statement or omission, and any other equitable considerations appropriate in
the circumstances. The Company and the Underwriters agree that it would not
be equitable if the amount of such contribution were determined by pro rate
or per capita allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation that does not take
into account the equitable considerations referred to above in this paragraph
(d). Notwithstanding any other provision of this paragraph (d), no
Underwriter shall be obligated to make contributions hereunder that in the
aggregate exceed the total public offering price of the Securities purchased
by such Underwriter under this Agreement, less the aggregate amount of any
damages that such Underwriter has otherwise been required to pay in respect
of the same or any substantially similar claim, and 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 to contribute
hereunder are several in proportion to their respective underwriting
obligations and not joint, and contributions among Underwriters shall be
governed by the provisions of the Prudential Securities Incorporated Master
Agreement Among Underwriters. For purposes of this paragraph (d), each
person, if any, who controls an Underwriter within the meaning of Section 15
of the Act or Section 20 of the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each
officer of the Company who signed the Registration Statement and each person,
if any, who controls the Company within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act, shall have the same rights to contribution
as the Company.
9. DEFAULT OF UNDERWRITERS. If one or more Underwriters default in
their obligations to purchase Firm Securities or Option Securities hereunder
and the aggregate number of such Securities that such defaulting Underwriter
or Underwriters agreed but failed to purchase is ten percent or less of the
aggregate number of Firm Securities or Option Securities to be purchased by
all of the Underwriters at such time hereunder, the other Underwriters may
make arrangements
29
<PAGE>
satisfactory to the Representatives for the purchase of such Securities by
other persons (who may include one or more of the non-defaulting
Underwriters, including the Representatives), but if no such arrangements are
made by the Firm Closing Date or the related Option Closing Date, as the case
may be, the other Underwriters shall be obligated severally in proportion to
their respective commitments hereunder to purchase the Firm Securities or
Option Securities that such defaulting Underwriter or Underwriters agreed but
failed to purchase. If one or more Underwriters so default with respect to
an aggregate number of Securities that is more than ten percent of the
aggregate number of Firm Securities or Option Securities, as the case may be,
to be purchased by all of the Underwriters at such time hereunder, and if
arrangements satisfactory to the Representatives are not made within 36 hours
after such default for the purchase by other persons (who may include one or
more of the non-defaulting Underwriters, including the Representatives) of
the Securities with respect to which such default occurs, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or
the Company other than as provided in Section 10 hereof. In the event of any
default by one or more Underwriters as described in this Section 9, the
Representatives shall have the right to postpone the Firm Closing Date or the
Option Closing Date, as the case may be, established as provided in Section 3
hereof for not more than seven business days in order that any necessary
changes may be made in the arrangements or documents for the purchase and
delivery of the Firm Securities or Option Securities, as the case may be. As
used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 9. Nothing herein shall
relieve any defaulting Underwriter from liability for its default.
10. SURVIVAL. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, its officers and
the several Underwriters set forth in this Agreement or made by or on behalf
of them, respectively, pursuant to this Agreement shall remain in full force
and effect, regardless of (i) any investigation made by or on behalf of the
Company, any of its officers or directors, any Underwriter or any controlling
person referred to in Section 8 hereof and (ii) delivery of and payment for
the Securities. The respective agreements, covenants, indemnities and other
statements set forth in Sections 6 and 8 hereof shall remain in full force
and effect, regardless of any termination or cancellation of this Agreement.
11. TERMINATION.
(a) This Agreement may be terminated with respect to the Firm
Securities or any Option Securities in the sole discretion of the
Representatives by notice to the Company given prior to the Firm
Closing Date or the related Option Closing Date, respectively, in the
event that the Company shall have failed, refused or been unable to
perform all obligations and satisfy all conditions on its part to be
performed or satisfied hereunder at or prior thereto or, if at or prior
to the Firm Closing Date or such Option Closing Date, respectively,
(i) the Company or any of its subsidiaries shall have, in the
sole judgment of the Representatives, sustained any material loss or
interference with their respective businesses or properties from fire,
flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental
proceeding or there shall have been any material adverse change, or any
development involving a prospective material adverse change (including
without limitation a change in management or control of the Company),
in the condition (financial or otherwise), business prospects, net
worth or
30
<PAGE>
results of operations of the Company and its subsidiaries, except in each
case as described in or contemplated by the Prospectus (exclusive of any
amendment or supplement thereto);
(ii) trading in the Common Stock shall have been suspended by the
Commission or the Nasdaq National Market or trading in securities
generally on the New York Stock Exchange or the Nasdaq National Market
shall have been suspended or minimum or maximum prices shall have been
established on either such exchange;
(iii) a banking moratorium shall have been declared by New York or
United States authorities; or
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or (C) any other calamity or crisis or
material adverse change in general economic, political or financial
conditions having an effect on the U. S. financial markets that, in the
sole judgment of the Representatives, makes it impractical or
inadvisable to proceed with the public offering or the delivery of the
Securities as contemplated by the Registration Statement, as amended as
of the date hereof.
(b) Termination of this Agreement pursuant to this Section 11 shall be
without liability of any party to any other party except as provided in
Section 10 hereof.
12. INFORMATION SUPPLIED BY UNDERWRITERS. The statements set forth in
the last paragraph on the front cover page and under the heading
"Underwriting" in any Preliminary Prospectus, the Prospectus, or any
Integrated Prospectus (to the extent such statements relate to the
Underwriters) constitute the only information furnished by any Underwriter
through the Representatives to the Company for the purposes of Sections 2(b)
and 8 hereof. The Underwriters confirm that such statements (to such extent)
are correct.
13. NOTICES. All communications hereunder shall be in writing and, if
sent to any of the Underwriters, shall be delivered or sent by mail, telex or
facsimile transmission and confirmed in writing to Prudential Securities
Incorporated, One New York Plaza, New York, New York 10292, Attention: Equity
Transactions Group; and if sent to the Company, shall be delivered or sent by
mail, telex or facsimile transmission and confirmed in writing to the Company
at Evergreen Resources, Inc., 1000 Writer Square, 1512 Larimer Street,
Denver, Colorado, 80202, and if sent to a Selling Securityholder at the
address set forth on Schedule 1 hereto.
14. SUCCESSORS. This Agreement shall inure to the benefit of and shall
be binding upon the several Underwriters, the Company and their respective
successors and legal representatives, and nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any other person any
legal or equitable right, remedy or claim under or in respect of this
Agreement, or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole
and exclusive benefit of such persons and for the benefit of no other person
except that (i) the indemnities of the Company contained in Section 8 of this
Agreement shall also be for the benefit of any person or persons who control
any Underwriter within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act and (ii)
31
<PAGE>
the indemnities of the Underwriters contained in Section 8 of this Agreement
shall also be for the benefit of the directors of the Company, the officers
of the Company who have signed the Registration Statement and any person or
persons who control the Company within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act. No purchaser of Securities from any
Underwriter shall be deemed a successor because of such purchase.
15. APPLICABLE LAW. The validity and interpretation of this Agreement,
and the terms and conditions set forth herein, shall be governed by and
construed in accordance with the laws of the State of New York, without
giving effect to any provisions relating to conflicts of laws.
16. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. All judicial
proceedings arising out of or relating to this Agreement may be brought in
any state or federal court of competent jurisdiction in the State of New
York, and by execution and delivery of this Agreement, the Company and each
Selling Securityholder accepts for itself and in connection with its
properties, generally and unconditionally, the nonexclusive jurisdiction of
the aforesaid courts and waives any defense of forum non conveniens and
irrevocably agrees to be bound by any judgment rendered thereby in connection
with this Agreement. The Selling Securityholder designates and appoints
_____________, and such other persons as may hereafter be selected by the
Selling Securityholder irrevocably agreeing in writing to so serve, as its
agent to receive on its behalf service of all process in any such proceedings
in any such court, such service being hereby acknowledged by the Selling
Securityholder to be effective and binding service in every respect. A copy
of any such process so served shall be mailed by registered mail to the
Company or any Selling Securityholder at its address provided in Section 13
hereof; PROVIDED, HOWEVER, that, unless otherwise provided by applicable law,
any failure to mail such copy shall not affect the validity of service of
such process. If any agent appointed by the Selling Securityholder refuses
to accept service, the Selling Securityholder hereby agrees that service of
process sufficient for personal jurisdiction in any action against the
Selling Securityholder in the State of New York may be made by registered or
certified mail, return receipt requested, to the Selling Securityholder at
its address provided in Section 13 hereof, and the Selling Securityholder
hereby acknowledges that such service shall be effective and binding in every
respect. Nothing herein shall affect the right to serve process in any other
manner permitted by law or shall limit the right of any Underwriter to bring
proceedings against the Selling Securityholder in the courts of any other
jurisdiction.
17. COUNTERPARTS. 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.
32
<PAGE>
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute an agreement binding the Company and
each Selling Securityholder and each of the several Underwriters.
Very truly yours,
EVERGREEN RESOURCES, INC.
By:
---------------------------------
President
SELLING SECURITYHOLDERS
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
THE FOREGOING AGREEMENT IS HEREBY
CONFIRMED AND ACCEPTED AS OF THE
DATE FIRST ABOVE WRITTEN.
PRUDENTIAL SECURITIES INCORPORATED
HOWARD, WEIL, LABOUISSE, FRIEDRICHS INCORPORATED
HANIFEN, IMHOFF INC.
By: PRUDENTIAL SECURITIES INCORPORATED
By:
-------------------------------------
Jean-Claude Canfin
Managing Director
For itself and on behalf of the Representatives.
33
<PAGE>
SCHEDULE 1
NAMES AND ADDRESSES OF
SELLING SECURITYHOLDERS
1
<PAGE>
SCHEDULE 2
UNDERWRITERS
Number of Firm
Underwriter Securities to be Purchased
- ----------- --------------------------
Prudential Securities Incorporated . . . . . . . .
Howard, Weil, Labouisse, Friedrichs Incorporated. .
Hanifen, Imhoff Inc. . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . $2,750,000
1
<PAGE>
SCHEDULE 3
SUBSIDIARIES
Name Jurisdiction of Incorporation
---- -----------------------------
1
<PAGE>
November 21, 1997
Evergreen Resources, Inc.
1000 Writer Square
1512 Larimer Street
Denver, Colorado 80202
Re: Registration Statement on Form S-3 with respect to 3,162,500 shares
of Evergreen Resources, Inc. Common Stock
Gentlemen/Ladies:
The opinions set forth herein are rendered with respect to the 3,162,500
shares of Common Stock, stated value $0.01 per share, (the "Shares") of
Evergreen Resources, Inc., a Colorado corporation (the "Company"), which may be
issued by the Company or sold by certain selling shareholders in connection
with an underwritten public offering (the "Offering") registered with the
Securities and Exchange Commission (the "Commission") by the Company's
Registration Statement on Form S-3, as amended, (the "Registration
Statement") filed on November 21, 1997, pursuant to the Securities Act of
1933, as amended (the "Securities Act").
We have examined the Company's Articles of Incorporation, as amended,
and the Company's Bylaws, as amended, and reviewed the records of the
Company's corporate proceedings. We have made such investigation of law as we
have deemed necessary in order to enable us to render this opinion. With
respect to matters of fact, we have relied upon information provided to us by
the Company and have made no further investigation. With respect to all
examined documents, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
authentic originals of all documents submitted to us as certified, conformed
or photostatic copies and the accuracy and completeness of the information
contained therein.
Based on and subject to the foregoing and subject to the comments,
limitations and
<PAGE>
qualifications set forth below, we are of the opinion that the Shares will,
when sold pursuant to the terms of an underwriting or purchase agreement to
be entered into in connection with the Offering, be legally and validly
issued and fully paid and non-assessable.
This opinion is subject to the condition that, prior to the issuance of
the Shares in the Offering, the Company's Board of Directors may be required
to make a further authorization of the price at which the Shares will be
sold, if such Shares are proposed to be sold at a price lower than the price
that has currently been approved by the Company's Board of Directors.
The foregoing opinion is limited to matters governed by the laws of the
State of Colorado in force on the date of this letter. We express no opinion
with regard to any matter which may be (or purports to be) governed by the
laws of any other state or jurisdiction. In addition, we express no opinion
with respect to any matter arising under or governed by any state securities
laws, or any law respecting disclosure.
This opinion is rendered as of the date of this letter and applies only
to the matters specifically covered by this opinion, and we disclaim any
continuing responsibility for matters occurring after the date of this letter.
We consent to the use of this opinion as an exhibit to the Registration
Statement.
Yours truly,
Wyche, Burgess, Freeman & Parham, P.A.
By: /s/ William P. Crawford, Jr.
___________________________________
William P. Crawford, Jr.
2
<PAGE>
Debtor: Evergreen Resources, Inc Bank: Hibernia National Bank
1000 Writer Square P. O. Box 61540
1512 Larimer Street New Orleans, LA 70160
Denver, Colorado 80202
REVOLVING NOTE
Principal Amount of Note: $30,000,000.00
Date of Note: June 19, 1997
Maturity Date: May 30, 1999
PROMISE TO PAY. Evergreen Resources, Inc., a Colorado corporation ("Debtor"),
promises to pay to the order of Hibernia National Bank ("Bank"), in lawful money
of the United States of America the sum of Thirty Million and 00/100 Dollars
(U.S. $30,000,000.00) or such other or lesser amounts as may be reflected from
time to time on the books and records of Bank as evidencing the aggregate unpaid
principal balance of Revolving Loans made to Debtor on a revolving line of
credit basis as provided below, together with simple interest assessed on a
variable rate basis provided below, with interest being assessed on the unpaid
principal balance of this Revolving Note as outstanding from time to time,
computed as set forth in the Credit Agreement.
REVOLVING NOTE. This note is the Revolving Note referred to in that certain
Amended and Restated Credit Agreement dated as of June 1, 1997, among Debtor
and Bank (as amended from time to time, the "Credit Agreement"), and has been
given in renewal, increase and extension of (but not in addition to) the
indebtedness of Debtor previously evidenced by Debtor's Revolving Note dated
October 4, 1996, payable to the order of Bank in the principal sum of
$15,000,000.00, which in turn had been given in renewal, increase and
extension of (but not in addition to) the indebtedness of Debtor previously
evidenced by Debtor's Revolving Note dated April 26, 1995, payable to the
order of Bank in the principal sum of $7,500,000.00, which in turn had been
given in renewal, increase and extension of (but not in addition to) the
indebtedness of Debtor previously evidenced by Debtor's Revolving Note dated
February 5, 1993, payable to the order of Bank in the principal sum of
$5,000,000.00, which in turn had been given in renewal, increase and
extension of (but not in addition to) the indebtedness of Debtor previously
evidenced by Debtor's Revolving Note dated November 15, 1990, payable to the
order of Bank in the principal sum of $3,500,000.00. Unless otherwise defined
herein, each capitalized term used herein shall have the same meaning set
forth in the Credit Agreement. This Revolving Note evidences Revolving Loans
that may be made from time to time to Debtor under the Credit Agreement.
Advances under this Revolving Note may be requested only in writing by Debtor
or by an authorized person (the President of Debtor or by any other officer
of Debtor designated by the President in writing to Bank in accordance with
resolutions of the Board of Directors of Debtor certified to
<PAGE>
- 2 -
Bank), by either certified or registered mail or by facsimile transmission in
accordance with Section 6.3 of the Credit Agreement. All communications,
instructions, or directions by telephone or otherwise to Bank are to be directed
to Bank's office shown above. Debtor agrees to be liable for all sums either:
(a) advanced in accordance with the instructions of an authorized person, or (b)
credited to any of Debtor's deposit accounts with Bank. The unpaid principal
balance owing on this Revolving Note at any time may be evidenced by
endorsements on this Revolving Note or by Bank's internal records, including
daily computer print-outs. Revolving Loans shall only be made in accordance with
the terms and conditions of the Credit Agreement. Without limiting the foregoing
sentence, Bank will have no obligation to advance funds under this Note if (i)
Debtor or any guarantor is in default under the terms of this Note or any
agreement that Debtor has with Bank, including the Credit Agreement or any other
agreement made in connection with the signing of this Note; (ii) Debtor or any
guarantor ceases to do business or is insolvent; (iii) any guarantor seeks,
claims or otherwise attempts to limit, modify or revoke such guarantor's
guarantee of this Note or any other loan with Bank; or (iv) Debtor has applied
funds provided pursuant to this Note for purposes other than those authorized by
Bank pursuant to the Credit Agreement.
PAYMENTS. Debtor will pay monthly payments of interest on each Payment Date in
accordance with the Credit Agreement, with a final payment of all principal and
accrued interest due on or before May 30, 1999. Interest on this Revolving Note
is computed on a 365/360 simple interest basis; that is, by applying the ratio
of the annual interest rate over a year of 360 days, times the outstanding
principal balance, times the actual number of days the principal balance is
outstanding. Debtor will pay Bank at Bank's address shown above or at such other
place as Bank may designate in writing. Unless otherwise agreed or required by
applicable law, payments will be applied first to accrued unpaid interest, then
to principal, and any remaining amount to any unpaid collection costs and late
charges.
VARIABLE INTEREST RATE. This Revolving Note bears interest (x) on and before
June 30, 1997 at the rate per annum equal to the Base Rate (as defined in the
Credit Agreement) and (y) on and after July 1, 1997 to and including the
Termination Date at the rate per annum equal to the Base Rate plus or minus the
Applicable Margin (as defined in the Credit Agreement). The interest rate on
this Revolving Note is subject to change from time to time, one or more times,
based on changes in the Base Rate and the Applicable Margin. If the index rate
used in determining the Base Rate becomes unavailable during the term of
<PAGE>
- 3 -
this Revolving Note, Bank may designate a substitute index after notice to
Debtor. Bank will tell Debtor the Base Rate upon Debtor's request. Debtor
understands that Bank may make loans based on other rates as well. The interest
rate change will not occur more often than each day. The unpaid principal
balance of this Revolving Note shall bear interest from and after the
Termination Date until paid at the Default Rate from time to time in effect.
PREPAYMENT. Debtor may prepay this Revolving Note in full at any time by paying
the then unpaid principal balance of this Revolving Note, plus accrued simple
interest and any unpaid late charges through date of prepayment. Debtor may be
required to prepay this Revolving Note from time to time in accordance with the
Credit Agreement. If Debtor prepays this Revolving Note in full, or if Bank
accelerates payment, debtor understands that, unless otherwise required by law,
any prepaid fees or charges will not be subject to rebate and will be earned by
Bank at the time this Revolving Note is signed.
LATE CHARGE. If Debtor fails to pay any payment under this Revolving Note in
full within 10 days of when due, Debtor agrees to pay Bank a late payment fee in
an amount equal to 10.000% of the delinquent payment due.
EVENTS OF DEFAULT. The following actions and/or inactions shall constitute
Events of Default under this Revolving Note: The occurrence of an Event of
Default under the Credit Agreement.
BANK'S RIGHTS UPON AN EVENT OF DEFAULT. Should any one or more Events of Default
occur or exist under this Revolving Note as provided above, Bank shall have the
right, at its sole option, to accelerate the maturity and insist upon immediate
payment in full of the unpaid principal balance then outstanding under this
Revolving Note, plus accrued interest, together with reasonable attorney's fees,
costs, expenses and other fees and charges as provided herein. Bank shall have
the further right, again at its sole option, to accelerate the maturity and to
insist upon immediate payment in full of each and every other loan, extension of
credit, debt, liability and/or obligation of every nature and kind that Debtor
may then owe to Bank, whether direct or indirect or by way of assignment, and
whether absolute or contingent, liquidated or unliquidated, voluntary or
involuntary, determined or undetermined, secured or unsecured, whether Debtor
is obligated alone or with others on a "solidary" or "joint and several" basis,
as a principal obligor or otherwise, all without further notice, demand or
putting in default, unless Bank shall otherwise elect. Bank and Debtor hereby
waive the right to any
<PAGE>
- 4 -
jury trial in any action, proceeding or counterclaim by either Bank or Debtor
against the other.
DEFAULT RATE. Anything in this Revolving Note or in any other agreement,
document, or instrument to the contrary notwithstanding, effective upon the
Termination Date, this Revolving Note shall thereafter bear interest at the
Default Rate. Additionally, anything in this Revolving Note or in any other
agreement, document, or instrument to the contrary notwithstanding, Bank shall
not impose the late charge provided for in this Revolving Note if the imposition
of the late charge would cause the simple interest rate charged under this
Revolving Note after the Termination Date to exceed the Maximum Rate.
ATTORNEY'S FEES. If Bank refers this Revolving Note to an attorney for
collection, or files suit against Debtor to collect this Revolving Note, or if
Debtor files for bankruptcy or other relief from creditors, Debtor agrees to pay
Bank's reasonable attorney's fees.
NSF CHECK CHARGES. In the event that Debtor makes any payment under this
Revolving Note by check and Debtor's check is returned to Bank unpaid due to
nonsufficient funds in any deposit account, Debtor agrees to pay Bank an
additional NSF check charge equal to $20.00.
DEPOSIT ACCOUNTS. As collateral for repayment of this Revolving Note and all
renewals and extensions, as well as to secure any and all other loans, notes,
indebtedness and obligations that Debtor may now and in the future owe to Bank
or incur in Bank's favor, whether direct or indirect, absolute or contingent,
due or to become due, of any nature and kind whatsoever (with the exception of
any indebtedness under a consumer credit card account), Debtor hereby grants
Bank a continuing security interest in any and all funds that Debtor may now and
in the future have on deposit with Bank or in certificates of deposit or other
deposit accounts as to which Debtor is an account holder (with the exception of
any funds held in any of Debtor's accounts in trust for third parties, or funds
held in IRA, pension, and other tax-deferred deposits). Upon the occurrence of
an Event of Default, Debtor further agrees that Bank may at any time apply any
funds that Debtor may have on deposit with Bank or in certificates of deposit or
other deposit accounts as to which Debtor is an account holder against the
unpaid balance of this Revolving Note and any and all other present and future
indebtedness and obligations that Debtor may then owe to Bank, in principal,
interest, fees, costs, expenses, and attorneys' fees.
<PAGE>
- 5 -
GOVERNING LAW. DEBTOR AGREES THAT THIS REVOLVING NOTE AND THE REVOLVING LOANS
EVIDENCED HEREBY SMALL BE GOVERNED UNDER THE LAWS OF THE STATE OF LOUISIANA.
SPECIFICALLY, THIS BUSINESS OR COMMERCIAL REVOLVING NOTE IS SUBJECT TO LA. R.S.
9:3509 ET SEQ.
COLLATERAL. This Revolving Note is secured by the Loan Documents described in
the Credit Agreement.
WAIVERS. Debtor and each guarantor of this Note hereby waive presentment for
payment, protest, notice of protest and notice of nonpayment, and all pleas of
division and discussion, and severally agree that their obligations and
liabilities to Bank hereunder shall be on a "solitary" or "joint and several"
basis. Debtor and each guarantor further severally agree that discharge or
release of any party who is or may be liable to Bank for the indebtedness
represented hereby, or the release of any collateral directly or indirectly
securing repayment hereof, shall not have the effect of releasing any other
party or parties, who shall remain liable to Bank, or of releasing any other
collateral that is not expressly released by Bank. Debtor and each guarantor
additionally agree that Bank's acceptance of payment other than in accordance
with the terms of this Revolving Note, or Bank's subsequent agreement to extend
or modify such repayment terms, or Bank's failure to delay in exercising any
rights or remedies granted to Bank, shall likewise not have the effect of
releasing Debtor or any other party or parties from their respective obligations
to Bank, or of releasing any collateral that directly or indirectly secures
repayment hereof. In addition, any failure or delay on the part of Bank to
exercise any of the rights and/or remedies granted to Bank shall furthermore not
be construed as a waiver of any other rights and remedies; it being Debtor's
intent and agreement that Bank's rights and remedies shall be cumulative in
nature. Debtor and each guarantor further agree that, should any Event of
Default occur or exist under this Revolving Note, any waiver or forbearance on
the part of Bank to pursue the rights and remedies available to Bank, shall be
binding upon Bank only to the extent that Bank specifically agrees to any such
waiver or forbearance in writing. A waiver or forbearance on the part of Bank as
to one Event of Default shall not be construed as a waiver or forbearance as to
any other default.
SUCCESSORS AND ASSIGNS LIABLE. Debtor's and each guarantor's obligations and
agreements under this Revolving Note shall be binding upon Debtor's and each
guarantor's respective successors, heirs, legatees, devisees, administrators,
executors and assigns. The rights and remedies granted to Bank under this
Revolving Note shall inure to the benefit of Bank's successors and assigns, as
well as to any subsequent holder or holders of this Revolving Note.
<PAGE>
- 6 -
CAPTION HEADINGS. Caption headings of the sections of this Revolving Note are
for convenience purposes only and are not to be used to interpret or to define
their provisions. In this Revolving Note, whenever the context so requires, the
singular includes the plural and the plural also includes the singular.
SEVERABILITY. If any provision of this Revolving Note is held to be invalid,
illegal or unenforceable by any court, that provision be deleted from this
Revolving Note and the balance of this Revolving Note shall be interpreted as if
the deleted provision never existed.
USURY CONSIDERATIONS. It is the intention of Debtor to conform strictly to
applicable usury laws. Accordingly, if the transactions contemplated hereby
would be usurious under applicable law (excluding applicable Louisiana law),
then, in that event notwithstanding anything to the contrary in any agreement
entered into as security for this Revolving Note, it is agreed as follows: (i)
the aggregate of all interest that is taken, reserved, contracted for, charged
or received under this Revolving Note or under any of the other aforesaid
agreements or otherwise in connection with this Revolving Note shall under no
circumstances exceed the maximum amount of interest allowed by applicable law,
and any excess shall be credit on this Revolving Note by the holder hereof (or
if the Revolving Note shall have been paid in full, refunded to Debtor); and
(ii) in the event that maturity of this Revolving Note is accelerated by reason
of default hereunder or otherwise, or in the event of any permitted prepayment,
then such consideration that constitutes interest may never include more than
the maximum amount allowed by applicable law, and excess interest, if any,
provided for in this Revolving Note or otherwise shall be canceled automatically
as of the date of such acceleration or prepayment and, if theretofore prepaid,
shall be credited on this Revolving Note (or if this Revolving Note shall have
been paid in full, refunded to Debtor). To the extent that Louisiana law would
be deemed the applicable law (as is the intent of Debtor hereunder), the
provisions of the section hereunder entitled DEFAULT RATE shall control.
SUBMISSION TO JURISDICTION: WAIVER OF JURY TRIAL. (a) DEBTOR HEREBY
IRREVOCABLY AND UNCONDITIONALLY:
(1) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDINGS RELATING TO THIS REVOLVING NOTE, OR FOR RECOGNITION
AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE
NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF
LOUISIANA, THE COURTS OF THE UNITED STATES OF
<PAGE>
- 7 -
AMERICA FOR THE EASTERN DISTRICT OF LOUISIANA, AND APPELLATE
COURTS FROM ANY THEREOF;
(2) CONSENTS THAT ANY SUCH ACTION OR PROCEEDINGS MAY BE BROUGHT IN
SUCH COURTS, AND WAIVES ANY OBJECTIONS THAT IT MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN
ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN
AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;
(3) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDINGS
MAY BE EFFECTED BY MAILING A COPY BY REGISTERED OR CERTIFIED MAIL
(OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO
DEBTOR AT ITS ADDRESS SET FORTH ABOVE OR AT SUCH OTHER ADDRESS AT
WHICH BANK SHALL HAVE BEEN NOTIFIED PURSUANT THERETO; AND,
(4) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT
SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL
LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION.
(b) DEBTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY
JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS REVOLVING NOTE AND FOR
ANY COUNTERCLAIM THEREIN.
RENEWAL. This Revolving Note is given in renewal, increase and extension of
(but not in addition to) indebtedness of Debtor to Bank, and nothing in this
Revolving Note shall constitute the satisfaction or extinguishment of such
Indebtedness, nor shall it be a novation of the amount owed by Debtor to Bank
under Debtor's previous note; rather this Revolving Note merely evidences a
replacement of and increase in the amounts available to be borrowed by Debtor.
PRIOR TO SIGNING THIS REVOLVING NOTE, DEBTOR READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS REVOLVING NOTE, INCLUDING THE VARIABLE INTEREST RATE
PROVISIONS. DEBTOR AGREES TO THE TERMS OF THE REVOLVING NOTE AND ACKNOWLEDGES
RECEIPT OF A COMPLETED COPY OF THIS REVOLVING NOTE.
DEBTOR:
EVERGREEN RESOURCES, INC.
By: /s/ Mark S. Sexton
----------------------------------
Name: MARK S. SEXTON
Title: President and CEO
<PAGE>
Contract No. 33161000
Firm Transportation Service Agreement
Rate Schedule TF-1
between
COLORADO INTERSTATE GAS COMPANY
and
PRIMERO GAS MARKETING COMPANY
Dated: AUGUST 22, 1997
<PAGE>
FIRM TRANSPORTATION SERVICE AGREEMENT
RATE SCHEDULE TF-1
- -------------------------------------------------------------------------------
The Parties identified below, in consideration of their mutual promises,
agree as follows:
1. TRANSPORTER: COLORADO INTERSTATE GAS COMPANY
2. SHIPPER: PRIMERO GAS MARKETING COMPANY
3. APPLICABLE TARIFF: Transporter's FERC Gas Tariff, First Revised Volume No.
1, as the same may be amended or superseded from time to time ("the
Tariff").
4. CHANGES IN RATES AND TENNS: 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.
5. TRANSPORTATION SERVICE: Transportation Service at and between Primary
Point(s) of Receipt and Primary Point(s) of Delivery shall be on a firm
basis. Receipt and Delivery of quantities at Secondary Point(s) of Receipt
and/or Secondary Point(s) of Delivery shall be in accordance with the
Tariff.
6. POINTS OF RECEIPT AND DELIVERY: Shipper agrees to Tender gas for
Transportation Service, and Transporter agrees to accept Receipt Quantities
at the Primary Point(s) of Receipt identified in Exhibit "A." Transporter
agrees to provide Transportation Service and Deliver gas to Shipper (or for
Shipper's account) at the Primary Point(s) of Delivery identified in
Exhibit "A."
7. RATES AND SURCHARGES: As set forth in Exhibit "B."
8. MAXIMUM DELIVERY QUANTITY ("MDQ"): Campo Lateral In-Service Date("CLIS"):
0 to 5 months after CLIS - 25,000
6 to 12 months after CLIS - 30,000
12 to 17 months after CLIS - 35,000
18-plus months after CLIS - 41,000
9. TERM OF AGREEMENT: Beginning: In-service date of the Campo Lateral.
Ending: 15 years from the in-service date of the Campo
Lateral.
10. NOTICES, STATEMENTS, AND BILLS:
TO SHIPPER:
INVOICES FOR TRANSPORTATION: ALL NOTICES:
Primero Gas Marketing Company Primero Gas Marketing Company
1512 Larimer Street 1512 Larimer Street
Denver, CO 80202 Denver, CO 80202
Attention: Mark Sexton Attention: Mark Sexton
TO TRANSPORTER:
See Payments, Notices, Nominations, and Points of Contact sheets in
the Tariff.
<PAGE>
11. SUPERSEDES AND CANCELS PRIOR AGREEMENT: None.
12. ADJUSTMENT TO RATE SCHEDULE TF-1 AND/OR GENERAL TERMS AND CONDITIONS: None.
13. INCORPORATION BY REFERENCE: This Agreement in all respects shall be subject
to the provisions of Rate Schedule TF-1 and to the applicable provisions of
the General Terms and Conditions of the Tariff as filed with, and made
effective by, the FERC as same may change from time to time (and as they
may be amended pursuant to Section 12 of the Agreement).
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
TRANSPORTER: SHIPPER:
COLORADO INTERSTATE GAS COMPANY PRIMERO GAS MARKETING COMPANY
By /s/ Thomas L. Price By
------------------------------ -------------------------------
Thomas L. Price
Vice President
----------------------------------
[STAMP] (Print or type name)
----------------------------------
(Print or type title)
2
<PAGE>
EXHIBIT "A"
Firm Transportation Service Agreement
between
COLORADO INTERSTATE GAS COMPANY
and
PRIMERO GAS MARKETING COMPANY
Dated: AUGUST 22, 1997
1. Shipper's Maximum Delivery Quantity ("MDQ"): SEE PARAGRAPH 8, MAXIMUM
DELIVERY QUANTITY.
<TABLE>
<CAPTION>
PRIMARY POINT(S) OF
RECEIPT QUANTITY MAXIMUM RECEIPT
PRIMARY POINT(S) OF RECEIPT (DTH PER DAY) PRESSURE
(NOTE 1) (NOTE 2) P.S.I.G.
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C>
Burro Canyon See Paragraph 8 Transporter's
MAOP
PRIMARY POINT(S) OF MAXIMUM DELIVERY
PRIMARY POINT(S) OF DELIVERY DELIVERY QUANTITY PRESSURE
(NOTE 1) (DTH PER DAY) P.S.I.G.
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Dumas See Paragraph 8 650
</TABLE>
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"
Firm Transportation Service Agreement
between
COLORADO INTERSTATE GAS COMPANY
and
PRIMERO GAS MARKETING COMPANY
Dated: AUGUST 22, 1997
<TABLE>
<CAPTION>
PRIMARY PRIMARY R1
POINT(S) OF POINT(S) OF RESERVATION COMMODITY FUEL
RECEIPT DELIVERY RATE RATE TERM OF RATE REIMBURSEMENT SURCHARGES
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Burro Dumas (Notes 1 (Note 1) 15 years (Note 2) (Note 3)
Canyon and 5) from in-
service
date of the
Campo
Lateral
<CAPTION>
SECONDARY SECONDARY R1
POINT(S) OF POINT(S) OF RESERVATION COMMODITY FUEL
RECEIPT DELIVERY RATE RATE TERM OF RATE REIMBURSEMENT SURCHARGES
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
All All (Notes 4 (Note 4) 15 years (Note 2) (Note 3)
and 5) from in-
service date
of the
Campo
Lateral
</TABLE>
NOTES: (1) The total rate for service payable by Shipper shall be $0.2877
per Dth when computed on a 100% load factor basis and is
exclusive of ACA, Fuel Reimbursement and other applicable
surcharges.
