UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
FORELAND CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 87-0422812
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12596 W. BAYAUD AVENUE
SUITE 300, LAKEWOOD, COLORADO 80228
(Address of principal executive offices) (Zip Code)
(303) 988-3122
(Registrant's Telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [x] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
As of November 11, 1996, the Company had outstanding 7,238,177 shares of
its common stock, par value $0.001 per share.
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated condensed financial statements included herein have been
prepared by Foreland Corporation (the "Company"), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. However, in the opinion of management, all adjustments
(which include only normal recurring accruals) necessary to present fairly the
financial position and results of operations for the periods presented have been
made. These consolidated condensed financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1995.
During the quarter ended June 30, 1996, the Company effected, as of June
15, 1996, a 3-for-1 reverse stock split of its common stock, par value $0.001
per share (the "Common Stock"). Unless otherwise indicated, all share and per
share amounts relating to the Common Stock have been adjusted to give effect to
the reverse stock split.
Certain reclassifications have been made to conform the 1995 financial
statements to the presentations of the 1996 financial statements. The
reclassifications had no effect on net income.
FORELAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
Sept. 30, 1996 Dec. 31, 1995
-------------- -------------
ASSETS
Current assets:
Cash .......................................$ 476,371 $ 30,490
Short-term cash investments................. 1,846,225 --
Accounts receivable - trade................. 525,857 438,058
Advances to officer......................... 469 7,212
Inventory................................... 90,821 81,382
Prepaid expenses and other.................. -- 2,586
--------- ---------
Total current assets.................. 2,939,743 559,728
Property and equipment, at cost:
Oil and gas properties, under the
successful efforts method................ 8,311,055 6,874,635
Other property and equipment................ 319,121 299,161
--------- ---------
8,630,176 7,173,796
Less accumulated depreciation,
depletion, and amortization.............. (3,367,793) (2,363,211)
--------- ----------
Total property and equipment 5,262,383 4,810,585
Other assets................................... 130,874 230,785
--------- ---------
Total assets................................... $8,333,000 $5,601,098
========== =========
See accompanying notes to these consolidated financial statements.
<PAGE>
FORELAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
Sept. 30, 1996 Dec. 31, 1995
-------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses....... $ 968,407 $ 1,642,537
Officers' salaries payable.................. 414,239 392,462
Oil and gas sales payable................... 88,778 125,899
Current portion of long-term debt.......... 4,684 404,237
--------- ---------
Total current liabilities............. 1,476,108 2,565,135
Long-term debt................................. 19,539 23,091
Stockholders' Equity:
Preferred Stock, $0.001 par value,
5,000,000 shares authorized.
1991 Convertible Preferred Stock,
40,000 and 40,000 shares issued
and outstanding, respectively,
liquidation preference $1.25
per share............................. 40 40
1994 Convertible Preferred Stock,
177,140 and 433,686 shares issued
and outstanding, respectively,
liquidation preference $2.00
per share............................. 177 434
1995 Convertible Preferred Stock,
713,334 and 1,015,334 shares issued
and outstanding, respectively,
liquidation preference $1.50
per share ............................. 713 1,015
1996 Series 6% Convertible Preferred Stock,
25 and 25 shares issued
and outstanding, respectively,
liquidation preference $1,000
per share............................ -- --
Common Stock, $0.001 par value,
50,000,000 shares authorized;
7,003,055 and 4,828,786 shares issued
and outstanding, respectively........ 7,003 4,829
Additional paid-in capital.................. 28,673,875 23,311,518
Less note and stock subscriptions receivable-
collateralized by
salaries payable......................... (266,679) (247,470)
stock held by Company ................... (877,755) (845,152)
Accumulated deficit........................ (20,700,021) (19,212,342)
--------- ---------
Total stockholders' equity............ 6,837,353 3,012,872
--------- ---------
Total liabilities and stockholders' equity..... $8,333,000 $5,601,098
========== ==========
See accompanying notes to these consolidated financial statements.
FORELAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
------------------------ --------------------------
1996 1995 1996 1995
----------- ----------- ------------ ------------
REVENUES:
Oil and gas sales....... $531,981 $243,042 $ 1,196,732 $719,024
Operator and well
service income....... 20,084 20,516 43,495 48,789
Other income, net....... 3,474 7,474 7,880 9,330
----------- ----------- ------------ ------------
Total revenues.... 555,539 271,032 1,248,107 777,143
EXPENSES:
Oil and gas production.. 139,755 111,856 369,646 314,431
Oil and gas exploration. 194,643 150,659 517,624 485,364
Well service costs...... 2,079 2,451 2,882 3,041
Dry hole and abandonment
costs................ -- 15,807 443,830 243,213
General and
administrative....... 119,284 182,103 367,789 438,574
Shareholder-investor
services............. 52,741 8,993 361,190 197,625
Compensation, below market
options............ 5,500 -- 5,500 --
Depreciation, depletion,
and amortization..... 185,186 107,610 574,681 322,822
----------- ----------- ------------ ------------
Total expenses.... 699,188 579,479 2,643,142 2,005,070
----------- ----------- ------------ ------------
OPERATING LOSS............. $(143,649) $ (308,447) $(1,395,035) $(1,227,927)
OTHER INCOME (EXPENSE)
Interest income......... 46,802 41,103 102,224 109,935
Interest expense........ (11,242) (30,418) (133,733) (91,029)
----------- ----------- ------------ ------------
NET LOSS .................$ (108,089) $ (297,762) $(1,426,544) $(1,209,021)
----------- ----------- ------------ ------------
Preferred stock dividends:
Declared................ (61,137) -- (61,137) --
Accrued ................ 24,136 -- (797) --
Imputed ................ (69,196) -- (1,168,432) --
----------- ----------- ------------ ------------
Total preferred stock
dividend............. (106,197) -- (1,230,366) --
----------- ----------- ------------ ------------
Net loss applicable to common
shareholders............ $(214,286) $ (297,762) $(2,656,910) $(1,209,021)
=========== =========== ============ ============
NET LOSS PER COMMON
SHARE................... $ (0.04) $ (0.06) $ (0.50) $ (0.26)
=========== =========== ============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING............. 5,999,699 4,746,040 5,265,225 4,717,455
=========== =========== ============ ============
See accompanying notes to these consolidated financial statements.
<PAGE>
FORELAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended Sept. 30,
1996 1995
----------- -----------
Cash flow from operating activities:
Net loss....................................... $(1,426,544) $(1,209,021)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation, depletion, and amortization...... 574,681 322,822
Dry hole, abandonment and impairment costs..... 443,830 243,213
Issuance of stock for services................. -- 82,188
Accrued note receivable interest income........ (76,847) (94,057)
Amortization of loan origination fee........... 24,583 32,792
Below market stock options..................... 5,500 --
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable...................... (87,799) 537,122
Advances to officer...................... 6,742 (484)
Inventory...................................... (9,439) 10,174
Prepaids and other....................... 54,989 (72,748)
Increase (decrease) in:
Accounts payable......................... (711,251) 486,596
Salaries payable......................... 21,777 27,819
----------- -----------
Net cash (used in) provided by operating
activities............................ (1,179,778) 366,416
Cash flows from investing activities:
Proceeds from sale of marketable securities.... 196,700 --
Purchase of marketable securities ............. (2,020,000) --
Additions to oil and gas properties............ (1,415,433) (1,370,703)
Purchase of other property..................... (19,960) (7,566)
----------- -----------
Net cash (used in) provided by
investing activities.................. (3,258,693) (1,378,269)
Cash flows from financing activities:
Proceeds from sale of stock, net............... 4,203,508 1,383,554
Proceeds from exercise of warrants and options. 1,080,349 --
Receipt of note receivable for stock........... 3,600 --
Payment of long-term debt...................... (403,105) --
----------- -----------
Net cash provided by
financing activities............... 4,884,352 1,383,554
----------- -----------
Increase (decrease) in cash and cash equivalents.. 445,881 (371,701)
Cash and cash equivalents, beginning of year...... 30,490 93,715
----------- -----------
Cash and cash equivalents, end of period.......... $ 476,371 $ 465,416
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest......................... $ 42,766 $ 20,599
=========== ===========
Non-cash investing and financing activities.... $ 76,890 $ 94,057
=========== ===========
See accompanying notes to these consolidated financial statements.
<PAGE>
FORELAND CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. OIL AND GAS PROPERTIES:
With the Company's continuous leasing program since 1986, it has
established what management believes is one of the best property positions in
Nevada. The Company's leasing program is coordinated with prospect generation
and explorations results. As areas of interest are identified, the Company
attempts to acquire leases or other exploration rights on what preliminary
appears to be the most promising prospect areas in order to establish a
preemptive lease position prior to generating a specific drilling prospect. As
specific prospect evaluation advances, the Company may seek leases on additional
areas or relinquish leases on areas that appear less promising, thereby reducing
leasehold costs. The Company currently has approximately 144,100 gross acres
under lease in addition to the exclusive rights to develop and market prospects
on approximately 434,000 gross acres of mineral lands owned by Parker and
Parsley.
2. ISSUANCE OF SECURITIES, COMMON STOCK OPTIONS, AND PURCHASE WARRANTS.
On June 7, 1996, the Company announced a 3-for-1 reverse split of its
Common Stock effective June 15, 1996. Unless otherwise indicated, all share and
per share amounts relating to the Common Stock have been adjusted to give effect
to the reverse stock split.
During the three quarters ended September 30, 1996, the holders of 256,546
shares of the Company's 1994 Preferred Stock converted such preferred stock into
85,517 shares of Common Stock. The conversion of these shares, together with
previously converted shares through December 31, 1995, reduced the number of
shares of 1994 Preferred Stock issued and outstanding from 1,242,210 originally
issued to 177,140 (convertible into approximately 59,047 shares of Common Stock)
as of September 30, 1996.
Also during the three quarters ended September 30, 1996, holders of 302,000
shares of the Company's 1995 Preferred Stock converted such shares into 100,667
shares of Common Stock. The conversion of these shares reduced the number of
shares of 1995 Preferred Stock issued and outstanding from 1,015,334 originally
issued to 713,334 (convertible into approximately 237,778 shares of Common
Stock) as of September 30, 1996.
During the quarter ended March 31, 1996, the Company received aggregate net
proceeds of approximately $448,000 from the issuance of preferred stock which,
with accrued dividends, was converted during the quarter ended September 30,
1996, into an aggregate of 197,945 shares of Common Stock, for an equivalent
weighted average price of $2.20 per share of Common Stock. The 12.5 shares of
such preferred stock remaining outstanding, with an aggregate liquidation
preference of $12,500, are convertible into Common Stock at a price per share
that is the lesser of $4.50 or 75% of the Common Stock trading price per share
at the time of conversion.
During the quarter ended June 30, 1996, the Company received aggregate net
proceeds of approximately $1,252,000 from the issuance of preferred stock which,
with accrued dividends, was converted during the quarter ended September 30,
1996, into an aggregate of 708,590 shares of Common Stock, for an equivalent
weighted average price of $1.77 per shares of Common Stock. During the second
quarter, the Company issued to an unaffiliated company engaged to provide
shareholder and investor relations services options to purchase an aggregate of
166,667 shares of Common Stock at prices ranging from $3.45 per share to $6.90
per share.
During the quarter ended September 30, 1996, the Company received aggregate
net proceeds of approximately $2,509,000 from the issuance of preferred stock
which, with accrued dividends, was converted during the quarter into an
aggregate of 815,936 shares of Common Stock, for an equivalent weighted average
price of $3.07 per share of Common Stock. During the third quarter, the Company
issued to an unaffiliated investor relations advisor additional options to
purchase an aggregate of 266,667 shares of Common Stock at prices ranging from
$4.14 to $6.90 per share. Also during the third quarter, the Company received
net proceeds of approximately $1,012,000 from the exercise of outstanding
options held by an investor relations advisor to purchase an aggregate of
233,000 shares of Common Stock for a weighted average exercise price per share
of $4.34.
For the three and nine month periods ending September 30, 1996, the
Company, in its earnings per shares calculations of the consolidated statement
of operations, calculated accrued and declared preferred stock dividends of
$37,001 and $61,934, respectively, and imputed stock dividends of $69,196 and
$1,168,432 respectively, as a result of convertibility of its outstanding
preferred stock into Common Stock at below-market prices. These amounts are for
earnings per share calculations and are not recorded in the Company's financial
statements.
All warrants associated with the $400,000 loan from an unrelated third
party in April 1994, as renegotiated in April 1995, expired according to their
terms, as of July 3, 1996.
During the quarter ended September 30, 1996, the Company granted to its
executive officers and certain employees options to purchase an aggregate of
488,000 shares of Common Stock at an exercise price of $4.00 per share, the
market price for the Common Stock at the time of grant, as follows: 100,000
shares each to Grant Steele, N. Thomas Steele, Kenneth L. Ransom, and Bruce C.
Decker, and 8,000 each to nine employees. The options granted to the executive
officers are exercisable immediately and expire five years from the date of
grant. The options granted to the other employees vest one-quarter immediately
and one-quarter on each of the three following anniversary dates of the date of
grant and expire seven years from the date of the vesting.
In September 1996, the Company entered into executive employment agreements
with its executive officers (see "Note 3. Related Party Transactions"), which
provide for the grant to each executive officer additional options to purchase
200,000 shares of Common Stock at an exercise price of $5.00 per share, the
market price for the Common Stock at the time of grant. Such options vest one-
quarter immediately and one-quarter on each of the three following anniversary
dates of the date of the agreements and expire seven years from the date of
vesting.
During the third quarter, the Company received $68,000 from the exercise of
outstanding warrants to purchase 27,123 shares of Common Stock and related
warrants, which subsequently expired, for an effective price of $2.52 per share,
without ascribing any value to the expired warrants.
3. RELATED PARTY TRANSACTIONS:
The Company owed $414,239 in salaries and interest to its officers and
directors at September 30, 1996.
At September 30, 1996, $266,679, including accrued interest, was due under
notes from one present and one former officer to provide funds to purchase
Common Stock from the Company (which are included as a reduction of stockholders
equity in the accompanying financial statements). The Company has agreed not to
seek payment of such notes until back salaries owed these individuals (totaling
$278,695 at September 30, 1996) are paid.
Pursuant to the recently executed employment agreements with Grant Steele,
N. Thomas Steele, Kenneth L. Ransom ($300,000 each) and Bruce C. Decker
($56,000), the second and third installments due under promissory notes
delivered in September 1994 in connection with the exercise of stock purchase
options were each deferred for one year to September 1997 and September 1998.
In September 1996, Dennis Gustafson returned 3,118 shares of his stock in
satisfaction of an installment of principal and interest on his $56,250 note.
In September 1996, the Company entered into executive employment agreements
with its executive officers. Among other things, such agreements provide for a
$48,000 increase in each executive officer's annual salary at such time as
sustained oil production reaches 1,000 barrels per day. These agreements also
provide for the grant of options, as discussed above in Note 2. The board has
also approved the payment of $2,000 per month to each of the Company's
directors, whether or not such director is also then an employee of the Company.
4. INCOME TAXES:
The Company adopted the liability method of accounting for income taxes as
prescribed by Statement of Financial Accounting Standards No. 109 (SFAS 109)
effective January 1993. Financial statements of prior years have not been
restated to apply the new method retroactively. The change in accounting method
had no effect on the net loss for 1993 or prior years.
The Company has had no taxable income under federal and state tax laws due
to operating losses since its inception; therefore, no provision for income
taxes has been made. At December 31, 1995, the Company has unused net operating
loss carry-forwards of approximately $19,700,000.
5. SUBSEQUENT EVENTS:
Subsequent to September 30, 1996, the Company received $817,000 from the
exercise of outstanding options and warrants to purchase 185,477 shares of
Common Stock and related warrants to purchase 60,477 shares of Common Stock,
which subsequently expired, for a weighted average effective price of $4.40 per
share, without ascribing any value to the expired warrants.
