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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Fiscal Year Ended December 31, 1998
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From to
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COMMISSION FILE NUMBER 0-10077
EVERGREEN RESOURCES, INC.
(Exact name of registrant as specified in its charter)
COLORADO 84-0834147
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1401 17TH STREET
SUITE 1200
DENVER, COLORADO 80202
(Address of principal executive offices) (Zip Code)
(303) 298-8100
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
(None)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, NO PAR VALUE PER SHARE
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days /X/ Yes / / No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K, is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
As of March 11, 1999, the Registrant had 11,209,477 common shares
outstanding, and the aggregate market value of the common shares held by
non-affiliates was approximately $124,185,000 based upon the closing price of
$17.50 per share for the common stock on March 11, 1999,reported by NASDAQ.
DOCUMENTS INCORPORATED BY REFERENCE: DEFINITIVE PROXY MATERIALS FOR 1999 ANNUAL
MEETING OF STOCKHOLDERS - PART III, ITEMS 10,11,12, AND 13.
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TABLE OF CONTENTS
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PART I Page
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Item 1. Business.................................................... 4
Item 2. Properties.................................................. 14
Item 3. Legal Proceedings........................................... 21
Item 4. Submission of Matters to a Vote of
Security Holders....................................... 21
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters........................ 22
Item 6. Selected Financial Data..................................... 23
Item 7. Management's Discussion and Analysis of
Financial Condition and Results
of Operations.......................................... 24
Item 7A. Quantitative and Qualitative Disclosure about Market Risk... 30
Item 8. Financial Statements and Supplementary Data................. 30
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................. 31
PART III
Item 10. Directors and Executive Officers of the
Registrant............................................. 31
Item 11. Executive Compensation...................................... 31
Item 12. Security Ownership of Certain Beneficial
Owners and Management.................................. 31
Item 13. Certain Relationships and Related Transactions.............. 31
PART IV
Item 14. Exhibits, Consolidated Financial Statement Schedules
and Reports on Form 8-K................................ 32
Signatures............................................................ 33-34
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CERTAIN DEFINITIONS
The following are definitions of terms commonly used in the oil and natural gas
industry and this document.
Unless otherwise indicated in this document, natural gas volumes are stated at
the legal pressure base of the state or area in which the reserves are located
at 60 (degrees) Fahrenheit. Natural gas equivalents are determined using the
ratio of six Mcf of natural gas to one barrel of crude oil, condensate or
natural gas liquids so that one barrel of oil is referred to as six Mcf of
natural gas equivalent or "Mcfe." As used in this document, the following terms
have the following specific meanings: "Mcf" means thousand cubic feet, "MMcf""
means million cubic feet, "Bcf" means billion cubic feet, "Bbl" means barrel,
"MBbl" means thousand barrels, "Mcfe" means thousand cubic feet equivalent,
"Bcfe" means billion cubic feet equivalent, "MMcfe" means million cubic feet
equivalent, and "MMBtu" means million British thermal units.
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.
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; other miscellaneous capital
expenditures; compression equipment and pipeline costs.
DEVELOPED ACREAGE. The number of acres which are allocated or assignable to
producing wells or wells capable of production.
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.
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.
OPERATOR. The individual or company responsible to the working interest owners
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.
RECOMPLETION. The completion of an existing well for production from a formation
that exists behind the casing of the well.
RESERVES. Natural gas and crude oil, condensate and natural gas liquids on a net
revenue interest basis, found to be commercially recoverable. "Proved developed
reserves" includes proved developed producing reserves and proved developed
behind-pipe reserves. "Proved developed producing reserves" includes only those
reserves expected to be recovered from existing completion intervals in existing
wells. "Proved undeveloped reserves" includes those reserves expected to be
recovered from new wells on proved undrilled acreage or from existing wells
where a relatively major expenditure is required for recompletion.
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.
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.
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PART I
ITEM 1. BUSINESS
GENERAL
Evergreen Resources, Inc. ("Evergreen" or "the Company"), is a Colorado
corporation organized on January 14, 1981. Evergreen is an independent energy
company engaged in the exploration, development, production, operation and
acquisition of oil and gas properties. Evergreen's primary focus is on
developing and expanding its coalbed methane properties located on approximately
200,000 gross acres in the Raton Basin in southern Colorado. Evergreen also
holds exploration licenses on approximately 513,000 acres onshore in the United
Kingdom, and an oil and gas exploration contract on approximately 2.4 million
acres in northern Chile.
Evergreen maintains its principal executive offices at Suite 1200, 1401
17th Street, Denver, Colorado 80202, and its telephone number is (303) 298-8100.
The authorized capitalization of the Company is 50,000,000 shares of no par
value common stock, of which 11,142,613 shares were issued and outstanding at
December 31, 1998, and 25,000,000 shares of $1.00 par value preferred stock,
none of which were issued and outstanding at December 31, 1998.
This report on Form 10-K 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. Actual results could differ materially
from those implied by 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 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.
For a discussion of the development of the Company's business, see Item 2.
FOCUS - RATON BASIN
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 is one of the largest holders of oil and gas leases in the Raton
Basin with approximately 200,000 gross acres. In addition, the Company's daily
gas sales represent approximately 70% of the gas currently sold from the Raton
Basin. Evergreen currently has 173 net producing gas wells on its Raton Basin
properties and four exploratory wells which are subject to further evaluation.
The Company has identified approximately 800 drilling locations on its Raton
Basin acreage, of which 343 were included in the Company's proved reserve base
at December 31, 1998. These proven locations comprise approximately 43% of the
Company's total acreage in the Raton Basin. Evergreen intends to spend
approximately $35 million over the next year on the further development of the
Raton Basin, including drilling approximately 80 wells and expanding and
upgrading its gathering and compression facilities.
At December 31, 1998, Evergreen had estimated net proved reserves of 405
Bcfe with a PV-10, before future income tax expense of approximately $215
million. Natural gas constituted all of Evergreen's estimated net proved
reserves, all of which were located in the Raton Basin and 60% of which were
developed. Evergreen has a 100% working interest in the majority of 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.
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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 and production. Evergreen's estimated
net proved reserves have increased from approximately 63 Bcfe at March 31, 1995
to 405 Bcfe at December 31, 1998. Over this period, the number of producing
wells and average gross daily production increased from 9 wells and 1.5 MMcf to
173 wells and 43 MMcf, respectively. Since inception of the Company's drilling
efforts in the Raton Basin, the Company has drilled and tested a total of 130
producing wells and achieved a 98% success rate. An additional 43 wells were
acquired through property acquisitions in 1998 for a total of 173 producing
wells.
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 December 31, 1998, the Company spent approximately $93 million
on the drilling and completion of its wells, pipelines, gathering systems,
compression equipment and the acquisition of additional working interests, which
represents a total finding and development cost of $0.22 per Mcfe.
In addition, the Company's lease operating expenses ("LOE") and general and
administrative costs per Mcfe have declined steadily since Raton Basin gas sales
began in early 1995. For the year ended December 31, 1995, Evergreen's lease
operating expenses and general and administrative costs were $0.88 per Mcfe and
$0.94 per Mcfe, respectively, as compared to $0.34 per Mcfe and $0.19 per Mcfe,
respectively, for the year ended December 31, 1998.
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 coal bearing formations, the
Vermejo formation coals located at depths of between 450 and 3,500 feet and the
shallower Raton formation coals, located at depths from the surface to
approximately 2,000 feet. To date, Evergreen's production has been from the
Vermejo formation coals; however, Evergreen believes that the Raton formation
coal seams may be profitably exploited as well.
Approximately 133,900 acres of the Company's 200,000 gross acres in the
Raton Basin have been included in three 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 513,000 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 $8.5 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 spend approximately
$3 million in 1999 to drill gob gas wells and maintain the licenses.
The Company has recently completed a 3D seismic program in the United
Kingdom in an area in which Evergreen plans to drill a multi-well pilot coalbed
methane project. Evergreen is holding discussions with potential industry
partners for the purpose of evaluating and developing the Current Licenses and
will not start the pilot program until a partner has been secured. The
Company has recently purchased a drilling rig for this project. This rig
initially will be tested in the Raton Basin in early March and shipped to the
United Kingdom for the drilling of the seven wells in the second half of 1999.
FALKLAND ISLANDS. The Falkland Islands consortium, in which Evergreen has a
net 2% interest, has completed operations on the second well (and the industry's
fifth well) in the North Falklands Basin. Well 14/9-2 was spudded on October 13,
1998, and finished drilling on October 28, 1998. It reached a total depth of
approximately 8,000 feet and was plugged and abandoned as a dry hole with oil
shows.
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
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company, holds the remaining 25% working interest. Evergreen expects to engage
in surface, geologic mapping, ground based magnetic and gravity surveys and
conduct a proprietary 2D seismic program over the next two years at an aggregate
cost to the Company of approximately $2.2 million.
BUSINESS STRATEGY
Evergreen's objective is to increase reserves, production, cash flow,
earnings 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 152
wells in the Raton Basin. Of this total, 130 are currently in production,
and 4 are exploratory and subject to further evaluation. The Company plans
to drill approximately 80 wells in 1999. During 2000, the Company plans to
drill approximately 80 wells and expand its gathering and compression
facilities. The Company's capital budget for the 1999 drilling and
expansion program is approximately $35 million. The expansion program will
be funded by cash flow from operations and available borrowings under the
Company's $75 million credit facility.
- 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.
- 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 early September 1998, CIG completed the Campo Lateral
expansion project. The expansion significantly lowers pipeline pressures
and increases initial pipeline capacity from the Raton Basin to 100 MMcf of
gas per day, up from 47 MMcf per day.
- 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 513,000 acres in the United Kingdom and an oil and gas
exploration license on approximately 2.4 million acres in northern Chile.
The Company expects to spend approximately $3 million in 1999 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 1998 and 1996, the Company
acquired additional property interests in the Raton Basin totaling
approximately 97 Bcf of estimated proved reserves at an average acquisition
cost of $0.34 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, particularly where the Company can add value
through its technical expertise.
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CUSTOMERS AND MARKETS
GAS MARKETING. Primero Gas Marketing Company ("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.
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"). Now completed, the Campo Lateral has initial capacity of
up to approximately 100 MMcf per day, which more than doubles the pipeline
capacity previously available from the Raton Basin. The pipeline capacity may be
further expanded through the use of additional compression facilities. 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 committed to transport natural gas from
the Raton Basin through this new pipeline commencing in September 1998. The
initial commitment was 25 MMcf per day, increasing every six months to 41 MMcf
per day, 18 months after the commencement. In 1998, the Company acquired certain
properties in the Raton Basin and additionally assumed firm transportation
commitment of 12 MMcf per day. As of March 1, 1999, the Company has total firm
commitments of 42 MMcf per day. 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 potentially increasing the prices Evergreen
will receive for its gas. The CIG contract provides for delivery of the
Company's gas into interstate 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.
MAJOR CUSTOMERS. Evergreen has two major customers Aquila Energy
Corporation and Natural Gas Transmission Services, Inc., which purchased
approximately 45%, and 44%, respectively, of the Company's gas production for
the year ended December 31, 1998. Based on the general demand for gas, the loss
of either or both 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.
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 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.
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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 No. 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. In 1997, 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 on matters relevant to the Company's
business, 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 1995, the 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. 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
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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, the 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
has 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 has 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.
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 re-negotiation 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. State 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
9
<PAGE>
addition, state 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 and continues to be proposed in
Congress from time to time that would reclassify certain exempt oil and gas
exploration and production wastes as "hazardous wastes." This reclassification
which would make such 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 may include initiatives at
county, municipal and local government levels. 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 adverse 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. 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. Under CERCLA, certain oil and gas materials and products
are, by definition, excluded from the term "hazardous substances." At least two
federal courts have recently held that certain wastes associated with the
production of crude oil may be classified as hazardous substances under CERCLA.
Similarly, under the federal Resource, Conservation and Recovery Act ("RCRA")
certain oil and gas materials and wastes are exempt from the definition of
"hazardous wastes." This exemption continues to be subject to judicial
interpretation and increasingly stringent state regulation. During the normal
course of its operations, the Company generates or has generated in the past
exempt and non-exempt wastes, including hazardous wastes, that are subject to
the RCRA and comparable state statutes. The U.S. Environmental Protection Agency
("EPA") and various state agencies continue to promulgate regulations that limit
the disposal and permitting options for certain hazardous and non-hazardous
wastes.
The Company currently owns or leases, and 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, materials 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 EPA regulates this coalbed formation fracturing as a form of underground
injection. On August 7, 1997, the U.S. Court of Appeals for the Eleventh Circuit
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
10
<PAGE>
approval of Alabama's Underground Injection Control 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 would be to other similarly situated companies
involved in coalbed methane gas production or tight gas sands production
within the United States.
Also in connection with its coalbed methane gas production, the Company
may produce naturally occurring groundwater as a by-product of the production
of methane gas. This produced groundwater is either reinjected into the
subsurface or stored or disposed of in evaporation ponds or natural
collection features located on the surface at or near the wellsite pursuant
to federal, state and local statutes and regulations. In some cases, the
produced groundwater is used for stock watering, agricultural or dust
suppression purposes, also pursuant to federal, state and local regulation.
The legal and regulatory classification of this produced groundwater remains
unclear under the environmental laws discussed above as well as under the
federal Clean Water Act ("CWA"), a strict liability statute, which governs
the permitted and unpermitted discharge of "pollutants" to "waters of the
United States." Under the CWA and various other state regulations, EPA, the
State of Colorado Department of Public Health and the Environment and the
Colorado Oil and Gas Conservation Commission each continue to assert
administrative and regulatory enforcement authority over the storage and
disposal of such produced groundwater. These agencies' classification or
characterization of either: (1) such produced groundwater as a "pollutant,"
or (2) the storage, use and disposal of such water on the surface as a
"discharge to waters of the United States" could have a significant impact on
the regulatory treatment of this groundwater management practice and
Evergreen's understanding of its past compliance in connection with the CWA.
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.
At this time, the Company has no plans to make any material capital
expenditures for environmental control facilities. See Item 3- Legal Proceedings
regarding Southern Colorado C.U.R.E. v. Evergreen Operating Corporation.
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.
EMPLOYEES
At March 1, 1999, the Company had 64 full time employees.
11
<PAGE>
CERTAIN RISKS
VOLATILITY OF NATURAL GAS PRICES. The Company's revenues, operating
results, profitability, future rate of growth and the carrying value of its gas
properties are substantially dependent upon prevailing market prices for oil and
gas. Historically, the markets for 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 gas.
Any substantial or extended decline in the price of 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" and
"Quantitative and Qualitative Disclosure About Market Risk."
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, which comprise a
significant portion of the Company's reserves, are by their nature uncertain.
The reserve information set forth in this Form 10-K represents estimates only.
Although the Company believes such estimates to be reasonable, reserve estimates
are imprecise by nature 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 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.
PV-10, as referred to in this Form 10-K, 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 incidence 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
12
<PAGE>
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 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 and 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.
DEPENDENCE ON GATHERING AND TRANSPORTATION FACILITIES. 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. If the Company is unable to meet its firm
transportation commitments, the commitment must be paid for but can be deferred
and utilized at a later date. 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.
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, re-negotiation
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, currency fluctuations, labor disputes and other uncertainties
arising out of foreign government sovereignty over the Company's international
operations.
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.
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<PAGE>
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
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.
SOUTHERN UTE INDIAN TRIBE V. AMOCO PRODUCTION COMPANY LITIGATION. On
October 21, 1998, President Clinton signed into law a bill that protects
existing royalty ownership of coalbed methane gas produced from existing oil and
gas leases, where the coal rights were severed and owned by the Federal
Government. In the Company's opinion this legislation favorably eliminates the
uncertainty regarding title ownership on any of Evergreen's existing acreage in
the Raton Basin. This legislation was introduced in response to a July 20, 1998,
U.S. Court of Appeals for the Tenth Circuit ruling, Southern Ute Indian Tribe v.
Amoco Production Company, which held that coalbed methane rights may be included
in the definition of "coal" rather than "gas."
ITEM 2. PROPERTIES
OPERATIONS
The Company's wholly-owned subsidiary, Evergreen Operating Corporation
("EOC"), is primarily responsible for drilling, evaluation and production
activities associated with various properties and for negotiating the sales of
oil and gas production from the properties. As of March 1, 1999, EOC was serving
as operator for approximately 173 producing wells owned by the Company.
The Company believes that, as operator, it is in a better position to
control costs, safety, and timeliness of work as well as other critical factors
affecting the economics of a well or a property, including maintaining good
community relations.
EOC presently operates wells which represent 100% of Evergreen's proved
reserves.
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<PAGE>
OIL AND GAS RESERVES
The table below sets forth the Company's quantities of proved reserves, as
estimated by independent petroleum engineers, Netherland Sewell & Associates,
Inc. and Resource Services International, Inc., all of which were located in the
continental U.S., and the present value of estimated future net revenues from
these reserves on a non-escalated basis discounted at 10 percent per year as of
periods indicated. There has been no major discovery or other favorable or
adverse event that is believed to have caused a significant change in estimated
proved reserves subsequent to December 31, 1998.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Estimated Proved Gas Reserves (Mcf) 404,936,200 224,413,800 150,719,700
Estimated Proved Oil Reserves (Bbls) --- --- 2,600
Present Value of Future Net Revenues
(before future income tax expense) $214,674,600 $159,325,900 $70,498,500
</TABLE>
Reference should be made to Supplemental Oil and Gas Information beginning
on page F-20 of this report for additional information pertaining to the
Company's proved oil and gas reserves. During fiscal 1998, the Company did not
file any reports that include estimates of total proved net oil or gas reserves
with any federal agency other than the Securities and Exchange Commission.
PRODUCTION
The following table sets forth the Company's net oil and gas production for
the periods indicated.
<TABLE>
<CAPTION>
YEAR YEAR NINE MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Natural Gas (Mcf) 10,021,400 6,401,500 2,104,400
Crude Oil & Condensate (Bbls) --- --- ---
</TABLE>
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>
YEAR YEAR NINE MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Average sales price
Natural gas (per Mcf) $1.90 $1.90 $1.66
Oil (per Bbl) --- --- ---
Average LOE (per Mcfe) $0.34 $0.31 $0.33
</TABLE>
15
<PAGE>
PRODUCTIVE WELLS
The following table sets forth, as of December 31, 1998, 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>
-- -- 173 159
</TABLE>
ACREAGE
At December 31, 1998, Evergreen held developed and undeveloped acreage as
set forth below:
<TABLE>
<CAPTION>
LOCATION
DEVELOPED ACRES UNDEVELOPED ACRES TOTAL
--------------- ----------------- -----
GROSS NET GROSS NET GROSS NET
--------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Colorado 51,600 47,200 156,900 135,300 208,500 182,500
United Kingdom* -- -- 377,000 377,000 377,000 377,000
Falkland Islands -- -- 400,600 8,000 400,600 8,000
Chile -- -- 2,400,000 1,800,000 2,400,000 1,800,000
--------- --------- ----------- ----------- ----------- -----------
Total 51,600 47,200 3,334,500 2,320,300 3,386,100 2,367,500
--------- --------- ----------- ----------- ----------- -----------
--------- --------- ----------- ----------- ----------- -----------
</TABLE>
*Subsequent to year-end the Company acquired an additional 136,000 acres in the
United Kingdom, which increases the total acreage to 513,000.
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, 1999................................................................... 4,500 2,400
December 31, 2000 and later......................................................... 1,100 1,100
</TABLE>
DRILLING ACTIVITIES
The Company's drilling activities for the periods indicated are set forth
below:
<TABLE>
<CAPTION>
YEAR YEAR NINE MONTHS
ENDED ENDED ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
-------------------------- ---------------------- ------------------------
1998 1997 1997
---- ---- ----
GROSS NET GROSS NET GROSS NET
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Exploratory Wells:
Productive........................... 0 0 4 4 0 0
Dry.................................. 0 0 0 0 0 0
----- ----- ----- ----- ----- -----
0 0 4 4 0 0
Development Wells:
Productive........................... 50 50 56 56 28 28
Dry.................................. 0 0 0 0 0 0
----- ----- ----- ----- ----- -----
50 50 56 56 28 28
</TABLE>
16
<PAGE>
PRINCIPAL PROPERTIES
The following are brief descriptions of Evergreen's principal properties:
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 coal bearing formations, the
Vermejo formation coals located at depths of between 450 and 3,500 feet and the
shallower Raton formation coals, located at depths from the surface to
approximately 2,000 feet. To date, Evergreen's primary production has been from
the Vermejo formation coal seams; however, Evergreen believes that the Raton
formation coal seams may be profitably exploited as well.
DEVELOPMENT HISTORY AND EXPECTED FUTURE DEVELOPMENT. Exploration for
coalbed methane began in the Raton Basin in the late 1970s and continued through
the late 1980s, 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 200,000 gross acres in the Raton Basin. The initial 70,000 acres
were acquired from Amoco Production Company ("Amoco") in 1991 by direct purchase
without overriding royalties. The majority of the acreage remaining 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 173 net producing gas
wells on its Raton Basin properties.
In March 1995, the Federal Bureau of Land Management ("BLM") designated
approximately 67,000 acres of Evergreen's leases in the Raton Basin as a
federal unit called the Spanish Peaks Unit. In December 1997, the BLM
approved an additional 6,300 acres of leases to be included in the Spanish
Peaks Unit, for a total of 73,300 acres. 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. Additionally, in July 1998, the Company acquired a
100% working interest in 27,590 gross acres in the Cottontail Pass Federal
Unit from Amoco. The Cottontail Pass Unit is situated between Evergreen's
Spanish Peaks and Sangre de Cristo Units. Evergreen has been named the
operator for all three of these units. Formation of a unit simplifies lease
maintenance so that Evergreen, as the operator, can base development
decisions within the unit on geologic, operational and cultural
considerations 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.
Prior to the acquisitions of the Cottontail Pass Unit and acreage in the
Long Canyon and Lorencito areas (discussed below), the Company's principal
development activities in the Raton Basin had been in the Spanish Peaks Unit.
The Company currently has 130 producing wells in this Unit and expects to drill
approximately 80 wells there in 1999. Current production from the Spanish Peaks
Unit is approximately 36 MMcf per day. The Company has identified approximately
400 drilling locations in its Spanish Peaks Unit, of which 207 were included in
the Company's proved reserve base at December 31, 1998. These identified
locations comprise approximately 52% 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 formation coals, as
well as the Vermejo formation coals.
17
<PAGE>
The Company's development activities in the Sangre de Cristo Unit have
consisted solely of the drilling of four 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.
Effective July 1, 1998, Evergreen acquired approximately 100% of the
working interest in 27,590 acres in Amoco's Cottontail Pass Federal Unit.
Included in the acquisition were 28 producing wells and gathering facilities.
Total daily production is approximately 5 MMcf per day. The Company estimates
that there are approximately 100 additional drilling locations in the Unit.
Effective December 31, 1998, the Company acquired 41,000 gross acres in the
Long Canyon and Lorencito areas located in the southern Colorado portion of the
Raton Basin. The properties included 19 currently producing wells with daily
production of approximately 1.5 MMcf per day. Evergreen has identified 160
potential drilling locations on the acreage, in which it will hold working
interests of between 53% and 75% and serve as operator.
RATON BASIN GEOLOGY. In the Raton Basin, Evergreen produces methane
almost entirely 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 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 asymmetric 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 within 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, created an extensive series
of faults and fractures in the coals 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 coalbeds. The Company believes that the
simultaneous downwarping of the Raton trough and Larimide age mountain
building with subsequent relaxation (extension) and the subsequent magmatic
intrusions into the Raton Basin have matured the coals and enhanced the
ability of the Vermejo and Raton coals to yield coalbed methane gas.
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 these beds are variable. Evergreen is currently completing its
wells in the Vermejo coal beds, and expects to test the Raton coal beds
extensively this year. Individual wells are often completed to produce gas
from 5 to 15 individual coalbeds with individual thickness between 1 and 12
feet.
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 coal seams. 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 water 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 since methane is created as part of
the coalification process, though coals vary in their methane content per ton.
In addition to being in open spaces in the coal structure, methane is
18
<PAGE>
absorbed onto the inner coal surfaces. When the coal is hydraulically
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 the coal quality, 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 decreased, 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 uniformed sized sand and
become the conduits for 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.
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, therefore, uses 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 off well-site
evaporation ponds. If more brackish water is encountered in subsequent
wells, it may be necessary to drill specialized injection wells to re-inject
the produced water back into the underground rock formations.
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 December 1998, Evergreen sold an aggregate of approximately
18.5 Bcf of coalbed methane gas from the Raton Basin. Gross daily production
from the field currently exceeds 43 MMcf 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.
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, covering substantially all of six distinct onshore United Kingdom
basins.
19
<PAGE>
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 377,000 acres, which were high-graded for
coalbed methane and conventional hydrocarbon potential. Subsequent to year-end,
the Company acquired an additional 136,000 acres. 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
the drilling of three wells in 1999.
Evergreen believes that a major coalbed methane resource exists 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. Evergreen will spend approximately $3 million in 1999 to drill gob gas
wells and maintain the Licenses.
The Company has recently completed a 3D seismic program in the United
Kingdom in an area in which Evergreen plans to drill a multi-well pilot
coalbed methane project. Evergreen is holding discussions with potential
industry partners for the purpose of evaluating and developing the Current
Licenses and will not start the pilot program until a partner has been
secured. The Company has recently purchased a drilling rig for this project.
This rig initially will be tested in the Raton Basin and shipped to the
United Kingdom for the drilling of the seven wells in the second half of 1999.
In addition to the drilling of coalbed methane wells, the Company will
drill approximately 5-6 gob gas wells. Gob gas is essentially methane gas
that has collected in abandoned underground coal mines. Evergreen plans to
establish marketing arrangements for its future gas production by first
supplying this gob gas to local electric power plants. The Company plans to
start the gob gas drilling and production in the second half of 1999.
FALKLAND ISLANDS. The Falkland Islands consortium, in which Evergreen has a
net 2% interest, has completed operations on the second well (and the industry's
fifth well) in the North Falklands Basin. Well 14/9-2 was spudded on October 13,
1998, and finished drilling on October 28, 1998. It reached a total depth of
approximately 8,000 feet and was plugged and abandoned as a dry hole with oil
shows.
The abandonment of well 14/9-2 completes the initial drilling campaign on
Tranche A. The two wells on Tranche A have established good source rocks and
potential reservoir rocks. The consortium will assess the data gathered from the
two wells to determine the future strategy for the acreage.
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 acres) blocks in northern Chile. 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.
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<PAGE>
Evergreen and ENAP will share work commitments proportionately for the
periods of time stated as Exploration Periods for each block as set forth in the
table below:
<TABLE>
<CAPTION>
EXPLORATION
PERIOD TERM WORK COMMITMENT
------ ---- ---------------
<S> <C> <C>
*1 1 year Geologic mapping, land based magnetic 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>
* Commenced June, 1997 - fulfilled
** Committed
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 two years of approximately $2.2 million.
OFFICE AND OPERATIONS FACILITIES
The Company leases its corporate offices in Denver, Colorado. Effective May
1, 1998, the Company entered into a new ten year office lease for approximately
$267,500 per year. The Company believes the new office space will be sufficient
for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
Except for the 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 July 13, 1998, Southern Colorado C.U.R.E. filed a lawsuit under the
citizen suit provision of the Clean Water Act in the U.S. District Court for
the District of Colorado against EOC, related to its coalbed methane drilling
operations in the Raton Basin near Trinidad, Colorado. The Company's gas
production produces naturally occurring groundwater as a by-product of its
coalbed methane gas production operations. The storage, use and disposal of
the produced groundwater in evaporative ponds and natural collection features
located on the surface at or near the wellsite, and the legal and regulatory
treatment of this practice, underlie the lawsuit. EOC is also subject to
federal, state and local environmental laws and regulations, and is currently
participating with the EPA and the State of Colorado in the investigation of
certain practices in connection with these operations. An evaluation of costs
of potential liabilities associated with this investigation cannot be
reasonably determined at this time. The Company does not expect that the
lawsuit or the investigation, or the environmental costs or contingent
liabilities of either, if any, will have a material adverse effect on its
consolidated financial position or its results of operations.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" regarding the settlement of the Evergreen versus Amoco
Production Company lawsuit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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<PAGE>
PART II
ITEM 5. MARKET FOR EVERGREEN'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
PRINCIPAL MARKET
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, 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............................................... 20.75 12.62
Year Ended December 31, 1998
First Quarter................................................ $18.38 $13.25
Second Quarter............................................... 19.62 16.31
Third Quarter................................................ 22.75 13.75
Fourth Quarter............................................... 24.13 16.63
</TABLE>
On March 11, 1999, the last reported sales price for the Common Stock as
reported by the NASDAQ National Market was $17.50 per share. At March 11, 1999,
there were approximately 4,400 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.
RECENT SALES OF UNREGISTERED SECURITIES
On December 31, 1998, the Company issued 450,000 shares of Common Stock to
a corporation as partial consideration for the acquisition of approximately
41,000 acres of coalbed methane property in the Raton Basin. Also on December
31, 1998, the Company issued 6,894 shares of Common Stock to two members of a
limited liability company owning certain seismic equipment assets as
consideration for the membership interests held by such individuals. The Company
issued these shares of Common Stock in each case in reliance on the exemption
from registration provided by Section 4 (2) of the Securities Act.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial information presented below for the
years ended December 31, 1998 and 1997, the nine months ended December 31, 1996,
and the years ended March 31, 1996 and 1995, are derived from the consolidated
financial statements of the Company. Effective with the period ended December
31, 1996, the Company began utilizing a December 31 year end.
This information should be read in conjunction with the Consolidated
Financial Statements and Notes thereto and Management's Discussion and Analysis
of Financial Condition and Results of Operations. Certain reclassifications have
been made to prior financial statements to conform with current presentation.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, DECEMBER 31, YEARS ENDED MARCH 31,
------------------------ ------------ ---------------------
1998 1997 1996 1996 1995
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Revenues:
Oil and gas production $ 19,063 $ 12,138 $ 3,502 $ 1,393 $ 1,916
Equity in earnings of investment 555 313 --- --- ---
Interest and other 178 136 181 763 577
----------- ------------- ---------- ---------- ----------
Total revenues 19,796 12,587 3,683 2,156 2,493
----------- ------------- ---------- ---------- ----------
Expenses:
Lease operating expenses 3,356 2,007 701 657 994
Depreciation, depletion and amortization 3,860 2,794 966 590 709
General and administrative 1,933 1,286 581 767 782
Interest 1,870 778 193 36 29
Other 286 258 127 208 589
----------- ------------- ---------- ---------- ----------
Total Expenses 11,305 7,123 2,568 2,258 3,103
----------- ------------- ---------- ---------- ----------
Net income (loss) before income taxes 8,491 5,464 1,115 (102) (610)
Income tax provision - deferred 3,279 --- --- -- ---
----------- ------------- ---------- ---------- ----------
Net income (loss) 5,212 5,464 1,115 (102) (610)
Preferred stock dividends --- 400 440 505 94
----------- ------------- ---------- ---------- ----------
Net income (loss) attributable to common stock $ 5,212 $ 5,064 $ 675 $ (607) $ (704)
----------- ------------- ---------- ---------- ----------
----------- ------------- ---------- ---------- ----------
Net income (loss) per common share
Basic $ .50 $ .53 $ .10 $ (.10) $ (.13)
----------- ------------- ---------- ---------- ----------
----------- ------------- ---------- ---------- ----------
Diluted $ .47 $ .51 $ .10 $ (.10) $ (.13)
----------- ------------- ---------- ---------- ----------
----------- ------------- ---------- ---------- ----------
Statement of Cash Flows Data
Net cash provided by (used in):
Operating activities $ 12,147 $ 6,457 $ 1,524 $ 1,130 $ 408
Investing activities (47,202) (19,259) (8,559) (2,764) (2,958)
Financing activities 34,260 12,253 5,978 3,329 3,635
Balance Sheet Data:
Cash and cash equivalents $ 1,334 $ 2,103 $ 2,640 $ 3,703 $ 2,038
Total assets 139,626 87,306 68,244 44,172 39,140
Total long term debt 47,045 14,841 1,174 191 ---
Redeemable preferred stock --- --- 6,000 7,500 3,750
Total stockholders' equity 79,679 64,152 52,364 31,589 32,202
Cash dividends per share --- --- --- --- ---
</TABLE>
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<PAGE>
ITEM 7. 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
FORM 10-K. 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, operation and acquisition of oil and gas properties. Evergreen's
primary focus is on developing coalbed methane properties located on
approximately 200,000 gross acres in the Raton Basin in southern Colorado.
The Company also holds exploration licenses on approximately 513,000 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 producing properties.
The following table sets forth certain operating data of the Company for
the periods presented.
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1998 1997 1996 1996 1995
---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PRODUCTION DATA:
Natural gas (Mcf)...... 10,021,400 6,401,500 2,104,400 941,200 781,700
Oil (Bbls)............. -- -- -- 9,700 36,660
Total (Mcfe)........... 10,021,400 6,401,500 2,104,400 999,400 1,001,300
AVERAGE SALES PRICE PER UNIT:
Natural gas (per Mcf).. $1.90 $1.90 $1.66 $ 1.29 $ 1.67
Oil (per Bbl).......... -- -- -- 18.40 15.97
Mcfe................... 1.90 1.90 1.66 1.39 1.91
COST PER Mcfe:
Average LOE............ $ .34 $ .31 $ .33 $ .65 $ .99
General and administrative .19 .20 .28 .77 .78
Depreciation, depletion and
amortization........ .39 .44 .46 .59 .85
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1998, the Company continued to
demonstrate consistent growth over prior years in the areas of pre-tax net
income, cash flow and gas reserves. Recent property acquisitions in the Raton
Basin have enhanced Evergreen's position in the Basin with an increase in the
number of drilling locations and with anticipated economies with its gas
gathering system.
During the year ended December 31, 1998, the Company acquired additional
property interests in the Raton Basin. On July 2, 1998, Evergreen completed
the acquisition of approximately 27,000 acres in the Cottontail Pass Federal
Unit in the Raton Basin and 28 existing wells and related gathering
facilities for $13.1 million in cash. Effective December 31, 1998, the
Company acquired 41,000 gross acres in the Raton Basin and 17 producing wells
for stock valued at $7.5 million, the assumption of approximately $750,000 in
debt and $250,000 in cash. In the aggregate, the Company acquired a total of
60.4 MMcf of proved reserves at an acquisition finding cost of $0.36 per Mcf.
The acquisition of the Cottontail Pass Federal Unit from Amoco resolved the
preferential rights litigation between Evergreen and Amoco. On June 25, 1997,
Evergreen filed an action seeking a declaratory judgement against Amoco
regarding a proposed sale by Amoco of the Cottontail Pass Federal Unit, located
in the Raton Basin. Evergreen, as a working interest owner in the unit, had a
preferential right to purchase approximately 22,000 gross non-producing acres.
Evergreen had tendered to Amoco notice of its intention to exercise this
preferential right to
24
<PAGE>
purchase; however, Amoco contended that it did not receive valid notice of the
preferential purchase rights from Evergreen. Evergreen sought a declaratory
judgement 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 judgement and ruled that Evergreen properly
exercised its right of purchase for the subject properties. Subsequent to that
ruling, the Company successfully negotiated the purchase of the entire
Cottontail Pass Unit from Amoco.
During 1999, the Company anticipates that it will drill approximately 80
wells in the Raton Basin and will spend approximately $45 million on its total
exploration and development program. Drilling and gathering facilities will
comprise approximately $35 million. Approximately 25% of the drilling and
gathering costs will be incurred for the completion of a second compressor
station in the northern portion of the Spanish Peaks Unit along with the related
infrastructure, a 24-inch trunk gathering line and a 12-inch high pressure sales
line that connects to the CIG's Picketwire Lateral. These items are required due
to pressure constraints in the existing gathering system caused by increasing
pressures and additional gas volumes from newer wells drilled. The compressor
station and the infrastructure are needed to optimize production in the Spanish
Peaks and Cottontail Pass Units.
In addition, the Company plans to spend approximately $5 million in new
equipment for a new well service company. In February 1999, the Company sold
its 49% interest in Maverick Stimulation Company ("Maverick") for
approximately $2.25 million. The new well service company will be a
wholly-owned subsidiary of Evergreen. The well service company will provide
fracture stimulation services, cement work, drilling and workovers. Evergreen
anticipates an increase in quality control and cost savings from the services
performed.
The remaining budget is for international exploration, including the $3
million for drilling of the gob gas wells in the UK and other miscellaneous
items. No budget has been allocated to the multi-well drilling program.
Evergreen is holding discussions with potential industry partners for the
purpose of evaluating and developing the Current Licenses and will not start
the multi-well program until an investment in the project by a partner has
been secured.
The capital budget for 1999 is subject to review and adjustment depending
on gas prices and the corresponding cash flow. The Company believes that cash
flow from operations and available borrowings under its line of credit will be
sufficient to fund 1999 capital expenditures for the Raton Basin and the
drilling of gob gas wells in the UK. Future development of the Raton Basin and
other projects will require additional capital. The Company believes it will
have sufficient capacity to fund all of its projects for the foreseeable future
through its anticipated cash flow and its lines of credit. However, as the
Company continues to grow and expand, the Company believes that additional
equity capital may be required to fund development of its projects.
As of December 31, 1998, the Company currently had a $50 million revolving
line of credit with a bank group consisting of Hibernia National Bank, as agent,
Chase Bank of Texas and Paribas ("the Banks"). The line is available through
June 2001. Advances pursuant to this line of credit are limited to a borrowing
base, which is presently $50 million. At the Company's election, it may use
either the London interbank offered rate ("Libor") plus a margin of 1.38% to
1.75% or the prime rate plus a margin of 0% to .25%, with margins on both rates
determined on the average outstanding borrowings under the credit facility. The
borrowing base is redetermined semi-annually by the Banks based upon reserve
evaluations of the Company's oil and gas properties. The current borrowing base
is less than the total borrowing base that could have been requested under the
terms of the agreement. An annual facility fee of .375% 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 December 31, 1998, $44,138,700 was outstanding under the line of credit.
Effective March 1, 1999, the Company increased its line of credit to $75 million
with the same terms and conditions as the current line of credit. As of March 1,
1999, the borrowing base is $75 million.
The Company has a capital equipment lease with a bank with interest at
8.5% at December 31, 1998. The capital equipment lease 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 December 31, 1998, the Company had approximately $4
million under the capital lease obligations.
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<PAGE>
Prior to 1998, the Company had not been required to record income tax
expense, primarily due to the availability of net operating loss carryovers.
However, as a result of the recently reported profitability and the significant
difference between the book and tax basis of assets, the Company will be
required to provide for deferred income taxes in the statement of income in 1998
and subsequent years. The Company recorded a deferred tax provision of
approximately $3,279,000 in 1998. The Company estimates that it will not be
required to pay current income tax in the near future due to the availability of
net operating loss carryforwards of approximately $30 million and current
deductions for intangible drilling costs.
Cash flows provided by operating activities were $12,147,100 for the year
ended December 31, 1998 as compared to cash flows provided by operating
activities of $6,547,400 for the year ended December 31, 1997. The significant
increase in the cash flows provided by operating activities is due primarily to
improved operating results as a result of increased gas production. The
increased gas production is due to the drilling of additional wells and the
acquisition of certain producing properties.
Cash flows used in investing activities were $47,202,500 during the year
ended December 31, 1998, versus $19,259,200 in 1997. The increase in 1998 was
due to the continued development of the Raton Basin, investments in
international projects and the acquisition of the Cottontail Pass Unit for
$13,100,000.
Cash flows provided by financing activities were $34,259,800 during the
year ended December 31, 1998, as compared to cash flows provided by financing
activities of $12,253,000 in 1997. The increase was due primarily to increased
borrowings to fund the development of the drilling and gathering system in the
Raton Basin as well as the acquisition of the Cottontail Pass Unit. In addition,
the Company received proceeds from the exercise of stock purchase warrants of
approximately $2,158,200. These borrowings and exercise of stock purchase
warrants were offset by principal payments on capital leases of $1,061,100.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
The Company reported net income of $5,212,000 or $0.47 per diluted share
for the year ended December 31, 1998, compared to net income of $5,064,000 or
$0.51 per diluted share for the same period in 1997. Pretax net income
increased significantly to $8,491,000 in 1998, versus $5,464,000 in 1997. As
a result of a deferred income tax provision of $3,279,000 in 1998 as compared
to no deferred income tax provision in 1997, the Company's 1998 net income
increased slightly as compared to 1997.
