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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



FORM 10-K

ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2009o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                                    to


Commission file number: 001-14176

EVERGREEN ENERGY INC.(Exact Name of Registrant as specified in its Charter)

Delaware(State or other jurisdiction of
incorporation or organization)

84-1079971(IRS Employer
Identification No.)1225 17th Street, Suite 1300
Denver, Colorado(Address of Principal Executive Offices)

80202(Zip Code)


Registrant's Telephone Number, including area code:(303) 293-2992

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name of Exchange on Which RegisteredCommon Stock, $.001 par value

NYSE Arca


Securities registered pursuant to Section 12(g) of the Act:None

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or section 15(d) of the Exchange
Act. Yes o    No ý

Indicate by check mark whether 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. Yes ý    No o

Indicated by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files). Yes o    No o

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. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o
(Do not check if a
smaller reporting
company)

Smaller reporting company o


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý

The aggregate market value of the common stock held by non-affiliates of the registrant was $88,236,019 computed by reference to the closing price of
the common stock on June 30, 2009, the last trading day of the registrant's most recently completed second fiscal quarter.

Indicate
the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class

Outstanding at March 26, 2010Common Stock, $.001 par value

201,295,116 shares


DOCUMENTS INCORPORATED BY REFERENCE

Document

Parts Into Which IncorporatedDefinitive Proxy Statement for the 2010 Annual Meeting

Part III




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TABLE OF CONTENTS



Page No.PART IItem 1.

Business


4Item 1A.

Risk Factors


16Item 1B.

Unresolved Staff Comments


35Item 2.

Properties


35Item 3.

Legal Proceedings


39Item 4.

Submission of Matters to a Vote of Security Holders


39PART IIItem 5.

Market for Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities


40Item 6.

Selected Financial Data


42Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations


43Item 7A.

Quantitative and Qualitative Disclosures About Market Risk


61Item 8.

Financial Statements and Supplementary Data


61Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures


61Item 9A.

Controls and Procedures


61Item 9B.

Other Information


65PART IIIItem 10.

Directors, Executive Officers and Corporate Governance


65Item 11.

Executive Compensation


65Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


65Item 13.

Certain Relationships and Related Transactions, and Director Independence


65Item 14.

Principal Accountant Fees and Services


65PART IVItem 15.

Exhibits and Financial Statement Schedules


66SIGNATURES


72


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CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements that are not statements of
historical fact and may involve a number of risks and uncertainties. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts
not yet determinable. These statements may also relate to our future prospects, developments and business strategies.

We
have used the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "will," "plan," "predict," "project" and similar terms and phrases, including references
to assumptions, in this Annual Report on Form 10-K to identify forward-looking statements. These forward-looking statements are made based on expectations
and beliefs concerning future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of
which are beyond our control, that could cause our actual results to differ materially from those matters expressed in or implied by these forward-looking statements. The following factors
are
among those that may cause actual results to differ materially from our forward-looking statements:



You
should keep in mind that any forward-looking statement made by us in this Annual Report on Form 10-K or elsewhere speaks only as of the date on which
we make it. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, update or
revise the forward-looking statements in this Annual Report on Form 10-K after the date of this filing, except as may be required by law. In light of these risks and
uncertainties, you should keep in mind that any forward-looking statement made in this Annual Report on Form 10-K or elsewhere might not occur.

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PART I

ITEM 1.    BUSINESS

In this Annual Report on Form 10-K, we use the terms "Evergreen Energy," "we," "our," and "us" to refer to Evergreen
Energy Inc. and its subsidiaries. C-Lock refers to our subsidiary C-Lock Technology, Inc. Buckeye refers to our subsidiary Buckeye Industrial Mining Co.
All references to C-Lock®, GreenCert, K-Fuel, K-Fuel®, K-Fuel process, K-Fuel refined coal,
K-Fuel refineries, K-Direct®, K-Fuel Plants, K-Fuel facilities, K-Direct facilities and K-Direct®
plants, refer to our patented processes and technologies explained in detail throughout this Annual Report on
Form 10-K. All references to years, unless otherwise noted, refer to our fiscal year, which ends on December 31st.

We
were founded in 1984 as a cleaner coal technology, energy production and environmental solutions company focused on developing our proprietary technologies. In the last two years, we
have sharpened our focus on positioning us as a carbon technology company. We have developed two proprietary, patented, and potentially transformative green technologies: the GreenCert suite of
software and services and K-Fuel. Our GreenCert technology is a scientifically accurate and scalable environment intelligence solution that measures greenhouse gases (or GHG) and
other environmental costs enabling customers to manage and report their environmental assets and liabilities. GreenCert, built on IBM's Service-Oriented Architecture (or SOA), is an
environment intelligence solution that provides customers the end-to-end visibility and traceability necessary to measure their complete environmental footprint.
K-Fuel, our clean coal technology significantly improves the performance of low-rank coals yielding higher efficiency and lower emissions.

Over
the past year, we have been evaluating several alternatives related to our strategic positioning, including the potential sale of certain assets, including Buckeye. On
March 12, 2010, we signed a definitive agreement with Rosebud Mining Company for the sale of certain net assets of both Buckeye and Evergreen, which we refer to as the "sale of Buckeye", for
$27.9 million, in addition to the release of $5.0 million of cash reclamation bonds. Further, $2.8 million of the purchase price will be deposited into escrow for a period of
twelve months to cover amounts payable to Rosebud pursuant to the indemnification provision of the sales agreement. The closing is not subject to a financing condition, but is subject to the
satisfaction of customary closing conditions, including, among other matters, (i) accuracy of the representations and warranties and compliance with the covenants set forth in the agreement,
each in all material respects, (ii) receipt of legally required regulatory approvals, and (iii) consents of certain governmental authorities and certain of Buckeye's specified
contractual counterparties. The sale is expected to close in April 2010, but in any event no later than June 30, 2010. The proceeds from the sale of Buckeye will be used to retire the
outstanding 2009 Notes including fees and accrued interest of $21.1 million, to fund related transaction expenses estimated at $2.5 million and for general working capital
purposes.

With
the sale of Buckeye we will be able to better focus our resources on core business activities, our GreenCert and K-Fuel technologies. We terminated the contemplated
K-Fuel spin-off as previously announced. Concurrently, Evergreen-China Energy Technology Co., Ltd. ("Evergreen-China"), a
Sino-US joint venture between Evergreen Energy and a Chinese investor, signed a letter of intent with a large Chinese integrated utility and chemical manufacturer to build a
K-Fuel plant in Inner Mongolia to produce K-Fuel from low-ranked lignite feedstock.

As
the business environment changes, our ongoing business plan may be altered. The following discussion addresses the current aspects of our business.



We are continuing the development of our GreenCert suite of software and services. GreenCert is an accurate and scalable environmental
intelligence solution that quantifies greenhouse gas emission

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avoidances
and reductions and generates verifiable emissions offsets. GreenCert provides real-time, multiple method data analysis to increase accuracy and reduce uncertainty to quantify
incremental improvements. GreenCert also enables enterprises to reduce overall costs via the identification of significant operational efficiencies, compliance and risk reduction and sustainability
measures. We intend to sell GreenCert as an on-premise offering and as a hosted software as a service (or SaaS) solution, both with annual licensing and renewal fees.

GreenCert
is a software framework that is both generally applicable to all industries and customizable for client and industry specifics and currently has two environmental intelligence
solution sets: Energy/Utilities and Agriculture. The GreenCert Energy Solutions suite offers three levels: Reporting, Analytics and Enterprise. GreenCert Reporting contains baseline emissions
tracking, an interface for emissions data entry, and base level reporting and dashboard capability. GreenCert Analytics offers reporting plus forward modeling and analysis tools. GreenCert Enterprise
contains all of the components of GreenCert Analytics with the additional capability of an enterprise SOA solution which automates the quantification and verification of emission reductions. GreenCert
Agriculture offers the unique ability to scientifically quantify, on a per field basis, soil carbon sequestration and generate terrestrial emission reduction offsets. GreenCert greenhouse gas
consulting services are available to conduct environmental and efficiency assessments, to quantify footprints, and to provide utility, agricultural, and environmental expertise. All GreenCert products
and services fall within the Enterprise Carbon Management solutions market as a broad class of solutions that cuts across industrial sectors to offer services, reporting, efficiency auditing, and
emission reduction offsets for emitters of greenhouse gases.

Evergreen
Energy's GreenCert solutions are designed to be indifferent to legislation and meet and/or exceed any governmental mandate. Our scientifically rigorous solutions contain a
flexible information technology backbone which can be adapted to any regulatory environment. Regardless of any new legislation, the efficiency and accuracy improvement that are obtained within the
GreenCert Energy Solution appeals to utilities and provides a platform to prepare for future legislative or regulatory changes. Greenhouse gas regulation of any form will only enhance the market
appeal for our GreenCert products.

We
have a three-phase plan to implement GreenCert at client locations. In the first phase, GreenCert quantifies the client's baseline emissions status and the accuracy of the
methodology and data used. In the second phase, we assess and identify the capital expenditure and operating
expense improvements that drive efficiencies within the client or specific plant and determines the GHG savings associated with those efficiency improvements. This phase also evaluates methods to
reduce the uncertainty of the GHG measurement to improve accuracy. Combined, the first two phases deliver the GHG assessment and result in an understanding of the return on investment for employing
the third phase. In this final phase, we deploy the site-specific, highly-customized solution that enables the quantification and monetization of the emissions reductions and
efficiency improvements. The deployed solution then also enables further improvements to be quantified and monetized going forward.

We
continue to identify potential future strategic partners for GreenCert, in addition to IBM Corp. and Enterprise Information Management Corp (or EIM), to assist in the development,
testing and roll-out of its products. Potential partners include companies offering services or products such as: energy engineering consulting; power generation performance optimization;
environmental consulting; and products relating to sensor systems and devices, data collection devices, or other products that support energy or power plant operations. On November 5, 2009, we
announced that GreenCert was validated on IBM's Solution Architecture for Energy and Utilities (or SAFE) framework, the software technology backbone that makes a wide range of utility solutions
possible by helping clients build a standards-based integrated platform across the clients' entire operations and energy value chain. GreenCert will be marketed across the globe through
the SAFE framework validation. Also on November 5, 2009, we announced our partnership with Black & Veatch to deploy GreenCert to the

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global
power generation market. Black & Veatch expects to provide integrated emissions and performance management solutions by leveraging GreenCert for additional customer needs and
requirements.



Through our proprietary K-Fuel process we intend to meet the specific needs of public utility, industrial and international
customers by providing economical solutions for energy supply, energy efficiency and compliance with environmental emission standards. Additional markets served by our K-Fuel process
include mines looking to expand the market for their low rank coal by transforming it into a higher value fuel and chemical manufacturers using coal as a feedstock. Our K-Fuel process uses
heat and pressure to physically and chemically transform high-moisture, low-Btu coals, such as sub-bituminous coal and lignite, into a more energy dense, energy
efficient, lower-emission fuel. The inherent efficiency of higher Btu-lower moisture coal improves power plant performance and reduces emissions on a per
kilowatt-hour-generated basis. We believe that China presents the best opportunity to develop the K-Fuel technology because of its plentiful reserves of
high-moisture, low-Btu coals, its rapid growth in electric power demand and its lower construction and manufacturing costs. The goal of our K-Fuel technology
is to transform those lower-rank coals into more efficient and environmentally compliant fuels in order to meet the increasing demand for energy in an optimal fashion. As mentioned above
Evergreen-China continues discussions with a Chinese conglomerate for the potential construction of a K-Fuel plant in Inner Mongolia. See further discussion of the
K-Fuel business under Business History.

Segments

Our segments include the GreenCert segment, the Plant segment, the Mining segment and the Technology segment. The GreenCert segment
reflects activities related to the measurement of greenhouse gases and certification of environmental improvements such as carbon credits. The Plant segment primarily represents revenue and costs
related to our Fort Union plant near Gillette, Wyoming, at which we suspended operations in March 2008. The Mining segment primarily represents our mining operations of our subsidiary Buckeye, and
includes certain marketing capabilities such as an ash disposal facility and a coal preparation and blending facility. The Technology segment is comprised of all other operations that use, apply, own
or otherwise advance our proprietary patented K-Fuel process, including our headquarters and related operations, around activities of KFx Technology, LLC, which holds the right to
issue licenses of the K-Fuel technology. Corporate costs within our Technology segment are allocated to our other segments, generally based on a percentage of the number of employees,
total segment operating expenses, or segment operating expenses plus segment capital expenditures. We will continue to evaluate how we manage our business and, as necessary, adjust our segment
reporting accordingly.

Business Strategy

The principal elements of our long-term strategy are to focus our efforts and resources on building our GreenCert and
K-Fuel businesses through a combination of organic growth, acquisitions and joint ventures and to complete the sale of our Buckeye operations. We plan to focus on the following strategies.



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Competitive Strengths

We believe we are uniquely positioned in the energy market as a result of the following strengths:



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Competition

We believe our GreenCert solution is a first-of-its-kind, web-based platform that
accurately measures incremental greenhouse gas emission reductions and can certify these environmental improvements as emission offsets to meet any regulatory environment. There are other companies
that have developed systems that measure greenhouse gases and certify emission offsets, and our potential customer base can choose to use other Enterprise Carbon Management solutions instead of ours.
In the last year a number of additional companies have entered the Enterprise Carbon Management solution space. According to Groom Energy there are 68 companies that have software packages for
GHG/Enterprise Carbon Management Solutions and they anticipate the number of sellers to increase 600% by 2011.

Our
K-Fuel refined coal is a coal with characteristics of low-moisture, high-Btu content and low sulfur dioxide, nitrogen oxides and mercury
emissions. The known direct competitors for K-Fuel refined coal include other coal upgrading processes, other high-Btu coal, low sulfur coal and advanced pollution control
technologies. The indirect competition to K-Fuel refined coal includes electrical generation from natural gas, nuclear fuel, oil, wind, bio-fuels, and other renewable energy
sources. Potential customers could choose to install pollution equipment instead of using our K-Fuel refined coal and/or choose to inject additives to reduce emissions. These alternatives
include equipment such as low-nitrogen oxide burners, over-fire air systems, selective catalytic reduction systems, sulfur scrubbers, fabric filters, electrostatic
precipitators, mercury control technology, or other equipment and adding limestone or other chemicals to combustion and waste stream.

Intellectual Property

Our success depends in part on our ability to protect our intellectual property and to avoid infringement of the intellectual property
of third parties. Our trademarked GreenCert solution embodies greenhouse gas measurement, certification and carbon information management software. The technology and patents provide for certification
of emission offset reduction creditsessential to maximizing the value of credits in compliance and trading markets. We have the worldwide exclusive rights to various patents. The
technology can be applied to measurements of any emissions offsets reduction or other environmental attributes. This proprietary process is web-based and has been integrated with
IBM software products and tools.

The
patents which cover earlier versions of our K-Fuel technology are near their expiration dates. Patents which cover newer versions of that technology expire from 2018
through 2024.
Our most recently issued patent covers most of the aspects of our K-Fuel process as it is currently conducted. As we make modifications and improvements to our proprietary process, we
continue to evaluate our patent protection. As new improvements result, we would anticipate the filing of additional patent applications.

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Business History

We were founded in 1984. We incorporated under the laws of the state of Delaware in 1988. Our principal executive offices are located
at 1225 17th Street, Suite 1300, Denver, Colorado 80202, and our telephone number is (303) 293-2992.

GreenCert.In December 2007, our subsidiary, C-Lock Technology, Inc., in conjunction with IBM and Enterprise Information
Management, Inc. began developing a greenhouse gas solution called GreenCert. Certain aspects of GreenCert are patented and available to us through an exclusive licensing agreement. We continue
to focus our efforts on further development and commercialization of our GreenCert solution.

K-Fuel.Over the past 25 years, we have been principally focused on the development of our K-Fuel technology. We have
obtained multiple patents for different versions of the K-Fuel technology using a variety of methods to apply heat and pressure to process high moisture coal feedstocks. We have patents or
patent applications for the K-Fuel technology issued or pending in the United States and various foreign countries. As we continue to develop and make enhancements to either technology or
develop new technologies consistent with our business strategy, we anticipate expanding our patent coverage.

Multiple
laboratory and test burn results have independently verified the effectiveness of the K-Fuel process at removing significant amounts of mercury from
lower-rank coals. The amount of mercury reduction varies depending on the coal source. The K-Fuel process can reduce mercury by up to 70% in Wyoming Powder River Basin coal.
Tests on Indonesian coal showed a 56% mercury reduction, and a test burn of blended K-Fuel at a western Pennsylvania power plant achieved an almost 82% mercury emission
reduction at the stack when compared to the mercury content of the coal normally burned at that plant.

The
current K-Fuel process applies heat and pressure to lower-rank coals with high water content, such as those found in Wyoming's Powder River Basin, to reduce
moisture from approximately 30% in the low-Btu coal to 8%-14% in our K-Fuel refined coal. As a result, the heat value is boosted by 25% to 40%. The increase is
variable depending on the type of coal processed and process conditions. We believe the process results in increased efficiency of the fuel needs in power generating, industrial and institutional
facilities. Further, the K-Fuel process removes a significant amount of impurities from the lower-Btu coal, which we believe will allow the power generation industry and
smaller industrial coal boilers to economically comply with increasingly stringent air emission standards and environmental regulations. The pre-combustion refinement of raw coal into
K-Fuel refined coal reduces the mercury content, and upon combustion, sulfur dioxide and nitrogen oxides are also reduced. Our analysis also shows that burning K-Fuel refined
coal with its increased efficiency will reduce carbon dioxide emissions by up to 8% on a per-kilowatt-hour generated basis.

We,
along with Bechtel Power Corporation, have completed the modifications and improvements of the design and efficiency of the equipment used in the K-Fuel process. Bechtel
and Evergreen's operations teams at our Fort Union plant near Gillette, Wyoming completed successful testing of new operational systems that will support construction of future K-Fuel
refineries, including an enhanced standard processing tower design. We believe this work signals that we have resolved the most substantive technical challenges to scaling and fully commercializing
our production process.

In
March 2008, we suspended operations at our Fort Union plant in order to redirect constrained resources, both capital and human, to focus on the commercialization of this process in
future K-Fuel

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plants.
Suspending production at Fort Union enabled us to reduce our cash expenditures. The significant resources invested in the Fort Union plant served four important
purposes:



Through
the construction and limited operation of our Fort Union facility, which is the first plant utilizing the current version of our technology, we sought to further develop the
application of our proprietary K-Fuel technology. As previously stated, the Fort Union plant has realized virtually all of the goals and objectives which we set forth, except for
continuous production, and we suspended operations at this site. Also, during the last five years we have completed numerous evaluations to further test and improve our K-Fuel refined coal
and process. During the years ended December 31, 2009, 2008 and 2007, our research and development costs were approximately $49,000, $79,000, and $876,000, respectively.

In
February 2007, we expanded our contractual relationship with Bechtel to assist with future designs of additional K-Fuel plants we may build or license. On
September 19, 2007, we amended and restated our agreement with Bechtel. Through this new program management agreement, we committed to provide Bechtel with $1 billion in construction
contracts through 2013. This restated agreement increases the scope of engineering, procurement and construction services which may be performed by Bechtel. Bechtel's services are available to oversee
both technical development and implementation of new facilities and plants.

Buckeye.On April 3, 2006, we completed the acquisition of Buckeye for a total purchase price of $39.1 million, including
cash paid,
stock issued, liabilities assumed and costs incurred in the acquisition. Buckeye's primary business is to mine, process, blend and sell high-quality coal to electric utilities, industrial
and institutional end users. Buckeye also operates one of the largest ash disposal facilities in the State of Ohio, disposing up to one million tons of dry and conditioned ash per year. On
March 12, 2010, we signed a definitive agreement with Rosebud Mining Company for the sale of Buckeye for a purchase price of $27.9 million in cash payable at the closing of the
transaction and the release of $5.0 million of reclamation bonds.

Customers

As of December 31, 2009, two customers from our Mining segment accounted for 20% and 18% of total accounts receivable and three
customers in our Mining segment accounted for 18%, 16% and 15% of total revenues for 2009. As of December 31, 2008, two customers from our Mining segment accounted for 32% and 20% of total
accounts receivable and two customers in our Mining segment accounted for 20% and 9% of total revenues for 2008. As of December 31, 2007, three customers from our Mining segment accounted for
27%, 18% and 13% of total accounts receivable while two customers in our Mining segment accounted for 32% and 13% of total revenues for 2007. We believe the loss of any one of these customers would
not have a material adverse effect on our financial position because we believe we would be able to sell our production to other customers at prevailing market prices.

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Through
March 2010, Buckeye has presold, for delivery in 2010, approximately 338,000 tons of coal pursuant to long-term contracts, which expire through 2012. Buckeye has
committed to deliver, in 2010, approximately 529,000 tons of coal pursuant to customer purchase orders. The prices are generally tied to published indices. The prices range from $41.00 to $95.00 per
ton net of transportation with average current prices of approximately $57.42 per ton. The prices vary depending on the characteristics of the coal. Currently, 95% of Buckeye's anticipated coal sales
in 2010 will be delivered from the pre-sold and committed tons.

Through
March 2009, Buckeye had presold for delivery in 2009, approximately 335,000 tons of coal pursuant to long-term contracts, which expire through 2011. In 2009, Buckeye
has committed to deliver approximately 375,000 tons of coal pursuant to customer purchase orders. The prices are generally tied to published indices. The prices range from $49.00 to $105.00 per ton
net of transportation with an average current price of approximately $71.75 per ton. The prices vary depending on the characteristics of the coal.

Through
March 2008, Buckeye had presold, for delivery in 2008, approximately 500,000 tons of coal pursuant to long-term contracts which expire through 2012, at prices tied to
various published indices. We expected these prices to range from $35 to $59 per ton in 2008. Buckeye had presold 400,000 tons for delivery in 2007 at prices ranging from $34 to $55 per ton. Pursuant
to existing contracts, Buckeye has presold approximately 800,000 tons of coal for delivery through 2012 at pricing which are tied to various indices. In 2008 Buckeye had committed to deliver
approximately 200,000 tons of coal pursuant to customer purchase orders at prices tied to various indices, with the expected price ranging from $39 to $74 per ton.

Environmental Regulations Affecting our Market

The following summarizes federal, state, and international programs that may affect the market for our K-Fuel refined coal
and for GreenCert products.

A.    Federal Requirements:



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We
believe that existing and proposed legislation and regulations could affect the profitability of fossil fuel-fired, and specifically coal-fired power
generating facilities which can emit substantial levels of sulfur dioxide, nitrogen oxides, mercury and carbon dioxide into the environment. Regulation of these emissions can affect the market for our
K-Fuel refined coal by imposing limits and caps on fossil fuel emissions. Regulation of carbon dioxide and other GHG's can also affect our GreenCert technology solutions by enhancing
market opportunities. The most significant existing national legislation and regulations affecting our K-Fuel market include the Clean Air Act, the Clean Air Interstate Rule and the Clean
Air Mercury Rule, which are implemented by the EPA as previously described.

While
carbon dioxide and other GHG emissions are not regulated at the federal level at this time, the U.S. House of Representatives passed a bill in June 2009 which would amend the Clean
Air Act to impose an economy-wide cap on GHG emissions and set up an emissions trading system to help mitigate control costs. The U.S. Senate introduced a similar bill in 2009, but action
on this bill has been stalled. Currently it is uncertain whether Congress will complete legislation which would create a federal-level GHG cap-and-trade system this year.

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In
2009, the EPA initiated two actions which could potentially affect K-Fuel and GreenCert products. The first EPA action was a regulation for the Mandatory Reporting of
Greenhouse Gases. The final rule for this regulation was published in the Federal Register in October 2009. This regulation does not limit or control GHG emissions, but requires reporting of GHG
emissions from coal-fired power plants and other large industrial facilities starting with the 2010 calendar year. The second EPA action was issuance of the proposed rule for the
Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule, also published in the Federal Register in October 2009. This rule, if finalized, would regulate GHG emissions from
coal-fired power plants and other large industrial facilities by requiring that these installations include best available control technology for GHG emissions when initiating or renewing
permits under the existing Clean Air Act. The EPA Administrator has recently stated (February 2010 letter to Senator Rockefeller) that it plans to phase in the GHG permit requirements over time
starting in 2011 with large stationary sources.

In
addition, the K-Fuel market will be affected by additional national policies including the EPA's Nitrogen Oxide State Implementation Plan Call, the EPA's National Ambient
Air Quality Standards for ozone and fine particulate matter, and the Regional Haze Rules, which require emission controls for industrial facilities emitting air pollutants that reduce visibility by
causing or contributing to regional haze.

B.    State and Regional Requirements

State and regional policies will also impact our market. Important regional frameworks include The Regional Greenhouse Gas Initiative (RGGI), which requires
reduction in carbon dioxide emissions from electric generating units, beginning in January 2009 in ten northeastern states. The Western Climate Initiative, a coalition including seven western states
and four Canadian provinces as partners (although Arizona has recently announced that it will not continue to be a full partner), has developed a regional, economy-wide GHG
cap-and-trade program, the first phase of which will start in 2012. In the Midwest, six states and one province are full members of the Midwestern Greenhouse Gas Reduction
Accord with the aim of establishing a regional GHG cap-and-trade market system. Many states have at least nominal economy-wide greenhouse gas reduction targets. A
number of these are based only on Executive Orders, so implementation is not assured. Many states have legislated greenhouse gas targets and/or utility performance standards including California,
Connecticut, Illinois, Maine, Maryland, Massachusetts, Minnesota, Montana, New Jersey, Oregon, and Washington.

The
GHG emission reduction target set by state legislation is more stringent than the target set by RGGI, a regional cap-and-trade program to which Maryland
belongs. RGGI caps carbon dioxide emissions for electric utilities and will achieve a 10 percent reduction in emissions from 2009 levels by 2018. Maryland's legislation also has a broader scope
than RGGI, covering sources across the economy except the manufacturing sector.

Many
states also have mandatory GHG Reporting Requirements for utilities. For example, Washington, Oregon, California, New Mexico, Florida, Iowa, Wisconsin, North Carolina, Maryland,
Delaware, Rhode Island, New Jersey, New York, Connecticut, Massachusetts, Vermont, New Hampshire, and Maine. All but 8 states have at least some voluntary reporting system, mostly through the Climate
Registry. Many states are also implementing emission reduction policies more stringent than national policies with respect to mercury, SO2 and NOx and visibility,

C.    International Markets

Markets for K-Fuel and GreenCert products are also influenced by international regulations. While the Kyoto Protocol to the UN Framework Convention on
Climate Change (UNFCCC), to which the US is not a party, expires in 2012, negotiations are well underway for a successor treaty that will be more broadly-based. Of primary importance to future coal
markets are the positions of China and

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India,
the two largest coal-based emerging economies. While both have resisted calls for firm greenhouse gas targets, both submitted voluntary commitments to the Copenhagen Accord,
concluded in December 2009. India committed to a 20-25% reduction in the GHG intensity of its economy by 2020, compared to 2005, and China to a 40-45% reduction in conjunction
with at least a 15% increase in renewable energy use. China in particular has been aggressively investing in renewable energy technologies such as wind and photovoltaic generation. At the same time,
both countries are likely to remain heavy producers and consumers of coal-based energy for the foreseeable future, and increasing levels of environmental consciousness and regulation will
likely heighten interest in the benefits of K-Fuel refined coal. The UNFCCC Clean Development Mechanism (CDM) provides market opportunities for GreenCert products in GHG reduction projects
in developing countries such as China and India. Market opportunities in developed countries are provided by the UNFCCC Joint Implementation (JI) mechanism and the European Union Emissions Trading
Scheme (EU ETS).

Environmental Regulations Affecting the Construction and Operation of our Plants and Mining of Coal

As a general matter, we are subject to a number of state and federal regulations that (i) seek to limit the amount of certain
emissions into the environment, (ii) govern the handling and disposal of solid waste materials as well as potentially hazardous materials, and (iii) impose certain employee safety
requirements. As we expand our operations we may become subject to more regulation. For example, if we build additional plants we may install coal-fueled electric generating units, which
are subject to substantial federal, state, and local permitting requirements and more environmental regulation than gas- fueled electric generating units. Through our mining activities, we
are also subject to additional regulations including the Coal Mine Health and Safety Act of 1969, the Federal Mine Safety and Health Act of 1977, the Black Lung Benefits Revenue Act of 1977 and other
regulations that seek to protect the health and safety of employees.

In
the United States, K-Fuel refined coal is not expected to be subject to unusual levels of local, state or federal regulation with respect to its transportation and
distribution. However, any
future production plants will require numerous permits, approvals and certificates from appropriate federal, state and local governmental agencies before construction of each facility can begin and
will be required to comply with applicable environmental laws and regulations (including obtaining operating permits) once facilities begin production. The most significant types of permits that are
typically required for commercial production facilities include an operating and construction permit and a wastewater discharge permit under the Clean Water Act, and a treatment, storage and disposal
permit under the Resource Conservation and Recovery Act. Some federal programs have delegated regulatory authority to the states and as a result, facilities may be required to secure state permits.
Finally, the construction of new facilities may require review under the National Environmental Policy Act, or a state equivalent, which requires analysis of environmental impacts and potentially, the
implementation of measures to avoid or minimize these environmental impacts.

Any
international K-Direct or K-Fuel plants will also be subject to various permitting and operational regulations specific to each country. International
initiatives, such as the Kyoto Protocol, are expected to create increasing pressures on the electric power generation industry on a world-wide basis to reduce emissions of various
pollutants, which management expects will create additional demand for our products and services.

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Employees

At March 12, 2010, we had 145 full-time employees of which 108 are employed at Buckeye.

Access to Information

Our web site address iswww.evgenergy.com. We make available, free of charge on the
Investor Info section of our web site, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all
amendments to those reports, as soon as reasonably practicable after these reports are electronically filed with or furnished to the Securities and Exchange Commission. We also make available through
our web site other reports electronically filed with the SEC under the Securities Exchange Act of 1934,
including our proxy statements and reports filed by officers and directors under Section 16(a) of that Act. Additionally, we make available press releases and presentation material including
slides and other investor information. We do not intend for information contained in our web site to be part of this Annual Report on Form 10-K.

ITEM 1A.    RISK FACTORS

In addition to risk and uncertainties in the ordinary course of business that are common to all businesses, important factors that are
specific to our industry and our company could materially impact our future performance and results. We have provided below a list of these risk factors that should be reviewed when considering our
business and securities. These are not all the risks we face, and other factors currently considered immaterial or unknown to us may impact our future operations.

Business Risks

Our financial condition continued to deteriorate during 2009.We have been evaluating several alternatives related to our
strategic positioning,
including the potential sale of Buckeye which is not strategic to the further development of our GreenCert or K-Fuel technologies. While we have investigated a number of financing
alternatives, we have not yet obtained sufficient additional financing to complete our strategic positioning. In October 2009 we completed a financing deal totaling $7.0 million resulting in
net proceeds of $5.0 million, excluding transaction costs, and again completed a financing deal in January 2010 totaling $8.7 million resulting in net proceeds of $8.0 million. We
completed another financing transaction in March 2010 totaling $9.3 million and resulting in net proceeds of $5.0 million, excluding transaction costs. Further, in March 2010, we entered
a definitive agreement regarding the sale of Buckeye, as described further below. Notwithstanding these financings and the contemplated sale of Buckeye; we continue to require additional capital.

As a result of the preceding,we are in need of capital. We are continuing to evaluate restructuring and capital raising alternativesand to work towards the
closing of the Buckeye assets. Without an additional influx of capital, we will not be able to pursue our business plan and may not be able to remain a going concern.

The contemplated sale of the Buckeye may not be consummated.

On March 12, 2010, we signed a definitive agreement with Rosebud Mining Company for the sale of Buckeye for
$27.9 million, in addition to the release of $5.0 million of cash reclamation bonds. Further, $2.8 million of the purchase price will be deposited into escrow for a period of
twelve months to cover amounts payable to Rosebud pursuant to the indemnification provision of the sales agreement. The closing is not subject to a financing condition, but is subject to the
satisfaction of customary closing conditions, including, among other matters, (i) accuracy of the representations and warranties and compliance with the covenants set forth in the agreement,
each in all material respects, (ii) receipt of legally required regulatory approvals, and (iii) consents of certain governmental authorities and certain of Buckeye's specified
contractual counterparties. The sale is expected to close in April 2010, but in any

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event
no later than June 30, 2010. The proceeds from the sale of Buckeye will be used to retire the outstanding 2009 Notes including fees and accrued interest of $21.1 million, to fund
related transaction expenses estimated at $2.5 million and for general working capital purposes.

If
this transaction is not closed, we will need to reevaluate our strategy with respect to the Buckeye assets and identify another source of capital to retire the 2009 Notes. A failure
to complete the sale of Buckeye could require us to immediately raise capital to pursue our business plan and remain a going concern.

We have a history of losses, deficits, and negative operating cash flows and will likely continue to incur losses in the future. Such losses may impair our ability to pursue
our business plan and our independent registered public accounting firm has expressed substantial doubt over our ability to continue as a going concern.

We continue to incur operating losses and negative cash flows from operations for the foreseeable future. We have made, and will
continue to make, substantial capital and other expenditures before we will have sufficient operating income and cash flow to recover all of our investments. We are not able to accurately estimate
when, if ever, our cash flows from operating activities will increase sufficiently to cover these investments. Further, we may not achieve or maintain profitability or generate cash from operations in
future periods. Our working capital (the amount by which our current assets exceed our current liabilities), accumulated deficit, net loss and cash (used in) provided by operating activities are as
follows:

December 31,2009

2008

2007(in thousands)Working capital

$
(21,747
)
$
2,263

$
45,580Accumulated deficit


(529,939
)

(473,303
)

(408,073
)Net loss


(58,537
)

(65,230
)

(204,676
)Cash used in operating activities

$
(12,908
)
$
(36,263
)
$
(51,581
)


We have substantial capital requirements and as a result, we have been, and continue to be, dependent on financing activities or sales of our equity securities to fund our
operating costs. The inability to raise funds through traditional financing means or sale of our equity securities may require us to sell assets to fund our operating costs.