(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.
<PAGE>
Page 2 of 2
EXHIBIT "B"
NOTES: (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.
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 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) 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-l or other superseding Rate
Schedules, as such rates may be changed from time to time.
(5) 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.
<PAGE>
PARTICIPATION AGREEMENT
This Participation Agreement is made and entered into the 1st. day of April
1996, by and between EVERGREEN RESOURCES, INC. (EVERGREEN), a corporation
organised under the laws of the State of Colorado of the United States of
America and EMPRESA NACIONAL DEL PETROLEO ("ENAP"), a Chilean State owned
company, hereinafter referred to individually as "Party" or collectively as
"Parties".
WITNESSETH:
WHEREAS, on December 7th, 1995, EVERGREEN and ENAP submitted to the Minister of
Mining of the State of Chile a proposal for the exploration and exploitation of
Hydrocarbons in the Areas of the Tamarugal Basin of Chile, shown as Blocks 1 and
2 on the attached Exhibit "1".
WHEREAS, by letter dated January 19, 1996 the Minister of Mining advised the
Parties that EVERGREEN and ENAP were selected to negotiate a Special Petroleum
Operation Contract to conduct Petroleum Operations within the areas outlined in
Exhibit "1" located in the Tamarugal Basin.
WHEREAS, the Parties desire to set forth their agreement with respect to certain
aspects of their joint participation in exploration until such time as a Joint
Operating Agreement between them can be negotiated and executed and in which
EVERGREEN will be appointed the initial operator.
NOW THEREFORE, in consideration of the mutual covenants and obligations
contained in this Agreement, subject to such approvals as may be required by the
Chilean governmental authorities, the Parties agree as follows:
1
<PAGE>
1. PURPOSE.
The Parties shall:
(a) negotiate Special Petroleum Operation Contracts ("SPOC") with the
Ministry of Mining of the State of Chile for the Areas of Tamarugal
Sur and Tamarugal Norte of Chile; and
(b) negotiate a Joint Operating Agreement ("JOA") between them
providing for all Petroleum Operations under both Special Operation
Contracts.
2. PARTICIPATING INTEREST
Subject to the interest of the State of Chile pursuant to the SPOCS,
each Party as of the date hereof shall own an undivided interest
(hereinafter referred to as "Participating Interest") in the rights and
obligations under this Participation Agreement as follows:
ENAP: 25 PERCENT
EVERGREEN: 75 PERCENT
3. MANAGEMENT COMMITTEE.
3.1 A Management Committee composed of the representatives of the
Parties shall be established as of the execution date of the SPOCS,
or before should the Parties so decide.
The names of each Party's representative are as follows:
PARTY REPRESENTATIVE ALTERNATE
----- -------------- ---------
ENAP Mr. Bernardo Bergman ----
2
<PAGE>
EVERGREEN Mr. Mark S. Sexton and Mr. Dennis R. Carlton
3.2 The Representative of each Party is authorized and empowered to
bind such Party with respect to any matter for which the Management
Committee has responsibility. The Representative of a Party may be
replaced at any time by such Party by written notice to all other
Parties.
3.3 The Chairman of the Management Committee shall be a representative
of the Operator.
3.4 The Management Committee shall be responsible for and shall have
authority to decide all matters under and pursuant to this
Agreement, with the exception given to routine operational matters.
3.5 The Operator may at any time, and shall upon the request of any
Representative, call a meeting of the Management Committee to
consider any matter pertinent to the Committee. Notice of the date,
time, place, and agenda of such meeting shall be given to each
Representative. The Chairman shall endeavor to give as much advance
notice as possible, but notice shall be timely if given at least
ten (10) days prior to the time of said meeting. Only matters set
forth in the notice of the meeting may be decided by the Management
Committee unless unanimously agreed otherwise by the
Representatives of all Parties.
Unless otherwise agreed by the Parties, meetings of the Management
Committee will be held in Santiago, Chile.
3.6 A vote may also be taken without a meeting of the Management
Committee by written instrument or fax with written confirmation.
It is agreed, however, that no vote without a meeting shall be
valid unless all Representatives are given at least forty-eight
(48) hours prior notice (excluding Saturdays,
3
<PAGE>
Sundays and legal holidays observed in the office of the recipient)
of the matters to be decided, unless all Representatives shall
waive such notice requirement.
Any vote by written instrument or fax with written confirmation
shall be directed to the Chairman of the Management Committee with
copies to all Representatives. In the event a vote is taken without
a meeting, and the Chairman of the Management Committee has not
received a written notice or fax of the vote of a Party within the
time specified for the vote in said notice, that Party shall be
deemed to have cast a vote against the matter being voted upon.
3.7 Each Representative shall be entitled to vote at meetings of the
Management Committee in accordance with the Participating Interest
of the Party which that person represents. Unless otherwise
provided for in this Agreement, a decision of the Management
Committee shall require the vote of the Representatives of two or
more Parties having an aggregate Participating Interest of more
than seventy five percent (75%) (hereinafter referred to as
"Determination"). A Determination by the Management Committee shall
bind all Parties.
4. OPERATOR
Subject to the direction of the Management Committee and on behalf of
the Parties, EVERGREEN is designated as Operator. It is the intention of
EVERGREEN to make its best efforts to employ duly qualified personnel of
ENAP for the development and execution of the exploitation work
programs.
Operator shall coordinate the evaluation and interpretation of any data
by the Parties, and direct Petroleum Operations under the SPOC. Each
Party to this Agreement is
4
<PAGE>
entitled, as it deems appropriate for the purpose of obtaining relevant
information to attend all meetings arranged with the Minister of Mining.
Operator shall be the spokesman for the Parties at such meetings.
Operator shall provide notice to the Parties at least ten (10) days
prior to the date of any such meeting.
5. JOINT OPERATING AGREEMENT.
5.1 The Parties agree that as soon as reasonably possible but not later
than 60 days after the effective date of the SPOC, they shall
endeavor to negotiate, settle, and execute a mutually acceptable
JOA containing provisions customary in the petroleum industry for
international operations and which shall govern the relationship of
the Parties. In the event the Parties mutually decide, an extension
of time shall be permitted to continue the negotiations of the JOA.
The JOA shall designate EVERGREEN as the initial Operator.
The JOA shall come into effect as of the effective date of the SPOC
and shall provide, among other things, (a) that all Determinations
made by the Operating Committee shall require the affirmative vote
of two or more Parties having more than seventy five (75%) of the
voting interest, (b) liability and property insurance coverage for
the Joint Account, (c) the right of either Party to assign all or
part of its Participating Interest with the consent of the other
Party, which consent shall not be unreasonably withheld (subject to
necessary consents of the government of Chile), provided that
neither the assigned interest nor the retained interest shall be
less than ten percent (10%), (e) overhead charges in accordance to
the provisions to be agreed by the Parties in the JOA. Overhead
shall be deemed to cover the actual cost (being salaries, wages,
burden and benefits paid by Operator and/or its Affiliates in
accordance with its standard personnel policy in force and the
5
<PAGE>
provision of office accommodation and services reasonably necessary
for operating and maintaining offices) incurred for services
rendered by Operator and/or its affiliates for treasury, payroll,
taxation, insurance, communications, accounting, personnel,
executive and administrative management, and research and
development which could not, without unreasonable effort, be
charged directly, and which are allocable to operations. It is
agreed, however, that services performed by the above listed
departments and other departments which are directly referable to
operations shall be charged as direct costs. The overhead rates
applicable to the Exploitation Stage relating to the first field
declared to be a Commercially Exploitable Field shall be agreed
between the Parties within 40 days as of such declaration.
5.2 It is understood that pursuant to the SPOC the Exploration Stage
may be in effect simultaneously with one or more Exploitation
Stages. In such event the overhead rates applicable to the
Exploration Stage shall remain in effect as to Exploration
Operations and the overhead rates to be agreed upon pursuant to
Section 5.1 above shall be applicable to Exploitation Operations.
6. COSTS.
6.1 All costs and expenses incurred under this Agreement or the SPOC
shall be charged to the Joint Account in accordance with Exhibit
"A" and each Party shall bear and pay its Participating Interest
share of all approved Joint Account costs.
6.2 Costs to the Joint Account shall include, but not be limited to (a)
any acquisition or reproduction costs of the data, (b) the salaries
and benefits of the personnel of Operator and/or its Affiliates,
directly engaged in performing Petroleum Operations, in accordance
with the approved workman budget (e)
6
<PAGE>
third party invoices, (d) overhead charges of Operator, (e) the
actual travel and living expenses of those employees in the
performance of Petroleum Operations when away from their regular
locations of employment, and (f) other costs, expenses, or charges
incurred in Petroleum Operations, previously approved by the
Parties.
Joint Account charges shall be shared by the Parties in proportion
to their Participating Interest and each Party shall pay within
fifteen (15) days of receipt of Operator's invoice, in accordance
with instructions on the invoice, its respective share of such
charges. Alternatively, Operator may cash call Non-Operator(s),
upon fifteen (15) days notice, the anticipated cash requirements
for the next succeeding calendar month, which cash call shall be
due and payable on the first day of such succeeding calendar month.
6.3 Costs and expenses, credits, invoices, cash calls, and audit
procedures relating to the Joint Account shall be handled in
accordance with the Accounting Procedure attached hereto as Exhibit
"A".
7. OPERATIONAL MATTERS.
7.1 The Operator shall act for and on behalf of Contractor under the
SPOC. The Operator shall have charge of and shall conduct all
Petroleum Operations in a proper, workmanlike manner in accordance
with standard international petroleum industry practice. All such
operations shall be conducted by Operator or by its duly authorized
agents or independent contractors. Adequate bidding procedures will
be agreed.
7.2 Operator shall not be liable for any loss or damage unless such
loss or damage results from the willful misconduct or gross
negligence of Operator's corporate officers or permanent, salaried
employees having overall
7
<PAGE>
supervision and control of operations. For the purpose hereof, the
term "permanent, salaried employees having overall supervision and
control of operations" shall mean those persons who, according to
the international petroleum industry practice, should be charged
with prescribing adequate controls and safety measures for the
Petroleum Operations being conducted, and who have direct line
responsibility for such Petroleum Operations.
7.3 In no case shall Operator be liable to any Party for such Party's
consequential loss or damage, including but not limited to lost
production or profits.
8. NEGOTIATIONS
During any negotiations with the Ministry of Mining with regard to SPOC
terms and conditions, each Party may have representatives who shall be
permitted to participate in such negotiations. However, the
representative of the Operator shall be the primary negotiator for the
Parties. All terms and conditions of the SPOC and any modification or
amendment thereof, including decisions to accept or reject conditions or
changes imposed or suggested by Ministry authorities, shall be
determined by the unanimous vote of the Parties.
9. NOTICES.
9.1 Any notice or advise permitted or required to be given by any Party
to another Party shall be in writing and sent by personal delivery,
or fax with written confirmation, further, telephone meetings shall
also require written confirmation, to the following addresses:
8
<PAGE>
IF TO BE GIVEN TO ENAP:
Empresa Nacional del Petroleo
Ahumada 341, Piso 6
Santiago, Chile
ATTN.: Mr. Bernardo Bergman B.
Fax: 56-2-6380164
Telephone in Santiago: 56-2-6383726
Telephone in Punta Arenas: 56-61-221150
IF TO BE GIVEN TO EVERGREEN:
EVERGREEN RESOURCES, INC.
1512 larimer St., suite 1000
Denver, CO. 80202-1625
ATTN.: Mr. Mark Sexton or Dennis R. Carlton
Telephone: 1 303 534 0400
FAX NO.: 1 303 534 0408 or
1 303 534 0420
9.2 If a notice is served by fax, it shall be deemed to have been
received by the addressee thereof when acknowledged received. If a
notice is delivered by hand, it shall be deemed delivered and
received at the time of delivery at the address for notices
receipted by an employee of that address.
9.3 The address or telefax number of each of the Parties specified
above may be changed for any and all purposes of this Agreement by
ten (10) days advance written notification from the Party changing
its address or telefax number to the other Party.
9
<PAGE>
10. CONFIDENTIAL INFORMATION.
The Parties agree that all information and data acquired or obtained by
them in respect of matters covered by this Agreement shall be considered
confidential and shall not be disclosed to any third Party without the
prior written consent of all other Parties, which consent will not be
unreasonably withheld, provided, that such information or data may be
disclosed:
(a) to an Affiliate of a Party provided that such Affiliate shall agree
to be bound to the confidentiality provisions of this Section 10;
and
(b) as and to the extent required:
(i) by law; or
(ii) by the rules and regulations of any stock exchange upon
which the shares or other securities of a Party are listed
or in connection with an application to any stock exchange
for listing for any such shares or other securities.
At such time as the JOA becomes effective, the confidentiality
provisions of such agreement shall control. In the event that no JOA
becomes effective, the confidentiality provisions of this Agreement
shall remain in force so long as the SPOC remains in force. Should the
SPOC never become effective this confidentiality provision shall remain
in force for two (2) years.
11. ASSIGNMENT.
A Party shall not have the right to assign its interest in this
Participation Agreement to any party other than a technically and
financially competent Affiliate, without the consent of all Parties,
which consent will not be unreasonably withheld.
For purposes of this Agreement, "Affiliate" shall mean:
10
<PAGE>
(a) a company who owns directly or indirectly more than fifty (50%)
percent of the issued and outstanding voting stock of a Party;
(b) any company which a Party owns directly or indirectly more than
fifty (50%) percent of the issued and outstanding voting stock; and
(c) any company which the company described in (b) above owns directly
or indirectly more than fifty (50%) percent of the issued and
outstanding voting stock.
12. TERMINATION OF AGREEMENT
12.1 This Agreement shall become effective on the date first above
written and shall terminate in any of the following instances:
(a) Upon the termination of the SPOC.
(b) Upon the mutual written agreement of EVERGREEN and ENAP.
(c) Upon the effective date of the JOA as provided in Section 5
hereof.
(d) If the JOA has not been agreed to by the Parties in
accordance with section 5, or such agreement has not
received the approval and consent required by the Chilean
governmental authorities including the Banco Central de
Chile 90 days after its execution date.
(e) If the Parties are unable to reach a satisfactory agreement
with the State of Chile as to the terms and conditions of
the SPOC within a period of one year as from the execution
of this Agreement.
12.2 If either Party fails to make any payments required hereunder, and
such failure continues for a period of sixty (60) days after notice
thereof to the Party failing to make such payment, the other Party
may elect to terminate this Agreement and the Party failing to make
such payment shall forfeit its rights and interests in and under
this Agreement and the SPOC to the other Party.
11
<PAGE>
12.3 The termination of this Agreement shall be without prejudice to any
rights or causes of action which accrued prior to such termination,
and the provisions of Sections 10,12.2 and 13 and the provisions of
the Accounting Procedure shall survive the termination of this
Agreement.
13. FORCE MAJEURE.
13.1 The obligations of each Party under this Participation Agreement
shall be excused while and to the extent that such Party is
prevented from performing such obligations, in whole or in part, by
"Force Majeure", which, as used in this Agreement, means, without
limitation, strikes, labor and civil disturbances, acts of God,
laws, rules, regulations or orders of any government having at any
time de facto or de jure control over such Party or the SPOC, acts
of war or conditions arising out of or attributable to war, whether
declared or undeclared, unavoidable shortage of essential
equipment, materials or labor, including restrictions or
limitations upon the use thereof, unavoidable delays in
transportation or communication, adverse weather conditions, fire
or any other circumstances beyond the reasonable control of such
Party. In the event of Force Majeure, the affected Party shall give
notice in writing to the other Party hereto as soon as reasonably
possible, stating in such notice the date when the event of Force
Majeure occurred, reasonable details of the nature thereof, and the
expected extent and duration thereof. The Party whose obligations
have been excused because of Force Majeure shall resume performance
of said obligations as soon as reasonably possible after the event
of Force Majeure has ended and shall forthwith notify the other
Party, except this obligation shall not require a Party to settle
any labor dispute.
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13.2 The date and time periods for the performance of obligations under
this Participation Agreement shall be extended as to any Party for
the period such Party's performance of such obligations is excused
by Force Majeure.
13.3 The provisions of this Article shall not excuse the obligation of
any Party to pay money or fulfill any financial obligation under
this Participation Agreement.
14. ARBITRATION AND APPLICABLE LAW. UNDER REVISION
14.1 All disputes arising in connection with this Agreement shall be
finally settled under the Rules of Conciliation and Arbitration of
the International Chamber of Commerce by three (3) arbitrators
subject to the rules provided therein and appointed pursuant to the
procedure established in section 14.2 below.
14.2 If any Party desires to submit a dispute to arbitration, that Party
shall give notice to the other Party(ies) and shall name its
arbitrator in such notice. The other Party(ies) shall name its
arbitrator within fifteen (15) days of the date of such notice.
The two arbitrators thus appointed shall name a third arbitrator
within fifteen (15) days after the second arbitrator is appointed.
If any Party fails to nominate an arbitrator, or if the two
arbitrators cannot agree on a third arbitrator, the President of
the Chamber of Commerce shall appoint the arbitrator(s). The
arbitrators shall have no pecuniary or other interest in any Party
or in the subject matter of the arbitrator.
14.3 The arbitration shall be held in Santiago, Chile, and in the
Spanish language, with simultaneous translation into English where
practicable. However, documents originally written in English,
shall be accepted in such language.
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14.4 When the generally accepted principles of the international oil
industry are relevants for the settlement of a dispute, the
arbitrators shall request the opinion of internationally recognized
experts in the matter.
14.5 Judgment upon the award may be entered in any court having
jurisdiction over the party against which enforcement of the
judgement is sought, or application may be made to such court for
judicial acceptance and enforcement of the award.
14.6 This Participation Agreement shall be governed by and construed in
accordance with the terms hereof and the laws of Chile. However, in
the absence of applicable Chilean laws, the general principles of
law internationally used and accepted (including those which may
have been used by international tribunal) shall be applicable. In
such arbitration procedure, the arbitrators shall rule at law.
15. MISCELLANEOUS
15.1 This Participation Agreement may not be altered or amended except
in writing and signed by all the Parties.
15.2 This Participation Agreement shall be binding upon the Parties,
their successors and assigns.
15.3 Headings used in this Participation Agreement are for convenience
only and shall neither affect nor be used in the construction of
this Agreement.
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<PAGE>
IN WITNESS WHEREOF, all of the Parties hereto have executed this agreement in
Santiago de Chile this the ... 1996.-
EMPRESA NACIONAL DEL PETROLEO
/s/ Alvaro Garcia A.
- -------------------------------
BY: Alvaro Garcia A.
TITLE: General Manager
EVERGREEN RESOURCES, INC.
/s/ Mark S. Sexton
- ------------------------------
BY: Mark S. Sexton
TITLE: President
15
<PAGE>
E X H I B I T "A"
ACCOUNTING PROCEDURE
The purpose of this Accounting Procedure is to set forth equitable
principles for determining Joint Account charges and credits incurred and
for determining relevant advances to be made by the Non-Operator(s) while
the Parties are conducting Petroleum Operations under the SPOC pursuant to
this Participation Agreement. In the event of a conflict between the
provisions of this Accounting Procedure and any other provision of this
Participation Agreement, the latter shall control.
1. STATEMENTS, INVOICES AND ADJUSTMENTS.
1.01 Operator shall invoice Non-Operator(s) on or before the last
day of each month for Non-Operator(s)' share of all Joint
Account expenditures for the preceding month. Such invoices
shall be accompanied by statements of all charges and credits,
summarized by accounting classifications in accordance with
generally accepted accounting principles in Chile and all
chilean statutory and legal requirements. Such statement shall
be indicative of the nature of the charges or credits, and
Operator, upon request of any Party, shall furnish a
description of the accounting classifications.
1.02 Operator shall, in accordance with accounting practices
generally accepted in the international petroleum industry,
keep accurate records of and furnish the Parties with:
16
<PAGE>
(a) monthly statements showing costs incurred by the
Operator under this Agreement;
(b) application of funds provided by the Parties to satisfy
such costs and expenditures;
(c) other statements that may be required and agreed by the
Parties.
For the purposes of this Agreement, the above records and
statements will be maintained in chilean pesos and in the
spanish language. Operator will also keep the account in U.S.
Dollars as an aid to Non-Operators in their accounting duties.
1.03 In the conversion of currencies for the purpose of currency
transactions with respect to operations under this
Participation Agreement, it is intended that the Operator
shall not experience an exchange gain or loss at the expense
of, or to the benefit of, the Non-Operator(s). Operator shall
furnish Non-Operator(s) sufficient currency exchange data to
enable it to translate the invoices to the currency of their
accounts.
1.04 Payment of an invoice shall not prejudice the right of
Non-Operator(s) to protest or question the correctness
thereof; however, all invoices and statements rendered to
Non-Operator(s) during a Calendar Year shall be conclusively
presumed to be true and correct twenty-four (24) months after
the end of such Calendar Year, unless within said twenty-four
(24) months Non-Operator(s) has notified Operator of its
disagreement and made a claim for adjustment. No adjustment
favorable to any Party shall be made unless it is made within
the same prescribed period.
17
<PAGE>
2. AUDITS.
2.01 Non-Operator(s), upon at least sixty (60) days advance written
notice to Operator, shall have the right at its sole expense
to audit Operator's records relating to Petroleum Operations
for any Calendar Year or portion thereof within the
twenty-four (24) months following the end of such Calendar
Year.
2.02 Audit rights granted under Clause 2.01 shall neither enlarge
or reduce the periods provided in Clause 1.04 concerning the
matters referred to therein.
3. ADVANCES AND PAYMENTS.
3.01 Upon Operator's request, Non-Operator(s) shall advance to
Operator the Non-Operator(s) share of the cash requirements
for the next succeeding calendar month's operations as
estimated monthly by Operator. Operator shall make written
request to Non-Operator(s) at least fifteen (15) days prior to
the date by which Non-Operator(s) is to make such advances.
The date for payment of such advances shall be set by
Operator, but shall be no sooner than the first day of the
month with respect to which the advances are required. Cash
requirements shall be specified by the Operator in the
currency(ies) required for the operations and Non-Operator(s)
shall advance its share in the currency(ies) as specified.
3.02 Should it be necessary to make any large payments on behalf of
the Parties in connection with operations hereunder, which
payments were unforeseen at the time of Operator's monthly
estimate of its requirements, Operator may request a special
advance to cover such payments. Non-Operator(s) shall make
such advance within fifteen (15) days after receipt of the
request.
3.03 If Non-Operator(s)'s advances are less than actual
expenditures, the deficiency shall, at Operator's option, be
added to subsequent cash advance
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<PAGE>
requirements or paid by Non-Operator(s) within fifteen (15)
days following receipt of invoice therefore.
If Non-Operator(s)'s advances exceed its share of actual
expenditures, the next succeeding cash advance requirements,
after such determination, shall be reduced accordingly.
However, Non-Operator(s) may request that excess advances be
refunded. The Operator shall make such refund in same currency
as that advanced within fifteen (15) days after receipt of
Non-Operator(s)' request.
3.04 Payments of advances or invoices to Operator and refunds to
Non-Operator(s) shall be made on or before the due date, and
if not so paid, the unpaid balance as expressed in U.S.
Dollars shall bear interest after the due date until paid in
U.S. Dollars with an annual charge rate of a maximum of 1.75%
over the Prime Rate then being quoted by Chase Manhattan Bank,
N.A. of New York, or the highest interest rate allowed by law,
whichever is the lesser. Advances denominated in currencies
other than U.S. Dollars that are paid after the due date will
be converted into U.S. Dollars at the exchange rate (to
purchase U.S. dollars) prevailing on the respective due dates
as quoted by the Chase Manhattan Bank, N.A. in New York.
3.05 All cash calls in US Dollars shall be made by wire transfer to
EVERGREEN'S account as follows: NORWEST BANK DENVER, N.A.
ABA NO. 102000076
Account No. 101 8055499
EVERGREEN RESOURCES, INC.
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S T A T U T O R Y I N S T R U M E N T S
- --------------------------------------------------------------------------------
1995 NO. 1434
PETROLEUM
THE HYDROCARBONS LICENSING DIRECTIVE REGULATIONS 1995
MADE - - - - 25TH MAY 1995
LAID BEFORE PARLIAMENT 6TH JUNE 1995
COMING INTO FORCE 30TH JUNE 1995
The Secretary of State, being a Minister designated(a) for the purpose of
section 2(2) of the European Communities Act 1972(b) in relation to matters
relating to the conditions for granting and using authorisations for the
prospection, exploration and production of hydrocarbons, hereby makes the
following Regulations.
COMMENCEMENT AND CITATION
1.--(1) These Regulations may be cited as the Hydrocarbons Licensing Directive
Regulations and shall come into force on 30th June 1995.
(2) These Regulations do not extend to Northern Ireland.
INTERPRETATION
2. In these Regulations--
"1934 Act Regulations" means any regulations made under section 6 of the
Petroleum (Production) Act 1934(c) currently in force;
"applicant" means an entity which has lodged an application for a licence;
"application for a licence" means an application made under 1934 Act
Regulations; "E.C. Treaty" means the Treaty establishing the European
Community, signed at Rome on the 25th March 1957;
"entity" means any natural or legal person or any group of such persons;
"licence" means a licence granted following an application for a licence.
DETERMINATION OF APPLICATIONS
3.--(1) Subject to paragraphs (2) to (4) below, every application for a
licence shall be determined on the basis of criteria concerning--
(a) the technical and financial capability of the applicant;
(b) the way in which the applicant proposes to carry out the activities
that would be permitted by the licence;
(c) in a case where tenders are invited, the price the applicant is
prepared to pay in order to obtain the licence; and
(d) where the applicant holds, or has held a licence of any description
under the Petroleum (Production) Act 1934, any lack of efficiency and
responsibility displayed by the applicant in operations under that
licence,
and the Secretary of State may refuse an application for a licence.
(2) In a case where two or more applications for a licence have equal merit
when assessed according to the criteria provided for in paragraph (1) above,
other relevant criteria may be applied in order to determine which application
should be granted.
- --------------------------------------------------------------------------------
(a) S.I. 1994/1327.
(b) 1972 c. 68.
(c) 1934 c. 36; section 1(2) was amended by section 19(1) of the Petroleum Act
1987 (c. 12); section 6 was extended by section 1(3) of the Continental Shelf
Act 1964 (c. 29).
<PAGE>
(3) Subject to paragraph (4) below, the Secretary of State shall not apply
any of the criteria in paragraphs (1) and (2) above in a discriminatory manner.
(4) An application for a licence may be refused on grounds of national
security where the applicant is effectively controlled by, or by nationals of, a
State other than a member State.
(5) Where an application for a licence is refused, the reasons for the
decision shall be notified to the applicant on request.
SCOPE AND APPLICATION OF TERMS AND CONDITIONS
4.--(1) No licence shall be granted upon terms and conditions other than such
terms and conditions as are justified exclusively for the purpose of--
(a) ensuring the proper performance of the activities permitted by the
licence;
(b) providing for the payment of consideration for the grant of the
licence;
(c) any of the considerations specified in paragraph (2) below.
(2) The considerations referred to in paragraph (1)(c) above are--
(a) national security;
(b) public safety;
(c) public health;
(d) security of transport;
(e) protection of the environment;
(f) protection of biological resources and of national treasures
possessing artistic, historic or archaeological value;
(g) safety of installations and of workers;
(h) planned management of hydrocarbon resources, including in particular
the rate at which hydrocarbons are depleted and the optimisation of
their recovery;
(i) the need to secure tax revenues.
(3) The terms and conditions provided for in paragraphs (1) and (2) above
shall be applied in a non-discriminatory manner.
ADVANCE NOTICE OF TERMS AND CONDITIONS
5.--(1) Any notice which, in accordance with 1934 Act Regulations--
(a) invites applications for licences; and
(b) is published in the Official Journal
shall set out the criteria to be applied in determining those applications.
(2) In any case where the Secretary of State invites applications for a
licence in accordance with 1934 Act Regulations and it is intended that the
licence should be granted upon terms or conditions which differ from or are
additional to those prescribed in those Regulations for incorporation in
licences of the relevant kind, a statement of such terms and conditions shall be
made available to any interested person at any time on request.
(3) If any change to the terms and conditions included in the statement
provided for in paragraph (1) above is decided upon after the statement is first
made available and before the licence to which it relates is granted, the change
shall be notified as soon as practicable to every person who has requested the
statement.
DURATION OF THE LICENCE
6.--(1) Subject to paragraph (2) below, the Secretary of State shall ensure
that--
(a) a licence only grants an entity exclusive rights for the period which
is necessary for the proper performance of the activities authorised
by the licence; and
(b) the duration of the licence does not exceed the period necessary to
carry out the activities authorised by the licence.
(2) The Secretary of State may extend the term of a licence if--
(a) the terms and conditions of the licence permit an extension of the
term;
2
<PAGE>
(b) the licensee has performed its obligations in accordance with the
terms and conditions of the licence; and
(c) the term of the licence has proved, or is likely to prove,
insufficient for the licensee to complete the activities authorised by
the licence.
INFORMATION
7.--(1) The Secretary of State may only require an entity which has been
granted a licence to provide information on its intended or actual sources of
procurement of supplies, works or services if that request is made exclusively
with a view to the objectives set out in Article 36 of the E.C. Treaty.
(2) The Secretary of State may only request information from an entity which
has been granted a licence to monitor the activities of that entity if that
monitoring is justified by any of the considerations specified in paragraph (1)
and (2) of regulation 4 above.
TIM EGGAR
Minister for Industry and Energy
25th May 1995 Department of Trade and Industry
3
<PAGE>
EXPLANATORY NOTE
(THIS NOTE IS NOT PART OF THE REGULATIONS)
These Regulations which come into force on 30th June 1995 are supplemental to
regulations made under section 6 of the Petroleum (Production) Act 1934 ("the
1934 Act"). These Regulations give effect to Articles 2 (other than paragraph
1), 3 (other than paragraphs 1 to 5), 4 (other than paragraph (a)), 5 and 6 of
Council Directive (94/22/EEC) on the conditions for granting and using
authorisations for the prospection, exploration and production of hydrocarbons
("the Directive") (O.J. L164, 30.6.94, p.3). The Directive is further
implemented by the Petroleum (Production) (Landward Areas) regulations 1995
(S.I. 1995/1436) and the Petroleum (Production) (Seaward Areas) (Amendment)
Regulations 1995 (S.I. 1995/1435).
The Regulations restrict the criteria which the Secretary of State may take
into account when considering an application for a licence made in accordance
with regulations made under the 1934 Act ("a licence"). The Regulations provide
that the criteria upon which applications are to be determined are to be
published, together with the notice inviting applications, in the Official
Journal. The Regulations provide that an application may be refused on the
grounds of national security if the applicant is effectively controlled by
nationals of a state which is not a member State but otherwise the criteria may
not be applied in a discriminatory manner. When an application is unsuccessful,
the applicant is to be notified on request of the reasons for the decision. The
Regulations limit the terms and conditions which may be imposed on the grant of
a licence and provide that such terms and conditions shall be applied in a
non-discriminatory manner.
The Regulations provide that where the Secretary of State has invited
applications for a licence he shall make available to interested parties the
terms and conditions upon which the licence will be granted. If a change is made
in those terms and conditions prior to the grant of the licence, the Secretary
of State is to issue details of that change to any person who has requested a
statement of terms and conditions.
The Regulations require the Secretary of State to limit the term of any
licence granted to the period necessary for the proper performance of the
activities authorised by the licence and restrict the circumstances in which the
Secretary of State may extend a licence. The Regulations also limit the
Secretary of State's powers to request information from a licensee and to
monitor the activities of the licensee.
<PAGE>
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S T A T U T O R Y I N S T R U M E N T S
- --------------------------------------------------------------------------------
1995 No. 1436
PETROLEUM
The Petroleum (Production) (Landward Areas)
Regulations 1995
MADE - - - - 25TH MAY 1995
LAID BEFORE PARLIAMENT 6TH JUNE 1995
COMING INTO FORCE 30TH JUNE 1995
The Secretary of State, in exercise of the powers conferred by section 6(1) of
the Petroleum (Production) Act 1934(a) and now vested in him(b) hereby makes the
following Regulations:-
CITATION AND COMMENCEMENT
1. These Regulations may be cited as the Petroleum (Production) (Landward
Areas) Regulations 1995 and shall come into force on 30th June 1995.
INTERPRETATION
2. In these Regulations, the following expressions have the meanings hereby
respectively assigned to them, that is to say-
"the Act" means the Petroleum (Production) Act 1934;
"blocks" has the meaning assigned thereto in regulation 7(2);
"landward areas" has the meaning assigned thereto in regulation 3 and
"seaward areas" (when used in Schedule 1 to these Regulations) means areas
on the seaward side of the lines there referred to;
"low water line" has the same meaning as it has in Schedule 1 to these
Regulations;
"methane drainage licence" means a licence to get natural gas in the course
of operations for making and keeping safe mines whether or not disused;
"Official Journal" means the Official Journal of the European Communities;
"petroleum exploration and development licence" means a licence granted
pursuant to these Regulations to search and bore for and get petroleum in a
landward area;
"principal licence" means a licence of any description under the Act other
than a methane drainage licence or a supplementary seismic survey licence;
"supplementary seismic survey licence" means a licence to search for
petroleum by undertaking seismic surveys in an area adjacent to an area to
which a principal licence relates; and
"work programme" means a scheme of prospecting including any geological
survey by any physical or chemical means and any test drilling.