Natural gas revenues increased to $19,063,000 during the year ended
December 31, 1998 from $12,138,000 for the same period in the prior year. The
significant increase of $6,925,000 in 1998 compared to 1997 or 57% was due to
the increase in production and the acquisition of certain properties in the
Raton Basin. The Company had 159 net producing wells in 1998, versus 89 in
1997. The number of producing wells in the Spanish Peaks Unit increased to
127 in 1998, versus 89 in 1997. The Company acquired approximately 32 net
producing wells in two separate transactions in 1998. Gas production volumes
in the Spanish Peaks Unit increased to 9,458,000 Mcf in 1998 versus 6,402,000
Mcf in 1997, or 48%. Gas production volumes from the acquired properties were
563,000 Mcf in 1998. The average gas price for 1998 and 1997 was $1.90 per
Mcf.
Equity in earnings of investment increased to $555,000 during the year
ended December 31, 1998 as compared to $313,000 in 1997. Equity in earnings
of investment is 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. The increase was due to
Maverick's increase in sales volume and profitability in 1998 as compared to
1997. Subsequent to year-end, the Company sold its 49% interest in Maverick
to the managing members of Maverick for cash of approximately $2.25 million.
The closing of the transaction is expected to occur in April 1999. As a
result of the sale of Maverick, the Company will not have future earnings
from its investment for 1999. However, any loss of projected income in 1999
from Maverick will be more than offset by the gain on the sale of Evergreen's
interest.
Interest and other income increased to $178,000 during the year ended
December 31, 1998 as compared to $137,000 in 1997. The increase is due to
changes in cash management in 1998.
26
<PAGE>
Lease operating expenses for the year ended December 31, 1998 were
$3,356,000 as compared to $2,007,000 for the same period in 1997. On an
equivalent basis (Mcfe), lease operating expenses were $0.34 per Mcfe in 1998
versus $0.31 per Mcfe in 1997. The $0.03 increase for 1998 over the prior year
is primarily due to an increase in water management costs. The increase in water
management costs is due to drilling wells where there has been a significant
increase in water production. The Company estimates that the lease operating
expense per Mcfe will be at this higher level for some portion of the first
quarter of 1999, but should decrease during the year. The decrease in lease
operating expenses is expected due to the approval of the discharge permits
effective late in January 1999 and the drilling of disposal wells in 1999.
Depreciation, depletion and amortization expense for the year ended
December 31, 1998 was $3,860,000 versus $2,794,000 in 1997. On an equivalent
Mcfe basis, depreciation, depletion and amortization expense declined to $0.39
per Mcfe in 1998 as compared to $0.44 in 1997. The decrease in cost per Mcfe in
1998 as compared to 1997 is due to amortizing capital costs over a significantly
greater number of units of proved reserves.
General and administrative expenses were $1,933,000 during the year ended
December 31, 1998 versus $1,286,000 in 1997. The increase in 1998 of $647,000 is
due to the expected increase in the overall growth in corporate activity. During
1998, personnel costs increased due to the addition of new staff, salary
increases and related benefits, insurance costs, office rent and other
miscellaneous operating expense items. Although the overall general and
administrative expenses increased for the year ended December 31, 1998, the cost
per Mcfe decreased to $.19 in 1998 from $.20 in 1997. The oil and gas service
income and the related cost of service have been reclassified and included with
general and administrative expenses for the year ended December 31, 1998 and for
all periods presented. Through March 1999, EOC operated properties for various
third party working interest owners. In January 1999, the working interest
owners sold those properties. As EOC will no longer receive overhead charges for
the operation of those properties, the Company's general and administrative
expenses will increase in future periods.
Interest expense was $1,870,000 during the year ended December 31, 1998 as
compared to $777,000 in 1997. The $1,093,000 increase for 1998 over the same
period in the prior year is due to increased borrowings under the Company's line
of credit to $44,139,000 from $10,812,000 in 1997. The increase in borrowings is
due to the continuing development in the Raton Basin along with the acquisition
of the Cottontail Pass Unit on July 2, 1998 in the amount of $13.1 million. On
July 1, 1998, the Company increased its line of credit to $50 million and also
changed the interest rate from a prime rate based loan to a Libor based rate.
The change in interest rates decreased the Company's effective interest rate in
the last half of 1998 by 142 basis points to 7.25%.
Prior to 1998, the Company was not required to record income tax expense,
primarily due to the availability of net operating loss carryforwards. However,
as a result of the recently reported profitability and the significant
difference between the book and tax basis of assets, the Company is required to
provide for deferred income taxes in the statements of income in 1998 and
subsequent years. The Company estimates that it will not be required to pay
current income tax in the near future due to the availability of net operating
loss carryforwards of approximately $30 million and current deductions for
intangible drilling costs. For the year ended December 31, 1998, the Company
recorded a deferred tax provision of $3,279,000.
Other expense was $286,000 for the year ended December 31, 1998 as compared
to $259,000 in 1997. Other expense in 1998 included a write-off of offering
expenses of $220,000 related to the withdrawal of a registration on file with
the Securities and Exchange Commission due to unfavorable market condition.
Other expenses in 1997 included a write-off of a receivable in the amount of
approximately $150,000 that was deemed uncollectible and gas gathering costs of
$112,000.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO NINE MONTHS ENDED DECEMBER 31, 1996
Net income for the year ended December 31, 1997 was $5,064,000 or $0.51 per
diluted share, as compared to $675,000 or $0.10 per diluted share, for the nine
months ended December 31, 1996. The increase in net income was primarily the
result of the increase in natural gas net revenues resulting from an increase in
gas production and gas prices and a twelve month reporting period as compared to
a nine month reporting period.
Natural gas revenues were $12,138,000 during the year ended December 31,
1997 as compared to $3,502,000 for the nine months ended December 31, 1996. The
significant increase in oil and gas revenue during 1997, as
27
<PAGE>
compared to 1996, was attributable to substantially higher Raton Basin
production volumes and higher natural gas prices and a twelve month reporting
period as compared to a nine month reporting period. The average gas prices were
$1.90 per Mcf for the year ended December 31, 1997 as compared to $1.66 per Mcf
in 1996. Natural gas production increased to 6,401,500 Mcf for the year ended
December 31, 1997 as compared to 2,104,400 Mcf for 1996.
At December 31, 1997 there were 89 producing Raton Basin wells compared to
42 producing wells at December 31, 1996.
Equity in earnings of investment was $313,000 for the year ended December
31, 1997. Equity in earnings of investment was 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 year ended December 31, 1997, the Company's share of Maverick
profits after intercompany elimination was not material. The increase in
Maverick's net income in 1997 was due to the increase in its oil and gas
stimulation services for third-party entities.
Interest income and other decreased to $137,000 for the year ended December
31, 1997 from $180,000 for the nine months ended December 31, 1996. This
decrease was due to less cash to invest as a result of the continued Raton Basin
development.
Lease operating expenses for the year ended December 31, 1997 were
$2,007,000 compared to $701,000 for the nine months ended December 31, 1996.
Lease operating expenses per Mcfe declined to $0.31 during the year ended
December 31, 1997 from $0.33 in 1996. The decrease in the average lease
operating expense per Mcfe was due to the economies of scale resulting from the
increase in producing wells in the Raton Basin.
Depreciation, depletion, and amortization expenses for the year ended
December 31, 1997 increased to $2,794,000 as compared to $966,000 for the nine
months ended December 31, 1996. The increase of $1,828,000 was due to the
substantial increase in natural gas production and a twelve month reporting
period as compared to a nine month reporting period.
General and administrative expenses increased to $1,286,000 for the year
ended December 31, 1997 as compared to $581,000 for the nine months ended
December 31, 1996. The $705,000 increase was due to the general increase in
overall corporate activity, including salaries and professional services and a
twelve month reporting period as compared to a nine month reporting period.
Although the overall expense increased for the twelve months ended December 31,
1997, the cost per Mcfe decreased to $.20 from the prior year cost per Mcfe of
$0.28. The oil and gas service income and related cost of service have been
reclassified and included with general and administrative for all periods
presented.
Interest expense increased to $777,000 for the year ended December 31, 1997
from $193,000 for the nine months ended December 31, 1996. This $584,000
increase was due to increased borrowings under the Company's line of credit and
an increase in the capital equipment lease. The increased borrowings were made
to fund the Raton Basin development.
Other expenses increased to $259,000 for the year ended December 31, 1997
from $128,000 for the nine months ended December 31, 1996. The increase in other
expenses was due primarily to the write-off of a receivable that was deemed
uncollectible.
28
<PAGE>
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 December
31, 1998, the Company had entered into contracts to sell approximately 10,000
MMbtu's per day through October 31, 1999 at a fixed price of $1.61 per Mcf.
Subsequent to year-end the Company entered into contracts to sell
approximately 20,000 MMBtu's per day for the period from April 1, 1999,
through October 31, 1999, at an average fixed price of approximately $1.46
per Mcf. The total aggregate average fixed price for all contracts is
approximately $1.50 per Mcf.
The Company identifies minimum internal price targets and, assuming other
market conditions are deemed favorable, the Company will enter into hedging
contracts to manage price risk. See "Quantitative and Qualitative Disclosure
About Market Risk."
INCOME TAXES AND NET OPERATING LOSSES
As discussed in Note 7 of the Notes to the Company's Consolidated Financial
Statements, the Company has net operating loss carryforwards for income tax
purposes of approximately $30 million which expire beginning in 1999.
The Company recorded a valuation allowance at December 31, 1996 equal to
the excess of deferred tax assets over deferred tax liabilities as it was unable
to determine that the deferred tax assets were more likely than not to be
realized. As of December 31, 1997, the Company did not record a valuation
allowance since management was able to determine that it was more likely than
not that the deferred tax asset would be realized. Management expects to fully
utilize its net operating loss carryforwards against reversing temporary
differences.
Prior to 1998, the Company has not been required to record income tax
expense, primarily due to the availability of net operating loss
carryforwards. However, as a result of the recently reported profitability
and the significant difference between the book and tax basis of assets, the
Company will be required to provide for deferred income taxes in the
statements of income in 1998 and subsequent years. The Company estimates that
it will not be required to pay current income tax in the near future due to
the availability of net operating loss carryforwards of approximately $30
million and current deductions for intangible drilling costs.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. SFAS No. 133
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999. Management believes the adoption of this statement will not have a
material impact on the Company's financial statements.
YEAR 2000
The Company has conducted a review of its computer systems to identify the
systems that could be affected by the "Year 2000" issue. The Year 2000 problem
is the result of computer programs being written using two digits rather than
four to define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using `00' as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations.
The Company believes that the Year 2000 problem will not pose material
operational problems for the Company and that it is adequately prepared for the
Year 2000. The Company's computer software provider has assured the Company that
all of the Company's software is Year 2000 compliant (i.e. will function
properly in the year 2000 and beyond). The Company's software provider provides
written assurance that its products are Year 2000 compliant on its web site. To
the Company's knowledge, after investigation, no "imbedded technology" (such as
microchips in an electronic control system) of the Company poses a material Year
2000 problem.
Because the Company believes that it has no material internal Year 2000
problems, the Company has not expended and does not expect to expend a
significant amount of funds to address Year 2000 issues. It is Company policy
29
<PAGE>
to continue to review its suppliers' Year 2000 compliance and require
assurance of Year 2000 compliance from new suppliers; however, such
monitoring does not involve a significant cost to the Company.
In addition to the foregoing, the Company has contacted its major vendors
and received either oral or written assurances from its major vendors or viewed
assurances contained on vendors' web sites that they have no material Year 2000
problems. The Company believes that its vendors are largely fungible; therefore,
in the event a vendor's representations regarding its Year 2000 compliance were
untrue for any reason, the Company believes that it could find adequate Year
2000 compliant vendors as substitutes.
The Company is materially dependent on CIG for the delivery of the
Company's gas. CIG has provided the Company with written assurances that a CIG
internal task force has examined CIG's Year 2000 compliance and that CIG has no
material Year 2000 problem.
In the event that one or more of the Company's vendors were to have a
material Year 2000 problem, the Company believes that the foreseeable
consequences would be a temporary delay in revenue collection caused by an
interruption in computerized billing (and not an interruption in the actual flow
of the Company's coalbed methane), which would not have a substantial long-term
impact on the Company's ability to conduct operations. The Company does not
believe that any contingency planning is necessary to address this possibility.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company measures its exposure to market risk at any point in time by
comparing the open positions to a market risk of fair value. The market prices
the Company uses to determine fair value are based on management's best
estimates, which consider various factors including: Closing exchange prices,
volatility factors and the time value of money. At December 31, 1998, the
Company was exposed to some market risk through interest rates on its long term
debt, foreign currency and natural gas prices. At December 31, 1998, the
Company's exposure to market risk was not material. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations- Hedging
Transactions."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants........................... F-1
Consolidated Balance Sheets, December 31, 1998 and 1997...................... F-2
Consolidated Statements of Income for the Years ended
December 31, 1998 and 1997 and for the Nine Months ended December 31, 1996... F-3
Consolidated Statements of Stockholders' Equity for the Years ended
December 31, 1998 and 1997 and for the Nine Months ended December 31, 1996... F-4
Consolidated Statements of Cash Flows for the Years ended
December 31, 1998 and 1997 and for the Nine Months ended December 31, 1996... F-5
Consolidated Statements of Comprehensive Income for the Years ended
December 31, 1998 and 1997 and for the Nine Months ended December 31, 1996... F-6
Notes to Consolidated Financial Statements................................... F-7 to F-23
</TABLE>
30
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Since the Company's inception, there have not been any Forms 8-K filed
under the Securities and Exchange Act of 1934 reporting a change in accountants
in which there was a reported disagreement on any matter of accounting
principles or practices or financial statement disclosure.
PART III
The information required by Part III of Form 10-K is incorporated herein by
reference to Registrant's definitive Proxy Statement to be filed in connection
with the Annual Meeting of Shareholders to be held on May 11, 1999.
31
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) See Index to Consolidated Financial Statements at Item 8.
(a)(2) All other schedules have been omitted because the required information
is inapplicable or is shown in the notes to the financial statements.
<TABLE>
<CAPTION>
(a)(3) EXHIBITS:
<S> <C>
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, by reference to Exhibit I
of the Company's Current Report on Form 8-K dated December 9,
1994 and by reference to Exhibit 3.1 to the Company's Current
Report on Form 8-K filed June 8, 1998
3.2 Bylaws: Incorporated by reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K filed June 8, 1998.
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.
10.1 Revolving Note by and among Evergreen Resources, Inc. and
Hibernia National Bank, Banque Paribas and Chase Bank of Texas,
N.A., dated July 31, 1998.
10.2 Firm Transportation Service Agreement Rate Schedule TF-1 between
Colorado Interstate Gas Company and Primero Gas Marketing
Company, Dated August 22, 1997: Incorporated by reference to
Exhibit 10.2 of the Company's Registration Statement on Form S-3
filed on November 21, 1997, Commission File No. 333-40817.
10.3 Deeds of Variation between The Secretary of State for Trade and
Industry and Evergreen Resources (UK) Limited dated January 9,
1997: Incorporated by reference to Exhibit 10.6 of the Company's
Registration Statement on Form S-3 filed on November 21, 1997,
Commission File No. 333-40817.
10.4 Evergreen Resources, Inc. Initial Stock Option Plan: Incorporated
by reference to the exhibit accompanying the Company's Definitive
Proxy Statement Schedule 14A filed on April 20, 1998.
10.5 Firm Transportation Service Agreement Rate Schedule TF-1 between
Colorado Interstate Gas Company and Consolidated Industrial
Services, Inc., dated March 20, 1997.
10.6 Firm Transportation Service Agreement Rate Schedule TF-1 between
Colorado Interstate Gas Company and Amoco Energy Trading
corporation, dated November 1, 1997.
21.0 Subsidiaries of registrant: Incorporated by reference to page F-7
of the Financial Statements included herein.
22.0 Reserve Reports prepared by Netherland Sewell & Associates, Inc.
and Resource Services International, Inc.
24.1 Power of Attorney: contained on signature page.
27.0 Financial Data Schedule.
</TABLE>
(b) No reports on Form 8-K were filed by the Company during the last
quarter of the fiscal year ended December 31, 1998.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
EVERGREEN RESOURCES, INC.
Date: March 15, 1999 By: /s/ Mark S. Sexton
-------------------------------------
Mark S. Sexton
President and Chief Executive Officer
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Mark S. Sexton and Kevin R. 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 report, 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.
33
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<S> <C>
Date: March 15, 1999 /s/ Mark S. Sexton
-------------------------------------------
Mark S. Sexton
President, Chief Executive Officer, and Director
(Principal Executive Officer)
Date: March 15, 1999 /s/ Kevin R. Collins
-------------------------------------------
Kevin R. Collins, Vice President - Finance
CFO and Treasurer
(Principal Financial and Accounting Officer)
Date: March 15, 1999 /s/ Alain Blanchard
-------------------------------------------
Alain Blanchard, Director
Date: March 15, 1999 /s/ Dennis R. Carlton
-------------------------------------------
Dennis R. Carlton, Director
Date: March 15, 1999 /s/ Larry D. Estridge
--------------------------------------------
Larry D. Estridge, Director
Date: March 15, 1999 /s/ John J. Ryan III
--------------------------------------------
John J. Ryan III, Director
Date: March 15, 1999 /s/ Scott D. Sheffield
--------------------------------------------
Scott D. Sheffield, Director
</TABLE>
34
<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 December 31, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity, cash flows, and
comprehensive income for years ended December 31, 1998 and 1997, and 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 at December 31, 1998 and 1997 and the results of their
operations and their cash flows for the years ended December 31, 1998 and 1997,
and the nine month period ended December 31, 1996 in conformity with generally
accepted accounting principles.
BDO SEIDMAN, LLP
Denver, Colorado
February 18, 1999
F-1
<PAGE>
EVERGREEN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
ASSETS
1998 1997
---- ----
<S> <C> <C>
Current:
Cash and cash equivalents $ 1,333,733 $ 2,103,168
Accounts receivable (Note 2) 4,728,722 3,610,448
Other current assets 295,011 321,764
-------------- --------------
Total current assets 6,357,466 6,035,380
Property and equipment, at cost (Notes 3, 4, 5 and 15):
based on the full cost method of accounting
for oil and gas properties 147,176,068 92,125,584
Less accumulated depreciation, depletion and amortization 19,400,469 15,361,174
-------------- --------------
Net property and equipment 127,775,599 76,764,410
Designated cash (Note 6) 2,781,716 2,142,883
Other assets (Note 1) 2,711,536 2,362,829
-------------- --------------
$139,626,317 $87,305,502
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,240,110 $ 1,645,467
Amounts payable to oil and gas property owners 2,947,345 2,968,827
Accrued expenses and other 1,515,427 478,252
Current portion - capital lease (Note 5) 1,122,499 1,061,090
-------------- --------------
Total current liabilities 6,825,381 6,153,636
Production taxes payable (Note 6) 2,781,716 2,142,883
Note payable (Note 4) 44,138,700 10,812,000
Obligations under capital lease, less current portion (Note 5) 2,906,374 4,028,872
Deferred income taxes (Note 7) 3,295,000 16,000
-------------- --------------
Total liabilities 59,947,171 23,153,391
-------------- --------------
Commitments and contingencies (Notes 3, 4, 5 and 13)
Stockholders' equity (Notes 8, 9 and 10):
Common stock, $.01 stated value; shares authorized,
50,000,000; shares issued and outstanding 11,142,613
and 10,395,266 111,426 103,953
Additional paid-in capital 78,379,816 67,948,743
Retained earnings (deficit) 1,077,582 (4,134,705)
Foreign currency translation adjustment 110,322 234,120
-------------- --------------
Total stockholders' equity 79,679,146 64,152,111
-------------- --------------
$139,626,317 $87,305,502
-------------- --------------
-------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-2
<PAGE>
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Nine Months
Years Ended Ended
December 31, December 31,
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenues:
Natural gas revenues (Note 11) $19,062,968 $12,137,869 $ 3,502,385
Equity in earnings of investment (Notes 1 and 14) 555,400 313,179 --
Interest and other 178,327 136,532 180,474
------------- ------------- -------------
Total revenues 19,796,695 12,587,580 3,682,859
------------- ------------- -------------
Expenses:
Lease operating expense 3,356,412 2,007,388 700,875
Depreciation, depletion and amortization 3,860,128 2,793,946 965,794
General and administrative expenses 1,932,865 1,286,287 580,898
Interest expense 1,869,743 777,373 192,685
Other 286,260 258,511 127,672
------------- ------------- -------------
Total expenses 11,305,408 7,123,505 2,567,924
------------- ------------- -------------
Net income before income taxes 8,491,287 5,464,075 1,114,935
Income tax provision - deferred (Note 7) 3,279,000 -- --
------------- ------------- -------------
Net income 5,212,287 5,464,075 1,114,935
Preferred stock dividends (Notes 8 and 9) -- 400,000 440,000
------------- ------------- -------------
Net income attributable to common stock $ 5,212,287 $ 5,064,075 $ 674,935
------------- ------------- -------------
------------- ------------- -------------
Net income per share of common stock (Note 9)
Basic $0.50 $0.53 $0.10
------------- ------------- -------------
------------- ------------- -------------
Diluted $0.47 $0.51 $0.10
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998
AND 1997 AND FOR THE NINE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Common Stock
----------------------------
$.01 Stated Value
---------------------------- Additional
Paid-In
Shares Amount Capital
------------ ----------- --------------
<S> <C> <C> <C>
Balance April 1, 1996 5,899,736 $ 58,998 $ 41,822,026
Issuance of common stock pursuant to public offering
(Note 9) 2,000,000 20,000 10,226,780
Issuance of common stock for acquisition of PBI and
limited partnership interests (Note 9) 1,162,266 11,623 7,688,377
Issuance of common stock in exchange for redeemable
preferred stock (Note 8) 230,770 2,308 1,497,692
Issuance of common stock for preferred stock
dividend payment (Note 8) 3,077 307 19,693
Common stock issued to ESOP (Note 13) 10,000 100 28,700
Issuance of common stock for services (Note 9) 30,000 300 86,100
Other 471 - -
Preferred stock dividends - - -
Foreign currency translation - - -
Net income - - -
------------ ----------- --------------
Balance, December 31, 1996 9,336,320 93,636 61,369,368
Issuance of common stock in exchange for redeemable
preferred stock (Note 8) 905,660 9,057 5,973,443
Issuance of common stock for services (Note 9) 63,940 639 239,226
Exercise of stock purchase warrants (Note 9) 89,346 621 366,706
Preferred stock dividends - - -
Foreign currency translation - - -
Net income - - -
------------ ----------- --------------
Balance December 31, 1997 10,395,266 103,953 67,948,743
Issuance of common stock for services (Note 9) 14,620 146 189,914
Exercise of stock purchase warrants (Note 9) 276,555 2,766 2,181,515
Issuance of common stock for property interests (Note 9) 450,000 4,500 7,495,500
Warrants issued (Note 10) - - 478,764
Issuance of common stock for acquisitions and other 6,172 61 85,380
Foreign currency translation - - -
Net income - - -
------------ ----------- --------------
Balance, December 31, 1998 11,142,613 $ 111,426 $ 78,379,816
------------ ----------- --------------
------------ ----------- --------------
<CAPTION>
Foreign
Retained Currency Total
Earinings Translation Stockholders'
(Deficit) Adjustment Equity
-------------- ------------ --------------
<S> <C> <C> <C>
Balance April 1, 1996 $ (9,873,715) $ (418,472) $ 31,588,837
Issuance of common stock pursuant to public offering
(Note 9) - - 10,246,780
Issuance of common stock for acquisition of PBI and
limited partnership interests (Note 9) - - 7,700,000
Issuance of common stock in exchange for redeemable
preferred stock (Note 8) - - 1,500,000
Issuance of common stock for preferred stock
dividend payment (Note 8) - - 20,000
Common stock issued to ESOP (Note 13) - - 28,800
Issuance of common stock for services (Note 9) - - 86,400
Other - - -
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 (9,198,780) 99,284 52,363,508
Issuance of common stock in exchange for redeemable
preferred stock (Note 8) - - 5,982,500
Issuance of common stock for services (Note 9) - - 239,865
Exercise of stock purchase warrants (Note 9) - - 367,327
Preferred stock dividends (400,000) - (400,000)
Foreign currency translation - 134,836 134,836
Net income 5,464,075 - 5,464,075
------------ ----------- --------------
Balance December 31, 1997 (4,134,705) 234,120 64,152,111
Issuance of common stock for services (Note 9) - - 190,060
Exercise of stock purchase warrants (Note 9) - - 2,184,281
Issuance of common stock for property interests (Note 9) - - 7,500,000
Warrants issued (Note 10) - - 478,764
Issuance of common stock for acquisitions and other - - 85,441
Foreign currency translation - (123,798) (123,798)
Net income 5,212,287 - 5,212,287
------------- ------------ --------------
Balance, December 31, 1998 $ 1,077,582 $ 110,322 $ 79,679,146
-------------- ------------ --------------
------------ ------------ --------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Nine Months
Years Ended Ended
December 31, December 31,
1998 1997 1996
--------------- --------------- ----------------
<S> <C> <C> <C>
Operating activities:
Net income $ 5,212,287 $ 5,464,075 $ 1,114,935
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation, depletion and amortization 4,185,975 2,793,946 965,794
Deferred income taxes 3,279,000 -- --
Equity in earnings of investment (555,400) (313,179) --
Stock issued for services and other 401,215 184,463 86,400
Changes in operating assets and liabilities:
Accounts receivable (1,118,334) (1,120,476) (184,957)
Other current assets 105,404 (207,784) 82,712
Accounts payable 690,642 (422,188) (645,908)
Accrued expenses and other (53,641) 78,505 105,012
--------------- --------------- ----------------
Net cash provided by operating activities 12,147,148 6,457,362 1,523,988
--------------- --------------- ----------------
Investing activities:
Investment in property and equipment (46,959,541) (18,603,065) (8,342,545)
Proceeds from sale of oil and gas assets -- -- 420,549
Designated cash (638,833) (649,769) (723,038)
Change in production taxes payable 638,833 649,769 723,038
Change in other assets (242,915) (656,097) (636,868)
--------------- --------------- ----------------
Net cash used in investing activities (47,202,456) (19,259,162) (8,558,864)
--------------- --------------- ----------------
Financing activities:
Proceeds from notes payable 33,326,700 11,189,120 --
Principal payments on long-term debt -- -- (3,596,000)
Principal payments on capital lease obligations (1,061,089) (636,875) (118,705)
Proceeds from issuance of common stock, net 2,158,193 348,982 10,246,780
Dividends paid on preferred stock -- (400,000) (420,000)
Debt issue costs (142,488) (148,515) (79,149)
Change in cash held from operating oil and gas properties (21,482) 1,900,295 (54,933)
--------------- --------------- ----------------
Net cash provided in financing activities 34,259,834 12,253,007 5,977,993
--------------- --------------- ----------------
Effect of exchange rate changes on cash 26,039 11,661 (5,328)
--------------- --------------- ----------------
Decrease in cash and cash equivalents (769,435) (537,132) (1,062,211)
Cash and cash equivalents, beginning of period 2,103,168 2,640,300 3,702,511
--------------- --------------- ----------------
Cash and cash equivalents, end of period $ 1,333,733 $ 2,103,168 $ 2,640,300
--------------- --------------- ----------------
--------------- --------------- ----------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Nine Months
Years Ended Ended
December 31, December 31,
1998 1997 1996
------------------ ------------------ -----------------
<S> <C> <C> <C>
Net income $5,212,287 $ 5,464,075 $1,114,935
Foreign currency translation adjustments (123,798) 134,836 517,756
-------------- -------------- -------------
Comprehensive net income $ 5,088,489 $ 5,598,911 $1,632,691
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE NINE MONTHS ENDED
DECEMBER 31, 1996
(1) SUMMARY OF ACCOUNTING POLICIES
BUSINESS
Evergreen Resources, Inc. ("Evergreen") is an independent energy company
engaged in the exploration, development, production and acquisition of oil and
gas properties. Evergreen's primary focus is on developing coalbed methane
properties located on approximately 200,000 gross acres in the Raton Basin in
southern Colorado. The Company also holds exploration licenses on approximately
500,000 acres onshore in the United Kingdom and an oil and gas exploration
contract on approximately 2.4 million acres in northern Chile.
CONSOLIDATION
The financial statements include the accounts of Evergreen and its
wholly-owned subsidiaries (the "Company"): Evergreen Operating Corporation
("EOC"), Evergreen Resources (UK) Ltd., Powerbridge, Inc., and Primero Gas
Marketing Company ("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 49%
ownership in Maverick Stimulation Company, LLC ("Maverick") and 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. Maverick provides pressure pumping and other
oilfield services to the petroleum industry in the Rocky Mountain region.
Maverick provides certain well stimulation services to the Company and during
1998 and 1997 such services amounted to $2,381,400 and $2,636,400, of which
$347,100 and $302,000 was unpaid at year-end. The Company guaranteed
approximately $560,000 of Maverick's outstanding debt at December 31, 1998. The
investment in Maverick, including equity in earnings, was $1,458,500 and
$1,002,300 at December 31, 1998 and 1997. The investment in Maverick is
included in other assets in the accompanying consolidated financial
statements. (See Note 14).
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 December 31, 1998
and 1997 represent twelve month periods.
FINANCIAL INSTRUMENTS
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash equivalents. The Company's cash
equivalents are cash investment funds which are placed with a major financial
institution.
The Company manages and controls market and credit risk through
established formal internal control procedures which are reviewed on an ongoing
basis. The Company attempts to minimize credit risk exposure to purchasers of
the Company's natural gas through formal credit policies, monitoring procedures
and letters of credit.
Unless otherwise specified, the Company believes the book value of the
financial instruments approximates their fair value.
F-7
<PAGE>
USES 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.
Significant estimates with regard to these financial statements include the
estimate of proved oil and gas reserve volumes and the related present value of
estimated future net cash flows (see supplemental oil and gas disclosures).
PROPERTY AND EQUIPMENT
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, including salaries, benefits and other internal costs directly
attributable to these activities. Evergreen capitalized $710,800, $542,200 and
$243,600 of internal costs in 1998, 1997 and 1996. Costs associated with
production and general corporate activities are expensed in the period incurred.
Interest costs related to unproved properties and properties under development
are also capitalized to oil and gas 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 (see Note 15),
and (2) the lower of cost or fair market value of properties in process of
development and unexplored acreage, the excess is charged to expense as
additional depletion. Normal dispositions of oil and gas properties are
accounted for as adjustments of capitalized costs, with no gain or loss
recognized.
Depreciation and depletion of proved oil and gas properties is computed
on the units-of-production method based upon estimates of proved reserves with
oil and gas being converted to a common unit of measure based on their relative
energy content. Unproved oil and gas properties, including any related
capitalized interest expense, are not amortized, but are assessed for impairment
either individually or on an aggregated basis.
The costs of certain unevaluated leasehold acreage, wells drilled and
international concession rights are not being amortized. Costs not being
amortized are periodically assessed for possible impairments or reductions in
value. If a reduction in value has occurred, costs being amortized are increased
or a charge is made against earnings for those international operations where a
reserve base is not yet established.
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 total reserves of the field. 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
15 years.
The Company applies Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets." Under SFAS No.
121, long-lived assets and certain intangibles are reported at the lower of the
carrying amount or their estimated recoverable amounts.
F-8
<PAGE>
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 follows the liability method of accounting for income taxes
under which deferred tax assets and liabilities are recognized for the future
tax consequences. 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.
ENVIRONMENTAL MATTERS
Environmental costs are expensed or capitalized depending on their future
economic benefit. Costs that relate to an existing condition caused by past
operations and have no future economic benefit are expensed. Liabilities for
future expenditures of a noncapital nature are recorded when future
environmental expenditures and/or remediation is deemed probable, and the costs
can be reasonably estimated. Costs of future expenditures for environmental
remediation obligations are not discounted to their present value.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses are reported net of amounts allocated
to working interest owners of the oil and gas properties operated by Evergreen,
net amounts charged for administrative and overhead costs, and net of amounts
capitalized pursuant to the full cost method of accounting.
NET INCOME PER SHARE
The Company applies SFAS No. 128, "Earnings Per Share" 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 stockholders 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.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
MARKET RISK
The Company measures its exposure to market risk at any point in time by
comparing the open positions to a market risk of fair value. The market prices
the Company uses to determine fair value are based on management's best
estimates, which consider various factors including: Closing exchange prices,
volatility factors and the time value of money. At December 31, 1998, the
Company was exposed to some market risk through interest rates on its long term
debt, foreign currency and natural gas prices. At December 31, 1998, the
Company's exposure to market risk was not considered significant.
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. 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.
F-9
<PAGE>
STOCK 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, compensation cost has been recognized for stock
options granted in situations where the option price is less than 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.
COMPREHENSIVE INCOME
During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income." The implementation of SFAS No. 130 required comparative information for
earlier years to be restated. The Company has elected to report comprehensive
income in a consolidated statement of comprehensive income. Comprehensive income
is comprised of net income and all changes to stockholders' equity, except those
due to investments by stockholders, changes in paid-in capital and distributions
to stockholders.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
which establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. Management believes the adoption of this
statement will not have a material impact on the Company's financial statements.
(2) ACCOUNTS RECEIVABLE
The components of accounts receivable include the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1998 1997
---- ----
<S> <C> <C>
Natural gas sales $3,364,975 $2,298,861
Joint interest billings 1,363,747 1,311,587
--------------- ---------------
$4,728,722 $3,610,448
--------------- ---------------
--------------- ---------------
</TABLE>
F-10
<PAGE>
(3) PROPERTY AND EQUIPMENT
Property and equipment includes the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1998 1997
---- ----
<S> <C> <C>
Oil and Gas Properties:
Proved oil and gas properties $79,302,588 $58,937,182
Unevaluated properties not subject to amortization 25,567,370 9,700,838
Accumulated depreciation, depletion and amortization (16,348,102) (13,668,286)
---------------- --------------
Net oil and gas properties 88,521,856 54,969,734
---------------- --------------
Gas gathering equipment 31,364,608 20,801,818
Construction in progress 9,227,117 1,685,813
Support equipment 1,714,385 999,933
Accumulated depreciation and amortization (3,052,367) (1,692,888)
---------------- --------------
Net other property and equipment 39,253,743 21,794,676
---------------- --------------
Property and equipment, net of accumulated
depreciation, depletion and amortization $ 127,775,599 $76,764,410
---------------- --------------
---------------- --------------
</TABLE>
Oil and gas property costs of $25,567,400 were not being amortized at
December 31, 1998. These costs consisted of $14,947,500 for domestic properties,
$8,504,700 for the United Kingdom ("U.K."), $1,520,200 for the Falkland Islands
and $595,000 for Chile. The Company will classify the unevaluated costs for the
U.K., Falkland Islands and Chile as evaluated costs when future development of
the Current Licenses determines the viability of the underlying reserves. The
Company anticipates that substantially all of the unevaluated costs related to
domestic properties will be classified as evaluated costs within the next three
to five years.
On July 2, 1998, Evergreen completed the acquisition of approximately
27,000 acres in the Raton Basin and 28 existing wells and related gathering
facilities for cash of $13 million. Effective December 31, 1998, the Company
acquired an additional 41,000 gross acres in the Raton Basin and 17 producing
wells for stock valued at $7.5 million, the assumption of approximately $750,000
in debt and $250,000 in cash. The aggregate amount of the purchase price
allocated to proved properties was $9 million, unproved properties was $11.6
million and gas gathering equipment $1 million.
The Company is in the process of developing properties in the U.K. and is
unable to prepare reserve information in this area. 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 377,000 acres, which were high-graded for coalbed methane and
conventional hydrocarbon potential. Subsequent to year-end, the Company acquired
an additional 136,000 acres. The total acreage in the U.K. is approximately
513,000 acres. The Current Licenses provide up to a 30 year term with optional
periodic relinquishment of portions of the license, subject to future
development plans. There are no royalties or burdens encumbering these Current
Licenses. Work commitments for acreage retained will include remote sensing
studies, additional seismic studies and the drilling of three wells in 1999.
Work commitments on the Current Licenses have been fulfilled through 1998 as a
result of ERI's prior U.K. activity. The Company has completed a new seismic
program to identify a new seven-well drilling project. The drilling project is
scheduled for mid to late 1999.
F-11
<PAGE>
Evergreen has a net 2% interest in a Falkland Islands consortium, which
has drilled two wells in the North Falklands Basin. Both wells have been plugged
and abandoned as dry holes with oil shows. The abandonment of the wells
completes the initial drilling campaign on Tranche A. The two wells on Tranche A
have established good source rocks and potential reservoir rocks. The consortium
will assess the data gathered from the two wells to determine the future
strategy for the acreage. See Note 13 regarding the Chilean oil and gas
exploration contract.
Included in construction in progress at December 31, 1998, are costs
for a new compressor station, gas gathering laterals, costs for well
equipment and well service equipment. The Company estimates that it will
spend an additional $6.9 million to complete these projects.
(4) FINANCING AGREEMENT
The Company currently has a $50 million revolving line of credit with
a bank group consisting of Hibernia National Bank, as agent, Chase Bank of
Texas and Paribas (the "Banks"). The line is available through June 2001.
Advances pursuant to this line of credit are limited to a borrowing base,
which is presently $50 million. At the Company's election, it may use either
the London interbank offered rate ("Libor") plus a margin of 1.38% to 1.75%
or the prime rate plus a margin of 0% to .25%, with margins on both rates
determined on the average outstanding borrowings under the credit facility.
The Company's average interest rate at December 31, 1998 was 6.87%. The
borrowing base is redetermined semi-annually by the Banks based upon reserve
evaluations of the Company's oil and gas properties. The current borrowing
base is less than the total borrowing base that could have been requested
under the terms of the agreement. An average annual facility fee of .375% 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 December 31, 1998 and 1997, $44,138,700 and
$10,812,000 was outstanding under the line of credit. Subsequent to year-end,
the Company increased its line of credit to $75 million with the same terms
and conditions as the current line of credit.
(5) CAPITAL LEASE OBLIGATIONS
The Company has capital equipment leases with a bank with interest at
8.5% at December 31, 1998 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>
<CAPTION>
Years ending December 31:
<S> <C>
1999 $1,453,000
2000 1,453,000
2001 1,264,000
2002 461,000
------------
Total future minimum lease payments 4,631,000
Less amount representing interest 602,100
------------
Present value of minimum lease payments 4,028,900
Less current portion 1,122,500
------------
Capital lease obligations, less current portion $2,906,400
------------
------------
</TABLE>
Included in fixed assets are the following assets under capital leases:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Gas gathering equipment $ 7,911,000 $ 5,742,500
Less accumulated amortization 911,500 434,300
------------- -------------
$ 6,999,500 $ 5,308,200
------------- -------------
------------- -------------
</TABLE>
F-12
<PAGE>
(6) 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 production
taxes payable relates to ad valorem taxes collected for production through
December 1998 which are not payable until fiscal 2000 or later. The related cash
collected from the Company and third party revenue interest owners designated
for payment of ad valorem taxes is reflected as a non-current asset.
(7) INCOME TAXES
A reconciliation between the income tax provision computed at the
statutory rate on income before taxes and the income tax provision is as
follows:
<TABLE>
<CAPTION>
Nine Months
Years Ended Ended
December 31, December 31,
1998 1997 1996
--------------- ---------------- ---------------
<S> <C> <C> <C>
Federal income tax provision at
statutory rate $2,887,000 $1,858,000 $379,000
State income taxes 280,000 180,000 37,000
Reduction in valuation allowance - (1,788,000) (374,000)
Other 112,000 (250,000) (42,000)
------------ ------------- -----------
$3,279,000 $ - $ -
------------ ------------- -----------
------------ ------------- -----------
</TABLE>
The components of the net deferred tax assets and liabilities are shown
below:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1998 1997
--------------- ----------------
<S> <C> <C>
Net operating loss carryforwards $10,392,000 $ 11,221,000
Other 735,000 501,000
--------------- ----------------
Net deferred tax assets 11,127,000 11,722,000
Deferred tax liability- depreciation, depletion
and amortization (14,422,000) (11,738,000)
--------------- ----------------
Net deferred tax liability $(3,295,000) $ (16,000)
--------------- ----------------
--------------- ----------------
</TABLE>
As of December 31, 1998, the Company has net operating loss carryforwards
for tax purposes of approximately $30 million which expire beginning in 1999
through 2017.
(8) REDEEMABLE PREFERRED STOCK
The Company has 25,000,000 authorized shares of preferred stock, par
value $1.00 per share. As of December 31, 1998 and 1997, none of the
preferred stock was outstanding.
Effective November 1, 1997, all of the Company's outstanding 8%
Convertible Preferred Stock, $1.00 per value, ("Preferred") was converted into
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 per share for the 30 consecutive days ending
November 1, 1997.
On 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. As of December 31, 1998, all warrants issued are
still outstanding.