Subsequent to September 30, 1996, the holders of 12,000 shares of the
Company's 1994 Preferred Stock converted such preferred stock into 4,000 shares
of Common Stock and holders of 100,000 shares of the Company's 1995 Preferred
Stock converted such shares into 33,333 shares of Common Stock. Also subsequent
to September 30, 1996, the holders of 12.5 shares of 1996 Preferred Stock
converted such preferred stock into 3,137 shares of Common Stock and received 58
shares of Common Stock as dividends on such converted 1996 Preferred Stock.
In October 1996, First Geneva Holdings, Inc., exercised warrants it had
received in connection with the offer of the 1996 Preferred Stock to purchase
9,117 shares of Common Stock at $4.50 per share.
In November 1996, the Company established a credit facility with Colorado
National Bank, Denver, Colorado for a total loan amount of $10,000,000, with the
committment amount (the maximum amount that can be outstanding at any one time)
determined twice yearly by the bank based on its analysis of the Company's cash
flows and proved producing reserves. The initial commitment amount is
$2,000,000. Amounts due under this credit facility are secured by the Company's
Eagle Springs field.
In November 1996, the Company purchased from Plains Petroleum Operating
Company, a wholly-owned subsidiary of Barrett Resources, their 40% working
interest in the Eagle Springs field as of August 1, 1996, for $2,500,000 with
adjustments for oil sales, oil inventory, operating expenses, and accrued unpaid
property and production taxes after that date. Expected closing will be in mid
November 1996.
In November 1996, the Company offered a minimum of 200 and a maximum of 500
shares of 1996-4 Series Preferred Stock ("1996-4 Preferred Stock"). As of the
date hereof, the Company has issued 230 shares of 1996-4 Preferred Stock for net
proceeds of $2,097,600. The 1996 Preferred Stock becomes convertible beginning
four months after the last closing date and continuing at the rate of 15% of the
aggregate number of shares issued each month thereafter; provided, that, until
the date that is 10 months after the last closing date, no more than 20% of the
aggregate number of shares may be converted during any 30-day period. Subject
to the Company's right to redeem the 1996-4 Preferred Stock, each share of 1996-
4 Preferred Stock is convertible into that number of shares of Common Stock as
determined by dividing $10,000, plus an accretion at 8% per annum, by the lesser
of $7.50 or a percentage of the average closing bid price of the Common Stock as
reported by the Nasdaq Small Cap Market ("Nasdaq") for the five trading days
immediately preceding the date of conversion. The percentage to be applied to
the average closing bid price is 90% if the conversion occurs more than four
months but less than six months after the last closing, 85% if the conversion
occurs more than six months but less than twelve months after the last closing,
and 82.5% if the conversion occurs more than twelve months after the last
closing. Each share of 1996-4 Preferred Stock shall be automatically converted
into shares of Common Stock on the date that is two years after the last closing
date. The Company will issue to each holder of 1996-4 Preferred Stock who
converts his or her shares more than twelve months after the last closing date a
warrant to purchase the number of shares of Common Stock determined by dividing
the liquidation preference of the shares converted by the warrant exercise
price, which shall be $9.00 on the date that is twelve months after the last
closing date and shall decrease ratably to $7.50 on the date that is 24 months
after the last closing date. The 1996-4 Preferred Stock has a liquidation
preference of $10,000 per share. The placement agent for the 1996-4 Preferred
Stock will receive warrants to purchase up to 46,667 shares of Common Stock,
depending on the aggregate number of shares of 1996-4 Preferred Stock sold, at
an exercise price of $7.50 per share, subject to adjustment in certain
circumstances based on the market price of the Common Stock at each anniversary
date of the date of issuance of the warrants. The Company has agreed to file a
registration statement on or before December 31, 1996, to register the resale of
the Common Stock issuable on conversion of the 1996-4 Preferred Stock, the
Common Stock issuable on exercise of the warrants issuable on such conversion,
and the Common Stock issuable to the placement agent on exercise of the
placement agent warrants, and is subject to certain penalties if the
registration statement is not effective on or before the date that is four
months after the last closing date.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CAUTION RESPECTING FORWARD-LOOKING INFORMATION
This report contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of management as well as
assumptions made by and information currently available to management. When
used in this document, the words "anticipate," believe," "estimate," expect,"
and "intend" and similar expressions, as they relate to the Company or its
management, are intended to identify forward-looking statements. Such
statements reflect the current view of the Company respecting future events and
are subject to certain risks, uncertainties, and assumptions, including the
risks and uncertainties noted. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated, expected, or intended.
OVERVIEW
This discussion should be read in conjunction with Management's Discussion
and Analysis of Financial Conditions and Results of Operations in the Company's
annual report on Form 10-K for the year ended December 31, 1995.
Foreland Corporation was organized in June 1985 to advance an exploration
project in the Great Basin and Range geologic province in Nevada that had been
initiated by Gulf Oil Corporation. To date, the Company has funded its
exploration program principally from the sale of its equity securities. The
Company also benefits from capital provided by oil industry participants for
drilling and other exploration of certain oil prospects through joint
arrangements typical in the oil industry.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations during the first nine months of 1996 used cash of
$1,179,800 when the Company reported a net loss of $1,426,000, which resulted in
part to non-cash charges against the Company's revenues, including $574,700 in
depreciation, depletion, and amortization and $443,800 in dry hole, abandonment
and impairment costs, of which $429,900 relates to the write down of the
undepleted book value of the North Willow Creek #6-27 well to the value of its
reserves. Operating activities used approximately $1,546,200 more cash than the
corresponding period in 1995, when the Company had small non-cash expenses of
depreciation, depletion, and amortization due to less production and
substantially increased accounts payable due to limited working capital.
During the first nine months of 1996, investing activities used net cash of
$3,258,700, principally due to $1,415,400 used for additions to oil and gas
properties and $2,020,000 used to purchase short-term liquid marketable
securities. During the corresponding period in 1995, investing activities used
net cash of $1,378,300, consisting almost entirely of cash used for additions to
oil and gas properties.
The cash provided from financing activities during the first nine months of
1996 was $4,884,400, consisting principally of $5,284,000 in cash proceeds
received from the sale of the Company's equity securities, including the
exercise of options and warrants, offset by the repayment of the long-term note
and leases payable of $403,100. During the corresponding period in 1995, the
Company received $1,383,600 in cash from the sale of equity securities.
The Company requires cash for general and administrative expenses, for
maintaining its properties, and for other items that are required in order for
the Company to continue, as distinguished from costs to advance its ongoing
exploration program in Nevada.
Based on current production levels and prices, the Company estimates that
it is able to meet fixed and recurring operating costs, excluding unusually
large expenditures for financial public relations such as those incurred during
the second quarter of 1996. However, there can be no assurance that production
levels will not decline or that current prices for oil will not decline, in
which case the Company would require funds from external sources for operating
deficiencies. Any improved operating margins resulting from increased
production and reduced operating expenses or price increases would benefit the
Company. There can be no assurance that Eagle Springs or Ghost Ranch field
development will result in material additional production or that the Company
will be able to obtain funds from other sources, in which case the Company would
be required to implement cost-cutting measures and curtail drilling and most
other exploration activity in order to continue. Newly established production
from the Ghost Ranch field began late in the third quarter and should make a
larger contribution to revenues in the future. Any additional revenues from
expanded production from further development would be available for operating
shortages as well as to contribute to drilling activities.
As of September 30, 1996, the Company had a working capital of $1,463,635,
which, together with the Company's recently established credit facility, the
sale of additional equity securities, and other financial resources, if any,
that may be available, will be utilized to cover operating requirements and the
Company's exploration and development drilling activities during the balance of
1996.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 and 1995
For the third quarter period ending September 30, 1996, oil sales increased
119.9% to $532,000 as compared to $243,000 in the same period in 1995,
attributable principally to increased production of $219,100 from the Eagle
Springs field, as a result of development wells drilled during the year. This
increase in the third quarter of 1996 was the result of both a 25.1% increase in
barrels sold and a 42.1% increase in price per barrel as compared to the same
period in 1995.
The Company's production expenses for the third quarter of 1996 increased
$27,900, or 25%, with the Eagle Springs field production expenses increasing
$45,700, while such expenses related to the Company's remaining properties
decreased $17,800 for the same period in 1995. The 25% increase in production
expense is approximately equivalent to the increase in barrels sold as noted
above, suggesting that the Company has not yet begun to realize economies in per
barrel production costs from recently placing the Ghost Ranch well into full
production.
Oil and gas exploration expenses increased $44,000 for the third quarter of
1996 when compared to the same period in 1995. This is primarily due to an
increase in geological and geophysical costs of $25,800 and an increased cost in
lease rentals of $9,200.
Shareholder-investor service expense increased $43,700 to $52,700 for the
third quarter ended September 30, 1996, when compared to the same period in
1995. These expenses relate to financial public relations information
dissemination within the investment community.
Depreciation, depletion, and amortization for the three-month period ended
September 30, 1996, increased by $77,600 to $185,200 when compared to the same
period in 1995. The Eagle Springs field contributed $133,000 of the depletion,
depreciation, and amortization costs in the third quarter of 1996 when compared
to the same period in 1995, as a result of significantly increased production.
Interest income increased $5,700 to $46,800 for the third quarter 1996,
when compared to the same period in 1995. Reduced outstanding notes receivable
balances reduced accrued interest income $17,200, this was offset by $9,600
interest earned on short-term liquid investments. Interest expense decreased
$17,000 to $48,800 primarily due to interest on salaries payable and interest
charges on vendor invoices.
During the three months ended September 30, 1996, the Company, in its
earnings per shares calculations of the consolidated statement of operations,
calculated an accrued and declared preferred stock dividend of $37,000 and an
imputed stock dividend of $69,200 as a result of convertibility of its
outstanding preferred stock into Common Stock at below-market prices. These
amounts are for earnings per share calculations and are not recorded in the
Company's financial statements.
Nine Months Ended September 30, 1996 and 1995
For the nine month period ending September 30, 1996, oil sales increase
66.5% to $1,196,700 as compared to $719,000 in the same period in 1995,
attributable principally to a $423,200 increase in production from the Eagle
Springs field as a result of development drilling during 1996. This increase in
the first and third quarters of 1996 was the result of both a 22.3% increase in
barrels sold and a 24.4% increase in price per barrel as compared to the same
nine-month period in 1995. Well service and well operator income decreased
$5,300 for the nine month period ending September 30, 1996, when compared to the
same period in 1995, primarily due to an increase of $3,800 in operator income
and a reduction of $700 in well service revenue due to lack of third party water
disposal fees.
The Company's production expenses for the nine-month period ended September
30, 1996, increased $55,200, with the Eagle Springs field production expense
increasing $91,300, due in significant part to increased operating costs
associated with new development wells commending production.
Oil and gas exploration expenses increased $32,300 for the nine-month
period ended September 30, 1996, when compared to the same period in 1995. This
is primarily due to increases in geophysical and geological cost of $29,000,
employee salaries and benefits of $19,600, and cost in preparation of the
reserve report by an unaffiliated engineering Company. These increases were
offset by a decrease of leasehold rentals of $11,300. Dry hole, abandonment,
and impairment costs were $443,800 for the nine-months ended September 30, 1996.
This is an increase of $200,600 when compared to the same period in 1995.
During the first quarter of 1996, the Company was required by the Financial
Accounting Standards Board, in their new statement titled "Accounting for Long-
Lived Assets," to impair undepleted book value of the North Willow no. 6-27 well
to the value of its reserves. This resulted in an impairment of $429,900.
Additionally, the Company wrote off a surrendered and abandoned lease of $12,800
during the first nine months of 1996. Dry hole costs were $1,100 for the first
nine months of 1996, which was a decrease of $242,100 for the same period in
1995.
General and administrative expenses decreased $70,800 to $367,800 for the
nine-month period ended September 30, 1996, when compared to the same period in
1995, principally due to decreased expenses for professional services and
employee salaries and benefits. Shareholder-investor service expense increased
$163,600 to $361,200 for the nine-month period ended September 30, 1996, when
compared to the same period in 1995. Such expenses relate to financial public
relations information dissemination within the investment community.
Depreciation, depletion, and amortization for the nine-month period ended
September 30, 1996, increased by $251,900 to $574,700 when compared to the same
period in 1995. The Eagle Springs field contributed $327,800 of the increase of
the first nine months of 1996 when compared to the same period in 1995, as field
production increased, while the Company's remaining properties' depreciation,
depletion and amortization expenses decreased $81,800 primarily due to the
requirements of the Financial Accounting Standards Board in their statement
titled "Accounting for Long-Lived Assets." With the write down of $429,900 of
undepleted book value of the North Willow no 6-27 in the first quarter of 1996,
the depreciable base was lowered to the value of its reserves and results in
lower depreciation during the quarter.
Interest income was reduced $7,700 to $102,200 for the nine-month period
ended September 30, 1996, when compared to the same period in 1995. Reduced
outstanding notes receivable balances reduced accrued interest income $17,200,
while interest income received from short-term investments increased $9,000.
Interest expense increased $42,700 to $133,700 primarily due to interest rate
increase associated with the $400,000 note payable due on April 30, 1996, and
interest charges on vendor invoices.
During the nine months ended September 30, 1996, the Company, in its
earnings per shares calculations of the consolidated statement of operations,
calculated an accrued and declared preferred stock dividends of $61,934 and an
imputed stock dividend of $1,168,432 as a result of convertibility of its
outstanding preferred stock into Common Stock at below-market prices. These
amounts are for earnings per share calculations and are not recorded in the
Company's financial.
Accounting Treatment of Certain Capitalized Costs
Included in oil and gas properties on the Company's balance sheets are
costs of wells in progress. Such costs are capitalized until a decision is made
to plug and abandon or, if the well is still being evaluated, until one year
after reaching total depth, at which time such costs are charged to expense,
even though the well may subsequently be placed into production. The Company
also charges to expense the amount by which the total capitalized cost of proved
oil and gas properties exceeds the total undiscounted net present value of
related reserves. As a result of the foregoing policies, the Company expects
that from time to time capitalized costs will be charged to expense based on
management's evaluation of specific wells or properties or the disposition,
through sales or conveyances of fractional interests in connection with industry
sharing arrangements, of property interests for consideration in amounts that
have the effect of reducing the Company's total undiscounted net present value
of oil and gas reserves below the total capitalized cost of proved oil and gas
properties. As part of the Company's evaluation of its oil and gas reserves in
connection with the preparation of the Company's annual financial statements,
the Company obtains an engineering evaluation of its properties based on current
engineering information, oil and gas prices, and production costs, which may
result in material changes in the total undiscounted net present value of the
Company's oil and gas reserves. The Company would be required to charge to
expense the amount by which the total capitalized cost of proved oil and gas
properties exceeds the amount of such undiscounted net present value of the
Company's oil and gas reserves.
The Financial Accounting Standards Board (FASB) issued a new Statement
titled "Accounting for Impairment of Long-Lived Assets." This new standard is
effective for years beginning after December 15, 1995. In March 1995, the
effect of the new standard on the Company's financial statements required
impairment expense in the first quarter of 1996 of $429,900, the undepleted
value of the North Willow Creek well no. 6-27, less the value of the reserves
associated with that well.
Operating Costs
Overall operating costs are a combination of costs associated with each
well and costs associated with operation of the entire field. As additional
wells are added to the production system, the field operating costs will be
spread among additional wells, lowering the impact of such costs on each well
and per barrel produced. Because of the foregoing, the Company expects that
production costs per barrel will continue to be higher than industry standards,
unless and until the amount of production increases sufficiently to obtain
economies of scale and dilute the impact of high fixed operating costs. In
addition, operating costs may continue to vary materially due to the costs of
ongoing treatment or reworking of existing wells and other factors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are included with this report
SEC Reference
Exhibit No.