APPLICATION OF THE REGULATIONS
3.--(1) These Regulations shall have effect in relation to applications for,
and (unless the Secretary of State thinks fit to modify or exclude them in any
particular case) the model clauses
- --------------------------------------------------------------------------------
(a) 1934 c. 36; section 1(2) was amended by section 19(1) of the Petroleum Act
1987 (c. 12); section 6 was extended by section 1(3) of the Continental
Shelf Act 1964 (c. 29).
(b) S.R. & O. 1942/1132; the Ministry of Fuel and Power Act 1945 (c. 19); S.I.
1969/1498, 1970/1537.
<PAGE>
to be prescribed for inclusion in, licences to search and bore for, and get,
petroleum in strata in the areas of Great Britain and beneath the waters
adjacent thereto which lie on the landward side of lines drawn in accordance
with the provisions of Schedule 1 to these Regulations (in these Regulations
referred to as "landward areas").
(2) The Petroleum (Production) (Landward Areas) Regulations 1991(a) shall
cease to have effect in relation to-
(a) applications made after the date of coming into force of these
Regulations for any licence in respect of a landward area; and
(b) the model clauses to be incorporated in any such licence to be granted
after the date of coming into force of these Regulations in pursuance
of an application lodged after that date.
(3) The Petroleum (Production) Regulations 1982(b) shall cease to have effect
in relation to-
(a) applications made after the date of coming into force of these
Regulations for a methane drainage licence; and
(b) the model clauses to be incorporated in any such licence to be granted
after the date of coming into force of these Regulations in pursuance
of an application lodged after that date.
APPLICANTS FOR LICENCES
4.--(1) Any person may apply in accordance with these Regulations for-
(a) a petroleum exploration and development licence in respect of a
landward area; or
(b) a methane drainage licence.
(2) A person who holds a principal licence may apply in accordance with these
Regulations for a supplementary seismic survey licence in respect of a landward
area contiguous to the area to which the principal licence relates.
APPLICATIONS FOR LICENCES
5.--(1) Every application for a licence shall-
(a) be made in writing and sent to Oil and Gas Division, Department of
Trade and Industry, London, SW1; and
(b) be accompanied by the appropriate fee.
(2) Every application for a licence which relates to an area bounded by any
of the lines specified in Schedule 1 to these Regulations shall be accompanied
by two copies of an Ordnance Survey map on a scale of 1:25,000, or such other
map or chart as the Secretary of State may allow, upon which the boundaries of
the area in relation to which the licence is sought are clearly defined.
(3) An application for a licence other than a petroleum exploration and
development licence may be made at any time.
APPLICATIONS FOR PETROLEUM EXPLORATION AND DEVELOPMENT LICENCES
6.--(1) An application for a petroleum exploration and development licence
shall include the information specified in Schedule 2 hereto, accompanied by
such evidence and particulars or documents in support thereof as are referred to
in that Schedule and are appropriate to that application.
(2) In respect of each applicant for a petroleum exploration and development
licence which is a body corporate there shall accompany the application two
copies of the most recent audited accounts of such applicant and two copies of
the most recent audited accounts of any body corporate having control of such
applicant.
- --------------------------------------------------------------------------------
(a) S.I. 1991/981.
(b) S.I. 1982/1000 to which there are amendments not relevant to these
Regulations.
2
<PAGE>
(3) Whether for the purposes of this paragraph a body corporate has control
of another body corporate shall be determined as if subsections (2) and (4) to
(6) of section 416 of the Income and Corporation Taxes Act 1988(a) applied
subject to the following modifications, namely-
(a) for the words "the greater part" wherever they occur in the said
subsection (2) there were substituted the words "one-third or more";
(b) in the said subsection (6), for the word "may", there were substituted
the word "shall", the words from "and such attributions" onwards were
omitted, and in the other provisions of the subsection any reference
to an associate of a person shall be construed as including only a
relative of his (as defined by section 417(4) of that Act), a partner
of his and a trustee of a settlement (as defined by section 681(4) of
that Act) of which he is a beneficiary.
(4) There shall also accompany the application a list of the bodies corporate
whose accounts are submitted pursuant to paragraph (2) above.
(5) Where the most recent audited accounts of a body corporate whose accounts
are required to accompany an application are in respect of a period ending on a
date more than twelve months before the date of the application, there shall
also accompany the application two copies of a balance sheet showing the state
of the body corporate's affairs as at the latest date within that twelve months
period in respect of which a balance sheet can be made available.
(6) In the case of each applicant who is not a body corporate there shall
accompany the application evidence demonstrating that he will have sufficient
resources available to him to undertake the work programme described in the
application.
(7) If any of the matters stated in an application or any further information
supplied by the applicant shall change after the application is made or after
the information is given but before a petroleum exploration and development
licence is granted or the Secretary of State informs the applicant that the
application is refused, the applicant shall forthwith give notice in writing to
the Secretary of State giving particulars of the change.
7.--(1) Subject to paragraph (5) below, every application for a petroleum
exploration and development licence shall relate to a block described in a
notice published in the Official Journal or to a number of contiguous blocks so
described.
(2) The notice referred to in paragraph (1) above shall describe, by
reference to a map deposited at the office of the Department of Trade and
Industry specified in the notice and at such other places (if any) as may be
specified in the notice, areas (in these Regulations referred to as "blocks") to
which reference numbers shall be assigned, in respect of which the Secretary of
State is prepared to receive applications for petroleum exploration and
development licences.
(3) Subject to paragraph (4) below, the notice shall provide for applications
relating to any of the blocks so described to be made and determined in
competition with others, specifying-
(a) a date before which any such applications are to be made, being a date
at least 90 days after the date on which the notice is published; and
(b) a date on which, or a period within which, licences will be granted to
successful applicants.
(4) In the case of any block in respect of which-
(a) provision for competing applications was made on a previous occasion
in a notice published in the Official Journal; and
(b) that provision did not result in the grant of a licence;
the notice may provide for applications to be made and determined at any time.
(5) Where the Secretary of State decides that geological or production
considerations justify the granting of a petroleum exploration and development
licence in respect of any area to the holder of a licence in respect of a
contiguous area, and notifies him and any other holders of licences in respect
of areas contiguous to the area in question accordingly, any of them
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(a) 1988 c. 1.
3
<PAGE>
may apply for a licence in respect of the area in question within whatever
period the Secretary of State considers sufficient for this purpose and
specifies in the notification.
APPLICATIONS FOR SUPPLEMENTARY SEISMIC SURVEY LICENCES
8.--(1) An application for a supplementary seismic survey licence shall relate
to a clearly defined area, no part of which is-
(a) subject to a principal licence;
(b) more than one kilometre from the boundary of the area to which a
principal licence held by the applicant relates; or
(c) below the low water line.
(2) Every such application shall be accompanied by two copies of a programme
in accordance with which the applicant proposes to undertake seismic surveys in
both the area to which the principal licence relates and the area to which the
supplementary seismic survey licence is to relate.
FORM OF LICENCES
9.--(1) Every licence shall incorporate the model clauses respectively
prescribed by the next following paragraph for the kind of licence to which that
licence belongs unless the Secretary of State thinks fit to modify or exclude,
in any particular case, the clauses so prescribed.
(2) The clauses prescribed for incorporation in licences of the following
kinds are those set out in the respective Schedules to these Regulations, that
is to say-
(a) for incorporation in petroleum exploration and development licences,
the clauses set out in Schedule 3;
(b) for incorporation in supplementary seismic survey licences, the clauses
set out in Schedule 4; and
(c) for incorporation in methane drainage licences, the clauses set out in
Schedule 5.
FEES
10.--(1) With every application for a petroleum exploration and development
licence there shall be paid a fee of L1,000.
(2) With every application for a supplementary seismic survey licence there
shall be paid a fee of L150.
(3) With every application for a methane drainage licence there shall be paid
a fee of L50.
PLURALITY OF LICENCES
11. Nothing in these Regulations shall prevent more than one application being
made by the same person or more than one petroleum exploration and development
licence being granted to him.
TIM EGGER,
Minister for Industry and Energy,
25th May 1995 Department of Trade and Industry
4
<PAGE>
SCHEDULE 1 Regulation 3
LINES DIVIDING LANDWARD AREAS FROM SEAWARD AREAS
1. Except as provided by the four next following paragraphs, the lines
dividing-
(a) the mainland of Great Britain and the islands adjacent thereto (other
than the Orkney and Shetland Islands) and the waters adjacent to the
mainland and such islands, to be treated for the purposes of these
Regulations as landward areas, from
(b) the islands and waters to be treated for such purposes as seaward areas,
shall be the low water line along the coast of the mainland of Great Britain,
the Isle of Wight, Anglesey and Holy Island.
2. The lines dividing landward areas from seaward areas at the estuaries,
rivers, harbours, bays and other places specified in the second column of Table
1 of this Schedule shall be straight lines drawn between the pairs of points
identified by the map references respectively specified in the third column of
that Table, each such point being a point situate on low water line on or
adjacent to the feature respectively named in the fourth column of that Table.
3. The lines dividing landward area from seaward areas between Cape Wrath and
the Mull of Kintyre shall be a series of straight lines drawn so as to join
successively, in the order in which they are there set out, the points
identified by the map references specified in the second column of Table 2 of
this Schedule, each such point being a point situate on low water line on or
adjacent to the feature, if any, named in the third column of that Table.
4. The lines dividing landward areas from seaward areas in the vicinity of
the Pentland Firth and the Orkney Islands shall be a straight line drawn from
the map reference point ND 310753, being a point situate on the low water
line on or adjacent to the feature known as St. John's Point, to the map
reference point ND 289809; thence a line running clockwise parallel with, and
three nautical miles seaward of, the baselines from which the breadth of the
territorial sea adjacent to the Orkney Islands is measured to the map
reference point ND 459711, and thence a straight line to the map reference
point ND 407734, being a point situate on low water line on or adjacent to
the feature known as Duncansby Head.
5. Subject to the provisions of the last three foregoing paragraphs, the
lines dividing landward areas from seaward areas at the mouths of rivers or
estuaries shall be straight lines joining the points on the low water lines at
either side of each such mouth.
6. The line dividing the Shetland Islands and the waters adjacent thereto to
be treated for the purposes of these Regulations as landward areas from the
areas to be treated for such purposes as seaward areas shall be a line parallel
with, and three nautical miles seaward of, the baselines from which the breadth
of the territorial sea adjacent to those Islands is measured:
Provided that Foula and Fair Isle and the waters adjacent to them shall be
treated as seaward areas.
7. In this Schedule the expression "low water line" means the line so marked
on the Ordnance Survey maps on a scale of 1:25,000 in the edition for the areas
to which they respectively relate last published prior to the date on which
these Regulations are made, and any reference to a map reference point shall be
construed as a reference to a point having that map reference on the National
Grid for those Ordnance Survey maps.
5
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TABLE 1 Sch. 1
POINTS AT MOUTHS OF SPECIFIED ESTUARIES AND OTHER
INDENTATIONS OF THE COAST
- --------------------------------------------------------------------------------
NAME OF ESTUARY NATIONAL GRID NAME OF FEATURE
OR OTHER INDENTATION REFERENCE
- --------------------------------------------------------------------------------
1 Firth of Clyde NR 716074 Cove Point
NR 718046 Sanda Island (Black Point)
NR 725037 Sanda Island Lighthouse
NW 962695 Laggen Hill
2 Wigtown Bay NX 494464 Eggerness Point
NX 546513 Ringdoo Point
3 Solway Firth NX 653432 Fox Craig (Meikle Ross)
NX 943134 St Bees Head
4 Duddon Sands SD 130763 Haverigg Point
SD 168685 Mill Scar
5 Morecambe Bay SD 220612 Hilpsford Point
SD 304490 Rossall Point
6 River Ribble SD 286250 Salter's Bank
SD 300202 Horse Bank
7 Liverpool Bay SD 262052 Formby Point
SJ 131855 Point of Ayr
8 Beaumaris Bay SH 744786 Penmaenbach Point
SH 641815 Trwyn Du
9 Holyhead Harbour SH 281849 Twyn Cliperau
SH 257847 Breakwater Head
10 Cymyran Bay SH 294750 Traeth Llydan
SH 297748 Traeth Cymyran
11 Llanddwyn Bay SH 386623 Llanddwyn Island
SH 429585 Morfa Dinlleu
12 Milford Haven SM 819036 West Blockhouse Point
SM 840027 Rat Island
13 Carmarthen Bay SN 309062 Laugharne Sands
SS 397926 Burry Holms
14 Bristol Channel ST 311806 West Usk Lighthouse
ST 303627 Birnbeck Island
15 Padstow Bay SW 925785 Shag Rock
SW 915787 Stepper Point
16 Falmouth Harbour SW 827315 Pendenis Point
SW 845311 St Anthony Head
17 Plymouth Sound SX 443486 Penlee Point
SX 490486 Renney Rocks
18 Salcombe River SX 725359 Bolt Head
SX 766355 Gammon Head
19 Solent (west side) SZ 319897 Hurst Castle
SZ 292849 Needles Point
20 Solent (east side) SZ 663876 Foreland
SZ 684990 Fort Cumberland
(Eastney Point)
21 Thames Estuary TR 227694 Reculver
TM 174142 Clacton-on-Sea
22 Harwich Harbour TM 268244 The Naze
TM 283311 Landguard Point
23 The Wash TF 701452 Gore Point
TF 565571 Gibraltar Point
24 River Humber TA 374048 Northcoates Point
TA 397104 Spurn Head
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- --------------------------------------------------------------------------------
NAME OF ESTUARY NATIONAL GRID NAME OF FEATURE
OR OTHER INDENTATION REFERENCE
- --------------------------------------------------------------------------------
25 Holy Island Harbour NU 137403 Parton Shiel
(Lindisfarne) NU 141415 Castle Point
26 Firth of Forth NT 496864 Eyebroughy
NT 496993 Elie Ness
27 Firth of Tay NO 538159 Kinkell Ness
NO 546302 Buddon Ness
28 Moray Firth NH 807587 Whiteness Head
NH 812670 Sutors Stack
NH 813686 North Sutor
29 Dornoch Firth NH 815857 Whiteness
NH 809871 Dornoch Point
30 Tongue Bay NC 641638 Port an-t Strathain
NC 572663 Geodh' an Fhuarain
31 Loch Eriboll NC 502687 Whiten Head
NC 392719 Faraid Head
32 Kyle of Durness NC 392719 Faraid Head
NC 349717 A'Ghoil
- --------------------------------------------------------------------------------
TABLE 2 Sch. 1
POINTS BETWEEN CAPE WRATH AND THE MULL OF KINTYRE
- --------------------------------------------------------------------------------
NATIONAL GRID NAME OF FEATURE
REFERENCE
- --------------------------------------------------------------------------------
1 NC 257748 Cape Wrath
2 NB 519669 Lith Sgeir
3 NB 472634 Dell Rock
4 NB 186451 Tiumpan
5 NB 142442 Mas Sgeir
6 NB 115435 Stac nam Balg
7 NB 048399 Sgeir Gallen
8 NB 036382 Gallen Beag
9 NA 993324 Eilean Molach
10 NA 873118 Gasker
11 NB 594809 Haskeir Eagach
12 NF 572646 Huskeiran
13 NF 707301 Rudha Ardvule
14 NF 646049 Greian Head
15 NL 620988 --
16 NL 614979 Ard a'Chaolais
17 NL 606963 Biruaslum
18 NL 549843 Guarsay Mor
19 NL 542819 Sron an Duin
20 NL 546803 Skate Point
21 NL 840262 Skerryvore
22 NM 121031 Dubh Artach
23 NR 151538 Frenchman's Rocks
24 NR 162510 An Coire
25 NR 268414 Mull of Oa
26 NR 589071 Mull of Kintyre
- --------------------------------------------------------------------------------
7
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SCHEDULE 2 Regulation 6(1)
INFORMATION TO BE INCLUDED IN AN APPLICATION FOR A
PETROLEUM EXPLORATION AND DEVELOPMENT LICENCE
AND SUPPORTING DOCUMENTATION
1. Name of each applicant in full(A).
2. If the application is made by more than one person(B), and the
applicants have agreed on the manner in which the benefits resulting from the
exploitation of the licence should be shared between them, the share each
applicant would be entitled to take.
3. Name of proposed operator.
4. The reference number of each block in respect of which the
application is made and, if the application is made by tender, the
consideration by way of initial payment which the applicant is prepared to
offer for each such block(C).
5. An analysis of the geology of the area to which the application
relates, identifying, in particular, petroleum prospects.
6. The technical data on which the analysis is based.
7. The work programme for evaluating the potential petroleum from the
area to which the application relates which the applicant would be prepared
to undertake under the licence applied for.
8. Evidence of the applicant's technical and financial capacity to
undertake that work programme, including the number of staff the applicant
intends to assign for that purpose and any relevant technical qualifications
held by those staff.
9. An explanation of the way in which the work programme takes account
of the analysis of the geology.
10. In respect of each applicant who is an individual-
(a) usual residential address:
(b) nationality.
11. In respect of each applicant which is a body corporate(D)-
(a) place of incorporation:
(b) principal place of business
(c) in the case of a company, its registered office;
(d) place from which the applicant's operations under the licence will be
directed and controlled;
(e) place from which any commercial activities in connection with the
licence will be directed and controlled.
(f) particulars of each member of the board of directors or other
governing body of the body corporate, as follows-
(i) full name
(ii) usual residential address
(iii) nationality
(g) where the applicant is or has a subsidiary (as defined in section 736
of the Companies Act 1985), a diagram identifying any companies of
which it is a subsidiary and any subsidiaries it has;
(h) the training provided in the three year period ending on the date of
the application for the licence for the technical staff whom the
applicant expects to employ in connection with the explorations for
and production of petroleum from the licensed area;
(i) particulars of capital authorised and issued as follows:-
(i) class of capital
(ii) amount authorised
(iii) amount issued
(iv) voting right of each class(E)
(j) particulars of all holdings of not less than 5 per cent in number of
value of any class of capital which has been issued by the body
corporate as follows:-
(i) name of holder or names of joint holders, in full
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(ii) nationality of holder(s)
(iii) class of holding
(iv) amount
(k) particulars of all capital issued to bearer, as follows:-
(i) class of capital
(ii) total amount issued
(iii) amount issued to bearer
12. Details of the fee which accompany the application.
NOTES
(A) If there is more than one applicant all the information relating to each
applicant which is required should be grouped together in the order in which the
applicants are named in paragraph 2.
(B) Where there is more than one signature, the applicant to which each
signature relates should be identified.
(C) If the application specifies more than one block it may indicate an order
of preference for some or all of the blocks and it may indicate that blocks are
applied for as alternatives.
(D) If the body corporate does not possess a capital structure, any comparable
information concerning the items listed should be furnished.
(E) The voting rights of each class need not be produced if a copy of the
memorandum and articles of association, or other document setting out or
defining the constitution, of the body corporate accompanies the application.
SCHEDULE 3 Regulation 9(2)(a)
MODEL CLAUSES FOR PETROLEUM EXPLORATION AND
DEVELOPMENT LICENCES IN LANDWARD AREAS
1.--(1) In the following clauses, the following expressions have the
meanings hereby respectively assigned to them, that is to say-
"the Act of 1934" means the Petroleum (Production) Act 1934;
"the Act of 1964" means the Continental Shelf Act 1964;
"appropriate percentage" has the meaning assigned thereto by clause 10;
"block" means an area delineated on the reference map deposited at the
office of the Department of Trade and Industry, London, SW1;
"chargeable period" has the meaning assigned thereto by clause 10;
"development scheme" has the meaning assigned thereto by clause 25;
"half year" means the period from 1st January to 30th June in any year and
the period from 1st July to 31st December in any year;
"initial term" has the meaning assigned thereto by clause 3 and "second
term" has the meaning assigned thereto by clause 4(4);
"the licensed area" means the area for the time being in which the Licensee
may exercise the rights granted by this licence;
"the Licensee" means the person or persons to whom this licence is granted,
his personal representatives and any person or persons to whom the rights
conferred by this licence may lawfully have been assigned;
"the Minister" means the Secretary of State for Trade and Industry;
"oil field" has the meaning assigned thereto by clause 25;
"petroleum" includes any mineral oil or relative hydrocarbon and natural
gas existing in its natural condition in strata but does not include coal
or bituminous shales or other stratified deposits from which oil can be
extracted by destructive distillation;
"well" includes borehole.
(2) Any obligations which are to be observed and performed by the Licensee
shall at any time at which the Licensee is more than one person be joint and
several obligations.
RIGHT TO SEARCH AND BORE FOR AND GET PETROLEUM
2. In consideration of the payments and royalties hereinafter provided
and the performance and observance by the Licensee of all the terms and
conditions hereof, the Minister, in exercise of the powers
9
<PAGE>
conferred upon him by the Act of 1934, hereby grants to the Licensee
EXCLUSIVE LICENCE AND LIBERTY during the continuance of this licence and
subject to the provisions hereof to search and bore for, and get, petroleum
in the area of being the area comprising blocks(s) No(s).
[or part of block No. ] on the reference map deposited at the office
of the Department of Trade and Industry, London, SW1 and more particularly
described in Schedule 1 to this licence.
Provided that nothing in this licence shall affect the right of the Minister
to grant a methane drainage licence in respect of the whole or any part of the
licensed area or affect the exercise of any rights so granted.
TERM OF LICENCE
3. This petroleum exploration and development licence unless sooner
determined under any of the provisions hereof shall be and continue in force for
the term of six years next after (hereinafter called "the initial term"); but if
the terms and conditions of this license are duly performed and observed and, in
particular, if the work programme described in Schedule 4 to this licence has
been duly performed, it may be continued for a further term of five years and,
if the terms and conditions of this licence continue to be duly performed and
observed, thereafter as provided by clause 5 (and subject to the provisions of
clause 6 of this licence) for a further maximum period of twenty years.
OPTION TO CONTINUE LICENCE AS TO PART OF THE LICENSED AREA
4.--(1) At any time not later than three months before the expiration of the
initial term the Licensee paying the payments and royalties hereinafter provided
and observing and performing the terms and conditions herein contained may give
notice in writing to the Minister that he desires the licence to continue as to
a part of the licensed area (hereinafter called "the continuing part") in the
manner hereinafter provided and to determine as to the residue thereof
(hereinafter called "the surrendered part").
(2) Such notice shall-
(a) describe the surrendered part which shall be an area which shall,
together with any area previously surrendered in accordance with
clause 7 hereof, be-
(i) if the area originally comprised in this licence consisted of
50 square kilometres or more, not less than half the number of
such square kilometres; or
(ii) if the area originally comprised in this licence consisted of
more than 25 square kilometres but less than 50 square
kilometres, such a number of square kilometres as will leave a
continuing part consisting of 25 square kilometres;
provided that-
(i) if the area originally comprised in this licence consisted of
not more than 25 square kilometres the Licensee shall not be
obliged to surrender any part of the licensed area; and
(ii) the Licensee shall not be obliged to surrender any part of the
licensed area which the Minister considers, on an application
on that behalf being made to him by the licensee, necessary to
secure the recovery of petroleum from that area;
(b) specify a date (hereinafter called "the surrender date") not later
than the expiry of the initial term upon which the surrendered part is
to be surrendered.
(3) The Licensee may at any time not less than one month before the surrender
date give further notice in writing to the Minister varying the part of the
licensed area to be surrendered and in the event of such further notice being
given the provisions of the previous paragraphs of this clause shall apply
MUTATIS MUTANDIS to such notice but so that the surrender date specified in such
notice shall be the same as that specified in the first notice.
(4) This licence shall, upon the option conferred by this clause being duly
exercised but subject to the provisions of clause 3 of this licence, continue in
respect of the continuing part for a term of five years next after the surrender
date ("the second term").
CONTINUANCE OF LICENCE AFTER THE SECOND TERM
5.--(1) At any time not later than three months before the expiry of the
second term the Licensee paying the payments and royalties hereinafter provided
and observing and performing the terms and conditions herein contained may give
notice in writing to the Minister that he desires this licence to continue in
force thereafter.
(2) If such notice is given this licence shall continue in force after the
expiry of the second term as provided by the following paragraphs of this clause
in the event that before that date-
(a) the Minister has in pursuance of clause 15(4) of this licence approved
a programme submitted to him in pursuance of clause 15(2) and such
approval is still in force at that date,
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(b) the Minister has served a programme on the Licensee in pursuance of
clause 15(6) of this licence and such programme is still in force at
that date, or
(c) the Minister has with a view to securing the maximum economic recovery
of petroleum so directed in writing.
(3) Where the Minister has given a direction extending the second term of
this licence in pursuance of paragraph (2)(c) of this clause he may, on notice
in writing being given to him by the Licensee not later than three months before
the expiry of such extension or any further extension that he desires the
licence to continue in force thereafter, give a further direction that this
licence shall so continue in force.
(4) Where this licence continues in force by virtue of paragraph (2)(a) or
(b) of this clause it shall, subject to the provisions of clause 3 of this
licence, so continue in force for a further period of twenty years after the
expiry of the second term.
(5) Where this licence continues in force by virtue of a direction given in
pursuance of paragraph (2)(c) or further direction given in pursuance of
paragraph (3) of this clause it shall, subject to the provisions of clause 3
hereof, continue in force for such further period after the expiry of the second
term as the Minister may prescribe provided that in any event the period for
which this licence continues in force after the expiry of the second term by
virtue of any such directions shall not in aggregate exceed twenty years.
(6) A direction given by the Minister in pursuance of paragraph (2)(c) of
this clause or further direction given by the Minister in pursuance of paragraph
(3) of this clause may be given subject to such conditions as he may specify and
(without prejudice to the generality of the foregoing) such conditions may,
subject to the provisions of paragraph (5) of this clause, include conditions as
to the duration of the extension or further extension (as the case may be) of
the second term.
POWER FURTHER TO EXTEND TERM OF LICENCE
6. Where this licence has continued in force by virtue of clause 5 of this
licence for a total period of twenty years after the expiry of the second
term, the Minister, on application being made to him in writing not later
than three months before the expiry of such period, may agree with the
Licensee that this licence shall continue in force thereafter for such
further period as the Minister and the Licensee may agree in order to secure
the maximum economic recovery of petroleum from the licensed area and subject
to such modification of the terms and conditions of this licence (which
modification may include making provision for any further extension of the
term of this licence) as the Minister and the Licensee may then agree is
appropriate.
RIGHT OF LICENSEE TO DETERMINE LICENCE OR SURRENDER PART OF LICENSED AREA
7.--(1) Without prejudice to any obligation or liability imposed by or
incurred under the terms hereof, the Licensee may, at any time, determine this
licence or surrender any part of the licensed area as is mentioned in paragraph
(3) of this clause by giving to the Minister not less than six months' notice in
writing to that effect.
(2) A notice given pursuant to paragraph (1) of this clause may be cancelled
by a further notice in writing given to the Minister not less than one month
before the expiration of the notice.
(3) Any area to be surrendered in accordance with paragraph (1) of this
clause shall be a clearly defined area whose surrender will leave a retained
area the boundaries of which-
(a) run north, south, east and west; and
(b) each extend for 100 metres or a multiple of 100 metres;
Provided that the Minister may agree in writing prior to the date the
appropriate notice is given by the Licensee to accept a surrender of part of the
licensed area which does not comply with the requirements of this paragraph.
CONSEQUENCES OF DETERMINATION OR SURRENDER BY LICENSEE
8. Upon the date on which any determination of this licence or any surrender
of part of the licensed area in the manner provided by either clause 4 or clause
7 of this licence is to take effect, the rights granted by this licence shall
cease in respect of the licensed area or of the part so surrendered as the case
may be but without prejudice to any obligation or liability imposed upon the
Licensee or incurred by him under the terms of this licence prior to that date.
PAYMENT OF CONSIDERATION FOR LICENCE
9.--(1) The Licensee shall make to the Minister as consideration for the
grant of this licence-
(a) payments of royalty in accordance with clauses 10 and 11 of this
licence; and
(b) payments in accordance with Schedule 2 to this licence.
11
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(2) The Licensee shall not by reason of determination of the licence or
surrender of any part of the licensed area be entitled to be repaid or allowed
any sum payable to the Minister pursuant to this licence before the date of
determination or surrender.
ROYALTY PAYMENTS
10.--(1) The Licensee shall pay to the Minister, in respect of each half year
in which this licence is in force (hereinafter referred to as a "chargeable
period"), a royalty of an amount equal to the sum of the percentages specified
in Schedule 3 to this licence (hereinafter referred to as "the appropriate
percentage") of the value of the petroleum relating to that period.
(2) For the purposes of this clause and clause 11 of this licence the value
of the petroleum relating to a chargeable period is, subject to paragraph (3) of
this clause, the total of the amounts which, if the words "one-half or" were
omitted from paragraph (b) of subsection (4) and paragraph (d) of subsection (5)
of section 2 of the Oil Taxation Act 1975, would in pursuance of paragraph (a)
of the said subsection (4) fall to be taken into account in relation to that
period in respect of the persons who by reference to this licence are or are
treated as participants for the purposes of those subsections, reduced by the
total of the market values which would in pursuance of the said paragraph (b)
fall to be taken into account as aforesaid.
(3) The value which, in pursuance of paragraph (2) of this clause, is the
value of the petroleum relating to a chargeable period shall be increased by an
amount equal to the value, as determined for the purposes of income tax or the
charge of corporation tax on income, of so much of the petroleum won and saved
in the licensed area as falls within section 10(1) of the Oil Taxation Act 1975
and was in that period disposed of or relevantly appropriated (within the
meaning of Part I of that Act) by the persons mentioned in the said
paragraph (2).
PROVISIONS SUPPLEMENTARY TO CLAUSE 10
11.--(1) The Licensee shall, within two months after the end of each
chargeable period, deliver to the Minister, in such form as the Minister may
specify, a statement of-
(a) the quantity of petroleum won and saved in the licensed area in that
period and;
(b) the amounts of the prices and market values which are required by
paragraph 2 of Schedule 2 to the Oil Taxation Act 1975 to be stated in
the returns made for that period in pursuance of that paragraph in
consequence of this licence.
(2) The Licensee shall, when he delivers a statement to the Minister in
pursuance of paragraph (1) of this clause for a chargeable period in respect of
which royalty is payable in pursuance of clause 10(1) of this licence, make to
the Minister a payment on account of royalty for that period equal to the
appropriate percentage of the sum produced by aggregating the amounts which in
pursuance of subparagraph (b) of paragraph (1) of this clause are specified in
the statement and reducing the aggregate by the amount which, by virtue of
paragraph 2(2)(d)(ii) of Schedule 2 to the said Act of 1975, was specified in
the statement delivered to the Minister in pursuance of the said paragraph (1)
in respect of the preceding chargeable period.
(3) The Minister may from time to time, after a statement in respect of any
chargeable period has been delivered to him in pursuance of paragraph (1) of
this clause and before he has given to the Licensee a notice in pursuance of
paragraph (4) of this clause in respect of that period, give a notice in writing
to the Licensee specifying the amount which the Minister estimates is payable by
the Licensee in pursuance of clause 10 of this licence in respect of that
period, and where the amount specified in the notice is larger or smaller than
the total amount already paid by the Licensee in pursuance of this clause in
respect of that period, than-
(a) if it is larger the difference shall be paid forthwith by the Licensee
to the Minister; and
(b) if it is smaller the difference shall be paid forthwith by the
Minister to the Licensee.
(4) When it appears to the Minister that the value of the petroleum relating
to any chargeable period has been finally determined for tax purposes, he may
give to the Licensee a notice in writing specifying the amount which the
Minister considers is payable by the Licensee in pursuance of clause 10 of this
licence in respect of that period; and where the amount specified in the notice
is larger or smaller than the total amount already paid by the Licensee in
pursuance of this clause in respect of that period, then, subject to paragraph
(6) of this clause-
(a) if it is larger the difference shall be paid forthwith by the Licensee
to the Minister; and
(b) if it is smaller the difference shall be paid forthwith by the
Minister to the Licensee.
(5) If after the date when the Minister gave notice to the Licensee in
pursuance of paragraph (4) of this clause or this paragraph in respect of a
chargeable period it appears to the Minister, in consequence of a relevant
assessment or determination made after that date which relates directly or
indirectly to the value of petroleum by reference to which the amount specified
in the notice was determined, that another amount ought to have been so
specified, he may give notice in writing to the Licensee specifying the other
amount; and where he does so, then subject to paragraph (6) of this clause-
12
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(a) if the other amount is larger than the total amount already paid by
the Licensee in pursuance of this clause in respect of that period the
difference shall be paid forthwith by the Licensee to the Minister;
and
(b) if it is smaller the difference shall be paid forthwith by the
Minister to the Licensee.
(6) A decision made by the Minister for the purposes of paragraph (3), (4) or
(5) of this clause shall not be called in question by the Licensee except that
any dispute between the Minister and the Licensee as to whether an amount
specified in a notice given in pursuance of the said paragraph (4) or (5) is
payable by virtue of clause 10 of this license may during the period of 28 days
beginning with the day on which the Licensee receives the notice be referred to
arbitration in the manner provided by clause 39 of the licence; and on a
reference to arbitration in pursuance of this paragraph any relevant assessment
or determination for the time being in force shall be binding on the Minister
and the Licensee so far as the assessment or determination relates directly or
indirectly to the value of petroleum relating to the chargeable period in
question.