F-13
<PAGE>
Cumulative annual cash dividends of 8% were payable quarterly. During the
year ended December 31, 1997, and the nine months ended December 31, 1996, the
Company paid $400,000 and $440,000 in dividends.
(9) STOCKHOLDERS' EQUITY
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Nine Months
Years Ended Ended
December 31, December 31,
1998 1997 1996
----------------- ---------------- ----------------
<S> <C> <C> <C>
Numerator:
Net income $5,212,287 $ 5,464,075 $ 1,114,935
Preferred stock dividends -- (400,000) (440,000)
--------------- -------------- --------------
Numerator for basic earnings per share -
income available to common
stockholders 5,212,287 5,064,075 674,935
Effect of dilutive securities:
Preferred stock dividends -- 400,000 --
--------------- -------------- --------------
Numerator for dilutive earnings per share-
income available to common
stockholders after assumed conversions 5,212,287 5,464,075 674,935
--------------- -------------- --------------
Denominator:
Denominator for basic earnings per
share - weighted average shares 10,521,650 9,574,889 7,043,141
Effect of dilutive securities:
Stock warrants 647,001 335,032 46,133
8% Convertible preferred stock -- 754,717 --
--------------- -------------- --------------
Dilutive potential common shares 647,001 1,089,749 46,133
--------------- -------------- --------------
Denominator for diluted earnings per
share - adjusted weighted average
shares and assumed conversions 11,168,651 10,664,638 7,089,274
--------------- -------------- --------------
--------------- -------------- --------------
Basic earnings per share $ .50 $ .53 $ .10
--------------- -------------- --------------
--------------- -------------- --------------
Diluted earnings per share $ .47 $ .51 $ .10
--------------- -------------- --------------
--------------- -------------- --------------
</TABLE>
For the nine months ended December 31, 1996, common stock equivalents of
1,136,430, were not included in the computation of diluted earnings per share
because their effect was antidilutive. For the years ended December 31, 1998 and
1997, all common stock equivalents were included in the computation of diluted
earnings per share.
OTHER EQUITY TRANSACTIONS
On 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 was 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.
F-14
<PAGE>
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 $1,253,200, were
$10,246,800.
During the year and nine months ended December 31, 1997 and 1996, the
Company issued common stock valued at $239,900 and $86,400 as a bonus to certain
employees.
On July 7, 1997, the Board of Directors adopted a Shareholder Rights
Plan ("Rights Plan"), pursuant to which stock purchase rights (the "Rights")
were distributed as a dividend to the Company's 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 acquirer 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. 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.
During the year ended December 31, 1997, pursuant to the exercise of
stock purchase warrants, 30,900 shares of common stock were issued at $3.63, in
exchange for 7,677 shares of common stock currently issued and outstanding at
various market values. In addition, 58,446 shares of common stock were issued
under terms of warrants previously granted, resulting in proceeds to the Company
of $367,300.
For the year ended December 31, 1998, the Company issued common stock to
directors for directors fees and stock to certain employees for compensation
valued at $190,000.
During 1998, pursuant to the exercise of stock purchase warrants, 276,555
shares of common stock were issued under terms of warrants previously granted,
resulting in net proceeds to the Company of $2,184,300.
Effective December 31, 1998, the Company purchased the coalbed methane
gas interests from a Company for $8.5 million. The purchase price consisted
of 450,000 shares of Evergreen common stock valued at $16.67 per share for a
total of $7.5 million and the assumption of $750,000 in debt and cash of
$250,000. This acquisition is discussed further in Note 3.
(10) STOCK OPTIONS
On May 12, 1997, the Board of Directors adopted, and the Company's
shareholders subsequently approved, an Initial Stock Option Plan (the "Plan"),
whereby employees may be granted incentive options to purchase up to 500,000
shares of the common stock of the Company. The exercise price of incentive
options must be equal to at least the fair market value of the common stock as
of the date of grant. In January 1998, the Company granted 185,000 options under
the Plan.
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. However, during 1998, the Board of Directors
and the shareholders approved the issuance of warrants for 79,990 shares of the
Company's common stock to officers and directors at an exercise price of $7.00.
The market price for the stock was $13.00 at the time of the grant. The value of
these options was $478,764 of which $224,600 was recorded as current year
compensation expense. The purpose of the warrants was to reward directors and
key personnel for past performance and to give them an incentive to remain with
the Company and to induce directors to take all or part of their non-executive
directors' compensation in the form of common stock. During the year ended
December 31, 1997, the Company granted 145,000 warrants at exercise prices
ranging from $8.75 to $9.88. During the nine months ended
F-15
<PAGE>
December 31, 1996, the Company granted 405,001 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 options and
warrants expire in 2000 to 2005.
<TABLE>
<CAPTION>
Year Ended Year Ended Nine Months Ended
December 31, December 31, December 31,
1998 1997 1996
------------------------- ------------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------- ---------- ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
Beginning of period 1,094,783 $ 7.41 1,182,301 $ 7.21 327,300 $ 7.47
Granted 264,990 11.18 145,000 8.83 855,001 7.06
Exercised (276,555) 8.06 (97,518) 4.81 -- --
Expired -- -- (135,000) 8.75 -- --
------------- ---------- ------------- ---------- ------------- ----------
Outstanding,
end of period 1,083,218 $ 8.17 1,094,783 $ 7.41 1,182,301 $ 7.21
------------- -------- ------------- -------- ------------- --------
Options and warrants
exercisable, end of period 853,468 $ 7.51 956,086 $ 7.47 947,800 $ 7.21
------------- -------- ------------- -------- ------------- --------
Weighted average fair value of
options and warrants granted
during the period $ 7.80 $ 4.58 $ 1.51
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SFAS No. 123, "Accounting for Stock-Based Compensation," 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. The assumptions used for grants in the
year ended December 31, 1997: dividend yield at 0 percent; expected volatility
of approximately 45 percent; risk free interest rate of 6 percent; and expected
lives of between two and five years for the warrants. Assumptions used for the
year ending December 31, 1998: dividend yield at 0 percent; expected volatility
of approximately 58 percent; risk free interest rate of 5.6% and expected lives
of five years for the warrants and options.
F-16
<PAGE>
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>
Nine Months
Years Ended Ended
December 31, December 31,
1998 1997 1996
--------------------------------------------------------------
<S> <C> <C> <C>
Net income
Basic
As reported $5,212,287 $5,064,075 $674,935
Pro forma 4,754,670 4,430,445 597,935
Diluted
As reported $5,212,287 $5,464,075 $674,935
Pro forma 4,754,670 4,830,445 597,935
Net income per share
Basic
As reported $0.50 $0.53 $.10
Pro forma 0.45 0.46 .08
Diluted
As reported $0.47 $0.51 $.10
Pro forma 0.43 0.45 .08
</TABLE>
The following table summarizes information about stock options and warrants
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------------------------ -------------------------------
Number Weighted Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/31/98 Contractual Life Exercise Price at 12/31/98 Exercise Price
- ------------------- ------------------------------------------------------ -------------------------------
<S> <C> <C> <C> <C> <C>
$ 4.25 10,000 2.00 $ 4.25 10,000 $4.25
6.90 180,392 2.83 6.90 180,392 6.90
7.00 544,240 3.61 7.00 453,240 7.00
7.80 94,586 2.91 7.80 94,586 7.80
8.75 - 9.50 69,000 0.08 8.80 69,000 8.80
13.00 185,000 9.00 13.00 46,250 13.00
- ------------------- ------------------------------------------------------ -------------------------------
$4.25 - 13.00 1,083,218 4.10 $ 8.17 853,468 $7.51
- ------------------- ------------------------------------------------------ -------------------------------
</TABLE>
(11) MAJOR CUSTOMERS
During the years ended December 31, 1998 and 1997 and 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>
Customer A B C D
--------------------------------------------------- ------- ------ ------- ------
<S> <C> <C> <C> <C>
Year ended December 31, 1998 44% --% 45% --%
Year ended December 31, 1997 48% --% 17% 17%
Nine months ended December 31, 1996 59% 12% 12% --%
</TABLE>
F-17
<PAGE>
(12) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the years ended December 31, 1998, 1997 and nine months
ended December 31, 1996, for interest was approximately $2,317,200, $817,000 and
$193,000. During the years ended December 31, 1998 and 1997, approximately
$447,500 and $40,000 of interest paid was capitalized. During the year and nine
months ended December 31, 1997 and 1996, the Company incurred capital lease
obligations of $3,900,000 and $841,000 in connection with a master lease
agreement to acquire equipment. Included in accounts payable at December 31,
1997 and 1996 is approximately $1,095,700 and $2,251,000 for drilling and
completion and gas gathering construction costs.
See Notes 1, 3, 5, 8, 9, 10, and 13 for additional noncash
transactions during the years ended December 31, 1998 and 1997 and the nine
months ended December 31, 1996.
(13) COMMITMENTS AND CONTINGENCIES
In August 1997, the Company entered into an agreement with Colorado
Interstate Gas ("CIG") pursuant to which CIG built a new, 115-mile, 16-inch
pipeline (the "Campo Lateral"). 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 committed to transport natural gas from the Raton Basin through CIG's
pipelines commencing September 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. The Company expects
to meet its volume obligations with respect to the Raton Basin transportation
agreement. If the Company is unable to meet its firm transportation commitments,
the commitment must be paid for but can be deferred and utilized at a later
date.
During 1998, the Company acquired certain properties in the Raton Basin.
In addition to the properties, the Company assumed firm transportation
commitments with CIG. The total transportation commitments are 12 MMcf per day,
with 6 MMcf per day expiring in 2004 and 6 MMcf per day expiring 2012.
Under terms of the transportation agreements, the Company has committed
to pay the following transportation reservation charges with CIG to provide firm
transportation capacity rights:
<TABLE>
<CAPTION>
Reservation
Years ending December 31, Charges
--------------------------- --------------------
<S> <C>
1999 $ 4,577,000
2000 5,539,000
2001 5,644,000
2002 5,644,000
2003 5,644,000
Thereafter 48,576,000
-----------------
$ 75,624,000
-----------------
-----------------
</TABLE>
In May 1998, the Company entered into a new ten-year office lease for
approximately $267,500 per year. Rental expense, net of sublease income, was
approximately $234,000, $138,000, and $99,900, for the years and nine months
ended December 31, 1998, 1997 and 1996.
On January 19, 1998, the Company submitted an application to the Internal
Revenue Service to terminate the Employee Stock Ownership Plan ("ESOP"). For the
nine months ended December 31, 1996, the Company contributed $28,000 to the
plan. There were no contributions to the plan for the years ended December 31,
1998 and 1997.
F-18
<PAGE>
Effective January 1, 1997, the Company implemented a 401(k) plan ("the
"Plan") for all eligible employees. The Company provides a matching contribution
up to a certain percentage of the employees contributions. The Plan also
provides for a profit sharing contribution determined at the discretion of the
Company. The total matching contributions and profit sharing contribution for
the years ended December 31, 1998 and 1997 were approximately $33,600 and
$134,000.
In August 1992, the Company 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's non-jurisdictional gathering
system. Under the terms of certain gas gathering and tie-in agreements, EOC was
committed to meeting certain minimum volume levels during the term of the
agreement. As of September 30, 1997 and December 31, 1996, the volume levels
were below the required minimums and EOC accrued approximately $2,431,000 and
$2,231,000 for this shortfall, which was included with long-term liabilities.
The Company's cumulative delivery shortfall through September 30, 1997 was
approximately 12.1 million MMbtu. Effective October 1, 1997, the Company sold
all of its San Juan Basin properties for $580,000 along with the assumption of
EOC's volume commitment to El Paso Services. As of October 1, 1997, the Company
eliminated the obligation to El Paso Services.
The Company is a guarantor of a line of credit and a capital lease for
Maverick for an aggregate amount of $1.5 million. The guaranteed obligations
amounted to $560,000 at December 31, 1998. (See Note 14).
In connection with the Chilean oil and gas exploration contract, the
Company will be required to spend approximately $1.5 million for a seismic
program during the years 1999 and 2000. In connection with the 1999 and 2000
commitments, the Company has issued letters of credit totaling $1.5 million
which expire in June 2000.
On July 13, 1998, Southern Colorado C.U.R.E. filed a lawsuit under the
citizen suit provision of the Clean Water Act in the U.S. District Court for
the District of Colorado against EOC, related to its coalbed methane drilling
operations in the Raton Basin near Trinidad, Colorado. The Company's gas
production produces naturally occurring groundwater as a by-product of its
coalbed methane gas production operations. The storage, use, and disposal of
the produced groundwater in evaporative ponds and natural collection features
located on the surface at or near the wellsite, and the legal and regulatory
treatment of this practice, underlie the lawsuit. EOC is also subject to
federal, state and local environmental laws and regulations and is currently
participating with the EPA and the State of Colorado in the investigation of
certain practices in connection with these operations. An evaluation of costs
of potential liabilities associated with this investigation cannot be
reasonably determined at this time. The Company does not expect that the
lawsuit or the investigation or the environmental costs or contingent
liabilities of either, if any, will have a material adverse effect on its
consolidated financial position or its results of operations.
As of December 31, 1998, the Company had entered into contracts to sell
approximately 10,000 MMBtu per day through October 31, 1999 at a fixed price of
$1.61 per Mcf.
(14) SUBSEQUENT EVENTS
On February 18, 1999, the Company sold its 49% interest in Maverick to
the managing members of Maverick for cash of approximately $2.25 million. The
expected closing date is April 1999. The Company will also upon closing, be
released from its guarantee of the Maverick debt.
Through March 1999, EOC operated properties for various third party
working interest owners. In January 1999, the working interest owners sold
those properties. As of April 1, 1999, EOC will no longer receive overhead
charges for the operation of those properties.
F-19
<PAGE>
(15) SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
COSTS INCURRED IN OIL AND GAS EXPLORATION AND DEVELOPMENT ACTIVITIES
The Company's oil and gas activities are conducted in the United States,
United Kingdom, Chile and the Falkland Islands. See Note 3 for additional
information regarding the Company's oil and gas properties. The following costs
were incurred in oil and gas acquisition, exploration, development, gas
gathering and producing activities during the following periods:
<TABLE>
<CAPTION>
United United Falkland
States Kingdom Islands Chile Total
---------------- ------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED
DECEMBER 31, 1998
Acquisition costs:
Proved $ 9,000,000 $ -- $ -- $ -- $ 9,000,000
Unproved 11,600,000 -- -- -- 11,600,000
Gas gathering 1,000,000 -- -- -- 1,000,000
Development 11,365,400 -- -- -- 11,365,400
Gas gathering 8,729,000 -- -- -- 8,729,000
Exploration 1,762,200 724,300 971,600 432,200 3,890,300
---------------- ------------- ------------- ------------- ----------------
$ 43,456,600 $ 724,300 $ 971,600 $ 432,200 $ 45,584,700
---------------- ------------- ------------- ------------- ----------------
YEAR ENDED
DECEMBER 31, 1997
Development $ 10,193,600 $ -- $ -- $ -- $ 10,193,600
Gas gathering 9,914,800 -- -- -- 9,914,800
Exploration 603,500 384,800 140,500 133,300 1,262,100
---------------- ------------- ------------- ------------- ----------------
$ 20,711,900 $ 384,800 $ 140,500 $ 133,300 $ 21,370,500
---------------- ------------- ------------- ------------- ----------------
NINE MONTHS ENDED
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 -- -- -- 4,229,900
Gas gathering 5,452,400 -- -- -- 5,452,400
Exploration -- 96,000 97,000 -- 193,000
---------------- ------------- ------------- ------------- ----------------
$ 20,982,300 $ 96,000 $ 97,000 $ -- $ 21,175,300
---------------- ------------- ------------- ------------- ----------------
</TABLE>
F-20
<PAGE>
OIL AND GAS RESERVES (UNAUDITED)
The estimates of the Company's proved reserves and related future net
cash flows that are presented in the following tables are based upon estimates
made by independent petroleum engineering consultants for the United States
only.
The Company's reserve information was prepared as of December 31, 1998,
1997 and 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.
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>
Natural Gas Oil
Proved Reserves (Mcf) (Bbls)
----------------------------------------- ---------------- -------------
<S> <C> <C>
At April 1, 1996 80,926,000 4,800
Revisions of previous estimates 4,625,400 (2,200)
Extensions and discoveries 30,109,100 -
Purchases of reserves 37,163,600 -
Production (2,104,400) -
---------------- -------------
At December 31, 1996 150,719,700 2,600
Revisions of previous estimates (3,987,900) -
Extensions and discoveries 89,720,600 -
Sales of reserves (5,637,100) (2,600)
Production (6,401,500) -
---------------- -------------
At December 31, 1997 224,413,800 --
Revisions of previous estimates (25,045,500) --
Extensions and discoveries 155,204,700 --
Purchases of reserves 60,384,600 --
Production (10,021,400) --
---------------- -------------
At December 31, 1998 404,936,200 --
---------------- -------------
---------------- -------------
Proved Developed Reserves as of:
-----------------------------------------
December 31, 1996 88,751,500 2,600
December 31, 1997 143,553,500 --
December 31, 1998 242,986,600 --
</TABLE>
F-21
<PAGE>
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. Gas prices have fluctuated widely in recent years. The calculated
weighted average sales prices utilized for the purposes of estimating the
Company's proved reserves and future net revenues were $1.60, $1.87 and $1.61
per Mcf of gas at December 31, 1998, 1997 and 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 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.
<TABLE>
<CAPTION>
Nine Months
Years Ended Ended
December 31, December 31,
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Future cash inflows $647,897,900 $418,531,800 $242,761,200
Future production costs (109,217,400) (55,331,800) (58,542,800)
Future development costs (45,535,000) (17,790,000) (11,790,300)
Future income taxes (163,664,600) (90,128,100) (34,865,300)
--------------- --------------- ---------------
Future net cash flows 329,480,900 255,281,900 137,562,800
10% discount to reflect timing of cash flows (186,052,300) (137,529,000) (81,319,200)
--------------- --------------- ---------------
Standardized measure of discounted future net
cash flows $143,428,600 $117,752,900 $56,243,600
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
The following summarizes the principal factors comprising the changes in
the standardized measure of discounted future net cash flows for the years ended
December 31, 1998 and 1997 and for the nine months ended December 31, 1996.
<TABLE>
<CAPTION>
Nine Months
Years Ended Ended
December 31, December 31,
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Standardized measure, beginning of
period $117,752,900 $56,243,600 $25,153,300
Sales of oil and gas, net of production
costs (15,706,600) (10,018,100) (2,691,200)
Extensions and discoveries 60,403,100 52,587,400 10,546,000
Net change in sales prices, net of
production costs (38,366,300) 30,171,200 4,434,700
Purchase of reserves 31,164,600 - 20,122,700
Sale of reserves -- (2,150,300) -
Revisions of quantity estimates (15,837,000) (3,131,000) 2,478,000
Accretion of discount 15,932,600 7,049,900 3,016,300
Net change in income taxes (29,673,000) (27,318,000) (9,244,800)
Changes in future development costs 10,198,500 8,596,100 4,212,800
Changes in rates of production and other 7,559,800 5,722,100 (1,784,200)
--------------- --------------- ---------------
Standardized measure, end of period $143,428,600 $117,752,900 $56,243,600
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
F-22
<PAGE>
(16) SUMMARIZED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Basic Diluted
Earnings Earnings
1998 Revenues Expenses Net Income Per Share Per Share
-------------- -------------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
First quarter $ 4,457,000 $ 3,057,000 $1,400,000 $0.13 $0.13
Second quarter 4,624,000 3,292,000 1,332,000 0.13 0.12
Third quarter 5,668,000 4,219,000 1,449,000 0.14 0.13
Fourth quarter 5,047,000 4,016,000 1,031,000 0.10 0.09
-------------- -------------- --------------- ------------ -------------
$19,796,000 $14,584,000 $5,212,000 $0.50 $0.47
-------------- -------------- --------------- ------------ -------------
-------------- -------------- --------------- ------------ -------------
</TABLE>
F-23
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT ("Agreement"), dated
effective as of July 1, 1998, is made among EVERGREEN RESOURCES, INC., a
Colorado corporation (the "Borrower"), and HIBERNIA NATIONAL BANK, a national
banking association, as agent (in such capacity, together with its successors
and assigns in such capacity, the "Agent"), and the bank or banks listed from
time to time on SCHEDULE 1 hereto and on the signature pages hereof (one or
more, the "Banks"), who agree as follows:
PRELIMINARY STATEMENT
WHEREAS, the Borrower and Hibernia National Bank (the "Initial Bank")
entered into an Amended and Restated Credit Agreement dated as of June 1,
1997 (the "Prior Credit Agreement"), which in turn was a renewal, increase,
amendment and restatement of the line of credit under the Credit Agreement
dated as of November 15, 1990, as amended by that certain letter agreement
dated December 30, 1991, by that certain Second Amendment to Credit Agreement
dated as of February 5, 1993, by that certain letter agreement dated February
11, 1993, by that certain Note Modification Agreement dated as of February
28, 1995, by that certain Note Modification Agreement dated as of March 31,
1995, by that certain Sixth Amendment to Credit Agreement dated as of April
26, 1995, and by that certain Seventh Amendment to Credit Agreement dated as
of October 4, 1996; and
WHEREAS, the Borrower and the Initial Bank desire to renew and increase
the line of credit under said Prior Credit Agreement, and to provide for the
participation by other banks in said line of credit on an agented credit
basis, and in connection therewith to amend and restate said Prior Credit
Agreement in its entirety.
NOW, THEREFORE, in consideration of the premises, and the mutual
agreements contained herein, the Borrower and the Initial Bank do hereby (i)
agree that nothing in this Amended and Restated Credit Agreement shall
constitute the satisfaction or extinguishment of the amount owed under the
revolving promissory note issued under said Prior Credit Agreement, nor shall
it be a novation of the amount owed under such revolving promissory note, and
(ii) amend and restate said Prior Credit Agreement in its entirety as follows:
ARTICLE I
GENERAL TERMS
Section 1.1 TERMS DEFINED ABOVE. As Used in this Agreement, the terms
"Agent", " Agreement", "Banks", "Borrower", "Initial Bank" and "Prior Credit
Agreement" shall have the meanings indicated above.
<PAGE>
2
Section 1.2 CERTAIN DEFINITIONS. As used in this Agreement, the
following terms shall have the meanings indicated (and as indicated by
Section 9.14), unless the context requires a different meaning:
"ADVANCES" shall mean the borrowings on the Closing Date under the Loan and
all or any portion of such borrowings and reborrowings under the Loan so
long as same remain outstanding and unpaid.
"AMOUNT" shall mean fifty million ($50,000,000.00) dollars.
"BORROWING BASE" shall mean, at any particular date, the dollar amount
calculated as the loan value of the Collateral as determined by the Agent
in its sole and absolute discretion based upon the Agent's customary
standards and practices from time to time in effect with respect to secured
oil and gas property lines, but with the consent of all the Banks as
provided below in this definition. Any good faith determination by the
Agent of the Borrowing Base shall be final and conclusive as to the
Borrower. The Borrowing Base may be revised by Agent at any time to reflect
changes in the Collateral or the occurrence of events or economic
conditions or otherwise pursuant to Agent's customary standards and
practices as such exist at that particular time, and further will be
subject to scheduled semi-annual re-determinations during the term of this
Loan (currently scheduled on or before April 30 and October 30 of each
year). Each Borrowing Base determination of amortization/scheduled values
over time shall be effective until redetermined by the Agent in accordance
with this Agreement (or until the Maturity Date). Such redetermination by
the Agent may lead to increased or decreased credit availability to the
Borrower under the revised Borrowing Base schedule. The Agent shall give
the Borrower written notice of each redetermined Borrowing Base schedule at
least fifteen (15) days before such new Borrowing Base schedule is to
become effective. Without limiting the Agent's discretion, the Agent may
exclude, in its sole and absolute discretion, any property or portion of
production therefrom from the Borrowing Base, at any time, because title
information on, or the status of title to, such
<PAGE>
3
property is not reasonably satisfactory to Agent, such property is not
Collateral, the Agent's lien or security interest therein is not first and
prior to all others, or such property is not assignable. As of the Closing
Date, the Borrowing Base is $50,000,000.00. Thereafter, the Agent shall
make a preliminary re-determination of the Borrowing Base each April 30 and
October 30 of each year (assuming timely delivery of requested information
from the Borrower), and otherwise at such times as deemed appropriate by
the Agent or the Required Banks (and as required by Section 3.3). The Agent
promptly shall notify the Banks in writing of each such preliminary
re-determination. Any Bank which has not notified the Agent in writing of
its disapproval of any such preliminary re-determination of the Borrowing
Base within ten (10) days of its receipt of such notice shall be deemed to
have approved of such re-determination. Each re-determination of the
Borrowing Base (increase or decrease) shall require the consent of all of
the Banks. Upon approval of all the Banks of each redetermination, the
Agent shall notify the Borrower as provided above.
"BUSINESS DAY" shall mean (a) for all purposes other than as covered by
clause (b) of this definition, a day other than a Saturday, Sunday or legal
holiday for commercial banks in either New Orleans, Louisiana, or New York,
New York, and (b) with respect to all requests, notices and determinations
in connection with LIBO Rate Loans, a day which is a Business Day described
in clause (a) of this definition and which is a day for trading by and
between banks for dollar deposits in the London interbank market.
"CLOSING DATE" shall mean the date on which the initial Note is executed
and delivered by the Borrower to the Initial Bank.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
<PAGE>
4
"COLLATERAL" shall mean the properties described in the Collateral
Documents described in Section 3.1(a) as primary security for the
Indebtedness.
"COLLATERAL DOCUMENTS" shall mean collectively the documents from time to
time required by the Agent to obtain the security interest in the
Collateral, or otherwise guarantee or secure the Indebtedness, or otherwise
pertaining to this Agreement (including without limitation the letter of
credit Applications described in Subsection 2.1(c) below) such existing
documents being described in Article 3 hereof, as all such documents are
amended, restated or renewed from time to time.
"COMMITMENT LIMIT" shall mean, at any particular date, the LESSER of (a)
the Amount or (b) the Borrowing Base then in effect.
"COMMITMENTS" shall mean the commitments of each of the Banks for the Loan
set forth on SCHEDULE 1 hereto as amended from time to time.
"CONSOLIDATED ASSETS" shall mean, at any particular date, the sum, after
eliminating inter-company items, of all assets of the Borrower and its
Subsidiaries at such date, determined on a consolidated basis in accordance
with GAAP consistently applied.
"CONSOLIDATED CURRENT ASSETS" shall mean, at any particular date, all
amounts which would, in conformity with GAAP, be included under current
assets on a consolidated balance sheet of the Borrower and its Subsidiaries
at such date, and FURTHER including the unused and available portion of the
Commitment Limit (equal to the Commitment Limit LESS the sum of the
principal balance of unpaid and outstanding Advances and the total
undisbursed amount of all standby letters of credit outstanding as of
such date of determination).
"CONSOLIDATED CURRENT LIABILITIES" shall mean, at any particular date, all
amounts which would, in conformity with GAAP, be
<PAGE>
5
included under current liabilities on a consolidated balance sheet of the
Borrower and its Subsidiaries at such date.
"CONSOLIDATED LIABILITIES" shall mean, at any particular date, the sum,
after eliminating inter-company items, of all liabilities (including,
without limitation, deferred taxes and minority interests) of the Borrower
and its Subsidiaries at such date, determined on a consolidated basis in
accordance with GAAP consistently applied.
"CONSOLIDATED NET WORTH" shall mean, at any particular date, the number
obtained by subtracting Consolidated Liabilities from the Consolidated
Assets.
"CONTRACTS" shall mean those agreements, contracts and other instruments to
which the Borrower's interest in the oil, gas and mineral leases comprising
the Collateral are subject.
"DEBT" shall mean any and all amounts and/or liabilities owing from time to
time by the Borrower (or, if applicable, another Person) to any Person,
including the Agent or any of the Banks, direct or indirect, liquidated or
contingent, now existing or hereafter arising, including without limitation
(i) indebtedness for borrowed money or the deferred purchase price of
property, (ii) unfunded portions of commitments for money to be borrowed;
(iii) the amounts of all standby and commercial letters of credit and
bankers acceptances, matured or unmatured, issued on behalf of the Borrower
and, without duplication, all drafts drawn thereunder; (iv) guaranties of
the obligations of any other Person, whether direct or indirect, whether by
agreement to purchase the indebtedness of any other Person or by agreement
for the furnishing of funds to any other Person through the purchase or
lease of goods, supplies or services (or by way of stock purchase, capital
contribution, advance or loan) for the purpose of paying or discharging the
indebtedness of any other Person, or otherwise; (v) indebtedness of the
types described above secured by any Lien on any property owned by the
Borrower, to the extent attributable to the Borrower's interest in such
property,
<PAGE>
6
even though the Borrower has not assumed or become liable for the payment
thereof personally; (vi) the present value of all obligations for the
payment of rent or hire of property of any kind (real or personal) under
leases or lease agreements required to be capitalized under GAAP, and (vii)
trade payables and operating leases incurred in the ordinary course of
business or otherwise.
"DEFAULT" shall mean the occurrence of any of the events specified in
Article 8 hereof, whether or not any requirement for notice or lapse of
time or other condition precedent has been satisfied.
"DEFAULT RATE" shall mean three (3%) percent per annum in excess of the
Prime Rate from time to time in effect.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"EVENT OF DEFAULT" shall mean the occurrence of any of the events specified
in Article 8 hereof, provided that any requirement for notice or lapse of
time or any other condition precedent has been satisfied.
"GAAP" means generally accepted accounting principles in the United States
as in effect from time to time.
"INDEBTEDNESS" shall mean any and all amounts, liabilities or obligations
owing from time to time by the Borrower to the Agent or to all or any of
the Banks pursuant to this Agreement, the Notes and the Collateral
Documents (including attorneys' fees incurred in connection with the
execution, enforcement or collection of the Borrower's obligations
hereunder or thereunder or any part thereof), whether such amounts,
liabilities or obligations be liquidated or unliquidated, now existing or
hereafter arising.
<PAGE>
7
"INTERCREDITOR AGREEMENT" shall mean the Intercreditor Agreement among
the Initial Bank (as lender to Primero, Maverick and other Persons with
Debt secured in part by a guaranty by Borrower secured by the Collateral
but now subordinated by such document to the Indebtedness), the Agent
and the Banks.
"LIBO RATE" shall mean, during any Interest Period (as defined below) for
any Advance, an interest rate per annum equal to (i) the Reserve Adjusted
LIBO Rate (as defined below) PLUS the Applicable LIBO Rate Margin (as
defined below). "RESERVE ADJUSTED LIBO RATE" shall mean with respect to
each interest Period for a LIBO Rate Advance, an interest rate per annum
equal to the quotient (converted to a percentage, rounded upward to the
nearest whole multiple of 1/100 of 1% per annum) of (i) the rate per annum
as determined by the Agent at or about 10:00 a.m. Central Time (or as soon
thereafter as practicable) on the second Business Day prior to the first
day of each Interest Period, to be the annual rate of interest for deposits
in United States dollars for the selected Interest Period as shown on the
Dow Jones Telerate Matrix page for British Bankers Association Interest
Settlement Rates as of two Business Days prior to the first day of such
Interest Period, divided by (ii) the remainder of 1.00 minus the LIBOR
Reserve Requirement (as defined below), expressed as a decimal, for such
Interest Period. "LIBOR RESERVE REQUIREMENT" shall mean for any day during
an Interest period for any LIBO Rate Advance, that percentage which is
specified by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement (including, but
not limited to, any marginal reserve requirement) for the Banks with
respect to liabilities consisting of or including "Eurocurrency
liabilities" (as defined in Regulation D of the Board of Governors of the
Federal Reserve System) with a maturity equal to such Interest Period. In
determining this percentage, the Agent may use any reasonable averaging and
attribution method. "INTEREST PERIOD" shall mean the period between the
Business Day on which the LIBO Rate shall begin and the day on which the
LIBO Rate shall end. The duration of
<PAGE>
8
each Interest Period for a LIBO Rate Advance shall be one (1) month, two
(2) months or three (3) months, at the Borrower's election, subject to the
following: (i) no Interest Period shall extend past the Maturity Date; (ii)
whenever the last day of any Interest Period would otherwise occur on a day
other than a Business Day, the last day of such Interest Period shall be
extended to occur on the next succeeding Business Day, EXCEPT that if the
next succeeding Business Day would occur in the next following calendar
month, the last day of such Interest Period shall be shortened to occur on
the next preceding Business Day; (iii) whenever the first day of any
Interest Period occurs on a day of an initial calendar month for which
there is no numerically corresponding day in the calendar month that
succeeds such initial calendar month by the number of months in such
Interest Period, such Interest Period shall end on the last Business Day of
such succeeding calendar month; and (iv) if the Borrower fails to designate
an Interest Period, the Interest Period for a LIBO Rate Advance
(recognizing that under Subsection 2.l(b) below the Banks are not
obligated to make such a LIBO Rate Advance in the absence of such
designation by the Borrower) shall be deemed to be one month until a
different designation is made for a subsequent Interest Period. No Interest
Period for a LIBO Rate Advance shall have a duration of less than one
month, and if any such Interest Period would otherwise be a shorter period,
the relevant Advance shall be a Prime Rate Advance during such period. The
"APPLICABLE LIBO RATE MARGIN", shall mean the following per annum interest
rate from time to time, determined for each fiscal quarter by reference to
the Percentage Outstanding for the immediately prior fiscal quarter, in
accordance with the following schedule:
<TABLE>
<CAPTION>
Applicable LIBO
Percentage Outstanding Rate Margin
---------------------- ---------------
<S> <C>
0-1/3 1.38%
1/3-2/3 1.55%
2/3 and above 1.75%
</TABLE>
<PAGE>
9
The Applicable LIBO Rate Margin shall remain fixed during each fiscal
quarter of the Borrower's fiscal year, determined on the first day of each
fiscal quarter depending upon the Percentage Outstanding for the
immediately prior quarter. (During the first quarter of this Agreement,
commencing July 1, 1998, the Applicable LIBO Rate Margin shall be 1.38%.)
No more than four (4) LIBO Rate tranches at any one time are permitted for
the Loan. The Borrower will comply with the provisions of ADDENDUM I
hereto, relating to the LIBO Rate, which is an integral part of this
Agreement. The LIBO Rate shall remain fixed for the duration of the LIBO
Rate Interest Period selected and the Borrower shall not have the right to
prepay Advances outstanding at the LIBO Rate prior to the end of the
applicable LIBO Rate Interest Period.
"LIEN" shall mean any interest in property securing an obligation owed to,
or a claim by, a Person other than the owner of the property, whether such
interest is based on jurisprudence, statute or contract, and including but
no limited to the lien or security interest arising from a mortgage,
encumbrance, pledge, security agreement, conditional sale or trust receipt
or a lease, consignment or bailment for security purposes. The term "Lien"
shall include reservations, exceptions, encroachments, easements,
servitudes, usufructs, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances affecting property. For
the purposes of this Agreement, the Borrower shall be deemed to be the
owner of any property which it has accrued or holds subject to a
conditional sale agreement, financing lease or other arrangement pursuant
to which title to the property has been retained by or vested in some other
Person for security purposes.
"LOAN" shall mean the line of credit and standby letters of credit
described in Article 2 hereof.
"MAVERICK" shall mean Maverick Stimulation Company, LLC, a Colorado limited
liability company.
<PAGE>
10
"MATURITY DATE" shall mean July 1, 2001.
"NOTE" shall mean the promissory notes executed by the Borrower, each
substantially in the form of EXHIBIT A hereto, initially dated the Closing
Date (and subsequently dated on the date that additional Banks become a
party to this Agreement), payable to the order of each Bank in the amount
of the Bank's Commitment, in representation of the Advances available to be
made under the line of credit Loan, together with any and all amendments,
modifications, extensions, renewals, increases or rearrangements thereof or
therefor. (The initial Note dated the Closing Date payable to the order of
the Initial Bank in the principal amount of $50,000,000.00 has been given
in renewal, increase and extension of (but not in addition to) the
indebtedness previously evidenced by the Borrower's Revolving Note dated
June 19, 1997, payable to the order of the Initial Bank, in the principal
sum of $30,000,000.00, which in turn had been given in renewal, increase
and extension of (but not in addition to) the indebtedness previously
evidenced by the Borrower's Revolving Note dated October 4, 1996, 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
previously evidenced by the Borrower's Revolving Note dated April 26, 1995,
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 previously evidenced by the Borrower's Revolving Note dated
February 5, 1993, 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 previously evidenced by the Borrower's Revolving Note
dated November 15, 1990, in the principal sum of $3,500,000.00.)
"PERCENTAGE OUTSTANDING" shall mean, for any fiscal quarter, the fraction
obtained by dividing (x) the sum of the average unpaid and outstanding
principal balance of the Notes plus the aggregate undisbursed amount of all
standby letters of credit during such
<PAGE>
11
quarter, by (y) the average of the Commitment Limit for such quarter.
"PERSON" shall mean any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization, government or any agency or political
subdivision thereof, or any other form of entity.
"PLAN" shall mean any plan subject to Title IV of ERISA and maintained by
the Borrower, or any such plan to which the Borrower is required to
contribute on behalf of its employees.
"PRIME RATE" shall mean, at any particular date, (i) the rate of interest
announced publicly by Citibank, N.A. (or its successor) in New York, New
York from time to time as its base lending rate ("CITIBANK PRIME"), plus
(ii) the Applicable Prime Rate Margin (as defined below). Without notice to
the Borrower or other Person, the Prime Rate shall change automatically
from time to time as and in the amount by which said Citibank Prime shall
fluctuate, with each such change in the Prime Rate to be effective as of
the date of each change in such Citibank Prime. Citibank Prime is a
reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer by Citibank or by the Agent or any Bank.
The "APPLICABLE PRIME RATE MARGIN" shall mean the following per annum
interest rate from time to time, determined for any fiscal quarter by
reference to the Percentage Outstanding during the immediately prior fiscal
quarter, in accordance with the following schedule:
<TABLE>
<CAPTION>
Applicable Prime
Percentage Outstanding Rate Margin
---------------------- ---------------
<S> <C>
0-1/3 0.00%
1/3-2/3 0.00%
2/3 and above 0.25%
</TABLE>
<PAGE>
12
The Applicable Prime Rate Margin shall remain fixed during each fiscal
quarter of Borrower's fiscal year, determined on the first day of each
fiscal quarter depending upon the Percentage Outstanding for the
immediately prior quarter. (During the first quarter of this Agreement,
commencing July 1, 1998, the Applicable Prime Rate Margin shall be zero
(0.00%) percent.) The Prime Rate shall be adjustable on a daily basis to
reflect any changes in Citibank Prime, and further adjusted on a quarterly
basis on the first day of each quarter to reflect any changes in the
Applicable Prime Rate Margin.
"PRIMERO" shall mean Primero Gas Marketing Company, a Colorado joint
venture.
"REQUIRED BANKS" shall mean Banks in the aggregate holding at least
sixty-six and two-thirds (66 2/3%) percent of the aggregate unpaid
principal amount of the Notes.
"SUBSIDIARIES" shall mean at any date with respect to the Borrower (i) all
the corporations of which the Borrower at such date, directly or
indirectly, owns fifty (50%) percent or more of the outstanding capital
stock (excluding directors' qualifying shares), and (ii) all the
partnerships, limited liability companies or other Persons of which the
Borrower at such date, directly or indirectly, owns fifty (50%) percent or
more of the outstanding partnership, membership or other ownership or
voting interest.
Section 1.3 ACCOUNTING TERMS. Unless otherwise specified herein, all
accounting terms used herein shall be interpreted, all accounting determinations
hereunder shall be made, and all financial statements required to be delivered
hereunder shall be prepared in accordance with GAAP on a basis consistent
(except for changes in accounting principles or practice approved by independent
public accountants for the Borrower) with the most recent audited financial
statements of the Borrower.
<PAGE>
13
ARTICLE 2
THE CREDIT
Section 2.1 LINE OF CREDIT (INCLUDING STANDBY LETTERS OF CREDIT). (a)
LINE. Subject to and upon the terms and conditions contained in this
Agreement, and relying on the representations and warranties contained in
this Agreement, each Bank, severally, agrees to make a revolving line of
credit available to the Borrower in the maximum aggregate principal amount
equal to such Bank's Commitment set forth in SCHEDULE 1 hereto. The aggregate
amount of all Advances, plus the undisbursed amount of all standby letters of
credit permitted to be issued under Subsection 2.1(c) hereof, cannot exceed
the Commitment Limit. The line of credit is represented by the Notes in the
aggregate principal amount of the Amount, and individually in the principal
amount of each Bank's commitment, payable to the order of the Banks.
Principal and all accrued and unpaid interest on the line of credit shall be
payable in full at maturity on the Maturity Date, after which no further
Advances will be made.