Number Title of Exhibit
4.01 4 Certificate of Designation of 1996-4 Series
Preferred Stock
10.01 10 Form of Warrant to placement agent and assigns
relating to offer of 1996-4 Series Preferred
Stock, with related schedule
10.02 10 Form of Revised Executive Employment Agreement
between the Company and executive officers, with
related schedule**
10.03 10 Form of Nonqualified Stock Options granted to
executive officers dated July 18, 1996, with
related schedule**
10.04 10 Form of Nonqualified Stock Options granted to
executive officers in connection with employment
agreements, with related schedule**
10.05 10 Form of Nonqualified Stock Options granted to
employees in connection with employment
agreements, with related schedule
10.06 10 Form of Registration Rights Agreement relating to
offer of 1996-4 Series Preferred Stock, with
related schedule
(b) Reports on Form 8-K. During the quarter ended September 30, 1996,
the Company did not file any report on Form 8-K.
SIGNATURES
Pursuant to the requirements 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.
FORELAND CORPORATION
(Registrant)
Dated: November 14, 1996 By /s/ N. Thomas Steele
N. Thomas Steele, President
Dated: November 14, 1996 By /s/ Don W. Treece
Don W. Treece, Controller (Chief
Financial Officer)
FORM OF
CERTIFICATE OF DESIGNATION OF
SERIES 1996-4 PREFERRED STOCK
OF
FORELAND CORPORATION
It is hereby certified that:
1. The name of the Company (hereinafter called the "Company") is Foreland
Corporation, a Nevada corporation.
2. The certificate of incorporation of the Company authorizes the
issuance of Five Million (5,000,000) shares of preferred stock, $.001 par value
per share, and expressly vests in the Board of Directors of the Company the
authority provided therein to issue any or all of said shares in one (1) or more
series and by resolution or resolutions to establish the designation and number
and to fix the relative rights and preferences of each series to be issued.
3. The Board of Directors of the Company, pursuant to the authority
expressly vested in it as aforesaid, has adopted the following resolutions
creating a Series 1996-4 issue of Preferred Stock:
RESOLVED, that Five Hundred (500) of the Five Million (5,000,000)
authorized shares of Preferred Stock of the Company shall be designated Series
1996-4 Preferred Stock, $.001 par value per share, and shall possess the rights
and preferences set forth below:
Section 1. Designation and Amount. The shares of such series shall
have a par value of $.001 per share and shall be designated as Series 1996-4
Preferred Stock (the "Series 1996-4 Preferred Stock") and the number of shares
constituting the Series 1996-4 Preferred Stock shall be Five Hundred (500). The
Series 1996-4 Preferred Stock shall be offered at a purchase price of Ten
Thousand Dollars ($10,000) per share (the "Original Series 1996-4 Issue Price"),
with an eight percent (8%) per annum accretion rate as set forth herein.
Section 2. Rank. The Series 1996-4 Preferred Stock shall rank: (i)
junior to any other class or series of capital stock of the Company hereafter
created specifically ranking by its terms senior to the Series 1996-4 Preferred
Stock (collectively, the "Senior Securities"); (ii) prior to all of the
Company's Common Stock, $.001 par value per share ("Common Stock"); (iii) prior
to any class or series of capital stock of the Company hereafter created not
specifically ranking by its terms senior to or on parity with any Series 1996-4
Preferred Stock of whatever subdivision (collectively, with the Common Stock,
"Junior Securities"); and (iv) on parity with any class or series of capital
stock of the Company hereafter created specifically ranking by its terms on
parity with the Series 1996-4 Preferred Stock ("Parity Securities") in each case
as to distributions of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary (all such distributions being referred
to collectively as "Distributions").
Section 3. Dividends. The Series 1996-4 Preferred Stock will bear no
dividends, and the holders of the Series 1996-4 Preferred Stock ("Holders")
shall not be entitled to receive dividends on the Series 1996-4 Preferred Stock.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
Company ("Liquidation Event"), either voluntary or involuntary, the Holders of
shares of Series 1996-4 Preferred Stock shall be entitled to receive,
immediately after any distributions to Senior Securities required by the
Company's Certificate of Incorporation or any certificate of designation, and
prior in preference to any distribution to Junior Securities but in parity with
any distribution to Parity Securities, an amount per share equal to the sum of
(i) the Original Series 1996-4 Issue Price for each outstanding share of Series
1996-4 Preferred Stock and (ii) an amount equal to eight percent (8%) of the
Original Series 1996-4 Issue Price per annum for the period that has passed
since the date that, in connection with the consummation of the purchase by
Holder of shares of Series 1996-4 Preferred Stock from the Company, the escrow
agent first had in its possession funds representing full payment for the shares
of Series 1996-4 Preferred Stock (such amount being referred to herein as the
"Premium"). If upon the occurrence of such event, and after payment in full of
the preferential amounts with respect to the Senior Securities, the assets and
funds available to be distributed among the Holders of the Series 1996-4
Preferred Stock and Parity Securities shall be insufficient to permit the
payment to such Holders of the full preferential amounts due to the Holders of
the Series 1996-4 Preferred Stock and the Parity Securities, respectively, then
the entire assets and funds of the Company legally available for distribution
shall be distributed among the Holders of the Series 1996-4 Preferred Stock and
the Parity Securities, pro rata, based on the respective liquidation amounts to
which each such series of stock is entitled by the Company's Certificate of
Incorporation and any certificate(s) of designation relating thereto.
(b) Upon the completion of the distribution required by subsection
4(a), if assets remain in this Company, they shall be distributed to holders of
Junior Securities in accordance with the Company's Certificate of Incorporation
including any duly adopted certificate(s) of designation.
(c) At each Holder's option, a sale, conveyance or disposition of all
or substantially all of the assets of the Company or the effectuation by the
Company of a transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the Company is disposed of shall be
deemed to be a Liquidation Event as defined in Section 4(a); provided further
that (i) a consolidation, merger, acquisition, or other business combination of
the Company with or into any other publicly traded company or companies shall
not be treated as a Liquidation Event as defined in Section 4(a) but instead
shall be treated pursuant to Section 5(e) hereof, and (ii) a consolidation,
merger, acquisition, or other business combination of the Company with or into
any other non-publicly traded company or companies shall be treated as a
Liquidation Event as defined in Section 4(a). The Company shall not effect any
transaction described in subsection 4(c)(ii) unless it first gives thirty (30)
business days prior notice of such transaction (during which time the Holder
shall be entitled to immediately convert any or all of its shares of Series
1996-4 Preferred Stock into Common Stock at the Conversion Price, as defined
below, then in effect, which conversion shall not be subject to the conversion
restrictions set forth in Section 5(a); provided however, that, if such
conversion takes place prior to the end of the four (4) month holding period set
forth in Section 5(a), for purposes of calculating the Variable Conversion Price
(as defined in Section 5(a)), "X" shall equal one hundred percent (100%)).
(d) In the event that, immediately prior to the closing of a
transaction described in Section 4(c) which would constitute a liquidation
event, the cash distributions required by Section 4(a) or Section 6 have not
been made, the Company shall either: (i) cause such closing to be postponed
until such cash distributions have been made, or (ii) cancel such transaction,
in which event the rights of the Holders of Series 1996-4 Preferred Stock shall
be the same as existing immediately prior to such proposed transaction.
Section 5. Conversion. Subject to Sections 4(c) and 12 herein, the
record Holders of this Series 1996-4 Preferred Stock shall have conversion
rights as follows (the "Conversion Rights"):
(a) Right to Convert. The record Holder of the Series 1996-4
Preferred Stock shall be entitled to convert a percentage of the aggregate
Series 1996-4 Preferred Stock initially issued to such Holder at the times and
in the amounts as follows:
No. of Months Percentage of Series 1996-4 Preferred Stock
Initially
After the Last Closing Date Issued to Such Holder Available for
Conversion
4 months 15%
5 months 30%
6 months 45%
7 months 60%
8 months 75%
9 months 90%
10 months 100%
provided, however, that a Holder may not convert more than twenty percent (20%)
of the aggregate Series 1996-4 Preferred Stock initially issued to such Holder
in any given one (1) month period beginning on the date that is four (4) months
following the Last Closing Date and beginning on the same day of each subsequent
month thereafter until the date that is ten (10) months following the Last
Closing Date; and provided, further, that subsequent to the date that is ten
(10) months following the Last Closing Date, there shall be no restrictions on
the number of shares of Series 1996-4 Preferred Stock that may be converted into
Common Stock. As used herein, "Last Closing Date" shall mean the date of the
last closing of a purchase and sale of the Series 1996-4 Preferred Stock that
occurs pursuant to the offering of the Series 1996-4 Preferred Stock by the
Company.
The date that is four (4) months following the Last Closing Date and the same
day of each subsequent month referenced above are hereinafter referred to
singularly as a "Conversion Gate" and collectively as "Conversion Gates". At
the applicable Conversion Gate and at any time thereafter, the percentage of the
aggregate Series 1996-4 Preferred Stock initially issued to such Holder which is
available for conversion as set forth above is convertible into that number of
fully-paid and non-assessable shares of Common Stock of the Company calculated
in accordance with the following formula (the "Conversion Rate"):
Number of shares issued upon conversion of one (1) share of Series 1996-4
Preferred Stock =
(.08) (N/365) (10,000) + 10,000
Conversion Price
where,
o N= the number of days between (i) the date that, in connection with the
consummation of the initial purchase by Holder of shares of Series 1996-4
Preferred Stock from the Company, the escrow agent first had in its
possession funds representing full payment for the shares of Series 1996-4
Preferred Stock for which conversion is being elected, and (ii) the
applicable Date of Conversion (as defined in Section 5(b)(iv) below) for
the shares of Series 1996-4 Preferred Stock for which conversion is being
elected, and
o Conversion Price = the lesser of (x) $7.50 (the "Fixed Conversion
Price"), or (y) X% of the average Closing Bid Price, as that term is
defined below, of the Company's Common Stock for the five (5) trading days
immediately preceding the Date of Conversion, as defined below (the
"Variable Conversion Price"), where X is determined as follows:
No. Months Between Last
Closing and Date of Conversion "X"
4 months-6 months 90%
6 months and 1 day-12 months 85%
more than 12 months 82.5%
For purposes hereof, any Holder which acquires shares of Series 1996-4
Preferred Stock from another Holder (the "Transferor") and not upon original
issuance from the Company shall be entitled to exercise its conversion right as
to the percentages of such shares specified under Section 5(a) in such amounts
and at such times such that the number of shares eligible for conversion by such
Holder at any time shall be in the same proportion that the number of shares of
Series 1996-4 Preferred Stock acquired by such Holder from its Transferor bears
to the total number of shares of Series 1996-4 Preferred Stock originally issued
by the Company to such Transferor (or its predecessor Transferor).
For purposes hereof, the term "Closing Bid Price" shall mean the closing
bid price on the Nasdaq Small Cap Market, or if no longer traded on the Nasdaq
Small Cap Market, the closing bid price on the principal national securities
exchange or the National Market System on which the Common Stock is so traded
and if not available, the mean of the high and low prices on the principal
national securities exchange or the National Market System on which the Common
Stock is so traded.
(b) Mechanics of Conversion. In order to convert Series 1996-4
Preferred Stock into full shares of Common Stock, the Holder shall (i) fax, on
or prior to 11:59 p.m., New York City time (the "Conversion Notice Deadline") on
the Date of Conversion, a copy of the fully executed notice of conversion
("Notice of Conversion") to the Company at the office of the Company and to its
designated transfer agent (the "Transfer Agent") for the Series 1996-4 Preferred
Stock stating that the Holder elects to convert, which notice shall specify the
Date of Conversion, the number of shares of Series 1996-4 Preferred Stock to be
converted, the applicable conversion price and a calculation of the number of
shares of Common Stock issuable upon such conversion (together with a copy of
the front page of each certificate to be converted) and (ii) surrender to a
common courier for delivery to the office of the Company or the Transfer Agent,
the original certificates representing the Series 1996-4 Preferred Stock being
converted (the "Preferred Stock Certificates"), duly endorsed for transfer;
provided, however, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless
either the Preferred Stock Certificates are delivered to the Company or its
Transfer Agent as provided above, or the Holder notifies the Company or its
Transfer Agent that such certificates have been lost, stolen or destroyed
(subject to the requirements of subparagraph (i) below). Upon receipt by
Company of a facsimile copy of a Notice of Conversion, Company shall immediately
send, via facsimile, a confirmation of receipt of the Notice of Conversion to
Holder which shall specify that the Notice of Conversion has been received and
the name and telephone number of a contact person at the Company whom the Holder
should contact regarding information related to the Conversion. In the case of
a dispute as to the calculation of the Conversion Rate, the Company shall
promptly issue to the Holder the number of Shares that are not disputed and
shall submit the disputed calculations to its outside accountant via facsimile
within three (3) days of receipt of Holder's Notice of Conversion. The Company
shall cause the accountant to perform the calculations and notify Company and
Holder of the results no later than forty-eight (48) hours from the time it
receives the disputed calculations. Accountant's calculation shall be deemed
conclusive absent manifest error.
(i) Lost or Stolen Certificates. Upon receipt by the Company of
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificates representing shares of Series 1996-4 Preferred Stock, and (in the
case of loss, theft or destruction) of indemnity or security reasonably
satisfactory to the Company, and upon surrender and cancellation of the
Preferred Stock Certificate(s), if mutilated, the Company shall execute and
deliver new Preferred Stock Certificate(s) of like tenor and date. However,
Company shall not be obligated to re-issue such lost or stolen Preferred Stock
Certificates if Holder contemporaneously requests Company to convert such Series
1996-4 Preferred Stock into Common Stock.
(ii) Delivery of Common Stock Upon Conversion. The Transfer
Agent or the Company (as applicable) shall use its best efforts to, no later
than the close of business on the second (2nd) business day, and shall, in any
event, no later than the close of business on the third (3rd) business day (the
"Deadline") after receipt by the Company or the Transfer Agent of a facsimile
copy of a Notice of Conversion and receipt by Company or the Transfer Agent of
all necessary documentation duly executed and in proper form required for
conversion, including the original Preferred Stock Certificates to be converted
(or after provision for security or indemnification in the case of lost or
destroyed certificates, if required), issue and surrender to a common courier
for either overnight or (if delivery is outside the United States) two (2) day
delivery to the Holder at the address of the Holder as shown on the stock
records of the Company a certificate for the number of shares of Common Stock to
which the Holder shall be entitled as aforesaid.
(iii) No Fractional Shares. If any conversion of the Series
1996-4 Preferred Stock would create a fractional share of Common Stock or a
right to acquire a fractional share of Common Stock, such fractional share shall
be disregarded and the number of shares of Common Stock issuable upon
conversion, in the aggregate, shall be the next higher number of shares.
(iv) Date of Conversion. The date on which conversion occurs
(the "Date of Conversion") shall be deemed to be the date set forth in such
Notice of Conversion, provided (i) that the advance copy of the Notice of
Conversion is faxed to the Company before 11:59 p.m., New York City time, on the
Date of Conversion, and (ii) that the original Preferred Stock Certificates
representing the shares of Series 1996-4 Preferred Stock to be converted are
surrendered by depositing such certificates with a common courier, for delivery
to the Company or the Transfer Agent as provided above, as soon as practicable
after the Date of Conversion. The person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record Holder or Holders of such shares of Common Stock on the
Date of Conversion.