As a result of negative cash flows from operations, we have been, and continue to be, dependent on financing activities and sales of
our equity securities to fund the operating and substantial capital costs associated with our business. Our success is dependent on our ability to utilize existing resources and to generate sufficient
cash flows to meet our obligations on a timely basis, to obtain financing or refinancing as may be required, to attain profitability, or a combination thereof. The continued economic downturn has had,
and may continue to have, an impact on our business and our financial condition. In addition, the economic downturn may present significant challenges for us if conditions in the financial markets do
not improve or continue to worsen. We have limited ability to access traditional bank loan financing in current market conditions. Further, our ability to access capital markets, for example, may be
severely restricted at times when we need adequate funding to pay our existing indebtedness, pursue our business strategy, respond to changing business and economic conditions and competitive
pressures, absorb negative operating results and fund our continuing operations, capital expenditures or increased working capital requirements. We may also need to sell assets to fund our operating
costs to the extent that we are unable to raise adequate funds in the capital markets. Given the global recession, we may not be able to sell assets on favorable terms or at all.

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We have a limited operating history as a technology solutions company, and our business and prospects should be considered in light of the risks and difficulties typically
encountered by a company with a limited operating history.

You should consider our business and prospects in light of the risks and difficulties typically encountered by a company with a limited
operating history. The specific risks include whether we will be able to:



We
may not be successful in addressing these and other risks. As a result, our financial condition, results of operations and cash flows may be adversely affected.

Competition from other companies that have developed or may develop other systems that measure greenhouse gases and certify carbon credits, could adversely affect our
competitive position. Further, competition could increase depending upon the level of regulation ultimately enacted in the United States and international markets, which could further adversely affect
our competitive position.

While we believe we have developed the only science-based method to accurately measure greenhouses gas emissions, other companies have
developed less costly methodologies to measure these emissions. In addition, a number of companies are developing carbon measurement alternatives and many of these companies have greater resources
than ours. Carbon measurement regulation, in both the United States and internationally, is evolving and there is no clear consensus on how carbon emissions should be measured. While we believe that
our measurement tool is the most accurate tool because it is scientifically based, regulations could be enacted allowing for less precise methods and therefore, less costly methodologies to be
applied. Further, there is a risk that our GreenCert technology will not be accepted by regulators and customers even though we believe it is compliant. Future revenues will be dependent upon our
ability to identify and adapt to our competition and the changing regulatory environment.

We rely on key personnel and if we are unable to retain or attract qualified personnel, we may not be able to execute our business plan.

Our success is currently dependent on the performance of a small group of senior managers, key technical personnel and independent
contractors that have a wide range of technical experience and

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expertise.
For K-Fuel, this experience and expertise includes coal refining, coal thermal upgrading, thermal processing, coal gasification, coal liquification and general plant operations,
For GreenCert this expertise includes carbon measurement, carbon emission modeling, power generation, carbon sequestration and nitrogen oxides and sulfur dioxide reduction analysis. In addition, our
business strategy will require us to attract and retain a substantially greater number of qualified personnel and/or hire additional contractors in these key areas. The inability to retain key
managerial
and technical personnel or attract and retain additional highly qualified managerial or technical personnel in the future could harm our business or financial condition.

Competition from other companies in the clean coal, alternative fuel and emission-reducing equipment industries, including competition resulting from deregulation in the
United States power industry, could adversely affect our competitive position.

Competition in the clean coal, alternative fuel and emission-reducing equipment industries could impact our ability to generate revenue
from our K-Fuel process. Many of these companies in the clean coal, alternative fuel technology and emission-reducing equipment industries have financial resources greater than ours.
Providers of alternative or competing technologies in these industries may be subject to less regulation, or alternatively, may enjoy subsidies that provide them with increased financial strength, or
make their products or services more attractive to energy consumers. Due to any of these competitive advantages, our existing and future competitors may be able to offer products more competitively
priced and more widely available than ours. These companies also may have the resources to create new technologies and products that could make our process and products obsolete. Our future revenues
may depend on our ability to address competition in these industries. In addition, deregulation in the United States power generating industry may result in increased competition from other producers
of energy-efficient coal products, other clean fuel sources, and other products, services and technologies designed to provide environmental and operating cost benefits similar to those which we
believe are available from our K-Fuel refined coal.

Overseas development of our K-Fuel and GreenCert businesses is subject to international risks, which could adversely affect our ability to license, construct
overseas plants or profitably operate our businesses overseas.

We believe a portion of the growth opportunity for our businesses lies outside the United States. Doing business in foreign countries
may expose us to many risks that are not present domestically. We lack significant experience dealing with such risks, including political, military, privatization, technology piracy, currency
exchange and repatriation risks, and higher credit risks associated with customers. In addition, it may be more difficult for us to enforce legal obligations in foreign countries, and we may be at a
disadvantage in any legal proceeding within the local jurisdiction. Local laws may also limit our ability to hold a majority interest in the projects that we develop.

If the national and world-wide financial downturn continues or intensifies it could adversely impact demand for our technology and products.

Continued market disruptions could cause broader economic downturns, which may lead to lower demand for our technology or products,
increased incidence of customers' inability to pay their accounts, or insolvency of our customers, any of which could adversely affect our results of operations, liquidity, cash flows, and financial
condition.

Our inability to adequately protect and defend our proprietary K-Fuel and GreenCert processes could harm our business, increase our costs and decrease sales of
our products and services.

Our success depends, in part, upon our proprietary processes. We rely on a combination of patent, trademark and trade secret rights to
establish and protect our proprietary rights. We currently have a

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series
of patents and patent applications on our K-Fuel process and our GreenCert technology. However, competitors may successfully challenge the validity or scope of one or more of our
patents, or any future patents. These patents alone may not provide us with any significant competitive advantage. Further, while our most recently issued K-Fuel patent protection covers
what we believe are the unique aspects of our K-Fuel process as it is currently conducted, not all of the claims we filed were allowed. An additional patent application has been filed to
address the examiner's comments and we expect some of the revised claims to be allowed. While we continue our efforts regarding these claims there can be no assurance that we will be able to obtain
patent protection in the United States or abroad to protect these or any other aspects of our intellectual property, or that, in the absence of any such patent protection, that the combination of
additional methods that we currently employ to maintain the confidentiality of our processes will adequately safeguard our proprietary processes and information. If our intellectual property is not
adequately protected, this may have a material adverse impact on our financial condition, results of operations, cash flows and future prospects.

Third
parties could copy or otherwise obtain and use our technologies without authorization or develop similar technologies independently. The protection of our proprietary rights may be
inadequate and our competitors could independently develop similar technology, duplicate our solutions, or design around any patents or other intellectual property rights we hold.

Any
actions taken by us to enforce our patents or other property rights could result in significant expense as well as the diversion of management time and resources. In addition,
detecting infringement
and misappropriation of patents or intellectual property can be difficult, and there can be no assurance that we would detect any infringement or misappropriation of our proprietary rights. Even if we
are able to detect infringement or misappropriation of our proprietary rights, litigation to enforce our rights could cause us to divert significant financial and human resources from our business
operations, and may not ultimately be successful. If we are required to divert significant resources and time to the enforcement of our proprietary rights, even if the enforcement is successful, our
business could be materially adversely affected.

Our success will depend on our ability to operate without infringing on or misappropriating the proprietary rights of others.

We may be sued for infringing or misappropriating the proprietary rights of others. Intellectual property litigation is costly, and,
even if we prevail, the cost of such litigation could adversely affect our business. In addition, litigation is time consuming and could divert management attention and resources away from our
business. If we do not prevail in any litigation, we could be required to stop the infringing activity and/or pay substantial damages. Under some circumstances, these damages could be triple the
actual damages the patent holder incurs. If we have supplied infringing products to third parties for marketing or licensed third parties to manufacture, use or market infringing products, we may be
obligated to indemnify these third parties for any damages they may be required to pay to the patent holder and for any losses the third parties may sustain themselves as the result of lost sales or
damages paid to the patent holder.

If
a third party holding rights under a patent successfully asserts an infringement claim with respect to any of our products or processes, we may be prevented from manufacturing or
marketing our infringing product in the country or countries covered by the patent we infringe, unless we can obtain a license from the patent holder. Any required license might not be available to us
on acceptable terms, or at all. Some licenses may be non-exclusive, and therefore, our competitors may have access to the same technology licensed to us. If we fail to obtain a required
license or are unable to design around a patent, we may be unable to market future products, which could have a material adverse effect on our business.

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Our acquisition activities may not be successful.

As part of our business strategy, we may make acquisitions of businesses and technologies. However, suitable acquisition candidates may
not be available on terms and conditions we find acceptable. Further, acquisitions pose substantial risks to our financial condition, results of operations and cash flows. In pursuing acquisitions, we
compete with other companies, many of which have greater financial and other resources to acquire attractive companies and properties. Even if future acquisitions are completed, the following are some
of the risks associated with acquisitions:



Risks Relating to Our Debt, Our Common Stock and Other Risks.

Our debt obligations may affect our business, operating results and financial condition.

We have a significant amount of debt, especially given our limited cash flow from operations. In July 2007, we issued
$95.0 million long-term debt due August 1, 2012, ("2007 Notes"), of which $27.4 million is outstanding as of December 31, 2009. In March 2009, we executed a
senior secured convertible note agreement which provides for the issuance of up to $15 million in aggregate principal amount of 10% Senior Secured Promissory Notes, which we refer to as the
"2009 Notes" in three $5 million tranches. All three tranches were drawn during the year ended December 31, 2009. Further, on December 18, 2009, we restructured and extended the
terms of these 2009 Notes extending the maturity date to the earlier of June 30, 2010 or upon the sale of Buckeye. As part of the restructuring, the stated principal amount has been increased
by $2.25 million, representing the 15% exit fee, bringing the aggregate principal amount of 2009 Notes to $17.25 million. In addition, we must pay a 15% exit fee upon the payment of the
principal amount equaling $2.6 million. See further discussion in Item 8Note 7Debt.

Our
debt service obligations could adversely affect us in a number of ways, including by:



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In
addition, our ability to generate cash flow from operations sufficient to make scheduled payments on our debts as they become due will depend on our future performance, our ability to
successfully implement our business strategy and our ability to obtain other financing, which may be influenced by economic, financial, competitive, legislative, regulatory and other factors that are
beyond our control.

Our ability to pay principal and interest on outstanding indebtedness depends upon our receipt of dividends or other intercompany transfers from our subsidiaries, and claims
of creditors of our subsidiaries that do not guarantee our indebtedness will have priority over claims you may have as for our guaranteed indebtedness with respect to the assets and earnings of those
subsidiaries.

We are a holding company and substantially all of our properties and assets are owned by, and all our operations are conducted through,
our subsidiaries. As a result, we are dependent upon cash dividends and distributions or other transfers from our subsidiaries to meet our debt service obligations, including payment of the interest
on and principal of our indebtedness when due, and other obligations. The ability of our subsidiaries to pay dividends and make other payments to us may be restricted by, among other things,
applicable corporate, tax and other laws and regulations in the United States and abroad and agreements made by us and our subsidiaries, including under the terms of our existing and potentially
future indebtedness. In addition, claims of creditors, including trade creditors, of our subsidiaries will generally have priority with respect to the assets and earnings of such subsidiaries over the
claims of our creditors, except to the extent the claims of our creditors are guaranteed by these subsidiaries. In the event of our dissolution, bankruptcy, liquidation or reorganization, the holders
of such indebtedness will not receive any amounts from our non-guarantor subsidiaries with respect to such indebtedness until after the payment in full of the claims of the creditors of
those subsidiaries. Furthermore, if there was default on the 2009 Notes, Buckeye would not be permitted to make cash dividends, dividends or other transfers.

We may not have the ability to repurchase the 2007 Notes for cash upon the occurrence of a fundamental change as required by the Indenture governing the 2007 Notes or to
make payments upon major transactions as required by the 2009 Notes.

Holders of our 2007 Notes will have the right to require us to repurchase the 2007 Notes for cash upon the occurrence of a fundamental
change, which would include, among other things, the failure of our common stock to be listed on the NYSE Arca or another national securities exchange or quoted on an established automated
over-the-counter trading market. In addition, the 2009 Notes require that, upon the holder's request, we pay all amounts outstanding with certain exit fees upon a major
transaction, which generally includes transactions such as mergers, business combinations, sales of secured assets and other change of control transactions. We may not have sufficient funds to
repurchase the 2007 Notes or repay the 2009 Notes or have the ability to arrange necessary financing on acceptable terms. Our ability to repurchase the 2007 Notes for cash may be limited by law or the
terms of other agreements relating to our indebtedness outstanding at the time. Our failure to repurchase the 2007 Notes or repay the 2009 Notes when required would result in an event of default with
respect to the Notes and could result in the acceleration of the maturity of our then-existing indebtedness. This repurchase right may actually have the effect of making us a less
attractive candidate for a fundamental change transaction.

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Conversion of the Notes may dilute the ownership interest of existing stockholders, including holders who have previously converted their Notes.

To the extent we deliver common stock upon conversion of either the 2007 Notes or the 2009 Notes, the ownership interests of existing
stockholders may be diluted. Any sales in the public market of our common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the
anticipated conversion of the Notes into shares of our common stock could depress the price of our common stock.

We may not be able to refinance the Notes if required or if we so desire.

We may need or desire to refinance all or a portion of the Notes or any other future indebtedness that we incur on or before the
maturity of the Notes. There can be no assurance that we will be able to refinance any of our indebtedness on commercially reasonable terms, if at all.

We may be unable to deduct for tax purposes the interest or original issue discount, if any, paid or accrued on the Notes.

No deduction is allowed for U.S. federal income tax purposes for interest paid on a disqualified debt instrument. A disqualified debt
instrument generally includes any indebtedness of a corporation which is payable in equity of the issuer. Although we believe and intend to take the position that the Notes are not disqualified debt
instruments, the Notes may be treated as disqualified debt instruments, and we may be prohibited from deducting the interest due on the Notes. Consequently, we may have less cash available with which
to satisfy our obligations.

Our common stock could be delisted from the NYSE Arca if we do not comply with its continued listing standards.

On October 2, 2009, we were notified by NYSE Arca, Inc. ("NYSE Arca") that we are not in compliance with NYSE Arca's
continued listing standard under Rule 5.5(b)(2) of the NYSE Arca Equities Rules. The standard requires that a listed common stock must maintain an average closing price in excess of $1.00 over
a consecutive 30 trading-day period. We have six months from the receipt of the notice to regain compliance with the NYSE Arca price condition, or we may be subject to suspension and
delisting procedures. Subject to NYSE Arca rules, during the six-month cure period, our common stock will continue to be listed, and trade on NYSE Arca. At the end of the
six-month period, we will be in compliance if we have at least a $1.00 share price and have maintained a $1.00 average closing share price over the preceding 30 consecutive trading days.
We are currently exploring alternatives for curing the deficiency and restoring compliance with NYSE Arca's continued listing standard. However, if our stock is delisted, it could reduce the liquidity
of an investment in our common stock and also make it more difficult for us to raise capital in the future. In addition, efforts to maintain our listing on the NYSE Arca may result in the incurrence
of costs that could be material in any given period.

Our stock price has been volatile historically and may continue to be volatile. The price of our common stock may fluctuate significantly, which may make it difficult for
holders to resell the shares of our common stock issuable upon conversion of the preferred stock or upon exercise of the warrants when desired or at attractive prices.

The trading price of our common stock has been and may continue to be subject to wide fluctuations. Our stock price may fluctuate in
response to a number of events and factors, such as quarterly variations in operating results, announcements of technological innovations or new products by us or our competitors, changes in financial
estimates and recommendations by securities analysts,

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the
operating and stock price performance of other companies that investors may deem comparable to us, and new reports relating to trends in our markets or general economic conditions.

In
addition, the stock market in general, and prices for companies in our industry in particular, have experienced volatility that often has been unrelated to the operating performance
of such companies. These broad market and industry fluctuations may adversely affect the price of our common stock, regardless of our operating performance. Because the preferred stock is convertible
into shares of our common stock, volatility or depressed prices of our common stock could affect the value of the preferred stock or the warrants. Additionally, lack of positive performance in our
stock price may adversely affect our ability to retain key employees.

Sales of a significant number of shares of our common stock in the public markets, or the perception of such sales, could depress the market price of the Notes, our common
stock, or both.

Sales of a substantial number of shares of our common stock or other equity-related securities in the public markets could depress the
market price of the Notes, our common stock, or both, and impair our ability to raise capital through the sale of additional equity securities. We cannot predict the effect that future sales of our
common stock or other equity-related securities would have on the market price of our common stock or the value of the Notes. The price of our common stock could be affected by possible sales of our
common stock by investors who view the Notes as a more attractive means of equity participation in our company and by hedging or arbitrage trading activity which we expect to occur involving our
common stock. This hedging or arbitrage could, in turn, affect the market price of the Notes.

Our stock price continues to be volatile, and any investment in our common stock could suffer a decline in value.

An investment in our common stock is risky, and stockholders could suffer significant losses and wide fluctuations in the market value
of their investment. The market price of our common stock has been extremely volatile. During 2009, the sale prices of our common stock on the NYSE Arca ranged from a low of $0.28 to a high of $1.43.
We expect our common stock to continue to be subject to fluctuations. Broad market and industry factors may adversely affect the market price of our common stock, regardless of our actual operating
performance. Volatility in the market price of shares may prevent investors from being able to sell their shares of common stock at prices they view as attractive. In the past, securities class action
litigation has often been instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management's
attention and resources.

We have adopted anti-takeover defenses that could make it difficult for another company to acquire control of us or limit the price investors might be willing to
pay for our stock, which could adversely affect the performance of our stock.

We have adopted a stockholder rights plan, commonly known as a "poison pill," under which each stockholder holds one share purchase
right, which we refer to as a Right, for each share of common stock held. The Rights become exercisable upon the occurrence of certain events and may make our acquisition more difficult and expensive.
In addition our certificate of incorporation, and Delaware General Corporation Law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our
stockholders. The stockholder rights plan, provisions of our certificate of incorporation, and Delaware law are intended to encourage potential acquirers to negotiate with us and allow our board of
directors the opportunity to consider alternative proposals in the interest of maximizing stockholder value. However, such provisions may also discourage acquisition proposals or delay or prevent a
change in control, which could harm our stock price.

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The anti-dilution provisions of the 2009 Notes could have a substantial dilutive effect on our common stock and put downward pressure on the market price of our
common stock.

The conversion price of our 2009 Notes is subject to downward anti-dilution adjustments if we issue securities at a
purchase, exercise or conversion price
that is less than the then-applicable conversion price of the 2009 Notes. Consequently, the voting power of our common stock and the market value of our common stock in such an event would
decline if the 2009 Notes are converted for shares of our common stock at the new lower conversion price.

We have not paid cash dividends on our common stock and do not anticipate paying any dividends on our common stock in the foreseeable future.

We anticipate that we will retain all future earnings and other cash resources for the future operation and development of our
business. Accordingly, we do not intend to declare or pay any cash dividends on our common stock in the foreseeable future. Payment of any future dividends will be at the discretion of our board of
directors after taking into account many factors, including our operating results, financial conditions, current and anticipated cash needs and plans for expansion.

The 2009 Notes contain restrictive covenants that limit our operational flexibility.

The 2009 Notes contain covenants that, among other things, restrict our ability to take specific actions, even if we believe them to be
in our best interest. These covenants include restrictions on:



Our
failure to comply with these restrictions could lead to a default under the 2009 Notes.

GreenCert Technology Risks

We do not know if our GreenCert technology is commercially viable. Further, due to the uncertain market for, and commercial acceptance of our GreenCert technology, we may
not be able to realize significant revenues from this technology.

Our GreenCert technology is in an evolving market and as a result we do not know whether our GreenCert technology will be accepted by
customers to measure greenhouse gas emissions and certify carbon credits in a cost effective manner. While we believe that a commercial market is developing both domestically and internationally for
measuring greenhouse gasses and certifying carbon credits, we may face the following risks due to the developing market for our technology:



If
we are unable to develop markets for our GreenCert technology, our ability to generate revenues and profits may be negatively impacted.

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Future changes in the law may adversely affect our ability to sell products and services based on our GreenCert Technology.

A significant factor in expanding the potential market for the measurement and reporting of greenhouse gases and certification of
carbon credits is the continuation and expansion of emissions regulations both in the U.S. and internationally. We are unable to predict future regulatory changes and their impact on the demand for
our products. While more stringent laws and regulations may increase demand for our products, such regulations may result in reduced reliance on various sources of emissions, including coal fired
power plants, or increased reliance on alternative energy sources, which do not result in the emission of greenhouse gases. Similarly, amendments to the numerous federal and state environmental
regulations that relax emission limitations would have a material adverse effect on our prospects.

Our success depends upon our ability to develop and enhance our products and services.

Rapid technological advances and evolving standards in computer hardware, software development and communications infrastructure,
changing and increasingly sophisticated customer needs and frequent new product introductions and enhancements characterize the market in which we compete. If we are unable to continue to develop our
products and services in a timely manner or to position and/or price our products and services to meet market demand, customers may not buy licenses or renew licenses. In addition, IT standards from
both consortia and formal standards-setting forums as well as de facto marketplace standards are rapidly evolving. We cannot provide any assurance that the standards on which we choose to develop our
products will allow us to compete effectively for business opportunities this emerging area.

We may need to change our pricing models to compete successfully.

The intense competition we face in the sales of our products and services and general economic and business conditions can put pressure
on us to change our prices. If our
competitors offer discounts on certain products or services or develop products that the marketplace considers more valuable, we may need to lower prices or offer other favorable terms in order to
compete successfully. Any such changes may reduce margins and could adversely affect operating results. Our license renewals are anticipated to be priced as a percentage of our net new license fees.
Our competitors may offer lower percentage pricing on renewals, which could put pressure on us to further discount our new license prices.

As we release our solution, we might experience significant errors or security flaws in our products and services.

Despite testing prior to their release, products frequently contain errors or security flaws, especially when first introduced or when
new versions are released. The detection and correction of any security flaws can be time consuming and costly. Errors in software products that underlie our solution could affect the ability of our
products to work with other hardware or software products, could delay the development or release of new products or new versions of our products and could adversely affect market acceptance of our
products. If we experience errors or delays in releasing new products or new versions of our products, we could lose revenues. End users, who rely on our products and services for applications that
are critical to their businesses, may have a greater sensitivity to product errors and security vulnerabilities than customers for software products generally. Product errors and security flaws in our
products or services could expose us to product liability, performance and/or warranty claims as well as harm our reputation, which could impact our future sales of products and services. In addition,
we may be legally required to publicly report security breaches of our services, which could adversely impact future business prospects for those services.

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K-Fuel Process Risks

We faced technical and operational issues at our Fort Union plant prior to suspending operations at the plant. These technical and operational problems may adversely impact
our ability to develop future K-Fuel or K-Direct facilities, resulting in delays in achieving full scale commercial production of our K-Fuel refined coal.

Research and development is an iterative process and our K-Fuel process has been evolving for approximately 25 years
with the most recent material modification being the integration of the Lurgi (Pty) Ltd. proprietary coal processing equipment with our patented technology, which started in 2003.

Our
Fort Union plant was a third generation facility developed for this purpose. The first facility was a research and development plant that currently serves as our research laboratory.
The second facility was a commercial demonstration plant that we constructed with a joint venture partner and commenced operations in 1998. In June 1999, our joint venture partner suspended production
at the plant due to its strategic restructuring. Thereafter, we sold our interest in the plant to our joint venture partner and in September 2002, the major equipment at the plant was purchased by a
third party and removed from the site. As part of the continued development of the K-Fuel process, we analyzed the operations of this plant and some of the problems that we encountered
with respect to operations and product quality and made modifications to the K-Fuel process that we believe addressed these issues. We built upon this knowledge base in designing and
constructing the Fort Union plant.

While
redesigned equipment and systems tested at the Fort Union plant showed positive results, we faced technical and operational problems in attempting to achieve commercial production
of K-Fuel and decided to suspend operations at the plant in March 2008. Our goal was to dedicate our limited capital and human resources to building new plants built around the enhanced
design and systems tested at the Fort Union plant. Problems we encountered included cost overruns, delays, technical issues, availability of workers and contractors, and weather. We may encounter
similar problems at any future facilities we are able to build. Additionally, any future facilities may encounter the following additional problems:



Our
ability to effectively operate and develop K-Fuel and K-Direct facilities may be harmed to the extent these and other technical or operational problems
materialize. Should we be unable to effectively develop K-Fuel or K-Direct facilities, our ability to generate revenues and profits from future facilities and future licensing
opportunities may be negatively impacted. In particular, because we were unable to consistently operate our Fort Union plant for sustained periods of time to produce commercial quantities of
K-Fuel refined coal, it will likely be more difficult for us to enter into arrangements with customers for their regular purchase of K-Fuel refined coal at future facilities.

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We do not know if K-Fuel refined coal is commercially viable.

While our Fort Union plant previously produced limited amounts of K-Fuel refined coal, we do not know whether
K-Fuel refined coal can be produced and sold on a commercial basis in a cost effective manner after taking into account the cost of the feedstock, our production costs and the cost of
transportation. As our Fort Union plant was not able to achieve full scale commercial production, we have not yet developed an efficient cost structure. We are currently using the knowledge base
developed at our Fort Union plant to understand our pricing and costs, as well as the quality of the product when used in K-Fuel test burns, and intend to leverage this knowledge base when
constructing any additional K-Fuel plants or any K-Direct plants. We experienced technical problems with respect to the K-Fuel refined coal produced at our Fort
Union plant, including coal dusting. If we fail to adequately address these technical problems to the extent they occur at future K-Fuel or K-Direct facilities, or any other
unforeseen problems that may occur in the future, it could make K-Fuel refined coal more expensive to transport and store, and therefore more expensive to burn. Failure to address both
known and unforeseen technical challenges of K-Fuel refined coal, obtain feedstock in sufficient quantity and at acceptable prices and to arrange for transportation services at reasonable
prices, may materially and adversely affect our business, results of operations and financial condition.

Construction of future K-Fuel or K-Direct facilities will require substantial lead time and significant additional financing if constructed by us or
Evergreen-China.

We do not currently have any definitive contracts to construct additional K-Fuel facilities or K-Direct
facilities. To the extent that we identify businesses to construct K-Fuel or K-Direct facilities, a lengthy permitting and construction process may commence. We estimate that
it could take six months or longer to obtain necessary permits and approvals and that, depending on local circumstances, the required time could be much longer or shorter. Thereafter, construction of
a facility with a capacity of approximately 1.5 million tons of K-Fuel refined coal per year could take an estimated further period of 18 to 24 months.

Prior
to suspending operations at our Fort Union plant in March 2008, we estimate that we spent approximately $110 million in constructing our Fort Union plant. We estimate that
the cost of constructing additional facilities, such as a 1.5 million ton per year facility, could be greater depending on additional variables, including site location, material handling
equipment and design, seismic zones, labor issues, and weather and climate conditions. Such variables could potentially increase costs. We would be required to obtain substantial amounts of financing
to undertake any such project and there can be no assurance that such financing would be available to us. Inability to construct additional facilities to produce K-Fuel, or to finance the
construction thereof on acceptable terms, will adversely affect our financial condition.

Any negative results from the continuing evaluation of K-Fuel refined coal produced at future facility sites by us or third parties could have a material adverse
effect on the marketability of K-Fuel refined coal and future prospects.

We and certain third parties are continuing to evaluate the attributes of K-Fuel refined coal. There can be no assurance
that these evaluations will result in positive findings concerning the moisture content, heat value, emission-levels, burn qualities or other aspects of our K-Fuel refined coal.
Furthermore, even if current evaluations indicate that our K-Fuel refined coal performs to design specifications, there can be no assurance that later tests will confirm these current
results or that our K-Fuel refined coal will be readily accepted by the market. The process of introducing our K-Fuel refined coal into the market may be further delayed if
these test results are negative or if potential customers conduct their own tests of the K-Fuel refined coal to determine whether it meets their individual requirements and the results are
not acceptable. Substantially all of our evaluations of K-Fuel refined coal at our Fort Union plant used Powder River Basin low-grade coal as the feedstock and we

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conducted
only limited tests of the K-Fuel process at Fort Union using other feedstocks. However, we have conducted numerous tests of the K-Fuel process using other feedstocks
in laboratories. The ability to use feedstocks from other locations in the United States or overseas will depend on the results of future tests on different types of coal. If these tests limit the
range of viable low-grade coal feedstocks for use in the K-Fuel process, site locations for future K-Fuel or K-Direct plants may be limited and the
commercial appeal of the process may be less than anticipated. If this continuing process of evaluation and market introduction results in negative findings concerning the K-Fuel process,
this could have a material adverse effect on the marketability of K-Fuel refined coal and on our financial condition, results of operations and future prospects.

Due to the uncertain market for, and commercial acceptance of, our K-Fuel refined coal, we may not be able to realize significant revenues from the sale of
K-Fuel refined coal or licensing our technology.

While we believe that a commercial market is developing both domestically and internationally for cleaner coal products such as
K-Fuel refined coal, we may face the following risks due to the developing market for our cleaner coal technology:



If
we are unable to develop markets for our K-Fuel technology, our ability to generate revenues and profits may be negatively impacted.

If we are unable to license and commercialize K-Fuel production plants, our ability to generate profits from this process will be impaired.

Our future success will be adversely affected if we can not locate, develop, construct, and/or license future commercial
K-Fuel production plants and have them operate at a profit. Prior to suspending operations at our Fort Union plant, we were not able to achieve commercial production. A number of different
variables, risks and uncertainties affect our successful construction of future K-Fuel production plants and our ability to operate such plants at a profit
including:



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If
we are unable to successfully address these risks, our results from operations, financial condition and cash flows may be adversely affected.

Regulation of the K-Fuel process and K-Fuel refined coal may adversely affect our financial condition and results of operations and cash flows.

Our K-Fuel refined coal is currently subject to federal, state, local, and foreign laws and regulations. In addition, as
products and commercial applications are introduced into the market, governments may impose new regulations which may increase our costs and price of our product. If the cost of compliance with
applicable laws and regulations increases past that forecasted, our ability to profitably market and sell K-Fuel refined coal may be jeopardized.

Compliance with environmental laws and regulations may increase our costs and reduce our future sales.

Our operations are subject to stringent and complex federal, state and local environmental laws and regulations. Failure to comply with
these laws and regulations may trigger a variety of administrative, civil and criminal enforcement measures, including the assessment of monetary penalties, the imposition of remedial requirements,
and the issuance of orders enjoining future operations. Certain environmental statutes impose strict joint and several liabilities for costs required to clean up and restore sites where hazardous
substances have been disposed or otherwise
released. Moreover, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of substances or other
waste products into the environment.

Future changes in the law may adversely affect our ability to sell our products and services.

A significant factor in expanding the potential U.S. market for K-Fuel refined coal is the numerous federal, state and
local environmental regulations, which provide various air emission requirements for power generating facilities and industrial coal users. We believe that the use of clean-burning fuel technologies,
like K-Fuel refined coal, will help utility companies comply with the air emission regulations and limitations. We are unable to predict future regulatory changes and the impact on the
demand for our products. While more stringent laws and regulations, including mercury emission standards, limits on sulfur dioxide emissions and nitrogen oxide emissions, may increase demand for our
products, such regulations may result in reduced coal use and increased reliance on alternative fuel sources. Similarly, amendments to the numerous federal and state environmental regulations that
relax emission limitations would have a material adverse effect on our prospects.

Coal Mining Risks

Certain conditions and events beyond our control could negatively impact our coal mining operations, our production or our operating costs.

We mine coal at underground and surface mining operations. Certain factors beyond our control, including those listed below, could
disrupt our coal mining operations, reduce our production or increase our operating costs:



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If
any of these conditions or events occur at our Buckeye operations our coal mining operations may be disrupted; we could experience a delay or halt of production or our operating costs
could increase significantly. In addition, if our insurance coverage is limited or excludes certain of these conditions or events, then we may not be able to recover any of the losses we may incur as
a result of such conditions or events, some of which may be substantial.

The substantial or extended decline in coal prices has negatively affected our revenues and the value of our coal reserves.

Revenues from our Buckeye operations and the value of our coal reserves depend upon the prices we receive for our coal. In turn, the
prices we receive for our coal depend upon factors beyond our control, including the following:



Decline
in the prices we receive for our coal could adversely affect our revenues and the value of our coal reserves.

Increases in the costs of mining and other industrial supplies, including steel-based supplies and diesel fuel, or the inability to obtain a sufficient quantity of those
supplies, could negatively affect our operating costs or disrupt or delay our production.

Our coal mining operations use significant amounts of steel, diesel fuel, and other mining and industrial supplies. The costs of roof
bolts we use in our underground mining operations depend on the price of scrap steel. We also use significant amounts of diesel fuel for the trucks and other heavy

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machinery
at our Buckeye operations. If the prices of mining and other industrial supplies, particularly steel-based supplies and diesel fuel increase, our operating costs could be negatively
affected. In addition, if we are unable to procure these supplies, our coal mining operations may be disrupted or we could experience a delay or halt in our production.

Our inability to acquire additional coal reserves or our inability to develop coal reserves in an economically feasible manner may adversely affect our business.

As we mine, we deplete our coal reserves. As a result, our ability to produce coal in the future depends, in part, on our ability to
acquire additional coal reserves. We may not be able to obtain replacement reserves when we require them. If available, replacement reserves may not be available at favorable prices, or we may not be
capable of mining those reserves at costs that are comparable with our existing coal reserves. Our ability to obtain coal reserves in the future could also be limited by restrictions under our
existing or future debt agreements and competition from other coal producers. If we are unable to acquire coal reserves to replace the coal reserves we mine, our future production may decrease
significantly and our operating results may be negatively affected.