(b) INTEREST. The interest rate applicable to each Loan Advance
beginning on the date such Advance is made shall be either (i) the Prime
Rate, adjusted daily, or (ii) the LIBO Rate, adjusted on the first day of
each LIBO Rate Interest Period and remaining fixed for the duration of the
LIBO Rate Interest Period, selected at the Borrower's option by written
notice to Agent in accordance with the terms hereof. Effective on the first
day following the end of any LIBO Rate Interest Period, the Borrower may from
time to time change the interest rate which is to apply to the Advances or a
portion thereof (including any yet to be made Advance which is made on the
effective date of the interest rate change) by notifying the Agent of the
Borrower's desire to change the interest rate not less than three (3)
Business Days prior to the date on which such change shall be effective. No
more than four (4) LIBO Rate tranches and one Prime Rate tranche (all Prime
Rate Advances constituting one tranche) shall be permitted for the Loan at
any one time. In the absence of any timely specific interest rate election by
the Borrower (as provided above in this Subsection 2.1(b) and in the
definition of LIBO Rate), unless otherwise agreed by the Agent and all the
Banks, an Advance (if outstanding as a LIBO Rate Advance) will be
automatically converted into a Prime Rate Advance on the last day of the then
current Interest Period for such Advance or (if not then outstanding) an
Advance shall bear interest at the Prime Rate. The Borrower further will
comply with the provisions of ADDENDUM I hereto, relating to the LIBO Rate,
which is an integral part of this Agreement. Interest shall be payable (x) on
Advances bearing interest at the Prime Rate monthly in arrears on the last
day of each month, beginning July 31, 1998, and (y) on LIBO Rate Advances on
the last day of each applicable Interest Period for each LIBO
<PAGE>
14
Rate Advance. Payments may be debited from the Borrower's accounts at the
Agent as provided in this Agreement.
(c) LETTERS OF CREDIT. As a portion of the line of credit availability
(and subject to the Borrowing Base and the other terms and conditions
contained in this Agreement), the Initial Bank will issue standby letters of
credit for the account of the Borrower (or any one or more of the Borrower's
wholly-owned Subsidiaries from time to time in existence, including Evergreen
Operating Company and Primero, so long as such entity is wholly-owned
directly or indirectly) from time to time. The expiration of such letters of
credit shall be on a Business Day not later than one year after issuance, and
further shall not extend beyond the Maturity Date of the line of credit. The
Borrower shall pay to the Agent, for disbursement in accordance with Section
9.1(a), a fee for each standby letter of credit in advance on the issuance
date at the per annum rate of seven-eighths of one percent (0.875%) on the
face amount of the letter of credit for the period from the date of issuance
to the expiration date, plus the Borrower shall pay to the Agent, for the
account solely of the Initial Bank, additional amounts customarily charged by
the Initial Bank for the issuance and processing of letters of credit. Each
letter of credit shall be issued not later than the close of the Initial
Bank's business (Central Time) on the third (3rd) Business Day after receipt
(including by facsimile pursuant to Section 10.1 hereof) by the Initial Bank
of the Borrower's written application in substantially the form of the
Initial Bank's then standard Application for Irrevocable Standby Letter of
Credit and Letter of Credit Agreement, executed by the Borrower (by any one
of the persons designated by the Borrower in writing to the Agent in
accordance with the terms of Subsection 2.1(d) below). Such application and
agreement shall be Collateral Documents under this Agreement, supplemental to
and not in replacement of this Agreement and the other Collateral Documents,
provided that in the event of a conflict between such application and
agreement and this Agreement then this Agreement shall prevail (even if such
application or agreement is executed later). In the event such written
application is telecopied to the Initial Bank, the Initial Bank may but need
not confirm such application before acting thereupon. The Initial Bank may
rely fully and completely upon the authority of the signatory of such written
application and the contents thereof unless such authority is terminated by
written notice to the Initial Bank, and any such termination of authority
shall be effective only prospectively. Such letters of credit will be
documented on the Initial Bank's standard forms. No letter of credit will be
issued if the face amount thereof plus the aggregate of all Advances then
outstanding plus the aggregate undisbursed amount of all standby letters of
credit then outstanding would exceed the Commitment Limit. Payment by the
Initial Bank of a draw on a standby letter of credit, if not reimbursed in
full on the same day by the Borrower, automatically (notwithstanding the
limitation in Subsection 2.1(a) above) shall be an Advance as a part of the
Loan bearing interest from the date of such draw at the Prime Rate.
<PAGE>
15
Upon its issuance of any such letter of credit, the Initial Bank shall
promptly notify each other Bank of such issuance. Immediately upon the
issuance by the Initial Bank of any letter of credit, the Initial Bank shall
be deemed to have sold and transferred to each other Bank and each such other
Bank shall be deemed irrevocably and unconditionally to have purchased and
received from the Initial Bank, without recourse or warranty, an undivided
interest and participation in such letter of credit, each drawing made
thereunder and the obligations of the Borrower under this Agreement with
respect thereto, and any security therefor or guaranty pertaining thereto.
The amount of such other Bank's participation shall be such other Bank's
prorata portion (i.e., such Bank's Commitment as compared to the aggregate of
the Commitments).
In the event that the Initial Bank makes any payment under any letter of
credit and the Borrower shall not have reimbursed such amount in full to the
Initial Bank on the date of such payment, the Initial Bank shall promptly
notify the Agent, which shall promptly notify each other Bank of such
failure, and each other Bank shall promptly and unconditionally pay to the
Initial Bank the amount of such other Bank's prorata portion (i.e., such
Bank's Commitment as compared to the aggregate of the Commitments) of such
unreimbursed payment in immediately available funds. If the Agent so
notifies, prior to 11:00 a.m. (Central Time) on any Business Day, each
Participant shall make such payment on such Business Day. The failure or
refusal by any Bank to make reimbursement to the Initial Bank at the
aforesaid time and place in the amount of its portion of such reimbursement
shall not relieve any other Bank from its several obligation hereunder to
make reimbursement to the Initial Bank in the amount of such other Banks
portion of such requested reimbursement (but no Bank shall be responsible for
the failure of any Bank to make reimbursement to the Initial Bank of such
other Bank's portion of such requested reimbursement). If any Bank makes
reimbursement to the Initial Bank of such amount on a date after the
aforesaid date for reimbursement, such Bank shall pay to the Initial Bank on
demand an amount computed on the basis set forth in Subsection 2.1(f) below
(substituting such reimbursement due date for the Advance Date), which
Subsection 2.1(f) shall be fully applicable to such failure.
The obligations of the other Banks to make reimbursement payments to the
Initial Bank with respect to letters of credit issued by it shall be
irrevocable and not subject to any qualification or exception whatsoever. In
determining whether to pay under any letter of credit, the Initial Bank shall
have no obligation relative to the other Banks other than to confirm that any
documents required to be delivered under such Letter of Credit appear to have
been delivered and that they appear to comply on their face with the
requirements of such letter of credit. Any action taken or omitted to be
taken by the Initial Bank under or in connection with any letter of credit if
taken or omitted in the absence of gross negligence or
<PAGE>
16
willful misconduct shall not create for the Initial Bank any resulting
liability to the Borrower or any Bank.
(d) REQUESTS. The Banks will make Advances to the Borrower from time to
time on any Business Day in such amounts as the Borrower may have timely
requested as provided in Subsection 2.1(e) up to the maximum amount provided
in Subsection 2.1(a) above, and the Borrower may make borrowings, repayments
and reborrowings in respect thereof. Requests for Advances must be made by
the Borrower in writing to the Agent, by either certified or registered mail
or by facsimile transmission in accordance with Section 10.1, the number of
days before the Business Day for the Advance as provided in Subsection 2.1
(e). Such request shall be fully authorized by the Borrower if made by any
one of the persons hereby designated by the Borrower as an authorized person:
the President of Borrower or any other officer of the Borrower designated by
the President in writing to the Agent in accordance with resolutions of the
Board of Directors of the Borrower certified to the Agent. The Agent and the
Banks may rely fully and completely upon the authority of the signatory of
such request unless such authority is terminated by written notice to Agent,
and any such termination shall be effective only prospectively. The credit
advice resulting from the deposit of the proceeds of any disbursement in the
Borrower's account with the Agent or the Agent's copy of any cashier's check
representing all or any part of the proceeds of the disbursement shall be
deemed prima facie evidence of the Borrower's Indebtedness to the Banks on
the line of credit.
(e) TIMING. Requests for Advances at the Prime Rate shall be made on
written notice from the Borrower to the Agent, received by the Agent no later
than 10:00 a.m. (Central Time) on the Business Day of such Prime Rate Advance
specifying the amount thereof. Request for Advances at the LIB0 Rate shall be
made on written notice from the Borrower to the Agent received by the Agent
no later than 11:00 a.m. (Central Time) on the third (3rd) Business Day
before such LIBO Rate Advance, specifying the amount thereof (including the
amount of each Tranche, if more than one) and the LIBO Interest Period (or
interest Periods, if more than one tranche). Each such written notice by the
Borrower shall be irrevocable by the Borrower. The request for any Advance
shall constitute a certification by the Borrower that all of the
representations and warranties contained in Article 4 (other than those
representations and warranties, if any, that are, by their specific terms,
limited in application to a specific date) arc true and correct as of the
date of such request and also as of the date of the Advance. The Agent shall
promptly give each Bank notice of such proposed Advance.
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17
(f) FUNDING. Not later than 12:00 noon (Central Time) on the date of
any Advance, each of the Banks shall make available to the Agent, in
immediately available funds, the amount of such Bank's prorata portion (i.e.,
the percentage of its Commitment as compared to the aggregate of the
Commitments) of the amount of the requested Advance. Upon receipt from each
Bank of such amount, and upon fulfillment of the applicable conditions set
forth in this Agreement in Article 7, the Agent (on behalf of the Banks) will
make available to the Borrower the aggregate amount of such Advance in
accordance with the further terms of this Section 2.1. The failure or refusal
of any Bank to make available to the Agent at the aforesaid time and place on
any date of an Advance the amount of its portion of the requested Advance
shall not relieve any other Bank from its several obligation hereunder to
make available to the Agent the amount of such other Bank's portion of any
requested Advance (but no Bank shall be responsible for the failure of any
Bank to make available to the Agent such other Bank's portion of any
requested Advance).
The Agent may, unless notified to the contrary by any Bank prior to the
date of an Advance, assume that each Bank has made available to the Agent on
such date of the applicable Advance the amount of each Bank's portion of the
Advance to be made on such date, and the Agent shall, in reliance upon such
assumption, make available to Borrower a corresponding amount. If any Bank
makes available to the Agent such amount on a date after the date of the
applicable Advance, such Bank shall pay to the Agent on demand an amount
equal to the product of (i) the average computed for the period referred to
in clause (iii) below, of the weighted average interest rate paid by the
Agent for federal funds acquired by the Agent during each day included in
such period, TIMES (ii) the amount of such Bank's portion of such Advance,
TIMES (iii) a fraction, the numerator of which is the number of days that
elapse from and including such date of the Advance to the date on which the
amount of such Bank's portion of such Advance shall become immediately
available to the Agent, and the denominator of which is 365; PROVIDED, that
if such Bank has not paid to the Agent such Bank's portion of the Advance by
12:00 noon (Central Time) on the third (3rd) Business Day after the Advance
was made to the Borrower, then the interest rate in clause (i) above shall be
the Prime Rate (adjusted daily) from and after such 2nd Business Day after
the Advance was made until and including the date such Bank makes available
to the Agent such Bank's portion of the Advance; PROVIDED, FURTHER, that if
such Bank has not paid to the Agent such Bank's portion of the Advance by
12:00 noon (Central Time) on the fifteenth (15th) Business Day after the
Advance was made to Borrower, then the interest rate in clause (i) above
shall be the Prime Rate (adjusted daily) plus three (3.0%) percent per annum
from and after such 15th Business Day after the Advance was made until and
including the date such Bank makes available to the Agent such Bank's portion
of the Advance. A statement of the Agent submitted to each Bank with respect
to any amounts owing under this paragraph shall be PRIMA
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18
FACIE evidence of the amount due and owing to the Agent by such Bank. If any
Bank fails to pay to Agent its portion of any Advance within thirty (30) days
after an Advance or if any Bank twice fails to timely make its portion of
Advances to be made to the Borrower available to the Agent before 12:00 noon
(Central Time) on the dates Advances are made to the Borrower (counting
failures in reimbursement under Subsection 2.1(c) as a failure hereunder),
then, if requested to do so by the Borrower or any other Bank or the Agent,
such Bank shall sell all of its interests, rights and obligations under this
Agreement (including all of its Commitment and its portion of the Loan at the
time owing to it) and the Note held by it to another Bank or bank under
Section 9.6 hereof.
Not later than 3:00 p.m. (Central Time) on the date property and timely
requested for the Advance and upon fulfillment of the applicable conditions
set forth in Article 7 of this Agreement, the Agent will make such Advance
available to the Borrower in same day funds in the checking account
maintained by the Borrower with the Agent and the credit advice resulting
therefrom shall be mailed by the Agent to the Borrower.
(g) MINIMUM. Notwithstanding anything in this Agreement to the
contrary, the aggregate principal amount of all LIBO Rate Advances having the
same interest period shall be at least equal to $100,000.00; and if any LIBO
Rate tranche would otherwise be in a lesser principal amount for any period,
such tranche shall bear interest at the Prime Rate during such period.
Section 2.2 BUSINESS DAYS. If the date for any payment, prepayment or
fee payment hereunder falls on a day which is not a Business Day, then for
all purposes of this Agreement (unless otherwise provided herein) the same
shall be deemed to have fallen on the next following Business Day, and such
extension of time shall in such case be included in the computation of
payments of interest.
Section 2.3 PAYMENTS. The Borrower shall make each payment hereunder and
under the Notes and any Collateral Documents in lawful money of the United
States of America in same day funds to the Agent at its main office in New
Orleans, Louisiana not later than 11:00 a.m. (Central Time) on the day when
due, or such other place in the United States as designated in writing by the
Agent. The Agent shall promptly send to each Bank by federal wire transfer
its respective proportionate share of all amounts to which the Banks are
entitled. The Borrower hereby authorizes the Agent to charge from time to
time against the Borrower's accounts with the Agent any amount so due. At the
time of making each payment hereunder or under the Note, the Borrower shall
specify to the Agent the Advances or other amounts payable by the Borrower
hereunder to which such payment is to be applied. In the event the
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19
Borrower fails to so specify, or if an Event of Default has occurred and is
continuing, the Agent may apply such payment as it my elect in its sole
discretion (but in accordance with Section 2.9).
Section 2.4 PREPAYMENT. (a) VOLUNTARY. The Borrower may prepay the Loan
in full or in part at any time without payment of premium or penalty;
provided, however, that (i) the Borrower shall give the Agent notice of each
such prepayment of all or any portion of a LIBO Rate Advance no less than
three (3) Business Days prior to prepayment, (ii) any LIBO Rate Advance may
be prepaid only on the last day of the Interest Period for such LIBO Rate
Advance, (iii) the Borrower shall give the Agent notice of each such
prepayment of all or any portion of a Prime Rate Advance no less than one (1)
Business Day prior to prepayment, (iv) the Borrower shall pay all accrued and
unpaid interest on the amounts prepaid, and (v) no such prepayment shall
serve to postpone the repayment when due of any other Indebtedness.
(b) MANDATORY. The Agent shall notify the Borrower of the result of
each Borrowing Base redetermination by the Agent at least fifteen (15) days
before such redetermined amount is to become effective. If at any time the
outstanding principal balance of the Advances plus the aggregate undisbursed
amount of all outstanding standby letters of credit under Subsection 2.1(c)
shall exceed the Borrowing Base as established in the then effective
Borrowing Base schedule, then within thirty (30) days after such excess
occurs the Borrower shall (x) prepay the Advances (together with accrued
interest on the amount to be prepaid to the date of payment) in an amount
sufficient to reduce the Advances plus the aggregate undisbursed amount of
all outstanding standby letters of credit to the Borrowing Base, and/or (y)
execute, deliver and record such additional Collateral Documents pursuant to
Section 3.1(iii) sufficient to induce the Agent to make an increased
redetermination of the Borrowing Base to an amount not less than the
outstanding principal balance of the Advances plus the aggregate undisbursed
amount of all outstanding standby letters of credit.
Section 2.5 FEES. (a) The Borrower shall pay to the Agent, for
disbursement in accordance with Section 9.1(a) hereof to the Banks, an unused
facility fee quarterly in arrears on the first day of each calendar quarter
(each January 1, April 1, July 1 and October 1 and, if different, on the
Maturity Date for the period after the end of the previous quarter), on the
following basis: on the first day of each calendar quarter, beginning July 1,
1998, the Borrower shall designate an amount for that quarter (the
"Designated Availability"), not less than twenty-five million
($25,000,000.00) dollars and up to the Commitment Limit. So long as the sum
of the outstanding principal balance of the Advances plus the aggregate
undisbursed amount of all standby letters of credit under Subsection 2.1(c)
outstanding during such quarter at no time exceeds the Designated
Availability for such quarter, then the Borrower shall pay to
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20
the Agent a commitment fee for that quarter in the amount equal to the sum of
(x) one-half of one (0.50%) percent per annum on the average daily unused
portion of the Designated Availability plus (y) one-eighth of one (0.125%)
percent per annum on the difference between the average daily Commitment
Limit and the Designated Availability. But if at any time during that quarter
the sum of the principal balance of unpaid and outstanding Advances and the
total undisbursed amount of all standby letters of credit outstanding as of
such date of determination exceeds the Designated Availability, then the
Borrower shall pay to the Agent a commitment fee for that quarter in the
amount equal to one-half of one (0.50%) percent on the averaged daily unused
portion of the Commitment Limit. For purposes hereof, the unused portion of
the Commitment Limit shall be the Commitment Limit LESS the sum of the
principal balance of unpaid and outstanding Advances and the total
undisbursed amount of all standby letters of credit outstanding as of such
date of determination, and the unused portion of the Designated Availability
shall be the Designated Availability less the sum of the principal balance of
unpaid and outstanding Advances and the total undisbursed amount of all
standby letters of credit outstanding as of such date of determination. Such
commitment fee shall be determined on the basis of a 360-day interest factor
over the number of days in the actual calendar year (365 days or 366 days in
a leap year). (The unused facility fee payable on July 1, 1998, shall be
determined by using $20,000,000.00 as the amount of the Designated
Availability, being the amount for the second calendar quarter of 1998
designated by the Borrower under the Prior Credit Agreement, and by using
$30,000,000.00 as the amount of the Commitment Limit, being the amount under
the Prior Credit Agreement (designated therein as the "Commitment Amount")
(see Section 2.2.9 thereof).)
(b) The Borrower shall pay to the Agent, for disbursement in accordance
with Section 9.1(a) hereof to the Banks, on the Closing Date a nonrefundable
loan origination fee equal to $50,000.00.
(c) The Borrower shall pay to the Agent, for its own account, such fees
as are agreed to in a separate agreement between the Borrower and the Agent
with respect to the Agent's services provided hereunder and in connection
herewith.
(d) The Borrower agrees to reimburse the Agent quarterly in arrears on
the last day of each quarter for the Agent's actual costs incurred during
that quarter for the Agent's compliance with its environmental verification
process in obtaining status reports or similar information from governmental
agencies.
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21
Section 2.6 USE OF PROCEEDS. The Borrower shall use the proceeds of the
Loan solely for the acquisition and development of its oil and gas
properties and other corporate needs including working capital and the
issuance of letters of credit.
Section 2.7 ADDITIONAL REGULATORY COSTS. If any governmental authority,
central bank, or other comparable authority shall at any time impose, modify
or deem applicable any reserve (including without limitation any imposed by
the Board of Governors of the Federal Reserve System), special deposit or
similar requirement against assets of, deposits with or for the account of,
or credit extended by, the Agent or any Bank, or shall impose on the Agent or
any Bank any other condition affecting an Advance or the obligation of the
Agent or any Bank to make an Advance; and the result of any of the foregoing
is to increase the cost to the Agent or such Bank of making or maintaining
the Advances to the Borrower, or to reduce the amount of any sum received or
receivable by the Agent or any Bank under this Agreement or under the Notes
by an amount deemed by the Agent or any Bank to be material, then, within
sixty (60) days after demand by the Agent or such Bank, the Borrower shall
pay to the Agent or such Bank, for the account of the Agent or such Bank,
such additional amount or amounts as will compensate the Agent or such Bank
for such increased cost or reduction. The Agent or such Bank will promptly
notify the Borrower of any event of which it has knowledge, occurring after
the date hereof, which will entitle the Agent or such Bank to compensation
pursuant to this Section. A certificate of the Agent or such Bank claiming
mining compensation under this Section and setting forth the additional
amount or amounts to be paid to it hereunder shall be conclusive in the
absence of manifest error.
Section 2.8 DEFAULT RATE. Anything in the Notes or in any other
agreement, document or instrument to the contrary notwithstanding, effective
upon an Event of Default or upon the Maturity Date, the Agent and the
Required Banks shall have the right to prospectively increase the interest
rate under the Notes to the Default Rate until the Notes are paid in full.
Upon the acceleration of the principal amount of the Indebtedness represented
by the Notes, the Accelerated principal balance of the Loan shall bear
interest from the date of acceleration up to the date of actual payments (as
well after as before Judgment) at the Default Rate. All such interest at the
Default Rate shall be payable upon demand.
Section 2.9 APPLICATION OF PAYMENTS. Payments made under this Agreement,
the Notes or the Collateral Documents, whether made when due or after
foreclosure on Collateral, for application to the Indebtedness Shall be
applied to the Indebtedness as follows:
(i) To the Agent, with respect to fees and expenses accrued and
outstanding (including without limitation reasonable attorneys' fees and
expenses);
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22
(ii) To the Banks, ratably according to their Commitments, with respect
to fees, expenses and late charges accrued and outstanding;
(iii) To the Banks, ratably according to their Commitments, with respect
to interest accrued and outstanding; and
(iv) To the Banks, ratably according to their Commitments, with respect
to principal amounts of the Loan due and payable.
Payment made pursuant to realization under the Collateral Documents are also
subject to the Intercreditor Agreement.
Section 2.10 SHARING OF PAYMENTS. If any Bank, whether by setoff or
otherwise, has payment made to it upon its portion of the Loan, other than
pursuant to Section 2.7 or ADDENDUM 1, in a greater proportion than that
received by any other Bank, such Bank agrees, promptly upon demand, to
purchase a portion of the Loan held by the other Banks so that after such
purchase each Bank will hold its ramble proportion of the Loan. If any Bank,
whether in connection with setoff or amounts which might be subject to setoff
or otherwise, receives collateral or other protection for its Indebtedness or
such amounts which may be subject to setoff, such Bank agrees, promptly upon
demand, to take such action necessary such that all Banks share in the
benefits of such Collateral ratable in proportion to their Commitment. In
case any such payment is disturbed by legal process, or otherwise,
appropriate further adjustment shall be made. However, nothing in this
Section 2.10 is intended, or shall be construed, to amend the provisions of
or alter the application of the Intercreditor Agreement.
ARTICLE 3
SECURITY FOR THE OBLIGATIONS
Section 3.1 SECURITY. (a) The Loan shall be primarily secured by the
following:
(i) Mortgage, Deed of Trust, Assignment and Security Agreement and
Financing Statement, with multiple amendments, modifications and supplements
thereto, executed by the Borrower, granting a first priority mortgage,
security interest and assignment
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23
of production in various COLORADO oil and gas properties in favor of Agent,
for the ratable benefit of the Banks.
(ii) UCC-1 Financing Statements executed by the Borrower filed in the
State of Colorado.
(iii) Additional properties of the Borrower acceptable to Agent and
covered by Title Opinions in favor of Agent may be added to the Collateral
and the Borrowing Base during the term of this Agreement pursuant to
mortgages and other collateral documents in form and substance acceptable to
Agent. The Borrower acknowledges that any such new properties to be added to
the Borrowing Base (x) may be valued by Agent on Agent's then collateral
value-to-loan value basis, and (y) require environmental reports.
(iv) Additional properties of the Borrower required to be added to the
Collateral during the term of this Agreement pursuant to Section 3.3.
(b) The Borrower confirms that the Collateral Documents secure all of
the Indebtedness to the Agent and to each of the Banks, as well other Debt of
the Borrower to the Initial Bank. The Banks confirm the application of the
Intercreditor Agreement to govern such other Debt (including without
limitation the Borrower's guaranty agreements in favor of the Initial Bank
covering the indebtedness of Maverick and Primero), the Indebtedness and the
Collateral Documents.
Section 3.2 CONFIRMATION. The Borrower hereby reaffirms its original
intention as stated in the Collateral Documents that said Collateral
Documents secure the Indebtedness as extended and renewed from time to time,
including without limitation this Agreement and the Notes executed by the
Borrower pursuant to this Agreement. The Borrower confirms and agrees that
said Collateral Documents securing the Indebtedness, this Agreement and the
Notes include without limitation the documents described in Section 3.1 (i)
and (ii) above. The Borrower hereby ratifies and confirms in all respects the
Collateral Documents, which remain in full force and effect in accordance
with all of their terms, conditions and provisions in favor of the Agent, for
the ratable benefit of the Banks.
Section 3.3 ACQUISITION COLLATERAL. After each acquisition by the
Borrower of any interest in oil, gas and other mineral properties involving
an expenditure (in money or property) exceeding five million ($5,000,000.00)
dollars (whether in one transaction or a series of related transactions), the
Borrower at its expense will promptly, and in no event later than sixty (60)
days after such acquisition, complete the execution and recordation of
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24
appropriate Collateral Documents in favor of the Agent, for the ratable
benefit of the Banks, and the submission of Title Opinions in favor of the
Agent reasonably acceptable to the Agent, covering all such acquired
properties. Without limiting the foregoing, the Borrower, the Agent and the
Banks further agree that if the Borrower completes the acquisition of its
contemplated purchase of additional acreage in the Raton Basin from Amoco,
(i) the Borrower shall grant a Lien to the Agent, for the ratable benefit of
the Banks, on such properties or interests as provided in the preceding
sentence, and (ii) the Agent and the Banks shall then make a mandatory
re-determination of the Borrowing Base. As Of the Closing Date, the Agent and
the Banks do not intend that the working interest in the Raton Basin
properties of Infinity, if acquired by Borrower, will be subject to this
Section 3.3.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
In order to induce the Agent and the Banks to enter into this Agreement,
the Borrower represents and warrants to the Agent and the Banks (which
representations and warranties will survive the extensions of credit under
this Agreement) that:
Section 4.1 EXISTENCE. (a) The Borrower is a corporation duly organized,
legally existing and in good standing under the laws of its state of
incorporation and is duly qualified as foreign corporation in all
jurisdictions wherein the property it owns or the business it transacts make
such qualification necessary and the failure to so qualify would have a
material adverse effect on its financial condition, business or operations.
(b) Each Subsidiary is duly organized and legally existing and (if
applicable) in good standing under the laws of its state of organization and
is duly qualified in all jurisdictions wherein the property it owns or the
business it transacts make such qualification necessary and the failure to so
qualify would have a material adverse affect on its financial condition,
business or operations.
Section 4.2 NAMES OF BORROWER. The Borrower has never done business
under any name (including trade names) other than the name of the Borrower
set forth above. The Borrower's federal employer identification number is
84-0834147 and location of its chief executive office is 1401 Seventeenth
Street, Suite 1200, Denver, Colorado 80202.
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25
Section 4.3 BORROWER'S POWER AND AUTHORIZATION. The Borrower is duly
authorized and empowered to execute, deliver and perform this Agreement, the
Notes and the Collateral Documents executed by it. All corporate action
(including all necessary shareholder action) on the part of the Borrower
requisite for the due creation and execution of the Loan and this Agreement,
the Notes and Collateral Documents have been duly and effectively taken.
Section 4.4 REVIEW OF DOCUMENTS; BINDING OBLIGATIONS. The Borrower has
reviewed this Agreement, the Notes and the Collateral Documents with counsel
for the Borrower and has had the opportunity to discuss the provisions
thereof with the Agent prior to execution. This Agreement, the Notes and the
Collateral Documents constitute valid and binding obligations of the
Borrower, enforceable in accordance with their terms (except that enforcement
may be subject to any applicable bankruptcy, insolvency or similar laws
generally affecting the enforcement of creditors' rights).
Section 4.5 NO LEGAL BAR OR RESULTANT LIEN. This Agreement, the Notes and
the Collateral Documents do not and will not violate any provisions of the
Borrower's articles of incorporation or bylaws, will not violate any
contract, agreement, law, regulation, order, injunction, judgment, decree or
writ to which the Borrower is subject, and will not result in the creation or
imposition of any Lien upon any property of the Borrower other than as
contemplated by this Agreement.
Section 4.6 NO CONSENT. The Borrower's execution, delivery and
performance of this Agreement, the Notes and the Collateral Documents do not
require the consent or approval of any other Person, including without
limitation any regulatory authority or governmental body of the United States
or any state thereof or any political subdivision of the United States or any
state thereof, or any shareholder of the Borrower under any preferred stock
or otherwise.
Section 4.7 FINANCIAL CONDITION. All financial statements of the
Borrower and any affiliates delivered to Agent and the Banks fairly and
accurately present the financial condition of the parties for whom such
statements are submitted and the financial statements of the Borrower and any
affiliates have been prepared in accordance with GAAP consistently applied
throughout the periods involved, and there are no contingent liabilities not
disclosed thereby which would adversely affect the financial condition of
Borrower or its affiliates. Since the close of the period covered by the
latest financial statement delivered to the Agent with respect to Borrower
and any affiliates, there has been no material adverse change in the assets,
liabilities, or financial condition of Borrower or its affiliates. No event
has occurred (including, without limitation, any litigation or administrative
proceedings) and no condition
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26
exists or, to the knowledge of Borrower, is threatened, which (i) might
render Borrower unable to perform its respective obligations under this
Agreement, the Notes or the Collateral Documents, or (ii) would constitute a
Default hereunder, or (iii) might adversely affect the financial condition of
the Borrower or its affiliates or the validity or priority of the Lien of the
Collateral Documents. The Borrower is solvent and has the ability to pay its
debts when and as due.
Section 4.8 TAXES AND GOVERNMENTAL CHARGES. The Borrower and its
affiliates have filed all tax returns and reports required to be filed and
have paid all taxes, assessments, fees and other governmental charges levied
upon them or upon their respective property or income which are due and
payable, including interest and penalties, or are contesting the same in good
faith by appropriate proceedings and have provided adequate reserves for the
payment thereof.
Section 4.9 DEFAULTS. The Borrower is not in default under any
indenture, mortgage, deed of trust, agreement or other instrument to which
the Borrower is a party or by which it is bound.
Section 4.10 LIABILITIES AND LITIGATION. Except for liabilities incurred
in the normal course of business, the Borrower and each Subsidiary does not
have any material (individually or in the aggregate) liabilities, direct or
contingent, except as disclosed in the most recent financial statements
furnished to the Agent. Except as disclosed in the most recent financial
statements furnished to the Agent, there is no litigation, legal or
administrative proceeding, investigation or other action of any nature
pending or, to the knowledge of Borrower, threatened against or affecting the
Borrower or its properties or any Subsidiary or its properties which involves
the possibility of any judgment or liability not fully covered by insurance
which may materially and adversely affect the business or the property of
such Person, or its ability to carry on business as now conducted.
Section 4.11 MARGIN STOCK. None of the Loan proceeds will be used for
the purpose of, and the Borrower is not engaged in the business of extending
credit for the purpose of, purchasing or carrying any "margin stock" as
defined in Regulation U of the Board of Governors of the Federal Reserve
System (12 C.F.R. Part 221), or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase or carry a margin
stock or for any other purpose which might constitute this transaction a
"purpose credit" within the meaning of said Regulation U. The Borrower is not
engaged principally, or as one of the Borrower's important activities, in the
business of extending credit for the purpose of purchasing or carrying margin
stocks. Neither the Borrower nor any Person acting
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27
on behalf of the Borrower has taken or will take any action which might cause
this Agreement to violate Regulation U or any other regulation of the Board
of Governors of the Federal Reserve System or to violate the Securities
Exchange Act of 1934 or any rule or regulation thereunder, in each case as
now in effect or as the same may hereinafter be in effect.
Section 4.12 UTILITY OR INVESTMENT COMPANY. The Borrower is not
engaged in the generation, transmission, or distribution and sale of electric
power; operation of a local distribution system for the sale of natural or
other gas for domestic, commercial, industrial, or other use; ownership or
operation of a pipeline for the transmission or sale of natural or other gas,
crude oil or petroleum products; provision of telephone or telegraph service
to others; production, transmission, or distribution and sale of steam or
water; operation of a railroad; or provision of sewer service to others. The
Borrower is not an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
Section 4.13 COMPLIANCE WITH THE LAW. The Borrower and each Subsidiary
(i) is not in violation of any law, judgment, decree, order, ordinance, or
governmental rule or regulation to which such Person or any of its property
is subject; and (ii) has not failed to obtain any license, permit, franchise
or other governmental authorization necessary to the ownership of any of its
property or the conduct of its business; in each case, which violation or
failure could reasonably be anticipated to materially and adversely affect
the business, prospects, profits, property or condition (financial or
otherwise) of such Person.
Section 4.14 ERISA. The Borrower is in compliance in all material
respects with the applicable provisions of ERISA, and no "reportable event",
as such term is defined in Section 4043 of ERISA, has occurred with respect
to any Plan of the Borrower.
Section 4.15 OTHER INFORMATION. All information, reports, papers and
data given to the Agent and the Banks by the Borrower pursuant to this
Agreement and in connection with the Borrower's application for the Loan and
the Initial Bank's commitment letter are accurate and correct in all material
respects, and together constitute a complete and accurate presentation of all
facts material thereto. All financial projections given to the Agent and the
Banks were prepared in good faith based on facts and circumstances existing
at the time of preparation and were believed by the Borrower to be accurate
in all material respects. No information, exhibit or report furnished by the
Borrower to the Agent and the Banks in connection with the negotiation of
this Agreement contains any material misstatement of fact or fails to state a
material fact or any fact necessary to make the statement contained therein
not materially misleading.
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28
Section 4.16 TITLE TO COLLATERAL. The Borrower has good and merchantable
title to the Collateral, free of all Liens except those created in favor of
the Agent, for the ratable benefit of the Banks, and those permitted by this
Agreement in Section 6.2. The Collateral Documents constitute the legal,
valid and perfected first Lien on the real property interests covered
thereby, free of all Liens except those permitted by this Agreement in
Section 6.2. After giving effect to the Contracts, the net revenue interests
of the Borrower in the Collateral are not less than those set forth in the
Collateral Documents.
Section 4.17 ENVIRONMENTAL MATTERS. No friable asbestos, or any
substance containing asbestos deemed hazardous by federal or state
regulations on the date of this Agreement, has been installed in any
Collateral constituting real (immovable) property. Such property and the
Borrower are not in violation of or subject to any existing, pending, or
threatened investigation or inquiry by any governmental authority or to any
remedial obligations under any applicable laws pertaining to health or the
environment (hereinafter sometimes collectively called "Applicable
Environmental Laws"), including without limitation the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
by the Superfund Amendments and Reauthorization Act of 1986 (as amended,
hereinafter called "CERCLA"), the Resource Conservation and Recovery Act of
1976, as amended by the Used Oil Recycling Act of 1980, the Solid Waste
Disposal Act Amendments of 1980, and the Hazardous and Solid Waste Amendments
of 1984 (as amended, hereinafter called "RCRA"), and this representation and
warranty would continue to be true and correct following disclosure to the
applicable governmental authorities of all relevant facts, conditions and
circumstances, if any, pertaining to such property and known to the Borrower.
No hazardous substances or solid wastes have been disposed of or otherwise
released on or to such property. The terms "hazardous substance" and
"release" as used in this Agreement shall have the meanings specified in
CERCLA, and the terms "solid waste" and "disposal" (or "disposed") shall have
the meanings specified in RCRA; provided, in the event that the laws of the
State of COLORADO establish a meaning for "hazardous substance," "release,"
"solid waste," or "disposal" which is broader than that specified in either
CERCLA or RCRA, such broader meaning shall apply.
Section 4.18 GOVERNMENTAL REQUIREMENTS. Any Collateral constituting real
(immovable) property is in compliance with all current governmental
requirements affecting such property, including, without limitation, all
current zoning and land use regulations, building codes and all restrictions
and requirements imposed by applicable governmental authorities with respect
to the construction of any improvements on such property and the contemplated
use of such property.
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Section 4.19 CONTRACTS. The Contracts when considered as a whole do not
materially affect the rights, benefits or security of the Agent and the Banks
under the Collateral Documents.
Section 4.20 SUBSIDIARIES. On the Closing Date, the Borrower has no
direct Subsidiaries other than (i) Evergreen Operating Corporation, (ii)
Evergreen Resources (UK) Ltd., and (iii) Powerbridge, Inc., and has no
indirect Subsidiaries other than (x) Primero (indirectly through Evergreen
Operating Corporation, and indirectly through PBI Gas Gathering Company,
L.L.C., itself indirectly through Powerbridge, Inc.), and (y) PBI Fuels L.P.,
PBI Capital L.P., Raton Gas Company, L.L.C., and PBI Gas Gathering Company
L.L.C. (all four indirectly through Powerbridge, Inc .).
Section 4.21 CONTINUING ACCURACY. All of the representations and
warranties contained in this Article or elsewhere in this Agreement shall be
true through and until the date on which all obligations of the Borrower
under this Agreement, the Notes and the Collateral Documents and any other
documents executed in connection therewith are fully satisfied, and the
Borrower shall promptly notify the Agent of any event which would render any
of said representations and warranties untrue or misleading.
ARTICLE 5
AFFIRMATIVE COVENANTS
Unless the Agent's and the Required Banks' (or, if required by Section
10.4 hereof, all the Bank's) prior written consent to the contrary is
obtained, the Borrower will at all times comply with the covenants contained
in this Article 5, from the date hereof and for so long as any part of the
Indebtedness is outstanding.
Section 5.1 PERFORMANCE OF OBLIGATIONS. The Borrower will repay the
Indebtedness according to the reading, tenor and effect of the Notes and this
Agreement. The Borrower will do and perform every act required of it by this
Agreement, the Notes or in the Collateral Documents at the time or times and
in the manner specified.
Section 5.2 FINANCIAL STATEMENTS AND REPORTS. The Borrower will furnish
to the Agent from time to time:
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(a) ANNUAL REPORTS - as soon as available and in any event within one
hundred ten (110) days after the close of each fiscal year of the
Borrower, the audited consolidated balance sheet as of the end of such
year, the audited consolidated statement of income for such year, the
audited consolidated statement of reconciliation of capital accounts
for such year, and the audited consolidated statement of cash flow for
such year, each for the Borrower and its Subsidiaries (including Form
10-K), setting forth in each case in comparative form the
corresponding figures for the preceding fiscal year, accompanied by
the unqualified opinions of an independent certified public accountant
acceptable to the Agent.
(b) QUARTERLY REPORTS - as soon as available and in any event within 60
days after the end of each fiscal quarter in each fiscal year of the
Borrower, the unaudited balance sheet as of the end of such fiscal
quarter, the unaudited statement of income for the period from the
beginning of the fiscal year to the close of such fiscal quarter, and
the unaudited statement of cash flow for such fiscal quarter and for
the period from the beginning of the fiscal year to the close of such
fiscal quarter, each for the Borrower and its Subsidiaries (including
Form 10-Q), setting forth in each case in comparative form the
corresponding figures for the corresponding period of the preceding
fiscal year. Such quarterly reports shall be accompanied by the
certificates of compliance required by Section 5.3.
(C) ENGINEERING REPORT - as soon as available and in any event by March 30
of each year, an annual independent third party engineering reserves
and economic evaluation report covering the Borrower's oil or gas
properties, with an effective date of January 1 of the current year,
in form and substance acceptable to the Agent prepared by an
independent firm acceptable to the Agent. Without limiting the
foregoing sentence, such report shall include a discussion of
assumptions as to engineering, pricing and expenses, and an economic
evaluation together with the reserve value of each well of each
property in which the Borrower owns an interest, and further
categorized as Collateral or non-Collateral, and as Proved Developed
Producing Reserves, Proved Developed Non-Producing Reserves, or Proved
Undeveloped Reserves. (The Borrower acknowledges that the Agent
reserves the right to determine the Borrowing Base based on Agent's
own evaluations of rates, volumes,
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prices, assumptions and other factors regardless of this outside
engineering data or then market prices.)
(d) MONTHLY REPORTS - within 60 days after the end of each month, a
monthly production tracking report pertaining to the Borrowing Base
properties on a well by well basis in form acceptable to the Agent's
Oil and Gas Appraisal Department, including production volumes and
revenue and expense statements.