(c) Reservation of Stock Issuable Upon Conversion. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the Series 1996-4 Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all then
outstanding Series 1996-4 Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Series 1996-4 Preferred Stock,
the Company will take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
(d) Automatic Conversion or Redemption. Each share of Series 1996-4
Preferred Stock outstanding on the date which is two (2) years after the Last
Closing Date or, if not a business day, the first business day thereafter
("Termination Date") automatically shall, at the option of the Company, either
(i) be converted ("Automatic Conversion") into Common Stock on such date at the
Conversion Rate then in effect (calculated in accordance with the formula in
Section 5(a) above), and the Termination Date shall be deemed the Date of
Conversion with respect to such conversion for purposes of this Certificate of
Designation, or (ii) be redeemed ("Automatic Redemption") by the Company for
cash in an amount equal to the Stated Value (as defined in Section 6(b)(i)
below) of the shares of Series 1996-4 Preferred Stock being redeemed. If the
Company elects to redeem, on the Termination Date, the Company shall send to the
Holders of outstanding Series 1996-4 Preferred Stock notice (the "Automatic
Redemption Notice") via facsimile of its intent to effect an Automatic
Redemption of the outstanding Series 1996-4 Preferred Stock. If the Company
does not send such notice to Holder on such date, an Automatic Conversion shall
be deemed to have occurred. If an Automatic Conversion occurs, the Company and
the Holders shall follow the applicable conversion procedures set forth in this
Certificate of Designation; provided, however, that the Holders are not required
to send the Notice of Conversion contemplated by Section 5(b). If the Company
elects to redeem, each Holder of outstanding Series 1996-4 Preferred Stock shall
send their certificates representing the Series 1996-4 Preferred Stock to the
Company within five (5) days of the date of receipt of the Automatic Redemption
Notice from the Company, and the Company shall pay the applicable redemption
price to each respective Holder within five (5) days of the receipt of such
certificates. The Company shall not be obligated to deliver the redemption
price unless the certificates representing the Series 1996-4 Preferred Stock are
delivered to the Company, or, in the event one or more certificates have been
lost, stolen, mutilated or destroyed, unless the Holder has complied with
Section 5(b)(i). If the Company elects to redeem under this Section 5(d) and
the Company fails to pay the Holders the redemption price within five (5) days
of the Termination Date as required by this Section 5(d), then an Automatic
Conversion shall be deemed to have occurred and, upon receipt of the Preferred
Stock Certificates, the Company shall immediately deliver to the Holders the
certificates representing the number of shares of Common Stock to which the
Holders would have been entitled upon Automatic Conversion.
(e) Adjustment to Conversion Rate.
(i) Adjustment to Fixed Conversion Price Due to Stock Split,
Stock Dividend, Etc. If, prior to the conversion of all of the Series 1996-4
Preferred Stock, the number of outstanding shares of Common Stock is increased
by a stock split, stock dividend, or other similar event, the Fixed Conversion
Price shall be proportionately reduced, or if the number of outstanding shares
of Common Stock is decreased by a combination or reclassification of shares, or
other similar event, the Fixed Conversion Price shall be proportionately
increased.
(ii) Adjustment to Variable Conversion Price. If, at any time
when any shares of the Series 1996-4 Preferred Stock are issued and outstanding,
the number of outstanding shares of Common Stock is increased or decreased by a
stock split, stock dividend, or other similar event, which event shall have
taken place during the reference period for determination of the Conversion
Price for any conversion of the Series 1996-4 Preferred Stock, then the Variable
Conversion Price shall be calculated giving appropriate effect to the stock
split, stock dividend, combination, reclassification or other similar event for
all five (5) trading days immediately preceding the Date of Conversion.
(iii) Adjustment Due to Merger, Consolidation, Etc. If,
prior to the conversion of all Series 1996-4 Preferred Stock, there shall be any
merger, consolidation, exchange of shares, recapitalization, reorganization, or
other similar event, as a result of which shares of Common Stock of the Company
shall be changed into the same or a different number of shares of the same or
another class or classes of stock or securities of the Company or another entity
or there is a sale of all or substantially all the Company's assets or there is
a change of control transaction not deemed to be a liquidation pursuant to
Section 4(c), then the Holders of Series 1996-4 Preferred Stock shall thereafter
have the right to receive upon conversion of Series 1996-4 Preferred Stock, upon
the basis and upon the terms and conditions specified herein and in lieu of the
shares of Common Stock immediately theretofore issuable upon conversion, such
stock, securities and/or other assets which the Holder would have been entitled
to receive in such transaction had the Series 1996-4 Preferred Stock been
converted immediately prior to such transaction, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the Holders of the Series 1996-4 Preferred Stock to the end that the provisions
hereof (including, without limitation, provisions for the adjustment of the
Conversion Price and of the number of shares issuable upon conversion of the
Series 1996-4 Preferred Stock) shall thereafter be applicable, as nearly as may
be practicable in relation to any securities thereafter deliverable upon the
exercise hereof. The Company shall not effect any transaction described in this
subsection 5(e)(iii) unless (a) it first gives thirty (30) business days prior
notice of such merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event (during which time the Holder shall be
entitled to convert its shares of Series 1996-4 Preferred Stock into Common
Stock) and (b) the resulting successor or acquiring entity (if not the Company)
assumes by written instrument the obligations of the Company under this
Certificate of Designation including this subsection 5(e)(iii).
(iv) No Fractional Shares. If any adjustment under this Section
5(e) would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon conversion shall be the next
higher number of shares.
Section 6. Redemption by Company.
(a) Company's Right to Redeem Upon Receipt of Notice of Conversion.
If the Conversion Price of the Company's Common Stock is less than the Fixed
Conversion Price (as defined in Section 5(a)), at the time of receipt of a
Notice of Conversion pursuant to Section 5, the Company shall have the right, in
its sole discretion, to redeem in whole or in part any Series 1996-4 Preferred
Stock submitted for conversion at the Redemption Rate (as defined below),
immediately prior to and in lieu of conversion ("Redemption Upon Receipt of
Notice of Conversion"). If the Company elects to redeem some, but not all, of
the Series 1996-4 Preferred Stock submitted for conversion, the Company shall
redeem from among the Series 1996-4 Preferred Stock submitted by the various
shareholders for conversion on the applicable date, a pro-rata amount from each
such Holder so submitting Series 1996-4 Preferred Stock for conversion.
(i) Redemption Price Upon Receipt of a Notice of Conversion.
The redemption price of Series 1996-4 Preferred Stock under this Section 6(a)
shall be calculated as follows ("Redemption Rate"):
No. Months Between Last
Closing and Date of Conversion Redemption Rate
4 months-6 months Stated Value x 1.10
6 months and 1 day-12 months Stated Value x 1.15
more than 12 months Stated Value x 1.175
where,
"Stated Value" shall have the same meaning as defined in Section 6(b)(i)
below.
(ii) Mechanics of Redemption Upon Receipt of Notice of
Conversion. The Company shall effect each such redemption by giving notice of
its election to redeem, by facsimile, by 5:00 p.m. New York City time the next
business day following receipt of a Notice of Conversion from a Holder, and the
Company shall provide a copy of such redemption notice by overnight or two (2)
day courier, to (A) the Holder of the Series 1996-4 Preferred Stock submitted
for conversion at the address and facsimile number of such Holder appearing in
the Company's register for the Series 1996-4 Preferred Stock and (B) the
Company's Transfer Agent. Such redemption notice shall indicate whether the
Company will redeem all or part of the Series 1996-4 Preferred Stock submitted
for conversion and the applicable redemption price.
(b) Company's Right to Redeem at its Election. At any time,
commencing twelve (12) months and one (1) day after the Last Closing Date, the
Company shall have the right, in its sole discretion, to redeem ("Redemption at
Company's Election"), from time to time, any or all of the Series 1996-4
Preferred Stock; provided (i) Company shall first provide thirty (30) business
days advance written notice as provided in subparagraph 6(b)(ii) below (which
can be given beginning thirty (30) business days prior to the date which is
twelve (12) months and one (1) day after the Last Closing Date), and (ii) that
the Company shall only be entitled to redeem Series 1996-4 Preferred Stock
having an aggregate Stated Value (as defined below) of at least One Million
Dollars ($1,000,000). If the Company elects to redeem some, but not all, of the
Series 1996-4 Preferred Stock, the Company shall redeem a pro-rata amount from
each Holder of the Series 1996-4 Preferred Stock.
(i) Redemption Price At Company's Election. The "Redemption
Price At Company's Election" shall be calculated as a percentage of Stated
Value, as that term is defined below, of the Series 1996-4 Preferred Stock
redeemed pursuant to this Section 6(b), which percentage shall vary depending on
the date of Redemption at Company's Election (as defined below), and shall be
determined as follows:
Date of Notice of Redemption at Company's Election
% of Stated Value
12 months and 1 day to 18 months following Last Closing Date 130%
18 months and 1 day to 24 months following Last Closing Date 125%
For purposes hereof, "Stated Value" shall mean the Original Series 1996-4
Issue Price (as defined in Section 1)) of the shares of Series 1996-4 Preferred
Stock being redeemed pursuant to this Section 6(b), together with the accreted
but unpaid Premium (as defined in Section 4(a)).
(ii) Mechanics of Redemption at Company's Election. The Company
shall effect each such redemption by giving at least thirty (30) business days
prior written notice ("Notice of Redemption At Company's Election") to (A) the
Holders of the Series 1996-4 Preferred Stock selected for redemption, at the
address and facsimile number of such Holder appearing in the Company's Series
1996-4 Preferred Stock register and (B) the Transfer Agent, which Notice of
Redemption At Company's Election shall be deemed to have been delivered three
(3) business days after the Company's mailing (by overnight or two (2) day
courier, with a copy by facsimile) of such Notice of Redemption At Company's
Election. Such Notice of Redemption At Company's Election shall indicate (i)
the number of shares of Series 1996-4 Preferred Stock that have been selected
for redemption, (ii) the date which such redemption is to become effective (the
"Date of Redemption At Company's Election") and (iii) the applicable Redemption
Price At Company's Election, as defined in subsection (b)(i) above.
Notwithstanding the above, Holder may convert into Common Stock pursuant to
section 5, prior to the close of business on the Date of Redemption at Company's
Election, any Series 1996-4 Preferred Stock which it is otherwise entitled to
convert, including Series 1996-4 Preferred Stock that has been selected for
redemption at Company's election pursuant to this subsection 6(b); provided,
however, that the Company shall still be entitled to exercise its right to
redeem upon receipt of a Notice of Conversion pursuant to section 6(a).
(c) Company Must Have Immediately Available Funds or Credit
Facilities. The Company shall not be entitled to send any Redemption Notice and
begin the redemption procedure under Sections 6(a) and 6(b) unless it has:
(i) the full amount of the redemption price in cash, available
in a demand or other immediately available account in a bank or similar
financial institution; or
(ii) immediately available credit facilities, in the full amount
of the redemption price with a bank or similar financial institution; or
(iii) an agreement with a standby underwriter willing to
purchase from the Company a sufficient number of shares of stock to provide
proceeds necessary to redeem any stock that is not converted prior to
redemption; or
(iv) a combination of the items set forth in (i), (ii) and (iii)
above, aggregating the full amount of the redemption price.
If the foregoing conditions of this Section 6(c) are satisfied and Company
complies with Section 6(d) hereof, then any shares of Series 1996-4 Preferred
Stock called for by a Redemption at Company's Election shall cease to be
outstanding for all purposes hereunder (including the right to convert or to
accrete additional Premium or to exercise any other right or privilege
hereunder) on the Date of Redemption at Company's Election and shall instead
represent the right to receive the Redemption Price at Company's Election
without interest from and after the Date of Redemption at Company's Election.
(d) Payment of Redemption Price.
(i) Each Holder submitting Preferred Stock being redeemed under
this Section 6 shall send their Series 1996-4 Preferred Stock Certificates so
redeemed to the Company or its Transfer Agent, and the Company shall pay the
applicable redemption price to that Holder within five (5) business days of the
Date of Redemption at Company's Election. The Company shall not be obligated to
deliver the redemption price unless the Preferred Stock Certificates so redeemed
are delivered to the Company or its Transfer Agent, or, in the event one (1) or
more certificates have been lost, stolen, mutilated or destroyed, unless the
Holder has complied with Section 5(b)(i).
(ii) If Company elects to redeem pursuant to Section 6(a)
hereof, and Company fails to pay Holder the redemption price within the time
frame as required by this Section 6(d), then Company shall issue shares of
Common Stock to any such Holder who has submitted a Notice of Conversion in
compliance with Section 5(b) hereof. The shares to be issued to Holder pursuant
to this provision shall be the number of shares determined using a Conversion
Price (as defined in Section 5 hereof) that equals the lesser of (i) the
Conversion Price on the date Holder sends its Notice of Conversion to Company or
Transfer Agent via facsimile or (ii) the Conversion Price on the date the
Transfer Agent issues Common Stock pursuant to this Section 6(d)(ii).
(e) Blackout Period. Notwithstanding the foregoing, the Company may
not either send out a redemption notice or effect a redemption pursuant to
Section 6(b) above during a Blackout Period (defined as a period during which
the Company's officers or directors would not be entitled to buy or sell stock
because of their holding of material non-public information), unless the Company
shall first disclose the non-public information that resulted in the Blackout
Period; provided, however, that no redemption shall be effected until at least
ten (10) days after the Company shall have given the Holder written notice that
the Blackout Period has been lifted.
Section 7. Voting Rights. The Holders of the Series 1996-4 Preferred
Stock shall have no voting power whatsoever, except as otherwise provided by the
Chapter 78 of the Nevada Revised Statutes ("Nevada Law"), and no Holder of
Series 1996-4 Preferred Stock shall vote or otherwise participate in any
proceeding in which actions shall be taken by the Company or the shareholders
thereof or be entitled to notification as to any meeting of the shareholders.
Notwithstanding the above, Company shall provide Holder with notification
of any meeting of the shareholders regarding any major corporate events
affecting the Company. In the event of any taking by the Company of a record of
its shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire any share of any class or any other
securities or property (including by way of merger, consolidation or
reorganization), or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Company, or any proposed liquidation, dissolution or winding up of the
Company, the Company shall mail a notice to Holder, at least ten (10) days prior
to the record date specified therein, of the date on which any such record is to
be taken for the purpose of such dividend, distribution, right or other event,
and a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
To the extent that under Nevada Law the vote of the Holders of the Series
1996-4 Preferred Stock, voting separately as a class, is required to authorize a
given action of the Company, the affirmative vote or consent of the Holders of
at least a majority of the shares of the Series 1996-4 Preferred Stock
represented at a duly held meeting at which a quorum is present or by written
consent of a majority of the shares of Series 1996-4 Preferred Stock (except as
otherwise may be required under Nevada Law) shall constitute the approval of
such action by the class. To the extent that under Nevada Law the Holders of
the Series 1996-4 Preferred Stock are entitled to vote on a matter with holders
of Common Stock, voting together as one (1) class, each share of Series 1996-4
Preferred Stock shall be entitled to a number of votes equal to the number of
shares of Common Stock into which it is then convertible using the record date
for the taking of such vote of stockholders as the date as of which the
Conversion Price is calculated. Holders of the Series 1996-4 Preferred Stock
also shall be entitled to notice of all shareholder meetings or written consents
with respect to which they would be entitled to vote, which notice would be
provided pursuant to the Company's by-laws and applicable statutes.
Section 8. Protective Provision. So long as shares of Series 1996-4
Preferred Stock are outstanding, the Company shall not without first obtaining
the approval (by vote or written consent, as provided by Nevada Law) of the
Holders of at least seventy-five percent (75%) of the then outstanding shares of
Series 1996-4 Preferred Stock, and at least seventy-five percent (75%) of the
then outstanding Holders:
(a) alter or change the rights, preferences or privileges of the
Series 1996-4 Preferred Stock or any securities so as to affect adversely the
Series 1996-4 Preferred Stock;
(b) create any new class or series of stock having a preference over
or on parity with the Series 1996-4 Preferred Stock with respect to
Distributions (as defined in Section 2 above) or increase the size of the
authorized number of Series 1996-4 Preferred; or
(c) do any act or thing not authorized or contemplated by this
Designation which would result in taxation of the holders of shares of the
Series 1996-4 Preferred Stock under Section 305 of the Internal Revenue Code of
1986, as amended (or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended).