Estimates of proven and probable reserves may vary substantially from actual results.

There are numerous uncertainties inherent in estimating quantities of proven and probable reserves, including many factors beyond our
control. Estimates of economically proven and probable coal reserves and future net cash flows necessarily depend upon a number of variable factors and assumptions. These include historical production
from the area compared with production from other producing areas, the assumed effects of regulations by governmental agencies and assumptions concerning future coal prices, future operating costs,
severance and excise taxes, development costs and reclamation costs, all of which may in fact vary considerably from actual results. For these reasons, estimates of the economically recoverable
quantities of coal attributable to any particular group of properties, classifications of such reserves based on risk of recovery and estimates of future net cash flows expected from them prepared by
different engineers or by the same engineers at different times may vary substantially. Actual production, revenues and expenditures with respect to our reserves will likely vary from estimates, and
such variances will likely be material. As a result, you should not place undue reliance on the coal reserve data included herein.

A shortage of skilled labor in the mining industry could pose a risk to achieving optimal labor productivity and competitive costs, which could adversely affect our
profitability.

Efficient coal mining using modern techniques and equipment requires skilled laborers, preferably with at least a year of experience
and proficiency in multiple mining tasks. In the event the shortage of experienced labor continues or worsens or we are unable to train the necessary amount of skilled laborers, there could be an
adverse impact on our labor productivity and costs and our ability to expand production and therefore have a material adverse effect on our earnings.

Defects in title or loss of any leasehold interests in our properties could limit our ability to conduct mining operations on these properties or result in significant
unanticipated costs.

We conduct a significant part of our mining operations on properties that we lease. A title defect or the loss of any lease upon
expiration of its term, upon a default or otherwise, could adversely affect our ability to mine the associated reserves and/or process the coal that we mine. Title to most of our owned or leased
properties and mineral rights is not usually verified until we make a commitment to develop a property, which may not occur until after we have obtained necessary permits and completed exploration of
the property. In some cases, we rely on title information or representations and warranties provided by our lessors or grantors. Our right to mine some of our reserves has in the past been, and may
again in the future be, adversely affected if defects in title or boundaries exist or if a

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lease
expires. Any challenge to our title or leasehold interests could delay the exploration and development of the property and could ultimately result in the loss of some or all of our interest in
the property. Mining operations from time to time may rely on an expired lease that we are unable to renew. From time to time we also may be in default with respect to leases for properties on which
we have mining operations. In such events, we may have to close down or significantly alter the sequence of such mining operations which may adversely affect our future coal production and future
revenues. If we mine on property that we do not own or lease, we could incur liability for such mining. Also, in any such case, the investigation and resolution of title issues would divert
management's time from our business and our results of operations could be adversely affected.

In
order to obtain leases or mining contracts to conduct our mining operations on property where these defects exist, we may in the future have to incur unanticipated costs. In addition,
we may not be able to successfully negotiate new leases or mining contracts for properties containing additional reserves, or maintain our leasehold interests in properties where we have not commenced
mining operations during the term of the lease. Some leases have minimum production requirements. Failure to meet those requirements could result in losses of prepaid royalties and, in some rare
cases, could result in a loss of the lease itself.

The availability and reliability of transportation facilities and fluctuations in transportation costs could affect the demand for our coal or impair our ability to supply
coal to our customers.

We depend upon barge, rail, and truck transportation systems to deliver coal to our customers. Disruptions in transportation services
due to weather-related problems, mechanical difficulties, strikes, lockouts, bottlenecks, and other events could impair our ability to supply coal to our customers. As we do not have
long-term contracts with transportation providers to ensure consistent and reliable service, decreased performance levels over longer periods of
time could cause our customers to look to other sources for their coal needs. In addition, increases in transportation costs, including the price of gasoline and diesel fuel, could make coal a less
competitive source of energy when compared to alternative fuels or could make coal produced in one region of the United States less competitive than coal produced in other regions of the United States
or abroad. If we experience disruptions in our transportation services or if transportation costs increase significantly and we are unable to find alternative transportation providers, our coal mining
operations may be disrupted, we could experience a delay or halt of production or our profitability could decrease significantly.

Extensive government regulations impose significant costs on our mining operations, and future regulations could increase those costs or limit our ability to produce and
sell coal.

The coal mining industry is subject to increasingly strict regulation by federal, state and local authorities with respect to matters
such as:



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In
particular, federal and state statutes require us to restore mine property in accordance with specific standards and an approved reclamation plan and require that we obtain and
periodically renew permits for mining operations. If we do not make adequate provisions for all expected reclamation and other costs associated with mine closures, it could harm our future operating
results. In addition, state and federal regulations impose strict standards for particulate matter emissions which may restrict our ability to develop new mines or could require us to modify our
existing operations and increase our costs of doing business.

Federal
and state safety and health regulation in the coal mining industry may be the most comprehensive and pervasive system for protection of employee safety and health affecting any
segment of the U.S. industry. It is costly and time-consuming to comply with these requirements and new regulations; orders may materially adversely affect our mining operations or cost
structure, any of which could harm our future results.

Under
federal law, each coal mine operator must secure payment of federal black lung benefits to claimants who are current and former employees and contribute to a trust fund for the
payment of benefits and medical expenses to claimants who last worked in the coal industry before July 1973. The trust fund is funded by an excise tax on coal production. If this tax increases, or if
we could no longer pass it on to the purchaser of our coal under many of our long-term sales contracts, it could increase our operating costs and harm our results. New regulations that
took effect in 2001 could significantly increase our costs related to contesting and paying black lung claims. If new laws or regulations increase the number and award size of claims, it could
substantially harm our business.

The
costs, liabilities and requirements associated with these and other regulations may be costly and time-consuming and may delay commencement or continuation of exploration
or production operations. Failure to comply with these regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of cleanup and site restoration costs
and liens, the issuance of injunctions to limit or cease operations, the suspension or revocation of permits and other enforcement measures that could have the effect of limiting production from our
operations. We may also incur costs and liabilities resulting from claims for damages to property or injury to persons arising from our operations. We must compensate employees for
work-related injuries. If we do not make adequate provisions for our workers' compensation liabilities, it could harm our future operating results. If we are pursued for these sanctions,
costs and liabilities, our mining operations and, as a result, our profitability could be adversely affected.

The
possibility exists that new legislation and/or regulations and orders may be adopted that may materially adversely affect our mining operations, our cost structure and/or our
customers' ability to use coal. New legislation or administrative regulations (or new judicial interpretations or administrative enforcement of existing laws and regulations), including proposals
related to the protection of the environment that would further regulate and tax the coal industry, may also require us or our customers to change operations significantly or incur increased costs.
These regulations, if proposed and enacted in the future, could have a material adverse effect on our financial condition and results of operations.

We may be unable to obtain and renew permits necessary for our operations, which would reduce our production, cash flow and profitability.

Mining companies must obtain numerous permits that impose strict regulations on various environmental and safety matters in connection
with coal mining. These include permits issued by various federal and state agencies and regulatory bodies. The permitting rules are complex and may

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change
over time making our ability to comply with the applicable requirements more difficult or even impossible, thereby precluding continuing or future mining operations. Private individuals and the
public have certain rights to comment upon and otherwise engage in the permitting process, including through court intervention. Accordingly, the permits we need may not be issued, maintained or
renewed, or may not be issued or renewed in a timely fashion, or may involve requirements that restrict our ability to conduct our mining operations. An inability to conduct our mining operations
pursuant to applicable permits would reduce our production, cash flow, and profitability.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

None.

ITEM 2.    PROPERTIES



We lease 32,727 square feet of office space in Denver, Colorado for our headquarters pursuant to a ten year lease that commenced in
April 2007. We believe this space is sufficient for our near-term goals and growth projections.



In May 2004, we purchased Landrica Development Company, ("Landrica"). Through Landrica, we own approximately 1,000 acres of land
located in Campbell County, Wyoming (near Gillette, Wyoming), on which our Fort Union plant is located. The land also includes various coal processing equipment, certain industrial buildings, waste
injection wells, producing water wells, a coal-mining pit with limited reserves and a railroad spur.



Buckeye Industrial Mining Co. has been mining bituminous coal from surface and underground mines in northeast Ohio since 1971.
Buckeye currently operates five open-pit mines and one underground mine and has more than 400 lease agreements over five counties: Stark, Carroll, Columbiana, Jefferson, and Tuscarawas.
All coal from these mines is Northern Appalachian, non-compliant steam coal, and the mines are located within a fifty mile radius in the State of Ohio. Additionally, virtually all of the
coal mined from these sites is shipped to our wash facility, located in Kensington, Ohio, which we refer to as the Kensington preparation and blending facility, or Kensington. We operate and manage
these surface and underground mines as one mine due to the fact these mines supply a single wash facility and coal from the various mines is blended together at this site to meet customer
specifications.

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The following map details the counties in which Buckeye has mining operations in the State of Ohio.

GRAPHIC

The
following map details Buckeye's mining operation by counties in the State of Ohio.

GRAPHIC

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Currently, 31 sites have been permitted, 0 sites have been permitted but not yet effective and 14 sites are in the permitting process. The permitted sites are
either actively being mined, being reclaimed, or in the maintenance stage. Prospect drilling and evaluation on new leases is ongoing. As of December 31, 2009, Buckeye has approximately
80.2 million tons of in-place reserves. In connection with our purchase of Buckeye in 2006, we engaged an independent, third-party engineering firm to calculate in-place
and proven and probable reserves, in which they applied Industry Guide 7 when preparing their analysis. In 2008, and again in 2009, we engaged the same independent engineering firm to generate a
limited reserve letter for our underground mining operations, again applying Industry Guide 7.

All
rock formations encountered in Buckeye's mining operations are Pennsylvanian age. All strata encompass the Allegheny Group of the Pennsylvanian age with the exception of one which is
in the Conemaugh Group. These coal beds are the most common coals mined at the Northern limit of the Allegheny coal field. Minable coal thickness ranges from 19 inches to 50 inches. Contained within
these strata are marketable shales, clays, and limestones. These are mined and marketed when possible, but comprise a very small fraction of Buckeye's sales.

All
mines operate at designed capacity relative to the available equipment and capacity at Kensington. The mines are running at designed production, in compliance with all government
permit conditions, and concurrently ongoing reclamation. The equipment used at the surface mining operations are typical of the heavy earthmoving, coal loading and coal transportation equipment found
in the surface mining
industry in Appalachia. Likewise, the underground mining and coal transport equipment is typical of that in underground room-and-pillar mines in the Appalachian coal field. For
our underground mining operations, we contract the coal mining to a third party. The third-party contracting company is paid a fee based on tons mined and quality of the mined coal. In addition,
various loaders, scrapers and bulldozers are utilized for ground preparation, road maintenance and drainage control at the sites. All equipment is constantly being upgraded to meet mining, operational
or safety requirements.

In
2006, the underground mining operations were expanded by constructing a second portal to include an additional coal seam and increase overall production. The original portal accessed
a specific coal seam and the second portal accessed an additional coal seam. In late 2006, the original portal was idled and the mining unit transferred to the second portal to facilitate additional
production of that coal seam. There is currently one portal with two mining units in the second coal seam.

The
following table presents our estimated assigned and unassigned recoverable coal reserves at December 31, 2009:

Total Assigned Reserves(1)  (Tons in millions)  December 31, 2009

Sulfur Content (lbs
per million Btus)



Reserve
Control

Mining MethodTotal
Assigned
Recoverable
Reserves(2)As Received
Btus per
lb(1)



Under
GroundProven

Probable

1.2

1.2-2.5

2.5

Leased

Owned

Surface19.8


19.8








17.4


2.4


13,000


19.8





4.2


16.7





























Total


19.8


19.8








17.4


2.4





19.8





4.2


16.7


---

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Total Unassigned Reserves(1)  (Tons in millions)  December 31, 2009

Sulfur Content (lbs
per million Btus)



Reserve
Control

Mining MethodTotal
Assigned
Recoverable
Reserves(2)As Received
Btus per
lb(1)



Under
GroundProven

Probable

1.2

1.2-2.5

2.5

Leased

Owned

Surface64.0


64.0











64.0


13,000


64.0








64.0





























Total


64.0


64.0











64.0





64.0








64.0


---

Our
Kensington preparation and blending facility was built in 1977 and repair and maintenance is performed as necessary. This facility cleans the coal impurities and sizes coal to meet
various customer size and quality requirements. The cleaning process utilizes gravity separation, typical of most such plants in Appalachia. Sizing is accomplished with a sorting process using
screens. Refuse from the cleaning operation is landfilled at sites approved by various government regulatory agencies. After cleaning, the coal may also be blended with other coals to meet specific
customer requirements; such as heat value or post-combustion characteristics like ash content or mercury, sulfur dioxide, chlorine, nitrogen oxide or other emissions criteria.

Access
to all the mine sites and Kensington are via US, State, Township or County roads. Transportation of raw coal to Kensington is by trucks over public highways. Transportation of the
product to customers is by train using a siding of the Norfolk Southern Railroad or by truck over public highways.

Approximately
99% of all coal properties are leased. Typically, the properties that are mined are leased from the surface land owner, the coal owner or both. It is common for a single
open-pit mine to contain multiple leases and many leases are required for underground mines. These lease agreements require Buckeye to pay royalties, on a per ton basis, for coal mined.
New leases are being obtained continually. Leases for surface mine properties are typically written with a five-year term and typically allow for an extension of the term, to include the
time necessary to mine and reclaim the area, at the time when physical mining activity on the leased area commences. Renewals or term extensions are necessary for areas not affected within the
five-year term. Historically, renewals or term extensions have been rarely needed but easily obtained when necessary. Leases for underground coal reserves are typically written with a
ten-year term. Similar to surface leases, the underground lease term extends when mining commences on that area to include the time necessary to complete mining. Extension or renewals of
underground leases have also been obtained when necessary. According to current production plans, we do not anticipate any issues with lease term length. Buckeye pays a royalty on all mined tonnage
and receives no royalty payments. Royalties paid to surface and/or mineral owners were calculated on 871,692, 922,474 and 857,900 tons for the years ended December 31, 2009, 2008 and 2007,
respectively.

The
vast majority of Buckeye's reserves have undergone a title review. Buckeye engages a title company to determine the owner of a particular area (both surface and minerals as they are
sometimes different owners). The title company's results are then provided to a title attorney who works in the area of the property. The attorney reviews the title documents placed of record and
issues a Report of Title reflecting the surface and mineral owners as reflected by the records of the appropriate county.

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In
order to determine if potential sites are economically feasible, it is necessary to conduct drilling on the properties. If it has been determined that the properties are economically
feasible, the permitting process is initiated which includes government permits. The permitting application process takes several years before a permit is granted. Not until a property is permitted
and bonded can any mining begin.

When
mining on a property is completed, it must be reclaimed to government permit specifications. A five year, post-reclamation maintenance period is required by government
regulation prior to final release of the performance security. Buckeye remains liable for any environmental issues until final release. A performance security instrument, typically a performance bond,
is required to insure reclamation.

ITEM 3.    LEGAL PROCEEDINGS

We are not engaged in any material legal proceedings to which we or any of our subsidiaries are a party.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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PART II

ITEM 5.    MARKET FOR COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Principal Market and Price Range of Common Stock

Our common stock trades on the NYSE Arca exchange under the market symbol "EEE." The following table sets forth the range of high and
low sales prices per share of common stock for the periods indicated.

Year

Period

High

Low2009

Fourth Quarter

$
0.61

$
0.28Third Quarter

$
1.13

$
0.58Second Quarter

$
1.40

$
0.95First Quarter

$
1.43

$
0.282008

Fourth Quarter

$
0.93

$
0.23Third Quarter

$
2.05

$
0.94Second Quarter

$
2.50

$
1.14First Quarter

$
2.75

$
1.02


As
of March 8, 2010, we had approximately 209 holders of record of our common stock. This does not include holdings in street or nominee names. On March 8, 2010 the closing
price of our common stock was $0.32 per share.

Comparative Performance Graph

The following Performance Graph and related information shall not deemed "soliciting material" or be "filed"
with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filings under the Securities Act of 1933 or Securities Exchange Act of 1934, each
as amended, except to the extent that we specifically incorporates it by reference.

The
Securities and Exchange Commission requires that we include in this Form 10-K a line-graph presentation comparing cumulative, five-year
stockholder returns (assuming reinvestment of dividends) for our common stock with a broad-based market index and either a nationally recognized industry standard or an index of peer companies
selected by us. The following graph assumes $100 invested on December 31, 2004 in our common stock, two Peer Groups of companies and the NASDAQ Composite Index. The stock price performance
shown on the following graph is not necessarily indicative of future price performance.

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Table of Contents

Comparison of 5 Year Cumulative Total Return  Assumes Initial Investment of $100  December 2008

GRAPHIC

In
2009, we changed our Peer Group to better reflect energy companies and software companies more our size and complexity. Or new peer group is comprised of the following companies;
Beacon Power Corp.; Orion Energy Systems; Lime Energy; PowerSecure; ADA-ES; Acorn Energy; Rentech Energy; Guidance Software; Pervasive Software Inc; and QAD Inc. All companies in
the new Peer Group are listed on U.S. stock exchanges or the NASDAQ system. Our Peer Group in 2008 was comprised of the following companies: Alliance Resource Partners, LP.; Foundation
Coal Holdings, Inc.; Massey Energy Co.; Westmoreland Coal Company; Yanzhou Coal Mining Co., Ltd.; ADA-ES, Inc.; Headwater, Inc.;
Rentech, Inc.; Syntroleum Corporation; NGP Ingredients Inc.; and Pacific Ethanol, Inc.

We
are excluded from the Peer Group for purposes of the comparative performance graph.

Dividend Policy

We have never paid cash dividends and do not anticipate paying dividends in the foreseeable future. We expect that we will retain all
available earnings generated by our operations for the development and growth of our business. Payment of any future dividends will be at the discretion of our board of directors after taking into
account many factors, including our operating results, financial condition, current and anticipated cash needs and plans for expansion. Historically, we have not repurchased any common stock.

Recent Sales of Unregistered Securities

During the quarter ended December 31, 2009, we did not have any sales of securities in transactions that were not registered
under the Securities Act that have not been reported in a Form 8-K or Form 10-Q.

Issuer Purchasers of Equity Securities

We did not repurchase any of our shares of common stock during the quarter ended December 31, 2009.

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Table of Contents

ITEM 6.    SELECTED FINANCIAL DATA

The following selected consolidated financial data should be read in conjunction with our Consolidated Financial Statements and related
notes thereto in Item 8 of this report and Management's Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of this report. The selected
consolidated results of operations and cash flow data for each of the three years in the period ended December 31, 2009 and the selected balance sheet data as of December 31, 2009 and
2008 are derived from, and qualified by reference to, our audited Consolidated Financial Statements, in Item 8 of this report. The selected consolidated results of operations and cash flow data
related to 2006 and 2005 and selected consolidated balance sheet data related to 2006 and 2005 have been derived from audited financial statements not included in this report.

Years ended December 31,2009

2008

2007

2006

2005(in thousands, except per share amounts)Statement of operations data:Operating revenues

$
50,671

$
58,901

$
48,657

$
36,710

$
984Operating expenses


104,592


125,088


252,878


94,918


26,144Operating loss


(53,921
)

(66,187
)

(204,221
)

(58,208
)

(25,160
)Net loss(3)


(58,537
)

(65,230
)

(204,676
)

(51,527
)

(23,313
)Basic and diluted net loss per common share

$
(0.46
)
$
(0.72
)
$
(2.49
)
$
(0.66
)
$
(0.35
)Weighted average shares of common stock outstanding


132,070


90,676


82,232


77,783


66,399Balance sheet data:Cash, cash equivalents and marketable securities(1)

$
2,207

$
9,467

$
51,458

$
84,276

$
28,793Property, plant and equipment, net, mineral rights net, and plant construction in progress


45,900


65,699


57,210


151,727


76,291Total assets


74,504


101,441


175,811


252,319


114,172Long-term obligations


45,017


42,643


112,178


12,403


10,429Stockholders' (deficit) equity


(5,877
)

43,850


46,699


224,984


93,641Working capital(2)

$
(21,747
)
$
2,263

$
45,580

$
79,156

$
19,910Cash flow data:Cash used in operating activities

$
(12,908
)
$
(36,263
)
$
(51,581
)
$
(30,435
)
$
(12,071
)Cash provided by (used in) investing activities


(9,684
)

20,624


(50,236
)

(110,866
)

(73,858
)Cash (used in) provided by financing activities

$
17,132

$
(3,652
)
$
96,057

$
169,100

$
11,467


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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with, and are
qualified by reference to, our Consolidated Financial Statements and related notes thereto in Item 8 of this report and Selected Financial Data included in Item 6 of this report. Certain
statements set forth below under this caption constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform of 1995. Refer to the "Cautionary Statement About
Forward Looking Statements" preceding Item 1 of this report. Also, for a discussion of certain risk factors applicable to our business and operations see "Risk Factors" in Item 1A of
this report.

We
were founded in 1984 as a cleaner coal technology, energy production and environmental solutions company focused on developing our proprietary technologies. In the last two years, we
have sharpened our focus as a carbon technology company. We have developed two proprietary, patented, and potentially transformative green technologies: the GreenCert suite of software and services
and
K-Fuel. Our GreenCert technology is a scientifically accurate and scalable environment intelligence solution that measures greenhouse gases (or GHG) and other environmental costs enabling
customers to manage and report their environmental assets and liabilities. GreenCert, built on IBM's Service-Oriented Architecture (or SOA), is the environment intelligence solution that provides
customers the end-to-end visibility and traceability necessary to measure their complete environmental footprint. K-Fuel, our clean coal technology significantly
improves the performance of low-rank coals yielding higher efficiency and lower emissions.

We
are continuing the development of our GreenCert suite of software and services. GreenCert is an accurate and scalable environmental intelligence solution that quantifies GHG emission
avoidances and reductions and generates verifiable emissions offsets. GreenCert provides real-time, multiple method data analysis to increase accuracy and reduce uncertainty to quantify
incremental improvements. GreenCert also enables enterprises to reduce overall costs via the identification of significant operational efficiencies, compliance and risk reduction and sustainability
measures. We intend to sell GreenCert as an on-premise offering and as a hosted software as a service (SaaS) solution, both with annual licensing fees and renewal fees.

Over
the past year, we have been evaluating several alternatives related to our strategic positioning, including the potential sale of Buckeye. As further described in
Item 1Business, on March 12, 2010, we signed a definitive agreement with Rosebud Mining Company with respect to the sale of certain net assets of Buckeye for
$27.9 million, in addition to the the release of $5.0 million of cash reclamation bonds. Further, $2.8 million of the purchase price will be deposited into escrow for a period of
twelve months to cover amounts payable to Rosebud pursuant to the indemnification provision of the sales agreement. The transaction is subject to customary closing conditions and the completion of
Rosebud's due diligence. The sale is expected to close in April 2010, but in any event no later than June 30, 2010. The proceeds from the sale of Buckeye will be used to retire the outstanding
2009 Notes including fees and accrued interest of $21.1 million, to fund related transaction expenses estimated at $2.5 million and for general working capital purposes. We recorded an
impairment charge of $20.1 million to write down these assets to their fair market value.

With
the sale of Buckeye we will be able to better focus our resources on core business activities, including the K-Fuel technology. We have terminated the contemplated
spin-off of the K-Fuel technology as previously announced. Concurrently, Evergreen-China signed a letter of intent with a large Chinese integrated utility and chemical
manufacturer to build a K-Fuel plant in Inner Mongolia to produce K-Fuel refined coal from low ranked lignite feedstock.

The
consolidated financial statements include our accounts and the accounts of our wholly and majority-owned subsidiaries. We consolidate all of our majority-owned subsidiaries and
reflect as

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minority
interest the portion of these entities that we do not own and recorded in other long-term liabilities. We do not consolidate our Chinese joint venture, Evergreen-China, but record
the activity using the equity method of investment. Intercompany transactions and balances have been eliminated.

Our
segments include the GreenCert segment, Plant segment, Mining segment and Technology segment. The GreenCert segment reflects activities related to the measurement of green house
gases and certification of environmental improvements as carbon credits. The Plant segment primarily represents revenue and costs related to our Fort Union plant near Gillette, Wyoming, at which we
suspended operations in March 2008. The Mining segment primarily represents our mining operations of our subsidiary, Buckeye, and includes certain marketing personnel, the ash disposal facility and
the preparation and blending facility. The Technology segment is comprised of all other operations that use, apply, own or otherwise advance our proprietary patented K-Fuel process,
including our headquarters and related operations, activities of Evergreen Energy Asia Pacific Corp. and KFx Technology, LLC, which holds the patents to our technology. Corporate costs within
our Technology segment are allocated to our other segments, generally on a percentage based on the number of employees, total segment operating expenses, or segment operating expenses plus segment
capital expenditures.



For the last several years, our operations have been focused on developing our two technologies GreenCert and K-Fuel and
the construction of the Fort Union plant. To date, we have not yet generated significant revenues from either of these technologies. Historically most of our costs are related to general and
administrative expenses. With the addition of Buckeye, we have begun to generate revenue and incur more substantial mining costs. As previously discussed, we have entered into an agreement to sell
certain of our mining segments assets and as a result, do not expect there to be any mining revenues and limited mining expenses after the completion of this sale. In the future, we plan to identify
potential future strategic partners for GreenCert, in addition to IBM, EIM and Black and Veatch, to assist in the development, testing and roll-out of our products. Potential partners
include companies offering services or products such as: energy engineering; consulting; power generation performance optimization; environmental consulting; and products relating to sensor systems
and devices, data collection devices, or other products that support energy or power plant operations. Through our GreenCert software we plan to generate revenues through measurement of baseline
emissions, assess and identify capital and operational improvements and site-specific, highly-customized solution that enables the quantification and monetization of the emissions
reductions and efficiency improvements. We plan to license our K-Fuel technology, focusing on the Asia Pacific region of the world through
Evergreen-China. The following discussion and analysis is focused on the events and trends that we believe have or will have in the future the most significant impact on our business.

Revenue Trends

In the future we expect to generate revenue from the following sources:



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Expense Trends



As we develop and implement our GreenCert technology we will incur additional operational cost such as:





As we identify business development opportunities and generally expand our business, including hiring additional personnel at our
corporate office, GreenCert locations and increasing outsourced professional services, we will incur additional expenses, the most significant of which are:



We
anticipate that accounting for non-cash, share-based compensation will add approximately $6.0 million to $10.0 million per year in the foreseeable future to
our expenses. In the event we should achieve certain stock price targets, we would significantly accelerate recognition of these costs. Costs such as payroll and related burdens, professional support
fees and utilities are
variable costs that increase with size and adding locations. As we develop our GreenCert and K-Fuel technologies we expect these costs to increase in future periods.



We incur mine operating expenses including all costs associated with the mining of saleable coal and costs relating to our coal ash
disposal facility as a result of Buckeye's operations. As previously discussed, we have entered into an agreement to sell certain mining segment assets and as a result, do not expect there to be any
revenues and limited mining expenses after the completion of this sale.



In March 2008, we suspended operations at our Fort Union plant in order to redirect constrained resources, both capital and human, to
focus on the commercialization of this process in future K-Fuel plants. Suspending production at Fort Union enabled us to reduce our cash expenditures. We will continue to incur various
costs related to maintaining the site in a non-operational mode.

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Results of Operations

Comparison of Years Ended December 31, 2009 and 2008



Revenues for the year ended December 31, 2009 were $50.7 million compared to $58.9 million for the same period
ended December 31, 2008. With the sale of Buckeye, we anticipate our future mining revenues to decline.

Revenues
in our Mining segment for the year ended December 31, 2009 were $50.2 million and $58.4 million for the same period ended December 31, 2008
respectively, as follows:



K-Fuel
refined coal revenue is comprised of sales of our K-Fuel product to third parties. Blended K-Fuel refined coal revenue represents the
proportionate revenue related to K-Fuel that has been blended with other raw or prepared coal from our Buckeye operations and sold to third parties. The remaining revenue related to the
raw or prepared coal is reflected in Mining revenues. K-Fuel refined coal and blended K-Fuel refined coal sales were $0 and $463,000 for the years ended December 31,
2009 and 2008, respectively and are included in our Plant segment.



Our coal mining operating expenses include all costs associated with the mining of saleable coal and costs relating to our coal ash
disposal facility at Buckeye, which principally comprises our Mining segment.



Coal mining operating expenses include employee-related costs, outside contracted mining costs for our underground mines, internal and
external coal transportation costs, blasting, drilling, heavy equipment costs, purchased coal and other mining-related costs. Coal mining operating expenses were

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$40.0 million
and $42.4 million for the years ended December 31, 2009 and 2008, respectively. Coal mining operating expenses decreased for the year ended December 31, 2009
compared to 2008. However, costs per ton increased during this same period due to more than expected ash and rock content thus increasing transportation costs and preparation/separation costs.



Ash disposal expenses include employee-related costs, consulting costs, costs of repairs and maintaining culverts and drainage ponds,
transportation, and heavy equipment costs and other costs associated with the ash disposal facility. Ash disposal expenses were $3.5 million and $5.4 million for the periods ended
December 31, 2009 and 2008, respectively. The decrease for the year ended December 31, 2009 is in correlation with the decrease in revenue for the same period.



Corporate costs within our Technology segment are allocated to our other segments, generally on a percentage based on the number of
employees, total segment operating expenses or segment operating expenses plus segment capital expenditures. As a result of idling our Fort Union plant, these allocated costs have significantly
decreased in our Plant segment and increased in other segments most notably in our Technology and GreenCert segments, for the year ended 2009 when compared to 2008.

The
following table summarizes our general and administrative costs for the years ended December 31, 2009 and 2008.

Year Ended December 31,2009

2008(in thousands)Employee-related costs

$
11,303

$
12,559Non-cash, share-based compensation


4,786


5,956Professional fees


5,788


3,908Office and travel costs


4,084


3,830Insurance and other


3,121


5,712Total general and administrative

$
29,082

$
31,965


Non-cash,
share-based compensation expenses were $4.8 million and $6.0 million for the years ended December 31, 2009 and 2008, respectively, most of
which related to our Technology segment. The decrease for the year ended 2009 was primarily due to the reduction of our workforce and the related forfeiture of the grants. We also recognized a
one-time decrease due to the retirement of a former officer and the impact of his retirement on his restricted stock grant. Since the restricted shares never vested and were forfeited upon
retirement, the cumulative non-cash compensation expense recorded since 2005 was reversed. This reversal of non-cash compensation totaled $2.9 million for the year ended
December 31, 2009. The decreases were partially offset by a transition agreement we entered into with another former officer. Pursuant to that agreement, we accelerated the restricted stock
grant and recorded $3.3 million of non-cash compensation for the year ended December 31, 2009.

Employee-related
costs primarily include salaries and wages, temporary employees, bonuses, benefits, employer payroll taxes and education and training. The following table summarizes our

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employee-related
costs related to each of our segments for the years ended December 31, 2009 and 2008.

Year Ended December 31,2009

2008(in thousands)GreenCert

$
4,601

$
2,638Technology


3,361


5,585Mining


2,822


2,502Plant


519


1,834Total Employee-related

$
11,303

$
12,559


The
decrease for the year ended December 31, 2009 in comparison to the same period in 2008 was primarily due to our cost cutting measures which resulted in lower employee count in
our Technology and Plant segments. This decrease was offset by the addition of personnel to our GreenCert segment and severance expense for two former executive officers in the amount of $525,000 in
our Technology segment.

Professional
fees include legal, audit and accounting, public relations, governmental relations and similar costs. The following table summarizes our professional fees related to each of
our segments for the years ended December 31, 2009 and 2008.

Year Ended December 31,2009

2008(in thousands)GreenCert

$
972

$
830Technology


3,842


2,340Mining


923


375Plant


51


363Total Professional fees

$
5,788

$
3,908


The
increase for the year ended December 31, 2009 compared the year ended 2008 was due to legal fees related to certain financing transactions that were not consummated, fees
related to the marketing of Buckeye and international work, all related to our Technology segment, and filing patent applications for our GreenCert technology in our GreenCert segment.

Office
and travel costs include airfare, lodging, meals, office rent, marketing, office supplies, phone, publications, subscriptions and utilities. The following table summarizes our
office and travel costs related to each of our segments for years ended December 31, 2009 and 2008.

Year Ended December 31,2009

2008(in thousands)GreenCert

$
1,794

$
881Technology


1,997


2,255Mining


192


245Plant


101


449Total Office and travel

$
4,084

$
3,830


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The
increase in office and travel for the year ended December 31, 2009 is primarily due to a non-recurring charge of $1.0 million due to consolidating our
employees into a smaller section of our office space to enable us to potentially sublease the remaining office space at our corporate location. The majority of this non-recurring charge
was allocated to our
GreenCert segment based on the number of employees, total segment operating expenses or segment operating expenses plus segment capital expenditures.

Insurance
and other costs primarily include costs related to our property and commercial liability, other insurance and all costs that cannot be categorized elsewhere and include, among
other costs, various business and franchise taxes, licensing fees, repair and maintenance, engineering and technical services and director expenses. The following table summarizes our insurance and
other costs related to each of our segments for the years ended December 31, 2009 and 2008.

Year Ended December 31,2009

2008(in thousands)GreenCert

$


$
821Technology


2,449


3,740Mining


645


742Plant


27


409Total Insurance and other

$
3,121

$
5,712


Costs
decreased for the year ended December 31, 2009 mainly due to the idling of our Ft. Union plant in 2008 and the resulting decrease in Engineering and Technical services
expense in our Technology segment.



Subsequent to the idling of the Fort Union plant, costs primarily consist of salaries and wages, security, utilities and repair and
maintenance. Previously, plant costs included purchased raw materials, coal transportation, outsourced engineering and technical support, fluid processing, by-products and water disposal,
and employee-related costs, which are reflected in our Plant segment. Plant costs decreased during the year ended December 31, 2009 as compared to 2008 primarily due to the idling of our Fort
Union plant in late March 2008. Overall,
while we anticipate costs to somewhat decline in 2010, we will continue to incur various costs related to maintaining the site in a non-operating mode.