(e) TITLE INFORMATION - promptly upon the Agent's or any Bank's request,
detailed information concerning any and all requirements or exceptions
set forth in any tide opinions concerning any of the Collateral.
(f) AUDIT REPORTS - promptly upon receipt thereof, one copy of each other
report submitted to the Borrower or any Subsidiary by independent
accountants in connection with any annual, interim or special audit
made by them of the books of the Borrower or any Subsidiary.
(g) ENVIRONMENTAL - (I) promptly upon receipt thereof, complete
documentation pertaining to any fines levied during the prior year
against the Borrower or any Subsidiary, or to the extent known and
available to the Borrower against any other operator of any
Collateral, for non-compliance with all applicable federal, state and
local environmental laws and regulations; and (II) promptly upon
learning thereof, notice of Borrower's acquisition of actual knowledge
of the presence of any hazardous materials or solid wastes (as defined
elsewhere in this Agreement) on or under any Collateral.
(h) NOTICES - when required by the terms thereof, the notices required
under Section 5.11.
(i) OTHER INFORMATION - promptly upon the request of the Agent or any
Bank, all regular budgets, well logs, core data, formation test data,
well completion data, and such other financial, technical or other
information regarding the business and affairs and financial condition
of the Borrower and its Subsidiaries as the Agent or such Bank may
reasonably request.
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32
All balance sheets and other financial reports referred to above shall be in
such detail as the Agent or the Required Banks may reasonably request and
shall conform to the standards described in Section 1.3.
Section 5.3 CERTIFICATES OF COMPLIANCE. Concurrently with the furnishing
of the annual and quarterly financial information described above, the
Borrower will furnish to the Agent, for distribution to the Banks, a
certificate signed by the principal financial officer of the Borrower stating
that the Borrower is in full compliance with all provisions of this Agreement
and further stating that no Default occurred during such quarter (or if it
did but no longer exists, the nature and duration thereof) and no Default
then exists, or if a Default exists, the nature, period of existence and
status thereof, and specifically demonstrating calculations showing the
Borrower's compliance with the financial covenants in Sections 5.15, 5.16
and 5.17.
Section 5.4 TAXES AND OTHER LIENS. The Borrower and its Subsidiaries will
file all tax returns and reports required to be filed and pay and discharge
promptly when due all taxes, assessments and governmental charges or levies
imposed upon them or upon their respective income or upon any of their
respective property (including production, severance, excise and other taxes
assessed against or measured by the production of, or the value or proceeds
of production of, the Collateral) as well as all claims of any kind
(including claims for labor, materials, supplies and rent) which, if unpaid,
might become a Lien upon any or all of their respective property; PROVIDED
however, the Borrower or its Subsidiaries shall not be required to pay any
such tax, assessment, charge, levy or claim if the amount, applicability or
validity thereof shall currently be contested in good faith by appropriate
proceedings diligently conducted and if the contesting party shall have set
up reserves therefor adequate under GAAP (provided that such reserves may be
set up under GAAP) and so long as the payment of same is not a condition to
be met in order to maintain an oil, gas or mineral Lease in force.
Section 5.5 MAINTENANCE AND COMPLIANCE. The Borrower will (i) maintain
its corporate existence and rights and its current business operations, and
cause each Subsidiary to in its corporate existence and rights (except with
changes occurring after the Required Bank's prior written consent); (ii)
observe and comply, and cause each Subsidiary to observe and comply, (to the
extent necessary so that any failure will not materially and adversely affect
the business of such Person) with all valid existing and future laws,
statutes, codes, acts, ordinances, orders, judgments, decrees, injunctions,
rules, regulations, certificates, franchises, permits, licenses,
authorizations, directions and requirements (including without limitation
applicable statutes, regulations, orders and restrictions relating to
environmental standards or controls or to energy regulations) of all federal,
state, county, municipal and other
<PAGE>
33
governments, departments, commissions, boards, courts, authorities, officials
and officers, domestic or foreign; and (iii) maintain and cause each
Subsidiary to maintain its properties (and any property leased by or
consigned to it or held under title retention or conditional sales contracts)
in generally good and workable condition at all times and make all repairs,
replacements, additions, betterments and improvements to its properties to
the extent necessary so that any failure will not materially and adversely
affect the business of such Person.
Section 5.6 FURTHER ASSURANCES. The Borrower at its expense will promptly
(and in no event later than 30 days after written notice from the Agent is
received) cure any defects, errors or omissions in the creation, execution,
delivery or contents of this Agreement, the Notes or the Collateral
Documents, and execute and deliver to the Agent and the Banks upon request
all such other and further documents, agreements and instruments in
compliance with or accomplishment of the covenants and agreements of the
Borrower in this Agreement, the Notes or in the Collateral Documents or to
further evidence and more fully describe the Collateral (including without
limitation any renewals, additions, substitutions, replacements or accessions
to the Collateral), or to correct any omissions in the Collateral Documents,
or more fully state the security obligations set out herein or in any of the
Collateral Documents, or to perfect, protect or preserve any Liens and the
priority thereof created pursuant to any of the Collateral Documents, or to
make any recordings, to file any notices, or obtain any consents as may be
necessary or appropriate in connection with the transactions contemplated by
this Agreement.
Section 5.7 REIMBURSEMENT OF EXPENSES. The Borrower will pay all
reasonable legal fees and expenses incurred by the Agent and the Banks in
connection with the preparation of this Agreement, the Notes and the
Collateral Documents. The Borrower will, upon request promptly reimburse the
Agent and the Banks for all amounts expended, advanced or incurred by the
Agent and the Banks to satisfy any obligation of the Borrower under this
Agreement, or to protect the property or business of the Borrower or to
collect the Indebtedness, or to enforce the rights of the Agent and the Banks
under this Agreement, the Notes and the Collateral Documents, which amounts
will include all court costs, attorneys' fees and expenses, fees and expenses
of engineers, auditors and accountants, and investigation expenses reasonably
incurred by the Agent and the Banks in connection with any such matters,
together with interest at the Default Rate on each such amount from the date
that the same is expended, advanced or incurred by the Agent or such Bank
until the date of reimbursement to the Agent or such Bank. The Borrower also
agrees to pay, and to hold the Agent and the Banks harmless from any failure
or delay in paying, all recording taxes, documentary stamp taxes or other
similar taxes, if any, which may be payable or determined to be payable in
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34
connection with the execution and delivery of this Agreement, the Notes, the
Collateral Documents, or any modification thereof.
Section 5.8 INSURANCE. The Borrower will maintain with financially sound
and reputable insurers, insurance with respect to its Properties and
businesses against such liabilities, casualties, risks and contingencies and
in such types and amounts as are reasonably satisfactory to the Agent and
customary in accordance with standard industry practice (for companies of
similar size engaged in similar businesses and owning similar properties in
the same general areas as the Borrower) or as more specifically provided in
the Collateral Documents. Upon request of the Agent or any Bank, the Borrower
will furnish or cause to be furnished to the Agent and the Banks from time to
time a summary of the insurance coverage of the Borrower in form and
substance satisfactory to the Agent and if requested will furnish the Agent
original certificates of insurance and/or copies of the applicable policies.
Section 5.9 ACCOUNTS AND RECORDS. The Borrower will keep books of record
and accounts in which true and correct entries will be made as to all
material matters of all dealings or transactions in relation to its business
and activities, in accordance with GAAP, consistently applied except for
changes in accounting principles or practices with which the independent
public accountants for Borrower concur.
Section 5.10 RIGHT OF INSPECTION. The Borrower will permit any officer,
employee or agent of the Agent or any Bank to visit, inspect and test any of
the property of the Borrower and its affiliates (including without limitation
environmental site assessments), examine the books of record and accounts of
the Borrower and its affiliates, take copies and extracts therefrom, and
discuss the affairs, finances and accounts of the Borrower and its affiliates
with the Borrower's officers, accountants and auditors, and the Borrower will
furnish information concerning the Collateral, including schedules of all
internal and third party information identifying the Collateral (such as, for
example, lease and well names and numbers assigned by the Borrower or the
operator of any mineral properties, division orders and payment names and
numbers assigned by purchasers of the hydrocarbons, and internal
identification names and numbers used by the Borrower in accounting for
revenues, costs and joint interest transactions attributable to the mineral
properties), all on reasonable notice, at such reasonable times without
hindrance or delay and as often as the Agent or any Bank may reasonably
desire. The Borrower will furnish to the Agent or any Bank promptly upon
request and in the form and content specified by the Agent or such Bank lists
of purchasers of hydrocarbons and other account debtors, schedules of
equipment and other data concerning the Collateral as the Agent may from time
to time specify.
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35
Section 5.11 NOTICE OF CERTAIN EVENTS. (a) The Borrower shall notify the
Agent as soon as possible and in any event within five (5) days after any
officer of the Borrower learns of the occurrence of any event which
constitutes a Default, together with a detailed statement by the chief
financial officer of the Borrower describing each such Default and the steps
being or proposed to be taken to cure the effect of such Default.
(b) The Borrower shall promptly notify the Agent of any change in
location of the Borrower's principal place of business or the office where it
keeps its records concerning accounts and contract rights, or a change in its
name, federal taxpayer identification number or organizational status, or a
change in the nature of the Borrower's business.
(c) The Borrower shall promptly notify the Agent of the arising of any
litigation or dispute threatened against or affecting the Borrower which, if
adversely determined, would have a material adverse effect upon the financial
condition or business of the Borrower. In the event of such litigation, the
Borrower will cause such proceedings to be vigorously contested in good faith
and, in the event of any adverse ruling or decision, the Borrower shall
prosecute all allowable appeals. The Agent may (but shall not be obligated
to), without prior notice to Borrower, commence, appear in, or defend any
action or proceeding purporting to affect the Loan, or the respective rights
and obligations of the Agent and the Banks and Borrower pursuant to this
Agreement. The Agent may (but shall not be obligated to) pay all necessary
expenses, including reasonable attorneys' fees and expenses incurred in
connection with such proceedings or actions, which Borrower agrees to repay
to Agent upon demand.
(d) The Borrower shall promptly notify the Agent of the occurrence of
any material adverse change in the value of any oil or gas property included
in the Borrowing Base.
(e) The Borrower shall promptly notify the Agent upon the formation of
each contract by Borrower or any Subsidiary to purchase or otherwise acquire
or invest in any Person or the assets of any Person permitted by Section
6.5(b), and shall provide to Agent and the Banks such information and details
pertaining thereto as the Agent or any Bank may reasonably request.
(f) The Borrower shall promptly notify the Agent of each creation,
acquisition, disposition, dissolution, merger or other change in the status
of or addition or removal of any Subsidiary.
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36
(g) The Borrower shall promptly notify the Agent of each creation of
Borrower's Debt pursuant to a guaranty by Borrower of the Debt of another
Person permitted by Section 6.1(i), and shall provide to Agent and the Banks
such information and details pertaining thereto as the Agent or any Bank may
reasonably request, including without limitation the amount of Borrower's
maximum exposure thereunder. The Borrower further shall promptly notify the
Agent of any change in Borrower's maximum liability exposure thereunder, or
of any other material change either in such guaranty Debt of Borrower or in
the guaranteed Debt of such other Person. The Borrower further shall notify
the Agent promptly after any officer of the Borrower learns of the occurrence
of any event which constitutes a default under either such guaranty Debt of
Borrower or such guaranteed Debt of such other Person.
Section 5.12 ERISA INFORMATION AND COMPLIANCE. The Borrower will promptly
furnish to the Agent (i) promptly after the filing thereof with the United
States Secretary of Labor or the Pension Benefit Guaranty Corporation, copies
of each annual and other report with respect to each Plan or any trust
created by the Borrower, and (ii) immediately upon becoming aware of the
occurrence of any "reportable event," as such term is defined in Section 4043
of ERISA, or of any "prohibited transaction," as such term is defined in
Section 4975 of the Code, in connection with any Plan or any trust created by
the Borrower, a written notice signed by the president or the principal
financial officer of the Borrower specifying the nature thereof, what action
the Borrower is taking or proposes to take with respect thereto, and, when
known, any action taken by the Internal Revenue Service with respect thereto.
The Borrower will comply with all of the applicable funding and other
requirements of ERISA as such requirements relate to the Plans of the
Borrower.
Section 5.13 INDEMNIFICATION. (a) The Borrower will indemnify the Agent
and the Banks and hold the Agent and the Banks harmless from claims of
brokers with whom the Borrower has contracted in the execution hereof or the
consummation of the transactions contemplated hereby. The Agent and each
Bank, severally, will indemnify the Borrower from claims of brokers with whom
the Agent or such Bank, respectively, has contracted in connection with the
transactions contemplated hereby.
(b) The Borrower will indemnify the Agent and the Banks and hold the
Agent and the Banks harmless from any and all liabilities, obligations,
losses, damages, penalties, claims, actions, suits, costs and expenses of
whatever kind or nature which may be imposed on, incurred by or asserted at
any time against the Agent and the Banks in any way relating to, or arising
in connection with, the use or occupancy of any of the Collateral or any
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37
breach of any representation, warranty or covenant under the terms of this
Agreement or the Collateral Documents.
Section 5.14 ENVIRONMENTAL INDEMNITY. The Borrower shall defend,
indemnify and hold Agent and each Bank and its respective directors,
officers, agents and employees harmless from and against all claims, demands,
causes of action, liabilities, losses, remedial costs, and expenses
(including, without limitation, costs of suit, reasonable attorneys' fees and
expense and fees and expenses of expert witnesses) arising from or in
connection with (i) the presence on or under all Collateral constituting
immovable (real) property of any hazardous substances or solid wastes (as
defined elsewhere in this Agreement), or any releases or discharges of any
hazardous substances or solid wastes on, under or from such property, or (ii)
any activity carried on or undertaken on or off such property, whether prior
to or during the term of this Agreement, and whether by Borrower or any
predecessor in title or any officers, employees, agents, contractors or
subcontractors of Borrower or any predecessor in title, or any third persons
at any time occupying or present on such property, in connection with the
handling, use, generation, manufacture, treatment, removal, storage,
decontamination, clean-up, transport or disposal of any hazardous substances
or solid wastes at any time located or present on or under such property. The
foregoing indemnity shall further apply to any residual contamination on or
under such property, or affecting any natural resources, and to any
contamination of any property or natural resources arising in connection with
the generation, use, handling, storage, transport or disposal of any such
hazardous substances or solid wastes, and irrespective of whether any of such
activities were or will be undertaken in accordance with applicable laws,
regulations, codes and ordinances. Without prejudice to the survival of any
other agreements of the Borrower hereunder, the provisions of this Section
shall survive the final payment of all Indebtedness and the termination of
this Agreement and shall continue thereafter in full force and effect.
Section 5.15 MINIMUM NET WORTH. The Borrower shall maintain at all times
a Consolidated Net Worth in compliance with the following amounts: during
1998 the Borrower's Consolidated Net Worth shall not be less than fifty five
million ($55,000,000.00) dollars. This minimum net worth requirement shall be
re-set by the Agent annually after the end of each calendar year as to the
amount to be met during the new calendar year, with the amount to be met
during the new calendar year being increased (but not reduced) from the
amount for the prior calendar year by the sum of (x) fifty percent (50%) of
the Borrower's and its Subsidiaries' prior calendar year's net income on a
consolidated basis PLUS (y) one hundred (100%) percent of the net proceeds
from stock or other equity offerings of any nature by the Borrower or any
Subsidiary.
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38
Section 5.16 CURRENT RATIO. The Borrower and its Subsidiaries shall
maintain, on a quarterly basis as of the last day of each fiscal quarter, a
current ratio of Consolidated Current Assets to Current Consolidated
Liabilities of not less than 1.25 to 1.00.
Section 5.17 MINIMUM INTEREST COVERAGE. The Borrower shall maintain, on
a quarterly basis as of the last day of each fiscal quarter, a ratio (on a
rolling four fiscal quarter basis) of EBITDA to Interest Expense during the
four preceding fiscal quarters of not less than 2.50 to 1.00. For purposes of
this Section, "EBITDA" shall mean, for each period of four preceding fiscal
quarters, the sum of the Borrower's and its Subsidiaries' on a consolidated
basis (i) net income for that period, PLUS (ii) any extraordinary loss and
other expenses not considered to be operating in nature reflected in such net
income, MINUS (iii) any extraordinary gain, interest income and other income
not considered operating in nature reflected in such net income, PLUS (iv)
depreciation, depletion, amortization and all other non-cash expenses for
that period, PLUS (v) Interest Expense for that period, PLUS (vi) the
aggregate amount of federal and state taxes on or measured by income for that
period (whether or not payable during that period). For purposes of this
Section, "INTEREST EXPENSE" shall mean, for each period of four preceding
fiscal quarters, the sum of (x) all interest, fees, charges and related
expenses payable (without duplication) for that period to a lender in
connection with borrowed money or the deferred purchase price of assets that
are considered "INTEREST EXPENSE" under GAAP, PLUS (y) the portion of rent
paid or payable (without duplication) for that period under capital Lease
obligations that should be treated as interest in accordance with Financial
Accounting Standards Board Statement No. 13.
Section 5.18 OPERATING ACCOUNT. The Borrower shall cause its Subsidiary,
Evergreen Operating Company, to maintain an operating account with the Agent.
Evergreen Operating Company may continue to maintain an operating account
with its primary bank (Norwest Bank in Denver, Colorado).
ARTICLE 6
NEGATIVE COVENANTS
Unless the Agent's and the Required Banks' (or, if required by Section
10.4 hereof, all the Banks') prior written consent to the contrary is
obtained, the Borrower will at all times comply with the covenants contained
in this Article 6, from the date hereof and for so long as any part of the
Indebtedness is outstanding.
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39
Section 6.1 DEBTS, GUARANTIES AND OTHER OBLIGATIONS. The Borrower will
not incur, create, assure me or in any manner become or be liable in respect
of any Debt direct or contingent, except for:
(a) The Indebtedness to the Agent and Banks under this Agreement, the
Notes and the Collateral Documents.
(b) Debt under the Borrower's guaranty agreement for Debt owed by Maverick
to Initial Bank, with Borrower's aggregate liability for the principal
amount of such Debt of Maverick not to exceed five million
($5,000,000.00) dollars in the aggregate at any one time (recognizing
that as of the Closing Date the Borrower's liability under such
guaranty is limited to 51.6% of Maverick's Debt).
(c) Debt under the Borrower's guaranty agreement for Debt owed by Primero
to Initial Bank, with Borrower's aggregate liability for the principal
amount of such Debt of Primero not to exceed twenty million
($20,000,000.00) dollars in the aggregate at any one time.
(d) Customary trade payables or operating leases, and endorsements of
negotiable instruments for deposit or collection, all from time to
time incurred in the ordinary course of business.
(e) Debt under operating agreements, unitization and pooling agreements
and orders, farmout agreements and gas balancing agreements, in each
case that are customary in the oil, gas and mineral production
business and that are entered into in the ordinary course of business.
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(f) Taxes, assessments or other government charges which are not yet due
or are being contested in good faith by appropriate action promptly
initiated and diligently conducted, if such reserve as shall be
required by GAAP shall have been made therefor.
(g) Debts for deposits hold in escrow are not commingled with Borrower's
own funds.
(h) Debts for deposits and advances received from other Persons in the
ordinary course of business not to exceed $2,500,000.00 in the
aggregate at any one time.
(i) Debts for guaranty or guaranties by Borrower of the Debts of another
Person or Persons (whether or not a Subsidiary) (other than the
guaranties permitted by Subsections b and c above), with Borrower's
aggregate liability for the principal amount of such other Person(s)'
Debt not to exceed $5,000,000.00 in the aggregate at any one time.
Debts for other business activities of Borrower not to exceed
$2,000,000.00 in the aggregate at any one time.
Section 6.2 LIENS. The Borrower will not create, incur, assume or permit
to exist any Lien on any of its property now owned or hereafter acquired,
except for:
(a) Liens for taxes, assessments, or other governmental charges not yet
due or which are being contested in good faith by appropriate action
promptly initiated and diligently conducted, if such reserve as shall
be required by GAAP shall have been made therefor.
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(b) Liens of landlords, vendors, carriers, warehousemen, mechanics,
laborers and materialmen arising by law in the ordinary course of
business for sums either not past due more than 30 days or being
contested in good faith by appropriate action promptly initiated and
diligently conducted, if such reserve as shall be required by GAAP
shall have been made therefor.
(c) Inchoate liens arising under ERISA to secure the contingent liability
of the Borrower permitted by this Agreement.
(d) The pledge of the Collateral and any other liens in favor of the
Agent, for the ratable benefit of the Banks, to secure the
Indebtedness of the Borrower to the Agent and the Banks, and securing
the Debt to the Initial Bank under guaranty agreements permitted by
Section 6.1 of this Agreement and the Intercreditor Agreement on a
subordinated basis.
(e) Minor imperfections of title or Liens that do not materially impair
the development, operation or value of property in its intended use
or the title thereto and which are of a nature generally existing
with respect to properties of a similar character as the Collateral.
(f) Royalties, overriding royalties, net profits interests, production
payments, reversionary interests, calls on production, preferential
purchase rights and other burdens on or deductions from the proceeds
of production, that do not secure Debt for borrowed money and that are
taken into account in computing the net revenue interests and working
interests of the Borrower warranted in the Collateral Documents.
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(g) Operating agreements, unitization and pooling agreements and orders,
farmout agreements, gas balancing agreements and other agreements, in
each case that would be deemed customary by a reasonably prudent
operator under circumstances prevailing in the oil gas and mineral
production business in the general area of such portion of such
property, and that are entered into in the ordinary course of business
in good faith, and that Borrower determines in good faith to be
necessary for or advantageous to the economic development or operation
of such property.
(h) Liens consented to in the Collateral Documents or as otherwise
approved in writing by the Required Banks.
The inclusion of this Section 6.2 shall not constitute in any way an
acknowledgment by the Agent and the Banks of the validity, legality,
enforceability or binding effect on the Agent and the Banks of such Liens,
the sole purpose of this provision being to provide that the existence of any
such permitted Liens shall not in and of itself constitute an Event of
Default under this Agreement.
Section 6.3 INVESTMENTS, LOANS AND ADVANCES. The Borrower will not
(directly or indirectly through any Subsidiary), and will not suffer any
Subsidiary to, make or permit to remain outstanding any loans or advances or
extension of credit to, or purchases or other acquisitions of the capital
stock or obligations of, or other investments in, any Person, except for:
(a) Investments in readily marketable direct obligations of or guaranteed
by the United States of America or any agency thereof.
(b) Investments in certificates of time deposit of maturities less than
one year issued by the Agent or any Bank or by commercial banks of
recognized standing organized under the laws of and operating in the
United States of America or one of the
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43
States of the United States and having a combined paid-in capital and
paid-in surplus of not less than $45,000,000.00 in the case of each
such bank.
(c) Routine advances to employees made in the ordinary course of business.
(d) Advances pursuant to operating agreements, unitization and pooling
agreements and orders, farmout agreements and gas balancing
agreements, in each case that are customary in the oil, gas and
mineral production business and that are entered into in the
ordinary course of business.
(e) Acquisitions of the capital stock of the Borrower up to ten (10%)
percent of outstanding shares in any one year period.
(f) Acquisitions expressly permitted by Section 6.5(b).
(g) Investments specifically set forth in Section 4.20, and investment (by
Borrower indirectly through wholly-owned entities, currently
Powerbridge, Inc. and Raton Gas Company L.L.C.) of an ownership
membership interest in Maverick.
(h) Ownership of a wholly-owned (directly or indirectly) Subsidiary
created after the Closing Date, the business of which new Subsidiary
shall be and remain a well service and completion service company.
Section 6.4 NATURE OF BUSINESS. The Borrower will not permit any material
change to be made in the character of its business (directly or as carried on
through Subsidiaries) as carried on at the date hereof (or as contemplated in
Subsection 6.3(h) above).
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44
Section 6.5 MERGERS, CONSOLIDATIONS AND ACQUISITIONS. (a) The Borrower
will not (directly or indirectly through any Subsidiary), and will not suffer
a Subsidiary to, merge with or consolidate with any Person (whether or not
such merger or consolidation requires any capital expenditures on the part of
the Borrower), or acquire by Lease, purchase or otherwise all or
substantially all of the assets of any Person.
(b) However, nothing contained in this Section 6.5 or in Section 6.3
shall prohibit the Borrower (directly or indirectly through any Subsidiary)
from acquiring oil, gas and other mineral properties, or from acquiring any
Person owning or operating oil, gas and other mineral properties (including
by merger so long as the Borrower is the surviving entity) or from investing
in such a Person through the acquisition of a portion of the capital stock or
other ownership interests of such a Person, in any such case in the ordinary
course of business.
Section 6.6 ERISA COMPLIANCE. The Borrower will not at any time permit
any Plan maintained by it to engage in any "prohibited transaction" as such
term is defined in Section 4975 of the Code; incur any "accumulated funding
deficiency" as such term is defined in Section 302 of ERISA; or terminate any
such Plan in a manner which could result in the imposition of a Lien on the
property of the Borrower pursuant to Section 4068 of ERISA.
Section 6.7 CHANGES. The Borrower will not without 30 days prior notice
to the Agent change the location of any of its Collateral or of its chief
executive office or change its name or taxpayer identification number.
Section 6.8 SALES. The Borrower or any Subsidiary will not sell, assign,
lease or otherwise dispose of (whether in one transaction or in a series of
transactions) all or substantially all of its property (whether now owned or
hereafter acquired) to any Person. The Borrower or any Subsidiary will not
sell, assign, lease or otherwise dispose of any of its property, business or
assets (including without limitation accounts receivable and leasehold
interests) whether now owned or hereafter acquired, except for (i) obsolete
or worn out property disposed of in the ordinary course of business, provided
that, if such property is to be replaced, the net cash proceeds of each such
transaction are applied to obtain a replacement item or items within 120 days
of the disposition thereof, (ii) oil, gas and other hydrocarbons sold in the
ordinary course of business and in compliance with the terms of the
Collateral Documents and this Agreement, (iii) assets (but not including
Collateral) in any one year with an aggregate fair market value of less than
$300,000.00 (not counting property covered by clauses (i) or (ii) above), and
(iv) Borrower's investment in the Chile concession.
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45
Section 6.9 AGREEMENTS. The Borrower will not enter into or be a party
to any contract or agreement for the purchase of materials, supplies or other
property or services if such contract or agreement shall require that the
Borrower make payment for such materials, supplies or other property
irrespective of whether delivery thereof is made or whether such services are
rendered.
Section 6.10 MANAGEMENT. The Borrower will not permit a change in the
key management of the Borrower to occur (for purposes of this Section key
management shall mean Mark Sexton as President).
ARTICLE 7
CONDITIONS OF LENDING
Section 7.1 CONDITIONS OF LENDING. The obligation of the Banks to make
the Loan is subject to the accuracy of each and every representation and
warranty of the Borrower contained in this Agreement, the absence of a
Default or an Event of Default, and to the receipt of the following on or
before the Closing Date in sufficient counterparts for each Bank (except for
the Notes):
(a) AGREEMENT. A duly executed counterpart of this Agreement signed by all
the parties hereto.
(b) NOTES. The duly executed Notes signed by the Borrower.
(c) GOOD STANDING. Certificate of good standing of the Borrower issued by
the Secretary of State of Colorado.
(d) CORPORATE CERTIFICATE. A certificate of the secretary of the Borrower
(i) setting forth resolutions of its board of directors in form and
substance satisfactory to the Agents and Agent's counsel with respect
to the unanimous authorization of this Agreement, the Notes and the
Collateral Documents, (ii) attaching the articles of
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46
incorporation and bylaws of the Borrower, (iii) stating its Federal
tax identification number, and (iv) setting forth the officers
authorized to sign such instruments.
(e) FEES. Origination fee required by Section 2.5(b).
(f) OPINION. Favorable legal opinion of counsel for the Borrower in form,
scope and substance satisfactory to the Agent and Agent's counsel.
(g) UPDATED COLLATERAL DOCUMENTS. Duly executed Fifth Amendment,
Modification and Supplement to Mortgage, Assignment and Security
Agreement and Financing Statement, and the related UCC-1 Financing
Statement(s), and any other reasonably appropriate Collateral
Documents, all in form and substance and in such number of
counterparts as may be required by the Agent.
(h) LIEN SEARCHES. Lien searches satisfactory to the Agent (UCC
certificates from the Colorado Secretary of State and Las Animas
County).
(i) TITLE OPINIONS. Supplemental Title Opinions with respect to the
Collateral, in form, scope and substance satisfactory to the Agent's
counsel, which indicate the Borrower has good and marketable title to
the interests in the Collateral in amounts not less than those
specified in the Collateral Documents, subject to no Liens other than
the Collateral Documents and those accepted by the Required Banks in
writing (it is expressly acknowledged by the Borrower that the waiver
by the Borrower of any title requirements contained in such title
opinions (on the basis of the Borrower's business judgment) and
agreement by the Banks to fund Advances shall not constitute a waiver
by the
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47
Agent and the Banks of any of the representations or warranties of the
Borrower contained herein).
(j) INSURANCE. Satisfactory evidence of all insurance coverages relating
to the Collateral and the Borrower.
(k) ENVIRONMENTAL. Complete documentation pertaining to any previous
fines relating to the Collateral levied against the Borrower of any
operator of any Collateral for non-compliance with applicable
federal, state and local environmental laws and regulations.
In the event that the Agent and the Required Banks in their sole and
absolute discretion waive the receipt of any items set forth above, the
Borrower agrees that it nonetheless will promptly deliver such item to the
Agent and the Banks upon request within the time period reasonably specified
by the Agent.
Although the Borrower will not have access to the increased Amount and
Commitment Limit established by this Agreement until the conditions precedent
in this Section 7.1 have been met (including without limitation until the
Fifth Amendment to Mortgage is executed and recorded and the legal opinion
and the supplemental title opinions have been delivered to the Agent), until
such time as all those conditions precedent are met the Borrower may borrow
up to the prior Commitment Limit of $30,000,000.00 established under the
Prior Credit Agreement (designated therein as the "Commitment Amount"), so
long as all the conditions and requirements otherwise established in this
Agreement are met. The Borrower specifically acknowledges the deadline
established in Section 7.3 for the satisfaction of such conditions precedent.
Section 7.2 CERTIFICATION. The obligation of the Banks to make the Loan
is further subject to the certification by the Borrower, which the Borrower
hereby makes, that no Default or Event of Default exists, and that no
material adverse changes (in the Agent's and the Required Banks' sole
determination) in the Collateral or other assets, liabilities, financial
conditions, business operations, affairs or circumstances of the Borrower or
other facts, circumstances or conditions (financial or otherwise) upon which
the Agent and the Banks have relied or utilized in making their decision to
make this Loan have occurred from those
<PAGE>
48
reflected in the most recent financial statements furnished to the Agent
prior to the Closing Date or otherwise existing at the time of the issuance
of the Initial Bank's commitment letter.
Section 7.3 POST-CLOSING ITEMS. The Borrower will furnish the Agent with
an updated supplemental title opinion covering the Collateral confirming the
recordation of the Agent's supplemental Collateral Documents, by AUGUST 15
1998.
Section 7.4 EACH ADDITIONAL ADVANCE. The obligation of the Banks to make
additional Advances on the line of credit or issue standby letters of credit
is subject to the satisfaction of each of the following conditions:
(a) Each of the representations and warranties of the Borrower contained
in this Agreement shall be true and correct on and as of the date of
each subsequent Advance or issuance, except as such representations
and warranties relate to matters that are permitted by this Agreement.
(b) At the time of such Advance or issuance, no Default shall have
occurred and be continuing.
(c) There shall have occurred no material adverse changes (in the Agent's
and the Required Banks' sole determination), either individually or in
the aggregate, in the assets, liabilities, financial condition,
business operation, affairs or circumstances of the Borrower from
those reflected in the most recent financial statements furnished to
the Agent prior to the Closing Date, except to the extent that such
changes are permitted by this Agreement.
<PAGE>
49
ARTICLE 8
DEFAULT
Section 8.1 EVENTS OF DEFAULT. Any of the following events shall be
considered an "Event of Default" as that term is used herein:
(a) PAYMENTS. The Borrower fails to make payment when due of any principal
or interest installment on any Note or of any fee hereunder or in
connection herewith to the Agent or any Bank.
(b) REPRESENTATIONS AND WARRANTIES. Any representation or warranty made by
or on behalf of the Borrower contained in this Agreement, the Notes or
any of the Collateral Documents proves to have been incorrect in any
material respect as of the date thereof, or any representation,
statement (including financial statements), certificate or data
furnished or made to the Agent or any Bank by any Person under this
Agreement, the Notes or any of the Collateral Documents proves to have
been untrue in any material adverse respect as of the date as of which
the facts therein set forth were stated or certified, and which is not
corrected within 30 days after the earlier of (i) notice thereof being
given by the Agent to the Borrower (and such other Person if
applicable) or (ii) such untruth (and the fact that it is an untruth)
otherwise becoming known to the president or chief financial officer
of the Borrower or other Person, as applicable.
(c) SPECIFIC COVENANTS.The Borrower fails to observe or perform at any
time any covenant or agreement contained in Section 5.6, Section 5.8,
Section 5.15, Section 5.16, Section 5.17 or Article 6 of this
Agreement.
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50
(d) COVENANTS. The Borrower or other Person (other than the Agent and the
Banks) defaults in the observance or performance of any of the
covenants or agreements contained in this Agreement, the Notes or any
of the Collateral Documents to be kept or performed by the Borrower or
such Person (other than a default under Subsections (a) through (c)
hereof), and such default continues unremedied for a period of 30 days
after the earlier of (i) notice thereof being given by the Agent to
the Borrower or such Person, as applicable, or (ii) such default (and
the fact that it is a default) otherwise becoming known to the
resident or chief financial officer of the Borrower or other Person,
as applicable.
(e) OTHER DEBT TO AGENT OR BANK. The Borrower defaults in the payment of
any Indebtedness to Agent or any Bank not covered under Subsection (a)
hereof, or in the payment of any other Debt to the Agent or any Bank
which is not Indebtedness (including without limitation under a
guaranty agreement by Borrower for Debts owed to the Initial Bank by
Maverick or Primero or any other Person) or in the observance or
performance of any of the covenants, or agreements contained in any
loan agreements, notes, leases, collateral or other documents relating
to any other Debt of the Borrower to the Agent or any Bank which is
not Indebtedness.
(f) OTHER DEBT TO OTHER LENDERS. The Borrower defaults in the payment of
any Debt due to any Person (other than the Agent and the Banks)
(including without limitation under a guaranty agreement) beyond the
period of grace, if any, provided with respect thereto, or in the
observance
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51
or performance of any of the other covenants or agreements contained
in any credit agreements, notes, leases, guaranty agreement,
collateral or other documents relating to any Debt of the Borrower to
any Person (other than the Agent and the Banks) if the effect of such
default is to cause, or permit the holder or holders of such
obligation (or the trustee or agent on behalf of such holder or
holders) to be able to cause (whether or not so done), such obligation
to become due prior to its stated maturity.
(g) INVOLUNTARY BANKRUPTCY OR RECEIVERSHIP PROCEEDINGS. A receiver,
conservator, liquidator or trustee of the Borrower, or of any of its
property, is appointed by order or decree of any court or agency or
supervisory authority having jurisdiction; or an order for relief is
entered against the Borrower under the Federal Bankruptcy Code; or the
Borrower is adjudicated bankrupt or insolvent; or any material portion
of the property of the Borrower is sequestered by court order and such
order remains in effect for more than 60 days after the Borrower
obtains knowledge thereof; or a petition is filed against the Borrower
under any reorganization, arrangement, insolvency, readjustment of
debt, dissolution, liquidation or receivership law of any
jurisdiction, whether now or hereafter in effect, and such petition is
not dismissed within 60 days.
(h) VOLUNTARY PETITIONS. The Borrower files a case under the Federal
Bankruptcy Code or seeking relief under any provision of any
bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction, whether now
or hereafter in
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52
effect, or consents to the filing of any case or petition against it
under any such law.
(i) ASSIGNMENTS FOR BENEFIT OF CREDITORS. The Borrower makes, an
assignment for the benefit of its creditors, or admits in writing its
inability to pay its debts generally as they become due, or consents
to the appointment of a receiver, trustee or liquidator of die
Borrower or of all or any part of its property.
(j) UNDISCHARGED JUDGMENTS. Judgment for the payment of money in excess of
$500,000.00 (which is not covered by insurance) is rendered by any
court or other governmental body against the Borrower, and the
Borrower does not discharge the same or provide for its discharge in
accordance with its terms, or procure a stay of execution thereof
within 30 days from the date of entry thereof, and within said 30-day
period, or such longer period during which execution of such judgment
shall have been stayed, appeal therefrom and cause the execution
thereof to be stayed during such appeal while providing such reserves
therefor as may be required under GAAP.
(k) ATTACHMENT. A writ or warrant of attachment or any similar process
shall be issued by any court against all or any material portion of
the property of the Borrower, and such writ or warrant of attachment
or any similar process is not released or bonded within 60 days after
its entry.
(l) CONDEMNATION. The Collateral, or any substantial portion thereof, is
condemned or expropriated under power of eminent domain by any legally
constituted governmental authority.
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53
(m) PRIMERO. An Event of Default (as defined therein) shall occur under
the Loan Agreement dated as of June 1, 1998, between Primero and the
Initial Bank, as amended, modified or supplemented from time to time
(which Loan Agreement is guaranteed by the Borrower pursuant to a
Guaranty Agreement of even date therewith, as amended or replaced from
time to time); or a default shall occur under the Master Equipment
Lease Agreement dated April 30, 1996 between Primero and the Initial
Bank, and any schedules pertaining thereto and any amendments,
modifications or supplements thereto from time to time (which lease is
guaranteed by the Borrower pursuant to a Continuing Guaranty dated as
of April 30, 1996, as amended heretofore and as amended or replaced
from time to time).
Section 8.2 REMEDIES. (a) Upon the happening of any Event of Default
specified in the preceding Section (other than Subsections (g) or (h)
thereof), (i) all obligations, if any, of the Agent or the Banks to make
Advances to the Borrower or issue standby letters of credit at the request of
the Borrower shall immediately cease and terminate, and (ii) the Agent shall
at the direction, or may with the consent, of the Required Banks by written
notice to the Borrower declare the entire principal amount of all
Indebtedness then outstanding including interest accrued thereon to be
immediately due and payable without presentment, demand, protest, notice of
protest or dishonor or other notice of default of any kind, all of which are
hereby expressly waived by the Borrower.
(b) Upon the happening of any Event of Default specified in Subsections
(g) or (h) of the preceding Section, (i) all obligations, if any, of the
Agent or the Banks to make Advances to the Borrower or issue standby letters
of credit at the request of the Borrower shall immediately cease and
terminate, and (ii) the entire principal amount of all Indebtedness then
outstanding including interest accrued thereon shall, without notice or
action by the Agent, be immediately due and payable without presentment,
demand, protest, notice of protest or dishonor or other notice of default of
any kind, all of which are hereby expressly waived by the Borrower.
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54
(c) In furtherance of the foregoing, to the extent any standby letters
of credit are outstanding upon the happening of any Event of Default, the
Agent may by written notice to the Borrower require the Borrower to pay to
the Agent immediately on such demand the full undisbursed amount of such
letters of credit, with interest thereon from demand until paid at the
Default Rate (notwithstanding any interest rate provision to the contrary in
any letter of credit application or agreement between Borrower and the
Initial Bank, even if executed after this Agreement), such amount to be held
by the Agent as collateral for the payment of such letters of credit.
(d) In addition to the foregoing, the Agent may exercise any of the
rights and remedies established in the Collateral Documents or avail itself
of any other rights and remedies provided by applicable law. Furthermore,
upon the happening of any Event of Default and demand by the Agent, the
Borrower shall execute and deliver such division orders, transfer orders or
letters in lieu thereof in form and substance satisfactory to the Agent
covering all properties subject to the Collateral Document providing for the
payment of all proceeds of production therefrom directly to the Agent.
Section 8.3 SET-OFF. Upon the occurance of any Event of Default, the
Agent and the Banks shall have the right to set-off any funds of the Borrower
in the possession of the Agent or such Bank against any amounts then due by
the Borrower to the Agent or the Banks pursuant to the Agreement (with the
exception of funds deposited in accounts in trust for third parties and so
identified to the depositary, or funds deposited in pension accounts, IRAs,
and Keogh accounts). The Borrower agrees that any holder of a participation
in any Note may exercise any and all rights of counter-claim, set-off,
banker's lien and other liens with respect to any and all monies owing by
Borrower to such holder as fully as if such holder of a participation or a
holder of a note in the amount of such participation.