In the event Holders of at least seventy-five percent (75%) of the then
outstanding shares of Series 1996-4 Preferred Stock and at least seventy-five
percent (75%) of the then outstanding Holders agree to allow the Company to
alter or change the rights, preferences or privileges of the shares of Series
1996-4 Preferred Stock, pursuant to subsection (a) above, so as to affect the
Series 1996-4 Preferred Stock, then the Company will deliver notice of such
approved change to the Holders of the Series 1996-4 Preferred Stock that did not
agree to such alteration or change (the "Dissenting Holders") and Dissenting
Holders shall have the right for a period of thirty (30) business days to
convert pursuant to the terms of this Certificate of Designation as they exist
prior to such alteration or change (notwithstanding the holding requirements set
forth in Section 5(a) hereof), or continue to hold their shares of Series 1996-4
Preferred Stock.
Section 9. Status of Converted or Redeemed Stock. In the event any
shares of Series 1996-4 Preferred Stock shall be converted or redeemed pursuant
to Section 5 or Section 6 hereof, the shares so converted or redeemed shall be
canceled, shall return to the status of authorized but unissued Preferred Stock
of no designated series, and shall not be issuable by the Company as Series
1996-4 Preferred Stock.
Section 10. Preference Rights. Nothing contained herein shall be
construed to prevent the Board of Directors of the Company from issuing one (1)
or more series of Preferred Stock with dividend and/or liquidation preferences
junior to the dividend and liquidation preferences of the Series 1996-4
Preferred Stock.
Section 11. Events of Default. Upon the occurrence of and during the
continuation of an Event of Default (as defined below) and upon delivery of a
notice of acceleration by any Holder, the Company shall pay to the Holder an
amount (the "Acceleration Payment") equal to one hundred thirty percent (130%)
of the Stated Value of the Holder's outstanding Series 1996-4 Preferred Stock to
the date of payment and all other amounts payable hereunder shall immediately
become due and payable, all without demand, presentment, or notice, all of which
hereby are expressly waived, together with all costs, including, without
limitation, legal fees and expenses, of collection, and the Holder shall be
entitled to exercise all other rights and remedies available at law or equity.
If the Company fails to pay any amounts due pursuant to this Section 11
within five (5) business days of such amounts being due and payable, then the
Holder shall have the right at any time, so long as the Company remains in
default, to require the Company, upon written notice, to immediately issue, in
lieu of such amounts, the number of shares of Common Stock of the Company equal
to the amounts owed by Company to the Holder divided by the Conversion Price
then in effect on the date the Company issues shares pursuant to this Section
11.
The Company shall be required promptly upon its knowledge of an Event of
Default hereunder to give notice of such Event of Default to the Holder hereof.
An "Event of Default" shall mean the following:
(a) Conversion. If the Company fails to issue shares of Common Stock
to any Holder upon exercise by such Holder of the Conversion Rights of the
Holder in accordance with the terms of this Certificate of Designation, fails to
transfer any certificate for shares of Common Stock issued to any Holder upon
conversion of any Preferred Stock and when required by the Certificate of
Designation or fails to remove any restrictive legend on any certificate or any
shares of Common Stock issued to a Holder upon conversion of any Preferred Stock
as and when required by this Certificate of Designation or any Subscription
Agreement by and between Company and Holders and any such failure shall continue
uncured for ten (10) business days;
(b) Breach of Covenant. If the Company breached any material
covenant or other material term or condition of this Certificate of Designation
or any Subscription Agreement by and between Company and Holder (including the
failure to have enough stock available for issuance upon conversion), and such
breach continues for a period of ten (10) business days after written notice
thereof to the Company from the Holder;
(c) Breach of Representations and Warranties. Any representation or
warranty of the Company made herein or in any agreement, statement or
certificate given in writing pursuant hereto or in connection herewith
(including, without limitation, any Subscription Agreement by and between
Company and Holder), shall be false or misleading in any material respect when
made;
(d) Receiver or Trustee. The Company or any subsidiary of the
Company shall make an assignment for the benefit of creditors, or apply for or
consent to the appointment of a receiver or trustee for it or for a substantial
part of its property or business; or such a receiver or trustee shall otherwise
be appointed;
(e) Judgments. Any money judgment, writ or similar process shall be
entered or filed against the Company or any subsidiary of the Company or any of
its property or other assets for more than Five Hundred Thousand Dollars
($500,000), and shall remain unvacated, unbonded or unstayed for a period or
twenty (20) days unless otherwise consented to by the Holder, which consent will
not be unreasonably withheld;
(f) Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings for relief under any bankruptcy law
or any law for the relief or debtors shall be instituted by or against the
Company or any subsidiary of the Company; or
(g) Shareholders Meeting. The Company shall fail to hold its annual
meeting of shareholders by June 30, 1997.
Section 12. Future Offering of Securities. In the event that in a
capital raising transaction, the Company issues any Common Stock or debt or
equity securities convertible into Common Stock (collectively referred to
hereinafter as "Future Equity") which are or become freely tradeable pursuant to
a registration statement or pursuant to an exemption from the registration
requirements of the Securities Act of 1933, the Holders of the outstanding
Series 1996-4 Preferred Stock shall have the right, on the date such Future
Equity becomes freely tradeable and at any time thereafter, to convert the
outstanding Series 1996-4 Preferred Stock into Common Stock pursuant to the
terms of this Certificate of Designation (notwithstanding the holding
requirements set forth in Section 5(a) hereof).
Signed on , 1996
--------------------
Tom Steele, President
Attest:
Secretary
THIS WARRANT AND THE SECURITIES RECEIVABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (i) A REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME
EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION
WITH SUCH OFFER, SALE OR TRANSFER.
Warrant to Purchase
shares
- ------
FORM OF
WARRANT TO PURCHASE COMMON STOCK
OF
FORELAND CORPORATION
THIS CERTIFIES that or any subsequent ("Holder")
-----------------------
hereof, has the right to purchase from FORELAND CORPORATION, a Nevada
corporation (the "Company"), not more than fully paid and nonassessable
-------
shares of the Company's Common Stock, $.001 par value ("Common Stock"), at a
price equal to the Exercise Price as defined in Section 3 below, subject to
adjustment as provided herein, at any time on or before 5:00 p.m., Atlanta,
Georgia time, on November 8, 2001.
The Holder of this Warrant agrees with the Company that this Warrant is
issued and all rights hereunder shall be held subject to all of the conditions,
limitations and provisions set forth herein.
1. Date of Issuance.
This Warrant shall be deemed to be issued on November 8, 1996 ("Date of
Issuance").
2. Exercise.
(a) Manner of Exercise. This Warrant may be exercised as to all or any
lesser number of full shares of Common Stock covered hereby upon surrender of
this Warrant, with the Exercise Form attached hereto duly executed, together
with the full Exercise Price (as defined in Section 3) for each share of Common
Stock as to which this Warrant is exercised, at the office of the Company, 12596
W. Bayaud, #300, Lakewood, CO 80228, Attention: President, Telephone No. (303)
988-3122, Telecopy No. (303) 988-3234, or at such other office or agency as the
Company may designate in writing, by overnight mail, with an advance copy of the
Exercise Form attached as Exhibit A ("Exercise Form") by facsimile (such
surrender and payment of the Exercise Price hereinafter called the "Exercise of
this Warrant").
(b) Date of Exercise. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the Exercise Form is sent by
facsimile to the Company, provided that the original Warrant and Exercise Form
are received by the Company within five (5) business days thereafter. The
original Warrant and Exercise Form must be received within five (5) business
days of the Date of Exercise, or the exercise may, at the Company's option, be
considered void. Alternatively, the Date of Exercise shall be defined as the
date the original Exercise Form is received by the Company, if Holder has not
sent advance notice by facsimile.
(c) Cancellation of Warrant. This Warrant shall be canceled upon its
Exercise, and, as soon as practical after the Date of Exercise, the Holder
hereof shall be entitled to receive Common Stock for the number of shares
purchased upon such Exercise, and if this Warrant is not exercised in full, the
Foreland (Final) Swartz Warrant
Holder shall be entitled to receive a new Warrant or Warrants (containing terms
identical to this Warrant) representing any unexercised portion of this Warrant
in addition to such Common Stock.
(d) Holder of Record. Each person in whose name any Warrant for shares of
Common Stock is issued shall, for all purposes, be deemed to have become the
Holder of record of such shares on the Date of Exercise of this Warrant,
irrespective of the date of delivery of such shares of Common Stock. Nothing in
this Warrant shall be construed as conferring upon the Holder hereof any rights
as a shareholder of the Company.
3. Payment of Warrant Exercise Price.
The Exercise Price ("Exercise Price") shall equal $7.50 ("Initial Exercise
Price") or, if the Date of Exercise is more than one (1) year after the Date of
Issuance, the lesser of (i) the Initial Exercise Price or (ii) the "Lowest Reset
Price", as that term is defined below. The Company shall calculate a "Reset
Price" on each anniversary date of the Date of Issuance which shall equal one
hundred twenty-five percent (125%) of the average Closing Price of the Company's
Common Stock for the five (5) trading days ending on such anniversary date of
the Date of Issuance. The "Lowest Reset Price" shall equal the lowest Reset
Price determined on an anniversary date of the Date of Issuance preceding the
Date of Exercise, taking into account, as appropriate, any adjustments made
pursuant to Section 5 hereof.
For purposes hereof, the term "Closing Price" shall mean the closing price
on the National Association of Securities Dealers Automated Quotation System
("Nasdaq") Small Cap Market or OTC Bulletin Board, or if no longer traded on the
Nasdaq Small Cap Market or OTC Bulletin Board, the closing price on the
principal national securities exchange or the National Market System on which
the Common Stock is so traded and, if not available, the mean of the high and
Foreland (Final) Swartz Warrant
low prices on the principal national securities exchange or the National
Securities Exchange on which the Common Stock is so traded.
Payment of the Exercise Price may be made by either of the following, or a
combination thereof, at the election of Holder:
(i) Cash Exercise: cash, certified check or cashiers check or wire
transfer; or
(ii) Cashless Exercise: subject to the last sentence of this Section 3,
surrender of this Warrant at the principal office of the Company together with
notice of cashless election, in which event the Company shall issue Holder a
number of shares of Common Stock computed using the following formula:
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant
is being exercised.
A = the Market Price of one (1) share of Common
Stock (for purposes of this Section 3(ii), the "Market Price" shall be
defined as the average closing price of the Common Stock for the five
(5) trading days prior to the Date of Exercise of this Warrant (the
"Average Closing Price"), as reported by Nasdaq or if the Common Stock
is not traded on Nasdaq, the Average Closing Price in the over-the-
counter market; provided, however, that if the Common Stock is listed
on a stock exchange, the Market Price shall be the Average Closing
Price on such exchange. If the Common Stock is/was not traded during
the five (5) trading days prior to the Date of Exercise, then the
Foreland (Final) Swartz Warrant
closing price for the last publicly traded day shall be deemed to be
the closing price for any and all (if applicable) days during such
five (5) trading day period.
B = the Exercise Price.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is intended,
understood and acknowledged that the Common Stock issuable upon exercise of this
Warrant in a cashless exercise transaction shall be deemed to have been acquired
at the time this Warrant was issued. Moreover, it is intended, understood and
acknowledged that the holding period for the Common Stock issuable upon exercise
of this Warrant in a cashless exercise transaction shall be deemed to have
commenced on the date this Warrant was issued.
Notwithstanding anything to the contrary contained herein, this Warrant may not
be exercised in a cashless exercise transaction if, on the Date of Exercise, the
shares of Common Stock to be issued upon exercise of this Warrant would upon
such issuance (x) be immediately transferable in the United States free of any
restrictive legend, including without limitation under Rule 144; (y) be then
registered pursuant to an effective registration statement filed pursuant to
that certain Registration Rights Agreement dated on or about November 8, 1996 by
and among the Company, certain investors and Swartz Investments, LLC; or (z)
otherwise be registered under the Securities Act of 1993, as amended.
4. Transfer and Registration.
(a) Transfer Rights. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in whole
or in part, in person or by attorney, upon surrender of this Warrant properly
endorsed. This Warrant shall be canceled upon such surrender and, as soon as
practicable thereafter, the person to whom such transfer is made shall be
Foreland (Final) Swartz Warrant
entitled to receive a new Warrant or Warrants as to the portion of this Warrant
transferred, and the Holder of this Warrant shall be entitled to receive a new
Warrant or Warrants as to the portion hereof retained.
(b) Registrable Securities. The Common Stock issuable upon the exercise of
this Warrant constitute "Registrable Securities" under that certain Registration
Rights Agreement dated on or about November 8, 1996 by and between the Company,
certain investors, and Swartz Investments, LLC and, accordingly, has the benefit
of the registration rights pursuant to that agreement.
5. Anti-Dilution Adjustments.
(a) Stock Dividend. If the Company shall at any time declare a dividend
payable in shares of Common Stock, then the Holder hereof, upon Exercise of this
Warrant after the record date for the determination of Holders of Common Stock
entitled to receive such dividend, shall be entitled to receive upon Exercise of
this Warrant, in addition to the number of shares of Common Stock as to which
this Warrant is Exercised, such additional shares of Common Stock as such Holder
would have received had this Warrant been Exercised immediately prior to such
record date and the Exercise Price will be proportionately adjusted.
(b) Recapitalization or Reclassification. If the Company shall at any
time effect a recapitalization, reclassification or other similar transaction of
such character that the shares of Common Stock shall be changed into or become
exchangeable for a larger or smaller number of shares, then upon the effective
date thereof, the number of shares of Common Stock which the Holder hereof shall
be entitled to purchase upon Exercise of this Warrant shall be increased or
decreased, as the case may be, in direct proportion to the increase or decrease
in the number of shares of Common Stock by reason of such recapitalization,
reclassification or similar transaction, and the Exercise Price shall be, in the
case of an increase in the number of shares, proportionally decreased and, in
Foreland (Final) Swartz Warrant
the case of decrease in the number of shares, proportionally increased. The
Company shall give the Warrant Holder the same notice it provides to holders of
Common Stock of any transaction described in this Section 5(b).
(c) Distributions. If the Company shall at any time distribute to Holders
of Common Stock cash, evidences of indebtedness or other securities or assets
(other than cash dividends or distributions payable out of earned surplus or net
profits for the current or preceding year) then, in any such case, the Holder of
this Warrant shall be entitled to receive, upon exercise of this Warrant, with
respect to each share of Common Stock issuable upon such Exercise, the amount of
cash or evidences of indebtedness or other securities or assets which such
Holder would have been entitled to receive with respect to each such share of
Common Stock as a result of the happening of such event had this Warrant been
Exercised immediately prior to the record date or other date fixing shareholders
to be affected by such event (the "Determination Date") or, in lieu thereof, if
the Board of Directors of the Company should so determine at the time of such
distribution, a reduced Exercise Price determined by multiplying the Exercise
Price on the Determination Date by a fraction, the numerator of which is the
result of such Exercise Price reduced by the value of such distribution
applicable to one share of Common Stock (such value to be determined by the
Board in its discretion) and the denominator of which is such Exercise Price;
provided, however, that this provision shall not apply to a spinoff of the
Common Stock of Krutex Energy Corporation ("Krutex") assuming that no assets of
the Company have been distributed to Krutex prior to such spinoff.
(d) Notice of Consolidation or Merger. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock of the Company shall
be changed into the same or a different number of shares of the same or another
class or classes of stock or securities or other assets of the Company or
another entity or there is a sale of all or substantially all the Company's
Foreland (Final) Swartz Warrant
assets (a "Corporate Change"), then this Warrant shall be assumed by the
acquiring entity or any affiliate thereof and thereafter this Warrant shall be
exerciseable into such class and type of securities or other assets as the
Holder would have received had the Holder exercised this Warrant immediately
prior to such Corporate Change; provided, however, that Company may not affect
any Corporate Change unless it first shall have given thirty (30) business days
notice to the Holder hereof of any Corporate Change.