Depreciation, depletion and amortization are principally comprised of: (i) depletion, based on actual tons mined at our mine
sites in Ohio; (ii) amortization related to our patents; and (iii) depreciation on other fixed assets using the straight-line method. Depreciation, depletion and amortization
expenses were $10.0 million for the year ended December 31, 2009 compared to $9.0 million during the same period ended 2008.



Research and development costs include costs incurred to advance, test, or otherwise modify our proprietary K-Fuel
technology or develop new technologies and primarily include costs incurred to operate and maintain our laboratory facilities and professional engineering fees related to off-site testing
of our K-Fuel refined coal. Research and development costs were $49,000 and $79,000 for the years ended 2009 and 2008, respectively. As a result of cost cutting measures, we decreased the
number of employees and the corresponding salary and wages at our lab at Fort Union.

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Asset impairment charges were $20.5 million and $18.6 million for the years ended December 31, 2009 and 2008,
respectively. The majority of the impairment charge in 2009 relates to the write-down of our Buckeye assets. Other asset impairment charges for year ended December 31, 2009 relate
to the impairment of our leasehold improvements of the vacated office space that we are attempting to sublease and is reflected in our Technology segment. Asset impairment charges for the year ended
December 31, 2008 relate to further impairment of our boiler island which was classified as assets held for sale. See Note2 Property Plant and Equipment in Item 8 of this
report for further details.



Interest income was $65,000 and $1.3 million for the years ended December 31, 2009 and 2008, respectively. The decrease
in interest income for the year ended December 31, 2009 was principally attributable to a lower cash balance in 2009.



Interest expense for the years ended December 31, 2009 and December 31, 2008 was $7.6 million and
$6.1 million, respectively. The interest expense relates to the 2007 Notes and 2009 Notes more fully described in Note 7Debt.



During the year ended December 31, 2009, other income was $2.8 million as compared to $300,000 of other expense for the
same period ended 2008. The increase in 2009 compared to 2008 primarily relates to the fair value adjustments of our embedded derivatives in the amount of $2.1 million.



Revenues for the year ended December 31, 2008 were $58.9 million compared to $48.7 million for the same period
ended December 31, 2007.

Revenues
in our Mining segment for the year ended December 31, 2008 were $58.4 million and $47.4 million for the same period ended December 31, 2007
respectively, as follows:



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K-Fuel
refined coal revenue is comprised of sales of our K-Fuel product to third parties. Blended K-Fuel refined coal revenue represents the
proportionate revenue related to K-Fuel that has been blended with other raw or prepared coal from our Buckeye operations and sold to third parties. The remaining revenue related to the
raw or prepared coal is reflected in Mining revenues. K-Fuel refined coal and blended K-Fuel refined coal sales were $463,000 and $1.1 million for the years ended
December 31, 2008 and 2007, respectively and are included in our Plant segment.



Coal mining operating expenses were $42.4 million and $38.3 million for the years ended December 31, 2008 and
2007, respectively. The increase in cost per ton in comparing the year ended December 31, 2008 to 2007 is primarily due to the increased price of fuel used to mine and transport coal.



Ash disposal expenses were $5.4 million and $4.8 million for the periods ended December 31, 2008 and 2007,
respectively.



Corporate costs within our Technology segment are allocated to our other segments, generally on a percentage based on the number of
employees, total segment operating expenses or segment operating expenses plus segment capital expenditures. As a result of idling our Fort Union plant, these allocated costs have significantly
decreased in our Plant segment and increased in other segments most notable in our Technology segment, for the year ended 2008 when compared to 2007.

The
following table summarizes our general and administrative costs for the years ended December 31, 2008 and 2007.

Year Ended December 31,2008

2007(in thousands)Employee-related costs

$
12,559

$
11,721Employee non-cash, share-based compensation


5,956


19,015Insurance and other


5,712


4,645Professional fees


3,908


4,152Office and travel costs


3,830


3,498Total general and administrative

$
31,965

$
43,031


Employee
non-cash, share-based compensation expenses were $6.0 million and $19.0 million for the years ended December 31, 2008 and 2007, respectively,
substantially all of which related to our Technology segment. The decrease related to the year ended December 31, 2008 as compared to 2007 was due to the termination of two former executive
officers and one-time charges of $10.5 million related to the accelerated vesting of a portion of their restricted stock grants.

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The
following table summarizes our employee-related costs related to each of our segments for the years ended December 31, 2008 and 2007.

Year Ended December 31,2008

2007(in thousands)GreenCert

$
2,638

$
536Technology


5,585


4,617Mining


2,502


2,593Plant


1,834


3,975Total Employee-related

$
12,559

$
11,721


Employee-related
costs were $12.6 million and $11.7 million for the years ended December 31, 2008 and 2007, respectively. The increases for the year ended
December 31, 2008 in comparison to the same period in 2007, were primarily due to adding personnel to our GreenCert segment, as well as adding engineering and other personnel in our Technology
segment, recruiting fees, an overall increase in health insurance costs and changes in the allocation of corporate costs to various segments.

The
following table summarizes our professional fees related to each of our segments for the years ended December 31, 2008 and 2007.

Year Ended December 31,2008

2007(in thousands)GreenCert

$
830

$
410Technology


2,340


2,929Mining


375


335Plant


363


478Total Professional fees

$
3,908

$
4,152


The
decrease for the year ended December 31, 2008 as compared to 2007, was due to less outsourced engineering work as a result of increasing our corporate engineering staff in our
Technology segment. Offsetting these savings were increased professional fees in our GreenCert segment associated with patent-related costs.

The
following table summarizes our office and travel costs related to each of our segments for years ended December 31, 2008 and 2007.

Year Ended December 31,2008

2007(in thousands)Technology

$
2,255

$
2,061GreenCert


881


336Plant


449


867Mining


245


234Total Office and travel

$
3,830

$
3,498


The
increases in office and travel costs for the year ended December 31, 2008, were primarily for international and domestic travel related to our business development efforts in
both our Technology and GreenCert segments.

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The
following table summarizes our insurance and other costs related to each of our segments for the years ended December 31, 2008 and 2007.

Year Ended December 31,2008

2007(in thousands)GreenCert

$
821

$
593Technology


3,740


2,776Plant


409


511Mining


742


765Total Insurance and other

$
5,712

$
4,645




Plant costs decreased during the year ended December 31, 2008 as compared to 2007, primarily due to the idling of our Fort Union
plant in March 2008. Overall, while we anticipate costs to decline in 2009, we will continue to incur various costs related to maintaining the site in a non-operating mode.



Depreciation, depletion and amortization expenses were $9.0 million for the year ended December 31, 2008 compared to
$8.4 million during the same period ended 2007.



Research and development costs were $79,000 and $876,000 for the years ended 2008 and 2007, respectively. As a result of cost cutting
measures, we decreased the number of employees and the corresponding salary and wages in our lab at our Fort Union facility.



Asset impairment charges were $18.6 million and $122.7 million for the years ended December 31, 2008 and 2007,
respectively. Asset impairment charges for the year ended December 31, 2008, relate to further impairment of our boiler island which was classified as assets held for sale. See
Note2 Property Plant and Equipment in Item 8 of this report for further details. Impairment charges for the year ended December 31, 2007 are as
follows:



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Interest income was $1.3 million and $4.3 million for the years ended December 31, 2008 and 2007, respectively.
The decrease in interest income for the year ended December 31, 2008 was principally attributable to a lower cash balance as well as reduced interest rates during 2008.



Interest expense for the years ended December 31, 2008 and December 31, 2007 was $6.1 million and
$3.4 million, respectively. Interest expense relates to the $95.0 million in aggregate principal amount of our 8.00% Convertible Secured Notes due 2012, which we completed in July 2007.
The increase in interest expense is in direct relation to the time and amount of the 2007 Notes outstanding in 2008 compared to 2007.



During the year ended December 31, 2008, we entered into multiple individually negotiated agreements with certain existing
noteholders to exchange $67.1 million in aggregate principal amount of the 8.00% Convertible Secured Notes due 2012, for an aggregate of 48.6 million shares of our common stock. We
recognized a $6.1 million gain, which was reduced by transaction costs, non-cash reversal of debt issue costs and non-cash adjustment related to the embedded
derivatives.



During the year ended December 31, 2008, other expense was $300,000 as compared to $1.4 million of other expense for the
same period ended 2007. We estimated the fair value of the embedded derivatives as of July 30, 2007, when the 2007 Notes were issued, and recorded those values as either assets or liabilities.
In addition, we are required to evaluate the fair value of the embedded derivatives at the end of each subsequent reporting period. We recognized a decrease in the fair value of the derivatives of
$934,000 for the year ended December 31, 2008. This fair value adjustment is a non-cash item and each quarter's estimation exercise is impacted, in part, by our stock price. For
additional information, see Note 7Debt included in Item 8 of this report. In addition we recognized a $744,000 gain for insurance reimbursements for cost incurred to repair
certain equipment at our Fort Union plant for the year ended December 31, 2008.

2010 Liquidity and Capital Resources Discussion

We have reduced our cash flow used in operations by $23.4 million when comparing the year ended December 31, 2009 to the
same period in 2008. We accomplished these savings principally by suspending operations at our Fort Union plant, reducing corporate professional fees, and other general and administrative cost
reductions. These cost reductions were offset by the expansion of our GreenCert operations, including the addition of personnel and other administrative costs associated with developing the business.
In addition, we have invested $12.3 million in capital expenditures, primarily related to Buckeye, GreenCert's software development and K-Fuel process development during the year
ended December 31, 2009.

Over
the past year, we have been evaluating several alternatives related to our strategic positioning, including the potential sale of Buckeye. As previously discussed, on
March 12, 2010, we signed a definitive agreement with Rosebud Mining Company with respect to the sale of Buckeye for $27.9 million, in addition to the release of $5.0 million of
cash reclamation bonds. The sale is expected to close in April 2010, but in any event no later than June 30, 2010. The proceeds from the sale of Buckeye will be used to retire the outstanding
2009 Notes including fees and accrued interest of

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$21.1 million,
to fund related transaction expenses estimated at $2.5 million and for general working capital purposes.

Actual
2009 cash flows from Buckeye's operations have been less than previously anticipated due in part to the depressed economy and the unusually mild summer temperatures in the North
East region of the United States, both of which have led to lower than previously forecasted coal prices and reduced coal consumption. Because of these lower than expected results, combined with the
on-going costs associated with GreenCert, we were required to raise additional capital in October 2009, January 2010 and March 2010, as discussed in more detail below. However, we continue
to require additional capital to fully fund the anticapted development of our GreenCert technology and expect to investigate sources of additional capital. Because of the immediate need for additional
capital to fund operations and the costs to develop GreenCert, there is substantial doubt as to our ability to continue to operate as a going concern for the foreseeable future.

On
March 16, 2010, we and certain institutional investors entered into a securities purchase agreement, pursuant to which we agreed to sell an aggregate of 9,312.5 shares of our
preferred stock and warrants to purchase 12,500,000 shares of our common stock to such investors for gross proceeds of approximately $9.3 million. Subject to certain ownership limitations, the
warrants are immediately exercisable for a five year period after closing at an exercise price of $.31 per share. The exercise price of the warrants is subject to adjustment in the case of stock
splits, stock dividends, combinations of shares and similar recapitalization transactions. Our net proceeds from the registered direct public offering excluding certain transaction costs and the
proceeds, if any, from the exercise of the warrants issued in the offering, were approximately $5.0 million.

On
January 26, 2010, we completed a registered direct public offering and raised gross proceeds of approximately $8.7 million. The securities were offered pursuant to a
shelf registration statement on Form S-3 that was previously declared effective by the SEC on January 19, 2010. In total, we sold an aggregate of 29,236,664 shares of our
common stock and warrants to purchase 14,618,331 shares of our common stock. The common stock and warrants were sold in units, with each unit consisting of one share of common stock and a warrant to
purchase 0.50 of a share of common stock. The purchase price per unit is $.30. Subject to certain ownership limitations, the warrants are exercisable commencing six months following the closing date
of the offering and for a five year period thereafter at an exercise price of $0.3859. The exercise price of the warrants is subject to adjustment in the case of stock splits, stock dividends,
combinations of shares and similar recapitalization transactions. The net proceeds to us from the registered direct public offering, after deducting placement agent fees and our estimated offering
expenses, and excluding the proceeds, if any, from the exercise of the warrants issued in the offering, were approximately $8.0 million.

On
October 21, 2009 we entered into the sale of shares of our Series B Convertible Preferred Stock ("Preferred Stock") pursuant to a private placement offering to
institutional investors, representing gross proceeds to us of $7.0 million, with net proceeds of $5.0 million, prior to transactions costs. Evergreen plans to use the net proceeds for
general corporate purposes.

In
March 2009, we executed a Senior Secured Convertible Note Agreement which provides for the issuance of up to $15 million in aggregate principal amount of 10% Senior Secured
Promissory Notes (the "2009 Notes") in three $5 million tranches. All three of these tranches were funded during 2009. On December 18, 2009, we executed a binding term sheet and then on
January 12, 2009 we executed an agreement to extend the maturity of these 2009 Notes to the earlier of June 30, 2010 or the sale of Buckeye. See further discussion in
Note 7Debt.

We
have a history of losses, deficits and negative operating cash flows and may continue to incur losses in the future. As stated above, we have dramatically reduced our cash flow used
in operations. Continued market disruptions associated with the economic downturn, may lead to lower demand for our technology or products, increased incidence of customers' inability to pay their
accounts, or

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insolvency
of our customers, any of which could adversely affect our results of operations, liquidity, cash flows, and financial condition. We continue to evaluate our cash position and cash
utilization and may make additional adjustments to capital or certain operating expenditures.

As
stated above, we continue to require additional capital to fully fund the development of our GreenCert technology and expect to investigate sources of additional capital. Further, as
we complete our strategic positioning or as opportunities arise to accelerate the expansion of our GreenCert and K-Fuel technologies, or our anticipated operating cash flows are less than
expected due to among other things, a protracted global economic downturn, we may need to obtain further funding. We believe we have the ability to raise additional capital from time to time as needed
principally through: (i) equity offerings; (ii) debt or debt offerings; and (iii) partnering with third parties. While we believe we will obtain additional capital through one or
more of the alternatives described, we can provide no assurance that any of the alternatives will be available or be on acceptable terms.

Payment Obligations

The following table summarizes our future commitments as of December 31, 2009:

Payments due by period2010

2011

2012

2013

2014

Thereafter

Total(in thousands)Operating leases

$
1,942

$
1,353

$
1,334

$
1,187

$
1,199

$
22,738

$
29,753Short-term debt and purchase commitments


21,100

















21,100Consulting and service commitments


500


500


500


500


500


10,000


12,500Long-term debt


2,190


2,190


28,470











32,850Total commitments

$
25,732

$
4,043

$
30,304

$
1,687

$
1,699

$
32,738

$
96,203


This
table does not include accounts payable, accrued liabilities, or asset retirement obligations, which are reported in our December 31, 2009 Consolidated Balance Sheet. We
generally have not included any obligation in which either party has the right to terminate except as discussed below. Additionally, we have not included K-Fuel royalty payments, as we
cannot presently determine when such payments will be made as such payments are based upon our receipt of cash for licensing and royalties.

We
are obligated under non-cancelable operating leases with initial terms exceeding one year relating to office space. Rent expense for the years ended December 31,
2009, 2008 and 2007 was $1.2 million, $1.1 million, and $784,000, respectively. Additionally, included in operating leases is the rent obligation associated with our former headquarters
totaling $105,000, which we have sub-leased but are not released from the obligation. Furthermore, included in operating leases is a 46-year port dock lease on the Ohio River,
which we have the right to cancel upon six months written notice. If this lease were cancelled as of December 31, 2009, we would be obligated to pay $250,000 rather than the entire obligation
of $23.0 million. This dock lease and the related obligation are included as assets to be sold pursuant to the anticipated sale of Buckeye.

Consulting
and service commitments include an Exclusive Patent Sub-License Agreement with the developer of a proprietary technology for the measurement of carbon emissions.
The agreement provides us with an exclusive worldwide sub-license to a technology to standardize the measurement of carbon emissions in energy and agricultural related activities. The
Agreement was amended and restated to expand the energy and agricultural activities to all applications of the technology and eliminates other operating requirements. In order to maintain this
licensing arrangement, we are required to make minimum annual royalty payments of $500,000 to the developer of the proprietary technology, with each payment extending the arrangement for one year if
the parties are in material compliance with the contract. Additionally, consulting and service commitments includes our amended

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and
restated umbrella agreement with Bechtel. Through this new program management agreement we committed to provide Bechtel with $1 billion in construction contracts through 2013. Failure to
meet this commitment by 2014 could cost us up to the $10 million in termination fees, which is included in the above table.

Long-term
debt includes our principal amount due 2012 and the 8% interest payments.

Short-term
debt includes our principal amount, exit fees and accrued interest due upon the earlier of the sale of Buckeye or June 30, 2010. Interest is accrued at 10%
of the principal amount.

While
our former investment banking firm may claim that we owe them up to $1.0 million upon the sale of Buckeye, and, while the previous potential buyer may claim that we owe them
up to an additional $650,000 if we do not sell Buckeye to them, we do not believe that these fees are payable due to the lack of the counterparties meeting certain performance and contractual criteria
in addition to certain verbal understandings reached related thereto. If claims are made for these contingent payments, we intend to vigorously dispute these claims. These potential obligations are
not included in the table above.

Historical View



Cash used in operating activities was $12.9 million, $36.3 million, and $51.6 million for the years ended
December 31, 2009, 2008 and 2007, respectively. The majority of the cash used in operating activities for the year ended December 31, 2009 relates to cash utilized in our
on-going operations, as adjusted for non-cash items, and changes in operating assets and liabilities. The most significant adjustments to net loss to arrive at cash used in
operating activities for the year ended December 31, 2009 were an impairment charge of $20.1 million related to our Buckeye mining operations, non-cash, share-based
compensation expenses of $5.3 million, debt issue cost amortization of $2.6 million, a non-recurring charge of $1.0 million from our attempt to sublease unused office
space, and depreciation, depletion and amortization of $10.0 million.

The
majority of the cash used in operating activities for the year ended December 31, 2008 relates to cash utilized in our on-going operations, as adjusted for
non-cash items and changes in operating assets and liabilities. The most significant adjustments for the year ended December 31, 2008 and 2007 were $18.6 million and
$122.7 million impairment charges. Other significant adjustments to net loss to arrive at cash used in operating activities for the years ended December 31, 2008 and 2007 were:
non-cash share-based compensation expense of $6.3 million and $19.6 million in 2008 and 2007, respectively, and depreciation, depletion and amortization of
$9.0 million and $8.4 million, respectively, and gain on debt for equity exchange transactions of $6.1 million in 2008.



Cash used in investing activities was $9.7 million for the year ended December 31, 2009. The majority of the sources and
uses of cash relate to the following:



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Cash provided by investing activities was $20.6 million and cash used in investing activities was $50.2 million for the years ended
December 31, 2008 and 2007, respectively. The majority of the sources and uses of cash relate to the following:



Cash provided by financing activities during the year ended December 31, 2009 was $17.1 million compared to cash used in
financing activities of $3.7 million for the year ended December 31, 2008. The difference for the year ended December 31, 2009 was principally due to $15.0 million of
proceeds from our 2009 Notes, $6.5 million of proceeds, net of closing costs, from our issuance of convertible preferred stock and the payment of $2.0 million in dividends from the
subsequent preferred stock conversion, and payments of debt issuance costs of $2.4 million.

Cash
used in financing activities during the year ended December 31, 2008 relates to payments made related to the debt for equity exchange transactions. The principal differences
for the year ended December 31, 2007 were due to $95.0 million of proceeds from issuance of convertible debt, offset by $5.8 million of debt issuance cost, $4.9 million
from the exercise of options and warrants and $3.7 million of proceeds from minority interest investment in Evergreen-China.

Critical Accounting Policies and Estimates

We have identified the policies and estimates below as critical to our current and future business operations and the understanding of
our results of operations. For a detailed discussion on the application of these and other significant accounting policies see the notes to our Consolidated Financial Statements in Item 8 of
this Annual Report. These policies and estimates are considered "critical" because they either had a material impact or they have the potential to have a material impact on our financial statements,
and because they require significant judgments, assumptions or estimates. The preparation of our financial statements in this Annual Report on Form 10-K requires us to make
estimates and judgments that affect both the results of operations as well as the carrying values of our assets and liabilities. Some of our accounting policies require us to make difficult and
subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. We base estimates on historical experience and/or on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities as of the date of the financial
statements that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, making it possible that a change in these
estimates could occur in the near term. Set forth below is a summary of our most critical accounting policies.

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Revenue Recognition.We expect to derive GreenCert and K-Fuel revenue from licensing arrangements that include licenses,
technical
support, and professional services.

For
each arrangement, we recognize revenue when: (i) persuasive evidence of an arrangement exists (e.g., a signed contract); (ii) delivery of the product has
occurred and there are no remaining obligations or substantive customer acceptance provisions and all obligations are satisfied; (iii) the fee is fixed or determinable; and
(iv) collection of the fee is reasonably assured. Any up-front fees received are deferred and recognized over the provision of specific deliverables as defined in the agreements. As
our history related to non-coal sale customer relationships is limited, we may be required to change the estimated period over which we recognize our revenue as more information becomes
available. Arrangements that include multiple deliverables are evaluated to determine whether the elements are separable based on objective evidence. If the elements are deemed separable, total
consideration is allocated to each element and the revenue associated with each element is recognized as earned. If the elements are not deemed separable, total consideration is deferred and
recognized ratably over the longer of the contractual period or the expected customer relationship period. We believe that the accounting estimates related to customer relationship periods and to the
assessment of whether bundled elements are separable are "critical accounting estimates" because: (i) they require management to make assumptions about how long we will retain customers, for
which we have limited history; (ii) the assessment of whether bundled elements are separable can be subjective; and (iii) the impact of changes in actual retention periods versus these
estimates on the revenue amounts reported in our consolidated statements of operations could be material.

Accounts and Notes Receivable and Allowances.Receivables are recorded at their estimated net realizable value. The allowance
for doubtful accounts
is determined through an analysis of the past-due status of receivables and assessments of risk regarding collectability. If the financial condition of the customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional allowances may be required.

Capitalization of Costs.We expense mine exploration costs as incurred. Once it has been determined that it is economically
feasible to extract coal,
we begin to capitalize these costs as premining costs. We have
identified the commencement of permitting as the point to begin capitalizing premining costs. We also capitalize all purchases of machinery, equipment, software, engineering costs and similar
expenditures, where the useful life of the asset is greater than one year or the expenditures extends the useful life of an existing asset. All costs that are directly related to, or allocable to,
developing a K-Fuel plant site are capitalized and separately identified as belonging to that site. Judgment is exercised in determining: (i) if costs extend the life of an asset;
(ii) if costs increase production volumes; and (iii) the feasibility of extracting coal. If these judgments are incorrect, we may capitalize more costs than we otherwise should.

Mineral Rights and Mine Development.A significant portion of our coal reserves are controlled through leasing arrangements.
Costs to obtain coal
lands and leased mineral rights, including capitalized premining costs, are capitalized and depleted to operations using the units-of-production method based on tons produced
utilizing only proven and probable reserves in the depletion base and are assumed to have no residual value. Premining costs include drilling, permitting, county and state filing fees and the initial
overburden removal. We used assumptions such as selling price of coal, cost to mine and a discount rate to value our mines at Buckeye. If the assumptions used to value the proven and probable reserves
change in the future, we may be required to record impairment charges for these assets.

Valuation of Long-Lived Assets.The valuation of our long-lived and intangible assets, including the remaining assets at our
Fort Union plant, mineral rights, and patents, have significant impact on our results of operations and financial condition. We must assess the realizable value of these assets for potential
impairment whenever events or changes in circumstances indicate that the carrying value may

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not
be recoverable. In assessing the recoverability of these assets, we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective
assets. We must make assumptions regarding the useful lives of these assets. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for
these assets.

Asset Retirement Obligations.We are required to record the fair value of legally required removal costs and retirement
obligations as a liability
and we also recorded an offsetting asset. Initially, our asset retirement obligations were recorded at their fair value using an expected cash flow approach, in which multiple cash flow scenarios that
reflected the range of possible outcomes and a credit-adjusted risk-free rate were applied. The liability is then accreted over time by applying the interest method of allocation. In
determining the initial liability, we must make assumptions regarding estimated future cash flows and other factors. In addition, the rate of accretion is based upon our best estimate of the rate at
which cost to complete the reclamation will increase. If these estimates and their
related assumptions are incorrect or change in the future, we may be required to increase our obligation.

Accounting for stock grants, options and warrants.We issue stock grants, options and warrants to employees, board of directors
and consultants in
connection with our various business activities. In accounting for these awards we are required to make estimates of the fair value of the related instruments, the periods benefited and forfeiture
rates. These estimates may affect such financial statement categories as stockholders' equity and general and administrative expense. If these estimates are incorrect, we may be required to incur
additional expense in the future.

Accounting for derivative financial instruments.Derivatives may be embedded in financial instruments (the "host instrument").
Embedded derivatives
are treated as separate derivatives when their economic characteristics and risks are not clearly and closely related to those of the host instrument. The terms of the embedded derivative are similar
to those of a stand-alone derivative and the combined contract is not held for trading or designated at fair value. These embedded derivatives are measured at fair value and any subsequent changes are
recognized in the statement of operations. We are required to make estimates and assumptions including, but not limited to, estimating the future market price of our common stock and probability of a
change in control. If these assumptions and estimates are incorrect, we may be required to incur additional expense in the future.

Accounting for Acquisitions.The acquisition of businesses is an element of our strategy. We are required to record the net
assets acquired at the
estimated fair value at the date of acquisition. The determination of the fair value of the assets acquired and liabilities assumed requires us to make significant estimates and assumptions that
affect our financial statements. For example, the value and estimated life of assets may affect the amount of future period depletion and depreciation expense for the assets as well as possible
impairment charges that may be incurred.

Marketable Securities.As of December 31, 2009 and 2008, our balance sheet reflects $0 and $1.8 million of marketable
securities, which
are auction rate securities, respectively. These auction rate securities consisted of student-loan backed securities. During the year ended December 31, 2008, we reduced the
carrying amount of our student loan-backed auction rate security by $200,000, which is reflected in general and administrative expense. In February 2009, we entered a reverse repurchase
transaction for $1.8 million of our auction rate security which had a $2.0 million par value. In March 2009, we liquidated the auction rate security at $2.0 million, resulting in
a gain of $200,000, which has been recorded in Other Income for the year ended December 31, 2009.

Recent Accounting Pronouncements

Refer to Note 1Recent Accounting Pronouncementsof the accompanying
notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for information regarding recent accounting pronouncements.

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ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In addition to risks inherent in operations, we are exposed to the following market risks in our business:

Some
of the products used in our mining activities, such as diesel fuel and explosives, are subject to commodity price risk. Through our Buckeye subsidiary, we generally consume
1.9 million to 2.1 million gallons of fuel per year. On a per gallon basis based on this usage, a change in fuel prices of one cent per gallon would result in an increase to our
operating costs of approximately $19,000 per year. Alternatively, a one dollar per barrel change in the price of crude oil would increase or decrease our annual fuel costs by approximately $45,000.

Ignoring
embedded derivatives, we own (or hold) no derivative instruments or floating rate debt and do not expect to derive a material amount of our revenues from such interest bearing
securities. Currently, we have no significant foreign operations. We hold no equity market securities, which are subject to equity market risk relative to our own equity securities.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements required pursuant to this item are included in Item 15 of this Annual Report on
Form 10-K and begin on page F-1. The supplementary financial information required by this item is included in "Item 7 Management's Discussion and Analysis
of Financial Condition and Results of Operations."

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None.

ITEM 9A.    CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange
Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and
communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applied
its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management's control objectives.

With
the participation of management, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this report. In performing this evaluation, management considered its controls over the identification and accounting for complex financial
instruments including those with embedded derivatives. Management has determined that a material weakness in internal control over financial reporting related to identification and accounting for
embedded derivatives existed as of
December 31, 2009. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective in ensuring that
material information required to be disclosed is included in the reports that we file with the Securities and Exchange Commission.

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Management's Annual Report on Internal Control over Financial Reporting

Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and
maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our
financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining
records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial
statements; providing reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized
acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of the inherent limitations of
internal control over financial reporting, misstatements may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over
financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.

Management,
with the participation of the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of
December 31, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. In performing this evaluation, management considered its controls over the identification and accounting for complex financial instruments including those with embedded
derivatives. Based on this assessment, management has determined that there was a material weakness in our internal controls over financial reporting as of December 31, 2009, as more fully
described below, and therefore we did not maintain effective internal controls as of December 31, 2009.

A
material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of the Company's
annual or interim financial statements will not be prevented or detected on a timely basis. Management identified the following material weakness in their assessment: the Company's controls over the
recognition of and accounting for complex financial instruments including those with embedded derivatives did not operate effectively to appropriately identify and account for certain such in
accordance accounting principles generally accepted in the United States of America.

The
effectiveness of our internal control over financial reporting as of December 31, 2009 has been audited by Deloitte & Touche LLP, our independent registered
public accounting firm.

Remediation of Material Weaknesses in Internal Control Over Financial Reporting

In order to remediate the material weakness, we have implemented controls in the 1st quarter of 2010 to identify
and analyze our complex contracts, including arrangements related to financial instruments, at each reporting period to allow for proper financial reporting thereto. We will use third party
specialists as necessary to assist us in this process.

Notwithstanding
the existence of a material weakness in internal controls, we believe that the consolidated financial statement fairly present, in all material respects, our consolidated
balance sheets as of December 31, 2009 and 2008 and the related consolidated statements of operations, stockholder's deficit, equity and cash flows for each of the three years ended
December 31, 2009, 2008 and 2007 in conformity with accounting principles generally accepted in the United States of America.

Changes in Internal Control over Financial Reporting

There has been no change in our internal controls over financial reporting during the quarter ended December 31, 2009 that has
materially affected our internal controls over financial reporting.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of
Evergreen Energy Inc.
Denver, Colorado

We
have audited the internal control over financial reporting of Evergreen Energy and subsidiaries (the "Company") as of December 31, 2009, based on criteria established in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's
management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanyingManagement's Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or
persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

A
material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. We have identified the following material weakness: The Company's controls are
not sufficient to appropriately identify and account for complex financial instruments, including those with embedded derivatives, in accordance with accounting principles generally accepted in the
United States of America. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements as of and for
the year ended December 31, 2009 of the Company, and this report does not affect our report on such financial statements.

In
our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, the Company has not maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2009, based on the criteria established inInternal
ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.

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We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year
ended December 31, 2009 of the Company and our report dated March 31, 2010 expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding
substantial doubt about the Company's ability to continue as a going concern.

/s/
Deloitte & Touche LLP
Denver, Colorado
March 31, 2010

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ITEM 9B.    OTHER INFORMATION

PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The required information for this item is incorporated by reference to our Definitive Proxy Statement for the 2010 Annual Meeting of
Stockholders, since such Definitive Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year pursuant to
Regulation 14A.

ITEM 11.    EXECUTIVE COMPENSATION

The required information for this item is incorporated by reference to our Definitive Proxy Statement for the 2010 Annual Meeting of
Stockholders, since such Definitive Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year pursuant to
Regulation 14A.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The required information for this item is incorporated by reference to our Definitive Proxy Statement for the 2010 Annual Meeting of
Stockholders, since such Definitive Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year pursuant to
Regulation 14A.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The required information for this item is incorporated by reference to our Definitive Proxy Statement for the 2010 Annual Meeting of
Stockholders, since such Definitive Proxy
Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year pursuant to Regulation 14A.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

The required information for this item is incorporated by reference to our Definitive Proxy Statement for the 2010 Annual Meeting of
Stockholders, since such Definitive Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year pursuant to
Regulation 14A.

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PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULE

15(a)(1)The following documents are filed as part of this Annual Report on Form 10-K:

The
following consolidated financial statements of Evergreen Energy Inc. are filed as part of this report:



Report of Independent Registered Public Accounting Firm

F-1Consolidated Balance Sheets

F-2Consolidated Statements of Operations

F-3Consolidated Statements of Changes in Stockholders' Equity

F-4Consolidated Statements of Cash Flows

F-5Notes to Consolidated Financial Statements

F-6 - F-56


15(a)(2) Financial Statement Schedules.Schedules are omitted because they are not required or because the information is provided
elsewhere in the financial statements.

15(a)(3)    Exhibits.

EXHIBIT
NUMBER

DESCRIPTION3.1

Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 2.1 to our Form 10-KSB for the year ended December 31, 1993).3.2

Certificate of Amendment to Certificate of Incorporation of the Company (incorporated by reference to Exhibit 2.2 to our Form 10-KSB for the year ended December 31, 1993).3.3

Second Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.4 to our Form 10-KSB, as amended, for the year ended December 31, 1995).3.4

Certificate of Amendment to Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.4 to our Form 10-K for the year ended December 31, 2006).3.5

Certificate of Amendment to Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.4 to our Form 10-Q for the quarter ended June 30, 2006).3.6

Certificate of Amendment to Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.6 to our Form 10-K for the year ended December 31, 2006).3.7

Certificate of Amendment to the Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to our Form 8-K filed July 16, 2008).3.8

Certificate of Designation, Preference and Rights of Series A Junior Participating Preferred Stock (incorporated by reference to Exhibit 3.01 to our Form 8-K filed December 4, 2008).3.9

Third Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to our Form 8-K filed February 27, 2007).3.10

Amendments to the Third Amended Restated Bylaws (incorporated by reference to Exhibit 3.2 to our Form 8-K filed July 16, 2008).