Section 8.4 MARSHALING. The Borrower shall not at any time hereafter
assert any right under any law pertaining to marshaling (whether of assets or
liens) and the Borrower expressly agrees that the Agent may execute or
foreclose upon the Collateral Documents in such order and manner as the
Agent, in its sole discretion, deems appropriate.
ARTICLE 9
THE AGENT
Section 9.1 APPOINTMENT AND AUTHORIZATION. (a) Each Bank irrevocably
appoints and authorizes the Agent to receive all payments of principal,
interest, fees and other
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55
amounts payable by the Borrower under this Agreement and to remit same that
is payable to the Banks immediately to the Banks, to disburse the Advances
from the Banks, and to take such action and to exercise such powers under
this Agreement, the Notes, and the Collateral Documents as are delegated to
the Agent by the Banks from time to time. The Agent shall promptly distribute
to the Banks upon receipt all payments and prepayments of principal,
interest, fees and other amounts paid by the Borrower under this Agreement
that is payable to the Banks, in proportion to the Banks' Commitments.
Similarly, the Banks shall be obligated to fund Advances in proportion to
their Commitments. The Agent may resign at any time by written notice to the
Banks; the successor Agent shall be selected by the Required Banks from among
the remaining Banks.
(b) Each Bank irrevocably appoints and authorizes the Agent to hold
this Agreement and the Collateral Documents (but not the Notes, which will be
held by the respective Banks), and to take such action and exercise such
powers under this Agreement, the Notes and the Collateral Documents as are
delegated to the Agent by the Banks from time to time. Any requests by the
Borrower for consent by the Banks or waiver or amendment of provisions of
this Agreement shall be delivered by the Borrower to the Agent, but favorable
action on such requests shall require the approval of the Required Banks or
all of the Banks, as the case may be.
Section 9.2 AGENT'S RELIANCE. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable for any action taken
or omitted to be taken by it under or in connection with this Agreement, the
Notes or the Collateral Documents, except for its or their own gross
negligence or willful misconduct. Without limiting the generality of the
foregoing, the Agent: (i) may treat the payee of any of the Notes as the
holder thereof until the Agent receives written notice of the assignment or
transfer thereof, signed by such payee and in form satisfactory to the Agent;
(ii) may consult with legal counsel (including counsel for the Borrower),
independent public accountants and other experts selected by it and shall not
be liable for any action taken or omitted to be taken by it in good faith in
accordance with the advice of such counsel, accountants or experts; (iii)
makes no warranty or representation to any Bank and shall not be responsible
to any Bank for any statements, warranties or representations made in or in
connection with this Agreement, the Notes and the Collateral Documents; (iv)
shall not have any duty to ascertain or to inquire as to the performance or
observance of any of the terms, covenants or conditions of this Agreement,
the Notes or the Collateral Documents (except receipt of items expressly
required to be delivered to the Agent hereunder), or to inspect any property
(including the books and records) of the Borrower; (v) shall not be
responsible to any Bank for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement, the
Notes or the Collateral Documents;
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56
and (vi) shall incur no liability under or in respect to this Agreement, the
Notes or the Collateral Documents by acting upon any notice, consent,
certificate or other instrument or writing (which may be by facsimile,
telegram, cable or telex) believed by it to be genuine and signed or sent by
the proper party or parties. The Agent shall not have a fiduciary
relationship in respect of any Bank by reason of this Agreement. The Agent
shall not have any implied duties to the Banks, or any obligation to the
Banks to take any action under this Agreement, the Notes, the Collateral
Documents or the Intercreditor Agreement except any actions specifically
provided by such documents to be taken by it.
Section 9.3 ACTS BY AGENT AFTER DEFAULT, ETC. In the event that the
Agent shall have been notified in writing by any of the Borrower or the Banks
of any Event of Default (or in the event that the officer of the Agent
responsible for the Borrower' account obtains actual knowledge of an Event of
Default), the Agent (i) shall immediately notify the Banks; (ii) shall take
such action and assert such rights under this Agreement as it is expressly
required to do pursuant to the terms of this Agreement with the consent of or
direction by the Required Banks; (iii) may take such other actions and assert
such other rights as it deems advisable, in its discretion, for the
protection of the interests of the Banks pursuant to applicable laws with the
consent of the Required Banks; and (iv) shall inform all the Banks of the
taking of action or assertion of rights pursuant to this Section. Each Bank
agrees with the Agent and the other Banks that the decisions and
determinations of the Required Banks in enforcing this Agreement, the Notes
and the Collateral Documents and guiding the Agent in those matters shall be
binding upon all the Banks, including without limitation authorizing the
Agent at the pro rata expense of all the Banks (to the extent not reimbursed
by the Borrower) to retain attorneys to seek judgment on this Agreement, the
Notes and the Collateral Documents. Each Bank agrees with the other Banks
that it will not, without the consent of all the other Banks, separately seek
to institute any legal action with respect to the Loan. The Agent shall in
all cases be fully protected in acting, or in refraining from acting,
hereunder and under any Collateral Document or the Intercreditor Agreement in
accordance with written instructions signed by the Required Banks (or, where
required, all the Banks), and such instructions and any action taken or
failure to act pursuant thereto shall be binding on all of the Banks and on
all of the holders of Notes, provided however that the Agent shall not be
required to take any action which exposes the Agent to personal liability or
which is contrary to this Agreement or the Intercreditor Agreement or
applicable law.
Section 9.4 BANK CREDIT DECISION. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank and based
on the financial statements referred to herein and such other documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement.
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57
Each Bank also acknowledges that it will, independently and without reliance
upon the Agent, or any other Bank and based on such documents and information
AS it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under this Agreement, the Notes and
the Collateral Documents.
Section 9.5 AGENT. The Agent shall have the same rights and powers under
this Agreement, the Notes and the Collateral Documents as any other Bank and
may exercise the same as though it were not the Agent; and the term "Bank" or
"Banks" shall, unless otherwise expressly indicated, include Agent in its
individual capacity. The Agent may accept deposits from, lend money to, act
as trustee under indentures of, and generally engage in any kind of business
with Borrower and its Subsidiaries as if the Agent were not the Agent and
without any duty to account therefor to the Banks. The Banks acknowledge that
the Intercreditor Agreement shall govern the relationship between the Initial
Bank, the Agent and the Banks with respect to loans made by the Initial Bank
to Primero, Maverick and other Persons secured at least in part by a guaranty
by the Borrower secured by the Collateral.
Section 9.6 ASSIGNMENTS AND PARTICIPATIONS. (a) No Bank may assign to
any other Person any portion of its interests, rights and obligations under
this agreement (including, without limitation, any portion of its, Commitment
or the Loan at the time owing to it and Note held by it) unless each of the
following conditions is or has been satisfied: (i) the Agent has given its
prior written consent (which consent will not be unreasonably withheld), (ii)
the Borrower has given its prior written consent (which consent will not be
unreasonably withheld), (iii) each such assignment is of a constant, and not
a varying, percentage of all the assigning Bank's rights and obligations
under this Agreement, (iv) the assignment is for a Commitment of
$5,000,000.00 or more., (v) the parties to such assignment have executed
and delivered to the Agent an Assignment and Acceptance, substantially in the
form of EXHIBIT B hereto (the "ASSIGNMENT AND ACCEPTANCE"), together with any
Note subject to such assignment, one or more signature pages to this
Agreement containing the signature of the assignee, one or more signature
pages to the Intercreditor Agreement containing the signature of the
assignee, and (following the Effective Date, as defined in the applicable
Assignment and Acceptance) payment by the assignee to the Agent for its own
account of an assignment administration fee in the amount of $3,500.00, (vi)
either the assignor or assignee shall have paid the Agent's reasonable costs
and expenses (including without limitation attorneys' fees and expenses) in
connection with the assignment, (vii) the Agent shall have delivered to the
Borrower a fully executed copy of such Assignment and Acceptance, and (viii)
the assignee is (A) a state or national commercial bank located in the United
States or (B) a bank organized under a jurisdiction other than the United
States, provided that such foreign bank has provided the Agent and the
Borrower with forms prescribed by the Internal Revenue Service certifying as
to
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58
such Bank's status for purposes of determining exemption from United States
withholding taxes with respect to all payments to be made to such Bank
hereunder, and provided further that such foreign bank shall not transfer its
interests, rights and obligations under this Agreement to any affiliate of
such foreign bank unless such affiliate provides the Agent and the Borrower
with the aforesaid tax forms. Upon satisfaction of each of the foregoing
conditions and upon acceptance and notation by the Agent, from and after the
Effective Date specified in each Assignment and Acceptance, which Effective
Date shall be at least five (5) Business Days after the execution thereof,
(x) the assignee thereunder shall be a party hereto and, to the extent
provided in such Assignment and Acceptance, have the rights and obligations
of a Bank, and (y) the assigning Bank shall, to the extent provided in such
assignment, be released from its obligations under this Agreement.
Notwithstanding the foregoing, the restrictions contained above in this
Subsection 9.6(a) shall not apply to assignments to any Federal Reserve Bank,
and the conditions set forth in clauses (i) and (ii) above shall not apply to
assignments by any Bank to any Person which controls, is controlled by, or is
under common control with, or is otherwise substantially affiliated with that
Bank.
(b) Upon its receipt of an Assignment and Acceptance executed by the
parties to such assignment together with any Note subject to such assignment
and the written consent of the Agent and the Borrower to such assignment, the
Agent shall give prompt notice thereof to the Borrower and the Banks. Within
five (5) Business Days after receipt of such notice, the Borrower at its own
expense, shall execute and deliver to the Agent, in exchange for the
surrendered Note, a new Note to the order of such assignee(s) in an amount
equal to the mount assumed by such assignee(s) pursuant to such Assignment
and Acceptance and, if the assigning Bank has retained some portion of its
obligations hereunder, a new Note to the order of the assigning Bank in an
amount equal to the amount retained by it hereunder. Such new Note or Notes
shall be in an aggregate principal amount equal to the aggregate principal
amount of the surrendered Note, shall be dated the effective date of such
Assignment and Acceptance and shall otherwise be in the form of the assigned
Note. The surrendered Note shall be canceled and returned to the Borrower.
The Agent shall have the right to substitute a revised SCHEDULE 1 hereto to
reflect the respective Commitments following each such assignment.
(c) Each Bank, without the consent of the Agent or the other Banks but
with the prior written consent of the Borrower (which consent will not be
unreasonably withheld), may sell participations to one or more banks or other
financial institutions (and such bank or banks or financial institution or
financial institutions shall be bound by the terms of this Agreement,
including without limitation this Section 9-6) in all or a portion of the
Loan (including its Commitment) under this Agreement; PROVIDED that the
selling Bank shall retain
<PAGE>
59
the sole right and responsibility to enforce the obligations of the Borrower
relating to the Loan and that the only rights granted to the participant
pursuant to such participation arrangements with respect to waivers,
amendments or modifications of this Agreement shall be the right to approve
waivers, amendments, or modifications which require the consent of all of
the Banks as provided in Section 10.4 hereof.
Section 9.7 INDEMNIFICATION OF THE AGENT. The Banks ratably (computed by
reference to each Bank's respective Commitment) shall indemnify the Agent,
its respective affiliates and the respective shareholders, directors,
officers, employees, agents and counsel of the foregoing (each an "AGENT
INDEMNITEES") and hold each Agent Indemnitee harmless from and against any
and all claims (whether groundless or otherwise), liabilities, losses,
damages, costs and expenses of any kind (including, without limitation, (i)
the reasonable fees and disbursements of counsel and (ii) any expenses for
which the Agent has not been reimbursed by the Borrower as required by this
Agreement) which may be incurred by such Agent Indemnitee arising out of or
related to this Agreement or the transactions contemplated hereby, or the
Agent's actions taken hereunder; PROVIDED that no Agent Indemnitee shall have
the right to be indemnified hereunder for such Agent, Indemnitee's own gross
negligence or willful misconduct, as determined by a court of competent
jurisdiction, or to the extent that such claim relates to the breach by such
Agent Indemnitee of its obligations under this Agreement. The foregoing shall
survive the termination of this Agreement.
ARTICLE 10
MISCELLANEOUS
Section 10.1 NOTICES. Any notice or demand which, by provision of this
Agreement, is required or permitted to be given by one party to the other
party hereunder shall be given by (i) deposit, postage prepaid, in the mail,
registered or certified mad, or (ii) delivery to a recognized express courier
service, or (iii) delivery by hand, or (iv) transmitted
<PAGE>
60
by facsimile machine, in each case addressed (until another address or
addresses is given in writing by such party to the other party) as follows:
If to Borrower: Evergreen Resources, Inc.
1401 Seventeenth Street, Suite 1200
Denver, Colorado 80202
Attention: Mr. Mark Sexton
and
Mr. Kevin Collins
Facsimile Number:(303) 298-7800
If to Agent: Hibernia National Bank
P. 0. Box 61540
New Orleans, Louisiana 70161
or
313 Carondelet Street
New Orleans, Louisiana 70130
Attention: Manager
Energy/Maritime
Department
Facsimile Number: (504) 533-5434
If to Banks: At the addresses set forth on SCHEDULE 1 hereto.
All notices sent by facsimile transmission shall be deemed received by the
addressee upon the transmitter's receipt of acknowledgement of receipt from
the offices of such addressee, PROVIDED that properly addressed hard copy is
put in the mail with sufficient postage within twenty-four (24) hours of
transmission.
Section 10.2 ENTIRE AGREEMENT. This Agreement, the Notes and the
Collateral Documents, together with the letter agreement referred to in
Section 2.5(c), set forth the entire
<PAGE>
61
agreement between the Borrower and the Agent and the Banks with respect to
the Indebtedness, and supersede all prior written or oral understandings with
respect thereto; provided, however, that all written and oral
representations, warranties and certifications made by the Borrower to the
Agent and the Banks with respect to the Indebtedness and the security
therefor shall survive the execution of this Agreement. The Borrower is not
relying on any representation by the Agent, any of the Banks or any
representative thereof, and no representation has been made, that the Agent
or any Bank will, at the time of a Default or any other time, waive,
negotiate, discuss or take or refrain from taking any action with respect to
such Default.
Section 10.3 RENEWAL, EXTENSION OR REARRANGEMENT. All provisions of this
Agreement relating to the Notes shall apply with equal force and effect to
each and all promissory notes or security instruments hereinafter executed
which in whole or in part represent a renewal, extension for any period,
increase or rearrangement of any part of the Notes.
Section 10.4 AMENDMENT. No amendment or waiver of any provision of this
Agreement or consent to any departure therefrom by the Borrower or the Banks
shall be effective unless the same shall be in writing and signed by the
Borrower, the Agent and the Required Banks; PROVIDED, that without the
written consent of all of the Banks, no amendment or waiver to this
Agreement, any Note or any Collateral Document shall (i) change the
scheduled payment dates or maturity of the Loan, or (ii) change the principal
of or the rate or time of payment of interest or any premium payable with
respect to any Note, or (iii) increase the Commitments, or permit the
Borrower to assign its rights hereunder, or (iv) release the Borrower, or
affect the time, amount or allocation of any required prepayments, or (v)
effect the release of any Collateral (other than as expressly permitted in
the Collateral Documents) or any guarantor of the Indebtedness or subordinate
the rights of the Agent and the Banks with respect to Collateral, or (vi)
alter the requirement for all of the Banks to agree on each determination of
the Borrowing Base; or (vii) reduce the proportion of the Required Banks
required with respect to any consent, or (viii) change the definition of
Required Banks or amend this Section 10.4. No amendment of any provision of
this Agreement relating to the Agent shall be effective without the written
consent of the Agent, and no amendment of any provision of this Agreement
relating to the Initial Bank issuing letters of credit shall be effective
without the written consent of such Initial Bank. However, the Agent may
waive or reduce payment of the fee required under clause (v) of Subsection
9.6(a) without obtaining the consent of any of the Banks.
<PAGE>
62
Section 10.5 INVALIDITY. In the event that any one or more of the
provisions contained in this Agreement, the Notes or the Collateral Documents
shall, for any reason, be held invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement, the Notes or the Collateral Documents.
Section 10.6 SURVIVAL OF AGREEMENTS. All representations and warranties
of the Borrower herein, and all covenants and agreements herein not fully
performed before the effective date of this Agreement, shall survive such
date.
Section 10.7 WAIVERS. No course of dealing on the part of the Agent, any
Bank or its respective officers, employees, consultants or agents, nor any
failure or delay by the Agent or any Bank with respect to exercising any of
their rights, powers or privileges under this Agreement, the Notes or the
Collateral Documents, shall operate as a waiver thereof.
Section 10.8 CUMULATIVE RIGHTS. The rights and remedies of the Agent and
the Banks under this Agreement, the Notes and the Collateral Documents shall
be cumulative, and the exercise or partial exercise of any such right, or
remedy shall not preclude the exercise of any other right or remedy.
Section 10.9 TIME OF THE ESSENCE. Time shall be deemed of the essence
with respect to the performance of all of the terms, provisions and
conditions on the part of the Borrower, the Agent and the Banks to be
performed hereunder.
Section 10.10 SUCCESSORS AND ASSIGNS. All covenants and agreements made
by or on behalf of the Borrower, the Agent or the Banks in this Agreement,
the Notes and the Collateral Documents shall bind their successors and
assigns and shall inure to the benefit of the Borrower, the Agent and the
Banks and their respective successors and assigns, except that the Borrower
shall not have the right to assign its rights or obligations under this
Agreement, and any assignment by any Bank must be made in compliance with
Section 9.6.
Section 10.11 RELATIONSHIP BETWEEN THE PARTIES. The Relationship between
the Agent and the Banks, on the one hand, and the Borrower on the other,
shall be solely that of lender and borrower, and such Relationship shall not,
under any circumstances whatsoever, be construed to be a joint venture, joint
adventure, or partnership. Neither the Agent nor any Bank has any fiduciary
obligation to the Borrower, any Subsidiary or any guarantor with respect to
this Agreement or the transactions contemplated hereby.
<PAGE>
63
Section 10.12 LIMITATION OF LIABILITY. This Agreement, the Notes and the
Collateral Documents are executed by officers of the Agent and the Banks, and
by acceptance of the Loan, the Borrower agrees that for the payment of any
claim or the performance of any obligations hereunder resulting from any
default by the Agent or any of the Banks, resort shall be had solely to the
assets and property of the defaulting Agent or Bank, and no shareholder,
officer, employee or agent of the defaulting Agent or Bank shall be
personally liable therefor.
Section 10.13 TITLES OF ARTICLES, SECTIONS AND SUBSECTIONS. All titles
or headings to articles, sections, subsections or other divisions of this
Agreement or the exhibits hereto are only for the convenience of the parties
and shall not be construed to have any effect or meaning with respect to the
other content of such articles, sections, subsections or other divisions,
such other content being controlling as to the agreement between the parties
hereto.
Section 10.14 SINGULAR AND PLURAL. Words used herein in the singular,
where the context so permits, shall be deemed to include the plural and vice
versa. The definitions of words in the singular herein shall apply to such
words when used in the plural where the context so permits and vice versa.
SECTION 10.15 GOVERNING LAW. THIS AGREEMENT IS, AND THE NOTES WILL BE,
CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF THE UNITED STATES OF AMERICA AND THE STATE OF LOUISIANA.
Section 10.16 COUNTERPARTS. This Agreement may be executed in two or
more counterparts and it shall not be necessary that the signatures of all
parties hereto be contained on any one counterpart hereof; each counterpart
shall be deemed an original, but all of which together shall constitute one
and the same instrument.
SECTION 10.17 WAIVER OF JURY TRIAL; SUBMISSION T0 JURISDICTION. (a) THE
BORROWER, THE AGENT AND THE BANKS HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO WHICH THE BORROWER, THE AGENT AND THE BANKS MAY BE PARTIES
ARISING OUT OF OR IN ANY WAY PERTAINING TO (i) THE NOTES, (ii) THIS AGREEMENT,
(iii) THE COLLATERAL DOCUMENTS OR (iv) THE COLLATERAL. IT IS AGREED AND
UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL
CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS
AGAINST PARTIES WHO ARE NOT PARTIES TO THIS AGREEMENT. THIS WAIVER IS
KNOWINGLY, WILLINGLY AND VOLUNTARILY
<PAGE>
64
MADE BY THE BORROWER, THE AGENT AND EACH BANK, AND THE BORROWER, THE AGENT
AND EACH BANK HEREBY REPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION
HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO
IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE BORROWER, THE AGENT AND EACH
BANK FURTHER REPRESENT THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS
AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL,
SELECTED OF ITS OWN FREE WILL, AND THAT IT HAD THE OPPORTUNITY TO DISCUSS
THIS WAIVER WITH COUNSEL.
(b) THE BORROWER HEREBY IRREVOCABLY CONSENTS TO THE NON-EXCLUSIVE
GENERAL JURISDICTION OF THE STATE COURTS OF LOUISIANA AND THE FEDERAL EASTERN
DISTRICT COURT IN LOUISIANA, AND AGREES THAT ANY ACTION OR PROCEEDING ARISING
OUT OF OR BROUGHT TO ENFORCE THE PROVISIONS OF THE NOTES, THIS AGREEMENT
AND/OR THE COLLATERAL DOCUMENTS MAY BE BROUGHT IN ANY COURT HAVING SUBJECT
MATTER JURISDICTION. THE BORROWER HEREBY IRREVOCABLY 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 ANY SUCH ACTION OR PROCEEDING WAS
BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME.
THE BORROWER AGREES THAT NOTHING HEREIN SHALL LIMIT THE AGENT'S AND THE
BANKS' RIGHT TO SUE IN ANY OTHER JURISDICTION.
(c) THE BORROWER HEREBY AGREES THAT SERVICE OF PROCESS IN ANY SUCH
ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY BY REGISTERED OR
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID,
TO THE BORROWER AT ITS ADDRESS SET FORTH IN SECTION 10.1 OR AT SUCH OTHER
ADDRESS AS TO WHICH THE AGENT SHALL HAVE BEEN NOTIFIED PURSUANT THERETO. THE
BORROWER AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE
OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
<PAGE>
65
ARTICLE 11
RENEWAL
Section 11.1 NO NOVATION. The Borrower confirms that this Agreement has
been given in renewal and extension of the Indebtedness to the Initial Bank
under the Prior Credit Agreement dated as of June 1, 1997, described in the
Preliminary Statement to this Agreement, and that nothing in this Agreement
shall constitute the satisfaction or extinguishment of the amount owed
thereunder, nor shall it be a novation of the amount owed thereunder.
Section 11.2 NO DEFENSES. The Borrower represents and warrants that
there is no defense, offset, compensation, counterclaim or reconventional
demand with respect to amounts due under, or performance of the terms of, the
initial Note or the Prior Credit Agreement; and to the extent any such
defense, offset, compensation, counterclaim or reconventional demand or other
causes of action might exist, known or unknown, such items are hereby waived
by the Borrower.
<PAGE>
66
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed by their respective officers thereunto duly authorized,
effective as of the date first above written.
EVERGREEN RESOURCES, INC.
By: /s/ Mark S. Sexton
---------------------------
Name: Mark S. Sexton
Title: President and CEO
HIBERNIA NATIONAL BANK,
as Agent
By: /s/ Lyndsay P. Job
---------------------------
Name: Lyndsay P. Job
Title: Senior Vice President
HIBERNIA NATIONAL BANK,
as a Bank
By: /s/ Lyndsay P. Job
---------------------------
Name: Lyndsay P. Job
Title: Senior Vice President
<PAGE>
THE UNDERSIGNED BANKS execute this signature page to be attached to that
certain Amended and Restated Credit Agreement dated effective as of July 1,
1998 among Evergreen Resources, Inc. as Borrower, and Hibernia National Bank,
as Agent, and certain Banks parties thereto, pursuant to Section 9.6(v)
thereof and pursuant to that certain respective Assignment and Acceptance
Agreement to and by each undersigned Bank.
CHASE BANK OF TEXAS, N.A.
By: /s/ Lee E. Beckelman
---------------------------
Name: Lee E. Beckelman
Title: Vice President
Date: July 27, 1998
BANQUE PARIBAS
By: /s/ Douglas R. Liftman
---------------------------
Name: Douglas R. Liftman
Title: Vice President
Date: July 27, 1998
By: /s/ Barton D. Schouest
---------------------------
Name: Barton D. Schouest
Title: Managing Director
Date: July 27, 1998
<PAGE>
SCHEDULE 1
REVISED EFFECTIVE JULY 31, 1998
COMMITMENTS OF THE BANKS
<TABLE>
<CAPTION>
Name and Address of Bank Commitment of Bank
- ------------------------ ------------------
<S> <C>
Hibernia National Bank $25,000,000.00
313 Carondelet Street
New Orleans, Louisiana 70130
Attention: Mr. Lyndsay P. Job
Facsimile Number:
(504) 533-5434
Chase Bank of Texas, N.A. $12,500,000.00
2200 Ross Avenue
Third Floor
Dallas, Texas 75201
Attention: Mr. Lee E. Beckelman
Facsimile Number:
(214) 965-2389
Banque Paribas $12,500,000.00
1200 Smith Street
Suite 3100
Houston, Texas 77002
Attention: Mr. Douglas R. Liftman
Facsimile Number:
(713) 659-6915
</TABLE>
<PAGE>
LIST OF SCHEDULE
1. Commitments of the Banks
LIST OF ADDENDUM
1. LIBO Rate Provisions
LIST OF EXHIBITS
A. Form of Note
B. Form of Assignment and Acceptance
C. Form of Intercreditor Agreement
<PAGE>
SCHEDULE 1
COMMITMENTS OF THE BANKS
<TABLE>
<CAPTION>
Name and Address of Bank Commitment of Bank
- ------------------------ ------------------
<S> <C>
Hibernia National Bank $50,000,000
313 Carondelet Street
New Orleans, Louisiana 70130
Attn: Mr. Lyndsay P. Job
Facsimile Number:
(504) 533-5434
</TABLE>
<PAGE>
ADDENDUM I
LIBO RATE PROVISIONS
1. The Agent shall determine the interest rate applicable to LIBO Rate
Advances, and its determination shall be conclusive in the absence of
manifest error. The Agent shall endeavor to notify the Borrower prior to the
date on which an interest payment is due, provided that the failure of the
Agent to provide such notice shall not affect the Borrower's obligation to
pay interest on such date.
2. If any applicable law or regulation, or the action of any
applicable regulatory requirement increases the reserves or capital required
to be maintained by any Bank or the Agent with respect to the Loan (including
unfunded commitments and obligations on letter of credit), such Bank or the
Agent shall promptly deliver a certificate to the Borrower specifying the
additional amount as will compensate such Bank or the Agent for the
additional costs, which certificate shall be conclusive in the absence of
manifest error. The Borrower shall pay the amount specified in such
certificate promptly upon receipt.
3. If the Agent gives notice to the Borrower that no LIBO bid rate is
quoted to the Agent (or otherwise that adequate and reasonable methods do not
exist for ascertaining the LIBO Rate) for the applicable Interest Period or
in the applicable amounts (which notice shall be conclusive and binding on
the Borrower and the Banks absent manifest error), then (A) the obligation of
the Agent and the Banks to make a LIBO Rate Advance and the ability of the
Borrower to select the LIBO Rate for an Advance shall be suspended, and (B)
the Borrower shall either prepay all LIBO Rate Advances for which an interest
rate is to be determined on such date or the Loan shall thereafter bear
interest at the Prime Rate.
4. If any applicable domestic or foreign law, treaty, rule or
regulation (whether now in effect or hereinafter enacted or promulgated,
including Regulation D of the Board of Governors of the Federal Reserve
System) or any interpretation or administration thereof by any governmental
authority charged with the interpretation or administration thereof (whether
or not having the force of law):
(i) changes the basis of taxation of payments to any Bank or the
Agent or any principal, interest, or other amounts attributable to any LIBO
Rate Advance (other than taxes imposed on the overall net income of such
Bank or the Agent);
(ii) changes, imposes, modifies, applies or deems applicable any
reserve, special deposit or similar requirements in respect of any such
LIBO Rate Advance (excluding those for which such Bank or the Agent is
fully compensated pursuant to
<PAGE>
ADDENDUM I
PAGE - 2 -
adjustments made in the definition of LIBO Rate) or against assets of,
deposits with or for the account of, or credit extended by, any Bank or the
Agent; or
(iii) imposes on any Bank or the Agent or the interbank euroccurrency
deposit and transfer market any other condition or requirement affecting
any such LIBO Rate Advance,
and the result of any of the foregoing is to increase the cost to such Bank
or the Agent of funding or maintaining any such LIBO Rate Advance (other
than costs for which such Bank or the Agent is fully compensated pursuant to
adjustments made in the definition of LIBO Rate) or to reduce the amount of
any sum receivable by such Bank or the Agent in respect of any such LIBO
Rate advance by an amount deemed by such Bank or the Agent to be material,
then such Bank or the Agent shall promptly notify the Borrower in writing of
the happening of such event and (1) Borrower shall upon demand pay to such
Bank or the Agent such additional amount or amounts as will compensate such
Bank or the Agent for such additional cost or reduction and (2) Borrower may
elect, by giving to the Agent not less than three Business Days' notice, to
change the interest rate applicable to such Advance, and any other portion of
the Loan bearing interest at the LIBO Rate, to the Prime Rate.
5. Notwithstanding any other provision hereof, if any change in
applicable laws, treaties, rules or regulations or in the interpretation or
administration thereof of or in any jurisdiction whatsoever, domestic or
foreign, shall make it unlawful or impracticable for any Bank to maintain
Advances bearing interest at the LIBO Rate, or shall materially restrict the
authority of any Bank to purchase, sell or take certificates of deposit or
offshore deposits of dollars, then, upon notice by such Bank to Borrower and
the Agent, such Bank's portion of all LIBO Rate Advances which are then
outstanding and which cannot lawfully or practicably be maintained shall
immediately cease to bear interest at the LIBO Rate and shall commence to
bear interest at the Prime Rate. The Borrower agrees to indemnify each Bank
and hold it harmless against all costs, expenses, claims, penalties,
liabilities and damages which may result from any such change in law, treaty,
rule, regulation, interpretation or administration. The Borrower hereby
agrees promptly to pay the Agent for the account of such Bank, upon demand by
such Bank, any additional amounts necessary to compensate such Bank for any
costs incurred by such Bank in making any conversation in accordance with
this Paragraph, including any interest or fees payable by such Bank to
lenders of funds obtained by it in order to make or maintain hereunder its
portion of the Loan accruing interest based on the LIBO Rate.
6. The Borrower will indemnify the Agent and each Bank against, and
reimburse the Agent and each Bank on demand for, any loss or expense incurred
or sustained by the Agent and each Bank (including without limitation, any
loss or expense incurred by reason of
<PAGE>
ADDENDUM I
PAGE - 3 -
the liquidation or reemployment of deposits or other funds acquired by the
Agent and each Bank to fund or maintain LIBO Rate Advances) as a result of
(i) any payment or prepayment (whether authorized or required hereunder or
otherwise) of all or a portion of any LIBO Rate Advance on a day other than
the day on which the applicable Interest Period ends, (ii) any payment or
prepayment, whether required hereunder or otherwise, of the LIBO Rate
Advances made after the delivery, but before the effective date, of an
election to have the LIBO Rate apply to LIBO Rate Advance, if such payment or
prepayment prevents such election from becoming fully effective or (iii) the
failure of any LIBO Rate Advance to be made by the Agent and each Bank or of
any such election to become effective due to any condition precedent to a
LIBO Rate Advance not being satisfied or due to any other action or inaction
of Borrower. For purposes of this section, funding losses arising by reason
of liquidation or reemployment of deposits or other funds acquired by the
Agent or any Bank to fund or maintain LIBO Rate Advances shall be calculated
as the remainder obtained by subtracting: (1) the yield (reflecting both
stated interest rate and discount, if any) to maturity of obligations of the
United States Treasury as determined by the Agent or such Bank in an amount
equal or comparable to such advance for the period of time commencing on the
date of the payment, prepayment or change of rate as provided above and
ending on the last day of the subject Interest Period, from (2) the LIBO
Rate of the subject Interest Period, TIMES the number of days from the date
of payment, prepayment or change of rate to the last day of the subject
Interest Period, divided by 360. Any payment due under this paragraph will be
paid to the Agent or such Bank within five days after demand therefor by the
Agent or such Bank.
7. The Borrower covenants and agrees that:
(i) The Borrower will pay, within five days after notice thereof
from Agent (on behalf of itself or any Bank) and on an after-tax basis, all
present and future income, stamp and other taxes, levies, costs and charges
whatsoever imposed, assessed, levied or collected on or in respect of any
LIBO Rate Advance whether or not legally or correctly imposed, assessed,
levied or collected (excluding taxes, levies, costs or charges imposed on
or measured by the overall net income of the Agent or any Bank) (all such
non-excluded taxes, levies, costs and charges being collectively called
"REIMBURSABLE TAXES"). Promptly after the date on which payment of any
Reimbursable Taxes is due pursuant to applicable law, the Borrower will, at
the request of the Agent, furnish to the Agent evidence in form and
substance satisfactory to the Agent that Borrower has met its obligation
under this paragraph.
(ii) The Borrower will indemnify the Agent and each Bank against,
and reimburse the Agent and each Bank on demand for, any Reimbursable Taxes
paid by the Agent or such Bank and any loss, liability, claim or expense,
including interest, penalties and legal fees, that the Agent and each Bank
may incur at any time arising out
<PAGE>
ADDENDUM 1
PAGE - 4 -
of or in connection with the failure of Borrower to make any payment of
Reimbursable Taxes when due, unless such failure is due to Agent or such
Bank's failure to give notice to Borrower of Borrower's obligation to pay
such Reimbursable Taxes at least five days prior to the date when they are
due. Any payment due under this subsection will be paid to the Agent or
such Bank within five days after demand therefor by the Agent or such Bank.
(iii) All payments on account of the principal of, and interest on,
LIBO Rate Advances and all other amounts payable by Borrower to the Agent
and the Banks hereunder shall be made free and clear of and without
reduction by reason of any Reimbursable Taxes.
(iv) If Borrower is ever required to pay any Reimbursable Taxes
with respect to any LIBO Rate Advance, Borrower may elect, by giving to the
Agent not less than three (3) Business Days' notice, to change the interest
rate applicable to any such advance from the LIBO Rate to the Prime Rate,
but such election shall not diminish Borrower's obligation to pay all
Reimbursable Taxes therefore imposed, assessed, levied or collected.
<PAGE>
EXHIBIT A
FORM OF NOTE
Borrower: Evergreen Resources, Inc Bank:__________________
1401 Seventeenth Street __________________
Suite 1200 __________________
Denver, Colorado 80202
LINE OF CREDIT NOTE
Principal Amount: Maturity Date: Date of Note
$50,000,000.00 July 1, 2001 _________, ____
Promise to Pay. EVERGREEN RESOURCES, INC., a Colorado corporation ("Borrower"),
promises to pay to the order of __________ ("Bank"), at the main office in New
Orleans (313 Carondelet Street) of Hibernia National Bank (the "Agent"), in
lawful money of the United States of America, the sum of fifty million and
00/100 dollars (U.S. $50,000,000.00) or such other or lesser amount as from time
to time equals the aggregate unpaid principal balance of loan advances made to
Borrower by Bank on a revolving line of credit basis as provided below, together
with simple interest assessed on the variable rate(s) basis provided below, with
interest being assessed on the unpaid principal balance of this Note as
outstanding from time to time, computed as set forth in the Credit Agreement (as
defined below).
Credit Agreement. This note is a Note referred to in that certain Amended and
Restated Credit Agreement dated as of July 1, 1998, among Borrower, Agent and
the banks from time to time party thereto (as amended, renewed or restated from
time to time, the "Credit Agreement"). Unless otherwise defined herein, each
capitalized term used herein shall have the same meaning set forth in the Credit
Agreement. Reference is made to the Credit Agreement for provisions for the
acceleration of the maturity hereof on the occurrence of certain events
specified therein, for mandatory prepayments required of the Borrower in certain
circumstances, and for all other pertinent provisions.
Line of Credit. This Note evidences revolving line of credit advances that may
be made from time to time to Borrower under the Credit Agreement (including loan
advances arising from draws on standby letters of credit issued thereunder at
the request of the Borrower). The unpaid principal balance owing on this Note at
any time may be evidenced by endorsements on this Note or by Agent's or Bank's
internal records, including daily computer print-outs. Advances shall only be
made in accordance with the terms and conditions of the Credit
<PAGE>
EXHIBIT A
PAGE - 2 -
Agreement. The credit advice resulting from the deposit of the proceeds of any
disbursement hereunder in the Borrower's account with the Agent, or the Agent's
copy of any cashier's check representing all or any part of the proceeds of the
disbursements, shall be deemed prima facie evidence of the Borrower's
indebtedness to the Bank on the Loan.
Payments. Borrower will pay interest on Prime Rate Advances at the Prime Rate
monthly in arrears on the last day of each successive calendar month. Borrower
will pay interest on LIBO Rate Advances at the applicable LIBO Rate in arrears
on the last day of each LIBO Rate Interest Period applicable to each LIBO Rate
Advance. Borrower will pay the balance of all outstanding principal on this
Note, together with all accrued but unpaid interest, on July 1, 2001. Interest
on this 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. Borrower will pay Bank at Agent's address shown above or
at such other place as Bank may designate in writing. All payments and
prepayments made by the Borrower hereunder shall be made to the Agent, in
immediately available funds, before 11:00 a.m. (Central Time) on the day that
such payment is required, or otherwise is, to be made. Any payment received and
accepted by the Agent after such time shall be considered for all purposes
(including the calculation of interest, to the extent permitted by law) as
having been made on the next following Business Day. Whenever any payment to be
made hereunder falls on a day other than a Business Day, then unless otherwise
provided in the Credit Agreement such payment shall be made on the next
succeeding Business Day, and such extension of time shall in each case
be included in the calculation of interest.
Variable Interest Rate(s). This Note bears interest on and after the date
hereof to and including the Maturity Date at the variable rate(s) per annum
equal to the Prime Rate or LIBO Rate, as selected by Borrower in accordance
with the Credit Agreement. The interest rate on this Note is subject to
change from time to time based on changes in the Prime Rate and the LIBO
Rate. If the index rate used in determining the Prime Rate becomes
unavailable during the term of this Note, Agent may designate a substitute
index after notice to Borrower. Agent will tell Borrower the Prime Rate upon
Borrower's request. Borrower 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 Note shall bear interest from
and after an Event of Default or the Maturity Date until paid at the Default
Rate from time to time in effect.
Prepayment. Borrower may prepay this Note in full by paying the then unpaid
principal balance of this Note, plus accrued simple interest through date of
prepayment, subject to restrictions regarding permitted timing (with respect to
LIBO Rate Advances) and advance
<PAGE>
EXHIBIT A
PAGE - 3 -
notice set forth in the Credit Agreement. Borrower may be required to prepay
this Note from time to time in accordance with the Credit Agreement.
Event of Default. If any Event of Default occurs, Agent and Bank shall have all
of the rights and remedies (including acceleration of the Maturity Date of this
Note) available to them pursuant to the Credit Agreement or applicable law.
Attorneys' Fees. If Bank refers this Note to an attorney for collection, or
files suit against Borrower to collect this Note, or if Borrower files for
bankruptcy or other relief from creditors, Borrower agrees to pay the Agent's
and the Bank's reasonable attorneys' fees.
Deposit Accounts. As collateral for repayment of this Note and all renewals and
extensions, as well as to secure any and all other Indebtedness that Borrower
may now and in the future owe to Agent or any Bank in connection with the Credit
Agreement, Borrower hereby grants Agent for itself and the ratable benefit of
the Banks a continuing security interest in any and all funds that Borrower may
now and in the future have on deposit with Agent or in certificates of deposit
or other deposit accounts as to which Borrower is an account holder (with the
exception of any funds held in any of Borrower's accounts in trust for third
parties, or funds held in IRA, pension, and other tax-deferred deposits).
GOVERNING LAW. BORROWER AGREES THAT THIS NOTE AND THE LOAN EVIDENCED HEREBY
SHALL BE GOVERNED UNDER THE LAWS OF THE STATE OF LOUISIANA. SPECIFICALLY, THIS
BUSINESS OR COMMERCIAL NOTE IS SUBJECT TO LA. R.S. 9:3509 ET SEQ.
Collateral. This Note is secured by the Collateral Documents described in the
Credit Agreement.
Waivers. Borrower waives presentment for payment, protest, notice of protest and
notice of nonpayment, diligence in taking any action to collect amounts called
for hereunder and in the handling of property at any time existing as security
in connection herewith, and shall be directly and primarily liable for the
payment of all sums owing and to be owing hereon, regardless of and without any
notice, diligence, act or omission as or with respect to the collection of any
amount called for hereunder or in connection with any right, lien, interest or
property at any and all times had or existing as security for any amount called
for hereunder.