(e) Exercise Price Adjusted. As used in this Warrant, the term "Exercise
Price" shall mean the purchase price per share specified in Section 3 of this
Warrant, as it may be reset from time to time, until the occurrence of an event
stated in subsection (a), (b) or (c) of this Section 5 and thereafter shall mean
said price as adjusted from time to time in accordance with the provisions of
said subsection. No such adjustment under this Section 5 shall be made unless
such adjustment would change the Exercise Price at the time by $.01 or more;
provided, however, that all adjustments not so made shall be deferred and made
when the aggregate thereof would change the Exercise Price at the time by $.01
or more. No adjustment made pursuant to any provision of this Section 5 shall
have the effect of increasing the total consideration payable upon Exercise of
this Warrant in respect of all the Common Stock as to which this Warrant may
be exercised. Notwithstanding anything to the contrary contained herein, the
Exercise Price shall not be reduced to an amount below the par value of the
Common Stock.
(f) Adjustments: Additional Shares, Securities or Assets. In the event
that at any time, as a result of an adjustment made pursuant to this Section 5,
the Holder of this Warrant shall, upon Exercise of this Warrant, become entitled
to receive shares and/or other securities or assets (other than Common Stock)
then, wherever appropriate, all references herein to shares of Common Stock
shall be deemed to refer to and include such shares and/or other securities or
assets; and thereafter the number of such shares and/or other securities or
Foreland (Final) Swartz Warrant
assets shall be subject to adjustment from time to time in a manner and upon
terms as nearly equivalent as practicable to the provisions of this Section 5.
6. Fractional Interests.
No fractional shares or scrip representing fractional shares shall be
issuable upon the Exercise of this Warrant, but on Exercise of this Warrant, the
Holder hereof may purchase only a whole number of shares of Common Stock. If,
on Exercise of this Warrant, the Holder hereof would be entitled to a fractional
share of Common Stock or a right to acquire a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares of Common
Stock issuable upon conversion shall be the next higher number of shares.
7. Reservation of Shares.
The Company shall at all times reserve for issuance such number of
authorized and unissued shares of Common Stock (or other securities substituted
therefor as herein above provided) as shall be sufficient for Exercise and
payment of the Exercise Price of this Warrant. The Company covenants and agrees
that upon Exercise of this Warrant, all shares of Common Stock issuable upon
such Exercise shall be duly and validly issued, fully paid, nonassessable and
not subject to preemptive rights, rights of first refusal or similar rights of
any person or entity.
8. Restrictions on Transfer.
(a) Registration or Exemption Required. This Warrant and the Common
Stock issuable on Exercise hereof have not been registered under the Securities
Act of 1933, as amended, and may not be sold, transferred, pledged, hypothecated
or otherwise disposed of in the absence of registration or the availability of
an exemption from registration under said Act. All shares of Common Stock issued
Foreland (Final) Swartz Warrant
upon Exercise of this Warrant shall bear an appropriate legend to such effect,
if applicable.
(b) Assignment. Assuming the conditions of (a) above regarding
registration or exemption have been satisfied, the Holder may sell, transfer,
assign, pledge or otherwise dispose of this Warrant, in whole or in part. Holder
shall deliver a written notice to Company, substantially in the form of the
Assignment attached hereto as Exhibit B, indicating the person or persons to
whom the Warrant shall be assigned and the respective number of warrants to be
assigned to each assignee. The Company shall effect the assignment within ten
days, and shall deliver to the assignee(s) designated by Holder a Warrant or
Warrants of like tenor and terms for the appropriate number of shares.
(c) Investment Intent. The Warrant and Common Stock issuable upon
conversion are intended to be held for investment purposes and not with an
intent to distribution, as defined in the Act.
9. Benefits of this Warrant.
Nothing in this Warrant shall be construed to confer upon any person
other than the Company and the Holder of this Warrant any legal or equitable
right, remedy or claim under this Warrant and this Warrant shall be for the sole
and exclusive benefit of the Company and the Holder of this Warrant.
10. Applicable Law.
This Warrant is issued under and shall for all purposes be governed by
and construed in accordance with the laws of the state of Nevada, without giving
effect to conflict of law provisions thereof.
Foreland (Final) Swartz Warrant
11. Loss of Warrant.
Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver a new Warrant of like tenor and date.
12. Notice or Demands.
Notices or demands pursuant to this Warrant to be given or made by the Holder of
this Warrant to or on the Company shall be sufficiently given or made if sent by
certified or registered mail, return receipt requested, postage prepaid, and
addressed, until another address is designated in writing by the Company, 12596
W. Bayaud, #300, Lakewood, CO 80228, Attention: President, Telephone No. (303)
988-3122, Telecopy No. (303) 988-3234. Notices or demands pursuant to this
Warrant to be given or made by the Company to or on the Holder of this Warrant
shall be sufficiently given or made if sent by certified or registered mail,
return receipt requested, postage prepaid, and addressed, Attn: Holder,
address:
c/o Swartz Investments, LLC, 200 Roswell Summit, Suite 285, 1080 Holcomb Bridge
Road, Roswell, Georgia 30076, until another address is designated in writing by
Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the 8th
day of November, 1996.
FORELAND CORPORATION
Foreland (Final) Swartz Warrant
By:
--------------------------------
Print Name:
--------------------------------
Title:
--------------------------------
EXHIBIT A
EXERCISE FORM
TO: FORELAND CORPORATION
The undersigned hereby irrevocably exercises the right to purchase
of the shares of Common Stock of FORELAND CORPORATION, a Nevada
- ------------
corporation, evidenced by the attached Warrant, and herewith makes payment of
the Exercise Price with respect to such shares in full, all in accordance with
the conditions and provisions of said Warrant.
The undersigned agrees not to offer, sell, transfer or otherwise dispose of
any of such Common Stock, except in accordance with the provisions of Section 8
of the Warrant, and consents that the following legend may be affixed to the
stock certificates for the Common Stock hereby subscribed for, if such legend is
applicable:
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or any
provincial or state securities law, and may not be sold, transferred,
pledged, hypothecated or otherwise disposed of until either (i) a
registration statement under the Securities Act and applicable provincial
or state securities laws shall have become effective with regard thereto,
Foreland (Final) Swartz Warrant
or (ii) an exemption from registration under the Securities Act or
applicable provincial or state securities laws is available in connection
with such offer, sale or transfer."
The undersigned requests that stock certificates for such shares be issued,
and a warrant representing any unexercised portion hereof be issued, pursuant to
the Warrant in the name of the Registered Holder and delivered to the
undersigned at the address set forth below:
Dated:
Signature of Registered Holder
Name of Registered Holder (Print)
Address
- ------------------------------------------------------------------------
EXHIBIT B
ASSIGNMENT
Foreland (Final) Swartz Warrant
(To be executed by the registered Holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned Holder of the attached Warrant hereby sells,
assigns and transfers unto the person or persons below named the right to
purchase shares of the Common Stock of FORELAND CORPORATION evidenced by
-------
the attached Warrant and does hereby irrevocably constitute and appoint
attorney to transfer the said Warrant on the books of
- -----------------------
the Company, with full power of substitution in the premises.
Dated:
------------------------------
Signature
Fill in for new Registration of Warrant:
Name
Address
Please print name and address of assignee
(including zip code number)
NOTICE
Foreland (Final) Swartz Warrant
The signature to the foregoing Exercise Form or Assignment must correspond to
the name as written upon the face of the attached Warrant in every particular,
without alteration or enlargement or any change whatsoever.
<PAGE>
SCHEDULE TO FORM OF WARRANT AGREEMENT
<TABLE>
<CAPTION>
Name Date of Grant Number Exercise
of Price * Vesting Expiration
Shares
<S> <C> <C> <C> <C> <C>
Swartz Family Partnership Nov. 8, 1996 8,710 $7.50 100% on date of grant Nov. 8, 2001
Kendrick Family Partnership Nov. 8, 1996 8,710 $7.50 100% on date of grant Nov. 8, 2001
P. Bradford Hathorn Nov. 8, 1996 1,000 $7.50 100% on date of grant Nov. 8, 2001
Glenn A. Adams Nov. 8, 1996 1,500 $7.50 100% on date of grant Nov. 8, 2001
Bruce Tate Nov. 8, 1996 2,000 $7.50 100% on date of grant Nov. 8, 2001
Charles Whiteman Nov. 8, 1996 1,000 $7.50 100% on date of grant Nov. 8, 2001
Davis C. Holden Nov. 8, 1996 500 $7.50 100% on date of grant Nov. 8, 2001
Enigma Investments, Ltd. Nov. 8, 1996 2,067 $7.50 100% on date of grant Nov. 8, 2001
Dunwoody Brokerage Services, Inc. Nov. 8, 1996 1,500 $7.50 100% on date of grant Nov. 8, 2001
* Subject to reduction if 125% of the average closing price of the Company's
Common Stock on each anniversary date of issuance is lower.
</TABLE>
REVISED
EXECUTIVE EMPLOYMENT AGREEMENT
THIS REVISED EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") is entered
into this 27th day of September, 1996 (the "Execution Date"), to be effective
September 1, 1996 (the "Effective Date"), by and between FORELAND CORPORATION, a
Nevada corporation ("Employer"), and [Name of Executive] ("Executive").
For and in consideration of the mutual covenants contained herein and of
the mutual benefits to be derived hereunder, the parties agree as follows:
1. Employment. Employer hereby employs Executive to perform those duties
generally described in this Agreement, and Executive hereby accepts and agrees
to such employment on the terms and conditions hereinafter set forth.
2. Term. The term of this Agreement shall be for a period of thirty-six
(36) months commencing on the Effective Date of this Agreement and shall, on the
first day of each calendar month following the Effective Date hereof,
automatically be renewed and extended for a new thirty-six (36) month term
unless previously terminated pursuant to the terms hereof. Notwithstanding the
foregoing, Executive may terminate this Agreement at any time upon at least
ninety (90) days' prior written notice to Employer, and the board of directors
of Employer may resolve at any time not to extend this Agreement for an
additional thirty-six (36) month term upon the first day of the next succeeding
month, whereupon the term of this Agreement shall expire upon the termination of
the then current thirty-six (36) month term.
3. Duties. During the term of this Agreement, Executive shall be
employed by Employer and shall initially occupy the office of of
--------------
Employer, as the board of directors of Employer may determine. Executive agrees
to serve in such offices or positions with Employer or any subsidiary of
Employer and such substitute or further offices or positions of substantially
consistent rank and authority as shall, from time to time, be determined by
Employer's board of directors. Executive shall devote substantially all of his
working time and efforts to the business of Employer and its subsidiaries and
shall not during the term of this Agreement be engaged in any other substantial
business activities which will significantly interfere or conflict with the
reasonable performance of his duties hereunder. Executive shall observe and
comply with the rules and regulations of Employer respecting its business and
shall carry out and perform orders, directions and policies of Employer as may
be given to Executive, either orally or in writing, by the board of directors or
such superior officer as the bylaws of Employer or the board of directors may
provide. Executive shall further observe and comply with all applicable rules,
regulations, and laws governing the business of Employer.
4. Compensation.
(a) For all services rendered by Executive, Employer shall pay to
Executive an initial base salary of $ per year, subject to
---------
increase as provided below, payable in equal monthly payments. All base
salary payments shall be subject to withholding and other applicable taxes.
(b) At such time as Employer shall achieve sustained net oil
production at an average of at least 1,000 barrels of oil per day for any
calendar month, the annual base salary payable to Executive shall be
automatically increased to $ .
------------
(c) The rate of base salary may be increased at any time as the board
of directors may determine, based on results of operations, increased
activities of Employer, or such other factors as the board of directors may
deem appropriate; provided, however, that the base salary payable to
Executive shall be increased on each anniversary date of this Agreement for
the succeeding twelve (12) month period by the percentage increase, if any,
in the Consumer Price Index of all Urban consumers, U.S. City Average, all
Item Index, 1967 equals 100, published by the Bureau of Labor Statistics,
United States Department of Labor, for the year preceding such anniversary
date.
(d) If at any time Executive works less than full-time as provided in
paragraph 3, Executive's base salary hereunder shall be adjusted pro rata
in proportion to the reduced amount of time and efforts being devoted by
Executive to Employer.
5. Incentive Compensation.
(a) Employer shall grant to Executive options to purchase 200,000
shares of common stock of Employer, at an exercise price of $5.00 per
share. The options shall vest, subject to the continued employment of
Executive by Employer, 50,000 on execution of this Agreement and 50,000 on
each of the subsequent three anniversary dates of this Agreement. The
options shall expire on the date that is seven years from the date of
vesting of such options.
(b) Employer shall provide Executive with incentive compensation in
the form of cash bonuses not less often than once each year during the term
of this Agreement. The amount of such bonuses shall be determined in the
sole discretion of the board of directors of Employer or a compensation
committee thereof, taking into consideration the growth and profitability
of Employer, the relative contribution by Executive to the business of
Employer, the economy in general, and such other factors as the board of
directors or compensation committee deems relevant.
6. Extension of Payment and Expiration Dates.
(a) Executive has heretofore delivered a promissory note to Employer
for the payment of the exercise price of certain options exercised by
Executive to purchase shares of common stock of Employer. Such promissory
note provides for installment payments due in September 1996 and September
1997. As additional consideration for the execution of this Agreement, the
due dates for the installment payments due in September 1996 and September
1997 shall be extended to September 1997 and September 1998, respectively.
(b) Executive currently holds options to purchase shares of common
stock that, pursuant to their terms, expire in December 1996. As
additional consideration for the execution of this Agreement, the
expiration date for such options shall be extended to December 31, 1997.
7. Employment Benefits. Employer shall provide health and medical
insurance for Executive in a form and program to be chosen by Employer for its
full-time employees. Executive shall be entitled to participate in any
retirement, pension, profit-sharing, stock option, or other plan as in effect
from time to time on the same basis as other employees.
8. Working Facilities. Employer shall provide to Executive at Employer's
principal executive offices suitable executive offices and facilities
appropriate for his position and suitable for the performance of his
responsibilities.
9. Vacations. Executive shall be entitled each year to a paid vacation
of a least four (4) weeks. Vacation shall be taken by Executive at a time and
with starting and ending dates mutually convenient to Employer and Executive.
Vacation or portions of vacations not used in one employment year shall carry
over to the succeeding employment year, but shall thereafter expire if not used
within such succeeding year.
10. Expenses. Employer will reimburse Executive for expenses incurred in
connection with Employer's business, including expenses for travel, lodging,
meals, beverages, entertainment, and other items. Executive shall provide the
following for all expenses for which Executive desires reimbursement:
(a) A report in which Executive has recorded at or near the time each
expenditure was made: (1) the amount of the expenditure; (2) the time,
place and designation of the type of entertainment, travel or other
expense, or the date; (3) the business reason for the expenditures and the
nature of the business benefit derived or expected to be derived as a
result of the expenditure; and (4) the names, occupations, addresses and
other information concerning each person who was entertained sufficient to
establish the business relationship to Employer; and
(b) Documentary evidence (such as receipts or paid bills), which
states sufficient information to establish the amount, date, place and the
essential character of the expenditure, for each expenditure: (1) of
twenty-five dollars ($25.00) or more (except for transportation charges if
not readily available); and (2) for lodging while traveling away from home.
Employer shall provide to Executive at the election of Executive (a) a company
vehicle of a type suitable for Executive's position, insured at Employer's
expense, for the exclusive use of Executive, or (b) a car allowance of $550 per
month.
11. Covenant Not to Compete. For a period of two (2) years after
termination of this Agreement, except in the event of breach of this Agreement
by Employer, Executive agrees that he will not directly or indirectly engage in,
assist, perform services for, establish or open or have any equity interest
(other than such interest, if any, held as of the date hereof, and ownership of
ten percent (10%) or less of the outstanding stock of any corporation listed on
the New York or American Stock Exchange or included in the Nasdaq Stock Market)
in any person, firm, corporation, or business entity (whether as an employee,
officer, director, agent, security holder, creditor, consultant, or otherwise)
that is engaged in any oil exploration, development, or production activity in
the state of Nevada. If in any judicial proceeding, a court shall refuse to
enforce any of the separate covenants deemed included in this paragraph, then
the unenforceable covenants shall be deemed eliminated from these provisions for
the purpose of those proceedings to the extent necessary to permit the remaining
separate covenants (meaning the remaining states) to be enforced.