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EXHIBIT
NUMBER

DESCRIPTION4.1

Indenture, dated July 30, 2007, by and between Evergreen Energy Inc., Evergreen Operations, LLC, KFx Plant, LLC, KFx Operations, LLC, Landrica Development Company, Buckeye Industrial
Mining Co. and U.S. Bank National Association, including the form of 8.00% Convertible Secured Note due 2012 (included as Exhibit A to the Indenture) (incorporated by reference to Exhibit 4.1 to our Form 8-K filed July 30,
2007).4.2

Registration Rights Agreement dated as of July 30, 2007, by and among Evergreen Energy Inc., Evergreen Operations, LLC, KFx Plant, LLC, KFx Operations, LLC, Landrica Development Company,
Buckeye Industrial Mining Co. and the initial purchasers listed therein (incorporated by reference to Exhibit 4.2 to our Form 8-K filed July 30, 2007).4.3

Security Agreement, dated as of July 30, 2007, by and among Evergreen Energy Inc., Evergreen Operations, LLC, KFx Plant, LLC, KFx Operations, LLC, Landrica Development Company, Buckeye
Industrial Mining Co. and U.S. Bank National Association, as trustee and collateral agent (incorporated by reference to Exhibit 4.3 to our Form 10-Q for the quarter ended September 30, 2007).4.4

Supplemental Indenture dated September 30, 2008, by and among Evergreen Energy Inc., Evergreen Operations, LLC, KFx Plant, LLC, KFx Operations, LLC, Landrica Development Company, Buckeye
Industrial Mining Co. and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 to our Form 8-K filed October 1, 2008).4.5

Section 3(a)(9) exchange letter agreement, dated August 28, 2008, with Aristeia International Limited, Aristeia Special Investments Master, L.P. (incorporated by reference to Exhibit 4.2 to our
Form 10-Q for the quarter ended September 30, 2008).4.6

Section 3(a)(9) exchange letter agreement, dated September 30, 2008, with Fidelity Advisors Series I: Fidelity Advisors Balanced Fund, Fidelity Puritan Trust: Fidelity Balanced Fund, and Variable
Insurance Products Fund II: Balanced Portfolio (incorporated by reference to Exhibit 4.3 to our Form 10-Q for the quarter ended September 30, 2008).4.7

Section 3(a)(9) exchange letter agreement, dated September 30, 2008, with Highbridge International, LLC and Highbridge Convertible Arbitrage Master Fund L.P. (incorporated by reference to
Exhibit 4.4 to our Form 10-Q for the quarter ended September 30, 2008).4.8

Section 3(a)(9) exchange letter agreement, dated September 30, 2008, with Whitebox Convertible Arbitrage Partners, L.P. and Whitebox Special Opportunities Partners, Series B, L.P.
(incorporated by reference to Exhibit 4.5 to our Form 10-Q for the quarter ended September 30, 2008).4.9

Rights Agreement, dated as of December 4, 2008, between the Company and Interwest Transfer Company, Inc., as Rights Agent (incorporated by reference to Exhibit 4.1 to our Form 8-K filed
December 4, 2008).4.10

Note Purchase Agreement, dated as of March 20, 2009, by and between Evergreen Energy Inc., Evergreen Operations, Buckeye Industrial Mining Co. and Centurion Credit Funding LLC (incorporated by
reference as Exhibit 4.10 to our Form 10-K for the year ended December 31, 2008).


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EXHIBIT
NUMBER

DESCRIPTION4.11

Certificate of Designation and Preferences, Rights and Limitations of Series B Convertible Preferred Stock (incorporated by reference to Exhibit 4.1 to our Form 8-K filed October 22, 2009).4.12

Security Purchase Agreement dated October 21, 2009 (incorporated by reference as Exhibit 4.2 to our Form 10-Q for the quarter ended September 30, 2009).4.13

Registration Rights Agreement dated October 21, 2009 (incorporated by reference as Exhibit 4.3 to our Form 10-Q for the quarter ended September 30, 2009).4.14

Common Stock Purchase Warrant dated October 21, 2009 (incorporated by reference as Exhibit 4.4 to our Form 10-Q for the quarter ended September 30, 2009).4.15

Common Stock Purchase Warrant dated January 27, 2010 (incorporated by reference as Exhibit 4.1 to our Form 8-K filed January 27, 2010).4.16

Form of Common Stock Purchase Warrant to be Issued by Evergreen Energy (incorporated by reference as Exhibit 4.1 to our Form 8-K filed March 17, 2010).4.17

Form of Certificate of Designation from Series C Convertible Stock (incorporated by reference as Exhibit 4.2 to our Form 8-K filed March 17, 2010).4.18

State of Delaware Certificate of Correction (incorporated by reference as Exhibit 4.3 to our Form 8-K/A filed March 18, 2010).4.19

Second Amendment and Forbearance Agreement dated January 12, 2010.*10.1

Amendments to Agreements Between Theodore Venners, S.A. Wilson, Koppelman Fuel Development Company, and the Koppelman Group dated December 29, 1992 (incorporated by reference to Exhibit 6.1 to our
Form 10-KSB for the year ended December 31, 1993).**10.2

Royalty Agreement dated December 29, 1992 between the Company and the Koppelman Group (incorporated by reference to Exhibit 6.7 to our Form 10-KSB for the year ended December 31, 1993).10.3

Stock Option Plan dated December 16, 1993 (incorporated by reference to Exhibit 6.19 to our Form 10-KSB for the year ended December 31, 1993).**10.4

Gross Royalty Share Agreement dated August 17, 1995 between the Company and Fort Union, Ltd. (incorporated by reference to Exhibit 10.51 to our Registration Statement on Form SB-2 (File
No. 33-97418)).10.5

Letter of Agreement dated August 15, 1995 between the Company and Edward Koppelman (incorporated by reference to Exhibit 10.53 to our Registration Statement on Form SB-2 (File No. 33-97418)).10.6

Royalty Amendment Agreement dated June 3, 1996 between the Company, Edward Koppelman and Theodore Venners (incorporated by reference to Exhibit 10.1 to our Form 10-Q for the quarter ended June 30,
1996).**10.7

1999 Stock Incentive Plan (incorporated by reference from Annex A-1 of the Company's Proxy Statement filed May 4, 1999).**10.8

1996 Stock Option and Incentive Plan of KFx Inc. (incorporated by reference to Exhibit 10.1 to our Form 10-K for the year ended December 31, 2000).**


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EXHIBIT
NUMBER

DESCRIPTION10.9

Common Stock and Warrant Purchase Agreement dated as of March 28, 2002 (incorporated by reference to Exhibit 10.1 to our Form 8-K filed April 2, 2002).10.10

Common Stock and Warrant Purchase Agreement between KFx Inc. and the Investors dated April 30, 2002 (incorporated by reference to Exhibit 10.1 to our Form 8-K filed May 7, 2002).10.11

Common Stock and Warrant Purchase Agreement between KFx Inc. and the Investors dated July 1, 2002 (incorporated by reference to Exhibit 10.1 to our Form 8-K filed July 3, 2002).10.12

Common Stock and Warrant Purchase Agreement between KFx Inc. and the Investors dated July 19, 2002 (incorporated by reference to Exhibit 10.1 to our Form 8-K filed July 24, 2002)10.13

Common Stock and Warrant Purchase Agreement between KFx Inc. and the Investors dated August 21, 2002 (incorporated by reference to Exhibit 10.1 to our Form 8-K filed August 28,
2002).10.14

Waiver of Penalty Warrants dated September 25, 2002 (incorporated by reference to Exhibit 10.1 to our Form 8-K filed September 27, 2002).10.15

KFx Inc. 2004 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to our Form 8-K filed December 17, 2004).**10.16

Waiver Agreement dated December 17, 2004 between KFx Inc. and Theodore Venners (incorporated by reference to Exhibit 10.60 to our Form 10-K for the year ended December 31, 2004).**10.17

Employment Agreement between KFx Inc. and William G. Laughlin (incorporated by reference to Exhibit 10.61 to our Form 8-K filed March 15, 2005).**10.18

K-Fuel Projects Participation and Development Agreement Dated May 5, 2005 (incorporated by reference to Exhibit 10.63 to our Form 10-Q for the quarter ended March 31, 2005).10.19

First Amendment to Fourth Amended and Restated Investors' Rights Agreement (incorporated by reference to Exhibit 10.64 to our Form 10-Q for the quarter ended March 31, 2005).10.20

Employment Agreement between KFx Inc. and Kevin R. Collins (incorporated by reference to Exhibit 10.66 to our Form 8-K filed October 25, 2005).**10.21

KFx Inc. 2005 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.67 to our Form S-8 filed November 4, 2005).**10.22

Employment Agreement between KFx Inc. and Theodore Venners (incorporated by reference to Exhibit 10.69 to our Form 8-K filed December 22, 2005).**10.23

Business Development and Intellectual Property Rights Agreement, dated January 2, 2003 (incorporated by reference to Exhibit 99.1 to our Form 8-K filed January 31, 2006).10.24

Addendum to Business Development and Intellectual Property Rights Agreement, dated January 8, 2004 (incorporated by reference to Exhibit 99.2 to our Form 8-K filed January 31, 2006).


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EXHIBIT
NUMBER

DESCRIPTION10.25

First Amendment to the Business Development and Intellectual Property Rights Agreement, dated May 21, 2004 (incorporated by reference to Exhibit 99.3 to our Form 8-K filed January 31,
2006).10.26

Professional Services Agreement, dated July 16, 2003 (incorporated by reference to Exhibit 99.4 to our Form 8-K filed January 31, 2006).10.27

Marketing, Distribution and Transportation Logistics Service Agreement with DTE Coal Services, Inc. dated June 6, 2006 (incorporated by reference to Exhibit 10.79 to our Form 10-Q for the quarter
ended June 30, 2006).10.28

Net lease agreement between Company and Seventeenth Street Plaza Realty Holding Company dated November 17, 2006 (incorporated by reference to Exhibit 10.37 to our Form 10-K for the year ended
December 31, 2006).10.29

Purchase Agreement dated as of July 25, 2007, among Evergreen Energy Inc., Evergreen Operations, LLC, KFx Plant, LLC, KFx Operations, LLC, Landrica Development Company, Buckeye Industrial
Mining Co. and the initial purchasers named therein (incorporated by reference to Exhibit 10.1 to our Form 10-Q for the quarter ended September 30, 2007).10.30

Program Management Agreement, dated September 19, 2007 (incorporated by reference to Exhibit 10.39 to our Form 10-K for the year ended December 31, 2007).10.31

Pledge Agreement, dated March 20, 2009, by and between Evergreen Operations LLC and Centurion Credit Funding LLC (incorporated by reference as Exhibit 10.31 to our Form 10-K for the year ended
December 31, 2009).10.32

Security Agreement, dated as of March 20, 2009, by and between Evergreen Energy Inc., Evergreen Operations, LLC, Buckeye Industrial Mining Co. and Centurion Credit Funding LLC (incorporated by
reference as Exhibit 10.32 to our Form 10-K for the year ended December 31, 2009).10.33

Severance Agreement and Waiver and Release Agreement Dated May 12, 2009 between Evergreen Energy Inc. and Steve Wolff (incorporated by reference to Exhibit 10.1 to our form 10-Q for the quarter
ended June 30, 2009).10.34

Severance Agreement and Waiver and Release Agreement Dated May 27, 2009 between Evergreen Energy Inc. and Kevin R. Collins (incorporated by reference to Exhibit 10.2 to our form 10-Q for the
quarter ended June 30, 2009).10.35

Employment Agreement Dated June 24, 2009 between Evergreen Energy Inc. and Thomas H. Stoner, Jr. (incorporated by reference to Exhibit 10.3 to our form 10-Q for the quarter ended June 30,
2009).***10.36

Transition Agreement Dated July 1, 2009 between Evergreen Energy Inc. and Theodore Venners (incorporated by reference to Exhibit 10.4 to our form 10-Q for the quarter ended June 30,
2009).10.37

Consulting Agreement Dated June 1, 2009 between Evergreen Energy Inc. and Wolff & Company, Alternative Energy Advisors, Inc. (incorporated by reference to Exhibit 10.5 to our
form 10-Q for the quarter ended June 30, 2009).10.38

Form of Securities Purchase Agreement dated January 26, 2010 (incorporated by reference to Exhibit 10.1 of our 8-K filed January 27, 2010).


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EXHIBIT
NUMBER

DESCRIPTION10.39

Form of Securities Purchase Agreement dated March 16, 2010 (incorporated by reference to Exhibit 10.1 of our 8-K filed March 17, 2010).10.40

Asset Purchase Agreement dated March 12, 2010 among Rosebud Mining Company, Buckeye Industrial Mining Co. and Evergreen Energy, Inc.*10.41

Escrow Agreement dated March 12, 2010 among Rosebud Mining Company, Buckeye Industrial Mining Co. and Evergreen Energy, Inc.*10.42

Amendment No. 1 to Asset Purchase Agreement dated March 29, 2010 among Rosebud Mining Company, Buckeye Industrial Mining Co. and Evergreen Energy, Inc.*12.1

Deficiency of Earnings to Fixed Charges.*21.1

Subsidiaries.*23.1

Consent of Deloitte & Touche LLPEvergreen Energy Inc.*24.1

Powers of Attorney, incorporated by reference to Signature page attached hereto.31.1

Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*31.2

Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*32.1

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*32.2

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*


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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 ENERGY INC.Date: March 31, 2010

By:

/s/ THOMAS H. STONER, JR Thomas H. Stoner, Jr Chief Executive Officer and Director
(Principal Executive Officer)/s/ DIANA L. KUBIK Diana L. Kubik Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)


POWER OF ATTORNEY

Know all persons by these presents, that each person whose signature appears below constitutes and appoints Diana L. Kubik or
Thomas H. Stoner, Jr. as his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or
her name, place, stead, in any and all capacities, to sign any and all amendments to this Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents
in connection therewith, including all amendments thereto, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority
to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant
to the requirements of the Securities 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 dates indicated.

Date: March 31, 2010

/s/ THOMAS H. STONER, JR Thomas H. Stoner, Jr.,Chief Executive Officer and Director
(Principal Executive Officer)Date: March 31, 2010

/s/ DIANA L. KUBIK Diana L. Kubik,Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)Date: March 31, 2010

/s/ GUIDO R. BARTELS Guido Bartels,Director


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Date: March 31, 2010

/s/ ROBERT J. CLARK Robert J. Clark,DirectorDate: March 31, 2010

/s/ WILLIAM G. GIBSON William G. Gibson,DirectorDate: March 31, 2010

/s/ MANUEL H. JOHNSON Manuel H. Johnson,DirectorDate: March 31, 2010

/s/ ROBERT S. KAPLAN Robert S. Kaplan,DirectorDate: March 31, 2010

/s/ RICHARD B. PERL Richard Perl,DirectorDate: March 31, 2010

/s/ M. RICHARD SMITH M. Richard Smith,Chairman of the Board of DirectorDate: March 31, 2010

/s/ CHESTER N. WINTERS Chester N. Winters,Director


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of
Evergreen Energy Inc.
Denver, Colorado

We
have audited the accompanying consolidated balance sheets of Evergreen Energy Inc. and subsidiaries (the "Company") as of December 31, 2009 and 2008, and the related
consolidated statements of operations, stockholders' (deficit) equity, and cash flows for each of the three years in the period ended December 31, 2009. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, such consolidated financial statements present fairly, in all material respects, the financial position of Evergreen Energy Inc. and subsidiaries as of
December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting
principles generally accepted in the United States of America.

The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the
Company's recurring losses from operations and stockholders' deficit raise substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also
discussed in Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of
December 31, 2009, based on the criteria established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 31, 2010 expressed an adverse opinion on the Company's internal control over financial reporting.

/s/
Deloitte & Touche LLP
Denver, Colorado
March 31, 2010

F-1

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Table of Contents

EVERGREEN ENERGY INC.        Consolidated Balance Sheets        (in thousands)

December 31,2009

2008AssetsCurrent:Cash and cash equivalents

$
2,207

$
7,667Accounts receivable, net


5,194


6,640Inventory


1,747


958Debt issue costs, net of amortization


2,089


Prepaid and other assets


1,647


833Total current assets


12,884


16,098Property, plant and equipment, net of accumulated depreciation


18,660


29,965Construction in progress


17,295


17,702Mineral rights and mine development, net of accumulated depletion


9,945


18,032Restricted cash and marketable securities


11,339


13,444Debt issue costs, net of amortization


994


1,330Other assets


3,387


4,870$
74,504

$
101,441Liabilities, Temporary Capital and Stockholders' (Deficit) EquityCurrent liabilities:Accounts payable

$
7,858

$
6,583Accrued liabilities


8,829


6,920Short-term debt


16,022


Other current liabilities


1,922


332Total current liabilities


34,631


13,835Long-term debt


27,898


28,573Deferred revenue


8,265


6,732Asset retirement obligations


6,869


6,505Other liabilities, less current portion


2,716


1,946Commitments and contingenciesTotal liabilities


80,379


57,591Temporary Capital:Preferred stock, $.001 par value, $1,000 stated value, 7 shares authorized; .002 outstanding


2


Stockholders' equity:Preferred stock, $.001 par value, shares authorized 19,993; none outstanding





Common stock, $.001 par value, shares authorized 280,000; 146,611 and 124,086 shares issued and outstanding, respectively


147


124Additional paid-in capital


525,816


517,029Accumulated deficit


(529,939
)

(473,303
)(Deficit) equity attributable to Evergreen Energy Inc. stockholders'


(3,976
)

43,850Deficit attributable to noncontrolling interest


(1,901
)

Total stockholders' (deficit) equity


(5,877
)

43,850$
74,504

$
101,441


See accompanying notes to the consolidated financial statements.

F-2

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Table of Contents

EVERGREEN ENERGY INC.        Consolidated Statements of Operations

Years Ended December 31,2009

2008

2007(in thousands, except per share amounts)Operating revenues:Mining

$
50,248

$
58,434

$
47,362K-Fuel refined coal and blended K-Fuel refined coal





463


1,081Consulting and other


423


4


214Total operating revenue


50,671


58,901


48,657Operating expenses:Coal mining operating costs


43,458


47,799


43,093General and administrative


29,082


31,965


43,031Plant costs


1,554


17,630


34,730Depreciation, depletion and amortization


9,962


9,000


8,383Research and development


49


79


876Cost of licensing and other revenue








77Asset impairment


20,487


18,615


122,688Total operating expenses


104,592


125,088


252,878Operating loss


(53,921
)

(66,187
)

(204,221
)Other income (expense):Gain on equity exchange transactions


167


6,138


Interest income


65


1,251


4,348Interest expense


(7,645
)

(6,132
)

(3,433
)Other (expense) income, net


2,797


(300
)

(1,370
)Total other income (expense)


(4,616
)

957


(455
)Net loss


(58,537
)

(65,230
)

(204,676
)Less net loss attributable to noncontrolling interest


1,901





Net loss attributable to Evergreen Energy

$
(56,636
)
$
(65,230
)
$
(204,676
)Dividends on preferred stock


(1,973
)




Net loss attributable to common shareholders

$
(60,510
)
$
(65,230
)
$
(204,676
)Basic and diluted net loss per common share

$
(0.46
)
$
(0.72
)
$
(2.49
)Weighted-average common shares outstanding


132,070


90,676


82,232


See
accompanying notes to the consolidated financial statements.

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Table of Contents

EVERGREEN ENERGY INC.        Consolidated Statements of Stockholders' (Deficit) Equity        For the Years ended December 31, 2009, 2008 and 2007

Common StockAdditional
Paid-in
Capital

Accumulated
Deficit

Non-
controlling
interestShares

Amounts

Total(in thousands)Balance, January 1, 2007


82,690

$
83

$
428,298

$
(203,397
)



$
224,984Common stock issued on exercise of options and warrants


1,490


1


4,852








4,853Share-based compensation expense related to employees and consultants


147





19,624








19,624Payment of income tax liability in exchange for common stock and retirement of such shares








(1,641
)







(1,641
)Sale of stock in subsidiary, net offering costs








3,555








3,555Net loss











(204,676
)




(204,676
)Balance, December 31, 2007


84,327


84


454,688


(408,073
)




46,699Common stock issued on exercise of options, warrants and other


70





55








55Share-based compensation expense related to employees and others


328


1


6,443








6,444Debt for equity exchange transactions


39,361


39


55,843








55,882Net Loss











(65,230
)




(65,230
)Balance, December 31, 2008


124,086


124


517,029


(473,303
)




43,850Common stock issued for services


1,543


2


980








982Share-based compensation expense related to employees and others


5,433


5


5,276








5,281Issuance of common stock upon the conversion of preferred stock


11,571


12


2,213








2,225Debt for equity exchange transaction


3,978


4


318








322Net Loss











(56,636
)

(1,901
)

(58,537
)Balance, December 31, 2009


146,611

$
147

$
525,816

$
(529,939
)
$
(1,901
)
$
(5,877
)


See
accompanying notes to the consolidated financial statements.

F-4

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Table of Contents

EVERGREEN ENERGY INC.        Consolidated Statements of Cash Flows

Years ended December 31,2009

2008

2007(in thousands)Operating activities:Net loss

$
(58,537
)
$
(65,230
)
$
(204,676
)Adjustments to reconcile net loss to cash used in operating activities:Share-based compensation expense to employees and others


5,281


6,339


19,624Depreciation, depletion and amortization


9,962


9,000


8,383Gain on debt for equity exchange transactions


(167
)

(6,138
)

Derivative fair value adjustment


(2,036
)

934


1,730Amortization of initial fair value of derivative


(158
)

(453
)

(229
)Loss from subleasing


1,027





Asset impairment


20,487


18,615


122,688Asset retirement obligation accretion


364


305


287Settlement of asset retirement obligation





(147
)

Amortization of debt issuance costs


2,624


777


397Loss on disposal of fixed assets


247





(268
)Other than temporary impairment of marketable security


(200
)

200


Other


520


640


2Changes in operating assets and liabilities:Accounts receivable


1,422


(170
)

(459
)Inventory


(789
)

485


(183
)Prepaid and other assets


800


1,264


119Deferred revenue and other liabilities


1,763


367


(324
)Accounts payable and accrued liabilities


4,482


(3,051
)

1,328Cash used in operating activities


(12,908
)

(36,263
)

(51,581
)Investing activities:Purchases of construction in progress


(11,575
)

(14,905
)

(49,363
)Purchases of property, plant and equipment


(773
)

(1,882
)

(4,096
)Proceeds from the sale of assets


180


13


934Purchases of marketable securities





(5,000
)

(74,613
)Proceeds from marketable securities


2,000


27,500


101,672Restricted cash and marketable securities, net


905


14,974


(24,728
)Other


(421
)

(76
)

(42
)Cash provided by (used in) investing activities


(9,684
)

20,624


(50,236
)Financing Activities:Proceeds from issuance of convertible debt


15,000





95,000Payments on debt for equity exchange transactions





(3,500
)

Proceeds from sale or exercise of options and warrants





55


4,853Proceeds from issuance of convertible preferred stock, net of closing costs


6,515





Proceeds from sale of stock in subsidiary, net of offering costs








3,715Proceeds from reverse repurchase transaction


1,800





Payments on reverse repurchase transaction


(1,800
)




Payment of dividends on convertible preferred stock


(1,973
)Payments of debt issuance costs


(2,387
)

(200
)

(5,785
)Payment of payroll taxes in exchange for common stock








(1,641
)Other


(23
)

(7
)

(85
)Cash (used in) provided by financing activities


17,132


(3,652
)

96,057Increase (decrease) in cash and cash equivalents


(5,460
)

(19,291
)

(5,760
)Cash and cash equivalents, beginning of year


7,667


26,958


32,718Cash and cash equivalents, end of year

$
2,207

$
7,667

$
26,958


See accompanying notes to the consolidated financial statements.

F-5

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Table of Contents

EVERGREEN ENERGY INC.        Notes to Consolidated Financial Statements        Years ended December 31, 2009, 2008 and 2007

In this Annual Report on Form 10-K, we use the terms "Evergreen Energy," "we," "our," and "us" to refer to Evergreen Energy Inc. and its subsidiaries. C-Lock
refers to our subsidiary C-Lock Technology, Inc. Buckeye refers to our subsidiary Buckeye Industrial Mining Co. All references to C-Lock®,
GreenCert, K-Fuel, K-Fuel®, K-Fuel process, K-Fuel refined coal, K-Fuel refineries,
K-Direct®, K-Fuel Plants, K-Fuel facilities, K-Direct facilities and K-Direct® plants, refer to our patented
processes and technologies explained in detail throughout this Annual Report on Form 10-K. All references to years, unless otherwise noted, refer to our fiscal year, which ends on
December 31st.

(1) Business and Summary of Significant Accounting Policies

Overview and Financial Condition

We were founded in 1984 as a cleaner coal technology, energy production and environmental solutions company focused on developing our
proprietary technologies. In the last two years, we have sharpened our focus as a carbon technology company. We have developed two proprietary, patented, and potentially transformative green
technologies: the GreenCert suite of software and services and K-Fuel. Our GreenCert technology is a scientifically accurate and scalable environment intelligence solution that measures
greenhouse gases and other environmental costs enabling customers to manage and report their environmental assets and liabilities. GreenCert, built on IBM's Service-Oriented Architecture (or SOA), is
the environment intelligence solution that provides customers the end-to-end visibility and traceability necessary to measure their complete environmental footprint.
K-Fuel, our clean coal technology significantly improves the performance of low-rank coals yielding higher efficiency and lower emissions.

We
have been evaluating several alternatives related to our strategic positioning, including the sale of Buckeye. On March 12, 2010, we signed a definitive agreement with Rosebud
Mining Company ("Rosebud"), for the sale of certain net assets of both Buckeye and Evergreen, which we refer to as the "sale of Buckeye", for a purchase price of $27.9 million in cash payable
at the closing of the transaction. We believe the closing will be consummated by April 2010, but no later than June 30, 2010. See further discussion below under "Buckeye."

With
the sale of Buckeye we will be able to better focus our resources on core business activities, including GreenCert and our K-Fuel technologies. We have terminated the
contemplated K-Fuel spin-off as previously announced. Currently our China affiliate, Evergreen-China Energy Technology Co., Ltd. (or Evergreen-China) a
Sino-US joint venture between Evergreen Energy and a Chinese investor, is continuing negotiations to construct a K-Fuel plant in Inner Mongolia, and will continue to lead the
business development and plant construction activities related to this plant.

Actual
2009 cash flows from Buckeye's operations have been less than previously anticipated, due in part to the depressed economy and the unusually mild summer temperatures in the North
East region of the United States, both of which have led to lower than previously forecasted coal prices and reduced coal consumption. Because of these lower than expected results, combined with the
on-going costs associated with GreenCert, we were required to raise additional capital. As a result, we completed three financing deals: (i) On March 16, 2010, we entered
into a securities purchase agreement, and received gross proceeds of approximately $9.3 million; (ii) On January 26, 2010, we consummated a registered direct public offering and
raised gross proceeds of approximately $8.7 million; and (iii) On October 21, 2009, we entered into an agreement to sell shares of our Series B Convertible Stock resulting
in approximately $7.0 million in gross proceeds. See Note 18 Subsequent Events for further description of the financings completed in 2010 and Note 8Preferred Stock
for further description of the October 2009 financing. However, we continue to require additional capital to fully fund the anticipated development of our GreenCert technology and expect to
investigate available sources of

F-6

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(1) Business and Summary of Significant Accounting Policies (Continued)

capital.
Because of the need for additional capital to fund operations and costs to develop GreenCert, there is substantial doubt as to our ability to continue to operate as a going concern for the
foreseeable future.

We
have a history of losses, deficits and negative operating cash flows and may continue to incur losses in the future. We have dramatically reduced our cash utilization principally by
suspending operations at our Fort Union plant and reducing other general and administrative costs. A portion of these savings have been offset by further investment in our GreenCert business.
Continued market disruptions associated with the global economic downturn, which may lead to lower demand for our technology or products, increased incidence of customers' inability to pay their
accounts, or insolvency of our customers, any of which could adversely affect our results of operations, liquidity, cash flows, and financial condition. We continue to evaluate our cash position and
cash utilization and have and will make additional adjustments to capital or certain operating expenditures.

These
cost reductions were offset by the expansion of our GreenCert operations in 2009, including the addition of personnel and other administrative costs associated with developing a
business. In addition, we invested $12.3 million in capital expenditures in 2009 primarily related to Buckeye, GreenCert development and K-Fuel process development.

As
of December 31, 2009, our accumulated deficit was $529.9 million. In addition, our net losses and cash flow used in operations for each of the years ending
December 31, 2009, 2008 and 2007 are summarized as follows:

December 31,2009

2008

2007(in thousands)Net loss

$
(58,537
)
$
(65,230
)
$
(204,676
)Cash used in operating activities

$
(12,908
)
$
(36,263
)
$
(51,581
)


During
2009, we reduced our cash flow used in operations by $23.4 million when compared to 2008. We accomplished these savings principally by suspending operations at our Fort
Union plant in March 2008, reducing professional fees and other general and administrative costs.

On
March 20, 2009, we executed a Senior Secured Convertible Note Agreement which provides for the issuance of up to $15 million in aggregate principal amount of 10% Senior
Secured Promissory Notes ("2009 Notes"), in three $5 million tranches. The first $5 million tranche was funded in March 2009, the second $5 million tranche was funded in April
2009 and the third tranche was funded in July 2009. The 2009 Notes are reflected in short-term debt in our consolidated balance sheet. These 2009 Notes bear interest at a rate of 10% per
annum beginning on the funding date of each tranche, which was required to be prepaid at the time the 2009 Notes were issued and is non-refundable. We prepaid $375,000 of interest related
to the closing of the first tranche and issued 219,000 warrants to purchase our common stock at an exercise price of $1.30. In connection with the second tranche, we prepaid $351,000 of interest and
issued 219,000 warrants to purchase our common stock at an exercise price of $1.30. In connection with the third tranche we prepaid $225,000 of interest and issued 219,000 warrants to purchase our
common stock at an exercise price of $1.30.

On
December 18, 2009, we entered into a binding term sheet to restructure and extend the terms of our 2009 Notes extending the maturity date to the earlier of June 30, 2010
or upon the sale of Buckeye. Per the terms of the restructured agreement, we were required to pay a $1.8 million cash

F-7

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(1) Business and Summary of Significant Accounting Policies (Continued)

extension
fee on our first raise of additional common equity offering. We paid this fee in connection with proceeds from our common equity raise on January 26, 2010. The lenders will receive
30% of the proceeds of any subsequent common equity offering to be used to reduce the outstanding balance of
the 2009 Notes. Upon maturity, the repayment amount will be equal to 115% of the principal amount outstanding, plus accrued and unpaid interest. We incurred an additional fee of $350,000 due at
maturity because our equity raise was consummated after the January 15, 2010 deadline. See further discussion in Note 7- Debt.



We are continuing the development of our GreenCert suite of software and services. GreenCert is an accurate and scalable environmental
intelligence solution that quantifies greenhouse gas emission avoidances and reductions and generates verifiable emissions offsets. GreenCert provides real-time, multiple method data
analysis to increase accuracy and reduce uncertainty to quantify incremental improvements. GreenCert also enables enterprises to reduce overall costs via the identification of significant operational
efficiencies, compliance and risk reduction and sustainability measures. We intend to sell GreenCert as an on-premise offering and as a hosted software as a service (or SaaS) solution,
both with annual licensing and renewal fees.



Through our proprietary K-Fuel process we intend to meet the specific needs of public utility, industrial and international
customers by providing economical solutions for energy supply and compliance with environmental emission standards. Additional markets served by our K-Fuel process include mines looking to
expand the market for their low rank coal by transforming it into a higher value fuel and chemical manufacturers using coal as a feedstock. Our K-Fuel process uses heat and pressure to
physically and chemically transform high-moisture, low-Btu coals, such as sub-bituminous coal and lignite, into a more energy dense, energy efficient,
lower-emission fuel. The inherent efficiency of higher Btu-lower moisture coal improves power plant performance and reduces emissions on a per
kilowatt-hour-generated basis. We executed a term-sheet to spin-off this technology with a partner in China in December 2009. We believe that China
presents the best opportunity to develop the K-Fuel technology because of its plentiful reserves of high-moisture, low-Btu coals, its rapid growth in electric power
demand and its lower construction and manufacturing costs. The goal of our K-Fuel technology is to transform those lower-rank coals into more efficient and environmentally
compliant fuels in order to meet the increasing demand for energy in an optimal fashion. Evergreen-China continues to have discussions with a Chinese conglomerate for the potential construction of a
K-Fuel plant in Inner Mongolia. We have terminated the contemplated K-Fuel spin-off as previously announced. Concurrently, Evergreen-China signed a letter of intent
with a large Chinese integrated utility and chemical manufacturer to build a K-Fuel plant in Inner Mongolia to produce K-Fuel from low ranked lignite feedstock.



On April 3, 2006, we completed the acquisition of Buckeye for a total purchase price of $39.1 million, including cash
paid, stock issued, liabilities assumed and costs incurred in the acquisition. Buckeye's primary business is to mine, process, blend and sell high-quality coal to electric utilities,

F-8

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(1) Business and Summary of Significant Accounting Policies (Continued)

industrial
and institutional end users. Buckeye also operates one of the largest ash disposal facilities in the State of Ohio, disposing of up to one million tons of dry and conditioned ash per year.