Usury Considerations. It is the intention of Borrower 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 Note, it is agreed as
<PAGE>
EXHIBIT A
PAGE - 4 -
follows: (i) the aggregate of all interest that is taken, reserved, contracted
for, charged or received under this Note or under any of the other aforesaid
agreements or otherwise in connection with this Note shall under no
circumstances exceed the maximum amount of interest allowed by applicable law,
and any excess shall be credited on this Note by the holder hereof (or if the
Note shall have been paid in full, refunded to Borrower); and (ii) in the event
that maturity of this 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 Note or
otherwise shall be cancelled automatically as of the date of such acceleration
or prepayment and, if theretofore prepaid, shall be credited on this Note (or
if this Note shall have been paid in full, refunded to Borrower). To the
extent that Louisiana law would be deemed the applicable law (as is the
intent of Borrower hereunder), the provisions of the Section 2.8 in the
Credit Agreement entitled Default Rate shall control.
Submission to Jurisdiction; Waiver of Jury Trial.
(a) Borrower hereby irrevocably and unconditionally:
(1) submits for itself and its property in any legal action or
proceedings relating to this 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 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 Borrower at its address set forth above or
at such other address at which Agent 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.
<PAGE>
EXHIBIT A
PAGE - 5 -
(b) Borrower hereby irrevocably and unconditionally waives trial by jury
in any legal action or proceeding relating to this Note and for any counterclaim
therein.
BORROWER:
EVERGREEN RESOURCES, INC.
By:
------------------------------
Name: Mark S. Sexton
Title: President and CEO
<PAGE>
EXHIBIT B
FORM OF ASSIGNMENT AND ACCEPTANCE
Dated Effective ___________, 19__
Reference is made to the Amended and Restated Credit Agreement dated
effective as of July 1, 1998, as the same may be amended, modified or
supplemented from time to time (as so amended, modified or supplemented from
time to time, the "AGREEMENT"), among Evergreen Resources, Inc., as Borrower,
Hibernia National Bank, as Agent, and the banks party thereto (the "BANKS").
Capitalized terms which are used herein without definition and which are defined
in the Agreement shall have the same meanings herein as in the Agreement.
__________________ (the "ASSIGNOR") and __________________ (the "ASSIGNEE")
agree as follows:
1. ASSIGNMENT. The Assignor hereby sells and assigns to the Assignee, and
the Assignee hereby purchases and assumes from the Assignor, as of the Effective
Date (as hereinafter defined) a __ % interest in and to all the Assignor's
rights and obligations under the Agreement (including, without limitation, its
Commitment, the Loan currently owing to it and the Note held by it).
2. CONCERNING THE ASSIGNOR. The Assignor (i) represents that as of the
date hereof, it Commitment percentage (without giving effect to assignments
thereof which have not yet become effective) is __ %, and the outstanding
balance of its Loan (unreduced by any assignments thereof which have not yet
become effective) is $ ____________ ; (ii) makes no representation or warranty
and assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the Agreement or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of the
Agreement or any other instrument or document furnished pursuant thereto, other
than that it is the legal and beneficial owner of the interest being assigned by
it hereunder and that such interest is free and clear of any adverse claim;
(iii) makes no representation or warranty and assumes no responsibility with
respect to the financial condition of the Borrower or the performance or
observance by the Borrower of any of its obligations under the Agreement, the
Note, or any Collateral Document or any other instrument or document furnished
pursuant thereto; and (iv) attaches the Note delivered to it under the Agreement
and requests that the Borrower exchange such Note for a new Note payable to each
of the Assignor and the Assignee as follows:
<PAGE>
EXHIBIT B
PAGE - 2 -
<TABLE>
<CAPTION>
Notes Payable to
the Order of: Amount of Note
---------------- --------------
<S> <C>
[Name of Assignor] [Note ($ )]
(Name of Assignee] [Note ($ )]
</TABLE>
3. CONCERNING THE ASSIGNEE. The Assignee (i) represents and warrants that
it is legally authorized to enter into this Assignment and Acceptance; (ii)
confirms that it has received a copy of the Agreement, together with copies of
the financial statements referred to therein and the most recent financial
statements delivered pursuant thereto and such other documents and information
as it has deemed appropriate to make its own credit analysis and decision to
enter into this Assignment and Acceptance; (iii) agrees that it will,
independently and without reliance upon the Assignor, the Agent or any other
Banks and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under the Agreement; (iv) appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under the Agreement
and the Note as are delegated to the Agent by the terms thereof, together with
such powers as are reasonably incidental thereto; (v) agrees that it will
perform in accordance with their terms all the obligations which the Agreement,
the Note, and the Collateral Documents require are to be performed by it as a
Bank; and (vi) attaches any U.S. Internal Revenue Service forms required under
Section 9.6(a)(viii)(B) of the Credit Agreement.
4. SUBSTITUTION. The Assignee shall deliver to the Agent one or more
signature pages to the Credit Agreement, and one or more signature pages to the
Intercreditor Agreement, in each case containing the signature of the Assignee.
The Assignee's address for notices to be given under the Credit Agreement, and
to be noted on the revised SCHEDULE 1 to the Credit Agreement, is:
_______________________
_______________________
_______________________
Facsimile Number:
_______________________
<PAGE>
EXHIBIT B
PAGE - 3 -
5. EFFECTIVE DATE. The effective date for this Assignment and
Acceptance shall be _____________________________ (the "EFFECTIVE DATE")
(which Effective Date shall be at least five (5) Business Days after the
execution of this Assignment and Acceptance). Following the execution of this
Assignment and Acceptance, it will be delivered to the Agent for acceptance
together with the Agent's fee and reasonable expenses as required by Credit
Agreement Section 9.6(a)(v) and (vi).
6. OBLIGATIONS. Upon such acceptance and recording, from and after the
Effective Date, (i) the Assignee shall be a party to the Agreement and, to the
extent provided in this Assignment and Acceptance, have the rights and
obligations of a Bank thereunder, and (ii) the Assignor shall, to the extent
provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Agreement, other than confidentiality
requirements.
7. PAYMENTS. Upon such acceptance and recording, from and after the
Effective Date, the Agent shall make all payments in respect of the interest
assigned hereby (including payments of principal, interest and other amounts)
to the Assignee. The Assignor and Assignee shall make all appropriate
adjustments in payments for periods prior to the Effective Date or with respect
to the making of this assignment directly between themselves.
8. GOVERNING LAW. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF LOUISIANA.
THE REST OF THIS PAGE IS LEFT BLANK INTENTIONALLY.
<PAGE>
EXHIBIT B
PAGE - 4 -
9. COUNTERPARTS. This Assignment and Acceptance may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed taken together shall constitute one and the same
instrument.
[NAME OF ASSIGNOR]
By:
------------------------------------
Name:
Title:
Date:
[NAME OF ASSIGNEE]
By:
------------------------------------
Name:
Title:
Date:
Each of the undersigned hereby consents to the assignment contemplated by
this Assignment and Acceptance.
EVERGREEN RESOURCES, INC.
By:
------------------------------------
Name:
Title:
Date:
HIBERNIA NATIONAL BANK, as Agent
By:
------------------------------------
Name:
Title:
Date:
<PAGE>
EXHIBIT C
FORM OF INTERCREDITOR AGREEMENT
INTERCREDITOR AGREEMENT (SUBORDINATION)
This Intercreditor Agreement (Subordination), dated as of July 1, 1998, is
made by and among HIBERNIA NATIONAL BANK, a national banking association (the
"Agent") as agent for itself and the other banks (the "Banks") which are or
become a party to the Credit Agreement (as defined below), the BANKS, HIBERNIA
NATIONAL BANK, a national banking association (the "Subordinated Creditor"), for
itself as a lender, and Evergreen Resources, Inc., a Colorado corporation (the
"Borrower").
RECITALS
A. The Agent and the Banks have extended loans to the Borrower
pursuant to an Amended and Restated Credit Agreement dated effective as of
July 1, 1998 (as amended, renewed or restated from time to time, the "Credit
Agreement") among the Borrower, the Agent, and the Banks listed from time to
time on the signature page thereto, comprising Senior Indebtedness (as
defined below). The Initial Bank under the Credit Agreement is Hibernia
National Bank.
B. 1. The Senior Indebtedness (as defined below) of the Borrower to
the Agent and the Banks under the Credit Agreement is secured by that certain
Fifth Amendment, Modification and Supplement to Mortgage, Deed of Trust,
Assignment and Security Agreement and Financing Statement dated as of July 1,
1998 (the "Fifth Amendment"), by the Borrower to Lyndsay P. Job, as Trustee
thereunder, and the Agent. As used herein, the term "Mortgage" means the
Mortgage, Deed of Trust, Assignment and Security Agreement Financing Statement
dated as of November 15, 1990, to Stacy McCrocklin, original trustee for the
benefit of Hibernia National Bank, as amended previously by instruments dated as
of February 5, 1993, as of April 26, 1995, as of October 4, 1996, and as of June
1, 1997, and by the Fifth Amendment, and as hereafter amended, supplemented or
restated from time to time.
2. As used herein, the term "Collateral" means collectively the
Mortgaged Property and the Collateral as each term is defined in the Mortgage,
together with all other properties subject from time to time to the lien of the
Mortgage.
C. The Borrower is (and may be further) indebted to the Subordinated
Creditor for amounts due from time to time pursuant to various Guaranty
Agreements issued
<PAGE>
EXHIBIT C
PAGE - 2 -
by the Borrower in favor of the Subordinated Creditor, securing the obligations,
liabilities and indebtedness of other Persons to the Subordinated Creditor,
including without limitation the Borrower's Guaranty Agreement dated effective
January 24, 1997, for debt owed by Maverick Stimulation Company, LLC, a Colorado
limited liability company, and the Borrower's Guaranty Agreement dated as of
June 1, 1998, for loan debt owed by Primero Gas Marketing Company, a Colorado
joint venture, and the Borrower's Continuing Guaranty dated as of April 30,
1996, for lease debt owed by Primero Gas Marketing Company.
D. 1. As used herein, the term "Senior Indebtedness" shall mean any
and all obligations and liabilities of the Borrower to the Agent or to all or
any of the Banks under or in connection with the Credit Agreement, including
without limitation principal, interest (including without limitation default
interest and post-petition interest), attorneys' fees, and other fees, expenses
and costs, all whether now existing or hereafter arising, absolute or
contingent, liquidated or unliquidated. The Senior Indebtedness is secured by
the Collateral pursuant to the Mortgage.
2. As used herein, the term "Subordinated Debt" shall mean any
and all obligations and liabilities of the Borrower to the Subordinated
Creditor, including without limitation principal, interest (including without
limitation default interest and post-petition interest), attorneys' fees, and
other fees, expenses and costs, all whether now existing or hereafter arising,
absolute or contingent, liquidated or unliquidated, whether pursuant to the
Guaranty Agreements described in Recital C(1) above or future guaranty
agreements or otherwise, which obligations and liabilities are both (i) not
Senior Indebtedness and (ii) secured by the Collateral pursuant to the terms of
the Mortgage. (The obligations and liabilities of the Borrower to Hibernia
National Bank as the Agent and as a Bank (as such terms are defined in the
Credit Agreement) under or in connection with the Credit Agreement are not
Subordinated Debt.)
3. As used herein the term "Person" shall mean any individual,
corporation, limited liability company, partnership, joint venture, association,
joint stock company, trust, unincorporated organization, government or any
agency or political subdivision thereof, or any other form of entity.
E. As a condition for the extension of the Senior Indebtedness by the
Agent and the Banks to the Borrower pursuant to the Credit Agreement, the Agent
and the Banks have required the Subordinated Creditor to subordinate its
interest in the Collateral as security for the Subordinated Debt to the Agent's
interest in the Collateral as security for the Senior Indebtedness, and
Subordinated Creditor is willing to do so.
<PAGE>
EXHIBIT C
PAGE - 3 -
NOW, THEREFORE, for and in consideration of the premises, the Subordinated
Creditor and the Borrower hereby agree as follows:
Section 1. SUBORDINATION REGARDING COLLATERAL. The Subordinated Creditor
hereby agrees that upon the foreclosure, sale, set-off or other realization
against any of the Collateral, the Senior Indebtedness shall be paid by
preference and priority over the Subordinated Debt from and as to the proceeds
of the Collateral. The foregoing subordination pertains solely to realization
against the Collateral and the proceeds therefrom. and is not a general
subordination of the Subordinated Debt to the Senior Indebtedness for other
purposes. The Subordinated Creditor shall have the right to receive, and the
Borrower shall have the right and obligation to pay, all amounts owing as part
of the Subordinated Debt to be paid by the Borrower to the Subordinated Creditor
as and when due. The foregoing subordination pertains only to the proceeds
arising from the foreclosure, sale, set-off or other realization on any of the
Collateral by the Agent, the Banks and the Subordinated Creditor pursuant to the
remedies provided by the Mortgage.
Section 2. LIQUIDATION PAYMENTS. (a) The Subordinated Creditor and the
Borrower agree that, in the event of any distribution, division or
application, partial or complete, voluntary or involuntary, by operation of
law or otherwise, of all or any part of the Collateral to creditors of
Borrower, or in the event of any liquidation, dissolution or other winding up
of Borrower or Borrower's business, or in the event of any sale,
receivership, insolvency or bankruptcy proceeding, assignment for the benefit
of creditors, or proceeding by or against Borrower for any relief under any
bankruptcy or insolvency law or laws relating to the relief of debtors,
readjustment of indebtedness, reorganizations, compositions or extensions.
then and in any such event any payment or distribution of any kind or
character, either in cash or other property, which shall be payable or
deliverable upon or with respect to any or all of the Collateral shall be
paid or delivered directly to the Agent for application on any Senior
Indebtedness until the Senior Indebtedness shall have been fully paid and
satisfied.
(b) The Agent shall have the right to enforce, collect and receive any
payments described in Subsection (a) hereof and to grant full acquittance
therefor, and the Agent is hereby authorized (as attorney-in-fact for the
Subordinated Creditor pursuant to an irrevocable power of attorney coupled with
an interest) to file claims, vote, and prove the Subordinated Debt in any
proceedings or meetings of creditors described in Subsection (a) hereof, but
insofar only as the Subordinated Debt or such proceedings or meetings directly
relate to the Collateral and distribution thereof.
Section 3. REMITTANCE OF PAYMENTS. Should any payment or distribution
from any such realization upon any of Collateral or proceeds thereof (except
payments permitted by Section 1 hereof) be received by Subordinated Creditor
upon or with respect to any
<PAGE>
EXHIBIT C
PAGE - 4 -
Subordinated Debt prior to the payment and satisfaction in full of all of the
Senior Indebtedness, Subordinated Creditor will forthwith deliver the same to
the Agent in precisely the form received (except for the endorsement, without
recourse, or assignment of Subordinated Creditor where necessary), for
application on the Senior Indebtedness, and, until so delivered, the same shall
be held in trust by Subordinated Creditor as property of the Agent. In the event
of the failure of Subordinated Creditor to make any such endorsement or
assignment, the Agent, or any of its officers or employees in behalf of the
Agent, is hereby irrevocably authorized to make the same.
Section 4. NOTICE OF ACTION. The Subordinated Creditor agrees to send the
Agent a copy of each notice that the Subordinated Creditor gives to the Borrower
pertaining to an alleged default or event of default under the Subordinated Debt
simultaneously with the giving of such notice to the Borrower. The Agent agrees
to give the Subordinated Creditor a copy of each notice that the Agent gives to
the Borrower under the Credit Agreement pertaining to a default or an event of
default thereunder simultaneously with the giving of such notice to the
Borrower. Notwithstanding the two foregoing sentences, neither party shall have
any greater rights to notice, if any, then the right of the Borrower under such
documents governing the Senior Indebtedness or the Subordinated Debt, as
applicable; provided, however, that the parties shall be obligated to provide
the notices set forth in Section 5 below.
Section 5. ACTIONS. (a) Until the earlier to occur of (i) the payment
in full to the Agent and the Banks of the Senior Indebtedness, or (ii) a
bankruptcy of the Borrower or other event which would cause an automatic
acceleration of the Senior Indebtedness under the Credit Agreement, or (iii)
any action being taken by the Agent against the Collateral under the Mortgage
to enforce the rights of the Agent and the Banks under the Credit Agreement,
the Subordinated Creditor agrees that it will not take any of the following
actions without first having given the Agent fifteen (15) days' advance
notice thereof:
(1) Seize, foreclose on or otherwise realize upon or sell any
Collateral encumbered by the Mortgage; or
(2) Notify any account debtor or other Person who is an obligor of
the Borrower with respect to accounts, general intangibles or other obligations
included within the Collateral encumbered by the Mortgage to make payments
directly to the Subordinated Creditor (or any agent or designee thereof); or
(3) Collect by legal proceedings or otherwise any payments,
proceeds or other sums and property now or hereafter payable on account of
Collateral encumbered by the Mortgage; or
<PAGE>
EXHIBIT C
PAGE - 5 -
(4) Make any compromise or settlement or enter into any extension
agreement with any Person who is an obligor of the Borrower with respect to
accounts, general intangibles or other obligations included within the
Collateral encumbered by the Mortgage.
(b) Until such time as the Subordinated Creditor has received payment in
full of all Subordinated Debt, the Agent agrees to give the Subordinated
Creditor written notice reasonably in advance of (but in no event later than
simultaneously with) the taking of any action (whether foreclosure, sale,
set-off or other realization of any type) against any of the Collateral.
Section 6. MODIFICATIONS OF SENIOR INDEBTEDNESS. The Subordinated
Creditor agrees that the Agent and the Banks, at any time and from time to time,
may enter into such agreement or agreements with Borrower as the Agent and the
Banks may deem proper, extending the time of payment or increasing or renewing
or otherwise altering the terms of all or any of the Senior Indebtedness
without notice to Subordinated Creditor and without in any way impairing or
affecting this Agreement. However, although the Agent may release any portion of
the Collateral insofar as it secures the Senior Indebtedness, the Agent does not
have the power to release the Subordinated Creditor's lien on the Collateral
under the Mortgage insofar as it secures the Subordinated Debt.
Section 7. DURATION. (a) The subordinations, agreements and priorities set
forth in this Agreement shall remain in full force and effect until either the
Senior Indebtedness or the Subordinated Debt, as the case may be, has been paid
and satisfied in full.
(b) This Agreement shall remain in full force and effect notwithstanding
any filing or a petition for relief by or against the Borrower under the federal
Bankruptcy Code or similar laws from time to time in effect and shall apply with
full force and effect with respect to all Collateral covered by the Mortgage
acquired by the Borrower after the date of such petition and all Senior
Indebtedness and Subordinated Debt incurred after the date of such petition.
(c) This Agreement shall apply with full force and effect with respect to
all Collateral covered by the Mortgage from time to time, including without
limitation pursuant to supplements or amendments to the Mortgage after the date
hereof.
Section 8. NO CONTEST. (a) The Subordinated Creditor agrees not to
contest the validity, perfection, priority or enforceability of any of the
Senior Indebtedness or the lien of the Mortgage securing same or the validity or
enforceability of this Agreement.
<PAGE>
EXHIBIT C
PAGE - 6 -
(b) The Agent and the Banks agree not to contest the validity, perfection,
priority or enforceability of any of the Subordinated Debt or the lien of the
Mortgage securing same or the validity or enforceability of this Agreement.
Section 9. SUBORDINATED DEBT. (a) The Subordinated Creditor acknowledges
the limitations established by Section 6.1 and Section 6.2 of the Credit
Agreement on the maximum amount of Subordinated Debt owed by Borrower permitted
thereby and permitted to be secured by the Collateral under the Mortgage.
(b) Subject to Subsection 9(a) above, the Agent and the Banks agree that
the Subordinated Creditor, at any time and from time to time, may enter into
such agreement or agreements with Borrower as the Subordinated Creditor may deem
proper, extending the time of payment or increasing or renewing or otherwise
altering the terms of all or any of the Subordinated Debt or creating new
Subordinated Debt without notice to the Agent and the Banks and without in any
way impairing or affecting this Agreement.
Section 10. NO THIRD-PARTY BENEFICIARY. This Agreement and the terms and
provisions hereof are solely for the benefit of the Agent and the Banks, and the
Subordinated Creditor, and their respective successors and assigns, and shall
not benefit the Borrower or any other Person not specifically a party to this
Agreement now or in the future. Nothing contained in this Agreement is intended
or shall in any way alter or limit, as between the Borrower and the Agents and
the Banks, or as between the Borrower and the Subordinated Creditor, the rights
which the Agent and the Banks may have against the Borrower or the Collateral or
which the Subordinated Creditor may have against the Borrower or the Collateral.
Nothing in this Agreement is intended to affect, limit or in any way diminish
the security interest which the Agent and the Banks, and the Subordinated
Creditor, claim in the Collateral insofar as the rights of the Borrower and
third Persons are concerned. The parties hereto specifically reserve any and all
of their respective rights, security interests and liens against the Collateral
and right to assert the same against the Borrower and any third Persons. Without
limiting the generality of the foregoing, nothing contained in this Agreement
shall in any manner affect the direct obligations of the Borrower or any other
Person to the Subordinated Creditor pertaining to the Subordinated Debt. The
Borrower acknowledges and consents to all the terms of this Agreement but is not
a beneficiary hereof and does not have any rights hereunder.
Section 11. NOTICES. Any notice or demand which, by provision of this
Agreement, is required or permitted to be given to or served on any party hereto
shall be deemed to have been sufficiently given and served for all purposes (if
mailed) three calendar days after being deposited, postage prepaid, in the
United States Mail, registered or certified mail, or (if delivered by express
courier) one Business Day after being delivered to such
<PAGE>
EXHIBIT C
PAGE - 7 -
courier, or (if delivered in person) the same day as delivery, in each case
addressed (until another address or addresses is given in writing by such party
to the other parties) as follows:
If to Borrower: Evergreen Resources, Inc.
1401 Seventeenth Street, Suite 1200
Denver, Colorado 80202
Attention: Mr. Mark Sexton
and
Mr. Kevin Collins
Facsimile Number: (303) 298-7800
If to Agent Hibernia National Bank
(and the P. 0. Box 61540
Banks): New Orleans, Louisiana 70161
or
313 Carondelet Street
New Orleans, Louisiana 70130
Attention: Manager
Energy/Maritime
Department
Facsimile Number: (504) 533-5434
If to Subordinated Hibernia National Bank
Creditor: P. 0. Box 61540
New Orleans, Louisiana 70161
or
313 Carondelet Street
New Orleans, Louisiana 70130
<PAGE>
EXHIBIT C
PAGE - 8 -
Attention: Manager
Energy/Maritime
Department
Facsimile Number: (504) 533-5434
Section 12. AMENDMENT. Neither this Agreement nor any provisions hereof
may be changed, waived, discharged or terminated orally or in any manner other
than by an instrument in writing signed by the Agent, the Banks and the
Subordinated Creditor.
Section 13. GOVERNING LAW. This Agreement is a contract made under and
shall be construed in accordance with and governed by the laws of the United
States of America and the State of Louisiana.
<PAGE>
EXHIBIT C
PAGE - 9 -
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
BORROWER: EVERGREEN RESOURCES, INC.
By:
---------------------------------
Name: Mark S. Sexton
Title: President and CEO
AGENT: HIBERNIA NATIONAL BANK
as Agent
By:
---------------------------------
Name:
Title:
BANK: HIBERNIA NATIONAL BANK
as a Bank
By:
---------------------------------
Name:
Title:
SUBORDINATED CREDITOR: HIBERNIA NATIONAL BANK,
in its capacity as a lender
By:
---------------------------------
Name:
Title:
<PAGE>
Borrower: Evergreen Resources, Inc Bank: Hibernia National Bank
1401 Seventeenth Street P. 0. Box 61540
Suite 1200 New Orleans, Louisiana 70160
Denver, Colorado 80202
LINE OF CREDIT NOTE
Principal Amount: Maturity Date: Date of Note
$25,000,000.00 July 1, 2001 July 31, 1998
PROMISE TO PAY. EVERGREEN RESOURCES, INC., a Colorado corporation ("Borrower"),
promises to pay to the order of HIBERNIA NATIONAL BANK ("Bank"), at the main
office in New Orleans (313 Carondelet Street) of Hibernia National Bank (the
"Agent"), in lawful money of the United States of America, the sum of
twenty-five million and 00/100 dollars (U.S. $25,000,000.00) or such other or
lesser amount as from time to time equals the aggregate unpaid principal balance
of loan advances made to Borrower by Bank on a revolving line of credit basis as
provided below, together with simple interest assessed on the variable rate(s)
basis provided below, with interest being assessed on the unpaid principal
balance of this Note as outstanding from time to time, computed as set forth in
the Credit Agreement (as defined below).
CREDIT AGREEMENT. This now is a Note referred to in that certain Amended and
Restated Credit Agreement dated as of July 1, 1998, among Borrower, Agent and
the banks from time to time party thereto (as amended, renewed or restated from
time to time, the "Credit Agreement"). Unless otherwise defined herein, each
capitalized term used herein shall have the same meaning set forth in the Credit
Agreement. Reference is made to the Credit Agreement for provisions for the
acceleration of the maturity hereof on the occurrence of certain events
specified therein, for mandatory prepayments required of the Borrower in certain
circumstances, and for all other pertinent provisions.
LINE OF CREDIT. This Note evidences revolving line of credit advances that may
be made from time to time to Borrower under the Credit Agreement (including loan
advances arising from draws on standby letters of credit issued thereunder at
the request of the Borrower). The unpaid principal balance owing on this Note at
any time may be evidenced by endorsements on this Note or by Agent's or Bank's
internal records, including daily computer print-outs. Advances shall only be
made in accordance with the terms and conditions of the Credit Agreement. The
credit advice resulting from the deposit of the proceeds of any disbursement
hereunder in the Borrower's account with the Agent, or the Agent's copy of
any cashier's check representing all or any part of the proceeds of the
disbursements, shall be deemed prima facie evidence of the Borrower's
indebtedness to the Bank on the Loan.
<PAGE>
-2-
PAYMENTS. Borrower will pay interest on Prime Rate Advances at the Prime Rate
monthly in arrears on the last day of each successive calendar month. Borrower
will pay interest on LMO Rate Advances at the applicable LIBO Rate in arrears on
the last day of each LIBO Rate Interest Period applicable to each LIBO Rate
Advance. Borrower will pay the balance of all outstanding principal on this
Note, together with all accrued but unpaid interest, on July 1, 2001. Interest
on this 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. Borrower will pay Bank at Agent's address shown above or
at such other place as Bank may designate in writing. All payments and
prepayments made by the Borrower hereunder shall be made to the Agent, in
immediately available funds, before 11:00 a.m. (Central Time) on the day that
such payment is required, or otherwise is, to be made. Any payment received
and accepted by the Agent after such time shall be considered for all
purposes (including the calculation of interest, to the extent permitted by
law) as having been made on the next following Business Day. Whenever any
payment to be made hereunder falls on a day other than a Business Day, then
unless otherwise provided in the Credit Agreement such payment shall be made
on the next succeeding Business Day, and such extension of time shall in each
case be included in the calculation of interest.
VARIABLE INTEREST RATE(S). This Note bears interest on and after the date hereof
to and including the Maturity Date at the variable rate(s) per annum equal to
the Prime Rate of LIBO Rate, as selected by Borrower in accordance with the
Credit Agreement. The interest rate on this Note is subject to change from time
to time based on changes in the Prime Rate and the LIBO Rate. If the index rate
used in determining the Prime Rate becomes unavailable during the term of this
Note, Agent may designate a substitute index after notice to Borrower. Agent
will tell Borrower the Prime Rate upon Borrower's request. Borrower 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
Note shall bear interest from and after an Event of Default or the Maturity Date
until paid at the Default Rate from time to time in effect.
PREPAYMENT. Borrower may prepay this Note in full by paying the then unpaid
principal balance of this Note, plus accrued simple interest through date of
prepayment, subject to restrictions regarding permitted timing (with respect to
LIBO Rate Advances) and advance notice set forth in the Credit Agreement.
Borrower may be required to prepay this Note from time to time in accordance
with the Credit Agreement.
<PAGE>
-3-
EVENT OF DEFAULT. If any Event of Default occurs, Agent and Bank shall have all
of the rights and remedies (including acceleration of the Maturity Date of this
Note) available to them pursuant to the Credit Agreement or applicable law.
ATTORNEYS' FEES. If Bank refers this Note to an attorney for collection, or
files suit against Borrower to collect this Note, or if Borrower files for
bankruptcy or other relief from creditors, Borrower agrees to pay the Agent's
and the Bank's reasonable attorneys' fees.
DEPOSIT ACCOUNTS. As collateral for repayment of this Note and all renewals and
extensions, as well as to secure any and all other Indebtedness that Borrower
may now and in the future owe to Agent or any Bank in connection with the Credit
Agreement, Borrower hereby grants Agent for itself and the ratable benefit of
the Banks a continuing security interest in any and all funds that Borrower may
now and in the future have on deposit with Agent or in certificates of deposit
or other deposit accounts as to which Borrower is an account holder (with the
exception of any funds held in any of Borrower's accounts in trust for third
parties, or funds held in IRA, pension, and other tax-deferred deposits).
GOVERNING LAW. BORROWER AGREES THAT THIS NOTE AND THE LOAN EVIDENCED HEREBY
SHALL BE GOVERNED UNDER THE LAWS OF THE STATE OF LOUISIANA. SPECIFICALLY, THIS
BUSINESS OR COMMERCIAL NOTE IS SUBJECT TO LA. R.S. 9:3509 ET SEQ.
COLLATERAL. This Note is secured by the Collateral Documents described in the
Credit Agreement.
WAIVERS. Borrower waives presentment for payment, protest, notice of protest and
notice of nonpayment, diligence in taking any action to collect amounts called
for hereunder and in the handling of property at any time existing as security
in connection herewith, and shall be directly and primarily liable for the
payment of all sums owing and to be owing hereon, regardless of and without any
notice, diligence. act or omission as or with respect to the collection of any
amount called for hereunder or in connection with any right, lien, interest or
property at any and all times had or existing as security for any amount called
for hereunder.
USURY CONSIDERATIONS. It is the intention of Borrower 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 Note, it is agreed as follows: (i) the
aggregate of all interest that is taken, reserved, contracted for, charged or
<PAGE>
-4-
received under this Note or under any of the other aforesaid agreements or
otherwise in connection with this Note shall under no circumstances exceed the
maximum amount of interest allowed by applicable law, and any excess shall be
credited on this Note by the holder hereof (or if the Note shall have been paid
in full, refunded to Borrower); and (ii) in the event that maturity of this 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 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 Note (or if this Note shall have
been paid in full, refunded to Borrower). To the extent that Louisiana law would
be deemed the applicable law (as is the intent of Borrower hereunder), the
provisions of the Section 2.8 in the Credit Agreement entitled DEFAULT RATE
shall control.
SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.
(a) BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(1) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDINGS RELATING TO THIS 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 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
BORROWER AT ITS ADDRESS SET FORTH ABOVE OR AT SUCH OTHER ADDRESS
AT WHICH AGENT SHALL HAVE BEEN NOTIFIED PURSUANT THERETO; AND,
<PAGE>
-5 -
(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) BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY
JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS NOTE AND FOR ANY
COUNTERCLAIM THEREIN.
BORROWER:
EVERGREEN RESOURCES, INC.
BY: /s/ Mark S. Sexton
--------------------------
Name: Mark S. Sexton
Title: President and CEO
<PAGE>
Borrower: Evergreen Resources, Inc Bank: Banque Paribas
1401 Seventeenth Street 1200 Smith Street
Suite 1200 Suite 3100
Denver, Colorado 80202 Houston, Texas 77002
LINE OF CREDIT NOTE
Principal Amount: Maturity Date: Date of Note:
$12,500,000.00 July 1, 2001 July 31, 1998
PROMISE TO PAY. EVERGREEN RESOURCES, INC., a Colorado corporation
("Borrower"), promises to pay to the order of BANQUE PARIBAS ("Bank") at the
main office in New Orleans (313 Carondelet Street) of Hibernia National Bank
(the "Agent"), in lawful money of the United States of America, the sum of
twelve million five hundred thousand and 00/100 dollars (U.S. $12,500,000.00)
or such other or lesser amount as from time to time equals aggregate unpaid
principal balance of loan advances made to Borrower by Bank on a revolving
line of credit basis as provided below, together with simple interest
assessed on the variable rate(s) basis provided below, with interest being
assessed on the unpaid principal balance of this Note as outstanding from
time to time, computed as set forth in the Credit Agreement (as defined
below).
CREDIT AGREEMENT. This note is a Note referred to in that certain Amended and
Restated Credit Agreement dated as of July 1, 1998, among Borrower, Agent and
the banks from time to time party thereto (as amended, renewed or restated
from time to time, the "Credit Agreement"). Unless otherwise defined herein,
each capitalized term used herein shall have the same meaning set forth in
the Credit Agreement. Reference is made to the Credit Agreement for
provisions for the acceleration of the maturity hereof on the occurrence of
certain events specified therein, for mandatory prepayments required of the
Borrower in certain circumstances, and for all other pertinent provisions.
LINE OF CREDIT. This Note evidences revolving line of credit advances that may
be made from time to time to Borrower under the Credit Agreement (including loan
advances arising from draws on standby letters of credit issued thereunder at
the request of the Borrower). The unpaid principal balance owing on this Note at
any time may be evidenced by endorsements on this Note or by Agent's or Bank's
internal records, including daily computer print-outs. Advances shall only be
made in accordance with the terms and conditions of the Credit Agreement. The
credit advice resulting from the deposit of the proceeds of any disbursement
hereunder in the Borrower's account with the Agent, or the Agent's copy of any
cashier's check representing all or any part of the proceeds of the
disbursements, shall be deemed prima facie evidence of the Borrower's
indebtedness to the Bank on the Loan.
<PAGE>
-2-
PAYMENTS. Borrower will pay interest on Prime Rate Advances at the Prime Rate
monthly in arrears on the last day of each successive calendar month.
Borrower will pay interest on LIBO Rate Advances at the applicable LIBO Rate
in arrears on the last day of each LIBO Rate Interest Period applicable to
each LIBO Rate Advance. Borrower will pay the balance of all outstanding
principal on this Note, together with all accrued but unpaid interest, on
July 1, 2001. Interest on this 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. Borrower will pay Bank at
Agent's address shown above or at such other place as Bank may designate in
writing. All payments and prepayments made by the Borrower hereunder shall be
made to the Agent, in immediately available funds, before 11:00 a.m. (Central
Time) on the day that such payment is required, or otherwise is, to be made.
Any payment received and accepted by the Agent after such time shall be
considered for all purposes (including the calculation of interest, to the
extent permitted by law) as having been made on the next following Business
Day. Whenever any payment to be made hereunder falls on a day other than a
Business Day, then unless otherwise provided in the Credit Agreement such
payment shall be made on the next succeeding Business Day, and such extension
of time shall in each case be included in the calculation of interest.
VARIABLE INTEREST RATE(S). This Note bears interest on and after the date hereof
to and including the Maturity Date at the variable rate(s) per annum equal to
the Prime Rate or LIBO Rate, as selected by Borrower in accordance with the
Credit Agreement. The interest rate on this Note is subject to change from time
to time based on changes in the Prime Rate and the LIBO Rate. If the index rate
used in determining the Prime Rate becomes unavailable during the term of this
Note, Agent may designate a substitute index after notice to Borrower. Agent
will tell Borrower the Prime Rate upon Borrower's request. Borrower 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
Note shall bear interest from and after an Event of Default or the
Maturity Date until paid at the Default Rate from time to time in effect.
PREPAYMENT. Borrower may prepay this Note in full by paying the then unpaid
principal balance of this Note, plus accrued simple interest through date of
prepayment, subject to restrictions regarding permitted timing (with respect to
LIBO Rate Advances) and advance notice set forth in the Credit Agreement.
Borrower may be required to prepay this Note from time to time in accordance
with the Credit Agreement.
<PAGE>
-3-
EVENT OF DEFAULT. If any Event of Default occurs, Agent and Bank shall have
all of the rights and remedies (including acceleration of the Maturity Date
of this Note) available to them pursuant to the Credit Agreement or
applicable law.
ATTORNEY'S FEES. If Bank refers this Note to an attorney for collection, or
files suit against Borrower to collect this Note, or if Borrower files for
bankruptcy or other relief from creditors, Borrower agrees to pay the Agent's
and the Bank's reasonable attorneys' fees.
DEPOSIT ACCOUNTS. As collateral for repayment of this Note and all renewals
and extensions, as well as to secure any and all other Indebtedness that
Borrower may now and in the future owe to Agent or any Bank in connection
with the Credit Agreement, Borrower hereby grants Agent for itself and the
ratable benefit of the Banks a continuing security interest in any and all
funds that Borrower may now and in the future have on deposit with Agent or
in certificates of deposit or other deposit accounts as to which Borrower is
an account holder (with the exception of any funds held in any of Borrower's
accounts in trust for third parties, or funds held in IRA, pension, and other
tax-deferred deposits).
GOVERNING LAW. BORROWER AGREES THAT THIS NOTE AND THE LOAN EVIDENCED HEREBY
SHALL BE GOVERNED UNDER THE LAWS OF THE STATE OF LOUISIANA. SPECIFICALLY, THIS
BUSINESS OR COMMERCIAL NOTE IS SUBJECT TO LA. R.S. 9:3509 ET SEQ.
COLLATERAL. This Note is secured by the Collateral Documents described in the
Credit Agreement.
WAIVERS. Borrower waives presentment for payment, protest, notice of protest and
notice of nonpayment, diligence in taking any action to collect amounts called
for hereunder and in the handling of property at any time existing as security
in connection herewith, and shall be directly and primarily liable for the
payment of all sums owing and to be owing hereon, regardless of and without any
notice, diligence, act or omission as or with respect to the collection of any
amount called for hereunder or in connection with any right, lien, interest or
property at any and all times had or existing as security for any amount called
for hereunder.
USURY CONSIDERATIONS. It is the intention of Borrower 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 Note, it is agreed as follows: (i) the
aggregate of all interest that is taken, reserved, contracted for, charged or
<PAGE>
-4-
received under this Note or under any of the other aforesaid agreements or
otherwise in connection with this Note shall under no circumstances exceed
the maximum amount of interest allowed by applicable law, and any excess
shall be credited on this Note by the holder hereof (or if the Note shall
have been paid in full, refunded to Borrower); and (ii) in the event that
maturity of this 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 Note or otherwise shall be cancelled automatically as of
the date of such acceleration or prepayment and, if theretofore prepaid,
shall be credited on this Note (or if this Note shall have been paid in full,
refunded to Borrower). To the extent that Louisiana law would be deemed the
applicable law (as is the intent of Borrower hereunder), the provisions of
the Section 2.8 in the Credit Agreement entitled DEFAULT RATE shall control.
SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.
(a) BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(1) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDINGS RELATING TO THIS 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 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 BORROWER AT ITS ADDRESS SET FORTH ABOVE OR
AT SUCH OTHER ADDRESS AT WHICH AGENT SHALL HAVE BEEN NOTIFIED
PURSUANT THERETO; AND,
<PAGE>
-5-
(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) BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY
JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS NOTE AND FOR ANY
COUNTERCLAIM THEREIN.
BORROWER:
EVERGREEN RESOURCES, INC.
By: /s/ Mark S. Sexton
--------------------------
Name: Mark S. Sexton
Title: President and CEO
<PAGE>
Borrower: Evergreen Resources, Inc Bank: Chase Bank of Texas, N.A.
1401 Seventeenth Street P. 0. Box 660197
Suite 1200 Dallas, Texas 75266-0197
Denver, Colorado 80202
LINE OF CREDIT NOTE
Principal Amount: Maturity Date: Date of Note
$12,500,000.00 July 1, 2001 July 31, 1998
PROMISE TO PAY. EVERGREEN RESOURCES, INC., a Colorado corporation ("Borrower"),
promises to pay to the order of CHASE BANK OF TEXAS, N.A. ("Bank"), at the main
office in New Orleans (313 Carondelet Street) of Hibernia National Bank (the
"Agent"), in lawful money of the United States of America, the sum of twelve
million five hundred thousand and 00/100 dollars (U.S. $12,500,000.00) or such
other or lesser amount as from time to time equals the aggregate unpaid
principal balance of loan advances made to Borrower by Bank on a revolving line
of credit basis as provided below, together with simple interest assessed on the
variable rate(s) basis provided below, with interest being assessed on the
unpaid principal balance of this Note as outstanding from time to time, computed
as set forth in the Credit Agreement (as defined below).