(7) When any payment is made by the Licensee or the Minister in pursuance of
paragraph (3), (4) or (5) of this clause, an amount in respect of interest on
the payment shall also be payable by him to the recipient of the payment and
that amount shall be calculated in such manner as the Minister may specify from
time to time in a notice in writing given by him to the Licensee; but-
(a) a notice in pursuance of this paragraph shall provide for amounts by
way of interest to be calculated by applying a rate of interest which
is for the time being a commercial rate of interest; and
(b) any such amount in respect of interest shall be disregarded in
calculating for the purposes of the said paragraph (3) or (4) any
amount already paid by the Licensee in pursuance of this clause.
(8) In this clause-
"relevant assessment or determination" means an assessment or
determination made by the Commissioners of Inland Revenue for the
purposes of petroleum revenue tax, income tax or the charge of
corporation tax on income or a determination made in proceedings
arising out of such an assessment or determination made by the said
Commissioners.
(9) For the purposes of this clause any amount paid by the Licensee or the
Minister on account of a prospective liability under paragraph (3), (4) or (5)
of this clause shall be treated as paid in pursuance of that paragraph.
MEASUREMENT OF PETROLEUM OBTAINED FROM THE LICENSED AREA
12.--(1) The Licensee shall measure or weigh by a method or methods
customarily used in good oilfield practice and from time to time approved by
the Minister all petroleum won and saved from the licensed area.
(2) If and to the extent that the Minister so directs, the duty imposed by
paragraph (1) of this clause shall be discharged separately in relation to
petroleum won and saved-
(a) from each part of the licensed area which is an oil field for the
purposes of the Oil Taxation Act 1975.
(b) from each part of the licensed area which forms part of such an oil
field extending beyond the licensed area, and
(c) from each well producing petroleum from a part of the licensed area
which is not within such an oil field.
(3) If and to the extent that the Minister so directs, the preceding
provisions of this clause shall apply as if the duty to measure or weigh
petroleum include a duty to ascertain its quality or composition or both; and
where a direction under this paragraph is in force, the following provisions of
this clause shall have effect as if references to measuring or weighing included
references to ascertaining quality or composition.
(4) The Licensee shall not make any alteration in the method or methods of
measuring or weighing used by him or any appliances used for that purpose
without the consent in writing of the Minister and the Minister may in any case
require that no alteration shall be made save in the presence of a person
authorised by the Minister.
(5) The Minister may from time to time direct that any weighing or measuring
appliance shall be tested or examined in such manner, upon such occasions or at
such intervals and by such persons as may be specified by the Minister's
direction and the Licensee shall pay to any such person or to the Minister such
fees and expenses for any such tests or examinations as the Minister may
specify.
(6) If any measuring or weighing appliance shall upon any such test or
examination as is mentioned in the last foregoing paragraph be found to be false
or unjust the same shall, if the Minister so determines after considering any
representations in writing made by the Licensee, be deemed to have existed in
that condition during the period since the last occasion upon which the same was
tested or examined pursuant to the last foregoing paragraph.
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KEEPING OF ACCOUNTS
13.--(1) The Licensee shall keep in the United Kingdom full and correct
accounts in a form from time to time approved by the Minister of-
(a) the quantity of petroleum in the form of gas won and saved;
(b) the quantity of petroleum in any other form won and saved;
(c) the name and address of any person to whom any petroleum has been
supplied by the Licensee, the quantity so supplied, the price or other
consideration therefor and the place to which the petroleum was
conveyed pursuant to the agreement for such supply; and
(d) such other particulars as the Minister may from time to time direct.
(2) The quantities of petroleum stated in such accounts may exclude any water
separated from the petroleum and shall be expressed as volumes in cubic metres
measured at, or calculated as if measured at, a temperature of 15 degrees
Celsius and a pressure of 1.0132 bar but if the Minister serves notice in
writing on the Licensee determining any other manner in which any quantity of
petroleum or any quantity of any form of petroleum is to be expressed that
quantity shall be so expressed.
(3) Such accounts shall state separately the quantities used for the purposes
of carrying on drilling and production operations and pumping to field storage
and the quantities not so used, and in the case of petroleum not in the form of
gas shall state the specific gravity of the petroleum and, if petroleum of
different specific gravities has been won and saved, the respective quantities
of petroleum of each specific gravity.
(4) The Licensee shall within two months after the end of each half year in
which this licence is in force and within two months after the expiration or
determination of this licence deliver to the Minister an abstract in a form from
time to time approved by the Minister of the accounts for that half year or for
the period prior to such expiration or determination as the case may be.
WORKING OBLIGATIONS
14.--(1) The Licensee shall during the initial term of this licence carry out
with due diligence the scheme of prospecting including any geological survey by
any physical or chemical means and such programme of test drilling (hereinafter
collectively referred to as a "work programme") as may be set out in Schedule 4
to this licence.
(2) The Licensee shall give the Minister at least 21 days' written notice of
any proposed seismic survey, during the term of this licence, of any area which
is not wholly on the seaward side of the low water line and such notice shall
indicate the nature of the survey and the total number of kilometres to be shot
and shall be accompanied by a copy of an Ordnance Survey map for the relevant
area drawn to the scale of 1:50,000 or 1:63,360 upon which the proposed lines of
survey are indicated and by evidence that the planning authorities for the area
to be surveyed have been consulted about the proposed survey and, in a case
where any planning permission under the Town and Country Planning Act 1990 or
the Town and Country Planning (Scotland) Act 1972 is required for the survey in
question, evidence that such permission has been granted.
(3) The Licensee shall not carry out any seismic survey during the term of
this licence of any such area as is mentioned in paragraph (2) of this clause if
notice has not been given as aforesaid or if the Minister indicates to the
Licensee within 14 days of the receipt of such notice that the survey is not
to be carried out.
(4) If at any time during the term of this Licence the Minister serves a
notice in writing on the Licensee requiring him to submit to the Minister,
before a date specified in the notice, an appropriate programme for exploring
for petroleum in the licensed area during a period so specified, the Licensee
shall comply with the notice; and for the purposes of this paragraph an
appropriate programme is one which any person who, if he-
(a) were entitled to exploit the rights granted by this licence;
(b) had the competence and resources needed to exploit those rights to the
best commercial advantage; and
(c) were seeking to exploit those rights to the best commercial advantage,
could reasonably be expected to carry out during the period specified in the
notice, being a period within the term of this licence.
(5) If a programme is submitted to the Minister in consequence of a notice
served by him in pursuance of paragraph (4) of this clause, then-
(a) he shall not be entitled to revoke this licence on the ground that the
programme does not satisfy the requirements of that paragraph
(hereafter in this clause referred to as ("the relevant requirements");
but
(b) if he is of opinion that the programme does not satisfy the relevant
requirements he may serve a notice in writing on the Licensee stating
his opinion and the reasons for it.
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(6) Where notice in respect of a programme is served on the Licensee in
pursuance of paragraph (5) of this clause he shall either-
(a) within 28 days beginning with the date of service of the notice refer
to arbitration, in the manner provided by clause 39 of this licence,
the question of whether the programme satisfies the relevant
requirements; or
(b) within a reasonable period beginning with that date submit to the
Minister a further programme which satisfies the relevant
requirements;
and where it is determined in consequence of any reference to arbitration in
pursuance of sub-paragraph (a) of this paragraph that the programme in
question does not satisfy the relevant requirements the Licensee shall submit
to the Minister, as soon as possible after the date of the determination, a
further programme which satisfies the relevant requirements.
(7) The Licensee shall carry out any programme submitted by him in pursuance
of this clause as to which either-
(a) the Minister serves notice in writing on the Licensee stating that the
Minister approves the programme; or
(b) it is determined in consequence of any reference to arbitration in
pursuance of this licence that the programme satisfies the relevant
requirements;
and any programme approved by the Minister in pursuance of this paragraph
shall be deemed for the purposes of this licence to satisfy the relevant
requirements.
(8) Where, in consequence of any breach or non-observance by the Licensee of
any provision of paragraph (4), (6) or (7) of this clause, the Minister has
power by virtue of paragraph (1) of clause 38 of this licence to revoke this
licence, he may if he thinks fit exercise that power in relation to such part
only of the licensed area as he may specify; and where he does so the rights
granted by this licence shall cease in respect of the specified part for that
area without prejudice to any obligation or liability imposed upon the Licensee
or incurred by him under the terms of this licence.
(9) Where the Licensee has a duty by virtue of this clause to carry out a
programme during a part of the term of this licence, the Minister may serve
notice in pursuance of paragraph (4) of this clause in respect of another part
of that term.
DEVELOPMENT AND PRODUCTION PROGRAMMES
15.-(1) The Licensee shall not-
(a) erect or carry out any relevant works, either in the licensed area or
elsewhere, for the purpose of getting petroleum from that area or for
the purpose of conveying to a place on land petroleum got from that
area; or
(b) get petroleum from that area otherwise than in the course of searching
for petroleum or drilling wells,
except in accordance with a programme which the Minister has approved or served
on the Licensee in pursuance for the following provisions of this clause.
(2) The Licensee shall prepare and submit to the Minister, in such form and
by such time and in respect of such period during the term of this licence as
the Minister may direct, a development programme specifying-
(a) the relevant works which the Licensee proposes to erect or carry out
during that period for either of the purposes mentioned in paragraph
(1)(a) of this clause;
(b) the proposed locations of the works, the purposes for which it is
proposed to use the works and the times at which it is proposed to
begin and to complete the erection or carrying out of the works; and
(c) the maximum and minimum quantities of petroleum in the form of gas and
the maximum and minimum quantities of petroleum in other forms, which,
in each calendar year during the period aforesaid or in such other
periods during that period as the Minister may specify, the Licensee
proposes to get as mentioned in paragraph (1)(b) of this clause.
(3) If the Minister directs the Licensee-
(a) to prepare different programmes in pursuance of paragraph (2) of this
clause in respect of petroleum from such different parts of the
licensed area as are specified in the direction; or
(b) where a programme approved or served in pursuance of this clause
relates to a particular period during the term of this licence, to
prepare a programme or programmes in pursuance of paragraph (2) of
this clause in respect of a further period or further periods during
that term,
the Licensee shall comply with the direction.
(4) It shall be the duty of the Minister expeditiously to consider any
programme submitted to him in pursuance of paragraph (2) of this clause and when
he has done so to give notice in writing to the Licensee stating-
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(a) that the Minister approves the programme subject to such conditions as
may be specified in the notice as the Minister considers necessary to
secure the maximum economic recovery of petroleum from the licensed
area;
(b) that the Minister approves the programme subject to the condition that
such of the relevant works as are specified in the notice shall not be
used before the expiration of the period so specified in relation to
the works or shall not be used without the consent in writing of the
Minister; or
(c) that the Minis er rejects the programme on one or both of the
following grounds, namely-
(i) that the carrying out of any proposals included in the
programme in pursuance of paragraph (2) of this clause would
be contrary to good oilfield practice;
(ii) that the proposals included in the programme in pursuance of
sub-paragraph (c) of the said paragraph (2) are, in the opinion
of the Minister, not in the national interest;
and a notice in pursuance of sub-paragraph (a) or (b) of this paragraph may
contain different conditions in respect of different works.
(5) Where the Minister gives notice of rejection of a programme in pursuance
of sub-paragraph (c) of paragraph (4) of this clause, then-
(a) if the grounds of the rejection consist of or include the ground
mentioned in paragraph (i) of that sub-paragraph he shall include in
the notice a statement of the natters in consequence of which he
rejected the programme on that ground;
(b) if the grounds of the rejection consist of or include the ground
mentioned in paragraph (ii) of that sub-paragraph he shall include in
the notice a statement of the rates at which he considers that, in the
national interest, petroleum should be got from the area to which the
programme relates; and
(c) the Licensee shall prepare and submit to the Minister, before the time
specified in that behalf in the notice,-
(i) where the notice contains such a statement as is mentioned in
sub-paragraph (a) above, modifications of the programme which
ensure that the carrying out of the programme with those
modifications would not be contrary to good oilfield practice;
(ii) where the notice contains such a statement as is mentioned in
sub-paragraph (b) above, modifications of the programme which
ensure the getting of petroleum from the area there mentioned
at the rates specified in the statement and which (except so
far as may be necessary in order to get petroleum at those
rates) are not such that the carrying out of the programme with
those modifications would be contrary to good oilfield
practice;
but the Licensee shall not be required by virtue of paragraph (i) of
this sub-paragraph to submit modifications if the carrying out of the
programme without modifications would not be contrary to good oilfield
practice.
(6) If the Minister gives notice in writing to the Licensee that the Minister
approves the modifications of a programme which have been submitted to him in
pursuance of sub-paragraph (c) of paragraph (5) of this clause, the programme
with those modifications shall be deemed to be approved by the Minster; but if
the Licensee fails to perform the duty imposed on him by that sub-paragraph the
Minister may if he thinks fit, instead of revoking this licence in consequence
of the failure, serve on the Licensee such a programme as the Minister considers
that the Licensee should have submitted to him in respect of the area and period
to which the rejected programme related.
(7) Where the Minister proposes to approve a programme subject to a condition
in pursuance of paragraph (4)(a) or (b) of this clause or to reject a programme
in pursuance of paragraph (4)(c) of this clause or to serve a programme on the
Licensee in pursuance of paragraph (6) of this clause he shall before doing so-
(a) give the Licensee particulars of the proposal and an opportunity of
making representations to the Minister about the technical and
financial factors which the Licensee considers are relevant in
connection with the proposal; and
(b) consider any such representations then made to him by the Licensee;
and the Minister shall not approve a programme subject to such a
condition unless he is satisfied that the condition is required in the
national interest.
(8) The Licensee shall carry out any programme approved or served on him
by the Minister in pursuance of this clause or, if such a programme is varied
in pursuance of clause 16 of this licence, the programme as so varied, except
so far as the Licensee is authorised in writing by the Minister to do
otherwise or is required to do otherwise by such a condition as is mentioned
in paragraph (4)(a) or (b) of this clause; but if it is necessary to carry
out certain works in order to comply with provisions included in a programme
by virtue of paragraph (5)(c) of this clause or provisions of a programme
served on the Licensee in pursuance of paragraph (6) of this clause or
provisions of a programme as varied in pursuance of clause 16 of this
licence, then, notwithstanding anything in the programme as to the time when
those provisions are to be complied with, the Licensee shall not be treated
as having failed to comply with those provisions before the expiration of the
period reasonably required for carrying out the works.
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(9) In this clause "relevant works" means any structures and any other works
whatsoever which are intended by the Licensee to be permanent and are neither
designed to be moved from place to place without major dismantling nor intended
by the Licensee to be used only for searching for petroleum.
PROVISIONS SUPPLEMENTARY TO CLAUSE 15
16.--(1) Where-
(a) the Minister gives notice in respect of a programme in pursuance of
paragraph (4)(a) or (b) or paragraph (6) of clause 15 of this licence
or serves a programme in pursuance of the said paragraph (6); or
(b) it is determined by arbitration that the Licensee is not required by
virtue of paragraph (i) of clause 15(5)(c) of this licence to submit
modifications of a programme in respect of which notice of rejection
containing such a statement as is mentioned in the said paragraph (i)
was given by the Minister in pursuance of clause 15(4)(c) of this
licence.
the Minister may give to the Licensee, with the notice given or the programme
served as mentioned in sub-paragraph (a) of this paragraph or, in a case falling
within sub-paragraph (b) of this paragraph, within the period of three months
beginning with the date of the arbitrator's or arbiter's determination, a notice
(hereafter in this clause referred to as a "limitation notice") authorising the
Minister, by a further notice given to the Licensee from time to time after the
expiration of the period specified in that behalf in the limitation notice, to
provide that the programme to which the limitation notice relates shall have
effect while the further notice is in force with the substitution for any
quantity of petroleum or any period specified in the programme in pursuance of
clause 15(2)(c) of this licence of a different quantity of petroleum or a
different period specified in the further notice.
(2) A quantity or period specified in such a further notice as that to be
substituted for a quantity or period which is specified in the programme in
question shall be within the limits specified in the limitation notice as those
applicable to that quantity or period specified in the programme; and those
limits shall be such as to secure that the expenditure to be incurred by the
Licensee in complying with the further notice, in a case where an effect of the
notice is to increase the quantity of petroleum which the Licensee is required
to get from the licensed area in any period, is less than the cost of drilling a
new well in the licensed area at the time when the further notice is given.
(3) Where the Minister proposes to give a limitation notice or any such
further notice as aforesaid he shall before doing so-
(a) give the Licensee particulars of the proposal and an opportunity of
making representations to the Minister about the technical and
financial factors which the Licensee considers are relevant in
connection with the proposal; and
(b) consider any such representations then made to him by the Licensee;
and the Minister shall not give such a further notice of which an effect is to
increase the quantity of petroleum which the Licensee is required to get from
the licensed area during any period unless the Minister is satisfied that the
notice is required by reason of a national emergency and shall not give any
other such further notice as aforesaid unless he is satisfied that the notice is
required in the national interest.
(4) A limitation notice or such a further notice as aforesaid may-
(a) specify any quantity or period by reference to such factors as the
Minister thinks fit; and
(b) in the case of such a further notice, contain provisions as to-
(i) the date when the notice is to come into force,
(ii) the date when the notice is to cease to be in force,
and specify different dates in pursuance of this sub-paragraph for
different provisions of the notice;
and the Minister may revoke such a further notice at a particular time by
serving on the Licensee a notice in writing stating that the further notice is
revoked at that time.
(5) Any question arising under clause 15 of this licence or this clause as to
what is, or is required in the national interest or as to what is, or is
required by reason of, a national emergency shall be determined by the Minister.
(6) The Licensee shall ensure that any conditions to which an approval is
subject in pursuance of clause 15(4)(a) or (b) of this licence are complied
with.
(7) If in respect of part of the licensed area-
(a) an approval has been given in pursuance of paragraph (1) of clause 15
of this licence; or
(b) the Licensee has submitted to the Minister, in accordance with a
direction given by virtue of paragraph (3)(a) of that clause, a
programme in pursuance of paragraph (2) of that clause-
(i) as respects which the Minister has served notice in pursuance
of paragraph (4)(a) or (b) or paragraph (6) of that clause,
(ii) in consequence of which the Minister has served a programme on
the Licensee in pursuance of the said paragraph (6), or
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(iii) in respect of which it has been determined by arbitration that
the Licensee is not required by virtue of paragraph (5)(c)(i) of
that clause to submit modifications,
paragraph (1) of clause 38 of this licence shall not authorise the Minister to
revoke this licence in relation to that part of the licensed area in consequence
of any breach or non-observance, during the period to which the programme
relates, of any provision of the said clause 15 in connection with a different
part of the licensed area.
(8) Where in consequence of any breach or non-observance by the Licensee of
any provision of clause 15 of this licence the Minister has power by virtue of
paragraph (1) of clause 38 of this licence to revoke this licence or, in
consequence of paragraph (7) of this clause, to revoke it in respect of part
only of the licensed area, he may if he thinks fit-
(a) in a case where he has power to revoke this licence, exercise the
power in relation to such part only of the licensed area as he may
specify; and
(b) in a case where by virtue of the said paragraph (7) he has power to
revoke it in respect of part only of the licensed area, exercise the
power in relation to such portion only of that part as he may specify;
and where in consequence of the said paragraph (7) or by virtue of the preceding
provisions of this paragraph the Minister revokes this licence in respect of a
part or portion of the licensed area, the rights granted by this licence shall
cease in respect of that part or portion without prejudice to any obligation or
liability imposed upon the Licensee or incurred by him under the terms of this
licence.
COMMENCEMENT AND ABANDONMENT AND PLUGGING OF WELLS
17.--(1) The Licensee shall not commence or, after abandoning in manner
hereinafter provided, shall not recommence the drilling of any well without the
consent in writing of the Minister.
(2) The Licensee shall not abandon any well without the consent in writing of
the Minister.
(3) The Licensee shall ensure compliance with any conditions subject to which
any consent under either of the foregoing paragraphs is given.
(4) If any such condition under paragraph (1) of this clause relates to the
position, depth or direction of the well, or to any casing of the well, or if
any condition under either paragraph (1) or paragraph (2) of this clause relates
to any plugging or sealing of the well, the Minister may from time to time
direct that the well and all records relating thereto shall be examined in such
manner upon such occasions or at such intervals and by such person as may be
specified by the Minister's direction and the Licensee shall pay to any such
person or to the Minister such fees and expenses for such examination as the
Minister may specify.
(5) The plugging of any well shall be done in accordance with a specification
approved by the Minister applicable to that well or to wells generally or to a
class of wells to which that well belongs and shall be carried out in an
efficient and workmanlike manner.
(6) Any well drilled by the Licensee pursuant to this licence, which, at the
expiry or determination of the Licensee's rights in respect of the area or part
thereof in which that well is drilled, has not with the consent of the Minister
been abandoned, shall be left in good order and fit for further working together
with all casings and any well head fixtures the removal whereof would cause
damage to such well or, if the Minister so directs in the manner provided by
paragraph (8) of this clause, be plugged and sealed in accordance with the
Minister's direction.
(7) All casings and fixtures left in position pursuant to the last foregoing
paragraph shall be the property of the Minister.
(8) In any case to which paragraph (6) of this clause applies, a direction by
the Minister may be given by notice in writing to the Licensee not less than one
month before the Licensee's rights in respect of the area or part thereof in
which the well is situated expire or determine, specifying the manner in which
the well is to be plugged and sealed and the time within which such work is to
be done.
(9) An application for the consent of the Minister to the drilling of a well
at any place above the low water line shall be accompanied by evidence that the
planning authority for the relevant place has been consulted about the drilling
and that any planning permission required by the Town and Country Planning Act
1990 or the Town and Country Planning (Scotland) Act 1972 for the drilling of
that well has been granted.
DISTANCE OF WELLS FROM BOUNDARIES OF LICENSED AREA
18. No well shall except with the consent in writing of the Minister be
drilled or made so that any part thereof is less than one hundred and
twenty-five metres from any of the boundaries of the licensed area.
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CONTROL OF DEVELOPMENT WELLS
19.--(1) The Licensee shall not suspend work on the drilling of a development
well, or having suspended it in accordance with this paragraph shall not begin
it again, except with the consent in writing of the Minister and in accordance
with the conditions, if any, subject to which the consent is given.
(2) When work on the drilling of a development well is suspended in
accordance with paragraph (1) of this clause, the Licensee shall forthwith
furnish the Minister with such information relating to the well as the Minister
may specify.
(3) The Licensee-
(a) shall not do any completion work in respect of a well in the licensed
area except in accordance with a programme of completion work approved
by the Minister in respect of the well;
(b) shall furnish to the Minister, in accordance with the provisions of
such a programme, particulars of any completion work done by him in
respect of a well in the licensed area; and
(c) shall not remove or alter any casing or equipment installed by way of
completion work in respect of a well except with the consent in
writing of the Minister and in accordance with the conditions, if any,
subject to which the consent is given.
(4) In this clause-
"completion work", in relation to a well, means work, by way of the
installation of a casing or equipment or otherwise, after the well has
been drilled, for the purpose of bringing the well into use as a
development well; and
"development well" means a well which the Licensee uses or intends
to use in connection with the getting of petroleum in the licensed
area, other than a well which for the time being he uses or intends to
use only for searching for petroleum.
PROVISION OF STORAGE TANKS, PIPES, PIPELINES OR OTHER RECEPTACLES
20. The Licensee shall use methods and practice customarily used in good
oilfield practice for confining the petroleum obtained from the licensed area in
tanks, gas holders, pipes, pipe-lines or other receptacles constructed for that
purpose.
AVOIDANCE OF HARMFUL METHODS OF WORKING
21.--(1) The Licensee shall maintain all apparatus and appliances and all
wells in the licensed area which have not been abandoned and plugged as provided
by clause 17 of this license in good repair and condition and shall execute all
operations in or in connection with the licensed area in a proper and
workmanlike manner in accordance with methods and practice customarily used in
good oilfield practice and without prejudice to the generality of the foregoing
provision the Licensee shall take all steps practicable in order-
(a) to control the flow and to prevent the escape or waste of petroleum
discovered in or obtained from the licensed area;
(b) to conserve the licensed area for productive operations;
(c) to prevent damage to adjoining petroleum bearing strata;
(d) to prevent the entrance of water through wells to petroleum bearing
strata except for the purposes of secondary recovery; and
(e) to prevent the escape of petroleum into any waters in or in the
vicinity of the licensed area.
(2) The Licensee shall comply with any instructions from time to time given
by the Minister in writing relating to any of the matters set out in the
foregoing paragraph. If the Licensee objects to any such instruction on the
ground that it is unreasonable he may, within fourteen days from the date upon
which the same was given, refer the matter to arbitration in manner provided by
clause 39 of this licence.
(3) Notwithstanding anything in the preceding provisions of this clause, the
Licensee shall not-
(a) flare any gas from the licensed area; or
(b) use gas for the purpose of creating or increasing the pressure by
means of which petroleum is obtained from that area,
except with the consent in writing of the Minister and in accordance with the
conditions, if any, of the consent.
(4) Before deciding to withhold consent or to grant it subject to conditions
in pursuance of paragraph (3) of this clause, the Minister shall give the
Licensee an opportunity of making representations in writing to the Minister
about the technical and financial factors which the Licensee considers are
relevant in connection with the case and shall consider any such representations
then made to him by the Licensee.
(5) Consent in pursuance of paragraph (3) of this clause shall not be
required for any flaring which, in consequence of an event which the Licensee
did not foresee in time to deal with it otherwise than by flaring, is necessary
in order-
(a) to remove or reduce the risk of injury to persons in the vicinity of
the well in question; or
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(b) to maintain a flow of petroleum from that or any other well;
but when the Licensee does any flaring which is necessary as aforesaid he shall
forthwith inform the Minister that he has done it and shall, in the case of
flaring to maintain a flow of petroleum, stop the flaring upon being directed by
the Minister to stop it.
(6) The Licensee shall give notice to the Minister of any event causing
escape or waste of petroleum, damage to petroleum bearing strata or entrance of
water through wells to petroleum bearing strata except for the purposes of
secondary recovery forthwith after the occurrence of that event and shall,
forthwith after the occurrence of any event causing escape of petroleum into the
sea, give notice of the event to the Chief Inspector of Her Majesty's
Coastguard.
(7) The Licensee shall comply with any reasonable instructions from time to
time given by the Minister with a view to ensuring that funds are available to
discharge any liability for damage attributable to the release or escape of
petroleum in the course of activities connected with the exercise of rights
granted by this licence; but where the Minister proposes to give such
instructions he shall before giving them-
(a) give the Licensee particulars of the proposal and an opportunity of
making representations to the Minister about the proposal; and
(b) consider any representations then made to him by the Licensee about
the proposal.
APPOINTMENT OF OPERATORS
22.--(1) The Licensee shall ensure that another person (including, in the
case where the Licensee is two or more persons, any of those persons) does not
exercise any function of organising or supervising all or any of the operations
of searching or boring for or getting petroleum in pursuance of this licence
unless that other person is a person approved in writing by the Minister and the
function in question is one to which that approval relates.
(2) The Minister shall not refuse to give his approval of a person in
pursuance of paragraph (1) of this clause if that person is competent to
exercise the function in question, but where an approved person is no longer
competent to exercise that function the Minister may, by notice in writing given
to the Licensee, revoke his approval.
FISHING AND NAVIGATION
23. The Licensee shall not carry out any operations authorised by this
licence in or about the licensed area in such manner as to interfere
unjustifiably with-
(a) navigation in any navigable waters; or
(b) fishing in, or conservation of the living resources of any waters in
or in the vicinity of the licensed area.
TRAINING
24.--(1) The Minister may from time to time give to the Licensee instructions
in writing as to the training of persons employed or to be employed, whether by
the Licensee or by any other person, in any activity which is related to the
exercise of the rights granted by this licence and the Licensee shall ensure
that any instructions so given are complied with.
(2) The Minister shall not give instructions in pursuance of paragraph (1) of
this clause unless he has consulted as to the provisions proposed to be included
in such instructions the Offshore Petroleum Industry Training Organisation
Limited or such other body of a like nature as may from time to time be carrying
on activities of a substantially similar kind to those performed by the said
Organisation.
(3) The Licensee shall furnish the Minister with such information relating to
the training of persons referred to in paragraph (1) of this clause as the
Minister may from time to time request.
UNIT DEVELOPMENT
25.--(1) If at any time in which this licence is in force the Minister shall
be satisfied that the strata in the licensed area or any part thereof form part
of a single geological petroleum structure or petroleum field (hereinafter
referred to as "an oil field") other parts whereof are formed by strata in areas
in respect of which other licences granted in pursuance of the Act of 1934 or of
that Act as applied by the Act of 1964 are then in force, and the Minister shall
consider that it is in the national interest in order to secure the maximum
ultimate recovery of petroleum and in order to avoid unnecessary competitive
drilling that the oil field should be worked and developed as a unit in
co-operation by all persons including the Licensee whose licences extend to or
include any part thereof, the following provisions of this clause shall apply.
(2) Upon being so required by notice in writing by the Minister the Licensee
shall co-operate with such other persons, being persons holding licences under
the Act of 1934 or that Act as applied by the Act of 1964 in respect of any part
or parts of the oil field (hereinafter referred to as "the other Licensees") as
may be specified in the said notice, in the preparation of a scheme (hereinafter
referred to as "a development scheme") for the working and development of the
oil field as a unit by the Licensee and
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the other Licensees in co-operation, and shall, jointly with the other
Licensees, submit such scheme for the approval of the Minister.
(3) The said notice shall also contain or refer to a description of the area
or areas in respect of which the Minister requires a development scheme to be
submitted and shall state the period within which such scheme is to be submitted
for approval by the Minister.
(4) If a development scheme shall not be submitted to the Minister within the
period so stated or if a development scheme so submitted shall not be approved
by the Minister, the Minister may himself prepare a development scheme which
shall be fair and equitable to the Licensee and all other Licensees, and the
Licensee shall perform and observe all the terms and conditions thereof.
(5) If the Licensee shall object to any such development scheme prepared by
the Minister he may within 28 days from the date on which notice in writing of
the said scheme shall have been given to him by the Minister refer the matter to
arbitration in the manner provided by clause 39 of this licence.
LICENSEE TO KEEP RECORDS
26.--(1) The Licensee shall keep accurate records in a form from time to time
approved by the Minister of the drilling, deepening, plugging or abandonment of
all wells and of any alterations in the casing thereof. Such records shall
contain particulars of the following matters-
(a) the site of, number and name (if any) assigned to every well;
(b) the subsoil and strata through which the well was drilled;
(c) the casing inserted in any well and any alteration to such casing;
(d) any petroleum, water, mines or workable seams of coal encountered; and
(e) such other matters as the Minister may from time to time direct.
(2) The Licensee shall keep in the United Kingdom accurate geological plans
and maps relating to the licensed area and such other records in relation
thereto as may be necessary to preserve all information which the Licensee has
about the geology of the licensed area.
(3) The Licensee shall deliver copies of the said records, plans and maps
referred to in the two foregoing paragraphs to the Minister when requested to do
so either-
(a) within any time limit specified in the request; or
(b) if there is no time limit specified, within four weeks of the request.
RETURNS
27.--(1) The Licensee shall furnish to the Minister not later than 6 weeks
after the end of each calendar year which falls wholly or partly within the
period during which this licence is in force a return in a form from time to
time approved by the Minister of the progress of his operations in the licensed
area. Such return shall contain-
(a) a statement of all geological work, including surveys and tests, which
has been carried out and the areas in which and the persons by whom
the work has been carried out and the results thereof.
(b) the number and name (if any) assigned to each well, and in the case of
any well the drilling of which was begun or the number of which has
been changed during the period to which the return relates, the site
thereof,
(c) a statement of the depth drilled in each well;
(d) a statement of any petroleum, water, mines or workable seams of coal
or other minerals encountered in the course of the said operations;
and
(e) a statement of all petroleum won and saved.
(2) Within two months after the end of each calendar year in which this
licence is in force and within two months after the expiration or determination
of this licence or any renewal thereof the Licensee shall furnish to the
Minister an annual return in a form from time to time approved by the Minister
of the operations conducted in the licensed area during that year or the period
prior to such expiration or determination as the case may be together with a
plan upon a scale approved by the Minister showing the situation of all wells.
The Licensee shall also indicate on the said plan all development and other
works executed by him in connection with searching, boring for or getting
petroleum.
(3) The Licensee shall furnish the Minister with such information as the
Minister may from time to time request about any aspect of the activities of the
Licensee which are attributable directly or indirectly to the grant of this
licence, except that the Licensee shall not by virtue of this paragraph be
required to furnish information in respect of his activities in connection with
any crude oil after he has appropriated it for refining by him.
(4) The licensee shall comply with any request for information made in
accordance with paragraph (3) above either-
(a) within any time limit specified in the request; or
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(b) if there is no time limit specified, within four weeks of the request.
(5) For the purposes of paragraph (3) of this clause any reference to the
Minister shall be construed as if it included a reference to the Chancellor of
the Exchequer.
LICENSEE TO KEEP SAMPLES
28.--(1) As far as reasonably practicable the Licensee shall correctly label
and preserve for reference for a period of five years samples of the strata
encountered in any well (including, where the site of such well is on land
covered by water, the surface of such land) and samples of any petroleum or
water discovered in any well in the licensed area.
(2) The Licensee shall not dispose of any sample unless-
(a) he has at least six months before the date of the disposal given
notice in writing to the Minister of his intention to dispose of
the sample; and
(b) the Minister or any person authorised by him has not within the
said period of six months informed the Licensee in writing that he
wishes the sample to be delivered to him.