This covenant not to compete shall not be construed as restricting
Executive's right to own shares in any company or limited partnership or
business entity (other than beneficial ownership of ten percent (10%) or less of
the outstanding stock of any corporation listed on the New York or American
Stock Exchange or included in the Nasdaq Stock Market); provided that, they do
not perform services for, or participate in any way in the management of, a
business entity which competes in the manner outlined above.
This covenant shall survive the termination of this Agreement.
12. Nondisclosure of Information. In further consideration of employment
and the continuation of employment by Employer, Executive will not, directly or
indirectly, during or after the term of employment, disclose to any person not
authorized by Employer to receive or use such information, except for the sole
benefit of Employer, any of Employer's confidential or proprietary data,
information, or techniques, or give to any person not authorized by Employer to
receive it any information that is not generally known to anyone other than
Employer or that is designated by Employer as "Limited," "Private," or
"Confidential," or similarly designated or for which there is any reasonable
basis to be believed is, or which appears to be, treated by Employer as
confidential.
13. Disability. If Executive is unable to perform his services by reason
of illness or incapacity for a period of more than six consecutive months, the
board of directors of Employer shall determine, in their sole and absolute
discretion, whether to continue to pay compensation to Executive, in which event
compensation shall continue to be paid at the rate of 100% of the base salary
provided for in paragraph 4 hereof and the incentive compensation to which he
would be entitled under paragraph 5(b) hereof, or to terminate Executive's
employment, in which event Employer shall pay to Executive an amount equal to
twice the annual base salary then in effect provided for in paragraph 4 hereof
and a pro rata portion of the annual incentive compensation to which he would
otherwise be entitled under paragraph 5(b) for the year during which his
employment terminates, based on the number of full months of his employment
during that year. The amount payable to Executive on termination of his
employment pursuant to the immediately preceding sentence shall be payable, at
the election of Employer, in cash or in shares of common stock of Employer that
are registered for resale under the Securities Act of 1933, as amended (the
"Securities Act"). Notwithstanding the foregoing, no compensation shall be
payable hereunder after the termination of this Agreement. Executive shall be
deemed to be employed by Employer at all times during which payments are being
made to Executive hereunder for purposes of determining vesting of the options
granted to Executive pursuant to paragraph 5(a) hereof. In addition, if
Employer shall terminate Executive's employment pursuant to this paragraph, the
options granted under paragraph 5(a) that would have become vested and
exercisable within the succeeding two years following such termination shall
automatically become vested and exercisable upon such termination. All other
benefits to which Executive was entitled hereunder shall terminate upon the
termination of his employment, except to the extent required under COBRA and
similar laws. For purposes of this Agreement, Executive is "disabled" when he
is unable to continue his normal duties of employment, by reason of a medically
determined physical or mental impairment. In determining whether or not
Executive is disabled, Employer may rely upon the opinion of any doctor or
practitioner of any recognized field of medicine or psychiatric practice
selected jointly by Employer and Executive and such other evidence as Employer
deems necessary.
14. Termination for Cause. Except as set forth in the foregoing
paragraph, Employer may terminate this Agreement during its term for cause
("Cause") by showing that Executive has materially and repeatedly breached the
terms hereof; that Executive, in the determination of the board, has been
grossly negligent on a continuous basis in the performance of his duties; that
Executive has substantially failed on a continuous basis to meet written
standards established by Employer for the performance of his duties; that
Executive has regularly engaged in material willful or gross misconduct in the
performance of his duties hereunder; or that a final non-appealable conviction
of Executive, or a plea of guilty or nolo contendere by Executive, to a felony
or misdemeanor involving fraud, embezzlement, theft, or dishonesty or other
criminal conduct against Employer has been entered. A determination by the
board of directors that Cause exists for the removal of Executive shall be made
by the vote of not less than a majority of the entire board of directors.
Notwithstanding the foregoing, Executive shall not be removed for Cause without
(i) reasonable written notice to Executive setting forth the reasons for the
proposed removal for Cause; (ii) an opportunity for Executive, together with
Executive's counsel, to be heard before a meeting of the board of directors
convened for the purpose of voting on the removal of Executive; and (iii)
delivery to Executive of written notice of removal setting forth the finding
that in the good faith opinion of board of directors Cause existed for removal
and specifying the particulars thereof in detail. Upon termination of this
Agreement for Cause, Employer shall pay Executive an amount equal to one month's
base salary (as then in effect) for each 12 months that Executive has been
employed by Employer and a pro rata portion of the annual incentive compensation
to which he would otherwise be entitled under paragraph 5(b) for the year during
which his employment terminates, based on the number of full months of his
employment during that year. In addition, a pro rata portion, based on the
number of full months of Executive's employment since the immediately preceding
anniversary date of this Agreement, of the options granted pursuant to paragraph
5(a) that would have become vested and exercisable on the next succeeding
anniversary date of this Agreement shall become vested and exercisable on
termination. Employer shall have no further obligation to Executive except for
compensation previously accrued and unpaid.
15. Termination Upon Change of Control. Notwithstanding any provision of
this Agreement to the contrary, Executive may terminate this Agreement,
including the covenant not to compete set forth in paragraph 11, but not the
covenant not to disclose information set forth in paragraph 12, upon the
happening of any of the following events:
(a) The sale by Employer of substantially all of its assets to a
single purchaser or to a group of associated purchasers;
(b) The sale, exchange, or other disposition to a single person or
group of persons under common control in one transaction or series of
related transactions resulting in such person or persons owning, directly
or indirectly, greater than twenty-five percent (25%) of the combined
voting power of the outstanding shares of Employer's common stock;
(c) More than fifty percent (50%) of the members of the board of
directors of Employer shall be persons who are neither nominated for
election by the board or an authorized committee of the board nor elected
by the board;
(d) The decision by Employer to terminate its business and liquidate
its assets; or
(e) The merger or consolidation of Employer in a transaction in which
the shareholders of Employer immediately prior to such merger or
consolidation receive less than fifty percent (50%) of the outstanding
voting shares of the new or continuing corporation.
In the event Executive does not elect to terminate this Agreement upon the
happening of any of the events noted above, and as a result of such event,
Employer is not the surviving entity, then the provisions of this Agreement
shall inure to the benefit of and be binding upon the surviving or resulting
entity. If as a result of the merger, consolidation, transfer of assets, or
other event listed above, the duties of Executive are increased, then the
compensation of Executive provided for in paragraph 4 of this Agreement shall be
reasonably adjusted upward to compensate for the additional duties and
responsibilities assumed.
16. Termination Payments. In the event that Executive's employment is
terminated by Employer during the term hereof for reasons other than Cause as
defined in paragraph 14, or Executive terminates his employment within 30 days
following the occurrence of any of the events described in paragraph 15,
Executive shall be compensated by Employer as follows:
(a) Executive's base salary for the remaining term of this Agreement,
as provided in paragraph 4, shall be paid to Executive, at the election of
Executive, in a lump sum payment of cash or in shares of common stock of
Employer that are registered for resale under the Securities Act;
(b) Executive's coverage under Employer's insurance and employee
benefit plans, as provided in paragraph 7, shall continue through the term
hereof;
(c) Executive shall continue to receive the annual incentive
compensation to which he would otherwise be entitled under paragraph 5 for
the year during which his employment terminates, but prorated to reflect
the number of full months of his employment during that year, payable, at
the election of Executive, in a lump sum payment of cash or in shares of
common stock of Employer that are registered for resale under the
Securities Act; and
(d) All of the options to purchase shares of common stock pursuant to
paragraph 5 hereof and all other options then held by Executive shall
immediately become vested and exercisable.
17. Resignation upon Termination. Upon the termination of this Agreement
for any reason, Executive hereby agrees to resign from all positions held in
Employer or an affiliate of Employer, including without limitation any position
as a director, officer, agent, trustee or consultant of Employer or any
affiliate of Employer.
18. Death During Employment. If Executive dies during the term of this
Agreement, Employer shall pay to the estate of Executive an amount equal to
three years' base salary provided for in paragraph 4 of this Agreement plus a
pro rata portion of the incentive compensation which would have been payable
pursuant to paragraph 5(b), based upon the number of full months from the
beginning of the year of Executive's death to the date of death. In addition, a
pro rata portion, based on the number of full months of Executive's employment
since the immediately preceding anniversary date of this Agreement, of the
options granted pursuant to paragraph 5(a) that would have become vested and
exercisable on the next succeeding anniversary date of this Agreement shall
become vested and exercisable on Executive's death. The amount payable to
Executive pursuant to this paragraph shall be payable, at the election of the
board of directors of Employer made within 60 days after Executive's death, in
cash or in shares of common stock of Employer that are registered for resale
under the Securities Act. A payment of cash under this paragraph may be paid,
at the election of the board of directors of Employer, in a lump sum or in 12
monthly payments beginning on the first day of the month immediately following
the determination by the board of directors of Employer of the method of
payment.
19. Stock Registration Provisions. During the term of this Agreement,
Executive shall have the following rights and obligations with respect to
registration under the Securities Act of 1933, as amended, and applicable blue
sky laws of shares of common stock ("Shares") of Employer owned of record by
Executive or to be acquired on exercise of any options issued in Executive's
name to purchase Shares:
(a) Participatory Registration. Employer shall notify Executive, at
least thirty (30) days prior to the filing of any registration statement of
forms S-1, S-2, S-3, SB-2, or any successor forms under the Securities Act
of 1933, as amended (specifically excluding any registration statement on
forms S-4, S-8, or any successor forms for similar transactions), covering
any class of stock of Employer and will upon the written request of
Executive delivered at least twenty (20) days prior to such filing, include
in any such registration statement such information as may be required to
register such number of Executive's Shares as Executive may request.
Executive and Employer shall each include customary representations,
warranties, indemnification, and contribution provisions in any
underwriting agreement entered into in connection with such registration.
If the managing underwriters for such registration advise Employer in
writing that in their opinion, the total amount of securities to be
included in such registration statement exceeds the amount which should
reasonably be included in that offering to achieve Employer's financing
goals, Employer may limit the amount of stock to be included as follows:
(i) first, all securities Employer proposes to sell may be included, (ii)
second, stock requested to be included in such registration by all third
parties, other than executives and employees, that have a contractual right
to have such stock so included may be included; (iii) third, Shares of
common stock requested to be included in such registration by all
executives and employees may be included on the basis of the amount of
Shares owned of record by each employee, and (iv) fourth, if applicable,
other stock requested to be included in such registration may be similarly
and ratably adjusted with all executives' and employees' stock pro rata
according to the amount of stock owned of record by any proposed seller.
All incremental expenses of such registration will be allocated pro rata
according to the number of Shares included for Executive. There shall be
no limit on the number of registrations so requested, but each such request
shall cover an amount of Shares having a proposed offering price of not
less than Fifty Thousand Dollars ($50,000.00).
(b) Registration on Request. In addition, Executive's Shares may be
registered on not more than one occasion, in such amount as may be
requested, within one year following the death or the commencement of
disability of Executive. Within thirty (30) days after the receipt of a
request for such registration by Executive's estate or personal
representative pursuant hereto, Employer will commence the process of
preparing for filing a registration statement covering the Shares and use
its best efforts to cause such registration statement to become effective.
Employer and Executive shall use commercially reasonable efforts to obtain
an underwriter to firmly underwrite any such offering. Employer may delay
for up to one hundred eighty (180) days the filing of such a registration
statement if the board of directors of Employer in good faith and for a
bona fide corporate purpose determines that a filing at a requested time
would be adverse to Employer's interests. Employer shall not be obligated
to file any such registration statement at any time during which it is
impossible or impracticable to include the required financial statements.
Employer and Executive shall provide all information required for inclusion
in such registration statement and any underwriting agreement entered into
in connection therewith shall contain the customary representations,
warranties, indemnification, and contribution provisions. All expenses of
such registration shall be allocated pro rata according to the total number
of Shares included therein.
(c) General. In connection with each of the foregoing registrations
and subject to the provisions concerning expenses, Employer shall also (i)
use its best efforts to qualify the Shares for public sale under the blue
sky laws of such jurisdictions as Executive may reasonably request, (ii)
provide such number of preliminary and final prospectuses as Executive may
reasonably request, and (iii) keep the final prospectus in any such
registration current for a reasonable period not to exceed one hundred
twenty (120) days. In connection with the indemnification and contribution
to be provided by Executive to any underwriter or Employer pursuant to this
paragraph 19, the aggregate liability of Executive shall not exceed the
aggregate net proceeds received by Executive from the sale of the
registered Shares, and, in connection with contribution, shall also take
into consideration the relative fault of each contributing person.
20. Representations and Warranties of Executive. Executive represents and
warrants to Employer that (a) Executive understands and voluntarily agrees to
the provisions of this Agreement; (b) Executive is not aware of any existing
medical condition which might cause him to be or become unable to fulfill his
duties under this Agreement; and (c) Executive is free to enter into this
Agreement and has no commitment, arrangement or understanding to or with any
third party that restrains or is in conflict with this Agreement or that would
operate to prevent Executive from performing the services to Employer that
Executive has agreed to provide hereunder.
21. Nontransferability. Neither Executive, Executive's spouse,
Executive's designated contingent beneficiary, nor their estates shall have any
right to anticipate, encumber, or dispose of any payment due under this
Agreement. Such payments and other rights are expressly declared nonassignable
and nontransferable, except as specifically provided herein.
22. Indemnification. Employer shall indemnify Executive and hold
Executive harmless from liability for acts or decisions made by Executive while
performing services for Employer to the greatest extent permitted by applicable
law. Employer shall use its best efforts to obtain coverage for Executive under
any insurance policy now in force or hereafter obtained during the term of this
Agreement insuring officers and directors of Employer against such liability.
23. Assignment. This Agreement may not be assigned by either party
without the prior written consent of the other party.
24. Entire Agreement. This Agreement is and shall be considered to be the
only agreement or understanding between the parties hereto with respect to the
employment of Executive by Employer. All negotiations, commitments, and
understandings acceptable to both parties have been incorporated herein. No
letter, telegram, or communication passing between the parties hereto covering
any matter during this contract period, or any plans or periods thereafter,
shall be deemed as part of this Agreement; and shall not have the effect of
modifying or adding to this Agreement unless it is distinctly stated in such
letter, telegram, or communication that it is to constitute a part of this
Agreement and is to be attached as an amendment to this Agreement and is signed
by the parties to this Agreement.
25. Enforcement. Executive acknowledges that any remedy at law for breach
of paragraphs 11 and 12 would be inadequate, acknowledges that Employer would be
irreparably damaged by an actual or threatened breach thereof, and agrees that
Employer shall be entitled to an injunction restraining Executive from any
actual or threatened breach of paragraphs 11 and 12 as well as any further
appropriate equitable relief without any bond or other security being required.
In addition to the foregoing, each of the parties hereto shall be entitled to
any remedies available in equity or by statute with respect to the breach of the
terms of this Agreement by the other party.
26. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the state of Colorado.
27. Severability. If and to the extent that any court of competent
jurisdiction holds any provision or any part thereof of this Agreement to be
invalid or unenforceable, such holding shall in no way affect the validity of
the remainder of this Agreement.
28. Waiver. No failure by any party to insist upon the strict performance
of any covenant, duty, agreement, or condition of this Agreement or to exercise
any right or remedy consequent upon a breach hereof shall constitute a waiver of
any such breach or of any covenant, agreement, term, or condition.