CREDIT AGREEMENT. This note is a Note referred to in that certain Amended and
Restated Credit Agreement dated as of July 1, 1998, among Borrower, Agent and
the banks from time to time party thereto (as amended, renewed or restated from
time to time, the "Credit Agreement"). Unless otherwise defined herein, each
capitalized term used herein shall have the same meaning set forth in the
Credit Agreement. Reference is made to the Credit Agreement for provisions for
the acceleration of the maturity hereof on the occurrence of certain events
specified therein, for mandatory prepayments required of the Borrower in certain
circumstances, and for all other pertinent provisions.
LINE OF CREDIT. This Note evidences revolving line of credit advances that
may be made from time to time to Borrower under the Credit Agreement
(including loan advances arising from draws on standby letters of credit
issued thereunder at the request of the Borrower). The unpaid principal
balance owing on this Note at any time may be evidenced by endorsements on
this Note or by Agent's or Bank's internal records, including daily computer
print-outs. Advances shall only be made in accordance with the terms and
conditions of the Credit Agreement. The credit advice resulting from the
deposit of the proceeds of any disbursement hereunder in the Borrower's
account with the Agent or the Agent's copy of any cashier's check
representing all or any part of the proceeds of the disbursements, shall be
deemed prima facie evidence of the Borrower's indebtedness to the Bank on
the Loan.
<PAGE>
-2 -
PAYMENTS. Borrower will pay interest on Prime Rate Advances at the Prime Rate
monthly in arrears on the last day of each successive calendar month.
Borrower will pay interest on LIBO Rate Advances at the applicable LIBO Rate
in arrears on the last day of each LIBO Rate Interest Period applicable to
each LIBO Rate Advance. Borrower will pay the balance of all outstanding
principal on this Note, together with all accrued but unpaid interest, on
July 1, 2001. Interest on this 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. Borrower will pay Bank at
Agent's address shown above or at such other place as Bank may designate in
writing. All payments and prepayments made by the Borrower hereunder shall be
made to the Agent, in immediately available funds, before 11:00 a.m. (Central
Time) on the day that such payment is required, or otherwise is, to be made.
Any payment received and accepted by the Agent after such time shall be
considered for all purposes (including the calculation of interest, to the
extent permitted by law) as having been made on the next following Business
Day. Whenever any payment to be made hereunder falls on a day other than a
Business Day, then unless otherwise provided in the Credit Agreement such
payment shall be made on the next succeeding Business Day, and such extension
of time shall in each case be included in the calculation of interest.
VARIABLE INTEREST RATE(S). This Note bears interest on and after the date hereof
to and including the Maturity Date at the variable rate(s) per annum equal to
the Prime Rate or LIBO Rate, as selected by Borrower in accordance with the
Credit Agreement. The interest rate on this Note is subject to change from time
to time based on changes in the Prime Rate and the LIBO Rate. If the index rate
used in determining the Prime Rate becomes unavailable during the term of this
Note, Agent may designate a substitute index after notice to Borrower. Agent
will tell Borrower the Prime Rate upon Borrower's request. Borrower 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
Note shall bear interest from and after an Event of Default or the Maturity Date
until paid at the Default Rate from time to time in effect.
PREPAYMENT. Borrower may prepay this Note in full by paying the then unpaid
principal balance of this Note, plus accrued simple interest through date of
prepayment, subject to restrictions regarding permitted timing (with respect to
LIBO Rate Advances) and advance notice set forth in the Credit Agreement.
Borrower may be required to prepay this Note from time to time in accordance
with the Credit Agreement.
<PAGE>
-3-
EVENT OF DEFAULT. If any Event of Default occurs, Agent and Bank shall have all
of the rights and remedies (including acceleration of the Maturity Date of this
Note) available to them pursuant to the Credit Agreement or applicable law.
ATTORNEY'S FEES. If Bank refers this Note to an attorney for collection, or
files suit against Borrower to collect this Note, or if Borrower files for
bankruptcy or other relief from creditors, Borrower agrees to pay the Agent's
and the Bank's reasonable attorneys' fees.
DEPOSIT ACCOUNTS. As collateral for repayment of this Note and all renewals and
extensions, as well as to secure any and all other Indebtedness that Borrower
may now and in the future owe to Agent or any Bank in connection with the Credit
Agreement, Borrower hereby grants Agent for itself and the ratable benefit of
the Banks a continuing security interest in any and all funds that Borrower may
now and in the future have on deposit with Agent or in certificates of deposit
or other deposit accounts as to which Borrower is an account holder (with the
exception of any funds held in any of Borrower's accounts in trust for third
parties, or funds held in IRA, pension, and other tax-deferred deposits).
GOVERNING LAW. BORROWER AGREES THAT THIS NOTE AND THE LOAN EVIDENCED HEREBY
SHALL BE GOVERNED UNDER THE LAWS OF THE STATE OF LOUISIANA. SPECIFICALLY, THIS
BUSINESS OR COMMERCIAL NOTE IS SUBJECT TO LA. R.S. 9:3509 ET SEQ.
COLLATERAL. This Note is secured by the Collateral Documents described in the
Credit Agreement.
WAIVERS. Borrower waives presentment for payment, protest, notice of protest and
notice of nonpayment, diligence in taking any action to collect amounts called
for hereunder and in the handling of property at any time existing as security
in connection herewith, and shall be directly and primarily liable for the
payment of all sums owing and to be owing hereon, regardless of and without any
notice, diligence, act or omission as or with respect to the collection of any
amount called for hereunder or in connection with any right, lien, interest or
property at any and all times had or existing as security for any amount called
for hereunder.
USURY CONSIDERATIONS. It is the intention of Borrower 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 Note, it is agreed as follows: (i) the
aggregate of all interest that is taken, reserved, contracted for, charged or
<PAGE>
-4-
received under this Note or under any of the other aforesaid agreements or
otherwise in connection with this Note shall under no circumstances exceed the
maximum amount of interest allowed by applicable law, and any excess shall be
credited on this Note by the holder hereof (or if the Note shall have been paid
in full, refunded to Borrower); and (ii) in the event that maturity of this 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 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 Note (or if this Note shall have
been paid in full, refunded to Borrower). To the extent that Louisiana law would
be deemed the applicable law (as is the intent of Borrower hereunder), the
provisions of the Section 2.8 in the Credit Agreement entitled DEFAULT RATE
shall control.
SUBMISSION TO JURISDICTION: WAIVER OF JURY TRIAL.
(a) BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(1) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDINGS RELATING TO THIS 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 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
BORROWER AT ITS ADDRESS SET FORTH ABOVE OR AT SUCH OTHER ADDRESS
AT WHICH AGENT SHALL HAVE BEEN NOTIFIED PURSUANT THERETO; AND,
<PAGE>
-5-
(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) BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY
JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS NOTE AND FOR ANY
COUNTERCLAIM THEREIN.
BORROWER:
EVERGREEN RESOURCES, INC.
By: /s/ Mark S. Sexton
--------------------------
Name: Mark S. Sexton
Title: President and CEO
<PAGE>
Contract No. 33136000A
FIRM TRANSPORTATION SERVICE AGREEMENT
RATE SCHEDULE TF-1
BETWEEN
COLORADO INTERSTATE GAS COMPANY
AND
CONSOLIDATED INDUSTRIAL SERVICES, INC.
DATED: MARCH 20, 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: Consolidated Industrial Services, Inc.
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 TERMS: Transporter shall have the right to propose
to the FERC changes in its rates and terms of service, and this Agreement
shall be deemed to include any changes which are made effective pursuant to
FERC Order or regulation or provisions of law, without prejudice to
Shipper's right to protest the same.
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"): Shipper's MDQ shall be as set forth
below:
<TABLE>
<CAPTION>
MDQ
CONTRACT YEAR(S) (DTH PER DAY)
----------------------------------------------------------
<S> <C>
MARCH 20, 1997 THROUGH DECEMBER 31, 1997 2,000
JANUARY 1, 1998 THROUGH DECEMBER 31, 1998 4,000
JANUARY 1, 1999 THROUGH DECEMBER 31, 2012 6,000
</TABLE>
Shipper shall have a one-time option to forego the additional Dth per Day
of MDQ scheduled to go into effective on January 1, 1999. This option may be
exercised only if Shipper does not have sufficient gas production from its
leases to fill the MDQ of 6,000 Dth per Day. This option must be exercised
in writing by Shipper by no later than January 1, 1998.
9. TERM OF AGREEMENT: Beginning: March 20, 1997
Extending through: December 31, 2012
<PAGE>
10. NOTICES, STATEMENTS, AND BILLS:
TO SHIPPER:
INVOICES FOR TRANSPORTATION:
Enron Capital & Trade Resources
1200 17th Street, Suite 2750
Denver, Colorado 80202
Attention: Brian Bierbach, Agent
ALL NOTICES:
Consolidated Industrial Services, Inc.
211 West 14th
Chanute, Kansas 66720
Attention: Stanton E. Ross
TO TRANSPORTER:
See Payments, Notices, Nominations, and Points of Contract sheets
in the Tariff.
11. SUPERSEDES AND CANCELS PRIOR AGREEMENT: 33136000.
12. ADJUSTMENT TO RATE SCHEDULE TF-1 AND/OR GENERAL TERMS AND CONDITIONS: N/A.
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 CONSOLIDATED INDUSTRIAL SERVICES, INC.
By /s/ Donald J. Zinko By /s/ Stanton E. Ross
--------------------------- ---------------------------
Donald J. Zinko Stanton E. Ross
Senior Vice President ---------------------------
(Print or type name)
President
---------------------------
(Print or type title)
2
<PAGE>
EXHIBIT "A"
FIRM TRANSPORTATION SERVICE AGREEMENT
BETWEEN
COLORADO INTERSTATE GAS COMPANY
AND
CONSOLIDATED INDUSTRIAL SERVICES, INC.
AGREEMENT DATED: MARCH 1, 1997
AMENDMENT DATED: MARCH 20, 1997
1. Shipper's Maximum Delivery Quantity ("MDQ"): Shall be as set forth as
stated in Paragraph 8.
<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>
Frederick Meter Station See Paragraph 8 1,220
</TABLE>
<TABLE>
<CAPTION>
PRIMARY POINT(S) OF MAXIMUM RECEIPT
PRIMARY POINT(S) OF RECEIPT DELIVERY QUANTITY PRESSURE
(NOTE 1) (DTH PER DAY) P.S.I.G.
- -----------------------------------------------------------------------------
<S> <C> <C>
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
CONSOLIDATED INDUSTRIAL SERVICES, INC.
AGREEMENT DATED: MARCH 1, 1997
AMENDMENT DATED: MARCH 20, 1997
<TABLE>
<CAPTION>
PRIMARY PRIMARY R(1)
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>
Frederick Dumas (Notes 4 (Note 5) 3/20/97 (Note 2) (Note 3)
Meter and 5) through
Station 12/31/2012
</TABLE>
<TABLE>
<CAPTION>
SECONDARY SECONDARY R(1)
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>
All All (Note 1) (Note 1) 3/20/97 (Note 2) (Note 3)
through
12/31/2012
</TABLE>
NOTES: (1) Unless otherwise agreed by the Parties in writing, the rates for
service hereunder shall be Transporter's maximum rates for service
under Rate Schedule TF-1 or other superseding Rate Schedules, as
such rates may be changed from time to time.
(2) Fuel Reimbursement shall be as stated on Transporter's Schedule
of Surcharges and Fees in the Tariff, as they may be changed from
time to time, unless otherwise agreed between the Parties.
<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 as set forth in
The Tariff.
Order No. 636 Transition Cost Mechanism:
Surcharge(s) shall be assessed pursuant to Article 21 of the
General Terms and Conditions as set forth in The Tariff.
ACA:
The ACA Surcharge shall be assesed pursuant to Article 19 of the
General Terms and Conditions as set forth in The Tariff.
(4) If Shipper releases any of its capacity (i.e., becomes a
Releasing Shipper under Transporter's Capacity Release Program)
and the Replacement Shipper is paying more than the Releasing
Shipper, Transporter shall be entitled to the difference, if
any, between the reservation charge(s), including all
applicable surcharges, being paid by the Replacement Shipper,
and the reservation charges, including all applicable
surcharges, being paid by the Releasing Shipper.
(5) The rates for service shall be Transporter's maximum rates under
Rate Schedule TF-1, in The Tariff as of October 1, 1996, subject
to refund. Once the maximum TF-1 rates are approved by the FERC
in Rate Proceeding Docket No. RP96-190 ("Approved Rate"), such
rate shall remain fixed for the remainder of the term of this
Agreement. In the event Transporter is not permitted (by virtue
of The Tariff, FERC ruling, or otherwise) to collect the
Approved Rate. Transporter and Shipper shall negotiate an
amendment to this Agreement or other arrangement which places the
Parties in the same economic position they would have been in
had Transporter been permitted to collect the full Approved Rate.
<PAGE>
CONTRACT NO. 33043000B
Firm Transportation Service Agreement
Rate Schedule TF-1
between
COLORADO INTERSTATE GAS COMPANY
and
AMOCO ENERGY TRADING CORPORATION
Dated: November 1, 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: Amoco Energy Trading Corporation
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 TERMS: Transporter shall have the right to propose
to the FERC changes in its rates and terms of service, and this
Agreement shall be deemed to include any changes which are made
effective pursuant to FERC Order or regulation or provisions of law,
without prejudice to Shipper's right to protest the same.
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. NEGOTIATED RATE AGREEMENT: N/A
9. PEAK MONTH MDQ: 6,010 Dth per Day.
10. TERM OF AGREEMENT: Beginning: November 1, 1997
Extending through: November 30, 2004
11. NOTICES, STATEMENTS, AND BILLS:
To Shipper:
Invoices for Transportation:
Amoco Energy Trading Corporation
P.O. Box 3092
Houston, Texas 77253-3092
Attention: George Simo
All Notices:
Amoco Energy Trading Corporation
P.O. Box 3092
Houston, Texas 77253-3092
Attention: Jeff Hornback
<PAGE>
To Transporter:
See Payments, Notices, Nominations, and Points of Contact sheets in
the Tariff.
12. SUPERSEDES AND CANCELS PRIOR AGREEMENT: When this Agreement becomes
effective, it shall supersede and cancel the following agreement between
the Parties: The Firm Transportation Service Agreement between
Transporter and Shipper dated December 1, 1994, referred to as
Transporter's Agreement No. 33043000A.
13. ADJUSTMENT TO RATE SCHEDULE TF-1 AND/OR GENERAL TERMS AND CONDITIONS:
N/A
14. 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 13 of the
Agreement).
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
Transporter: Shipper:
COLORADO INTERSTATE GAS COMPANY AMOCO ENERGY TRADING CORPORATION
By /s/ Thomas L. Price By /s/ Joseph A. Welge
--------------------------------- ---------------------------------
Thomas L. Price
Vice President
Approved JOSEPH A. WELGE
For Execution ---------------------------------
By [ILLEGIBLE] (Print or type name)
------------ VICE PRESIDENT
Legal Dept. ---------------------------------
(Print or type title)
2
<PAGE>
EXHIBIT "A"
Firm Transportation Service Agreement
between
COLORADO INTERSTATE GAS COMPANY
and
AMOCO ENERGY TRADING CORPORATION
Dated: November 1, 1997
1. Shipper's Maximum Delivery Quantity ("MDQ") shall be 6,010 Dth per Day.
<TABLE>
<CAPTION>
PRIMARY POINT(S) OF MAXIMUM RECEIPT
PRIMARY POINT(S) OF RECEIPT RECEIPT QUANTITY PRESSURE
(NOTE 1) (DTH PER DAY) (NOTE 2) P.S.I.G.
- -------------------------------------------------------------------------------
<S> <C> <C>
Picketwire 6,010 1,308
</TABLE>
<TABLE>
<CAPTION>
PRIMARY POINT(S) OF MAXIMUM DELIVERY
PRIMARY POINT(S) OF RECEIPT DELIVERY QUANTITY PRESSURE
(NOTE 1) (DTH PER DAY) (NOTE 3) P.S.I.G.
- -------------------------------------------------------------------------------
<S> <C> <C>
Dumas 2,850 650
Forgan 3,160 680
</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.
(3) The sum of the Delivery Quantities at Point(s) of Delivery shall
be equal to or less than Shipper's MDQ.
<PAGE>
Page 1 of 2
EXHIBIT "B"
Firm Transportation Service Agreement
between
COLORADO INTERSTATE GAS COMPANY
and
AMOCO ENERGY TRADING CORPORATION
Dated: November 1, 1997
<TABLE>
<CAPTION>
PRIMARY PRIMARY R(1)
POINT(S) OF POINT(S) OF RESERVATION COMMODITY TERM OF FUEL
RECEIPT DELIVERY RATE RATE RATE REIMBURSEMENT SURCHARGES
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Picketwire Dumas $8.0097 $.0245 11/01/97 (Note 2) (Note 3)
(Note 5) through
11/30/04
Picketwire Forgan $8.75 $.0245 11/01/97 (Note 2) (Note 3)
(Note 5) through
11/30/04
</TABLE>
<TABLE>
<CAPTION>
SECONDARY SECONDARY R(1)
POINT(S) OF POINT(S) OF RESERVATION COMMODITY TERM OF FUEL
RECEIPT DELIVERY RATE RATE RATE REIMBURSEMENT SURCHARGES
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
All All (Note 1) (Note 1) 11/01/97 (Note 2) (Note 3)
through
11/30/04
</TABLE>
NOTES: (1) Unless otherwise agreed by the Parties in writing, the rates for
service hereunder shall be Transporter's maximum rates for service
under Rate Schedule TF-1 or other superseding Rate Schedules, as
such rates may be changed from time to time.
(2) Fuel Reimbursement shall be as stated on Transporter's Schedule of
Surcharges and Fees in the Tariff, as they may be changed from
time to time, unless otherwise agreed between the Parties.
<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 shall be assessed pursuant to
Article 20 of the General Terms and Conditions as set forth in
The Tariff.
ORDER NO. 636 TRANSITION COST MECHANISM:
Surcharge(s) shall be assessed pursuant to Article 21 of the
General Terms and Conditions as set forth in The Tariff.
ACA:
The ACA Surcharge shall be assessed pursuant to Article 19 of
the General Terms and Conditions as set forth in The Tariff.
(4) If Shipper releases any of its capacity (i.e., becomes a Releasing
Shipper under Transporter's Capacity Release Program) and the
Replacement Shipper is paying more than the Releasing Shipper.
Transporter shall be entitled to the difference, if any, between
the reservation charge(s), including all applicable surcharges,
being paid by the Replacement Shipper, and the reservation
charges, including all applicable surcharges, being paid by the
Releasing Shipper.
(5) The Authorized Overrun Rate charged by Transporter shall be
determined pursuant to the Stipulation and Agreement in Docket No.
RP96-190, when applicable, while such Settlement is in effect.
<PAGE>
[LETTERHEAD]
October 21, 1997
Amoco Energy Trading Corporation
550 West Lake Park Blvd.
Houston, TX 77079-2696
Re: Amendment to the Letter Agreement dated March 21, 1994, between CIG
and Amoco Energy Trading Corporation ("Picketwire Letter Agreement")
Ladies and Gentlemen:
The following sets forth the agreement between Colorado Interstate Gas
Company (CIG) and Amoco Energy Trading Corporation ("AETC"). In consideration
of the mutual promises of the parties, CIG and AETC agree as follows:
1. The provisions of the "Term--" section on pages 2 and 3 of the
Picketwire Letter Agreement are deleted and replaced with the following:
The term of the FTSA shall commence on December 1, 1994 and shall
continue through November 30, 2004.
2. The term "$.0316 per Dth" in the first paragraph under "Rate--" on
page 3 of the Picketwire Letter Agreement is deleted and replaced with
the term "$.0245 per Dth."
3. The second paragraph under "Rate--" on page 3 of the Picketwire Letter
Agreement (which begins "AETC shall immediately submit to CIG...") is deleted.
4. The paragraph under "Primary Point of Delivery--" on page 5 of the
Picketwire Letter Agreement is deleted and replaced with the following:
The initial MDQ (up to 3,160 Dth/d) shall have a Primary Point of
Delivery of Forgan. Any additional MDQ shall have a Primary Point of
Delivery of Dumas. Provided that if capacity to Forgan hereafter becomes
available, CIG shall post such capacity on its electronic bulletin
board. If, pursuant to the terms of CIG's FERC Gas Tariff, AETC acquires
capacity to Forgan for such additional MDQ, then the Primary Point of
Delivery for such additional MDQ shall be changed to Forgan.
5. AETC and CIG shall execute an amendment to the Firm Transportation
Service Agreement described in Paragraph 2 of the Picketwire Letter Agreement
("FTSA"), to be effective November 1, 1997, which provides as follows:
<PAGE>
[LETTERHEAD]
(a) The MDQ under the FTSA shall increase by 2,850 Dth/d (i.e., to a total
of 6,010 Dth/d).
(b) The incremental MDQ of 2,850 Dth/d shall have a Primary Point of
Delivery of Dumas.
(c) The rate for service to Dumas shall be $0.2877/Dth (computed on a 100%
load factor basis) plus fuel, L&U, GRI (if applicable) and ACA.
6. Except as amended hereby and by the amendment to the FTSA described
herein, the terms and provisions of the Picketwire Letter Agreement and the
FTSA shall remain in full force and effect.
If the foregoing is acceptable to AETC, please execute both originals of
this letter agreement and return one to my attention at CIG.
Sincerely,
COLORADO INTERSTATE GAS COMPANY
By: /s/ Craig R. Coombs
----------------------
Craig R. Coombs Approved
Assistance Vice By [ILLEGIBLE]
President ------------
Legal Dept.
AGREED TO AND ACCEPTED this ____ day of October, 1997
AMOCO ENERGY TRADING CORPORATION,
By: /s/ Joseph A. Welge [ILLEGIBLE]
--------------------
Joseph A. Welge
Title: Vice President
--------------------
2
<PAGE>
[LETTERHEAD]
July 18, 1995
Ms. Judith Warhover
Colorado Interstate Gas Company
P. O. Box 1087
Colorado Springs, CO 80944
Re: Amendment Dated December 1, 1994,
Letter Agreement Dated June 22, 1995
to Firm Transportation Service Agreement (TF-1)
CIG CONTRACT #33043, AETC #178074
Dear Judy:
Enclosed you will find a fully executed original of both the Letter Agreement
dated June 22, 1995, and the Amendment dated December 1, 1994, as they
pertain to the Firm Transportation Service Agreement noted above.
Please do not hesitate to contact me at (713) 366-4956 should there be
questions on this matter of if I can be of further assistance.
Sincerely,
/s/ Dennis Lassen
Dennis Lassen
Transportation Services
/szf
Enclosure
<PAGE>
[LETTERHEAD]
June 22, 1995
Amoco Energy Trading Corporation
501 Westlake Park Blvd.
P. O. Box 3092
Houston, Texas 77253-3092
Attn: Dennis Lassen
Re: Picketwire Lateral
Letter Agreement dated March 21, 1994
Clarification of Agreement
Dear Dennis:
This is to reaffirm the agreement of Colorado Interstate Gas Company ("CIG")
and Amoco Energy Trading Corporation ("AETC") regarding the referenced Letter
Agreement. The Letter Agreement contains various provisions which govern
transportation services to be provided by CIG and AETC, and the Firm
Transportation Service Agreement ("FTSA") is expressly subject to the terms
of the Letter Agreement.
Paragraph five of page six of the Letter Agreement states that the terms of
the FTSA are subject to the terms and conditions of the Letter Agreement
and that the FTSA shall be amended from time to time in order to conform to
the terms and conditions of the Letter Agreement. By execution of this
amendment, it is further understood that in the event of conflict between the
terms and provisions of the FTSA as altered by Amendment dated December 1,
1994, or other Amendments entered into from time to time and the Letter
Agreement, that the terms and provisions of the Letter Agreement shall
prevail.
If the foregoing is in accordance with AETC's understanding, please so
indicate by executing in the space provided below.
Sincerely,
COLORADO INTERSTATE GAS COMPANY
By: /s/ Donald J. Zinko
----------------------
Donald J. Zinko Approved
Senior Vice For Execution
President By [ILLEGIBLE]
------------
Legal Dept.
Accepted and agreed to:
AMOCO ENERGY TRADING CORPORATION
By: /s/ [ILLEGIBLE]
---------------------------
Vice President
<PAGE>
[LETTERHEAD]
February 27, 1995 File Amoco Contract 178074
143622
Mr. Rich Asheim
Amoco Energy Trading Corporation
550 WestLake Park Blvd. 77079-2696
P. O. Box 3092
Houston, TX 77253-3092
Dear Mr. Asheim:
The Transmission & Storage division of Colorado Interstate Gas Company (CIG)
is concerned with the number of late payments for invoiced business since
restructuring under Order 636.
Accordingly, effective with bills due on or after March 20, 1995, CIG will
implement a late charge in accordance with Paragraph 11.3, Original Sheet No.
331, of its Tariff. This charge will apply to any amounts unpaid (for
services and cashouts) as of March 20, 1995. The late charge will be the FERC
interest rate, however, without quarterly compounding. Of course, in the
event that there is a billing error in your favor, CIG will refund the
principal plus interest calculated in the same manner.
Should you have a dispute or questions regarding our invoices, we could ask
that you address these to your Account Representative within 30 days and
provide adequate supporting documentation.
We regret that this action has become necessary but feel that the situation
should quickly correct itself once these Tariff provisions are implemented.
Sincerely,
/s/ Donald J. Zinko
Donald J. Zinko
Senior Vice President
Transmission & Storage
<PAGE>
[LETTERHEAD]
August 2, 1994
Amoco Energy Trading Corporation
501 WestLake Park Blvd.
Post Office Box 3092
Houston, TX 77253-3092
Attention: Mr. Gary W. Featherston
Enclosed find two executed originals of an amendment of the March 21, 1994
Picketwire Lateral Letter Agreement which amends the location of the
interconnect between CIG's Picketwire Lateral and AETC's proposed gathering
system (Picketwire Point of Receipt). These are being sent to you for your
execution. Please return one original to us for our records.
Sincerely,
/s/ Craig R. Coombs
Craig R. Coombs
Manager, Project Development
CRC/jvm
Enclosure
<PAGE>
Memo to Contract No. 178,074:
Per telecon with Craig Coombs (CIG) on December 2, 1994, it is not necessary
to submit the $10,000 filing fee (deposit) pursuant to paragraph 2 of Rate
provision on page 3 of the Letter Agreement dated March 21, 1994 between AETC
and CIG. Amoco submitted a $10,000 fee for the initial 2,850 MDQ, and has the
first right of refusal on an additional 2,850 of firm capacity on the
Picketwire Lateral. The Picketwire Lateral is a 10" extension of CIG's
mainline and has an approximate capacity of 50,000 Mcfd.
Gary Featherston
<PAGE>
[LETTERHEAD]
December 13, 1994
Mr. Gary Featherston
Amoco Energy Trading Corporation
501 West Lake Blvd.
P. O. Box 3092
Houston, TX 77253-3092
Re: Picketwire Lateral
Dear Gary:
This letter summarizes our verbal discussion between AETC and CIG on several
matters relating to the Picketwire Lateral.
First, it is understood that AETC will install the necessary inert blending
to meet CIG's upper Wobbe number limit of 1272. AETC may use air for such
blending between now and January 1, 1996 provided the total amount of gas
flowing on the Picketwire Lateral is not greater than 11,000 Dth/d. In the
event volumes on the Picketwire Lateral are in excess of 11,000 Dth/d during
this period then CIG will have the right to curtail such excess volumes.
However, CIG will not curtail volumes less than AETC's current MDQ of 2850
Dth. CIG shall accept gas above 950 Btu/Scf and below this upper Wobbe number
limit. CIG will accept AETC's gas above the 1272 upper Wobbe number limit
until January 15, 1995. This should allow adequate time for AETC to install
their blending. AETC will install a Precision Measurement Model CB 2000 Therm
Titrator as part of these facilities to be used for continuous control and
subsequent shutdown in the event AETC does not meet the aforementioned
requirements. CIG will reimburse AETC for the cost of this Therm Titrator
since it was not stated as being required by CIG in the original March 21,
1994 Letter Agreement between AETC and CIG.
Second, CIG will be sending a check to AETC in the amount of $173,590 to
reimburse AETC for payments AETC made to CIG for CIG to proceed on
preliminary work done on the Picketwire Lateral during late 1988 and early
1989. The agreement between Amoco Production Company and CIG stipulates that
CIG will repay AETC these amounts in the event CIG constructs the Picketwire
Lateral.
Third, CIG will pursue presently a proposal to AETC and other third party
producers on the Picketwire Lateral for central blending by CIG.
<PAGE>
Amoco Energy Trading Corporation
December 13, 1994
Page 2
Please let me know if there are any outstanding issues remaining between AETC
and CIG which have not been addressed here. Your cooperation has always been
appreciated in these matters.
Sincerely,
/s/ Craig R. Coombs
Craig R. Coombs
Director, Project Development
CRC/jvm
<PAGE>
[PHOTO]
Cd178,074
[PHOTO]
Hand carried to
M. Haggard (GMA) 1-17-95,
for their further handling
-GWF
1-17-95
178,074
<PAGE>
Contract No. 33043000A
178,074
AMENDMENT
DATED: December 1, 1994
----------------
to
FIRM TRANSPORTATION SERVICE AGREEMENT
RATE SCHEDULE TF-1
between
COLORADO INTERSTATE GAS COMPANY
and
AMOCO ENERGY TRADING CORPORATION
DATED: In-Service Date of the Picketwire Lateral
-----------------------------------------
<PAGE>
AMENDMENT TO
TRANSPORTATION SERVICE AGREEMENT
THIS AMENDMENT, made and entered into this 1st Day of December, 1994, by
and between COLORADO INTERSTATE GAS COMPANY, hereinafter referred to as
"Transporter," and AMOCO ENERGY TRADING CORPORATION, hereinafter referred to
as "Shipper."
WHEREAS, Transporter and Shipper entered into a Transportation Service
Agreement (Agreement) dated In-Service Date of the Picketwire Lateral, which
provides for the transportation by Transporter for Shipper pursuant to 18 CFR
284.221 authority unless Shipper elects service to be performed to
Transporters 18 CFR 284.101 (Section 311) authority; and
WHEREAS, Transporter and Shipper desire to amend the Agreement to revise
Point of Receipt and Delivery Quantity, and R1 Reservation/Commodity Rates;
and
WHEREAS, Transporter and Shipper desire to amend the Agreement as
provided herein in order to increase the Maximum Delivery Quantity to 3,160
Dth per Day;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, Transporter and Shipper agree to amend the
Agreement as follows:
1. Effective December 1, 1994, the number "2,850" in Section 1.1
MAXIMUM DELIVERY QUANTITY ("MDQ") of Article I of the Agreement shall be
deleted and the number "3,160" shall be substituted therefor.
2. Effective December 1, 1994, Exhibit "A" and Exhibit "B", Page 1 of
2 to the Agreement shall be deleted in its entirety and the attached Exhibit
"A" and Exhibit "B", Page 1 of 2 dated December 1, 1994, shall be substituted
therefor.
<PAGE>
This Amendment shall be effective as of the dates set forth in
Paragraphs 1 and 2 above, and except as herein amended the Agreement shall in
all respects remain in full force and effect.
IN WITNESS WHEREOF, the Parties have executed this Amendment.
COLORADO INTERSTATE GAS COMPANY
(Transporter)
By /s/ Donald J. Zinko Approved
------------------------- For Execution
Donald J. Zinko By [ILLEGIBLE]
Senior Vice President ------------
Legal Dept.
AMOCO ENERGY TRADING CORPORATION
(Shipper)
Attest:
By /s/ [ILLEGIBLE]
--------------------------
By ______________________ /s/ [ILLEGIBLE]
Title: --------------------------
(Print or type name)
Vice President
--------------------------
(Print or type title)
2
<PAGE>
EXHIBIT "A"
to
FIRM TRANSPORTATION SERVICE AGREEMENT
between
COLORADO INTERSTATE GAS COMPANY (Transporter)
and
AMOCO ENERGY TRADING CORPORATION (Shipper)
AMENDMENT DATED: December 1, 1994
----------------
AGREEMENT DATED: In-service date of the Picketwire Lateral
-----------------------------------------
1. Shipper's Maximum Delivery Quantity ("MDQ"): 3,150 Dth per Day.
-----
<TABLE>
<CAPTION>
Point of Maximum
Receipt Quantity Receipt
Primary Point(s) of Receipt (Dth per Day) Pressure
(Note 1) (Note 2) p.s.i.g.
- -------------------------------------------------------------------------------
<S> <C> <C>
Picketwire 3,160 1,000
</TABLE>
<TABLE>
<CAPTION>
Point of Maximum
Delivery Quantity Delivery
Primary Point(s) of Delivery (Dth per Day) Pressure
(Note 1) (Note 2) p.s.i.g.
- --------------------------------------------------------------------------------
<S> <C> <C>
Forgan 3,160 680
</TABLE>
NOTES: (1) Information regarding Points of Receipt and Points 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) Point of Receipt Quantities may be increased by an amount
equal to Transporter's effective fuel reimbursement.
<PAGE>
Page 1 of 1
EXHIBIT "B"
to
FIRM TRANSPORTATION SERVICE AGREEMENT
between
COLORADO INTERSTATE GAS COMPANY (Transporter)
and
AMOCO ENERGY TRADING CORPORATION (Shipper)
AMENDMENT DATED: December 1, 1994
----------------
AGREEMENT DATED: In-service date of the Picketwire Lateral
-----------------------------------------
<TABLE>
<CAPTION>
Primary Primary R1
Point of Point of Reservation Commodity Term of Fuel Hourly
Receipt Delivery Rate Rate Rate Reimbursement Flexibility Surcharges
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Picketwire Forgan (Notes 1 (Note 1) Through (Note 2) (Note 1) (Note 3)
and 5) 9/30/04
</TABLE>
<TABLE>
<CAPTION>
Secondary Secondary R1
Point of Point of Reservation Commodity Term of Fuel Hourly
Receipt Delivery Rate Rate Rate Reimbursement Flexibility Surcharges
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
All Other All Other (Notes 4 (Note 4) Through (Note 2) (Note 1) (Note 3)
Points of Points of and 5) 9/30/04
Receipt Delivery
</TABLE>
NOTES: (1) The rates for service hereunder shall be Transporter's maximum
rates for service under Rate Schedules TF-1 and HFS-1, if
applicable, or other superseding Rate Schedules, as such rates
may be changed from time to time.
(2) Fuel usage and lost and unaccounted-for deductions 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) Applicable Surcharges:
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.
Gas Quality Control:
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.
Gas Supply Transition:
The Gas Supply Transition Surcharge shall be assessed
pursuant to Article 21 of the General Terms and Conditions
as set forth in the Tariff.
ACA:
Transporter's applicable ACA Surcharge shall be added to all
discounted rates except that in no event shall the
discounted rate plus the ACA Surcharge exceed Transporter's
maximum rate as stated in the Schedule of Rates in the
Tariff.
(4) The rates for service at secondary points shall be
Transporter's maximum rates for service under Rate Schedules
TF-1 unless otherwise agreed by the parties.
(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>
This Amendment shall be effective as of the dates set forth in
Paragraphs 1 and 2 above, and except as herein amended the Agreement shall in
all respects remain in full force and effect.
IN WITNESS WHEREOF, the Parties have executed this Amendment.
COLORADO INTERSTATE GAS COMPANY
(Transporter)
By /s/ Donald J. Zinko Approved
------------------------- For Execution
Donald J. Zinko By [ILLEGIBLE]
Senior Vice President ------------
Legal Dept.
AMOCO ENERGY TRADING CORPORATION
(Shipper)
Attest:
By /s/ [ILLEGIBLE]
--------------------------
By _____________________ /s/ [ILLEGIBLE]
Title: --------------------------
(Print or type name)
Vice President
--------------------------
(Print or type title)
2
<PAGE>
Feb 12, 1999 [LOGO]
[PHOTO]
l580 Lincoln Street #1110
Evergreen Resources, Inc. Denver, Colorado 80203
1401 17th St., Suite 1200 Telephone
Denver, Colorado 80202 (303)830-9377
Fax (303)830-9427
[email protected]
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 December 31, 1998. The appraised properties are located in Colorado. 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.
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.
<PAGE>
Evergreen Resources, Inc.
Feb 12, 1999
Page 2
"(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 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 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
<PAGE>
Evergreen Resources, Inc.
Feb 12, 1999
Page 3
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 natural gas as of December 31, 1998
follow:
<TABLE>
<CAPTION>
NATURAL GAS
-----------
MMCF
<S> <C>
Total Proved Developed Producing Reserves 209,176
Total Proved Developed Non-Producing Reserves 33,810
Total Proved Undeveloped Reserves 161,950
-------
TOTAL PROVED RESERVES 404,936
-------
-------
</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 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.
<PAGE>
Evergreen Resources, Inc.
Feb 12, 1999
Page 4
Estimated future net revenue and net present value of future net revenue
from proved natural gas, as of December 31, 1998 follow:
<TABLE>
<CAPTION>
10% DISC.
FUTURE NET FUTURE NET
REVENUE MS REVENUE MS
<S> <C> <C>
Total Proved Developed Producing Reserves 276,350 140,838
Total Proved Developed Non-Producing Reserves 39,810 16,407
Total Proved Undeveloped Reserves 176,985 57,430
------- -------
TOTAL PROVED RESERVES 493,145 214,675
------- -------
------- -------
</TABLE>
Evergreen has increased proven reserves from the August 31, 1998 report by
ongoing drilling which continues to prove additional locations. Remedial work on
wells, gathering system, and additional compression, must be completed to
produce the volumes forecast in this report. This work is in progress and should
be completed during the next 15 months. The capital investment for this work is
reflected in this report.
Evergreen's gas reserves are coal gas located in the Raton Basin, Colorado.
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.
RESOURCE SERVICES INTERNATIONAL, INC.
<PAGE>
[LETTERHEAD]
February 16, 1999
Mr. Mark S. Sexton
Evergreen Resources, Inc.
1401 Seventeenth Street, Suite 1200
Denver, Colorado 80202
Dear Mr. Sexton:
In accordance with your request, we have audited the estimates prepared
by Evergreen Resources, Inc. (Evergreen), as of December 31, 1998, of the proved
reserves and future net revenue to the Evergreen interest in certain oil and gas
properties located in Las Animas County, Colorado. 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 December 31, 1998, for the
audited properties:
<TABLE>
<CAPTION>
Net Reserves Future Net Revenue (M$)
------------------------- -------------------------------
Oil Gas Present Worth
Category (MBBL) (MMCF) Total at 10%
- -------------------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Proved Developed
Producing 0.0 209,175.9 276,350.1 140,838.2
Non-Producing 0.0 33,810.7 39,810.6 16,406.6
Proved Undeveloped 0.0 161,949.6 176,984.7 57,429.8
- -------------------- -------- ---------- ----------- -------------
Total Proved 0.0 404,936.2 493,145.4 214,674.6
</TABLE>
Gas volumes are expressed in millions of standard cubic feet (MMCF) at the
contract temperature and pressure bases. These properties have never produced
commercial volumes of condensate.
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
December 31, 1998 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
<PAGE>
[LOGO]
include value for probable or possible reserves which may exist for these
properties, nor do they include any consideration of undeveloped acreage beyond
those tracts for which undeveloped reserves have been estimated.
The gas price used by Evergreen is $1.60 per MCF and is held constant
throughout the life of the properties. Evergreen's estimates of lease and well
operating costs are based on historical operating expense records. These costs
include direct lease and field level costs, but do not include overhead expenses
above the field level. Evergreen used direct lease and field level costs of
$1,025 per well per month for the first year of production, $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 $0.055 per MCF is also included. Headquarters
general and administrative overhead expenses of Evergreen are not included.
Lease and well operating costs are held constant throughout the remaining 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 properties making up 80 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/ Netherland, Sewell & Associates, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1998
<CASH> 1,333,733
<SECURITIES> 0
<RECEIVABLES> 4,728,722
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,357,466
<PP&E> 147,176,068
<DEPRECIATION> 19,400,469
<TOTAL-ASSETS> 139,626,317
<CURRENT-LIABILITIES> 6,825,381
<BONDS> 47,045,074
0
0
<COMMON> 111,426
<OTHER-SE> 79,567,720
<TOTAL-LIABILITY-AND-EQUITY> 139,626,317
<SALES> 19,062,968
<TOTAL-REVENUES> 19,796,695
<CGS> 7,216,540
<TOTAL-COSTS> 9,149,405
<OTHER-EXPENSES> 286,260
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,869,743
<INCOME-PRETAX> 8,491,287
<INCOME-TAX> 3,279,000
<INCOME-CONTINUING> 5,212,287
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,212,287
<EPS-PRIMARY> .50
<EPS-DILUTED> .47
</TABLE>