(3) The Minister or any person authorised by him shall be entitled at any
time-
(a) to inform the Licensee in writing that he wishes part of any sample
preserved by the Licensee to be delivered to him; or
(b) to inspect and analyse any sample preserved by the Licensee.
(4) The Licensee shall forthwith comply with any request for the delivery
of the whole or any part of any sample which is made in accordance with the
preceding provisions of this clause.
REPORTS TO BE TREATED AS CONFIDENTIAL
29. All records, returns, plans, maps, samples, accounts and information (in
this clause referred to as "the specified data") which the Licensee is or may be
from time to time required to furnish under the provisions of this licence shall
be supplied at the expense of the Licensee and shall not (except with the
consent in writing of the Licensee which shall not be unreasonably withheld) be
disclosed to any person not in the service or employment of the Crown:
Provided that-
(i) the Minister shall be entitled at any time to make use of any of
the specified data for the purpose of preparing and publishing
such returns and reports as may be required of the Minister by
law;
(ii) the Minister shall be entitled at any time to furnish any of the
specified data to the Natural Environment Research Council and to
any other body of a like nature as may from time to time be
carrying on activities of a substantially similar kind to the
geological activities at present carried on by the said Council;
(iii) the Minister, the said Council and any such other body shall be
entitled at any time to prepare and publish reports and surveys
of a general nature using information derived from any of the
specified data;
(iv) the Minister, the said Council and any such other body shall be
entitled to publish any of the specified data of a geological,
scientific or technical kind either-
(a) after the expiration of the period of five years beginning
with the date when the data was due to be supplied to the
Minister in accordance with clause 26 or 27 of this licence,
or if earlier, the date when the Minister received that
data; or
(b) after the expiration of such longer period as the Minister
may determine after considering any representations made to
him by the Licensee about the publication of data in
pursuance of this sub-paragraph.
INSPECTION OF RECORDS, ETC.
30. The Licensee shall-
(a) permit any person in the service or employment of the Crown who is
appointed by the Minister for the purpose to inspect, and to take
copies of and make notes from, all books, papers, maps, and other
records of any kind kept by the Licensee in pursuance of this
licence or in connection with activities about which the Minister
is entitled to obtain information in pursuance of clauses 24(3) and
27(3) of this licence; and
(b) furnish that person at reasonable times with such information and
provide him at reasonable times with such reasonable assistance as
he may request in connection with or arising out of an inspection
in pursuance of this clause.
RIGHTS OF ACCESS
31. Any person or persons authorised by the Minister shall be entitled at all
reasonable times to enter into and upon any land for the time being possessed or
occupied by the Licensee in the licensed
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area or to enter into and upon any of the Licensee's installations or equipment
used or to be used in connection with searching, boring for or getting petroleum
in the licensed area for the purposes hereinafter mentioned-
(a) to examine the installations, wells, plant, appliances and works made
or executed by the Licensee in pursuance of the licence and the state
of repair and condition thereof, and
(b) to execute any works or to provide and install any equipment which
the Minister may be entitled to execute or provide and install in
accordance with the provisions hereof.
POWER TO EXECUTE WORKS
32. If the Licensee shall at any time fail to perform the obligations arising
under the terms and conditions of any of clauses 12, 17, 20 or 21 of this
licence, the Minister shall be entitled, after giving to the Licensee reasonable
notice in writing of his intention to do so, to execute any works and to provide
and install any equipment which in the opinion of the Minister may be necessary
to secure the performance of the said obligations or any of them and to recover
the costs and expenses of so doing from the Licensee.
RIGHT OF DISTRESS
33. If and whenever any of the payments mentioned in clause 9(1) of this
licence or any part thereof shall be in arrear or unpaid for 28 days next
after any of the days whereon the same ought to be paid (whether the same
shall have been legally demanded or not) then and so often as the same may
happen the Minister may (as an additional remedy and without prejudice to the
power of distress and any other rights and remedies to which he would be
entitled) enter into and upon any land which shall for the time being be
possessed or occupied by the Licensee for the purposes of the licence or the
exercise of any of the rights thereby granted or into and upon any of the
Licensee's installations and equipment used or to be used in connection with
searching, boring for or getting petroleum in the licensed area and may seize
and distrain and sell as a landlord may do for rent in arrear all or any of
the stocks of petroleum, engines, machinery, tools, implements, chattels and
effects belonging to the Licensee which shall be found in or upon or about
the land installations and equipment so entered upon and out of the moneys
arising from the sale of such distress may retain and pay all the arrears of
the said payments and also the costs and expenses incident to any such
distress and sale rendering the surplus (if any) to the Licensee.
Note: WHEN THE LICENSED AREA IS SITUATE IN SCOTLAND OR IN WATERS ADJACENT
THERETO THE FOLLOWING PROVISION WILL BE SUBSTITUTED FOR THE FOREGOING CLAUSE.
34. If and whenever any of the payments mentioned in clause 9(1) of this
license or any part thereof shall be in arrear or unpaid for 28 days next
after any of the days whereon the same ought to be paid (whether the same
shall have been legally demanded or not) then and so often as the same may
happen the Minister may (as an additional remedy and without prejudice to any
other rights and remedies to which he would be entitled) do diligence in
respect thereof in like manner as a landlord may do diligence in respect of
unpaid arrears of rent and such diligence shall be effectual to attach all or
any of the stocks of petroleum, engines, machinery, tools, implements and
other effects belonging to the Licensee which shall be found in or upon any
land which shall for the time being be possessed or occupied by the Licensee for
the purposes of the licence or the exercise of any of the rights thereby
granted, or on or about any of the Licensee's installations and equipment
used or to be used in connection with searching, boring for or getting
petroleum in the licensed area, and where in pursuance of such a diligence a
sale of such effects as shall have been attached thereby takes place the
Minister may out of the proceeds thereof retain and pay all the arrears of
the said payments and also the expenses of and incident to such diligence and
sale and shall pay the surplus thereof (if any) to the Licensee.
INDEMNITY AGAINST THIRD PARTY CLAIMS
35. The Licensee shall at all times keep the Minister effectually indemnified
against all actions, proceedings, costs, charges, claims and demands whatsoever
which may be made or brought against the Minister by any third party in relation
to or in connection with this licence or any matter or thing done or purported
to be done in pursuance thereof.
ADVERTISEMENTS, PROSPECTUSES, ETC.
36. No statement shall be made either in any notice, advertisement,
prospectus or other document issued by or the knowledge of the Licensee or
in any other manner claiming or suggesting whether expressly or by implication
that Her Majesty or any Government Department or any person or body acting on
behalf of Her Majesty has or have formed or expressed any opinion that the
licensed area is from its geological formation or otherwise one in which
petroleum is likely to be obtainable.
RESTRICTIONS ON ASSIGNMENT, ETC.
37--(1) The Licensee shall not, except with the consent in writing of the
Minister and in accordance with the conditions (if any) of the consent do
anything whatsoever whereby, under the law (including
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the rules of equity) of any part of the United Kingdom or of any other place,
any right granted by this licence or derived from a right so granted becomes
exercisable by or for the benefit of or in accordance with the directions of
another person.
(2) The Licensee shall not enter into any agreement providing for a person
other than the Licensee to become entitled to, or to any proceeds of sale of,
any petroleum which, at the time when the agreement is made, has not been but
may be won and saved from the licensed area unless the terms of the agreement
have been approved in writing by the Minister either unconditionally or subject
to conditions, but the preceding provisions of this paragraph do not apply to-
(a) an agreement for the sale of such petroleum under which the price is
payable after the petroleum is won and saved; and
(b) an agreement in so far as it provides that, after any petroleum has
been won and saved from the licensed area, it shall be exchanged for
other petroleum.
(3) The Licensee shall not, without the consent of the Minister, dispose of
any petroleum won and saved in the licensed area or any proceeds of sale of such
petroleum in such a manner that the disposal does, to the knowledge of the
Licensee or without his knowing it, fulfil or enable another person to fulfil
obligations which a person who controls the Licensee, or a person who is
controlled by a person who controls the Licensee, is required to fulfil by an
agreement which, if the person required to fulfil the obligations were the
Licensee, would be an agreement of which the terms require approval by virtue of
paragraph (2) of this clause.
(4) Whether for the purposes of paragraph (3) of this clause a person has
control of another person shall be determined as if subsections (2) and (4) to
(6) of section 416 of the Income and Corporation Taxes Act 1988 applied subject
to the following modifications, namely--
(a) for the words "the greater part" wherever they occur in the said
subsection (2) there were substituted the words "one-third or more";
and
(b) in the said subsection (6), for the word "may" there were substituted
the word "shall", the words from "and such attributions" onwards were
omitted and in the other provisions of that subsection any reference
to an associate of a person fell to be construed as including only a
relative of his (as defined by section 417(4) of that Act), a partner
of his and a trustee of a settlement (as defined by section 681(4) of
that Act) of which he is a beneficiary.
(5) Where the Licensee is two or more persons, then, without prejudice to the
preceding provisions of this clause, none of those persons shall enter into an
agreement with respect to the entitlement of any of them to-
(a) the benefit of any right granted by this licence;
(b) any petroleum won and saved from the licensed area; or
(c) any proceeds of sale of such petroleum,
unless the terms of the agreement have been approved in writing by the Minister,
but the preceding provisions of this paragraph do not apply to an agreement for
the sale of such petroleum under which the price is payable after the petroleum
is won and saved and an agreement in so far as it provides that, after any
petroleum has been won and saved from the licensed area, it shall be exchanged
for other petroleum.
POWER OF REVOCATION
38.--(1) If any of the events specified in the following paragraph shall
occur then and in any such case the Minister may revoke this licence and
thereupon the same and all the rights hereby granted shall cease and determine
but subject nevertheless and without prejudice to any obligation or liability
incurred by the Licensee or imposed upon him by or under the terms and
conditions hereof.
(2) The events referred to in the foregoing paragraph are-
(a) any payments mentioned in clause 9(1) of this licence or any part
thereof being in arrear or unpaid for two months next after any of the
days whereon the same ought to have been paid;
(b) any breach or non-observance by the Licensee of any of the terms and
conditions of this licence;
(c) the bankruptcy of the Licensee;
(d) the making by the Licensee of any arrangement or composition with his
creditors;
(e) if the Licensee is a company, appointment of a receiver or any
liquidation whether compulsory or voluntary;
(f) any breach or non-observance by the Licensee of the terms and
conditions of a development scheme;
(g) if the Licensee is a company, the Licensee's ceasing to direct and
control either-
(i) its operations under the licence; or
(ii) any commercial activities in connection with those operations
from a fixed place within the United Kingdom;
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(h) any breach of a condition subject to which the Minister gave his
approval in pursuance of clause 37(2) of this licence;
(i) any breach of clause 37(5) of this licence;
and where two or more persons are the Licensee any reference to the Licensee in
sub-paragraphs (c) to (g) of this paragraph is a reference to any of those
persons.
(3) The Minister may revoke this licence, with the like consequences as are
mentioned in paragraph (1) of this clause, if-
(a) the Licensee is a company;
(b) there is a change in the control of the Licensee;
(c) the Minister serves notice in writing on the Licensee stating that the
Minister proposes to revoke this licence in pursuance of this
paragraph unless such a further change in the control of the Licensee
as is specified in the notice takes place within the period of three
months beginning with the date of service of the notice; and
(d) that further change does not take place within that period.
(4) There is a change in the control of the Licensee for the purposes of
paragraph (3)(b) of this clause whenever a person has control of the Licensee
who did not have control of the Licensee when this licence was granted; and
whether for the purposes of paragraph (3)(b) of this clause a person has control
of another person shall be determined as if subsections (2) and (4) to (6) of
section 416 of the Income and Corporation Taxes Act 1988 applied subject to the
following modifications, namely-
(a) for the words "the greater part" wherever they occur in the said
subsection (2) there were substituted the words "one-third or more";
and
(b) in the said subsection (6), for the word "may" there were substituted
the word "shall", the words from "and such attributions" onwards were
omitted and in the other provisions of that subsection any reference
to an associate of a person fell to be construed as including only a
relative of his (as defined by section 417(4) of that Act), a partner
of his and a trustee of a settlement (as defined by section 681(4) of
that Act) of which he is a beneficiary.
(5) Where two or more persons are the Licensee and any of them is a company,
paragraphs (3) and (4) of this clause shall have effect as if-
(a) sub-paragraph (a) of paragraph (3) were omitted;
(b) in sub-paragraph (b) of that paragraph, after the word "of" there were
inserted the words "any company included among the persons who
together constitute"; and
(c) for the word "Licensee" in any other provision of those paragraphs
there were substituted the word "company".
ARBITRATION
39.--(1) If at any time any dispute, difference or question shall arise
between the Minister and the Licensee as to any matter arising under or by
virtue of this licence or as to their respective rights and liabilities in
respect thereof then the same shall, except where it is expressly provided by
this licence that the matter or thing to which the same relates is to be
determined, decided, directed, approved or consented to by the Minister, be
referred to arbitration as provided by the following paragraph.
(2) The arbitration referred to in the foregoing paragraph shall be in
accordance with the Arbitration Act 1950 by a single arbitrator who, in default
of agreement between the Minister and the Licensee and, in the case of
arbitration in relation to a development scheme, other Licensees affected by
that scheme, as to his appointment, shall be appointed by the Lord Chief Justice
of England for the time being.
Note: WHERE THE LICENSED AREA IS SITUATE IN SCOTLAND OR IN WATERS ADJACENT
THERETO THE FOLLOWING PROVISIONS WILL BE SUBSTITUTED FOR THE LAST TWO FOREGOING
PARAGRAPHS.
(2A) The arbitration referred to in the foregoing paragraph shall be by a
single arbiter who, in default of agreement between the Minister and the
Licensee and, in the case of arbitration relating to a development scheme, other
Licensees affected by that scheme, as to his appointment, shall be appointed by
the Lord President of the Court of Session.
(3) In the case of any such arbitration which relates to a development scheme
the Licensee shall, unless the arbitrator otherwise determines, perform and
observe the terms and conditions of the development scheme pending the decision
of the arbitrator.
Note: IN ANY LICENCE INCORPORATING PARAGRAPH (2A) IN SUBSTITUTION FOR PARAGRAPH
(2) OF THIS CLAUSE, THE PARAGRAPH (3A) FOLLOWING WILL BE SUBSTITUTED FOR THE
FOREGOING PARAGRAPH (3).
(3A) In the case of any such arbitration which relates to a development
scheme the Licensee shall, unless the arbiter otherwise determines, perform and
observe the terms and conditions of the development scheme pending the decision
of the arbiter.
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Note: SCHEDULES TO EACH LICENCE WILL (1) IDENTIFY THE BLOCKS TO WHICH THE
LICENCE RELATES, (2) PROVIDE FOR THE PAYMENT BY THE LICENSEE OF SUMS WHICH MAY
INCLUDE INITIAL PAYMENTS ON THE GRANT OF THE LICENCE AND ANNUAL PAYMENTS PAYABLE
IN ADVANCE, (3) SPECIFY THE RATE AT WHICH ROYALTY IS TO BE ASSESSED AND (4) SET
OUT WORKING OBLIGATIONS.
LICENCES WILL BE EXECUTED AS DEEDS IN DUPLICATE BY ALL PARTIES THERETO.
SCHEDULE 4 Regulation 9(2)(b)
MODEL CLAUSES FOR SUPPLEMENTARY SEISMIC SURVEY
LICENCES IN LANDWARD AREAS
INTERPRETATION
1.--(1) In the following clauses the following expressions have the meanings
hereby respectively assigned to them, that is to say:-
"the Act of 1934" means the Petroleum (Production) Act 1934;
"the exploration area" means the area for the time being within which the
Licensee may exercise the rights granted by this licence;
"the Licensee" means the person or persons to whom this licence is granted,
his personal representatives and any person or persons to whom the rights
conferred by this licence may lawfully have been assigned;
"the Minister" means the Secretary of State for Trade and Industry;
"petroleum" includes any mineral oil or relative hydrocarbon and methane or
any other natural gas existing in its natural condition in strata, but does
not include coal or bituminous shales or other stratified deposits from
which oil can be extracted by destructive distillation;
"the principal licence" has the meaning assigned thereto by clause 2.
(2) Any obligations which are to be observed and performed by the Licensee
shall at any time at which the Licensee is more than one person be joint and
several obligations.
RIGHT TO SEARCH FOR PETROLEUM BY UNDERTAKING SEISMIC SURVEYS
2. In consideration of the payments hereinafter provided and the performance
and observance by the Licensee of all the terms and conditions hereof, the
Minister in exercise of his powers under the Act of 1934 hereby grants to the
Licensee, as holder of Licence No. (hereinafter referred to
as "the principal licence") LICENCE AND LIBERTY in common with any other persons
to whom the like right may have been granted or may hereafter be granted during
the continuance of this licence and subject to the provisions hereof to search
for petroleum underlying the area to which the principal licence relates by
undertaking seismic surveys in the adjacent area more particularly described in
Schedule 1 to this licence.
Provided that nothing in this licence shall affect the right of the Minister
to grant other licences under the Act of 1934 in respect of the whole or any
part of the exploration area, or affect the exercise of any rights granted by
such licence.
TERM OF LICENCE
3. This licence unless sooner determined under or consequent upon any of the
provisions hereof shall be and continue in force for the term of 12 months next
after
AUTOMATIC TERMINATION OF LICENCE
4.--(1) This licence shall automatically cease and determine-
(a) on the termination of the principal licence, and
(b) on the grant of a petroleum exploration and development licence in
respect of an area which includes the whole of the exploration area.
(2) Where a petroleum exploration and development licence is granted in
respect of part of the exploration area, this licence shall automatically cease
and determine as regards that part.
(3) Any termination or partial termination of this licence shall be without
prejudice to any obligation or liability imposed upon the Licensee or incurred
by him under the terms and conditions of this licence.
PAYMENT OF CONSIDERATION FOR LICENCE
5.--(1) The Licensee shall make to the Minister the payment specified in
Schedule 2 to this licence as consideration for the grant of this licence.
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(2) The Licensee shall not by reason of the termination of this licence be
entitled to be repaid or allowed all or any part of the sum payable to the
Minister hereunder.
SEISMIC SURVEYS
6.--(1) The Licensee shall give the Minister at least 21 days written notice
of any seismic survey he proposes to undertake and such notice shall indicate
the nature of the survey and the total distance to be shot and shall be
accompanied by a copy of an Ordnance Survey map drawn to the scale of 1:50,000
or 1:63,360 for the relevant area upon which the proposed lines of survey are
indicated, and by evidence that the planning authorities for the area to be
surveyed have been consulted about the proposed survey and, in a case where any
planning permission under the Town and Country Planning Act 1990 or the Town and
Country Planning (Scotland) Act 1972 is required for the survey in question,
evidence that such permission has been granted.
(2) The Licensee shall not carry out any seismic survey if notice thereof has
not been given as aforesaid or if the Minister indicates to the Licensee within
fourteen days of the receipt of such notice that the survey is not to be carried
out.
LICENSEE TO KEEP RECORDS
7.--(1) The Licensee shall keep in the United Kingdom accurate geological
plans and maps relating to the exploration area and such other records in
relation thereto as may be necessary to preserve all information which the
Licensee has about the geology of the exploration area.
(2) The Licensee shall deliver copies of the said records, plans and maps
referred to in the foregoing paragraph to the Minister when requested to do so
either-
(a) within any time limit specified in the request; or
(b) if there is no time limit specified, within four weeks of the request.
RETURNS
8.--(1) The Licensee shall furnish to the Minister, six months from the date
of this licence and upon the termination of this licence, a return in a form
from time to time approved by the Minister of the progress of his operations in
the exploration area. Such return shall contain a statement of the areas in
which any surveys have been carried out.
(2) The Licensee shall furnish to the Minister such other information, in the
form of maps and plans, as to the progress of his operations in the exploration
area as the Minister may from time to time request either-
(a) within any time limit specified in the request; or
(b) if there is no time limit specified, within four weeks of the request.
REPORTS TO BE TREATED AS CONFIDENTIAL
9. All records, returns, plans, maps and information (in this clause referred
to as "the specified data") which the Licensee is or may be from time to time
required to furnish under the provisions of this licence shall be supplied at
the expense of the Licensee and shall not (except with the consent in writing of
the Licensee which shall not be unreasonably withheld) be disclosed to any
person not in the service or employment of the Crown:
Provided that-
(i) the Minister shall be entitled at any time to make use of any of the
specified data for the purpose of preparing and publishing such
returns and reports as may be required of the Minister by law;
(ii) the Minister shall be entitled at any time to furnish any of the
special data to the Natural Environment Research Council and to any
other body of a like nature as may from time to time be carrying on
activities of a substantially similar kind to the geological
activities at present carried on by the said Council;
(iii) the Minister, the said Council and any such other body shall be
entitled at any time to prepare and publish reports and surveys of a
general nature using information derived from any of the specified
data;
(iv) the Minister, the said Council and any such other body shall be
entitled to publish any of the specified data of a geological,
scientific or technical kind either-
(a) after the expiration of the period of five years beginning with
the date when the data was due to be supplied to the Minister in
accordance with clause 7 or 8 of this licence, or if earlier, the
date when the Minister received that data; or
(b) after the expiration of such longer period as the Minister may
determine after considering any representations made to him by
the Licensee about the publication of data in pursuance of this
sub-paragraph.
27
<PAGE>
POWER TO INSPECT RECORDS
10. Any person authorised by the Minister may at all reasonable times inspect
and make abstracts or copies of any records, returns, plans or maps which the
Licensee is required to keep or make in accordance with the provisions of this
licence.
INDEMNITY AGAINST THIRD PARTY CLAIMS
11. The Licensee shall at all times keep the Minister effectually indemnified
against all actions, proceedings, costs, charges, claims and demands whatsoever
which may be made or brought against the Minister by any third party in relation
to or in connection with this licence or any matter or thing done or purported
to be done in pursuance thereof.
AGREEMENT NOT TO ASSIGN
12. The Licensee shall not without the consent of the Minister in writing
assign or part with any of the rights granted by this licence in relation to the
whole or any part of the exploration area or grant any sub-licence in respect of
any of such rights.
POWER OF REVOCATION
13. The Minister may revoke this licence in the event of any breach or
non-observance by the Licensee of any of the terms and conditions of this
licence, and thereupon the same and all the rights hereby granted shall cease
and determine but subject nevertheless and without prejudice to any obligation
or liability imposed upon the Licensee or incurred by him under the terms and
conditions hereof.
ARBITRATION
14.--(1) If at any time any dispute, difference or question shall arise
between the Minister and the Licensee as to any matter arising under or by
virtue of this licence or as to their respective rights and liabilities in
respect thereof then the same shall, except where it is expressly provided by
this licence that the matter or thing to which the same relates is to be
determined, decided, approved or consented to by the Minister, be referred to
arbitration as provided by the following paragraph.
(2) The arbitration referred to in the foregoing paragraph shall be in
accordance with the Arbitration Act 1950 by a single arbitrator who, in default
of agreement between the Minister and the Licensee as to his appointment, shall
be appointed by the Lord Chief Justice of England.
Note: WHERE THE LICENSED AREA IS SITUATE IN SCOTLAND THE FOLLOWING PROVISION
WILL BE SUBSTITUTED FOR THE LAST FOREGOING PARAGRAPH.
(2A) The arbitration referred to in the foregoing paragraph shall be by a
single arbiter who, in default of agreement between the Minister and the
Licensee as to his appointment, shall be appointed by the Lord President of the
Court of Session.
Note: SCHEDULES TO EACH LICENCE WILL DESCRIBE THE AREA TO WHICH THE LICENCE
RELATES AND SPECIFY THE PAYMENT TO BE MADE BY THE LICENSEE IN CONSIDERATION FOR
THE GRANT OF THE LICENCE.
LICENCES WILL BE EXECUTED AS DEEDS IN DUPLICATE BY ALL PARTIES THERETO.
SCHEDULE 5 Regulation 9(2)(c)
MODEL CLAUSES FOR METHANE DRAINAGE LICENCES
INTERPRETATION
1.--(1) In the following clauses the following expressions have the meanings
hereby respectively assigned to them, that is to say-
"the Act" means the Petroleum (Production) Act 1934;
"the Licensed area" means the area in which the Licensee may exercise the
rights granted by this licence;
"the Licensee" means the person or persons to whom this licence is granted,
his personal representatives and any person or persons to whom the rights
conferred by this licence may lawfully have been assigned;
"mine" has the same meaning as in the Mines and Quarries Act 1954;
"the Minister" means the Secretary of State for Trade and Industry.
(2) Any obligations which are to be observed and performed by the Licensee
shall at any time at which the Licensee is more than one person be joint and
several obligations.
28
<PAGE>
2. In consideration of the payments hereinafter provided and the performance
and observance by the Licensee of all the terms and conditions hereof, the
Minister in exercise of the powers conferred by the Act, hereby grants to the
Licensee LICENCE AND LIBERTY during the continuance of this licence and subject
to the provisions hereof to get natural gas in the course of operations for
making and keeping safe mines whether or not disused within ALL THOSE lands
having a superficial area of _______________________ or thereabouts, situate in
the County (Counties) of __________________________ and more particularly
delineated and described on the Ordnance Survey map annexed hereto and thereon
edged red.
TERM OF LICENCE
3. This licence unless sooner determined under any of the provisions hereof
shall be and continue in force for the term of _________________ next after
________________
RIGHT OF LICENSEE TO DETERMINE LICENCE
4. Without prejudice to any obligation or liability imposed by or incurred
under the terms and conditions hereof the Licensee may at any time during the
term hereby granted determine this licence by giving to the Minister not less
than one month's previous notice in writing to that effect.
PAYMENT OF CONSIDERATION FOR LICENCE
5.--(1) The Licensee shall pay to the Minister during the term of this
licence the consideration for the grant of this licence specified in the
Schedule to this licence at the times and in the manner so specified.
(2) The Licensee shall not by reason of the determination of this licence be
entitled to be repaid or allowed any part of any sum payable to the Minister
pursuant to this licence.
RECORDS
6. The Licensee shall keep and furnish to the Minister such records relating
to the operations conducted in the licensed area under this licence, the results
thereof and the disposal of any natural gas won and saved as the Minister may
from time to time determine.
POWER TO INSPECT ACCOUNTS, ETC.
7. Any person authorised by the Minister may at all reasonable times enter
into and upon any land for the time being possessed or occupied by the Licensee
in the licensed area and inspect and make abstracts or copies of any records or
accounts which the Licensee is required to keep or make in accordance with the
provisions of this licence.
RECORDS TO BE TREATED AS CONFIDENTIAL
8. All records, accounts and information which the Licensee is or may be from
time to time required to furnish under the provisions of this licence shall be
supplied at the expense of the Licensee and shall not (except with the consent
in writing of the Licensee which shall not be unreasonably withheld) be
disclosed to any person not in the service or employment of the Crown. The
Minister shall nevertheless be entitled at any time to make use of any
information received from the Licensee for the purpose of preparing and
publishing such returns and reports as may be required of the Minister by law.
NOTICE OF COMMENCEMENT AND TERMINATION OF OPERATIONS
9. As soon as the licensee has decided to get natural gas at any place he
shall notify the Minister in writing of the situation thereof stating-
(a) the name of the mine for the safety of which the operations are to be
undertaken;
(b) whether such mine is a disused mine or not.
The Licensee shall also give to the Minister notice in writing of the
termination of any such operations within one month of the date of termination.
INDEMNITY AGAINST THIRD PARTY CLAIMS
10. The Licensee shall at all times keep the Minister effectually indemnified
against all actions, proceedings, costs, charges, claims and demands whatsoever
which may be made or brought against the Minister by any third party in relation
to or in connection with this licence or any matter or thing done or purported
to be done in pursuance thereof.
AGREEMENT NOT TO ASSIGN
11. The Licensee shall not without the consent of the Minister in writing
assign or part with any of the rights granted by this licence in relation to the
whole or any part of the licensed area or grant any sub-licence in respect of
any of such rights.
29
<PAGE>
POWER OF REVOCATION
12. If there shall be any breach or non-observance by the Licensee of any of
the terms and conditions herein contained the Minister may revoke this licence
and thereupon the same and all the rights hereby granted shall cease and
determine but subject nevertheless and without prejudice to any obligation or
liability imposed by or incurred under the terms and conditions hereof.
ARBITRATION
13.--(1) If at any time any dispute, difference or question shall arise
between the Minister and the Licensee as to any matter arising under or by
virtue of this licence or as to their respective rights and liabilities in
respect thereof then the same shall, except where it is expressly provided by
this licence that the matter or thing to which the same relates is to be
determined or consented to by the Minister, be referred to arbitration as
provided by the following paragraph.
(2) The arbitration referred to in the foregoing paragraph shall be in
accordance with the Arbitration Act 1950 by a single arbitrator who, in default
of agreement between the Minister and the licensee as to his appointment, shall
be appointed by the Lord Chief Justice of England for the time being.
Note: WHERE THE LICENSED AREA IS SITUATE IN SCOTLAND THE FOLLOWING PARAGRAPH
WILL BE SUBSTITUTED FOR THE LAST FOREGOING PARAGRAPH.
(2A) The arbitration referred to in the foregoing paragraph shall be by a
single arbiter who, in default of agreement between the Minister and the
Licensee as to his appointment, shall be appointed by the Lord President of the
Court of Session.
Note: A SCHEDULE TO EACH LICENCE WILL PROVIDE FOR THE PAYMENT BY THE LICENSEE
OF SUMS AGREED BETWEEN THE MINISTER AND THE TREASURY WHICH MAY INCLUDE ANNUAL
PAYMENTS PAYABLE IN ADVANCE.
LICENCES WILL BE EXECUTED AS DEEDS IN DUPLICATE BY ALL PARTIES THERETO.
30
<PAGE>
EXPLANATORY NOTE
(THIS NOTE IS NOT PART OF THE REGULATIONS)
These Regulations provide for applications to the Secretary of State for
licences to search for and get petroleum in Great Britain and those islands and
waters adjacent to it which are "landward areas" as defined in the Regulations.
They also set out model clauses which are to be incorporated in such licences
unless the Secretary of State thinks fit to modify or exclude them in any
particular case. The Regulations supersede the Petroleum (Production) (Landward
Areas) Regulations 1991 (S.I. 1991/981), except as respects licences applied for
before the date on which these Regulations come into force.
Regulation 3(3) disapplies the Petroleum (Production) Regulations 1982 (S.I.
1982/1000) in respect of applications made after the date on which these
Regulations come into force for methane drainage licences and the model clauses
that such licences may contain. The model clauses for methane drainage licences
are now contained in Schedule 5 to these Regulations. The principal amendment
to these model clauses is that model clause 3 no longer prescribes a 25 year
term for the licence.
These Regulations introduce a single exploration and development licence which
confers exclusive rights in relation to a particular landward area in place of
the separate exploration, appraisal and development licences available under the
1991 Regulations. M.c.3 provides that the initial term of this licence is six
years (which corresponds to the six year term of an exploration licence) which
may be continued for a further five years (which corresponds to the five year
term of an appraisal licence) and this can be extended for a 20 year period
(which corresponds to the 20 year term of a development licence).
Regulation 7 of these Regulations implements paragraphs 1 to 5 inclusive of
Article 3 and partially implements paragraph 1 of Article 5 of Council
Directive 94/22/EEC on the conditions for granting and using authorisations
for the prospection, exploration and production of hydrocarbons (O.J. L 164,
30.6.94, p. 3) by introducing a new procedure for applications for licences.
Details of the blocks to be licensed, the latest date upon which applications
are to be made and the period within which licences are to be granted are to
be published in the Official Journal of the European Communities. The
regulation also introduces a procedure whereby licensees may apply for a
licence for an area contiguous to the area or areas covered by their existing
licence if the Secretary of State decides that geological or production
considerations justify the grant of such a licence.
Changes of substance in the model clauses are as follows. There is now no
model clause which provides for the delivery of petroleum in place of the
payment of the royalty. The Minister is prohibited from giving instructions to
a licensee concerning the training of any employee or prospective employee
without first consulting the Offshore Petroleum Industry Training Organisation
Limited or any body exercising similar activities (m.c.24). The model clauses
now specify the date for compliance with requests for information from the
Secretary of State and modify the length of time for which information supplied
pursuant to such requests remains confidential.
The model clauses for a supplementary seismic survey licence are now contained
in Schedule 4 to these Regulations.
L5.60 net
<PAGE>
This DEED OF VARIATION is made the 9TH day of January, 1997 between THE
SECRETARY OF STATE FOR TRADE AND INDUSTRY (hereinafter referred to as "the
Minister") of the one part and EVERGREEN RESOURCES (UK) LIMITED (hereinafter
referred to as "the Licensee") of the other part, supplemental to licence number
EXL 201 (hereinafter referred to as "the Licence") made the fifteenth day of
October 1991 between THE MINISTER of the one Part and the Licensee of the other
part
WHEREAS:
(A) The functions of THE SECRETARY OF STATE FOR ENERGY were transferred to
THE SECRETARY OF STATE FOR TRADE AND INDUSTRY by the Transfer of Functions
(Energy) Order 1992 (SI 1992/1314)
(B) The Minister has agreed with the Licensee that the Licence should be
varied so as to have effect as a Petroleum Exploration and Development
Licence, incorporating the model clauses prescribed for incorporation in
such a Licence
<PAGE>
NOW THIS DEED WITNESSETH AS FOLLOWS
1. The Licence shall have effect subject to the following
amendments -
(a) the substitution, in place of the words of paragraph A before "shall
be incorporated herein" of the words
"Clause 1, and clauses 4 to 39 of the model clauses for petroleum
exploration and development licences in landward areas set out in
schedule 3 to the Petroleum (Production) (Landward Areas) Regulations
1995 (S.I. 1995 No. 1436)";
(b) the omission from paragraph C of the words "in the course of
exploration (but not further or otherwise)";
(c) the substitution, in place of the words "clause 7 and clause 8" in
paragraph D, of the words "clause 9 and clause 14";
(d) the substitution, in place of Schedule 2 to the licence, of Schedule 1
to this deed, and the substitution in place of Schedule 3 to the Licence of
Schedule 2 to this deed.