Over
the past year, we have been evaluating several alternatives related to our strategic positioning, including the potential sale of Buckeye. On March 12, 2010, we signed a
definitive agreement with Rosebud Mining Company for the sale of certain assests of both Buckeye and Evergreen for $27.9 million, in addition to the release of $5.0 million of cash
reclamation bonds. The sale includes inventory, property, plant, equipment, mineral rights, Evergreen's dock facilities and the assumption of asset retirement obligations and obligations related to
the 47-year dock lease, which, collectively, we refer to as the "sale of Buckeye". Further, $2.8 million of the purchase price will be deposited into escrow for a period of twelve
months to cover amounts payable to Rosebud pursuant to the indemnification provision of the sales agreement. The closing is not subject to a financing condition, but is subject to the satisfaction of
customary closing conditions, including, among other matters: (i) accuracy of the representations and warranties and compliance with the covenants set forth in the agreement, each in all
material respects; (ii) receipt of legally required regulatory approvals; and (iii) consents of certain governmental authorities and certain of Buckeye's specified contractual
counterparties. The sale is expected to close in April 2010, but in any event no later than June 30, 2010. We recorded an impairment charge of $20.1 million to write-down these assets to
their fair market value.

With
the sale of Buckeye we will be able to better focus our resources on core business activities, including the GreenCert and K-Fuel technologies.

Basis of Presentation.The consolidated financial statements include our accounts and the accounts of our wholly and
majority-owned subsidiaries. All
intercompany transactions and balances have been eliminated. We do not consolidate, Evergreen-China, but record the activity using the equity method of investment. The consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States.

The
financial statements have been prepared on a "going concern" basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. At
December 31,
2009, we had negative working capital. For the period starting from the year of incorporation, 1988 through December 31, 2009, we have incurred a cumulative net loss of $529.9 million.
These factors raise substantial doubt regarding our ability to continue as a going concern. We plan to obtain additional equity capital including from the sale of Buckeye to finance our GreenCert and
K-Fuel development and marketing initiatives and our future operations. However, there is no assurance that we will be successful in accomplishing this objective. The financial statements
do not include any adjustments that might be necessary should we be unable to continue as a going concern.

Estimates.The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America, or
GAAP, requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of revenue and expenses during the periods presented. We believe that the significant estimates, assumptions and judgments when accounting for items and
matters such as asset retirement obligations, mineral reserves, capitalized premining costs, capitalized plant costs, depletion, depreciation, amortization, asset valuations, asset life, technology,
deferred revenue, acquisitions, stock option and restricted stock grants and warrants, allowance for bad debts for receivables, taxes, recoverability of

F-9

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(1) Business and Summary of Significant Accounting Policies (Continued)

assets,
impairments, customer retention, fair value of derivatives and other provisions are reasonable, based upon information available at the time they are made. Actual results could differ from
these estimates, making it possible that a change in these estimates could occur in the near term.

Fair value of financial instruments.The carrying amount of cash and cash equivalents, accounts receivable, marketable securities,
 other current
assets, accounts payable, accrued liabilities, short-term debt and other current liabilities in the consolidated financial statements approximate fair value because of the
short-term nature of the instruments. As of December 31, 2009 the carrying amount of our long-term debt was $27.9 million. We pay interest
semi-annually at a rate of 8.00% per annum. The 2007 Notes mature on August 1, 2012. We are unable to estimate the fair value of our debt without incurring excessive costs because a
quoted market price is not available, we have not developed the valuation model necessary to make the estimate, and the cost of obtaining an independent valuation would be excessive.

Cash and cash equivalents.Cash and cash equivalents are highly liquid investments that consist primarily of short-term money
market
instruments and overnight deposits with insignificant interest rate risk and original maturities of three months or less at the time of purchase. To preserve capital and maintain liquidity, we invest
with financial institutions we deem to be of sound financial condition and in high quality and relatively risk-free investment products. Our investments are in low-risk
instruments and we limit our credit exposure in any one institution or type of investment instrument based upon criteria including creditworthiness.

Marketable Securities.As of December 31, 2009 and 2008, our balance sheet reflects $0 and $1.8 million of marketable
securities, which
are auction rate securities, respectively. These auction rate securities consisted of student-loan backed securities. During the year ended December 31, 2008, we reduced the
carrying amount of our student loan-backed auction rate security by $200,000. In February 2009, we entered a reverse repurchase transaction for $1.8 million of our auction rate
security which had a $2.0 million par value. In March 2009, we liquidated the auction rate security at $2 million, resulting in a gain of $200,000, which has been recorded in Other
Income for the year ended December 31, 2009.

Receivables and allowance for doubtful accounts.Accounts receivable and note receivable, which is reflected in prepaids and
other assets, are
recorded at their estimated net realizable value. The allowance for doubtful accounts is determined through an analysis of the past-due status of accounts receivable and assessments of
risk regarding collectability. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. As
of December 31, 2009 and 2008, we have an allowance for doubtful accounts of $1.3 million and $1.4 million, respectively, primarily relating to a note receivable.

Inventory.Inventory, which includes washed or prepared coal, raw coal and inventory in transit as well as consumable parts,
materials and supplies,
are stated at the lower of cost or market. Our practice is to value coal and purchased coal based on the average cost method by the applicable type of coal. Inventory principally consisted of
$1.7 million and $804,000 of washed or prepared coal, raw coal and inventory in transit and $0 and $154,000 of spare parts and supplies as of December 31, 2009 and 2008, respectively.

Property, plant and equipment.Property, plant and equipment principally consists of our coal wash facility, buildings, furniture
and fixtures,
computers, third party software implementation and

F-10

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(1) Business and Summary of Significant Accounting Policies (Continued)

development
costs, vehicles, leasehold improvements, coal handling systems. Expenditures that extend the useful lives of the assets or increase production capacity are capitalized. Repairs and
maintenance that do not extend the useful lives of the assets are expensed as incurred. We begin depreciation on property, plant and equipment assets once the assets are placed into service.
Depreciation expense is computed using the straight-line method over the estimated useful lives of the property and equipment or the units-of-production method
using total processed tonnage for our Fort Union plant.

Construction in progress.All costs that are directly related to the engineering, design, purchase or fabrication of plant
equipment and are expected
to be used in a commercial K-Fuel plant project are capitalized. All costs that are directly related to, or allocable to, developing a specific K-Fuel plant site are
capitalized and separately identified as belonging to that site. Costs incurred to develop coal mines or to expand the capacity of operating mines are capitalized. Interest is capitalized during the
construction phase for internal-use capital projects. Repair and maintenance costs incurred that extend the useful life of mining machinery and equipment are capitalized. Costs incurred to
maintain current production capacity at a mine and exploration expenditures are charged to operating costs as incurred. Employee-related costs directly related to construction are also capitalized
during the construction phase.

Mineral rights and mine development.A significant portion of our coal reserves are controlled through leasing arrangements.
Costs to obtain coal
lands and leased mineral rights, including capitalized premining costs, are depleted using the units-of-production method based on tons produced utilizing only proven and
probable reserves in the depletion base and are assumed to have no residual value. Premining costs include drilling, permitting, county and state filing fees and the initial overburden removal. Also,
included in mineral rights are the costs to establish the related asset retirement obligations. The leases have primary terms ranging from 3 to 10 years and substantially all of the leases
contain provisions that allow for automatic extension once mining commences and for as long as mining activity continues.

Restricted cash and marketable securities.As of December 31, 2009, and 2008 we had $11.3 million and
$13.4 million of
restricted cash. Cash and marketable securities are set aside as collateral pledged toward our asset retirement obligations and to secure certain other obligations. During the year ended
December 31, 2008, we entered into debt-for-equity exchange transactions and as a result, the amounts held in escrow related to the $95 million
long-term debt in the amount of $18.0 million, were released. Until the asset retirement obligations are relieved, or our other obligations are fulfilled, the cash will remain
restricted.

Patents.All costs incurred to the point when a patent application is to be filed are expensed as incurred as research and
development. Patent
application costs, generally legal costs, thereafter incurred are capitalized and are included in other assets. The costs of defending and maintaining patents are expensed as incurred. Patents are
amortized over the expected useful lives of the patents, which is generally 17 to 20 years for domestic patents and 5 to 20 years for foreign patents. Patent amortization expense,
including amortization of existing patents, was $151,000, $142,000, and $129,000 in 2009, 2008, and 2007, respectively. We estimate amortization expense of approximately $106,000 for each of the years
ending December 31, 2010, 2011 and 2012.

Health care costs.We are self-insured, subject to a stop-loss policy, for individuals and all participants as a group, for
our employee's health care costs. The liability for outstanding medical costs

F-11

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(1) Business and Summary of Significant Accounting Policies (Continued)

has
been estimated based on historical claims and is included in accrued liabilities in our consolidated balance sheets.

Asset retirement obligations.We value all asset retirement costs, for which we have a legal obligation, and record all such
costs as liabilities
with an equivalent amount added to the asset cost and depreciated over an appropriate period or depleted using actual tons mined or actual tons produced. The liability is accreted over time by
applying an interest method of allocation to increase the liability. We have identified legal retirement obligations related to our site near Gillette, Wyoming and our coal mines in Ohio.

Exploration costs.Mineral exploration costs are expensed as incurred. When it has been determined that it is economically
feasible to extract coal
and the permitting process has been initiated, the costs incurred to further delineate and develop the mine are considered premining costs and are included in construction in progress in our
consolidated balance sheets. Once the overburden has been removed and production has commenced these capitalized costs are transferred to mineral rights on our consolidated balance sheets.

Long-lived assets.We evaluate long-lived assets based on estimated future undiscounted net cash flows or other fair value
measures whenever significant events or changes in circumstances occur that indicate the carrying amount may not be recoverable. If that evaluation indicates that an impairment has occurred a charge
is recognized to the extent the carrying amount exceeds the discounted cash flows or fair values of the asset, whichever is more readily determinable. In addition, we periodically capitalize certain
costs related to investigating potential sites for future facilities. We evaluate the status of these potential sites and if any site has been abandoned or we anticipate that it will be abandoned, we
write-off all associated costs.

Revenue.We recognize revenue when there is persuasive evidence of an arrangement, generally when an agreement has been signed,
all significant
obligations have been satisfied, the fee is fixed or determinable, and collection is reasonably assured. Any up-front fees received are deferred and recognized over the provision of
specific deliverables as defined in the agreements.
Deferred Reveune, including current portion, was $8.8 million and $6.9 million as of December 31, 2009 and 2008, respectively. The $8.8 million balance as of
December 31, 2009 was primarily comprised of $6.7 million related to an agreement executed in 2004 to construct a potential K-Fuel plant and $1.9 million related to an
agreement with a customer in our GreenCert segment. As our history related to customer relationships is limited, we may be required to change the estimated period over which we recognize our revenue
as more information becomes available. Arrangements that include multiple deliverables are evaluated to determine whether the elements are separable based on objective evidence. If the elements are
deemed separable, total consideration is allocated to each element and the revenue associated with each element is recognized as earned. If the elements are not deemed separable, total consideration
is deferred and recognized ratably over the longer of the contractual period or the expected customer relationship period.

We
recognize revenue from coal sales at the time risk of loss passes to the customer, either at our shipping point or upon delivery, depending on contractual terms. When sales include
delivery to the customer, transportation costs are billed by us to our customers. We had $8.5 million, $8.5 million and $8.7 million of transportation costs included in costs of
sales and revenues for the years ended

F-12

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(1) Business and Summary of Significant Accounting Policies (Continued)

December 31,
2009, 2008 and 2007, respectively. Ash disposal revenue is recognized when coal combustion bi-products are received at our ash disposal facility.

Brokered coal.We act as an agent in certain transactions involving the brokering of coal produced by others. As we generally do
not take title to
the coal or bear the risk of loss, we have recognized the net amount of profit related to the transactions in our consolidated statements of operations in mining revenue.

Research and development.Costs incurred to advance, test, or otherwise modify our proprietary technology or develop new
technologies are considered
research and development costs until such time as the modification or new technology is ready for protection through patent and are expensed when incurred. These costs are primarily comprised of costs
associated with the operation of our laboratories, pilot plants and operations of certain of our subsidiaries, including salaries and wages, supplies, repair and maintenance, general office expenses
and professional fees. Once patents are applied for, certain of these costs are capitalized as a cost of obtaining the patents.

Accounting for Derivative Financial Instruments.Derivatives may be embedded in financial instruments (the "host instrument").
Embedded derivatives
are treated as separate derivatives when the economic characteristics and risks are not clearly and closely related to those of the host instrument, the terms of the embedded derivative are similar to
those of a stand-alone derivative and the combined contract is not held for trading or designated at fair value. These embedded derivatives are measured at fair value
and any subsequent changes are recognized in the statement of operations. We are required to make significant estimates and assumptions when fair valuing these derivatives. See
Notes 7Debt and Note 9stockholders' Equity for further.

Income taxes.We follow the liability method of accounting for income taxes under which deferred tax assets and liabilities are
recognized for future
tax consequences. A deferred tax asset or liability is computed for both the expected future impact of differences between the financial statement and tax basis of assets and liabilities and for the
expected future tax benefit to be derived from tax loss and tax credit carry-forwards. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be
realized, based upon an assessment of both negative and positive evidence, in future tax returns. We have provided a full valuation reserve related to our substantial deferred tax assets. In the
future, if sufficient evidence of our ability to generate future taxable income becomes apparent, we may reduce this valuation allowance, resulting in income tax benefits in our consolidated statement
of operations. Tax rate changes are reflected in the period such changes are enacted.

Advertising costs.We recognize advertising expense when incurred.

Accounting for stock grants, options and warrants.We measure and recognize compensation expense for all stock grants, options
and warrants granted
to employees, members of our board of directors and consultants, based on estimated fair values. In 2009, we granted restricted stock awards that vest upon the achievement of certain market conditions
(the price of our common stock).We estimate the fair value of share-based payment awards on the grant date. We use the Black-Scholes option pricing model to calculate the fair value of stock options.
Restricted stock grants, without market conditions, are valued based upon the closing price of our common stock on the date of grant. In measuring and recognizing compensation expense, we are required
to make estimates of the fair value of the related instruments and the period benefited. Related to the restricted stock grants

F-13

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(1) Business and Summary of Significant Accounting Policies (Continued)

containing
market conditions, we are required to make significant estimates and assumptions when fair valuing these awards including probabilities of our future stock prices, historical volatility and
risk free interest rates. We use a Monte-Carlo fair value model run with many iterations to fair value these market vesting awards. For all grants, the fair value is recognized as expense and
additional paid-in capital over the requisite service period, which is usually the vesting period, if applicable, in our consolidated financial statements.

Net loss per common share.Basic net loss per common share is based on the weighted-average number of
common shares actually outstanding during each respective period and reduced by shares that are subject to a contingency.

During
the fourth quarter of 2005, we granted 2 million shares of restricted stock to three of our then executive officers, which were to immediately vest upon the attainment of
certain performance or market criteria, but no later than the seventh anniversary of the date of the agreement. Such unvested shares were transferred to an escrow agent during the first quarter of
2006. As a result, such shares are reflected as outstanding in the consolidated financial statements. However, shares for which the vesting criteria were not attained are excluded from the net loss
per share calculations due to the contingent status of the shares.

On
July 22, 2009, one of the executive officers referred to above transitioned his officer positions and board seat (s) to our current chief executive officer. As a result,
600,000 of the former officer's shares will fully vest at his election upon satisfaction of certain conditions. See further discussion in Note (10) Stock Options, Stock Grants and Employee
Benefit Plans.

On
May 31, 2009, another of the executive officers referred to above retired from his position and the restricted shares never vested and were forfeited upon his retirement.

On
April 19, 2007, we ceased our relationship with one of the executive officers who held contingent shares. Pursuant to the terms of his employment agreement, he was entitled to
acceleration of vesting with respect to 899,000 of the 1 million shares of unvested common stock he was awarded in connection with his employment agreement.

The
calculation of diluted net earnings per common share adds the weighted- average number of potential common shares outstanding to the weighted-average common shares outstanding, as
calculated for basic loss per share, except for instances in which there is a net loss. Our total incremental potential common shares outstanding as of December 31, 2009, 2008 and 2007 were
30.0 million, 26.4 million, and 30.1 million, respectively, and are comprised of outstanding stock options, restricted stock grants, warrants to purchase our common stock and
potential conversion of our convertible debt into common stock. All potential common shares outstanding have been excluded from diluted net loss per common share because the impact of such inclusion
on a net loss would be anti-dilutive.

Recent accounting pronouncements.In August 2009, the Financial Accounting Standards Board ("FASB") issued Accounting Standards
Update
2009-05 ("ASU 2009-05"), "Measuring Liabilities at Fair Value," which updates ASC 820 (Topic 820,"Fair Value Measurements and
Disclosures"). ASU 2009-05 addresses the impact of transfer restrictions on the fair value of a liability that is traded as an asset as an input to the valuation of
the underlying liability, and clarifies when to make adjustments to fair value. ASU 2009-05 is effective for periods
ending after August 26, 2009. The implementation of this standard did not have a material impact on our financial condition, results of operations or cash flows.

F-14

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(1) Business and Summary of Significant Accounting Policies (Continued)

In
June 2009, the FASB issued the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (the "Codification"). The Codification
became the single official source of authoritative, nongovernmental GAAP. The Codification did not change GAAP but reorganizes the literature. The Codification is effective for interim and annual
periods ending after September 15, 2009; we adopted the Codification during the three months ended September 30, 2009.

In
May 2009, the FASB issued authoritative guidance included in ASC 855 "Subsequent Events" which incorporates the accounting and disclosure requirements related to subsequent events
found in auditing standards into GAAP, effectively making management directly responsible for subsequent events accounting and disclosures. The guidance also requires disclosure of the date through
which subsequent events have been evaluated. The guidance is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. We have adopted
this pronouncement beginning with the interim period ended September 30, 2009 and it did not have an impact on our results of operations, financial position, or cash flows.

In
April 2009, the FASB issued authoritative guidance included in ASC 825 "Financial Instruments". This guidance required disclosures about fair value of financial instruments in interim
financial statements as well as in annual financial statements. The provisions included in ASC 825 "Financial Instruments" became effective on April 1, 2009. We are unable to estimate the fair
value of our debt without incurring excessive costs because a quoted market price is not available, we have not developed the valuation model necessary to make the estimate, the market conditions have
dramatically changed and the cost of obtaining an independent valuation would be excessive. The adoption of this pronouncement did not have a material impact on our financial statements. See
Note 7Debt for further details.

In
April 2009, the FASB issued authoritative guidance included in ASC 820 "Fair Value Measurements and Disclosures" that provides additional guidance for estimating fair value in
accordance with ASC 820 "Fair Value Measurements and Disclosures" when the volume and level of activity for the asset or liability have significantly decreased and requires that companies provide
interim and annual disclosures of the inputs and valuation technique(s) used to measure fair value. The guidance is effective for interim and annual reporting periods ending after June 15, 2009
and is to be applied prospectively. The adoption of this guidance did not have a material impact on our financial statements.

In
November 2008, the FASB ratified a guideline that clarifies whether a financial instrument for which the payoff to the counterparty is based, in whole or in part, on the stock of an
entity's consolidated
subsidiary is indexed to the reporting entity's own stock and therefore should not be precluded from qualifying for the first part of the scope exception included in ASC 815 "Derivatives and Hedging".
The guidance is effective for fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. The adoption of this pronouncement did not have a material
impact on our financial statements.

F-15

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(1) Business and Summary of Significant Accounting Policies (Continued)

In
June 2008, the FASB ratified the consensus reached by the guidance included in ASC 470 "Debt". Because of Issue 00-27, "Application of Issue No. 98-5 to
Certain Convertible Instruments," and ASC 480 "Distinguishing Liabilities from Equity", conforming changes were made to Issue 98-5, "Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion Ratios." Issue 08-4 provides transition guidance for those conforming changes and is effective for financial statements issued
after January 1, 2009. The adoption of this pronouncement did not have a material impact on our financial statements.

In
June 2008, the FASB issued guidance included in ASC 260 "Earnings Per Share" and became effective on January 1, 2009. This guidance provides that all outstanding unvested
share-based payment awards that contain rights to non-forfeitable dividends or dividend equivalents (whether paid or unpaid) are considered participating securities. Because such awards
are considered participating securities, the issuing entity is required to apply the two-class method of computing basic and diluted earnings per share retrospectively to all prior-period
earnings per share computations. The adoption of this pronouncement did not have a material impact on our financial statements.

In
May 2008, the FASB issued authoritative guidance included in ASC 470 "Debt". This guidance requires issuers of convertible debt instruments that may be settled in cash upon conversion
to account for the liability and equity components in a manner that will reflect the entity's nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. Issuers will
need to determine the carrying value of just the liability portion of the debt by measuring the fair value of a similar liability (including any embedded features other than the conversion option)
that does not have an associated equity component. The excess of the initial proceeds received from the debt issuance and the fair value of the liability component should be recorded as a debt
discount with the offset recorded to equity. The discount will be amortized to interest expense using the interest method over the life of a similar liability that does not have an associated equity
component. Transaction costs incurred with third parties shall be allocated between the liability and equity components in proportion to the allocation of proceeds and accounted for as debt issuance
costs and equity issuance costs, respectively, with the debt issuance costs amortized to interest expense. This guidance is effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. Early adoption is not permitted. The adoption of this pronouncement did not have a material impact on our consolidated
financial statements.

In
March 2008, the FASB issued authoritative guidance included in ASC 815 "Derivatives and Hedging" which enhances the disclosure requirements about derivatives and hedging activities.
The guidance requires additional narrative disclosure about how and why an entity uses derivative instruments, how they are accounted for under ASC 815 "Derivatives and Hedging", and what impact they
have on financial position, results of operations and cash flows. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after November 15,
2008. The adoption of this pronouncement did not have a material impact on our consolidated financial statements. However, we are required to provide additional disclosures related to our embedded
derivatives.

In
December 2007, the FASB issued authoritative guidance included in ASC 805 "Business Combinations". The guidance establishes principles and requirements for how an acquirer recognizes
and measures in its financial statements the identifiable assets acquired, including goodwill, the

F-16

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(1) Business and Summary of Significant Accounting Policies (Continued)

liabilities
assumed and any non-controlling interest in the acquiree. The guidance also establishes disclosure requirements to enable users of the financial statements to evaluate the
nature and financial effects of the business combination. The guidance is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The adoption of this pronouncement did not have a material impact on our financial statements.

We
adopted the provisions included in ASC 810 "Consolidations", effective January 1, 2009. The provision clarifies that a noncontrolling interest in a subsidiary is an ownership
interest in a consolidated entity, which should be reported as equity in the parent's consolidated financial statements. ASC 810 "Consolidations" requires disclosure, on the face of the consolidated
income statements, of those amounts of consolidated net income and other comprehensive income attributable to controlling and noncontrolling interests, eliminating the past practice of reporting
amounts of income attributable to noncontrolling interests as an adjustment in arriving at consolidated net income. The standard requires the parent to attribute to noncontrolling interests their
share of losses even if such attribution results in a deficit noncontrolling interest balance within the parent's equity accounts, and in some instances, requires a parent to recognize a gain or loss
in net income when a subsidiary is deconsolidated. As of December 31, 2008 we had granted C-Lock shares to employees and others that, at that time, represented a 23.3%
noncontrolling interest. During 2009 we notified the holders of our intention to reacquire C-Lock shares from certain former employees and a consultant for which the first payment was made
in 2010. After repurchasing these shares, our non-controlling interest will be 8%.

In
connection with our adoption of the guidance included in ASC 810 "Consolidations", we recorded into our consolidated equity accounts the noncontrolling interests in C-Lock
Technology, Inc. At December 31, 2008, the carrying amount of noncontrolling interests was zero, due to the accumulated net losses and the application of the guidance. We are not
permitted to attribute losses incurred prior to the adoption of ASC 810 "Consolidations" to our noncontrolling interest. Under ASC 810 "Consolidations", we attribute losses to noncontrolling interest
even if such attribution results in a deficit noncontrolling interest balance within our equity accounts.

Recently Issued accounting pronouncements.In January 2010, the FASB issued ASU No. 2010-06, "Improving Disclosures about
Fair
Value Measurements," which amends ASC Subtopic 820-10, "Fair Value Measurements and Disclosures," requiring new disclosures of significant transfers in and out of Levels 1 and 2,
the reasons for the transfers, and separate reporting of purchases, sales, issuances and settlements in the roll forward of Level 3 activity. The new ASU also clarifies that fair value
measurement disclosures should be provided for each class
of assets and liabilities and disclosures also should be provided about valuation techniques and inputs used to measure fair value for recurring and nonrecurring fair value measurements. The
disclosures are required for either Level 2 or Level 3 fair value measurements. The new disclosures and clarifications of existing disclosures are effective for interim and annual
reporting periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value
measurements which are effective for fiscal years beginning after December 15, 2010 (including interim periods within those fiscal years). We are currently evaluating the impact, if any, on our
financial statements.

F-17

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(1) Business and Summary of Significant Accounting Policies (Continued)

In
October 2009, the FASB issued Accounting Standards Update 2009-13,"Multiple-Deliverable Revenue Arrangementsa consensus of the
EITF,"("ASU 2009-13") which amends ASC 605 (Topic 605,"Revenue Recognition"). This amended guidance addresses the
determination of when individual deliverables within an arrangement may be treated as separate units of accounting and modifies the manner in which transaction consideration is allocated across the
separately identifiable deliverables. The guidance is effective for fiscal years beginning on or after June 15, 2010, and early adoption is permitted. We are currently evaluating the impact, if
any, on our financial statements.

In
October 2009, the FASB amended the accounting standards for revenue arrangements with software elements. The amended guidance modifies the scope of the software revenue recognition
guidance to exclude tangible products that contain both software and non-software components that function together to deliver the product's essential functionality. The pronouncement is
effective for fiscal years beginning on or after June 15, 2010, and early adoption is permitted. This guidance must be adopted in the same period an entity adopts the amended revenue
arrangements with multiple elements guidance described above.

In
June 2009, the FASB issued authoritative guidance included in ASC 860 "Transfers and Servicing" which is effective for interim and annual fiscal periods beginning after
November 15, 2009. This standard removes the concept of a qualifying special-purpose entity and removes the exception from applying ASC 810 "Consolidation". This standard modifies the
financial-components approach used in ASC 860 "Transfers and Servicing" and limits the circumstances in which a financial asset, or portion of a financial asset, should be derecognized. This standard
also requires enhanced disclosure regarding transfers of financial interests and a transferor's continuing involvement with transferred assets. The adoption of this pronouncement will not have a
material impact on our financial statements.

In
December 2009, the FASB issued ASU 2009-17, "Amendments to FASB Interpretation 46(R)," ("ASU 2009-17") revising authoritative guidance associated with the
consolidation of variable interest entities. This revised guidance replaces the current quantitative-based assessment for determining which enterprise has a controlling interest in a variable
interest entity with an approach that is now primarily qualitative. This qualitative approach focuses on identifying the enterprise that has (i) the power to direct the activities of the
variable interest entity that can most significantly impact the entity's performance; and (ii) the obligation to absorb losses and the right to receive benefits from the entity that could
potentially be significant to the variable interest entity. This revised guidance also requires an ongoing assessment of whether an enterprise is the primary beneficiary of a variable interest entity
rather than a reassessment only upon the occurrence of specific events. ASU 2009-17 was effective for us on January 1, 2010. We are in the process of evaluating the impact that this
standard will have on our financial condition, results of operations or cash flows.

F-18

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(2) Property, Plant & Equipment, Construction in Progress and Mineral Rights and Mine Development

Property, plant and equipment consisted of the following:

December 31,Lives

2009

2008(in years)

(in thousands)Mine machinery and equipment


3-15

$
21,429

$
18,919Mine, land, buildings and improvements


10-15


10,108


14,110Computer software and equipment


3-5


5,304


5,302Office leasehold, improvements and equipment


3-10


4,741


4,660Other


3-30


2,840


3,216Total





44,422


46,207Less accumulated depreciation





(25,762
)

(16,242
)Property, plant and equipment, net of accumulated depreciation




$
18,660

$
29,965


Depreciation
and depletion expense was $9.8 million, $8.9 million, and $8.3 million, in 2009, 2008 and 2007, respectively. Mine, land, buildings and improvements
include $1.6 million of land, which is not depreciated.

We
transferred $7.6 million, $10.5 million and $13.7 million from construction in progress to property plant and equipment during the years ended December 31,
2009, 2008 and 2007, respectively. During the year ended December 31, 2007, we transferred $846,000 from construction in progress to mineral rights, increased property plant and equipment in
the amount of $2.6 million for leasehold improvements related to our new office space and transferred $18.6 million from construction in progress to assets held for sale.

Property,
plant and equipment includes $628,000, $1.1 million and $1.9 million of accounts payable and other liabilities as of December 31, 2009, 2008 and 2007,
respectively.

Construction
in progress consisted of the following:

December 31,2009

2008(in thousands)Future plant sites and equipment

$
7,505

$
6,805Mine and site improvements


860


1,166Mining equipment refurbishment


1,508


3,436GreenCert technology development


4,955


2,400Other


2,467


3,895Total construction in progress

$
17,295

$
17,702


Total
construction in progress includes $3.1 million, $2.0 million and $882,000 of accounts payable and other costs as of December 31, 2009, 2008 and 2007,
respectively.

F-19

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(2) Property, Plant & Equipment, Construction in Progress and Mineral Rights and Mine Development (Continued)

Mineral
rights are comprised of leases and mine development costs from the acquisition of Buckeye. Costs are capitalized during the premining phase and are depleted using the
units-of-production method based on actual tons mined.



During the year ended December 31, 2009, we impaired $20.1 million related to certain assets in our mining operations and
$413,000 of leasehold improvements related to our unused corporate office space. We are attempting to sublease this unused office space.

On
March 19, 2008, we decided to suspend operations at our Fort Union plant. We recorded asset impairment charges of $93.5 million, $14.0 million and
$1.7 million related to Property, Plant and Equipment, Construction in Progress, and mineral rights respectively associated with the Fort Union plant as of December 31, 2007. In
addition, in 2007 we impaired $3.6 million of capitalized costs related to projects that we abandoned and/or replaced with more cost effective projects and $2.1 million of capital costs
related to a previously announced future potential project with a major utility.



Our asset retirement obligations relate to our surface and deep mines in Ohio, and the site on which our Fort Union plant is located.
The following table reconciles the change in the asset retirement obligation during the year ended December 31, 2009:

Changes in
Asset
Retirement
Obligations(in thousands)Balance at January 1, 2009

$
6,505Liability incurred


Liability settled


Accretion


364Balance at December 31, 2009

$
6,869


We
allocate asset retirement costs to the underlying assets based on the fair value using an expected cash flow approach, in which multiple cash flow scenarios are used to reflect a
range of possible outcomes and a credit-adjusted risk-free rate. The liabilities are then accreted over time by applying an interest method of allocation.



In June 2006, we entered into an agreement to purchase a 700,000 pound per hour Circulating Fluidized Bed boiler island. In March 2007,
we decided to sell this boiler and classified the costs associated with the boiler as assets held for sale. Effective January 31, 2008, we and the fabricator of the boiler island agreed to
terminate the contract and as a result, all future financial obligations were

F-20

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(2) Property, Plant & Equipment, Construction in Progress and Mineral Rights and Mine Development (Continued)

also
terminated. As of December 31, 2008, we computed a fair value analysis using the following: (i) the probabilities of the sale of the boiler at the current recorded value;
(ii) the probabilities of selling the boiler at less than its carrying value; and (iii) the probabilities of not selling the boiler. As a result of the analysis of the probabilities, we
calculated an estimated fair value of the boiler and recorded an impairment charge of $18.6 million in our Technology segment for the year ended December 31, 2008.

(3) Restricted Cash and Marketable Securities

The following table represents the components of our restricted cash and marketable securities:

December 31,2009

2008(in thousands)Collateral:Environmental remediation obligations


11,339


12,074Other





1,370Total restricted cash

$
11,339

$
13,444


As
of December 31, 2009 and December 31, 2008, our balance sheet reflects $0 and $1.8 million of restricted marketable securities. In February 2009, we entered a
reverse repurchase transaction for $1.8 million of our auction rate security which had a $2.0 million par value. In March 2009, we liquidated the auction rate security at
$2 million, resulting in a gain of $200,000, which has been recorded in Other Income for the twelve months ended December 31, 2009.

In
July 2007, pursuant to our $95 million long-term debt offering, we deposited $18.0 million of the net proceeds in an escrow account. On September 30,
2008, such funds were released from escrow. See further discussion at Note 8Debt.

(4) Other Assets

Included within other assets are deferred royalty costs, totaling $1.4 million as of December 31, 2009 and 2008; patents totaling $1.1 million and
$1.0 million as of December 31, 2009 and 2008; and $0 and $1.8 million of auction rate securities as of December 31, 2009 and 2008, respectively

The
deferred royalty costs associated with the issuances of licenses for K-Fuel represent the licensing fees paid to the Koppelman estate. Such costs are amortized over the
same period as the deferred revenue related to the underlying contracts. In 1996, we entered into a royalty amendment agreement with Mr. Koppelman, or subsequent to his death, the Koppelman
estate, that reduced the cap for payments by $500,000 to $75.2 million and set the royalty percentage at 25% of our worldwide licensing and royalty revenue, as defined in the agreement.
Mr. Koppelman provided us an indemnification against potential claims made by certain parties if we licensed the technology. We paid Mr. Koppelman a total of $500,000 pursuant to the
agreement as a prepayment. The $500,000 has no specified expiration date and recognition is solely dependent upon the issuance of licenses. We are amortizing the $500,000 payment as license revenue is
generated. In addition, Mr. Theodore Venners,

F-21

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(4) Other Assets (Continued)

our
former founder, is entitled to a 50% share of net royalties paid to the Koppelman estate. As of December 31, 2009 and 2008, there is $73.0 million remaining under the cap. Also, see
discussion in Note 12Commitments and ContingenciesRoyalties and Other Rights.

(5) Assets and Liabilities Measured at Fair Value

Fair Value Measurements and Disclosures establish a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of
inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:



A
financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.



The following table presents information about our net assets (liabilities) measured at fair value on a recurring basis as of
December 31, 2009, and indicates the fair value hierarchy of the valuation techniques utilized by us to determine such fair value.