<PAGE>
IN WITNESS whereof the Corporate Seal of the Minister and the Common Seal of the
Licensee have been hereunto affixed the day and year first above written.
THE CORPORATE SEAL of )
THE SECRETARY OF STATE FOR ) [SEAL]
TRADE AND INDUSTRY hereunto affixed is )
authenticated by:-
/s/ [ILLEGIBLE]
........................................
Authorised by the Secretary of State
The Common Seal of EVERGREEN RESOURCES (UK) LIMITED )
was hereunto affixed in the )
presence of:- )
/s/ [ILLEGIBLE]
.......................................... Director
/s/ [ILLEGIBLE]
.......................................... Secretary
<PAGE>
EXL 201
Schedule I
1. (1) The licensee shall pay to the Minister upon the grant and thereafter
during the term of this licence upon the anniversaries of the date (hereinafter
referred to as "the said date") specified in Clause B of this Licence sums
calculated as follows -
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(a) upon the sixth anniversary of the said date L50 Multiplied by the area factor
(b) upon the seventh anniversary of the said date L100 "
(c) upon the eighth anniversary of the said date L150 "
(d) upon the ninth anniversary of the said date L200 "
(e) upon the tenth anniversary of the said date L250 "
(f) upon the eleventh anniversary of the said date L300 "
(g) upon the twelfth anniversary of the said date L400 "
(h) upon the thirteenth anniversary of the said date L500 "
(i) upon the fourteenth anniversary of the said date L600 "
(j) upon the fifteenth anniversary of the said date L700 "
(k) upon the sixteenth anniversary of the said date L800 "
(l) upon the seventeenth anniversary of the said date L900 "
(m) upon the eighteenth anniversary of the said date L1000 "
(n) upon the nineteenth anniversary of the said date L1100 "
(o) upon the twentieth and every subsequent anniversary of the said date L1200 multiplied
by the area factor
</TABLE>
(2) In this paragraph "the area factor" means the number of square
kilometres comprised in the licensed area at the date upon which the periodic
payment becomes due.
<PAGE>
(3) The payments specified in sub-paragraph (1) above shall be subject to
variation in accordance with the following provisions:
(a) The annual payment shall be increased or subsequently reduced in line
with movements in the Index of the Price of Crude Oil acquired by
Refineries (published in the Digest of UK Energy Statistics) if the
Minister so determines. The Minister shall give notice of any such
determination ("biennial determination") during the month preceding the
eighth anniversary of the date of commencement of this licence or any
subsequent two-yearly anniversary of that date, and shall specify in the
notice the increase or reduction in the amount payable. Movements in the
Index shall be calculated by reference to a comparison between the
arithmetic mean of the Index levels for the two latest calendar years for
which figures are available at the time when the determination is made, and
the arithmetic mean of the Index levels for 1992 and 1993. In the event
that the Index of the Price of Crude Oil acquired by Refineries ceases to
be published, the Minister may substitute arrangements for redetermination
of annual payments having substantially similar effect to those set out
above based on such other comparable Index as he may determine.
(b) The increase or reduction specified in a biennial determination shall
be payable or take effect on the anniversary of the date of commencement of
this licence next following the date of the relevant determination.
(c) No biennial determination shall have effect so as to reduce the annual
payments below the levels set out in sub-paragraph (1) above.
(d) The Minister shall not make a biennial determination increasing or
reducing the amounts payable, where that increase or reduction would be
less than 5% of the levels set following the previous biennial
determination.
<PAGE>
EXL 201
Schedule 2
WORKING OBLIGATIONS
By 30th September, 1998 the Licensee shall in respect of Blocks SJ06, SJ07,
SJ08, SJ15, SJ16 and SH97 complete a remote sensing study by means of High
Altitude Aerial Photography and Landsat Infrared Satellite Imagery to
identify geological and geomorphological features indicative of areas of
enhanced permeability.
<PAGE>
This DEED OF VARIATION is made the 9TH day of January, 1997 between THE
SECRETARY OF STATE FOR TRADE AND INDUSTRY (hereinafter referred to as "the
Minister") of the one part and EVERGREEN RESOURCES (UK) LIMITED (hereinafter
referred to as "the Licensee") of the other part, supplemental to licence number
EXL 202 (hereinafter referred to as "the Licence") made the fifteenth day of
October 1991 between THE MINISTER of the one Part and the Licensee of the other
part
WHEREAS:
(A) The functions of THE SECRETARY OF STATE FOR ENERGY were transferred to
THE SECRETARY OF STATE FOR TRADE AND INDUSTRY by the Transfer of Functions
(Energy) Order 1992 (SI 1992/1314)
(B) The Minister has agreed with the Licensee that the Licence should be
varied so as to have effect as a Petroleum Exploration and Development
Licence, incorporating the model clauses prescribed for incorporation in
such a Licence
<PAGE>
NOW THIS DEED WITNESSETH AS FOLLOWS
1. The Licence shall have effect subject to the following
amendments -
(a) the substitution, in place of the words of paragraph A before "shall
be incorporated herein" of the words
"Clause l, and clauses 4 to 39 of the model clauses for petroleum
exploration and development licences in landward areas set out in
schedule 3 to the Petroleum (Production) (Landward Areas) Regulations
1995 (S.I. 1995 No. 1436)";
(b) the omission from paragraph C of the words "in the course of
exploration (but not further or otherwise)";
(c) the substitution, in place of the words "clause 7 and clause 8" in
paragraph D, of the words "clause 9 and clause 14";
(d) the substitution, in place of Schedule 2 to the licence, of Schedule 1
to this deed, and the substitution in place of Schedule 3 to the Licence of
Schedule 2 to this deed.
<PAGE>
IN WITNESS whereof the Corporate Seal of the Minister and the Common Seal of the
Licensee have been hereunto affixed the day and year first above written.
THE CORPORATE SEAL of )
THE SECRETARY OF STATE FOR ) -----------------
TRADE AND INDUSTRY hereunto affixed is )
authenticated by:-
/s/ [ILLEGIBLE]
........................................
Authorised by the Secretary of State
The Common Seal of EVERGREEN RESOURCES (UK) LIMITED )
was hereunto affixed in the )
presence of:- )
/s/ [ILLEGIBLE]
.......................................... Director
/s/ [ILLEGIBLE]
.......................................... Secretary
<PAGE>
EXL 202
Schedule I
1. (1) The licensee shall pay to the Minister upon the grant and thereafter
during the term of this licence upon the anniversaries of the date (hereinafter
referred to as "the said date") specified in Clause B of this Licence sums
calculated as follows -
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(a) upon the sixth anniversary of the said date L50 Multiplied by the area factor
(b) upon the seventh anniversary of the said date L100 "
(c) upon the eighth anniversary of the said date L150 "
(d) upon the ninth anniversary of the said date L200 "
(e) upon the tenth anniversary of the said date L250 "
(f) upon the eleventh anniversary of the said date L300 "
(g) upon the twelfth anniversary of the said date L400 "
(h) upon the thirteenth anniversary of the said date L500 "
(i) upon the fourteenth anniversary of the said date L600 "
(j) upon the fifteenth anniversary of the said date L700 "
(k) upon the sixteenth anniversary of the said date L800 "
(l) upon the seventeenth anniversary of the said date L900 "
(m) upon the eighteenth anniversary of the said date L1000 "
(n) upon the nineteenth anniversary of the said date L1100 "
(o) upon the twentieth and every subsequent anniversary of the said date L1200 multiplied
by the area factor
</TABLE>
(2) In this paragraph "the area factor" means the number of square
kilometres comprised in the licensed area at the date upon which the periodic
payment becomes due.
<PAGE>
(3) The payments specified in sub-paragraph (1) above shall be subject to
variation in accordance with the following provisions:
(a) The annual payment shall be increased or subsequently reduced in line
with movements in the Index of the Price of Crude Oil acquired by
Refineries (published in the Digest of UK Energy Statistics) if the
Minister so determines. The Minister shall give notice of any such
determination ("biennial determination") during the month preceding the
eighth anniversary of the date of commencement of this licence or any
subsequent two-yearly anniversary of that date, and shall specify in the
notice the increase or reduction in the amount payable. Movements in the
Index shall be calculated by reference to a comparison between the
arithmetic mean of the Index levels for the two latest calendar years for
which figures are available at the time when the determination is made, and
the arithmetic mean of the Index levels for 1992 and 1993. In the event
that the Index of the Price of Crude Oil acquired by Refineries ceases to
be published, the Minister may substitute arrangements for redetermination
of annual payments having substantially similar effect to those set out
above based on such other comparable Index as he may determine.
(b) The increase or reduction specified in a biennial determination shall
be payable or take effect on the anniversary of the date of commencement of
this licence next following the date of the relevant determination.
(c) No biennial determination shall have effect so as to reduce the annual
payments below the levels set out in sub-paragraph (1) above.
(d) The Minister shall not make a biennial determination increasing or
reducing the amounts payable, where that increase or reduction would be
less than 5% of the levels set following the previous biennial
determination.
<PAGE>
EXL 202
Schedule 2
WORKING OBLIGATIONS
By 31st December, 1997 the Licensee shall in respect of Blocks SN80 and SS89
complete a remote sensing study by means of High Altitude Aerial Photography and
Landsat Infrared Satellite Imagery to identify geological and geomorphological
features indicative of areas of enhanced permeability.
202 - 6 Lyncastle.
Area = 200 km. SQUARED
<PAGE>
This DEED OF VARIATION is made the 9th day of January, 1997 between THE
SECRETARY OF STATE FOR TRADE AND INDUSTRY (hereinafter referred to as "the
Minister") of the one part and EVERGREEN RESOURCES (UK) LIMITED (hereinafter
referred to as "the Licensee") of the other part, supplemental to licence number
EXL 203 (hereinafter referred to as "the Licence") made the fifteenth day of
October 1991 between THE MINISTER of the one Part and the Licensee of the other
part
WHEREAS:
(A) The functions of THE SECRETARY OF STATE FOR ENERGY were transferred to
THE SECRETARY OF STATE FOR TRADE AND INDUSTRY by the Transfer of Functions
(Energy) Order 1992 (SI 1992/1314)
(B) The Minister has agreed with the Licensee that the Licence should be
varied so as to have effect as a Petroleum Exploration and Development
Licence, incorporating the model clauses prescribed for incorporation in
such a Licence
<PAGE>
NOW THIS DEED WITNESSETH AS FOLLOWS
1. The Licence shall have effect subject to the following
amendments -
(a) the substitution, in place of the words of paragraph A before "shall
be incorporated herein" of the words
"Clause l, and clauses 4 to 39 of the model clauses for petroleum
exploration and development licences in landward areas set out in
schedule 3 to the Petroleum (Production) (Landward Areas) Regulations
1995 (S.I. 1995 No. 1436)";
(b) the omission from paragraph C of the words "in the course of
exploration (but not further or otherwise)";
(c) the substitution, in place of the words "clause 7 and clause 8" in
paragraph D, of the words "clause 9 and clause 14";
(d) the substitution, in place of Schedule 2 to the licence, of Schedule 1
to this deed, and the substitution in place of Schedule 3 to the Licence of
Schedule 2 to this deed.
<PAGE>
IN WITNESS whereof the Corporate Seal of the Minister and the Common Seal of the
Licensee have been hereunto affixed the day and year first above written.
THE CORPORATE SEAL of )
THE SECRETARY OF STATE FOR ) [SEAL]
TRADE AND INDUSTRY hereunto affixed is )
authenticated by:-
/s/ [ILLEGIBLE]
........................................
Authorised by the Secretary of State
The Common Seal of EVERGREEN RESOURCES (UK) LIMITED )
was hereunto affixed in the )
presence of:- )
/s/ [ILLEGIBLE]
.......................................... Director
/s/ [ILLEGIBLE]
.......................................... Secretary
<PAGE>
EXL 203
Schedule I
1. (1) The licensee shall pay to the Minister upon the grant and thereafter
during the term of this licence upon the anniversaries of the date (hereinafter
referred to as "the said date") specified in Clause B of this Licence sums
calculated as follows -
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(a) upon the sixth anniversary of the said date L50 Multiplied by the area factor
(b) upon the seventh anniversary of the said date L100 "
(c) upon the eighth anniversary of the said date L150 "
(d) upon the ninth anniversary of the said date L200 "
(e) upon the tenth anniversary of the said date L250 "
(f) upon the eleventh anniversary of the said date L300 "
(g) upon the twelfth anniversary of the said date L400 "
(h) upon the thirteenth anniversary of the said date L500 "
(i) upon the fourteenth anniversary of the said date L600 "
(j) upon the fifteenth anniversary of the said date L700 "
(k) upon the sixteenth anniversary of the said date L800 "
(l) upon the seventeenth anniversary of the said date L900 "
(m) upon the eighteenth anniversary of the said date L1000 "
(n) upon the nineteenth anniversary of the said date L1100 "
(o) upon the twentieth and every subsequent anniversary of the said date L1200 multiplied
by the area factor
</TABLE>
(2) In this paragraph "the area factor" means the number of square
kilometres comprised in the licensed area at the date upon which the periodic
payment becomes due.
<PAGE>
(3) The payments specified in sub-paragraph (1) above shall be subject to
variation in accordance with the following provisions:
(a) The annual payment shall be increased or subsequently reduced in line
with movements in the Index of the Price of Crude Oil acquired by
Refineries (published in the Digest of UK Energy Statistics) if the
Minister so determines. The Minister shall give notice of any such
determination ("biennial determination") during the month preceding the
eighth anniversary of the date of commencement of this licence or any
subsequent two-yearly anniversary of that date, and shall specify in the
notice the increase or reduction in the amount payable. Movements in the
Index shall be calculated by reference to a comparison between the
arithmetic mean of the Index levels for the two latest calendar years for
which figures are available at the time when the determination is made, and
the arithmetic mean of the Index levels for 1992 and 1993. In the event
that the Index of the Price of Crude Oil acquired by Refineries ceases to
be published, the Minister may substitute arrangements for redetermination
of annual payments having substantially similar effect to those set out
above based on such other comparable Index as he may determine.
(b) The increase or reduction specified in a biennial determination shall
be payable or take effect on the anniversary of the date of commencement of
this licence next following the date of the relevant determination.
(c) No biennial determination shall have effect so as to reduce the annual
payments below the levels set out in sub-paragraph (1) above.
(d) The Minister shall not make a biennial determination increasing or
reducing the amounts payable, where that increase or reduction would be
less than 5% of the levels set following the previous biennial
determination.
<PAGE>
EXL 203
Schedule 2
WORKING OBLIGATIONS
The Licensee shall in respect of Blocks SJ35, SJ36a, SJ37, SJ47b, SJ48c and
SJ46:
i) by 30th September, 1998 complete a remote sensing study by means of
High Altitude Aerial Photography and Landsat Infrared Satellite
Imagery to identify geological and geomorphological features indicative
of areas of enhanced permeability; and
(ii) by 31 December, 1999 drill not less than one exploration well to a
depth not less than the deepest prospective coal seam in the licence
area.
<PAGE>
This DEED OF VARIATION is made the 9th day of January, 1997 between THE
SECRETARY OF STATE FOR TRADE AND INDUSTRY (hereinafter referred to as "the
Minister") of the one part and EVERGREEN RESOURCES (UK) LIMITED (hereinafter
referred to as "the Licensee") of the other part, supplemental to licence number
EXL 204 (hereinafter referred to as "the Licence") made the fifteenth day of
October 1991 between THE MINISTER of the one Part and the Licensee of the other
part
WHEREAS:
(A) The functions of THE SECRETARY OF STATE FOR ENERGY were transferred to
THE SECRETARY OF STATE FOR TRADE AND INDUSTRY by the Transfer of Functions
(Energy) Order 1992 (SI 1992/1314)
(B) The Minister has agreed with the Licensee that the Licence should be
varied so as to have effect as a Petroleum Exploration and Development
Licence, incorporating the model clauses prescribed for incorporation in
such a Licence
<PAGE>
NOW THIS DEED WITNESSETH AS FOLLOWS
1. The Licence shall have effect subject to the following
amendments -
(a) the substitution, in place of the words of paragraph A before "shall
be incorporated herein" of the words
"Clause 1, and clauses 4 to 39 of the model clauses for petroleum
exploration and development licences in landward areas set out in
schedule 3 to the Petroleum (Production) (Landward Areas) Regulations
1995 (S.I. 1995 No. 1436)";
(b) the omission from paragraph C of the words "in the course of
exploration (but not further or otherwise)";
(c) the substitution, in place of the words "clause 7 and clause 8" in
paragraph D, of the words "clause 9 and clause 14";
(d) the substitution, in place of Schedule 2 to the licence, of Schedule 1
to this deed, and the substitution in place of Schedule 3 to the Licence of
Schedule 2 to this deed.
<PAGE>
IN WITNESS whereof the Corporate Seal of the Minister and the Common Seal of the
Licensee have been hereunto affixed the day and year first above written.
THE CORPORATE SEAL of )
THE SECRETARY OF STATE FOR ) [SEAL]
TRADE AND INDUSTRY hereunto affixed is )
authenticated by:-
/s/ [ILLEGIBLE]
........................................
Authorised by the Secretary of State
The Common Seal of EVERGREEN RESOURCES (UK) LIMITED )
was hereunto affixed in the )
presence of:- )
/s/ [ILLEGIBLE]
.......................................... Director
/s/ [ILLEGIBLE]
.......................................... Secretary
<PAGE>
EXL 204
Schedule I
1. (1) The licensee shall pay to the Minister upon the grant and thereafter
during the term of this licence upon the anniversaries of the date (hereinafter
referred to as "the said date") specified in Clause B of this Licence sums
calculated as follows -
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(a) upon the sixth anniversary of the said date L50 Multiplied by the area factor
(b) upon the seventh anniversary of the said date L100 "
(c) upon the eighth anniversary of the said date L150 "
(d) upon the ninth anniversary of the said date L200 "
(e) upon the tenth anniversary of the said date L250 "
(f) upon the eleventh anniversary of the said date L300 "
(g) upon the twelfth anniversary of the said date L400 "
(h) upon the thirteenth anniversary of the said date L500 "
(i) upon the fourteenth anniversary of the said date L600 "
(j) upon the fifteenth anniversary of the said date L700 "
(k) upon the sixteenth anniversary of the said date L800 "
(l) upon the seventeenth anniversary of the said date L900 "
(m) upon the eighteenth anniversary of the said date L1000 "
(n) upon the nineteenth anniversary of the said date L1100 "
(o) upon the twentieth and every subsequent anniversary of the said date L1200 multiplied
by the area factor
</TABLE>
(2) In this paragraph "the area factor" means the number of square
kilometres comprised in the licensed area at the date upon which the periodic
payment becomes due.
<PAGE>
(3) The payments specified in sub-paragraph (1) above shall be subject to
variation in accordance with the following provisions:
(a) The annual payment shall be increased or subsequently reduced in line
with movements in the Index of the Price of Crude Oil acquired by
Refineries (published in the Digest of UK Energy Statistics) if the
Minister so determines. The Minister shall give notice of any such
determination ("biennial determination") during the month preceding the
eighth anniversary of the date of commencement of this licence or any
subsequent two-yearly anniversary of that date, and shall specify in the
notice the increase or reduction in the amount payable. Movements in the
Index shall be calculated by reference to a comparison between the
arithmetic mean of the Index levels for the two latest calendar years for
which figures are available at the time when the determination is made, and
the arithmetic mean of the Index levels for 1992 and 1993. In the event
that the Index of the Price of Crude Oil acquired by Refineries ceases to
be published, the Minister may substitute arrangements for redetermination
of annual payments having substantially similar effect to those set out
above based on such other comparable Index as he may determine.
(b) The increase or reduction specified in a biennial determination shall
be payable or take effect on the anniversary of the date of commencement of
this licence next following the date of the relevant determination.
(c) No biennial determination shall have effect so as to reduce the annual
payments below the levels set out in sub-paragraph (1) above.
(d) The Minister shall not make a biennial determination increasing or
reducing the amounts payable, where that increase or reduction would be
less than 5% of the levels set following the previous biennial
determination.
<PAGE>
EXL 204
Schedule 2
WORKING OBLIGATIONS
The Licensee shall in respect of Block SJ48b
i) by 30th September, 1998 complete a remote sensing study by means of
High Altitude Aerial Photography and Landsat Infrared Satellite
Imagery to identify geological and geomorphological features
indicative of areas of enhanced permeability; and
ii) by 30th September, 1998 carry out a study of underground mine maps
in order to plot accurately the underground mine face to establish
the location for drilling a well in the destressed zone.
iii) by 31 December, 2000 drill not less than one exploration well to a
depth not less than the deepest prospective coal seam in the licence
area.
<PAGE>
This DEED OF VARIATION is made the 9th day of January, 1997 between THE
SECRETARY OF STATE FOR TRADE AND INDUSTRY (hereinafter referred to as "the
Minister") of the one part and EVERGREEN RESOURCES (UK) LIMITED (hereinafter
referred to as "the Licensee") of the other part, supplemental to licence number
EXL 208 (hereinafter referred to as "the Licence") made the fifteenth day of
October 1991 between THE MINISTER of the one Part and the Licensee of the other
part
WHEREAS:
(A) The functions of THE SECRETARY OF STATE FOR ENERGY were transferred to
THE SECRETARY OF STATE FOR TRADE AND INDUSTRY by the Transfer of Functions
(Energy) Order 1992 (SI 1992/1314)
(B) The Minister has agreed with the Licensee that the Licence should be
varied so as to have effect as a Petroleum Exploration and Development
Licence, incorporating the model clauses prescribed for incorporation in
such a Licence
<PAGE>
NOW THIS DEED WITNESSETH AS FOLLOWS
1. The Licence shall have effect subject to the following
amendments -
(a) the substitution, in place of the words of paragraph A before "shall
be incorporated herein" of the words
"Clause 1, and clauses 4 to 39 of the model clauses for petroleum
exploration and development licences in landward areas set out in
schedule 3 to the Petroleum (Production) (Landward Areas) Regulations
1995 (S.I. 1995 No. 1436)";
(b) the omission from paragraph C of the words "in the course of
exploration (but not further or otherwise)";
(c) the substitution, in place of the words "clause 7 and clause 8" in
paragraph D, of the words "clause 9 and clause 14";
(d) the substitution, in place of Schedule 2 to the licence, of Schedule 1
to this deed, and the substitution in place of Schedule 3 to the Licence of
Schedule 2 to this deed.
<PAGE>
IN WITNESS whereof the Corporate Seal of the Minister and the Common Seal of the
Licensee have been hereunto affixed the day and year first above written.
THE CORPORATE SEAL of )
THE SECRETARY OF STATE FOR ) ----------------- [SEAL]
TRADE AND INDUSTRY hereunto affixed is )
authenticated by:-
/s/ [ILLEGIBLE]
........................................
Authorised by the Secretary of State
The Common Seal of EVERGREEN RESOURCES (UK) LIMITED )
was hereunto affixed in the )
presence of:- )
/s/ [ILLEGIBLE]
.......................................... Director
/s/ [ILLEGIBLE]
.......................................... Secretary
<PAGE>
EXL 208
Schedule 1
1. (1) The licensee shall pay to the Minister upon the grant and thereafter
during the term of this licence upon the anniversaries of the date (hereinafter
referred to as "the said date") specified in Clause B of this Licence sums
calculated as follows -
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(a) upon the sixth anniversary of the said date L50 Multiplied by the area factor
(b) upon the seventh anniversary of the said date L100 "
(c) upon the eighth anniversary of the said date L150 "
(d) upon the ninth anniversary of the said date L200 "
(e) upon the tenth anniversary of the said date L250 "
(f) upon the eleventh anniversary of the said date L300 "
(g) upon the twelfth anniversary of the said date L400 "
(h) upon the thirteenth anniversary of the said date L500 "
(i) upon the fourteenth anniversary of the said date L600 "
(j) upon the fifteenth anniversary of the said date L700 "
(k) upon the sixteenth anniversary of the said date L800 "
(l) upon the seventeenth anniversary of the said date L900 "
(m) upon the eighteenth anniversary of the said date L1000 "
(n) upon the nineteenth anniversary of the said date L1100 "
(o) upon the twentieth and every subsequent anniversary of the said date L1200 multiplied
by the area factor
</TABLE>
(2) In this paragraph "the area factor" means the number of square
kilometres comprised in the licensed area at the date upon which the periodic
payment becomes due.
<PAGE>
(3) The payments specified in sub-paragraph (1) above shall be subject to
variation in accordance with the following provisions:
(a) The annual payment shall be increased or subsequently reduced in line
with movements in the Index of the Price of Crude Oil acquired by
Refineries (published in the Digest of UK Energy Statistics) if the
Minister so determines. The Minister shall give notice of any such
determination ("biennial determination") during the month preceding the
eighth anniversary of the date of commencement of this licence or any
subsequent two-yearly anniversary of that date, and shall specify in the
notice the increase or reduction in the amount payable. Movements in the
Index shall be calculated by reference to a comparison between the
arithmetic mean of the Index levels for the two latest calendar years for
which figures are available at the time when the determination is made, and
the arithmetic mean of the Index levels for 1992 and 1993. In the event
that the Index of the Price of Crude Oil acquired by Refineries ceases to
be published, the Minister may substitute arrangements for redetermination
of annual payments having substantially similar effect to those set out
above based on such other comparable Index as he may determine.
(b) The increase or reduction specified in a biennial determination shall
be payable or take effect on the anniversary of the date of commencement of
this licence next following the date of the relevant determination.
(c) No biennial determination shall have effect so as to reduce the annual
payments below the levels set out in sub-paragraph (1) above.
(d) The Minister shall not make a biennial determination increasing or
reducing the amounts payable, where that increase or reduction would be
less than 5% of the levels set following the previous biennial
determination.
<PAGE>
EXL 208
Schedule 2
WORKING OBLIGATIONS
By 30th September, 1998 the Licensee shall in respect of Blocks SO87, SO88,
SO89, and SO97 complete a remote sensing study by means of Photography and
Landsat Infrared Satellite Imagery to identify geological and
geomorphological features indicative of areas of enhanced permeability.
<PAGE>
This DEED OF VARIATION is made the 9th day of January, 1997 between THE
SECRETARY OF STATE FOR TRADE AND INDUSTRY (hereinafter referred to as "the
Minister") of the one part and EVERGREEN RESOURCES (UK) LIMITED (hereinafter
referred to as "the Licensee") of the other part, supplemental to licence number
EXL 209 (hereinafter referred to as "the Licence") made the fifteenth day of
October 1991 between THE MINISTER of the one Part and the Licensee of the other
part
WHEREAS:
(A) The functions of THE SECRETARY OF STATE FOR ENERGY were transferred to
THE SECRETARY OF STATE FOR TRADE AND INDUSTRY by the Transfer of Functions
(Energy) Order 1992 (SI 1992/1314)
(B) The Minister has agreed with the Licensee that the Licence should be
varied so as to have effect as a Petroleum Exploration and Development
Licence, incorporating the model clauses prescribed for incorporation in
such a Licence
<PAGE>
NOW THIS DEED WITNESSETH AS FOLLOWS
1. The Licence shall have effect subject to the following
amendments -
(a) the substitution, in place of the words of paragraph A before "shall
be incorporated herein" of the words
"Clause 1, and clauses 4 to 39 of the model clauses for petroleum
exploration and development licences in landward areas set out in
schedule 3 to the Petroleum (Production) (Landward Areas) Regulations
1995 (S.I. 1995 No. 1436)";
(b) the omission from paragraph C of the words "in the course of
exploration (but not further or otherwise)";
(c) the substitution, in place of the words "clause 7 and clause 8" in
paragraph D, of the words "clause 9 and clause 14";
(d) the substitution, in place of Schedule 2 to the licence, of Schedule 1
to this deed, and the substitution in place of Schedule 3 to the Licence of
Schedule 2 to this deed.
<PAGE>
IN WITNESS whereof the Corporate Seal of the Minister and the Common Seal of the
Licensee have been hereunto affixed the day and year first above written.
THE CORPORATE SEAL of )
THE SECRETARY OF STATE FOR ) [SEAL]
TRADE AND INDUSTRY hereunto affixed is )
authenticated by:-
/s/ [ILLEGIBLE]
........................................
Authorised by the Secretary of State
The Common Seal of EVERGREEN RESOURCES (UK) LIMITED )
was hereunto affixed in the )
presence of:- )
/s/ [ILLEGIBLE]
.......................................... Director
/s/ [ILLEGIBLE]
.......................................... Secretary
<PAGE>
EXL 209
Schedule 1
1. (1) The licensee shall pay to the Minister upon the grant and thereafter
during the term of this licence upon the anniversaries of the date (hereinafter
referred to as "the said date") specified in Clause B of this Licence sums
calculated as follows -
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(a) upon the sixth anniversary of the said date L50 Multiplied by the area factor
(b) upon the seventh anniversary of the said date L100 "
(c) upon the eighth anniversary of the said date L150 "
(d) upon the ninth anniversary of the said date L200 "
(e) upon the tenth anniversary of the said date L250 "
(f) upon the eleventh anniversary of the said date L300 "
(g) upon the twelfth anniversary of the said date L400 "
(h) upon the thirteenth anniversary of the said date L500 "
(i) upon the fourteenth anniversary of the said date L600 "
(j) upon the fifteenth anniversary of the said date L700 "
(k) upon the sixteenth anniversary of the said date L800 "
(l) upon the seventeenth anniversary of the said date L900 "
(m) upon the eighteenth anniversary of the said date L1000 "
(n) upon the nineteenth anniversary of the said date L1100 "
(o) upon the twentieth and every subsequent anniversary of the said date L1200 multiplied
by the area factor
</TABLE>
(2) In this paragraph "the area factor" means the number of square
kilometres comprised in the licensed area at the date upon which the periodic
payment becomes due.
<PAGE>
(3) The payments specified in sub-paragraph (1) above shall be subject to
variation in accordance with the following provisions:
(a) The annual payment shall be increased or subsequently reduced in line
with movements in the Index of the Price of Crude Oil acquired by
Refineries (published in the Digest of UK Energy Statistics) if the
Minister so determines. The Minister shall give notice of any such
determination ("biennial determination") during the month preceding the
eighth anniversary of the date of commencement of this licence or any
subsequent two-yearly anniversary of that date, and shall specify in the
notice the increase or reduction in the amount payable. Movements in the
Index shall be calculated by reference to a comparison between the
arithmetic mean of the Index levels for the two latest calendar years for
which figures are available at the time when the determination is made, and
the arithmetic mean of the Index levels for 1992 and 1993. In the event
that the Index of the Price of Crude Oil acquired by Refineries ceases to
be published, the Minister may substitute arrangements for redetermination
of annual payments having substantially similar effect to those set out
above based on such other comparable Index as he may determine.
(b) The increase or reduction specified in a biennial determination shall
be payable or take effect on the anniversary of the date of commencement of
this licence next following the date of the relevant determination.
(c) No biennial determination shall have effect so as to reduce the annual
payments below the levels set out in sub-paragraph (1) above.
(d) The Minister shall not make a biennial determination increasing or
reducing the amounts payable, where that increase or reduction would be
less than 5% of the levels set following the previous biennial
determination.
<PAGE>
EXL 209
Schedule 2
WORKING OBLIGATIONS
By 31st December, 1997 the Licensee shall in respect of Blocks SP16, SP17,
SP26, SP27, and SP28, complete a remote sensing study by means of Photography
and Landsat Infrared Satellite Imagery to identify geological and
geomorphological features indicative of areas of enhanced permeability.
<PAGE>
This DEED OF VARIATION is made the 9th day of January, 1997 between THE
SECRETARY OF STATE FOR TRADE AND INDUSTRY (hereinafter referred to as "the
Minister") of the one part and EVERGREEN RESOURCES (UK) LIMITED (hereinafter
referred to as "the Licensee") of the other part, supplemental to licence number
EXL 212 (hereinafter referred to as "the Licence") made the fifteenth day of
October 1991 between THE MINISTER of the one Part and the Licensee of the other
part
WHEREAS:
(A) The functions of THE SECRETARY OF STATE FOR ENERGY were transferred to
THE SECRETARY OF STATE FOR TRADE AND INDUSTRY by the Transfer of Functions
(Energy) Order 1992 (SI 1992/1314)
(B) The Minister has agreed with the Licensee that the Licence should be
varied so as to have effect as a Petroleum Exploration and Development
Licence, incorporating the model clauses prescribed for incorporation in
such a Licence
<PAGE>
NOW THIS DEED WITNESSETH AS FOLLOWS
1. The Licence shall have effect subject to the following
amendments -
(a) the substitution, in place of the words of paragraph A before "shall
be incorporated herein" of the words
"Clause 1, and clauses 4 to 39 of the model clauses for petroleum
exploration and development licences in landward areas set out in
schedule 3 to the Petroleum (Production) (Landward Areas) Regulations
1995 (S.I. 1995 No. 1436)";
(b) the omission from paragraph C of the words "in the course of
exploration (but not further or otherwise)";
(c) the substitution, in place of the words "clause 7 and clause 8" in
paragraph D, of the words "clause 9 and clause 14";
(d) the substitution, in place of Schedule 2 to the licence, of Schedule 1
to this deed, and the substitution in place of Schedule 3 to the Licence of
Schedule 2 to this deed.
<PAGE>
IN WITNESS whereof the Corporate Seal of the Minister and the Common Seal of the
Licensee have been hereunto affixed the day and year first above written.
THE CORPORATE SEAL of )
THE SECRETARY OF STATE FOR ) ----------------- [SEAL]
TRADE AND INDUSTRY hereunto affixed is )
authenticated by:-
/s/ [ILLEGIBLE]
........................................
Authorised by the Secretary of State
The Common Seal of EVERGREEN RESOURCES (UK) LIMITED )
was hereunto affixed in the )
presence of:- )
/s/ [ILLEGIBLE]
.......................................... Director
/s/ [ILLEGIBLE]
.......................................... Secretary
<PAGE>
EXL 212
Schedule 1
1. (1) The licensee shall pay to the Minister upon the grant and thereafter
during the term of this licence upon the anniversaries of the date (hereinafter
referred to as "the said date") specified in Clause B of this Licence sums
calculated as follows -
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(a) upon the sixth anniversary of the said date L50 Multiplied by the area factor
(b) upon the seventh anniversary of the said date L100 "
(c) upon the eighth anniversary of the said date L150 "
(d) upon the ninth anniversary of the said date L200 "
(e) upon the tenth anniversary of the said date L250 "
(f) upon the eleventh anniversary of the said date L300 "
(g) upon the twelfth anniversary of the said date L400 "
(h) upon the thirteenth anniversary of the said date L500 "
(i) upon the fourteenth anniversary of the said date L600 "
(j) upon the fifteenth anniversary of the said date L700 "
(k) upon the sixteenth anniversary of the said date L800 "
(l) upon the seventeenth anniversary of the said date L900 "
(m) upon the eighteenth anniversary of the said date L1000 "
(n) upon the nineteenth anniversary of the said date L1100 "
(o) upon the twentieth and every subsequent anniversary of the said date L1200 multiplied
by the area factor
</TABLE>
(2) In this paragraph "the area factor" means the number of square
kilometres comprised in the licensed area at the date upon which the periodic
payment becomes due.
<PAGE>
(3) The payments specified in sub-paragraph (1) above shall be subject to
variation in accordance with the following provisions:
(a) The annual payment shall be increased or subsequently reduced in line
with movements in the Index of the Price of Crude Oil acquired by
Refineries (published in the Digest of UK Energy Statistics) if the
Minister so determines. The Minister shall give notice of any such
determination ("biennial determination") during the month preceding the
eighth anniversary of the date of commencement of this licence or any
subsequent two-yearly anniversary of that date, and shall specify in the
notice the increase or reduction in the amount payable. Movements in the
Index shall be calculated by reference to a comparison between the
arithmetic mean of the Index levels for the two latest calendar years for
which figures are available at the time when the determination is made, and
the arithmetic mean of the Index levels for 1992 and 1993. In the event
that the Index of the Price of Crude Oil acquired by Refineries ceases to
be published, the Minister may substitute arrangements for redetermination
of annual payments having substantially similar effect to those set out
above based on such other comparable Index as he may determine.
(b) The increase or reduction specified in a biennial determination shall
be payable or take effect on the anniversary of the date of commencement of
this licence next following the date of the relevant determination.
(c) No biennial determination shall have effect so as to reduce the annual
payments below the levels set out in sub-paragraph (1) above.
(d) The Minister shall not make a biennial determination increasing or
reducing the amounts payable, where that increase or reduction would be
less than 5% of the levels set following the previous biennial
determination.
<PAGE>
EXL 212
Schedule 2
WORKING OBLIGATIONS
The Licensee shall in respect of Blocks SE54, SE55a, SE56a and SE65
i) by 30th September, 1998 complete a remote sensing study by means of
High Altitude Aerial Photography and Landsat Infrared Satellite
Imagery to identify geological and geomorphological features
indicative of areas of enhanced permeability; and
ii) by 31 December, 2001 drill not less than one exploration well to a
depth sufficient to test the prospectivity of the Westphalian coals
and of the Dinantian and Namurian.
<PAGE>
This DEED OF VARIATION is made the 9th day of January, 1997 between THE
SECRETARY OF STATE FOR TRADE AND INDUSTRY (hereinafter referred to as "the
Minister") of the one part and EVERGREEN RESOURCES (UK) LIMITED (hereinafter
referred to as "the Licensee") of the other part, supplemental to licence
number EXL 249 (hereinafter referred to as "the Licence") made the third day
of September 1992 between THE MINISTER of the one Part and the Licensee of
the other part
WHEREAS:
(A) The Minister has agreed with the Licensee that the Licence should be
varied so as to have effect as a Petroleum Exploration and Development
Licence, incorporating the model clauses prescribed for incorporation in
such a Licence
<PAGE>
NOW THIS DEED WITNESSETH AS FOLLOWS
1. The Licence shall have effect subject to the following
amendments -
(a) the substitution, in place of the words of paragraph A before "shall
be incorporated herein" of the words
"Clause 1, and clauses 4 to 39 of the model clauses for petroleum
exploration and development licences in landward areas set out in
schedule 3 to the Petroleum (Production) (Landward Areas) Regulations
1995 (S.I. 1995 No. 1436)";
(b) the omission from paragraph C of the words "in the course of
exploration (but not further or otherwise)";
(c) the substitution, in place of the words "clause 7 and clause 8" in
paragraph D, of the words "clause 9 and clause 14";
(d) the substitution, in place of Schedule 2 to the licence, of Schedule 1
to this deed, and the substitution in place of Schedule 3 to the Licence of
Schedule 2 to this deed.
<PAGE>
IN WITNESS whereof the Corporate Seal of the Minister and the Common Seal of the
Licensee have been hereunto affixed the day and year first above written.
THE CORPORATE SEAL of )
THE SECRETARY OF STATE FOR ) [SEAL]
TRADE AND INDUSTRY hereunto affixed is )
authenticated by:-
/s/ [ILLEGIBLE]
........................................
Authorised by the Secretary of State
The Common Seal of EVERGREEN RESOURCES (UK) LIMITED )
was hereunto affixed in the )
presence of:- )
/s/ [ILLEGIBLE]
.......................................... Director
/s/ [ILLEGIBLE]
.......................................... Secretary
<PAGE>
EXL 249
Schedule I
1. (1) The licensee shall pay to the Minister upon the grant and thereafter
during the term of this licence upon the anniversaries of the date (hereinafter
referred to as "the said date") specified in Clause B of this Licence sums
calculated as follows -
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(a) upon the sixth anniversary of the said date L50 Multiplied by the area factor
(b) upon the seventh anniversary of the said date L100 "
(c) upon the eighth anniversary of the said date L150 "
(d) upon the ninth anniversary of the said date L200 "
(e) upon the tenth anniversary of the said date L250 "
(f) upon the eleventh anniversary of the said date L300 "
(g) upon the twelfth anniversary of the said date L400 "
(h) upon the thirteenth anniversary of the said date L500 "
(i) upon the fourteenth anniversary of the said date L600 "
(j) upon the fifteenth anniversary of the said date L700 "
(k) upon the sixteenth anniversary of the said date L800 "
(l) upon the seventeenth anniversary of the said date L900 "
(m) upon the eighteenth anniversary of the said date L1000 "
(n) upon the nineteenth anniversary of the said date L1100 "
(o) upon the twentieth and every subsequent anniversary of the said date L1200 multiplied
by the area factor
</TABLE>
(2) In this paragraph "the area factor" means the number of square
kilometres comprised in the licensed area at the date upon which the periodic
payment becomes due.
<PAGE>
(3) The payments specified in sub-paragraph (1) above shall be subject to
variation in accordance with the following provisions:
(a) The annual payment shall be increased or subsequently reduced in line
with movements in the Index of the Price of Crude Oil acquired by
Refineries (published in the Digest of UK Energy Statistics) if the
Minister so determines. The Minister shall give notice of any such
determination ("biennial determination") during the month preceding the
eighth anniversary of the date of commencement of this licence or any
subsequent two-yearly anniversary of that date, and shall specify in the
notice the increase or reduction in the amount payable. Movements in the
Index shall be calculated by reference to a comparison between the
arithmetic mean of the Index levels for the two latest calendar years for
which figures are available at the time when the determination is made, and
the arithmetic mean of the Index levels for 1992 and 1993. In the event
that the Index of the Price of Crude Oil acquired by Refineries ceases to
be published, the Minister may substitute arrangements for redetermination
of annual payments having substantially similar effect to those set out
above based on such other comparable Index as he may determine.
(b) The increase or reduction specified in a biennial determination shall
be payable or take effect on the anniversary of the date of commencement of
this licence next following the date of the relevant determination.
(c) No biennial determination shall have effect so as to reduce the annual
payments below the levels set out in sub-paragraph (1) above.
(d) The Minister shall not make a biennial determination increasing or
reducing the amounts payable, where that increase or reduction would be
less than 5% of the levels set following the previous biennial
determination.
<PAGE>
EXL 249
Schedule 2
WORKING OBLIGATIONS
By 30th September, 1998 the Licensee shall in respect of Blocks SE55b and
SE56b complete a remote sensing study by means of High Altitude Aerial
Photography and Landsat Infrared Satellite Imagery to identify geological and
geomorphological features indicative of areas of enhanced permeability.
<PAGE>
This DEED OF VARIATION is made the 9TH day of January, 1997 between THE
SECRETARY OF STATE FOR TRADE AND INDUSTRY (hereinafter referred to as "the
Minister") of the one part and EVERGREEN RESOURCES (UK) LIMITED (hereinafter
referred to as "the Licensee") of the other part, supplemental to licence number
AL 005 (hereinafter referred to as "the Licence") made the ninth day of
October 1992 between THE MINISTER of the one Part and the Licensee of the other
part
WHEREAS:
(A) The Minister has agreed with the Licensee that the Licence should be
varied so as to have effect as a Petroleum Exploration and Development
Licence, incorporating the model clauses prescribed for incorporation in
such a Licence
<PAGE>
NOW THIS DEED WITNESSETH AS FOLLOWS
1. The Licence shall have effect subject to the following
amendments -
(a) the substitution, in place of the words of paragraph A before "shall
be incorporated herein" of the words
"Clause 1, and clauses 4 to 39 of the model clauses for petroleum
exploration and development licences in landward areas set out in
schedule 3 to the Petroleum (Production) (Landward Areas) Regulations
1995 (S.I. 1995 No. 1436)";
(b) the omission from paragraph C of the words "in the course of
appraisal (but not further or otherwise)";
(c) the substitution, in place of the words "clause 7 and clause 8" in
paragraph D, of the words "clause 9 and clause 14";
(d) the substitution, in place of Schedule 2 to the licence, of Schedule 1
to this deed, and the substitution in place of Schedule 3 to the Licence of
Schedule 2 to this deed.
<PAGE>
IN WITNESS whereof the Corporate Seal of the Minister and the Common Seal of the
Licensee have been hereunto affixed the day and year first above written.
THE CORPORATE SEAL of )
THE SECRETARY OF STATE FOR ) [SEAL]
TRADE AND INDUSTRY hereunto affixed is )
authenticated by:-
/s/ [ILLEGIBLE]
........................................
Authorised by the Secretary of State
The Common Seal of EVERGREEN RESOURCES (UK) LIMITED )
was hereunto affixed in the )
presence of:- )
/s/ [ILLEGIBLE]
.......................................... Director
/s/ [ILLEGIBLE]
.......................................... Secretary
<PAGE>
AL 005
Schedule 1
1. (1) The licensee shall pay to the Minister upon the grant and thereafter
during the term of this licence upon the anniversaries of the date (hereinafter
referred to as "the said date") specified in Clause B of this Licence sums
calculated as follows -
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(a) upon the fifth anniversary of the said date L25 Multiplied by the area factor
(b) upon the sixth anniversary of the said date L50 "
(c) upon the seventh anniversary of the said date L100 "
(d) upon the eighth anniversary of the said date L150 "
(e) upon the ninth anniversary of the said date L200 "
(f) upon the tenth anniversary of the said date L250 "
(g) upon the eleventh anniversary of the said date L300 "
(h) upon the twelfth anniversary of the said date L400 "
(i) upon the thirteenth anniversary of the said date L500 "
(j) upon the fourteenth anniversary of the said date L600 "
(k) upon the fifteenth anniversary of the said date L700 "
(l) upon the sixteenth anniversary of the said date L800 "
(m) upon the seventeenth anniversary of the said date L900 "
(n) upon the eighteenth anniversary of the said date L1000 "
(o) upon the nineteenth anniversary of the said date L1100 "
(p) upon the twentieth and every subsequent anniversary of the said date L1200 multiplied
by the area factor
</TABLE>
(2) In this paragraph "the area factor" means the number of square
kilometres comprised in the licensed area at the date upon which the periodic
payment becomes due.
<PAGE>
(3) The payments specified in sub-paragraph (1) above shall be subject to
variation in accordance with the following provisions:
(a) The annual payment shall be increased or subsequently reduced in line
with movements in the Index of the Price of Crude Oil acquired by
Refineries (published in the Digest of UK Energy Statistics) if the
Minister so determines. The Minister shall give notice of any such
determination ("biennial determination") during the month preceding the
eighth anniversary of the date of commencement of this licence or any
subsequent two-yearly anniversary of that date, and shall specify in the
notice the increase or reduction in the amount payable. Movements in the
Index shall be calculated by reference to a comparison between the
arithmetic mean of the Index levels for the two latest calendar years for
which figures are available at the time when the determination is made, and
the arithmetic mean of the Index levels for 1992 and 1993. In the event
that the Index of the Price of Crude Oil acquired by Refineries ceases to
be published, the Minister may substitute arrangements for redetermination
of annual payments having substantially similar effect to those set out
above based on such other comparable Index as he may determine.
(b) The increase or reduction specified in a biennial determination shall
be payable or take effect on the anniversary of the date of commencement of
this licence next following the date of the relevant determination.
(c) No biennial determination shall have effect so as to reduce the annual
payments below the levels set out in sub-paragraph (1) above.
(d) The Minister shall not make a biennial determination increasing or
reducing the amounts payable, where that increase or reduction would be
less than 5% of the levels set following the previous biennial
determination.
<PAGE>
AL 005
Schedule 2
WORKING OBLIGATIONS
The Licensee shall in respect of Block SJ36b by 30th September, 1998 complete a
remote sensing study by means of High Altitude Aerial Photography and Landsat
Infrared Satellite Imagery to identify geological and geomorphological
features indicative of areas of enhanced permeability.
<PAGE>
JOINT EVALUATION AND
LICENCE APPLICATION AGREEMENT
FALKLAND ISLANDS
DATED 29TH DECEMBER 1995
AMERADA HESS (FALKLAND ISLANDS) LIMITED
EL DORADO EXPLORATION, S.A.
FINA RESEARCH S.A.
ARGOS EVERGREEN LIMITED
<PAGE>
JOINT EVALUATION AND LICENCE APPLICATION AGREEMENT
FALKLAND ISLANDS
INDEX
CLAUSE
TITLE PAGE
1. DEFINITIONS 2
2. SCOPE OF AGREEMENT 6
3. PERCENTAGE INTERESTS 7
4. OPERATOR 8
5. MANAGEMENT COMMITTEE 10
6. LICENCE APPLICATION PROCEDURE 12
7. PROGRAMME AND BUDGET 16
8. COSTS AND ACCOUNTING 18
9. DEFAULT 20
10. DATA AND CONFIDENTIALITY 23
11. ASSIGNMENT AND ENCUMBRANCE 26
12. RELATIONSHIP OF PARTIES 27
13. FURTHER AGREEMENT AND PRINCIPLES OF
JOINT OPERATING AGREEMENT 28
14. FORCE MAJEURE 31
15. DURATION 32
16. NOTICES 34
17. VARIATION 35
18. GOVERNING LAW 36
EXHIBIT A EVALUATION AREA 37
EXHIBIT B WORK PROGRAMME AND BUDGET 38
EXHIBIT C ALLOCATION OF EXPENDITURES
REGARDING SEISMIC 39
<PAGE>
THIS AGREEMENT is made the 29th day of December 1995
BETWEEN
(1) AMERADA HESS (FALKLAND ISLANDS) LIMITED ("Amerada") having its
registered office at 33 Grosvenor Place, London, SW1X 7HY;
(2) EL DORADO EXPLORATION, S.A. ("Murphy") having its principal office at 200
Peach Street, El Dorado, Arkansas, 71730, USA;
(3) FINA RESEARCH S.A., ("Fina") a corporation having its registered office at
Zone Industrielle C, B-7181 Seneffe (Feluy), Belgium; and
(4) ARGOS EVERGREEN LIMITED ("Argos") having its registered office at 44 John
Street, Stanley, Falkland Islands.
WHEREAS
(A) the Parties believe acreage in the Evaluation Area is, or may become,
available for application; and
(B) the Parties desire to conduct certain joint studies and evaluations for the
purpose of making applications for Licences that may be offered and awarded
by the Falkland Islands Government in the First Licensing Round for the
purposes of exploring for petroleum in certain areas of controlled waters
offshore of the Falkland Islands; and
(C) the Parties wish to define their respective rights, interests, obligations
and liabilities with regard to the said applications, evaluations and
operations to be conducted in respect thereof or pursuant thereto;
<PAGE>
NOW IT IS HEREBY AGREED AS FOLLOWS
1. DEFINITIONS
1.1 In this Agreement:-
"ACCRUAL BASIS" means that basis of accounting under which costs and
benefits are regarded as applicable to the period in which the
liability for the cost is incurred or the right to the benefit arises
regardless of when invoiced, paid or received;
"ADVANCE" means any payment of cash required to be made pursuant to a
Cash Call;
"AFFILIATE" means in relation to each Party:-
(a) a company of which the equity share capital conferring a
majority of votes at shareholders' meetings of such company is
owned directly or indirectly by such Party;
(b) a company which owns directly or indirectly equity share capital
conferring a majority of votes at shareholders' meetings of such
Party; or
(c) a company of which the equity share capital conferring a majority
of votes at shareholders' meetings of such company is owned
directly or indirectly by a company which also owns equity share
capital conferring a majority of votes at shareholders' meetings
of such Party;
"APPLICATION" means an application for a Licence in the Evaluation
Area during the First Licensing Round;
"CASH CALL" means any request for payment of cash made under clause
8.4 hereof by the Operator to the Parties in connection with Joint
Operations;
"CLOSING DATE" means the closing date for submission of Applications
as notified by the Governor in the Gazette notice;
"DEFAULTING PARTY" has the meaning ascribed to that term in clause 9.1
hereof;
<PAGE>
"FIRST LICENSING ROUND" means and extends throughout the period from
the first official publication by or on behalf of the Governor of the
invitation to submit applications for licences in the first round of
licensing in respect of Tranches within the Evaluation Area up to and
including the Closing Date;
"EVALUATION AREA" means the area outlined in red on the map contained
in Exhibit "A" attached hereto and made a part hereof;
"FORCE MAJEURE" means any circumstances which are beyond the
reasonable control of a Party and which could not have been avoided by
reasonable diligence on its part provided always that a lack of funds
shall not constitute Force Majeure;
"GAZETTE NOTICE" shall have the meaning ascribed to that term in the
Regulations;
"GOVERNOR" shall mean the Governor of the Falkland Islands or any
successor in office or any other person being responsible for the
carrying out of the function at present being carried out by him in
relation to the First Licensing Round or any Licence;
"GROSS NEGLIGENCE" means an intentional and conscious or reckless
disregard of any provision of this Agreement but shall not include any
error of judgement or mistake made by any managerial or supervisory
personnel of a Party or of the Operator in the exercise in good faith
of any function, authority or discretion conferred upon such Party or
the Operator;
"JOA" means a joint operating agreement to be agreed by the Licensees
following the award of a Licence pursuant to an Application to
regulate the relationship between such Licensees in relation to all of
the activities to be undertaken under such Licence;
"JOINT ACCOUNT" means the accounts established and maintained by the
Operator to record all Advances, expenditures and receipts in the
conduct of Joint Operations;
"JOINT DATA" has the meaning ascribed to that term in clause 10.3
hereof;
"JOINT OPERATIONS" means all studies, evaluations and operations
conducted by the Operator, or as the Parties may otherwise agree, for
and on behalf of the Parties pursuant to the terms of this Agreement;
<PAGE>
"JOINT PROPERTY" means all property held, owned or acquired by the
Parties for the purposes of the Joint Operations, including any cash
held in any bank accounts maintained pursuant to the provisions of
this Agreement;
"LICENCE" means a petroleum production licence granted by the Governor
to search and bore for and get petroleum;
"LICENSEES" means in relation to any Licence granted pursuant to an
Application the Parties to whom such Licence is granted and their
respective successors and assigns;
"MANAGEMENT COMMITTEE" means the committee established pursuant to
clause 5.1 hereof;
"MONTH" means a calendar month;
"NON-DEFAULTING PARTY" has the meaning ascribed to that term in clause
9.1(ii) hereof;
"NON-OPERATOR" means a Party other than the Operator;
"OPERATOR" means Amerada Hess (Falkland Islands) Limited or, in the
event that another Party is selected to act as Operator under
clause 6.8 hereof, such other Party acting in its capacity as Operator
hereunder and not as the holder of a Percentage Interest;
"PARTY" means a Party to this Agreement and its permitted successors
and assigns;
"PERCENTAGE INTEREST" means in relation to each Party the undivided
percentage interest held by it from time to time under this Agreement;
"PRIME NOMINATION" has the meaning ascribed to that term in
clause 6.5(i) hereof;
"QUARTER" means a period of three months ending on 31st March,
30th June, 30th September or 31st December in any Year;
"REGULATIONS" means the Offshore Petroleum (Licensing) Regulations
1995 as amended from time to time;
<PAGE>
"SECONDARY NOMINATION" has the meaning ascribed to that term in clause
6.5(ii) hereof;
"SELECTION MEETING" means the meeting of the Parties convened for the
purposes referred to in clause 6.3 hereof;
"TRANCHE" has the meaning ascribed to that term in the Regulations;
"WORK COMMITMENT MEETING" means the meeting of the Parties convened
for the purposes referred to in clause 6.4 hereof;
"WORK PROGRAMME AND BUDGET" means the work programme and budget
detailed in Exhibit B, as may be amended from time to time according
to this Agreement;
"WORK TENDER" has the meaning ascribed to that term in clause 6.4
hereof;
"WORKING DAY" means a day (other than a Saturday or Sunday or Public
Holiday) on which banks in the City of London are normally open for
business;
"YEAR" means a calendar year according to the Gregorian Calendar.
1.2 Reference to the singular includes a reference to the plural and vice
versa.
1.3 Reference to any gender includes a reference to all other genders.
1.4 Unless the context otherwise requires reference to any clause,
sub-clause or paragraph is to a clause, sub-clause or paragraph of
this Agreement.
1.5 The headings are used for convenience only and shall not affect the
construction or validity of this Agreement.
<PAGE>
2. SCOPE OF THE AGREEMENT
2.1 The Parties agree to participate together in the evaluation of
petroleum potential of the Evaluation Area and to set out the basis on
which they may together formulate and submit an Application before the
Falkand Islands Government.
2.2 This Agreement is to define the relationship, respective rights,
interests, obligations and liabilities of the Parties in the
evaluation of the petroleum potential of the Evaluation Area and in
the preparation and submission of any Application.
2.3 Each of the Parties undertakes that it will not during the term of
this Agreement by itself, its Affiliates or otherwise seek to or
acquire an interest in the Evaluation Area or any part thereof without
the prior written consent of the other Parties, except in accordance
with this Agreement.
<PAGE>
3. PERCENTAGE INTERESTS
Subject as hereinafter provided all Joint Property and all rights and
obligations arising out of the conduct of Joint Operations shall be owned,
enjoyed and borne by the Parties in proportion to their respective
Percentage Interests which, as at the date hereof, are as follows: -
Amerada 35%
Murphy 30%
Fina 30%
Argos 5%
------
100%
<PAGE>
4. OPERATOR
4.1 Amerada is hereby appointed and agrees to act as Operator under and
subject to the terms of this Agreement.
4.2 The Operator has the right and is obliged to conduct Joint Operations
by itself, its agents and its contractors under the overall
supervision and control of the Management Committee.
4.3 The responsibilities of the Operator shall include but not be limited
to:-
(i) appraising the merits of acreage by undertaking appropriate
studies in the Evaluation Area;
(ii) advising the Parties of the results of such appraisal;
(iii) submitting proposals for the acquisition of data for
consideration by the Parties and if such proposals are
approved by the Management Committee acquiring and
appraising such data for the Joint Account;
(iv) representing the Parties in dealings with the Governor in
connection with any Application made pursuant to this
Agreement and advising them of the outcome of all such
representations provided that each Party participating in
the Application shall be consulted in respect of such
dealings and have the right to be represented at any
meetings with the Governor. Except as provided in clause
6.15(i), the Operator shall not commit the participating
Parties in such dealings without their approval, such
approval not to be unreasonably withheld or delayed;
(v) providing reports, data and information in accordance with
the directions of the Management Committee; and
(vi) directing and controlling accounting, technical and advisory
services as may be required for the efficient conduct of
Joint Operations.
4.4 The Operator shall conduct Joint Operations in a proper and
workmanlike manner and with that degree of diligence and prudence
reasonably and ordinarily exercised by experienced operators engaged
in similar activities under similar circumstances.
<PAGE>
4.5 The Operator shall consult regularly with the Parties and keep them
fully informed of Joint Operations.
4.6 The Operator shall not be liable to the Patties for any loss or damage
arising out of or resulting from any Joint Operations unless and to
the extent that any such loss or damage results from the Gross
Negligence of the Operator provided always that in no circumstances
whatsoever shall the Operator be liable for any loss of profits, lost
production, pollution clean up costs or other indirect or
consequential losses.
4.7 Subject to the provisions of any approved Work Programme and Budget,
the number, selection, hours of work and remuneration of personnel
employed by the Operator in connection with Joint Operations shall be
determined by the Operator.
4.8 The Operator is authorised to incur such expenditures for the Joint
Account and enter into such commitments as may be authorised by the
Management Committee in accordance with the provisions of this
Agreement.
4.9 The Operator is authorised to take any action and incur such
expenditures as it deems reasonably necessary in the case of an
emergency for the safeguarding of lives or property or the prevention
of pollution. The Operator shall promptly notify the Parties of any
such action or expenditure.
4.10 The Operator shall open and maintain such separately identifiable
accounting records as may be necessary to record in a full and proper
manner all Advances received by the Operator from the Parties and all
expenditure incurred and all receipts obtained by the Operator in
connection with the Joint Operations.
<PAGE>
5. MANAGEMENT COMMITTEE
5.1 There is hereby established a Management Committee which shall consist
of one representative appointed by each of the Parties. The Management
Committee shall have overall supervision, direction and control of all
Joint Operations. Each Party shall as soon as possible after the date
hereof give notice of the name of its representative and of an
alternative on the Management Committee. Such representative or
alternative may be replaced by like notice. Such representative may
bring to the Management Committee meetings such advisers as he
considers necessary. The representative or in his absence his
alternative shall be deemed authorised to represent and to bind the
Party which has appointed him.
5.2 The Operator's representative or alternative shall be chairman of the
Management Committee.
5.3 Management Committee meetings shall be held upon the request of any
Party. The Operator shall call each meeting by giving at least ten
(10) Working Days' notice of the place, time and date of the meeting
together with an agenda therefor. By notice any Party may advise of
any additional matters which such Party desires to be considered at the
meeting and provided such notice is given at least three (3) Working
Days before the date of the meeting those matters shall be included in
the agenda for consideration at the meeting. The periods of notice
referred to in this clause 5.3 may be waived with the consent of all
Parties.
5.4 A Party not represented at a meeting may vote on any matter on the
agenda for such meeting by either appointing a proxy in writing or
giving notice of its vote to the Operator.
5.5 The Operator shall appoint a secretary for each meeting of the
Management Committee who will prepare minutes of each meeting and
provide each Party with a copy thereof within ten (10) Working Days of
the date of the meeting. Each Party shall notify the other Parties of
its approval or disapproval of the minutes within seven (7) Working
Days of receipt thereof. Any disagreement shall if possible be
rectified and failing this any disapproval shall be recorded on such
minutes. A Party which fails to give any notice will be deemed to have
approved the minutes. The approval or disapproval of the minutes as
aforesaid shall not affect the validity of decisions taken by the
Management Committee at such meeting.
<PAGE>
5.6 All decisions of the Management Committee shall be made by the
affirmative vote of three (3) or more non-Affiliated Parties having in
aggregate a Percentage Interest of in excess of seventy per cent
(70%).
5.7 The Management Committee may vote on and determine by notice to the
Operator any proposal which is submitted to the Parties by the
Operator by notice. Each Party shall cast its vote within ten (10)
Working Days after its receipt of the proposal except where
circumstances dictate determination in less than ten (10) Working Days
and such fact and lesser period (which shall not be less than
forty-eight (48) hours) are so stated in the notice submitting the
proposal, in which event each of the Parties shall cast its vote
within such lesser period. Failure by a Party to cast its vote within
the relevant period shall be regarded as a vote by that Party against
the proposal. The Operator will give prompt notice of the results of
any such voting.
5.8 The Management Committee may establish such advisory sub-committees as
it considers desirable. Each such advisory sub-committee shall be
subject to such procedures as the Management Committee may determine.
<PAGE>
6. LICENCE APPLICATION PROCEDURE
6.1 Not later than forty-five (45) days prior to the Closing Date the
Operator shall give notice to all Parties of:
(i) the Tranches in the Evaluation Area which it proposes the
Parties should consider for inclusion in an Application;
(ii) the date and time of the Selection Meeting which date shall
not be later than thirty (30) days prior to the Closing
Date; and
(iii) the date and time of the Work Commitment Heeling which date
shall not be later than twenty-five (25) days prior to the
Closing Date.
6.2 Any Party may within seven (7) days of the date of the notice given
pursuant to clause 6.1 hereof give notice of any additional Trenches
which it proposes the Parties should also consider for inclusion us an
Application.
6.3 At the Selection Meeting the Parties shall review the technical merits
of each Tranche proposed pursuant to clauses 6 1 (i) and 6.2 hereof
and determine:
(i) Prime Tranches being those proposed Tranches which receive
the affirmative vote of all the Parties; and
(ii) Secondary Tranches being those proposed Tranches which
receive the affirmative vote of two (2) or snore Parties
holding in aggregate Percentage Interests of forty five per
cent (45%) or more.
6.4 At the Work Commitment Meeting the Parties shall determine the
proposed work programme to be offered to the Governor in support of
each Application and a further maximum work programme to which the
Patties would be willing to commit (together referred to as the "Work
Tender") for Prime and Secondary Tranches. The Work Tender for Prime
Tranches shall require the unanimous approval of all the Parties. The
Work Tender for each Secondary Tranche shall require the unanimous
approval of those Parties which voted in favour of the Secondary
Tranche in question at the Selection Meeting. If a Work Tender for any
Prime Tranche cannot be unanimously agreed by the Parties or if a Work
Tender for any Secondary Tranche cannot he unanimously agreed by the
Parties which voted in favour of such Tranche then the most onerous of
the proposed
<PAGE>
Work Tenders shall be adopted and such Tranche shall the considered as
a Secondary Nomination hereunder as to the Parties agreeing such Work
Tender.
6.5 Promptly following the Work Commitment Meeting, the Operator shall
give notice to each Party of:
(i) each Prime Tranche and the agreed Work Tender in respect
thereof ("Prime Nomination").
(ii) each Secondary Tranche and the agreed Work Tender in respect
thereof ("Secondary Nomination").
6.6 Within seven (7) days of the date of the notice given by the Operator
pursuant to clause 6.5 hereof each Party shall give notice as to
which, if any, of the Secondary Nominations it elects to participate
in. If all Parties elect to participate in a Secondary Nomination then
it shall become a Prime Nomination. If two (2) or more Parties
holding in aggregate Percentage Interests of forty five per cent (45%)
or more elect to participate Its aforesaid then those Parties which do
elect to participate as aforesaid shall be entitled to make an
Application for the Secondary Block in question subject to and in
accordance with clauses 6.8 to 6.14 inclusive.
6.7 Each Application for a Prime Tranche shall be prepared and submitted
to the Governor by the Operator.
6.8 Each Application for a Secondary Tranche shall be prepared and
submitted to the Governor by the Operator unless the Operator is not a
participant in the Application in question, in which event the
participating Party holding the highest Percentage Interest shall be
elected as Operator, unless otherwise agreed by the participating
Parties, and shall prepare and submit such Application.
6.9 The participating interest of each Party participating in an
Application shall be in the proportion that its Percentage Interest
bears to the sum of the Percentage Interests of the Parties
participating in the Application or in such other proportion as the
Parties participating therein may agree.
6.10 Any Party participating in an Application for a Secondary Tranche may,
at any time after the expiry of seven (7) days after the date of the
notice given by the Operator pursuant to clause 6.5 and subject to the
agreement of all the other
<PAGE>
Parties participating in such Application (such agreement not to be
unreasonably withheld), introduce third parties to the Application
provided that:
(i) the sum of the participating interests of such Parties in
the Application in question is not thereby reduced to a
figure which is less than the sum of their Percentage
Interests under this Agreement; and
(ii) any such third party agrees to observe and to be bound by
the terms of this Agreement insofar as such terms relate to
the Application in which such third party is participating.
6.11 No Application for a Secondary Tranche shall be made on terms less
onerous than those provided for in the Secondary Nomination.
6.12 Each Party participating in an Application shall take all such thither
actions and execute all such further documents as may be reasonably
required to complete the Application and keep and maintain the saline
in good standing.
6.13 Costs incurred pursuant to this Agreement by a Party on an Accrual
Basis up to the date of election not to participate in a Secondary
Nomination will not be refunded.