Fair Value Measurements UsingFair Value

Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)(in thousands)Recurring:2007 Notes embedded derivatives

$
7

$


$


$
7Put Warrant liability

$
1,265







$
1,2652009 Notes embedded derivatives

$
705

$


$


$
705


F-22

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(5) Assets and Liabilities Measured at Fair Value (Continued)

The
following table represents the change in fair value for the year ended December 31, 2009:

Balance at
December 31,
2008

Settlement

Unrealized
(Loss) gain

Realized gain

Balance at
December 31,
2009(in thousands)2007 Notes embedded derivatives(1)

$
25




$
(8
)
$


$
7Auction rate securities(2)


1,800


2,000





200


Put Warrant liability(1)








1,000




$
1,2652009 Notes embedded derivatives








1,000




$
705




The following table presents information about our net assets measured at fair value on a recurring basis as of December 31,
2008, and indicates the fair value hierarchy of the valuation techniques utilized by us to determine such fair value.

Fair Value Measurements UsingFair Value

Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)(in thousands)Recurring:2007 Notes embedded derivatives

$
25

$


$


$
25Auction Rate Securities

$
1,800




$


$
1,800


The
following table represents the change in fair value for the year ended December 31, 2008:

Balance at
December 31,
2007

Transfers

Realized loss

Unrealized loss

Balance at
December 31,
2008(in thousands)Embedded derivatives(1)

$
1,470




$
(511
)
$
(934
)
$
25Auction Rate Securities(2)

$


$
2,000

$


$
(200
)
$
1,800


---

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(5) Assets and Liabilities Measured at Fair Value (Continued)



Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair
value on an ongoing basis but are subject to fair value adjustments in certain circumstances. During the year ended December 31, 2009, we were required to test certain of our mining assets for
recoverability based on future cash flows. As a result of this recoverability test, we wrote down certain mining assets by $20.1 million. We estimated the fair value of these assets based on a
cash flow approach using significant unobservable inputs (Level 3). Additionally, during the year ended December 31, 2009, certain leasehold improvements were required to be measured at
fair value in conjunction with the abandonment of a portion of our corporate office space. The leasehold improvements related to the unused office space had a net book value of $413,000 and were
written down to an estimated value of zero, resulting in an impairment charge of $413,000. We estimated the fair value of these assets based on an income approach using significant unobservable inputs
(Level 3). In addition, we recorded a loss associated with the abandonment of our unused office space in the amount of $1.0 million. We estimated the fair value of the loss based on an
income approach using significant unobservable inputs (Level 3).

(6) Accrued liabilities

Accrued liabilities consist of:

December 31,2009

2008(in thousands)Employee-related

$
2,185

$
2,709Accrued interest on the 2007 Notes and 2009 Notes


1,158


1,345Services or goods received, not invoiced


4,722


2,351Taxes, other than income taxes


735


471Other


29


44Total accrued liabilities

$
8,829

$
6,920


Employee-related
principally includes paid time off and payroll. Services or goods received not invoiced primarily consist of goods and services rendered at our corporate headquarters,
Buckeye and

F-24

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(6) Accrued liabilities (Continued)

GreenCert
operations. Taxes, other than income taxes represent various accrued taxes including property, use and franchise taxes.

(7) Debt



On July 30, 2007, we completed the sale of $95.0 million of our Convertible Secured Notes due 2012 ("2007 Notes") that
were resold in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. During the year ended December 31, 2008, we
entered into multiple individually negotiated agreements with certain existing noteholders to exchange $67.1 million in aggregate principal amount of the 2007 Notes, for an aggregate of
48.6 million shares of our common stock and $3.5 million in cash, which was paid on October 1, 2008. We closed all transactions and issued all the shares by December 2008, except
for a portion of one of the transactions. During the year ended December 31, 2009, we closed the remaining portion of this transaction and issued an aggregate of 9.3 million shares,
representing $12.5 million in aggregate principal amount of the 2007 Notes. In addition, during the year ended December 31, 2009, we issued an additional 333,333 shares pursuant to
another individually negotiated agreement, representing $500,000 principal amount of the 2007 Notes.

Prior
to each exchange of 2007 Notes for common stock, each of the converting noteholders agreed to release each guarantee issued pursuant to the indenture with respect to such 2007
Notes being exchanged such that, at the time of each exchange, such 2007 Notes being exchanged were not guaranteed securities and were solely securities of Evergreen Energy. Further, we received the
requisite consents to amend the indenture and in compliance with the terms and provisions of the indenture, we, each of the guarantors and the trustee, executed a supplemental indenture. The
supplemental indenture amends the indenture to eliminate substantially all of the restrictive covenants, to release the security interests in the collateral securing the 2007 Notes, which included the
release of $18.0 million of cash that was held in escrow and to make certain other conforming changes to the indenture. For the period ended December 31, 2008, we recognized a
$6.1 million gain, after reduction for transaction costs and the non-cash write off of debt issue costs and related embedded derivatives associated with these exchange transactions.

We
pay interest semi-annually at a rate of 8.00% per annum, due on February 1 and August 1 of each year, beginning on February 1, 2008. The 2007 Notes
mature on August 1, 2012.

Holders
may convert their 2007 Notes into a number of shares of common stock or cash or a combination thereof, at our option, at the applicable conversion rate on any day up to and
including the business day prior to the maturity date. The initial conversion rate for the 2007 Notes is 190.4762 shares of our common stock per $1,000 principal amount of 2007 Notes, equivalent to a
conversion price of approximately $5.25 per share, subject to adjustment upon the occurrence of certain events. If we undergo certain fundamental changes, as defined in the indenture, the holders of
the 2007 Notes may require us to repurchase the 2007 Notes in cash at 100% of the principal amount plus any accrued and unpaid interest. Additionally, upon a fundamental change, the holders, if they
elect to convert, will receive a conversion rate adjustment that will require us to increase the number of shares based on our stock price and the passage of time.

F-25

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(7) Debt (Continued)

At
issuance, the 2007 Notes were senior secured obligations guaranteed by our 100% owned subsidiary, Evergreen Operations, LLC, and its subsidiaries, and secured by a
first-priority security interest in: (i) all of our equity interest in Evergreen Operations, LLC; (ii) an escrow account established in connection with the offering; and
(iii) our and each of Evergreen Operations, LLC and its subsidiaries' bank, investment, brokerage or similar accounts holding cash and cash equivalents, subject to certain exceptions.
Our intellectual property rights relating to the K-Fuel refined coal process are held by a wholly owned subsidiary, which is not a subsidiary of Evergreen Operations, LLC and
consequently, none of these intellectual property rights were included in the collateral securing the 2007 Notes. Additionally, our subsidiaries C-Lock Technology, Inc. and
Evergreen Energy Asia Pacific Corp. were also excluded from the collateral securing the 2007 Notes. The 2007 Notes contained covenants, which among other things, limited our ability and the ability of
our subsidiary guarantors to incur additional debt or issue certain preferred shares; pay dividends on or make distributions in respect to our capital stock; create liens on certain assets to secure
debt; and sell certain assets. The collateral and restricted covenant provisions have been amended by the supplemental indenture as described above.

If
the closing price of our common stock for at least 20 trading days in any 30 consecutive trading day period is at least the conversion price, or the reduced interest rate threshold,
then the initial interest rate will be permanently decreased to 5.00%. In addition, if the closing price of our common stock for at least 20 trading days in any 30 consecutive trading day period is at
least 130% of the then applicable conversion price, or the collateral release threshold, then the security will be released, and the 2007 Notes will become automatically subordinated. At such time as
the security is released, we may redeem the 2007 Notes at a redemption price payable in cash equal to 100% of the principal amount, plus any accrued and unpaid interest and an additional "coupon make
whole payment." The "coupon make-whole" amount per $1,000 principal amount of 2007 Notes will be equal to the present value of all remaining scheduled payments of interest on each 2007
Note to be redeemed
through the maturity date. The provisions relating to the collateral release threshold have been amended by the supplemental indenture as described above.

We
incurred $6.0 million of debt issuance costs relating to our 2007 Notes offering. We are amortizing the debt issuance costs using the effective interest rate method over the
life of our debt. The portion of the debt issue costs related to the debt exchanged for equity were written-off by reducing the gain. Debt issue costs were $1.0 million and
$1.3 million as of December 31, 2009 and 2008, respectively.



At issuance, we evaluated the 2007 Notes and concluded that our conversion adjustment upon the occurrence of a fundamental change is an
embedded derivative that needs to be bifurcated for valuation purposes. Additionally, we have concluded that the potential decrease in our interest rate based on our common stock price is also an
embedded derivative that needed to be bifurcated. Both of these derivatives were determined to not be clearly and closely related to the host instrument. We used a fair value modeling technique to
value these derivatives and recorded $3.2 million of long-term assets and a corresponding increase in long-term debt in our consolidated balance sheets at the date of
issue of the 2007 Notes. Furthermore, we are required to fair value these derivatives at each reporting period

F-26

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(7) Debt (Continued)

and,
as a result, we recorded $8,000, $934,000 and $1.7 million of other expense during the years ended December 31, 2009, 2008, and December 31, 2007 by decreasing the net
derivative assets contained within other long-term assets to $6,000, $25,000 and $1.4 million in our consolidated balance sheet at December 31, 2009,2008 and 2007
respectively.



In March 2009, we executed a Senior Secured Convertible Note Agreement ("2009 Notes") which provides for the issuance of up to
$15 million in aggregate principal amount of 10% Senior Secured Promissory Notes in three $5 million tranches. The first $5 million tranche was funded in March 2009, the second
$5 million tranche was funded in April 2009 and the third tranche was funded July 2009. The 2009 Notes are reflected in short-term debt in our condensed consolidated balance sheet.
These 2009 Notes bear interest at a rate of 10% per annum beginning on the funding date of each tranche through December 20, 2009, which was prepaid at the time the 2009 Notes were issued and
was non-refundable. We prepaid $375,000 of interest related to the closing of the first tranche and issued 219,000 warrants to purchase our common stock at an exercise price of $1.30. In
connection with the second tranche, we prepaid $351,000 of interest and issued 219,000 warrants to purchase our common stock at an exercise price of $1.30. In connection with the third tranche we
prepaid $225,000 of interest and issued 219,000 warrants to purchase our common stock at an exercise price of $1.30. We recognized $480,000 of debt issuance costs during the year ended
December 31, 2009 related to the warrants.

The
following table summarizes the assumptions used to value the warrants issued for the three tranches:

Tranche 1

Tranche 2

Tranche 3Weighted-average:Risk free interest rate


1.7
%

2.4
%

2.3
%Expected option life (years)


5


5


5Expected volatility


91
%

81
%

81
%Expected dividends


None


None


None


The
outstanding principal balance was due and payable on the earliest of (i) December 20, 2009, (ii) the date all obligations and indebtedness are accelerated in
accordance with the provisions under the purchase agreement, and (iii) a sale of the capital stock, or the assets secured, of Buckeye (the "Maturity Date"). Prior to the Maturity Date, holder
may elect to convert its 2009 Notes into a number of fully paid and non-assessable shares of Evergreen's common stock, par value $0.001 per share at the applicable conversion rate on any
day to and including the business day prior to the Maturity Date, subject to adjustment upon the occurrence of certain events. The initial conversion rate for the 2009 Notes is equivalent to a
conversion price of $3.65 per share of our common stock.

Provisions
in the 2009 Notes prohibit Buckeye from transferring funds to Evergreen Energy in the form of cash dividends, loans or advances. The net assets that are subject to these
restrictions are $10.7 million as of December 31, 2009. Buckeye may, however, repay intercompany loan balances. As of
December 31, 2009, the amount of funds Buckeye was restricted from transferring was $10.7 million, net of an intercompany loan balance of $12.6 million.

F-27

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(7) Debt (Continued)



We are required to adjust the conversion price upon the occurrence of a future issuance of stock or warrants at a price less than the
2009 Notes conversion price. This potential adjustment to the conversion price was concluded to be an embedded derivative that needed to be bifurcated for valuation purposes. We used a fair value
modeling technique to value this derivative and recorded $1.7 million of short-term liability and a corresponding decrease in short-term debt in our consolidated balance
sheets. Furthermore, we are required to fair value the derivative at each reporting period and, as a result, we recorded $1.0 million of other income during the year ended December 31,
2009 by decreasing the net derivative liability contained within other short-term liability to $705,000 in our consolidated balance sheet at December 31, 2009



On December 21, 2009, we restructured and extended the terms of our 2009 Notes extending the maturity date to the earlier of the
sale of Buckeye or June 30, 2010. As part of the restructuring, the stated principal amount has been increased by $2.25 million representing the 15% exit fee, pursuant to the original
terms of the 2009 Notes, as of that date, bringing the aggregate principal amount of 2009 Notes to $17.25 million. Interest shall be due and payable at maturity of the 2009 Notes and the rate
remains 10% per annum. The restructuring agreement also retains an exit fee in the amount of 15% of the par value of the 2009 Notes upon the payment of the 2009 Notes.

Per
the terms of the restructured agreement, we were required to raise additional common equity on or before January 30, 2010, utilizing a portion of the proceeds to pay a
$1.8 million cash extension fee due to our lenders. Additionally, we were required to execute a binding agreement for the sale of Buckeye on or before March 31, 2010. The failure to
complete either of these items would be deemed to be an "Event of Default" under the terms of the 2009 Notes. On January 26, 2010, we raised approximately $8.7 million of gross proceeds
from our registered direct offering and paid the $1.8 million extension fee. We are required to pay not less than 30% of the proceeds of any subsequent common equity offering to reduce the
outstanding balance of the 2009 Notes. Upon maturity, the repayment amount will be equal to 115% of the principal amount outstanding, which represents $2.6 million, plus accrued and unpaid
interest. In addition the extension terms required us to raise additional common equity by January 15, 2010, or the repayment amount will be increased by $350,000. We incurred this additional
$350,000 because our equity raise was consummated after January 15, 2010.

In
addition, we were required to continue to retain an investment banker to assist us in the sale of assets of Buckeye and provide semi-monthly updates to the lender
regarding the status of the sale of Buckeye, retain a consultant of the lender's choosing and grant reasonable access to the site as well as the sales process. On March 12, 2010, we signed an
agreement with Rosebud to sell certain assets of Buckeye. We anticipate the sale to be finalized April 2010.

The
2009 Notes are secured by the assets of Buckeye pursuant to a security agreement dated as of March 20, 2009. The security agreement provides holder with a security interest
in, but not limited to, all of Buckeye's property, equipment and fixtures, accounts, negotiable collateral, cash, and cash equivalents, subject to certain exceptions. The security interest created in
the collateral will be first priority, subject to the permitted encumbrances provided in the Security Agreement, and such first

F-28

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(7) Debt (Continued)

priority
security interest will be perfected to the extent such security interest can be perfected by the filing of a financing statement. The security agreement also provided that on or before
April 3, 2009, Buckeye shall deliver to holder a first priority mortgage on each fee interest in real property now or hereafter owned by Buckeye. Further, in order to induce holder to extend
credit to the Companies, Evergreen Operations, LLC ("Evergreen Ops") entered into a pledge agreement with Investor dated March 20, 2009. The pledge agreement provides that Evergreen Ops
will pledge to holder all of its common stock in Buckeye, and in an event of default, as defined in the purchase agreement, holder's rights under the pledge agreement include, but are not limited to,
the right to vote the pledged shares, or transfer such shares, in whole or in part, into its or its nominee's name. The pledge agreement will survive until our obligations are met and the purchase
agreement is terminated.



We paid $2.7 million, $7.6 million and $0 of interest for the years ended December 31, 2009, 2008 and 2007,
respectively. We capitalized $1.0 million, $0.7 million, and $0 million of interest for the years ended December 31, 2009, 2008 and 2007, respectively.

(8) Convertible Preferred Stock

On October 21, 2009, we completed the sale of an aggregate offering price of $6,973,380 of Series B Convertible preferred stock and detachable warrants. The preferred stock
accrues dividends at the rate of 5.66% per annum, payable semi-annually on June 30 and December 31, commencing on December 31, 2009 and on each conversion date until
October 21, 2014. Each share of preferred stock has a stated value of $1,000 per share. The preferred stock is convertible into the number of shares of common stock, $.001 par value determined
by dividing the stated value of the preferred stock by the conversion price per share. The conversion price per share is $.6025, subject to adjustment under certain circumstances, including events of
default under the preferred stock. Upon an event of default, the holders of the preferred stock may require us to redeem the preferred stock at an amount equal to, at a minimum, 130% of the stated
value. The certificate of designation includes a provision under which we deposited with an escrow agent $1,973,380 of the gross proceeds of the offering. If the preferred stock was converted prior to
October 21, 2014, the escrow amount will be used to pay to the holder, upon conversion, an amount equal to $282.99 per $1,000 of stated value converted, less the amount of dividends paid prior
to the conversion date. All but two of the preferred shares were converted to common stock in the fourth quarter of 2009 and substantially all the escrow deposit was paid to the holders as a dividend.
Upon the conversion of the preferred shares, we issued 11,571,403 of our common stock. The warrants are exercisable for an aggregate of 5,787,037 shares of common stock, at an exercise price of $.648
per share, subject to certain adjustments. The warrants are exercisable immediately and have a term of exercise equal to five years. The warrants also include a cashless exercise provision. The
warrants are not redeemable by us.

The
detachable warrants issued in the convertible preferred stock agreement contain certain provisions, such as a contingent cash redemption feature or adjustments to the exercise price
of the warrant upon the occurrence of a change of control. These features were concluded to result in the warrants being recorded as liabilities. We used a fair value modeling technique to value this
put warrant liability and recorded $2.3 million of long-term liability in our consolidated balance sheet at the

F-29

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(8) Convertible Preferred Stock (Continued)

date
of the transaction. Furthermore, we are required to fair value this put warrant liability at each reporting period and, as a result, we recorded $1.0 million of other income during the
year ended December 31, 2009 by decreasing the fair value of this put warrant liability.

(9) Stockholders' Equity

During 2002, we entered into a series of transactions with three investor groups whereby we issued a total of 6.8 million shares of our common stock and 14.4 million
warrants. The investors have certain rights pursuant to an investor rights agreement, including the right for one group to select two persons to serve on our Board of Directors. As of
December 31, 2009, these two positions were not filled. This provision remains in force until the investors hold less than 400,000 shares of our common stock. During 2005, we renegotiated the
investor rights agreement executed in connection with the issuance of the shares in 2002 to provide us greater flexibility in constructing and operating plants. Subsequent to the renegotiation, we and
the investors have the following rights:



Except
for the right to select persons to serve on our Board of Directors all other rights expire 20 years after the 25 million ton annual capacity threshold is reached or
earlier, if the investors exercise their rights to 50 million tons of annual capacity.



On December 4, 2008, we entered into a rights agreement. In connection with the adoption of the rights agreement, on
December 2, 2008, the Board of Directors declared a dividend distribution of one right ("Right") for each outstanding share of our common stock on December 19, 2008. The Rights generally
become exercisable only in the event that an acquiring party accumulates 15% or more of our outstanding common stock. Each Right, when exercisable, entitles the registered holder to purchase
one-thousandth of one share of Series A Junior Participating Preferred Stock ("Series A Preferred Stock") at a price of $4.00 per one-thousandth share (the
"Purchase Price"), subject to adjustment. If this were to occur, subject to certain exceptions, each Right (except for the Rights held by the acquiring party) would allow its holder to purchase common
stock with a value equal to twice the exercise price of the Right. In the event that, after an acquiring party has accumulated 15% or more of

F-30

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(9) Stockholders' Equity (Continued)

our
outstanding common stock, we are acquired in a merger or other business combination transaction or 50% or more of its assets or earning power are sold, each unexercised Right (except for the
Rights held by the acquiring party) would thereafter allow its holder to purchase stock of the acquiring company (or our common stock if it is the surviving company to the transaction) with a value
equal to twice the purchase price of the Right. If the Rights were fully exercised, the shares issued would cause substantial dilution to the acquiring party or the shareholders of the acquiring
company. The Rights Agreement provides a period of time during which we may redeem the Rights, in whole, but not in part, at a price of $0.001 per Right, such that this period will end on the earlier
of (i) the tenth business day following the date a person or group becomes the beneficial owner of 15% or more of the common stock or (ii) the final expiration date of the Rights, which
is December 19, 2018.

(10) Stock Options, Stock Grants and Employee Benefit Plans

We have five qualified stock plans, under which 12.5 million shares were reserved and 2.4 million shares are available for grant as of December 31, 2009. Pursuant to
these plans we granted stock options, restricted stock and stock appreciation rights to directors, employees and outside consultants. All but one of the five qualified plans has been registered with
the Securities and Exchange Commission. We have also issued stock related to various compensation and fee agreements with certain employees that were not issued from our five plans. These grants were
made pursuant to certain stock exchange rules. The non-plan awards are generally registered with other registration statements that we periodically file. The five qualified stock plans and
the non-plan awards are collectively referred to as "the plans."

These
plans are administered by the Compensation Committee of our Board of Directors, (Committee), which has the authority to determine the specific terms of awards under these plans,
including exercise price and vesting term, subject to certain restrictions of the Internal Revenue Code regarding incentive stock options. The Committee can accelerate the vesting of an outstanding
award at its sole discretion. Certain of the plans contain provisions requiring the acceleration of vesting of all outstanding awards in the event of a change in control, as defined in those plans. In
addition, certain employee grants per the individual grant agreements contain provisions that accelerate the vesting of unvested outstanding awards upon a change in control. Stock options granted
under the plans generally expire not more than ten years from the date of grant.

Share-based
compensation expense recognized during the current period is based on the value of the portion of share-based payment awards that are ultimately expected to vest, assuming
estimated forfeitures at the time of grant. Historically, the majority of option grants outstanding were to executives, consultants and to our former founder. We have estimated the forfeiture rate on
each of these grantee groups based upon historical data. In the fourth quarter of 2005, we started granting restricted shares to non-executive employees. We have based the forfeiture rate
for this grantee group on the historical data of the executives, as we do not have sufficient historical data for non-executive employees. Lastly, during the fourth quarter of 2005, we
granted restricted stock awards to certain of our executive officers, as further described below, which contain accelerated vesting provisions. Our estimate of forfeitures for these grants is that
they all will vest and, as a result, we have not reduced our expense by estimated forfeitures. Total non-cash compensation expense was $5.7 million,

F-31

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(10) Stock Options, Stock Grants and Employee Benefit Plans (Continued)

$6.3 million
and $19.6 million for the years ended December 31, 2009, 2008 and 2007, respectively, which are primarily reflected in general and administrative expenses.



The following table summarizes the assumptions used to value stock options granted in 2009, 2008 and 2007:

Year Ended December 31,2009

2008

2007Weighted-average:Risk free interest rate


2.28
%

3.11
%

4.50
%Expected option life (years)


6.04


8.4


3.0Expected volatility


88
%

72
%

63
%Expected dividends


None


None


None


We
use the Black-Scholes option-pricing model to value our outstanding stock options. The Black-Scholes model requires the use of a number of assumptions, including the volatility of our
stock price, a weighted average risk-free interest rate, and the weighted average expected life of the options. Generally, our option grants to non-employee board members vest
immediately and expire on the third anniversary of the date of grant. As we do not pay dividends, the dividend rate variable in the Black-Scholes model is zero. The volatility assumption is based on
the historical weekly price data of our stock over a period equivalent to the expected life of the options. We evaluated whether there were factors during the period which were unusual and which would
distort the volatility figure used to estimate future volatility and concluded that there were no such factors. The risk-free interest rate assumption is based upon the note principal U.S.
Treasury Strips rates determined at the date of grant. The expected life of the stock options represents the life of the option up to the expiration date. This is based upon an analysis of the
historical exercise pattern of our employees and directors.

On
June 24, 2009, the Board of Directors appointed Thomas H. Stoner, Jr. as President and Chief Executive Officer. In connection with his employment, Mr. Stoner was granted
options to purchase 500,000 shares of common stock at an exercise price of $0.96 per share. The options fully vested on June 24, 2009 and expire on June 24, 2014. All of the options are
considered inducement options as defined by the NYSE Arca and are not issued pursuant to a plan.

Stock
options granted under the plans to employees generally vest from three to five years from the grant date until fully vested and generally expire ten years from grant date. Stock
options granted to directors usually vest 100% on date of grant and expire three years from the date of grant. The majority of stock options granted during the three years ended December 31,
2009, 2008, and 2007, were at exercise prices that were equal to or greater than the fair market value of our common stock

F-32

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(10) Stock Options, Stock Grants and Employee Benefit Plans (Continued)

on
the date of grant. The following table summarizes our stock option activity, including both plan and non-plan options, for the three-year period ended December 31,
2009:

Years Ended December 31,2009

2008

2007Total

Weighted-
Average
Exercise Price
Per Share

Total

Weighted-
Average
Exercise Price
Per Share

Total

Weighted-
Average
Exercise Price
Per Share(shares in thousands)Outstanding, beginning of period


2,892

$
7.51


2,726

$
9.26


4,044

$
10.86Granted


2,123


0.87


889


1.80


82


7.36Exercised

















Expired and forfeited


(1,917
)

7.13


(723
)

7.30


(1,400
)

13.64Outstanding, end of period


3,098

$
3.20


2,892

$
7.51


2,726

$
9.26Options exercisable and options expected to vest as of December 31, 2009


2,834

$
3.34Options exercisable, end of period


2,390

$
3.37


Plan
and non-plan stock options outstanding and exercisable as of December 31, 2009 are summarized below:

Stock Options Outstanding

Stock Options ExercisableRange of Exercise Prices

Number of
Shares

Weighted
Average
Remaining
Contractual
Life (Years)

Weighted
Average
Exercise
Price

Number of
Shares

Weighted
Average
Exercise
Price(in thousands)





(in thousands)$0.01 - $3.00


2,541


4.4

$
1.15


1,893

$
1.09$3.01 - $6.00


62


0.5


3.90


62


3.90$6.01 - $9.00


145


1.2


7.93


145


7.93$9.01 - $12.00














$12.01 - $15.00


50


2.0


12.88


50


12.88$15.01 - $18.71


300


2.2


16.53


240


16.533,098








2,390


F-33

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(10) Stock Options, Stock Grants and Employee Benefit Plans (Continued)

The
following table summarizes the fair value of our stock option activity, including both plan and non-plan options, for non-vested option shares during the year
ended December 31, 2009:

Total

Weighted-
Average
Grant
Date Fair
Value(shares in thousands)Non-vested, beginning of period


737

$
6.49Granted


2,123


0.87Vested


(1,758
)

2.13Expired and forfeited


(395
)

2.70Non-vested, end of period


707

$
2.61


The
total intrinsic value of options exercised is the difference between the exercise price of the option and the closing price of our common stock on the exercise date. No options were
exercised during the years ended December 31, 2009, 2008 or 2007.

The
aggregate intrinsic value of stock options is the difference between our closing stock price on December 31, 2009 and the exercise price multiplied by the number of options.
The majority of our outstanding options, exercisable options and exercisable and expected to vest options had exercise prices greater than the closing price of our common stock at December 31,
2009. As a result, the options had no aggregate intrinsic value at December 31, 2009.

Years Ended December 31,2009

2008

2007(in thousands except
per share amounts)Weighted average per share grant date fair value

$
0.87

$
1.80

$
7.36Total fair value

$
3,747

$
2,912

$
4,816Total unrecognized compensation expense

$
435


Total
unrecognized compensation expense is expected to be recognized over a weighted average period of 1.1 years.



Restricted stock grants to certain executive officers contain accelerated vesting criteria and are more fully described below.
Restricted stock awards to employees under the plans contain either time, time and performance or market vesting criteria. These grants usually vest
over a three to five year period with 20%-33% vesting each year, if the agreed upon performance criteria have been achieved, if applicable.

F-34

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(10) Stock Options, Stock Grants and Employee Benefit Plans (Continued)

The
following table summarizes our restricted stock grant activity for the years ended December 31, 2009, 2008 and 2007:

Years Ended December 31,2009

2008

2007(in thousands)Outstanding, beginning of period


1,729


2,012


2,364Granted


4,253


280


988Vested


(660
)

(400
)

(744
)Expired and forfeited


(530
)

(163
)

(596
)Outstanding, end of the period


4,793


1,729


2,012Outstanding and expected to vest as of December 31, 2009


4,751




Years Ended December 31,2009

2008

2007(in thousands, except
for per share amount)Aggregate intrinsic value outstanding

$1,630

$484

$4,464Aggregate intrinsic value expected to vest

$1,615

$404

$4,355Weighted-average remaining vesting term

2.4 years

3.4 years

3.5 yearsWeighted-average grant date fair value

$0.48

$1.38

$4.46


The
fair value of restricted stock is calculated by multiplying the number of restricted shares by the closing price of our common stock on December 31 of each year. The total
fair value of restricted stock vested during the years ended December 31, 2009, 2008 and 2007 were $558,000, $687,000, and $3.5 million, respectively.

As
of December 31, 2009, total unrecognized compensation expense related to outstanding restricted stock grants is $4.1 million. This expense is expected to be recognized
over a weighted-average period of 2.4 years.

During
the second quarter of 2009, we granted 3.0 million shares of restricted stock to our current Chief Executive Officer. The restricted stock vesting is subject to the
attainment of certain market conditions and assuming continuous employment. All of these restricted shares are considered inducement options as defined by the NYSE Arca and are not issued pursuant to
a plan, as follows:



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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(10) Stock Options, Stock Grants and Employee Benefit Plans (Continued)



Furthermore
during the fourth quarter of 2009, we granted our President and Chief Operating Officer 850,000 shares of restricted stock from one of our plans. The restricted stock vesting
is subject to the attainment of certain market conditions and assuming continuous employment, as follows:



Vesting
of the awards pursuant to the benchmarks above may also occur in the event of a merger or acquisition in which the price per share for our common stock satisfies the above
vesting thresholds. Any unvested portion of the restricted stock award will expire four years from grant date.

During
the fourth quarter of 2005, we granted 2.0 million shares of restricted stock to three of our then-executive officers.

On
July 22, 2009, one of the executive officers referred to above transitioned his officer positions and board seat (s) to our current chief executive officer. As a result,
600,000 of the former officer's shares will fully vest at his election upon satisfaction of any of the following conditions:



Pursuant
to the agreement, we accelerated the vesting of the restricted stock grant and recorded $3.3 million of non-cash compensation for the year ended
December 31, 2009.

On
May 31, 2009, another of the executive officers referred to above retired from his position. Since the restricted shares never vested and were forfeited upon his retirement,
the cumulative non-cash compensation expense recorded since 2005 was reversed in the second quarter of 2009. This reversal of non-cash compensation totaled $2.9 million
for the year ended December 31, 2009.

On
April 19, 2007, we ceased our relationship with the last of the executive officers referred to above. Pursuant to the terms of his employment agreement, he was entitled to
acceleration of vesting

F-36

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(10) Stock Options, Stock Grants and Employee Benefit Plans (Continued)

with
respect to 899,000 of the 1,000,000 shares of unvested common stock he was awarded in connection with his employment, and, as a result, we incurred a one-time $9.8 million
non-cash charge for the year ended December 31, 2007. The 899,000 shares vested on July 18, 2007. The executive officer exercised a right pursuant to his employment agreement
to have shares, which would have otherwise vested, withheld in satisfaction of his income tax liability from this vesting. As a result, we made a one-time cash payment of approximately
$1.6 million to the appropriate taxing authorities related to his taxable income on this transaction. The withholding of
these shares for taxes effectively represents a retirement of these shares and has been reflected as an adjustment to our additional paid-in capital during the year ended
December 31, 2007.



During the third quarter of 2005 the establishment of an Employee Stock Purchase Plan was approved. We have reserved 100,000 shares of
our common stock that are eligible for issuance to employees. Until June 30, 2006, employees were able contribute to the plan, subject to certain maximum contributions, and be eligible for a
discount on the lower of the November 1, 2005 or on June 30, 2006 closing price, the first purchase date pursuant to the plan. After June 30, 2006, our employees are eligible for
monthly purchases at the month end market price less a 15% discount that we contribute for our employees.

(11) Warrants

Associated with various financing and other transactions and professional service agreements, we have issued transferable warrants to purchase common stock, which generally immediately
vest. The following table summarizes the outstanding warrant activity for years ended December 31, 2009, 2008, and 2007:

Year Ended December 31,2009

2008

2007Number of
Potentially
Exercisable
Shares

Number of
Potentially
Exercisable
Shares

Number of
Potentially
Exercisable
Shares(in thousands, except for price per share)Outstanding, beginning of period

7,216

7,296

9,606Granted

9,638



Exercised



(20
)
(1,757
)Expired and cancelled



(60
)
(553
)Outstanding, end of period

16,854

7,216

7,296Expiration

2010-2015

2010

2008-2010Weighted average exercise price per share

$1.75

$2.75

$2.75


The
table above includes warrants further described in Note 8Preferred Stock. In addition to the table above, we have entered into an Advisory Agreement with a third
party dated March 23, 2009. Pursuant to the terms of the agreement, we have agreed to issue, as a success fee warrants to purchase up to 2,500,000 shares of common stock as follows:
(i) 1,250,000 warrants will be issued upon the

F-37

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(11) Warrants (Continued)

execution
of a definitive agreement to construct a plant utilizing our K-Fuel technology, and (ii) 1,250,000 warrants will be issued upon the commencement of the construction of the
plant utilizing our K-Fuel technology. The exercise price of the warrants will be the volume weighted average of the daily per share closing price the common stock for the six month period
ending on the date of the execution of a letter of intent, memorandum of understanding or a public statement which results in a definitive agreement to build a plant. The warrants will be immediately
exercisable and will have a five-year term from the date of grant.

(12) Commitments and Contingencies

Payment Obligations

The following table summarizes our future commitments as of December 31, 2009:

Payments due by period2010

2011

2012

2013

2014

Thereafter

Total(in thousands)Operating leases

$
1,942

$
1,353

$
1,334

$
1,187

$
1,199

$
22,738

$
29,753Short-term debt and purchase commitments


21,100

















21,100Consulting and service commitments


500


500


500


500


500


10,000


12,500Long-term debt


2,190


2,190


28,470











32,850Total commitments

$
25,732

$
4,043

$
30,304

$
1,687

$
1,699

$
32,738

$
96,203


This
table does not include accounts payable, accrued liabilities, or asset retirement obligations, which are reported in our December 31, 2009 Consolidated Balance Sheet. We
generally have not included any obligation in which either party has the right to terminate except as discussed below. Additionally, we have not included K-Fuel royalty payments, as we
cannot presently determine when such payments will be made as such payments are based upon our receipt of cash for licensing and royalties.

We
are obligated under non-cancelable operating leases with initial terms exceeding one year relating to office space. Rent expense for the years ended December 31,
2009, 2008 and 2007 was $1.2 million, $1.1 million, and $784,000, respectively. Additionally, included in operating leases is the rent obligation associated with our former headquarters
totaling $105,000, which we have sub-leased but are not released from the obligation. Furthermore, included in operating leases is a 46-year port dock lease on the Ohio River,
which we have the right to cancel upon six months written notice. If this lease were cancelled as of December 31, 2009, we would be obligated to pay $250,000 rather than the entire obligation
of $23.0 million. This dock lease and the related obligation are included as assets to be sold pursuant to the anticipated sale of Buckeye.

Consulting
and service commitments include an exclusive patent sub-license agreement with the developer of a proprietary technology for the measurement of carbon emissions.
The agreement provides us with an exclusive worldwide sub-license to a technology to standardize the measurement of carbon emissions in energy and agricultural related activities. The
agreement was amended and restated to expand the energy and agricultural activities to all applications of the technology and eliminates other operating requirements. In order to maintain this
licensing arrangement, we are required to make

F-38

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(12) Commitments and Contingencies (Continued)

minimum
annual royalty payments of $500,000 to the developer of the proprietary technology, with each payment extending the arrangement for one year if the parties are in material compliance with the
contract. Additionally, consulting and service commitments includes our amended and restated umbrella agreement with Bechtel. Through this new program management agreement, we committed to provide
Bechtel with $1 billion in construction contracts through 2013. Failure to meet this commitment by 2014 could cost us up to the $10 million in termination fees, which is included in the
above table.

Long-term
debt includes our principal amount due 2012 and the 8% interest payments.

Short-term
debt includes our principal amount, exit fees and accrued interest due upon the earlier of the sale of Buckeye or June 30, 2010. Interest is accrued at 10%
of the principal amount.

While
our former investment banking firm may claim that we owe them up to $1.0 million upon the sale of Buckeye, and, while the previous potential buyer may claim that we owe them
up to an additional $650,000 if we do not sell Buckeye to them, we do not believe that these fees are payable due to the lack of the counterparties meeting certain performance and contractual criteria
in addition to certain verbal understandings reached related thereto. If claims are made for these contingent payments, we intend to vigorously dispute these claims. These potential obligations are
not included in the table above.

Litigation

We are not engaged in any material legal proceedings to which we or any of our subsidiaries are a party.

K-Fuel Royalties and Other Rights

We owe royalty payments to parties related to certain rights that support our patents and our proprietary technology, primarily related
to Mr. Edward Koppelman the inventor of the K-Fuel process. As described in further detail in Note 4Other Assets.

We
have granted certain rights and limited licenses for the use of certain K-Fuel technology. The following is a summary of the significant parties and the
rights:



F-39

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(12) Commitments and Contingencies (Continued)



(13) Segments

Our segments include the GreenCert segment, Plant segment, Mining segment and Technology segment. The GreenCert segment reflects activities related to the measurement of green house
gases and certification of environmental improvements as carbon credits. The Plant segment primarily represents revenue and costs related to our Fort Union plant in Gillette, Wyoming, at which we
suspended operations in March 2008. The Mining segment primarily represents our mining operations of our subsidiary, Buckeye, and includes certain marketing personnel, the ash disposal facility and
the preparation and blending facility. The Technology segment is comprised of all other operations that use, apply, own or otherwise advance our proprietary, patented K-Fuel process,
including our headquarters and related operations, activities of Evergreen Energy Asia Pacific and KFx Technology, LLC, which holds the licenses to our technology. Corporate costs within our
Technology segment are allocated to our other segments, generally on a percentage based on the number of employees, total segment operating expenses, or segment operating expenses plus segment capital
expenditures. Our operations are principally conducted in the United States. Data through segment

F-40

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(13) Segments (Continued)

operating
(loss)/ income is what is provided to our Chief Operating Decision Maker. We will continue to evaluate how we manage our business and, as necessary, adjust our segment reporting accordingly.

For the Year Ended December 31, 2009GreenCert

Plant

Mining

Technology

Total(in thousands)Operating revenues:Mining

$


$


$
50,248

$


$
50,248Consulting and other


423











423Total operating revenue


423





50,248





50,671Operating expenses:Coal mining operating costs








43,458





43,458General and administrative


9,037


642


4,915


14,488


29,082Plant costs





1,554








1,554Total segment operating expense


9,037


2,196


48,373


14,488


74,094Segment operating income (loss)

$
(8,614
)
$
(2,196
)

1,875

$
(14,488
)
$
(23,423
)Total assets

$
7,489

$
2,042

$
34,783

$
30,190

$
74,504Reconciliation to net loss:Total Segment operating loss













$
(23,423
)Depreciation, depletion and amortization














(9,962
)Research and development














(49
)Asset impairments














(20,487
)Other income (expense)














(4,616
)Net loss attributable to noncontrolling interest














1,901Net loss attributable to Evergreen Energy













$
(56,636
)


F-41

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(13) Segments (Continued)



For the Year Ended December 31, 2008GreenCert

Plant

Mining

Technology

Total(in thousands)Operating revenues:Mining

$


$


$
58,434

$


$
58,434K-Fuel refined coal and blended K-Fuel refined coal





463








463Consulting and other


4











4Total operating revenue


4


463


58,434





58,901Operating expenses:Coal mining operating costs








47,799





47,799General and administrative


5,749


3,108


4,582


18,526


31,965Plant costs





17,417





213


17,630Total segment operating expense


5,749


20,525


52,381


18,739


97,394Segment operating income (loss)

$
(5,745
)
$
(20,062
)
$
6,053

$
(18,739
)
$
(38,493
)Total assets

$
5,586

$
2,398

$
55,673

$
37,784

$
101,441Reconciliation to net loss:Total Segment operating loss













$
(38,493
)Depreciation, depletion and amortization














(9,000
)Research and development














(79
)Asset impairments














(18,615
)Other income














957Net loss













$
(65,230
)


F-42

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(13) Segments (Continued)



For the Year Ended December 31, 2007GreenCert

Plant

Mining

Technology

Total(in thousands)Operating revenues:Mining

$


$
36

$
47,326

$


$
47,362K-Fuel refined coal and blended K-Fuel refined coal





1,081




$



1,081Licensing and other





45





169


214Total operating revenue





1,162


47,326


169


48,657Operating expenses:Coal mining operating costs








43,093





43,093General and administrative


2,290


6,166


4,380


30,195


43,031Plant costs





34,720





10


34,730Cost of licensing and other revenue





24





53


77Total segment operating expense


2,290


40,910


47,473


30,258


120,931Segment operating loss

$
(2,290
)
$
(39,748
)
$
(147
)
$
(30,089
)
$
(72,274
)Total assets

$
1,236

$
2,822

$
51,580

$
120,173

$
175,811Reconciliation to net loss:Total Segment operating loss













$
(72,274
)Depreciation, depletion and amortization














(8,383
)Research and development














(876
)Asset impairments














(122,688
)Other income (expense)














(455
)Net loss













$
(204,676
)


F-43

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(14) Income Taxes

Our operations are principally domestic, with income taxable at the federal statutory rate of 34% plus applicable state rates. Deferred tax assets (liabilities) were comprised of the
following:

2009

2008(in thousands)Gross deferred tax assets:Net operating loss carryforwards

$
122,478

$
114,632Depreciation and amortization


36,203


37,246Accrued liabilities


1,237


1,323Stock options and warrants


7,307


6,362Deferred revenue


2,946


2,511Reserve on note receivable


428


469Prepaid expenses


(484
)

(531
)Other


150


Gross deferred tax assets


170,265


162,012Deferred tax assets valuation allowance


(179,261
)

(162,012
)Net deferred tax assets

$


$



We
have recorded a valuation allowance for the full amount of our net deferred asset because, based upon an assessment of both negative and positive evidence, it is more likely than not
that we will not realize such benefits in future tax returns. As of December 31, 2009 our tax return net operating loss carryforwards are approximately $351.8 million expiring in various
amounts including $3.4 million which will expire in 2010. Certain limitations apply to the annual amount of net operating losses that can be used to offset taxable income due to certain
ownership changes, as defined in Section 382 of the Internal Revenue Code. Our tax return net operating loss carryforwards are significant. The tax years in which losses arose may be subject to
audit by the Internal Revenue Service when such carryforwards are utilized to offset taxable income in future periods.

Our
total provision for income taxes in 2009, 2008 and 2007 were different from the amount expected by applying the statutory federal income tax rate to our net loss as reported in our
Consolidated Statement of Operations. The approximate differences are as follows:

2009

2008

2007(in thousands)Expected tax benefit on loss before income taxes (34%)

$
(19,903
)
$
(22,178
)
$
(69,590
)Expected state tax benefit, net





(2,153
)

(6,754
)Stock options and warrant exercises


133


94


5,727Non-deductible items and other


93


(253
)

3,484State deferred tax adjustments


11,424





Increase in valuation allowance


8,253


24,490


67,133$


$


$



F-44

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(15) Related Party Transactions



On December 7, 2006, we entered into a memorandum of understanding and real estate lease with Hills Products Group, Inc, or
Hills Products. Hills Products is owned by Mr. Stanford Adelstein who serves on our Board of Directors. We have leased certain real estate and facilities, including a train load-out
facility, for the sole purpose of trans-loading our K-Fuel refined coal from over-the-road truck into railcars. Prior to the execution of this agreement our
independent Board members approved this transaction. We believe the terms and contracted amounts would be similar if we had entered into this agreement with a third party. Per the agreement, we have
committed to a monthly payment in the amount of $1,500, plus an additional fee based on tonnage of K-Fuel refined coal loaded after agreed upon monthly tonnages are exceeded. During the
years ended December 31, 2008, and 2007, we paid Hills Products Group, Inc $12,000 and $24,000, respectively. As a result of the idling of our Fort Union plant, we terminated this agreement.



We had consulting agreements with Venners & Company, Ltd. for governmental affairs services, primarily for advice on
proposed legislation and regulations and to advocate our interests before the U.S. Congress and regulatory agencies. Venners & Company, Ltd. is controlled by John P. Venners, the brother
of Theodore Venners, our founder. We entered into agreements with Venners & Company for the providing of these services at a fixed monthly fee plus certain performance bonuses. In August 2007,
we terminated one of the agreements and pursuant to the other agreement we were obligated to make payments of $7,500 per month through May 2008 for previous legislative consulting work. In May 2008,
after the final payment, our obligation ceased. During the years ended December 31, 2008 and 2007, we paid Venners & Company $38,000, and $216,000, respectively, in cash for consulting
fees. We did not incur any costs under this consulting agreement during the year ended December 31, 2009.



In February 2007 we entered into an exclusive patent sub-license agreement with the developer of a proprietary technology
for the measurement of carbon emissions and formed a subsidiary, C-Lock Technology, Inc. The agreement provides us with an exclusive worldwide sub-license to a
technology to standardize the measurement of carbon emissions in energy and agricultural related activities. The agreement was amended and restated to expand the energy and agricultural activities to
all applications of the technology and eliminates other operating requirements. In order to maintain this licensing arrangement, we are required to make minimum annual royalty payments of $500,000 to
a company controlled by the developer of the proprietary technology, with each payment extending the arrangement for one year if the parties are in material compliance with the contract.

We
have developed a scientifically accurate, scalable environment intelligence solution that measures greenhouse gases and generates verifiable emissions credits. We utilized Enterprise
Information Management, Inc. (or EIM) to help assist us in the development of our GreenCert software. One of our former non-executive employees serves on the board of directors of
EIM. We believe the terms and contracted amounts would be similar if we had entered into this agreement with a third party. We had incurred costs of $2.3 million, $4.8 million, and
$1.3 million during the years ended December 31, 2009, 2008 and 2007, respectively. On December 9, 2009, we entered into an

F-45

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(15) Related Party Transactions (Continued)

agreement
with EIM to issue an aggregate of 1,543,210 shares of restricted common stock to settle $500,000 of incurred costs owed to EIM at that time.

We
granted shares from our majority owned subsidiary C-Lock Technology, Inc. to certain executive officers of Evergreen Energy, certain employees of C-Lock
Technology, Inc. and others. In the aggregate, these share grants as of December 31, 2009 represent an 8% ownership interest in C-Lock Technology, Inc.



In December 2004, we entered into a licensing agreement with Cook Inlet Coal, an affiliate of Kanturk Partners LLC, under which
we agreed to license to Cook Inlet Coal our proprietary coal processing technology for use at a coal processing plant to be operated by Cook Inlet Coal. Kanturk Partners owns approximately a 12%
interest in Cook Inlet Coal. Mr. John Venners, brother of our founder, Mr. Theodore Venners, has an approximately 4.5% interest in Kanturk Partners. Effective May 1, 2007, the
licensing agreement was assigned to a third party. Effective December 10, 2008, the third party reassigned the licensing agreement to Cook Inlet Coal.



In addition, we are obligated to make licensing and royalty payments to a party related to Theodore Venners, our founder. See further
discussion in Note 5Other Assets and Note 12Commitments and Contingencies.

(16) Financial Statements of Guarantors

The following information sets forth our consolidating statements of operations for the years ended December 31, 2009, 2008 and 2007; our consolidating balance sheets as of
December 31, 2009 and 2008, and our consolidating statements of cash flows for the years ended December 31, 2009, 2008 and 2007. Pursuant to SEC regulations, we have presented in
columnar format the financial information for Evergreen Energy Inc., the issuer of the 2007 Notes, Evergreen Operations, LLC, the guarantor, and all non-guarantor
subsidiaries on a combined basis. The 2007 Notes are fully and unconditionally guaranteed, on a senior, unsecured basis by, Evergreen Operations, LLC. The 2009 Notes are not guaranteed by any
subsidiaries and are reflected in the Evergreen Energy Inc. column. The 2009 Notes were co-issued by Evergreen Energy Inc., our wholly owned subsidiary Evergreen
Operations, LLC and its wholly owned subsidiary, Buckeye Industrial Mining Co. The co-issuers are jointly and severally liable for the debt, and the debt is secured by all of
Buckeye's assets and Evergreen Operations LLC's equity interest in Buckeye.

The
consolidating statements of operations, cash flows, and balance sheets include the effects of elimination of intercompany transactions and balances. Except for Evergreen Energy Asia
Pacific, which is 96% owned by us, and C-Lock Technologies which is 92% owned by us, all of our other subsidiaries are 100% owned. The accounting principles used to determine the amounts
reported in this note are consistent with those used in our consolidated financial statements. Transactions effecting our consolidated stockholders' equity include net loss, exercise of options and
warrants, vesting of restricted stock, issuance of common stock, warrant issuances and debt issue costs. These transactions for all periods relate to our parent, Evergreen Energy Inc. with the
exception of the sale of stock in Evergreen Asia Pacific for $3.6 million in the second quarter of 2007, which is included in the column labeled Other.

F-46

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(16) Financial Statements of Guarantors (Continued)

EVERGREEN ENERGY INC.
CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 2009

Evergreen
Energy Inc.

Evergreen
Operations,
LLC

Other

Eliminations

Evergreen
Energy
Consolidated(in thousands)AssetsCurrent:Cash and cash equivalents

$
2,165

$
5

$
37

$


$
2,207Accounts receivable, net


6


4,604


584





5,194Inventory





1,747








1,747Receivable from Parent 2009 convertible notes





16,022





(16,022
)

Debt issue cost, net of amortization


2,089











2,089Prepaid and other assets


1,343


301


3





1,647Total current assets


5,603


22,679


624


(16,022
)

12,884Property, plant and equipment, net of accumulated depreciation


1,693


14,809


2,158





18,660Construction in progress


9,980


2,360


4,955





17,295Mineral rights and mine development, net of accumulated depletion





9,945








9,945Restricted cash


11,339











11,339Debt issuance costs, net of amortization


994











994Investment in consolidated subsidiaries


(286,147
)







286,147


Due from subsidiaries


306,040








(306,040
)

Other assets


1,385


579


1,423





3,387$
50,887

$
50,372

$
9,160

$
(35,915
)
$
74,504Liabilities and Stockholders' EquityCurrent liabilities:Accounts payable

$
3,235

$
4,068

$
555

$


$
7,858Accrued liabilities


5,725


2,536


568





8,829Short-term debt


16,022


16,022





(16,022
)

16,022Other current liabilities


1,372





550





1,922Total current liabilities


26,354


22,626


1,673


(16,022
)

34,631Long-term debt


27,898











27,898Deferred revenue








8,265





8,265Due to parent





259,450


46,590


(306,040
)

Asset retirement obligations





6,869








6,869Other liabilities, less current portion


2,510


112


94





2,716Total liabilities


56,762


289,057


56,622


(322,062
)

80,379Commitments and contingenciesTemporary Capital


2











2Total equity (deficit)


(5,877
)

(238,685
)

(47,462
)

286,147


(5,877
)$
50,887

$
50,372

$
9,160

$
(35,915
)
$
74,504


F-47

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(16) Financial Statements of Guarantors (Continued)

EVERGREEN ENERGY INC.  CONSOLIDATING BALANCE SHEETS  DECEMBER 31, 2008

Evergreen
Energy Inc.

Evergreen
Operations,
LLC

Other

Eliminations

Evergreen
Energy
Consolidated(in thousands)AssetsCurrent:Cash and cash equivalents

$
6,550

$


$
1,117

$


$
7,667Accounts receivable, net





6,640








6,640Marketable securities














Inventory





958








958Prepaid and other assets


326


350


157





833Total current assets


6,876


7,948


1,274





16,098Property, plant and equipment, net of accumulated depreciation


3,597


23,098


3,270





29,965Construction in progress


10,700


4,603


2,399





17,702Mineral rights and mine development, net of accumulated depletion





18,032








18,032Restricted cash


13,444











13,444Debt issuance costs, net of amortization


1,330











1,330Investment in consolidated subsidiaries


(250,244
)







250,244


Due from subsidiaries


293,767








(293,767
)

Other assets


1,106


492


3,272





4,870$
80,576

$
54,173

$
10,215

$
(43,523
)
$
101,441Liabilities and Stockholders' EquityCurrent liabilities:Accounts payable

$
3,004

$
3,579

$


$


$
6,583Accrued liabilities


3,813


2,308


799





6,920Other current liabilities


182





150





332Total current liabilities


6,999


5,887


949





13,835Long-term debt


28,573











28,573Deferred revenue








6,732





6,732Due to parent





254,964


38,803


(293,767
)

Asset retirement obligations





6,505








6,505Other liabilities, less current portion


1,154


629


163





1,946Total liabilities


36,726


267,985


46,647


(293,767
)

57,591Commitments and contingenciesTotal equity (deficit)


43,850


(213,812
)

(36,432
)

250,244


43,850$
80,576

$
54,173

$
10,215

$
(43,523
)
$
101,441


F-48

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Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(16) Financial Statements of Guarantors (Continued)

EVERGREEN ENERGY INC.  CONSOLIDATING STATEMENTS OF OPERATIONS  DECEMBER 31, 2009

Evergreen
Energy Inc.

Evergreen
Operations,
LLC

Other

Eliminations

Evergreen
Energy
Consolidated(in thousands, except per share amounts)Operating revenues:Mining

$


$
50,248

$


$


$
50,248Consulting and other








423





423Total operating revenue





50,248


423





50,671Operating expenses:Coal mining operating costs


613


42,845








43,458General and administrative


13,516


5,557


10,009





29,082Plant costs





1,554








1,554Depreciation, depletion and amortization


1,226


7,544


1,192





9,962Research and development








49





49Asset impairments


2,217


18,270








20,487Total operating expenses


17,572


75,770


11,250





104,592Operating loss


(17,572
)

(25,522
)

(10,827
)




(53,921
)Other income (expense):Gain on equity exchange transactions


167











167Interest income


40





25





65Interest expense


(7,645
)










(7,645
)Other (expense) income, net


2,558


344


(105
)




2,797Total other (expense) income


(4,880
)

344


(80
)




(4,616
)Equity in loss of subsidiaries


(36,085
)







36,085


Net loss


(58,537
)

(25,178
)

(10,907
)

36,085


(58,537
)Less: net loss attributable to noncontrolling interest











1,901


1,901Net loss attributable to Evergreen Energy

$
(58,537
)
$
(25,178
)
$
(10,907
)
$
37,986

$
(56,636
)


F-49

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(16) Financial Statements of Guarantors (Continued)

EVERGREEN ENERGY INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
DECEMBER 31, 2008

Evergreen
Energy Inc.

Evergreen
Operations,
LLC

Other

Eliminations

Evergreen
Energy
Consolidated(in thousands, except per share amounts)Operating revenues:Mining

$


$
58,434

$


$


$
58,434K-Fuel refined coal and blended K-Fuel refined coal





463








463Consulting and other








4





4Intercompany Consulting and other





171





(171
)

Total operating revenue





59,068


4


(171
)

58,901Operating expenses:Coal mining operating costs


617


47,182








47,799General and administrative


16,978


7,690


7,297





31,965Plant costs





17,417


213





17,630Depreciation, depletion and amortization


1,537


7,079


384





9,000Research and development








79





79Cost of licensing and other revenue














Cost of intercompany consulting and other revenue





171





(171
)

Asset impairments


18,615











18,615Total operating expenses


37,747


79,539


7,973


(171
)

125,088Operating loss


(37,747
)

(20,471
)

(7,969
)




(66,187
)Other income (expense):Gain on equity exchange transactions


6,138











6,138Interest income


1,128





123





1,251Interest expense


(6,132
)










(6,132
)Other (expense) income, net


(1,329
)

976


53





(300
)Total other (expense) income


(195
)

976


176





957Equity in loss of subsidiaries


(27,288
)







27,288


Net loss

$
(65,230
)
$
(19,495
)
$
(7,793
)
$
27,288

$
(65,230
)


F-50

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(16) Financial Statements of Guarantors (Continued)

EVERGREEN ENERGY INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
DECEMBER 31, 2007

Evergreen
Energy Inc.

Evergreen
Operations,
LLC

Other

Eliminations

Evergreen
Energy
Consolidated(in thousands, except per share amounts)Operating revenues:Mining

$


$
47,362

$


$


$
47,362K-Fuel refined coal and blended K-Fuel refined coal





1,081








1,081Consulting and other





45


169





214Intercompany consulting and other





161





(161
)

Total operating revenue





48,649


169


(161
)

48,657Operating expenses:Coal mining operating costs


716


42,377








43,093General and administrative


28,293


10,546


4,192





43,031Plant costs





34,720


10





34,730Depreciation, depletion and amortization


1,139


7,199


45





8,383Research and development








876





876Cost of licensing and other revenue





24


53





77Cost of intercompany consulting and other





161





(161
)

Asset impairments


11,508


111,180








122,688Total operating expenses


41,656


206,207


5,176


(161
)

252,878Operating loss


(41,656
)

(157,558
)

(5,007
)




(204,221
)Other income (expense):Interest income


4,230





118





4,348Interest expense


(3,429
)

(4
)







(3,433
)Other (expense) income, net


(1,729
)

335


24





(1,370
)Total (expense) other income


(928
)

331


142





(455
)Equity in loss of subsidiaries


(162,092
)







162,092


Net loss

$
(204,676
)
$
(157,227
)
$
(4,865
)
$
162,092

$
(204,676
)


F-51

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(16) Financial Statements of Guarantors (Continued)

EVERGREEN ENERGY INC.
CONSOLIDATING STATEMENTS OF CASH FLOW
DECEMBER 31, 2009

Evergreen
Energy Inc.

Evergreen
Operations,
LLC

Other

Eliminations

Evergreen
Energy
Consolidated(in thousands)Cash used in operating activities


(10,450
)

3,307


(5,765
)




(12,908
)Investing activities:Purchases of construction in progress


(1,151
)

(6,770
)

(3,097
)




(11,018
)Purchases of property, plant and equipment


(3
)

(695
)

(75
)




(773
)Purchases of mineral rights and mine development





(557
)







(557
)Proceeds from the sale of assets


33


147








180Proceeds from maturities of marketable securities








2,000





2,000Restricted cash and marketable securities, net


905











905Other


(421
)










(421
)Cash used in investing activities


(637
)

(7,875
)

(1,172
)




(9,684
)Financing Activities:Payments to parent/subsidiaries


(64,925
)

(52,495
)

(2,000
)

119,420


Advances /from parent/subsidiaries


54,495


57,068


7,857


(119,420
)

Proceeds from issuance of convertible debt


15,000











15,000Proceeds from issuance of convertible preferred stock


6,515











6,515Proceeds from reverse repurchase transaction


1,800











1,800Payments on reverse repurchase transaction


(1,800
)










(1,800
)Payment of dividends from preferred stock conversion


(1,973
)










(1,973
)Payment of debt issuance costs


(2,387
)










(2,387
)Other


(23
)










(23
)Cash provided by financing activities


6,702


4,573


5,857





17,132Increase (decrease) in cash and cash equivalents


(4,385
)

5


(1,080
)




(5,460
)Cash and cash equivalents, beginning of year


6,550





1,117





7,667Cash and cash equivalents, end of year

$
2,165

$
5

$
37

$


$
2,207


F-52

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(16) Financial Statements of Guarantors (Continued)

EVERGREEN ENERGY INC.
CONSOLIDATING STATEMENTS OF CASH FLOW
DECEMBER 31, 2008

Evergreen
Energy Inc.

Evergreen
Operations,
LLC

Other

Eliminations

Evergreen
Energy
Consolidated(in thousands)Cash used in operating activities


(19,108
)

(10,556
)

(6,599
)




(36,263
)Investing activities:Purchases of construction in progress


(4,720
)

(6,534
)

(3,651
)




(14,905
)Purchases of property, plant and equipment


(161
)

(1,674
)

(47
)




(1,882
)Proceeds from the sale of assets





13








13Purchase of marketable securities


(5,000
)










(5,000
)Proceeds from maturities of marketable securities


27,500











27,500Restricted cash and marketable securities, net


14,974











14,974Other


(76
)










(76
)Cash provided by (used in) investing activities


32,517


(8,195
)

(3,698
)




20,624Financing Activities:Payments to parent/subsidiaries


(90,003
)

(61,794
)

(150
)

151,947


Payments on debt for equity exchange transactions


(3,500
)










(3,500
)Advances /from parent/subsidiaries


61,602


80,545


9,800


(151,947
)

Proceeds from exercise of options and warrants


55











55Payment debt issue cost


(200
)










(200
)Other


(7
)










(7
)Cash (used in) provided by financing activities


(32,053
)

18,751


9,650





(3,652
)Increase (decrease) in cash and cash equivalents


(18,644
)




(647
)




(19,291
)Cash and cash equivalents, beginning of year


25,194





1,764





26,958Cash and cash equivalents, end of year

$
6,550

$


$
1,117

$


$
7,667


F-53

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(16) Financial Statements of Guarantors (Continued)

EVERGREEN ENERGY INC.
CONSOLIDATING STATEMENTS OF CASH FLOW
DECEMBER 31, 2007

Evergreen
Energy Inc.

Evergreen
Operations,
LLC

Other

Eliminations

Evergreen
Energy
Consolidated(in thousands)Cash used in operating activities


(8,227
)

(38,342
)

(5,012
)




(51,581
)Investing activities:Purchases of construction in progress


(22,180
)

(26,560
)

(623
)




(49,363
)Purchases of property, plant and equipment


(2,725
)

(981
)

(390
)




(4,096
)Proceeds from the sale of assets


18


916








934Purchase of marketable securities


(72,613
)




(2,000
)




(74,613
)Proceeds from maturities of marketable securities


101,672











101,672Restricted cash and marketable securities


(24,508
)

(220
)







(24,728
)Other


(42
)










(42
)Cash used in investing activities


(20,378
)

(26,845
)

(3,013
)




(50,236
)Financing Activities:Payments to parent/subsidiaries


(124,075
)

(52,884
)




176,959


Proceeds from issuance of convertible debt


95,000











95,000Advances /from parent/subsidiaries


52,884


118,138


5,937


(176,959
)

Proceeds from exercise of options and warrants


4,853











4,853Proceeds from sale of stock in subsidiary, net of offering costs








3,715





3,715Payments of debt issuance costs


(5,785
)










(5,785
)Payment of payroll tax liability in exchange for common stock


(1,641
)










(1,641
)Other


(18
)

(67
)







(85
)Cash provided by financing activities


21,218


65,187


9,652





96,057Increase (decrease) in cash and cash equivalents


(7,387
)




1,627





(5,760
)Cash and cash equivalents, beginning of year


32,581





137





32,718Cash and cash equivalents, end of year

$
25,194

$


$
1,764

$


$
26,958


F-54

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(17) Selected Quarterly Financial Data (Unaudited)

The following table presents selected unaudited quarterly financial data for the years ended December 31, 2009 and 2008:

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

Total(in thousands, except per share amounts)2009Revenues

$
17,845

$
13,865

$
9,242

$
9,719

$
50,671Operating loss


(6,996
)

(7,367
)

(12,617
)

(26,941
)

(53,921
)Net loss


(6,854
)

(8,759
)

(14,850
)

(28,074
)

(58,537
)Basic and diluted net loss per common share


(0.05
)

(0.06
)

(0.11
)

(0.24
)

(0.46
)2008Revenues

$
12,033

$
16,088

$
14,045

$
16,735

$
58,901Operating loss


(20,656
)

(10,113
)

(10,622
)

(24,796
)

(66,187
)Net loss


(22,389
)

(10,479
)

(6,604
)

(25,758
)

(65,230
)Basic and diluted net loss per common share


(0.27
)

(0.13
)

(0.08
)

(0.24
)

(0.72
)


Fourth Quarter 2009 Discussion

We incurred $20.5 million of impairment charges during the fourth quarter. In addition, we recorded a $2.1 million gain
related to the fair value adjustment to our embedded derivatives and put warrant liability.

Fourth Quarter 2008 Discussion

We incurred $18.6 million of impairment charges during the fourth quarter.

(18) Subsequent events

On March 16, 2010, we and certain institutional investors entered into a securities purchase agreement, pursuant to which we agreed to sell an aggregate of 9,312.5 shares of our
preferred stock and warrants to purchase 12,500,000 shares of its common stock to such investors for gross proceeds of approximately $9.3 million.

Each
share of preferred stock has a stated value of $1,000 per share. The preferred stock is convertible into the number of shares of common stock, $.001 par value determined by dividing
the stated value of the preferred stock by the conversion price per share of is $.3725. The conversion price is subject to certain adjustments for stock splits, stock dividends, combinations of shares
and similar recapitalization transactions. The preferred stock accrues dividends at the rate of 9.261% per annum, payable semi-annually on June 30 and December 31, commencing
on June 30, 2010 and on each conversion date until March 16, 2015. The Certificate of Designation includes a provision under which we have deposited with an escrow agent $4,312,500 of
the gross proceeds of the offering. If the preferred stock is converted prior to March 16, 2015, the escrow amount will be used to pay to the holder, upon conversion, an amount equal to $463.09
per $1,000 of stated value converted, less the amount of dividends paid prior to the conversion date. Subject to certain ownership limitations, the warrants are immediately exercisable for a five year
period thereafter after closing at an exercise price

F-55

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2009, 2008 and 2007

(18) Subsequent events (Continued)

of
$.31 per share. The exercise price of the warrants is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions.

The
net proceeds from the above registered direct public offering, after deducting placement agent fees and the our estimated offering expenses, and excluding the proceeds, if any, from
the exercise of the warrants issued in the offering, are approximately $5.0 million.

On
March 12, 2010, we signed a definitive agreement with Rosebud Mining Company for the sale of certain net assets of both Buckeye and Evergreen for $27.9 million, in
addition to the release of $5.0 million of cash reclamation bonds. Further, $2.8 million of the purchase price will be deposited into escrow for a period of twelve months to cover
amounts payable to Rosebud pursuant to the indemnification provision of the sales agreement. The transaction is subject to customary closing conditions and the completion by Rosebud of due diligence.
The closing is not subject to a financing condition, but is subject to the satisfaction of customary closing conditions, including, among other matters, (i) accuracy of the representations and
warranties and compliance with the covenants set forth in the agreement, each in all material respects, (ii) receipt of legally required regulatory approvals, and (iii) consents of
certain governmental authorities and certain of Buckeye's specified contractual counterparties. The sale is expected to close in April 2010, but in any event no later than June 30, 2010.

On
January 26, 2010, we consummated a registered direct public offering and raised gross proceeds of approximately $8.7 million. The securities were offered pursuant to a
shelf registration statement on Form S-3 that was previously declared effective by the Securities and Exchange Commission (SEC) on January 19, 2010. In total, we sold an
aggregate of 29,236,664 shares of our common stock and warrants to purchase 14,618,331 shares of its common stock. The common stock and warrants were sold in units, with each unit consisting of one
share of common stock and a warrant to purchase 0.50 of a share of common stock. The purchase price per unit is $.30. Subject to certain ownership limitations, the warrants are exercisable commencing
six months following the closing date of the offering and for a five year period thereafter at an exercise price of $0.3859. The exercise price of the warrants is subject to adjustment in the case of
stock splits, stock dividends, combinations of shares and similar recapitalization transactions.

The
net proceeds to us from this registered direct public offering, after deducting placement agent fees and our estimated offering expenses, and excluding the proceeds, if any, from the
exercise of the warrants issued in the offering, are approximately $8.0 million.

F-56

---