6.14 All costs incurred pursuant to this Agreement in connection with an
Application for a Secondary Tranche shall be borne by the Parties
participating therein in proportion to their respective participating
interests in sully Application pursuant to clause 6.9 hereof or in
such other proportion as they may agree.
6.15 If subsequent to the submission by the Operator to the Governor of an
Application it is indicated by or on behalf of the (governor that more
onerous work obligations are required to improve the possibility of
the award of a Licence ("Revised Programme") then:
(i) if such Revised Programme involves a commitment no greater
than the maximum work programme agreed by the Parties
pursuant to clause 6.4 hereof, the Parties participating in
the Application shall discuss the matter and provided that
at least one Party participating in the Application is
prepared to accept the Revised Programme, the Parties shall
commit to such Revised Programme; and
<PAGE>
(ii) if the Revised Programme involves a commitment greater than
the maximum work programme agreed by the Parties pursuant to
clause 6.4 and less than all the Parties are willing to
commit to the Revised Programme, any Party not willing to
commit to the Revised Programme may withdraw from the
Application. If the Governor is prepared to allow the
Application to proceed without the withdrawing Party and the
Parties not so withdrawing agree to increase their
Percentage Interests in the original Application and thereby
absorb the Percentage Interest of the withdrawing Party,
then the Application shall proceed accordingly..
6.16 No Application for a Tranche in the Evaluation Area shall be made by
any Party or the Affiliate of any Party otherwise than in accordance
with the terms of this Agreement.
6.17 Subject to clause 6.15 (ii), no Party may withdraw from an Application
after such Application has been submitted to the Governor. Prior to
submission to the Governor, a Party may withdraw from an Application
only with the prior written consent of all the other Parties
participating therein.
6.18 The Parties to an Application agree to take up and be bound by the
terms of a Licence awarded pursuant to this Agreement.
<PAGE>
7. PROGRAMME AND BUDGET
7.1 A Work Programme and Budget for the Joint Operations detailed in
Exhibit "B" has been approved by all of the Parties.
Subject to clause 7.2, such approval shall authorise and oblige the
Operator to carry out such Work Programme and make expenditures
within the limits of such agreed Budget.
7.2 Approval of an AFE by the Management Committee shall be required
before any expenditure is incurred by the Operator except in the case
of Licence fees and support costs. Approval of an AFE shall authorise
and oblige the Operator to carry out the work detailed therein.
7.3 At any time any Party may by notice to the other Parties propose that
the approved work programme and budget or any AFE be amended. To the
extent that an amendment is approved in writing by the Management
Committee the work programme and budget or AFE shall be deemed amended
accordingly provided always that any such amendment shall not
invalidate any authorised commitment for expenditure made by the
Operator prior thereto.
7.4 Promptly following the award of a Licence pursuant to an Application
the Operator shall submit to the Licensees a proposed work programme
and budget on an Accrual, Basis by Quarter, relating to operations
under the Licence for the remainder of the Year then current. In the
period prior to the execution of the JOA, the Operator shall, not later
than 1st September in each Year, submit to the Parties a proposed work
programme and budget for the following Year. The Management Committee
shall promptly review each proposed work programme and budget and make
such revisions thereto as may be agreed as soon as practicable with a
view to approving such work programme and budget within thirty (30)
days of the award of such Licence (in the case of the first work
programme and budget) and within sixty (60) days of its submission by
the Operator (in the case of subsequent work programmes and budgets).
Subject to clause 7.2, such approval shall authorise and oblige the
Operator to carry out such work programme.
7.5 The Operator shall not be required to obtain any further approval from
the Management Committee in respect of over-expenditure not exceeding
10% of the AFE (or budget where no AFE is required) provided that
nothing herein shall entitle the Operator to incur expenditure in
respect of any item or work not
<PAGE>
included in any approved work programme (unless incurred under clause
4.9 hereof).
<PAGE>
8. COSTS AND ACCOUNTING
8.1 It is the intent of the Parties to establish a method of accounting
which shall truly reflect the Operator's actual cost to the end that
the Operator shall, subject to the provisions of this Agreement,
neither gain nor lose by reason of the fact that it acts as the
Operator. It is the intention of the Parties that there shall be no
duplication of items charged to the Joint Account.
8.2 Accounting records shall be maintained in pounds sterling. Advances
made by the Parties, expenditures and receipts in currencies other
than pounds sterling shall be translated into pounds sterling at rates
in accordance with the Operator's standard accounting procedures.
Expenditures incurred in currencies other than pounds sterling or US
dollars shall be recorded at the cost of purchasing such currency with
pounds sterling.
8.3 The Operator shall open and maintain separate current interest earning
bank accounts in respect of funds in pounds sterling and US dollars to
hold the funds of the Parties and shall restrict funds held to a level
consistent with that required for the conduct of the approved
programme. Interest will be credited to the Joint Account. The
Operator shall not, without the prior approval of the Management
Committee, transfer amounts between bank accounts held for different
currencies.
8.4 The Operator shall be entitled to request each Party to pay cash in
advance for its share of approved expenditure in pounds sterling and
US dollars and in doing so shall specify the currency required, the
bank account into which payment is to be made and the due date on
which payment is required. At least ten (10) days' notice shall be
given prior to a Cash Call and at least five days notice shall be
given of any amendment to a Cash Call.
8.5 The Operator shall send a statement to the Parties within twenty (20)
days following the end of each calendar month showing total Cash
Calls, other cash receipts and payments, balances held by the Operator
in each currency, estimated receivables and liabilities and showing
details of expenditures in pounds sterling summarised by descriptive
headings and by AFE as appropriate, in accordance with the Operator's
standard chart of accounts.
8.6 Services provided by the Operator and its Affiliates shall be charged
to the Joint Account at the Operator's and its Affiliates' actual
costs for such services. Services for the purposes of this provision
shall mean all work performed by or
<PAGE>
on behalf of the Operator to include but not be limited to the
provision of labour, professional services, laboratory analysis,
purchasing services, studies and administration all as necessary for
the proper conduct of the operations authorised under this Agreement.
Services provided by third parties shall be charged to the Joint
Account at cost.
8.7 Each of the Non-Operators shall have the right to audit the accounts
and records of the Joint Account. Notwithstanding the termination of
this Agreement, this right shall extend for a period of twenty-four
(24) months following the end of the Year in which the expenditure was
made. With the exception of unresolved audit findings all records will
be considered correct thereafter. The Non-Operators shall give at
least thirty (30) days notice of their intention to conduct such an
audit and will use reasonable endeavours to conduct such audits
jointly and in a manner which results in the minimum of inconvenience
to the Operator.
<PAGE>
9. DEFAULT
9.1 If any Party ("Defaulting Party") fails to pay in full its share of
any Advance by the due date:
(i) the Operator shall as soon as practicable notify by telex or
facsimile all the Parties of such default;
(ii) each other Party ("Non-Defaulting Party") shall contribute as
hereinafter provided a share of the amount in default in the
proportion that its Percentage Interest bears to the total
Percentage Interests of the Non-Defaulting Parties and pending
receipt of such additional contributions the Operator may make
arrangements to meet any commitments falling due by borrowing
the necessary finance from outside sources or by making the
necessary finance available itself and all costs of any such
finance shall be charged to the Non-Defaulting Parties; finance
made available by the Operator shall bear interest calculated on
a day to day basis at a rate equal to two percent (2%) above the
base lending rate of National Westminster Blank PLC from time to
time;
(iii) if such default continues for more than three (3) Working Days
following the notification by the Operator under clause 9.1(i)
above, the Operator shall promptly notify the Parties of the
liability of each of the Non-Defaulting Parties to contribute to
the amount in default and shall make a request for payment
accordingly, to take effect on the expiry of six (6) Working
Days following notification by the Operator under clause 9.1(i)
above;
(iv) each of the Non-Defaulting Parties shall on the Working Day
next following such sixth Working Day pay the amount notified
under clause 9.1(iii) above and thereafter shall continue to
pay, in addition to its share of subsequent Advances, the same
proportion of that part of all such subsequent Advances
attributable to the Defaulting Party until such time as the
Defaulting Party has remedied its default in full or until
forfeiture as hereinafter provided, and failure by any Party
to make such payments shall render that Party in default.
<PAGE>
9.2 The Defaulting Party shall have the right to remedy the default at any
time prior to forfeiture as hereinafter provided, by payment in full
to the Operator on behalf of the Non-Defaulting Parties of all amounts
in respect of which the Defaulting Party is in default together with
interest thereon calculated on a day to day basis at the rate of five
per cent (5%) above the base lending rate of the National Westminster
Bank PLC from time to time, from and including the due date for
payment of such amounts until the actual date of payment. The Operator
shall promptly notify the Parties by telex or facsimile as soon as the
Defaulting Party has remedied its default and to the extent that
amounts have been paid by the Non-Defaulting Parties pursuant to
clause 9.1 hereof, the Operator shall reimburse such amounts to such
Non-Defaulting Parties together with the abovementioned interest
thereon.
9.3 During the continuation of any default the Defaulting Party shall not
be entitled to be represented at the Selection Meeting, the Work
Commitment Meeting, meetings of the Management Committee or any
sub-committee thereof nor to vote thereat (so that all voting rights
thereat shall be vested in the Non-Defaulting Parties with the voting
interest of each Non-Defaulting Party being in the proportion which
its Percentage Interest bears to the total Percentage Interests of
such Parties) and shall have no further access to any data and
information relating to the Joint Operations. The Defaulting Party
shall be bound by decisions of the Management Committee made during
the continuation of the default.
9.4 In the event that the default continues for more than ten (10) days in
respect of sums to be expended prior to the award of a Licence or for
more than twenty (20) days in every other case then each of the
Non-Defaulting Parties shall have the right to have forfeited to it
and to acquire, by notice to the other Parties given within ten (10)
days after such period of ten (10) or twenty (20) days, the interest
of the Defaulting Party in and under this Agreement and in any Licence
granted pursuant to an Application or, if more than one Non-Defaulting
Party exercises such right, its proportionate share of the interest of
the Defaulting Party in and under this Agreement and in any such
Licence, such share being the proportion which the Percentage Interest
of the Non-Defaulting Party in question is of the total Percentage
Interests of the Non-Defaulting Parties exercising such right. If none
of the Non-Defaulting Parties elects to exercise such right of
forfeiture as aforesaid then the Parties shall be deemed to have duly
decided to abandon Joint Operations and the Operator shall take such
action as is appropriate to abandon Joint Operations and all costs
incurred by the Operator in connection with such abandonment shall be
charged to the Joint Account and borne by the Parties in accordance
with the terms of this Agreement.
<PAGE>
9.5 Any such forfeiture and acquisition of the interest of a Defaulting
Party pursuant to clause 9.4 hereof, shall be:
(i) subject to any necessary consent of the Governor;
(ii) without prejudice to any other rights or remedies of each Non-
Defaulting Party whether accrued at or accruing after the date
of forfeiture;
(iii) so forfeited and acquired by each Non-Defaulting Party as
beneficial owner free of any charges and encumbrances but
subject to all of the obligations under this Agreement; and
(iv) effective as of the date of default;
and the Defaulting Party shall promptly join in such actions as may be
necessary or desirable to obtain any necessary consent of the Governor
and shall execute and deliver any and all documents necessary to
effect any such forfeiture and acquisition.
9.6 Notwithstanding any forfeiture and assignment by a Defaulting Party
pursuant to clause 9.4 hereof, such Defaulting Party:
(i) shall remain liable for its proportionate share of all costs,
expenses, obligations and liabilities, including in respect of
any Licence awarded its share of any obligatory work programme
to which that Party has committed itself in the Application
therefor, incurred prior to the time the said assignment was
effective;
(ii) shall not, and shall ensure that its Affiliates do not, make any
Application in the First Licensing Round for any Tranche in the
Evaluation Area; and
(iii) shall remain bound by clause 10 hereof.
<PAGE>
10. DATA AND CONFIDENTIALITY
10.1 All date and information which is proprietary as at the date hereof
shall, subject to clause 10.2, remain proprietary and its ownership
shall remain vested in the proprietor.
10.2 a) Any Party which has data and information relating to the
Evaluation Area in its possession which in the reasonable
opinion of such Party is relevant to any Application, such
possession being subject to third party restrictions on
disclosure, shall use all reasonable endeavours to make such
data and information available to the other Parties on the best
terms as to price and ownership which it can obtain and which
are acceptable to such other Parties.
b) Any Party which is the sole proprietor of data and information
relating to the Evaluation Area, to which it has access free of
third party restrictions on disclosure, shall make such data and
information available to the other Parties at its offices,
provided that no Party shall be entitled to take copies of such
data and information unless it has paid its Percentage Interest
share of the costs of acquisition and processing and the total
cost of copying such data and information.
c) All proprietary data and information belonging to a Party which
is disclosed to any other Party pursuant to this clause 10.2
shall be kept confidential by such other Party pursuant to the
provisions of clause 10.4 provided that, if such data and
information is subject to third party restrictions on disclosure
which are more restrictive than the provisions of clause 10.4,
such third party restrictions shall bind such other Party.
10.3 All data and information acquired pursuant to Joint Operations ("Joint
Data") shall be jointly owned by the Parties in proportion to their
respective Percentage Interests.
10.4 All data and information disclosed to the Parties pursuant to this
Agreement shall be kept confidential during the term of this Agreement
and thereafter either until the Governor announces the commencement of
the next following licensing round or for a period of three (3) years
whichever period is the shorter, and shall not be divulged during that
period to any person which is not a Party without the prior written
consent of all the Parties except as follows:
<PAGE>
a) to an Affiliate of a Party provided that such Party shall be
responsible for its Affiliate's adherence to the provisions of
this clause 10 and any breach of such provisions by its
Affiliate shall be deemed a breach by such Party;
b) to an outside professional consultant of a Party;
c) to any bank or financial institution from which a Party is
seeking or obtaining finance;
d) as required by law, by order of count or the rules of any
recognised stock exchange or the Securities and Exchange
Commission of the United States of America or other similar
body;
e) to the extent that the same has become generally available to
the public otherwise than through breach of this Agreement; and
f) the Operator may disclose Joint Data to such persons as may be
necessary in connection with the conduct of the Joint
Operations, provided that the Operator shall promptly inform the
other Parties of the names of such persons and the Joint Data
disclosed to them; and
provided that any person to whom data asked information is to be
disclosed pursuant to b), c) or f) above shall first execute a written
undertaking to hold the data and information strictly confidential,
except to the extent that, if such person is an outside auditor or
legal advisor, such person is bound by a professional obligation of
confidentiality.
10.5 The Operator may, with the approval of the Management Committee,
exchange any Joint Data for other similar data and information and the
Operator shall promptly provide all the Parties with a conformed copy
of the agreement relating to the exchange and all such other data and
information.
10.6 The Operator shall be responsible for all press releases and public
announcements regarding this Agreement or the Joint Operations
provided always that no such release or announcement shall be made
unless prior thereto the Operator has provided all the Parties with a
copy of the proposed release or announcement and obtained the approval
of the Management Committee thereto. Notwithstanding the foregoing no
Party shall be prohibited from making a public announcement or
statement if it is necessary for it to do so in order to comply with
any applicable
<PAGE>
law or the regulations of a recognised stock exchange or the
Securities and Exchange Commission of the United States of America or
other similar body.
10.7 The Parties shall pay for the seismic data and information detailed in
Exhibit "C" hereto in accordance with the respective interest shares
detailed therein.
<PAGE>
11. ASSIGNMENT AND ENCUMBRANCE
11.1 No Party shall sell, assign, transfer, mortgage, charge or otherwise
encumber the whole or any part of its rights, duties, liabilities or
obligations arising under this Agreement without having first obtained
the consent in writing of all the other Parties provided always that
each of the Parties shall have the right to assign the whole or any
part of its rights, duties, liabilities or obligations arising under
this Agreement to an Affiliate of such Party which has demonstrated to
the satisfaction of the other Parties its technical and financial
capability to meet its prospective obligations hereunder.
<PAGE>
12. RELATIONSHIP OF PARTIES
12.1 The rights, duties, obligations and liabilities of the Parties under
this Agreement shall be several and not joint or collective and each
Party shall be responsible only for its obligations as set out herein,
it being expressly agreed by the Parties that it is not the purpose or
intention of this Agreement or of any subsequent Licence to create any
partnership.
12.2 Each Party subject to the Internal Revenue laws of the United States
of America hereby elects, under section 761(a) of the Internal Revenue
Code of 1986 as amended of the United States of America (the "United
States Code"), for this joint venture to be excluded from the
application of Subchapter K of Chapter 1, Subtitle A of the United
States Code. This election to be excluded from Subchapter K shall
apply only insofar as such Subchapter or any portion or portions
thereof may be applicable to the Parties or to their Affiliates in
respect of the operations covered by this Agreement. Notwithstanding
anything to the contrary contained in this Agreement, a Party not
subject to the income tax laws of the United States of America shall
not be required to do or execute anything that might subject it or its
income or property to any tax of the United States of America, and
nothing contained in this Agreement shall constitute or shall be
construed as constituting a submission by that Party to the taxation
jurisdiction of the United States of America.
12.3 Each Party agrees to save, indemnify and hold harmless each other
Party (including the Operator acting in its capacity as such) to the
extent of such indemnifying Party's Percentage Interest from and
against any claim by or liability (including costs and expenses
reasonably incurred in connection with such claim or liability) to any
person not being a Party hereto, arising from or in connection with
the Joint Operations unless and to the extent that any such claim or
liability results from the Gross Negligence of the Party seeking
indemnification.
<PAGE>
13. FURTHER AGREEMENT AND PRINCIPLES OF JOINT OPERATING AGREEMENT
13.1 Within three (3) months following the award of a Licence pursuant to
an Application the Operator shall submit a draft JOA to the Licensees
and the Licensees shall thereafter use their reasonable endeavours to
agree and execute a JOA within six (6) months following the award of
the Licence. Such JOA will incorporate an agreed accounting procedure
and cover the conduct of all activities under such Licence and shall
when executed supersede the terms of this Agreement as they apply to
such Licence.
13.2 The Parties agree that the JOA shall in any event provide inter alia
for the following:
(i) joint operations shall be conducted by the operator under the
overall supervision, direction and control of an operating
committee at the expense of all parties;
(ii) operating committee decisions shall be made by an affirmative
vote of parties holding in aggregate not less than - per cent
(-%) of the percentage interest participation in the Licence to
which such JOA refers, save that development programmes shall be
carried out only by the parties electing to participate in them;
(iii) in the case of any proposed contract for goods or services for
the joint operations where the cost is estimated to be in excess
of two hundred and fifty thousand pounds (L250,000) the operator
shall, except where the circumstances do not permit, obtain
competitive tenders therefor. Any proposed contract for goods or
services for the joint operations where the cost is estimated to
be in excess of five hundred thousand pounds (L500,000) during
the exploration and appraisal phases or - million pounds (-)
during the development phase or - million pounds (-) during the
production phase shall be subject to the approval of the
operating committee;
(iv) appropriate "sole-risk" provisions in respect of the relevant
Licence shall provide for an initial buy-back payment of two (2)
times the amount the non-sole risk party would have paid had
such sole risk operation been conducted as a joint operation and
a payment of five (5)
<PAGE>
times the said initial buy-back payment upon the approval by
the Governor of a development resulting from such sole risk
operation;
(v) full protection for the operator's and the non-defaulting
parties' interests in the event of failure by a party to
make due and timely payment of the operator's cash calls. If
within any "Relevant Default Period" the defaulting party
accumulates thirty (30) "Default Days" then, without
prejudice to any other rights which they may have, each of
the non-defaulting parties shall have the right to have
forfeited to it the interest of the defaulting party in,
under and pursuant to the Licence and the JOA. "Relevant
Default Period" shall mean the three hundred and sixty-five
(365) consecutive days including and immediately prior to
the latest "Default Day" and "Default Day" shall mean any
day or any part of which the defaulting party is in default;
(vi) the operator shall not resign and none of the parties shall
withdraw from the Licence until all work obligations
detailed in the Licence have been completed save with the
consent of all the other parties;
(vii) the operator shall be entitled to recover from the other
parties overheads and the cost of operatorship according to
the principle that the operator shall neither gain nor lose
by virtue of being operator and such terms shall be detailed
in the accounting procedure to the J0A;
(viii) AFEs within approved work programmes and budgets shall be
deemed approved unless, within the fifteen (15) Working Day
period allowed for the consideration of such AFEs, parties
holding at least percent (-%) of the percentage interest
participation in the Licence notify the operator that they
disapprove such AFE;
(ix) AFEs shall not be required for expenditure in respect of
licence fees, staff support costs and associated overhead or
operating costs provided that such costs are within a work
programme and budget which has been approved by the
operating committee;
(x) the operator shall not incur any expenditure if it exceeds
an approved work programme and budget or AFE as appropriate
by more than ten percent (10%) unless it is necessary for
the safeguarding of lives or property or the prevention of
pollution;
(xi) prior to the submission of a development programme to the
Governor in respect of any discovery the parties
participating in the development
<PAGE>
of such discovery shall use all reasonable endeavours to
agree the terms of an abandonment agreement which shall
inter alia include provisions whereby abandonment
liabilities are shared in proportion to their participating
interests in the development (unless otherwise agreed) and
provisions requiring adequate financial security to be
provided in respect of such liabilities and costs relating
thereto;
(xii) terms and representations substantially the same as those
contained in clause 12 of this Agreement; and
(xiii) The Parties shall agree upon liftings procedures (prior to
the implementation of a development programme approved by
the Governor), such agreed liftings procedures to include
suitable underlift/overlift provisions and the right for
Parties to lift economic sized cargoes.
<PAGE>
14. FORCE MAJEURE
The obligations of a Party hereunder, other than the obligations to make
payments of money, shall be suspended during the period and to the extent
that such a Party is prevented from complying therewith by reason of Force
Majeure. In such event such Party shall as soon as reasonably possible give
notice of such suspension together with full particulars including the
likely duration thereof and as soon as reasonably possible shall resume
performance of such obligations and shall so notify the other Parties.
<PAGE>
15. DURATION
15.1 If a decision is made that no Application is to be made under this
Agreement then this Agreement shall terminate on the Closing Date.
15.2 In respect of those Tranches in the Evaluation Area in relation
to which no Application is made, this Agreement shall terminate on
the day following the Closing Date.
15.3 In the event that one or more Applications are made under this
Agreement then, in respect of each Tranche which is the subject of
an Application and subject to clause 15.4 hereof, this Agreement
shall terminate:
(i) if a Licence is awarded in respect of such Tranche, upon
execution of the JOA negotiated pursuant to clauses 13.1
and 13.2 hereof relating to such Licence; or
(ii) upon the award of a Licence in respect of that Tranche
to a third party; or
(iii) upon notification by the Governor that the Application
relating to that Tranche has been unsuccessful; or
(iv) on 1st July 1999, whichever shall first occur.
15.4 Where any Party elects not to participate in an Application for a
Secondary Tranche all of that Party's rights and obligations under
or pursuant to this Agreement in respect of such Tranche shall be
deemed to terminate on the day following the Closing Date.
15.5 Notwithstanding the provisions of clauses 15.1, 15.2, 15.3 and
15.4 hereof this Agreement shall continue in full force and effect
after the respective termination dates specified therein for such
further period (if any) as may be required to effect a final
settlement of the Joint Account. The termination of this Agreement
or of any Party's rights and obligations hereunder shall be
without prejudice to continuing rights under clause 8.7 and to
continuing obligations under clause 10 hereof.
<PAGE>
15.6 For the avoidance of doubt this Agreement shall apply only to the
First Licensing Round and shall not apply in respect of any
applications invited by the Governor in a further round of
licensing.
<PAGE>
16. NOTICES
Any notice required to be given pursuant to this Agreement shall be in
writing and shaft be given by delivering the same by hand or by sending the
same by first class post, telex or facsimile to the relevant address as set
out below or such other address in England as any Party may from time to
time notify the other Parties as its address for service of notice. Any
such notice given as aforesaid shall be deemed to have been given or
received at the time of delivery (if delivered by hand between 0900 and
1700 hours on a Working Day) or the first Working Day next following the
day of sending (if sent by first class post, telex or facsimile):
AMERADA HESS (FALKLAND ISLANDS) LIMITED
33 Grosvenor Place
London SW1X 7HY
FAX: 0171 887 2089
TELEX: 296093
ATTENTION: Exploration Manager, International
EL DORADO EXPLORATION, S.A.
c/o MURPHY EASTERN OIL COMPANY
Winston House, Dollis Park, Finchley, London, N3 1HZ
FAX: 0181 371 3334
TELEX: 21970
ATTENTION: Manager, U.K. Exploration
FINA RESEARCH S.A.
Rue de l'Industrie, 52-B-1040 Bruxelles, Belgium
FAX: (322) 288 9142
TELEX: 21556 PFINA B
ATTENTION: Commercial Manager, Fina Exploration & Production
ARGOS EVERGREEN LIMITED
Phoenix Court, Bartholomew Street, Newbury, Berkshire RG14 5QA
FAX: 01635 31525
ATTENTION: UK Director
<PAGE>
17. VARIATION
This Agreement may only be altered, varied or amended by written
instrument executed by all the Parties.
<PAGE>
18. GOVERNING LAW
This Agreement shall be governed by and interpreted in accordance with the
laws of England and each of the Parties hereby submits to the jurisdiction
of the High Court of England and agrees to accept service of any process in
connection with any proceedings relating to this Agreement at its address
for service of notice pursuant to clause 16 hereof.
IN WITNESS whereof the Parties have caused this Agreement to be executed by
their duly authorised representatives the day and year first above written.
SIGNED BY /s/ A. Mulcare )
.............................. ) A. MULCARE
for and on behalf of )
AMERADA HESS (FALKLAND ISLANDS) LIMITED )
SIGNED BY /s/ Clefton D. Vaughan )
.............................. ) CLEFTON D. VAUGHAN
for and on behalf of )
EL DORADO EXPLORATION, S.A. )
SIGNED BY /s/ [illegible] )
.............................. ) ILLEGIBLE
for and on behalf of )
FINA RESEARCH S.A. )
SIGNED BY /s/ Ian M. Thomson )
.............................. ) IAN M. THOMSON
for and on behalf of )
ARGOS EVERGREEN LIMITED )
<PAGE>
EXHIBIT "A"
MAP OF THE EVALUATION AREA
<PAGE>
OPERATED EVALUATION AREA
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[MAP]
<PAGE>
EXHIBIT "B"
WORK PROGRAMME AND BUDGET
<PAGE>
AMERADA HESS
FALKLAND ISLANDS
1995 & 1996 WORK PROGRAMME & BUDGET
(In Thousands of US $)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
LINE LINE
- ---- ----
NO. DESCRIPTION AHL ARGOS FINA MURPHY TOTAL NO.
- -- ----------- --- ----- ---- ------ ----- --
<S> <C> <C> <C> <C> <C> <C> <C>
1995 COSTS:
-----------
1 GEOLOGICAL & GEOPHYSICAL 471.1 261.1 471.1 471.1 1,674.5 1
2 SUPPORT COSTS 50.4 7.2 43.2 43.2 144.0 2
----- ------ ----- ------ -------
3 TOTAL 1995 EXPENDITURE 521.5 268.3 514.3 514.3 1,818.5 3
1996 COSTS:
-----------
4 GEOLOGICAL & GEOPHYSICAL 7.5 7.5 7.5 7.5 30.0 4
5 SUPPORT COSTS 107.1 15.3 91.8 91.8 306.0 5
----- ------ ----- ------ -------
6 TOTAL 1996 EXPENDITURE 114.6 22.8 99.3 99.3 336.0 6
----- ------ ----- ------ -------
7 TOTAL 1995 & 1996 FIRM EXPENDITURE 636.1 291.1 613.6 613.6 2,154.5 7
----- ------ ----- ------ -------
----- ------ ----- ------ -------
8 CONTINGENT EXPENDITURE 131.4 53.9 125.6 125.6 436.4 8
----- ------ ----- ------ -------
9 TOTAL 1995 & 1996 EXPENDITURE 767.5 344.9 739.2 739.2 2,590.9 9
----- ------ ----- ------ -------
----- ------ ----- ------ -------
- -----------------------------------------------------------------------------------------------------------------------------------
September 1995 1995 & 1996 Work Programme & Budget
</TABLE>
<PAGE>
EXHIBIT "C"
ALLOCATION OF EXPENDITURES REGARDING SEISMIC
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
1995 BUDGET $000s ARGOS FINA MURPHY AH TOTAL COMMENT
4 COMPANY GROUP 5% 30% 30% 35%
<S> <C> <C> <C> <C> <C> <C>
Seismic Data Purchase
- -----------------------------------------------------------------------------------------------------------------------------------
2518 km Original Survey @$195/km, 147 278 278 278 982 Argos pay $195*0.3, others pay equal
2.0 Escalation share of 195*1.7
- -----------------------------------------------------------------------------------------------------------------------------------
1648.5 km Infill Survey @$180/km,
2.0 Escalation 89 168 168 168 593 Argos pay $180*0.3, others pay equal
share of $180*1.7
- -----------------------------------------------------------------------------------------------------------------------------------
Gravity and Magnetic Study 45 45 45 45 178 Four parties pay equal share
- -----------------------------------------------------------------------------------------------------------------------------------
Spectrum Credit -31 -31 -31 -31 -124 Negotiated discount spread equally
- -----------------------------------------------------------------------------------------------------------------------------------
Sub total 250 460 460 460 1630
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Further G+G Studies 11 11 11 11 45
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
G&A 7 43 43 50 144 Equity share
- -----------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------
1995 TOTAL 268 514 514 522 1819
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
1996 BUDGET $000s ARGOS FINA MURPHY AH TOTAL COMMENT
4 COMPANY GROUP 5% 30% 30% 35%
<S> <C> <C> <C> <C> <C> <C>
FIRM
- -----------------------------------------------------------------------------------------------------------------------------------
G+G Studies 8 8 8 8 30 Four parties pay equal share
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
G+A 15 92 92 107 306 Equity share
- -----------------------------------------------------------------------------------------------------------------------------------
Total firm 23 99 99 115 336
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
CONTINGENT
- -----------------------------------------------------------------------------------------------------------------------------------
Infill Seismic Data Purchase 48 91 91 91 320 Argos pay $180*0.3, others pay equal
share of $180*1.7
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
G&A 6 35 35 41 116 To finalise application documentation.
- -----------------------------------------------------------------------------------------------------------------------------------
Total contingent 54 125 125 131 436
- -----------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------
1996 TOTAL 77 225 225 246 772
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
PROJECT SUMMARY
1995 AND 1996 FIRM 291 614 614 636 2155
- -----------------------------------------------------------------------------------------------------------------------------------
1996 CONTINGENT 54 125 125 131 436
---------------------------------------------------
PROJECT TOTAL 345 739 739 767 2591
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 23.2
[Firm Letterhead]
CONSENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Evergreen Resources, Inc.
Denver, Colorado
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated March 18,
1997, relating to the consolidated financial statements of Evergreen Resources,
Inc. and subsidiaries, appearing in the Company's Annual Report on Form 10-K for
the nine month period ended December 31, 1996.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Denver, Colorado
November 21, 1997
<PAGE>
EXHIBIT 23.3
[Firm Letterhead]
CONSENT OF
INDEPENDENT PETROLEUM ENGINEERING CONSULTANTS
November 21, 1997
We hereby consent to the inclusion as Appendix A in the Registration
Statement on Form S-3 of Evergreen Resources, Inc. (the "Company"), of our audit
of the estimates of the net proved oil and gas reserves of the Company and their
present values, as of September 30, 1997, and all references to our firm
therein.
RESOURCE SERVICES INTERNATIONAL, INC.
By: /s/ Roland E. Blauer
------------------------------------------
Roland E. Blauer
President
<PAGE>
EXHIBIT 23.4
[Firm Letterhead]
CONSENT OF NETHERLAND, SEWELL & ASSOCIATES, INC.
We hereby consent to the inclusion as Appendix B in the Registration
Statement on Form S-3 of Evergreen Resources, Inc. (the "Company"), of our audit
report of the estimates of the net proved oil and gas reserves of the Company
and their present values, as of September 30, 1997, and all references to our
firm therein.
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/ Danny D. Simmons
----------------------------------------------
Danny D. Simmons
Senior Vice President
Houston, Texas
November 21, 1997
<PAGE>
EXHIBIT 23.5
[Firm Letterhead]
INDEPENDENT AUDITORS' CONSENT
Evergreen Resources, Inc.
Denver, Colorado
We consent to the incorporation by reference in this Registration Statement of
Evergreen Resources, Inc. on Form S-3 of our report on the consolidated
financial statements of Powerbridge, Inc. and subsidiaries 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 continue 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 part of this Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Dallas, Texas
November 19, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,099,333
<SECURITIES> 0
<RECEIVABLES> 2,284,642
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,591,472
<PP&E> 88,205,664
<DEPRECIATION> (14,498,709)
<TOTAL-ASSETS> 81,912,196
<CURRENT-LIABILITIES> 4,561,375
<BONDS> 0
6,000,000
0
<COMMON> 94,695
<OTHER-SE> 55,660,074
<TOTAL-LIABILITY-AND-EQUITY> 81,912,196
<SALES> 8,771,630
<TOTAL-REVENUES> 9,101,054
<CGS> 0
<TOTAL-COSTS> 5,106,117
<OTHER-EXPENSES> 146,298
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 511,359
<INCOME-PRETAX> 3,337,280
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,337,280
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,977,280<F39>
<EPS-PRIMARY> .32<F40>
<EPS-DILUTED> 0
<FN>
<F39>Net income attributable to common stock after preferred stock dividends
of $360,000.
<F40>Per common share, after cash dividends paid on preferred stock.
</FN>
</TABLE>