29. Litigation Expenses. In the event that it shall be necessary or
desirable for Executive to retain legal counsel and/or incur other costs and
expenses in connection with the enforcement of any and all of Executive's rights
under this Agreement, Executive shall be entitled to recover from Employer
reasonable attorneys' fees, costs, and expenses incurred by Executive in
connection with the enforcement of said rights. Payment shall be made to
Executive by Employer at the time these attorneys' fees, costs, and expenses are
incurred by Executive. If, however, Executive does not prevail in such
enforcement action, Executive shall repay any such payments to Employer.
30. Termination of Prior Agreement. Except with respect to the prior
grant of stock appreciation rights, the provisions of this Agreement shall
supersede in every respect the provisions of the prior employment agreement
entered into between Employer and Executive, which prior agreement is hereby
terminated and void.
AGREED AND ENTERED INTO as of the date first above written.
Employer:
FORELAND CORPORATION
By /s/ N. Thomas Steele, President
Executive:
/s/
SCHEDULE:
NAME POSITION BASE SALARY INCREASE
N. Thomas Steele President $125,000 $173,000
Grant Steele Chairman $ 18,000 $ 36,000
Kenneth L. Ransom Vice-President $119,000 $167,000
Bruce C. Decker Vice-President $119,000 $167,000
FORELAND CORPORATION
NON-QUALIFIED STOCK OPTION
(EXECUTIVE OFFICER)
IT IS IMPORTANT THAT YOU RETAIN THIS DOCUMENT. THIS
ORIGINAL NON-QUALIFIED STOCK OPTION MUST BE DELIVERED TO THE
COMPANY ON EXERCISE OR TRANSFER OF THE OPTION.
THIS NON-QUALIFIED STOCK OPTION (this "Option") is granted this 18th day
of July, 1996, by FORELAND CORPORATION, a Nevada corporation (the "Company"), to
("Optionee"), pursuant to a resolution of the
board of directors of the Company.
1. Grant of Option. The Company hereby irrevocably grants to Optionee
the right and option to purchase all or any part of an aggregate of 100,000
shares of common stock, par value $0.001 per share, of the Company (the "Common
Stock") on the terms and conditions hereinafter set forth.
2. Exercise Price. The exercise price of this Option shall be $4.00
per share (the "Exercise Price"), the fair market value of the Common Stock on
the date of grant as determined by the board of directors.
3. Term of Option. All rights to acquire shares of Common Stock
hereunder shall expire five years after the date of this Option.
4. Shareholder's Rights. The Optionee shall have the rights of a
shareholder only with respect to Common Stock fully paid for by Optionee under
this Option.
5. Adjustment to Number of Shares of Common Stock.
(a) In the event that a share dividend shall be declared upon the common
stock of the Company, the number of shares of Common Stock then subject to
this Option shall be adjusted by adding to each such share the number of
shares which would be distributable in respect thereof if such Common Stock
had been outstanding on the date fixed for determining the shareholders of
the Company entitled to receive such share dividend.
(b) In the event that the outstanding shares of the Company shall be
changed into or exchanged for a different number or kind of shares or other
securities of the Company or of another corporation, whether through
reorganization, recapitalization, split-up, combination of shares, merger,
consolidation, or otherwise, then there shall be substituted for each share
of Common Stock subject to this Option the number and kind of shares or
other securities into which each outstanding share of the Company shall
have been so changed or for which each such share shall have been
exchanged. Under no circumstances shall any such reorganization,
recapitalization, split-up, combination of shares, merger, consolidation,
or other exchange be accomplished without a comparable share option being
substituted pursuant to the foregoing.
(c) In the event there shall be any change, other than as specified
elsewhere in this paragraph, in the number or kind of outstanding shares or
of any shares or other securities into which such shares shall have been
changed or for which they shall have been exchanged, then the board shall,
in its sole discretion, determine whether such change equitably requires an
adjustment in the number or kind of Common Stock to be issued on the
exercise of this Option. Such adjustment shall be made by the board and
shall be effective and binding for all purposes of this Option.
(d) In the case of any such substitution or adjustment as provided for
in this paragraph, the option price set forth in this Option for each share
of Common Stock covered hereby prior to such substitution or adjustment
shall be the option price for all shares or other securities which shall
have been substituted for such Common Stock or to which such Common Stock
shall have been adjusted pursuant to this paragraph. No adjustment or
substitution provided for in this paragraph shall require the Company to
sell a fractional share of Common Stock, and the substitution or adjustment
with respect to this Option shall be limited accordingly; provided,
however, that the aggregate option price paid shall be appropriate reduced
on account of any fractional share of Common Stock not issued. Upon any
adjustment made pursuant to this paragraph, the Company shall, upon
request, deliver to the Optionee a certificate of the Company's treasurer
setting forth the option price thereafter in effect and the number and kind
of shares or other securities thereafter purchasable on the exercise of
this Option.
(e) If at any time:
(i) The Company proposes to pay any dividend or make any
distribution, including a cash or property dividend payable out of
earnings, earned surplus, or the assets of the Company; or
(ii) The Company proposes to effectuate any plan of reorganization
or reclassification of the Common Stock; or
(iii) The Company proposes to merge, consolidate, or encumber or
sell all or substantially all of its assets other than in the ordinary
course of business;
then, and in any one or more of such events, the Company shall cause a
notice to be mailed to the registered holder(s) of this Option at the
address of such holder(s) set forth in the registration records of the
Company. Such notice shall be solely for the convenience of such
registered holders and shall not be a condition precedent to, nor shall any
defect therein or failure in connection therewith affect the validity of,
the action proposed to be taken by the Company. Such notice shall be
mailed at least twenty (20) days prior to the date on which the books of
the Company shall close or a record date shall be taken for such dividend,
share split, or reclassification, consolidation, merger, or sale of
properties and assets, as the case may be. Such notice shall specify the
record date for the closing of the Company's shareholder records.
6. Record Owner. The Company may deem and treat the registered owner
of this Option as the absolute owner hereof for all purposes and shall not be
affected by any notice to the contrary.
7. Method of Exercise. This Option may be exercised, in accordance with
all of the terms and conditions set forth in this Option, by delivery of this
Option together with a notice of exercise, a form of which is attached hereto as
Exhibit "A" and incorporated herein by this reference, indicating the number of
Shares which the Optionee then elects to purchase and with payment made in
accordance with the following:
(a) If Optionee elects to exercise the Option and make payment, in whole
or in part, for the shares of Common Stock in cash, Optionee shall include
with the notice of exercise a certified check or official bank check
payable to the order of the Company in the amount of the full option price
of the Common Stock being purchased for cash.
(b) If Optionee elects to exercise the Option and make payment, in whole
or in part, for the shares of Common Stock in installments, Optionee shall
include with the notice of exercise a certified check or official bank
check payable to the order of the Company in the amount of any cash to be
paid on exercise, and a promissory note, in form satisfactory to the
Company, executed by the Optionee and evidencing the obligation of the
Optionee to pay the balance of the exercise price on terms and conditions
acceptable to the board of directors of the Company at the time of exercise
of the Option.
(c) If Optionee elects to exercise the Option and make payment, in whole
or in part, for the shares of Common Stock by delivery of shares of Common
Stock of the Company that have been owned by Optionee for over six months,
Optionee shall surrender or transfer to the Company, in a form satisfactory
to it, such shares of Common Stock valued at their fair market value. Fair
market value shall mean the closing price for such stock as quoted on a
registered national securities exchange or, if not listed on a national
exchange, the Nasdaq Stock Market ("Nasdaq"), over the five-day trading
period immediately preceding the date of exercise of such Option, or, if
not listed on such an exchange or included on Nasdaq, shall mean the
closing price (or, if no closing price is available from sources deemed
reliable by the Company, the closing bid quotation) for such stock as
determined by the Company through any other reliable means of determination
available on the close of business on the trading day last preceding the
date of exercise of such Option.
(d) If the Optionee decides to exercise the Option in whole or in part,
and make payment, in whole or in part, for the Common Stock by the delivery
of options or other rights to purchase shares of Common Stock, whether such
options consist of the Options represented hereby or other options or
rights to purchase Common Stock, Optionee shall surrender or transfer to
the Company, in form satisfactory to it, such options or rights to purchase
Common Stock, valued at the amount by which the market value of the Common
Stock subject to such options or other rights, as determined in accordance
with the provisions of subparagraph (c) above, exceeds the exercise or
purchase price provided in such options or rights.
As soon as practicable after receipt by the Company of such notice and of
payment in full of the option price of all the shares of Common Stock with
respect to which the Option has been exercised (including interest if payment is
made in installments), a certificate or certificates representing such shares of
Common Stock shall be issued in the name of the Optionee, or, if the Optionee
shall so request in the notice exercising the Option, in the name of the
Optionee and another person jointly, with right of survivorship, and shall be
delivered to the Optionee. To the extent required by the terms of this Option,
all Common Stock shall be issued only upon receipt by the Company of the
Optionee's representation that the shares are purchased for investment and not
with a view to distribution thereof. If this Option is not exercised with
respect to all Common Stock subject hereto, Optionee shall be entitled to
receive a similar Option of like tenor covering the number of shares of Common
Stock with respect to which this Option shall not have been exercised.
8. Availability of Common Stock. During the term of this Option, the
Company shall at all times keep available for issuance the number of shares of
Common Stock Option subject to this Option.
9. No Right of Employment. Nothing contained in this Option shall be
construed as conferring any right to continue or remain as an officer, director,
or employee of the Company or any subsidiary.
10. Restrictions on Transfer. The Option and the Common Stock subject
to the Option (collectively referred to as the "Securities") are subject to
registration under the Securities Act of 1933, as amended (the "Securities
Act"), and any applicable state securities statutes. Optionee acknowledges that
unless a registration statement with respect to the Securities is filed and
declared effective by the Securities and Exchange Commission and the appropriate
state governing agency, the Securities have or will be issued in reliance on
specific exemptions from such registration requirements for transactions by an
issuer not involving a public offering and specific exemptions under state
statutes. Any disposition of the Securities may, under certain circumstances,
be inconsistent with such exemptions. The Securities may be offered for sale,
sold, or otherwise transferred only if (i) registered under the Securities Act,
and in come cases, under the applicable state securities acts, or, if not
registered, (ii) only if pursuant to an exemption from such registration
requirements and only after the Optionee provides an opinion of counsel or other
evidence satisfactory to the Company to the effect that registration is not
required. In some states, specific conditions must be met or approval of the
securities regulatory authorities may be required before any such offer or sale.
The Company is under no obligation to register the Securities with the
Securities and Exchange Commission or any state agency. If rule 144 is
available (and no assurance is given that it will be), only routine sales of the
Common Stock in limited amounts can be made after two years following the
acquisition date of the Securities, as determined under rule 144(d), in
accordance with the terms and conditions of rule 144. The Company is under no
obligation to make rule 144 available. In the event rule 144 is not available,
compliance with regulation A or some other disclosure exemption may be required
before the Optionee can sell, transfer, or otherwise dispose of the Securities
without registration. The Company and its registrar and transfer agent will
maintain a stop transfer order against the transfer of the Securities, and this
Option and any other certificate or agreement representing the Securities is
subject to the following legend:
THE SECURITIES REPRESENTED BY THIS OPTION, AGREEMENT, OR CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND ARE "RESTRICTED SECURITIES" WITHIN THE
MEANING OF RULE 144 PROMULGATED UNDER THE SECURITIES ACT. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR
TRANSFERRED WITHOUT COMPLYING WITH RULE 144 IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION OR OTHER COMPLIANCE UNDER THE SECURITIES ACT.
The Company may refuse to transfer the Securities to any transferee who
does not furnish in writing to the Company the same representations and
warranties set forth in this paragraph and agree to the same conditions with
respect to such Securities as are set forth herein. The Company may further
refuse to transfer the Securities if certain circumstances are present
reasonably indicating that the proposed transferee's representations are not
accurate. In any event, the Company may refuse to consent to any transfer in
the absence of an opinion of legal counsel, satisfactory to and independent of
counsel of the Company, that such proposed transfer is consistent with the above
conditions and applicable securities laws.
11. Regulatory Compliance. If the board of directors of the Company, in
its sole discretion, shall determine that it is necessary or desirable to list,
register, or qualify the Common Stock under any state or federal law, this
Option may not be exercised, in whole or part, until such listing, registration,
or qualification shall have been obtained free of any conditions not acceptable
to the board of directors. If no registration statement is effective on the date
of exercise of this Option, the shares of Common Stock will not be issued unless
and until there is available to the Company evidence, including representations
from the Optionee, that such shares are being acquired for investment and not
for resale, on which the Company may reasonably rely as to the availability of
an exemption from registration in issuing such Common Stock. The Company shall
utilize its best efforts to comply with the requirements of each regulatory
commission or agency having jurisdiction in order to issue and sell the Common
Stock to satisfy the Option. Such compliance will be a condition precedent to
the right to exercise the Option. The inability of the Company to effect such
compliance with any such regulatory commission or agency which counsel for the
Company deems necessary for the lawful issuance and sale of the Common Stock to
satisfy this Option shall relieve the Company from any liability for failure to
issue and sell the Common Stock to satisfy the Option for such period of time as
such compliance is not effectuated.
12. Assignment of Option. This Option may not be assigned by the
Optionee without the prior written consent of the Company. If the Company
consents to any assignment, it shall, upon request and upon surrender of this
Option by the Optionee at the principal office of the Company accompanied by
payment of all transfer taxes, if any, payable in connection therewith, transfer
this Option on the books of the Company. If the assignment is in whole, the
Company shall execute and deliver a new option of like tenor to this Option to
the appropriate assignee expressly evidencing the right to purchase the
aggregate number of Shares of Common Stock purchasable hereunder as of the date
of such assignment; and if the assignment is in part, the Company shall execute
and deliver to the appropriate assignee a new option of like tenor expressly
evidencing the right to purchase the portion of the aggregate number of Shares
of Common Stock as shall be contemplated by any such agreement, and shall
concurrently execute and deliver to the Optionee a new option of like tenor to
this Option evidencing the right to purchase the remaining portion of the Shares
of Common Stock purchasable hereunder which have not been transferred to the
assignee. On such transfer, every holder hereof agrees that the Company may deem
and treat the registered holder of this Option as the true and lawful owner
thereof for all purposes, and the Company shall not be affected by any notice to
the contrary. Neither this Option nor any right hereunder shall be subject to
lien, attachment, execution, or similar process. In the event of any
alienation, assignment, pledge, hypothecation, or other transfer of this Option
or any right hereunder or in the event of any levy, attachment, execution, or
similar process, this Option and all rights granted hereunder shall be
immediately null and void.
13. Payment in the Event of a Change in Control. In the event of a "Change in
Control" (as defined), at the election of the Optionee, in consideration of the
cancellation of this Option, the Company shall pay promptly to Optionee an
amount equal to the number of Optionee's unexercised Options (but excluding any
Options previously exercised, terminated, canceled, or expired) times the amount
by which the "Fair Market Value" (as defined) exceeds the exercise price of such
Options. For purposes hereof:
(a) A "Change in Control" shall be deemed to have occurred if (i) the
Company shall be merged or consolidated into another corporation and as a
result of such merger or consolidation less than seventy-five percent (75%)
of the outstanding voting securities of the surviving or resulting
corporation shall be owned in the aggregate by the former shareholders of
the Company as the same shall have existed prior to such merger or
consolidation, (ii) the Company shall sell, lease, exchange, or otherwise
transfer (in one transaction or a series of transactions) all or
substantially all of the assets of the Company to an entity that is not a
wholly owned subsidiary of the Company or to a group of associated
purchasers, (iii) a person, within the meaning of Section 3(a)(9) or
Section 13(d)(3) (as in effect on the date hereof) of the Exchange Act,
shall become the beneficial owner (within the meaning of rule 13d-3 of the
Exchange Act as in effect on the date hereof) of fifty percent (50%) or
more of the outstanding voting securities of the Company, or (iv) if as a
result of a merger, consolidation, sale of all or substantially all of the
Company's assets, a contested election, or any combination of the
foregoing, the persons who were directors of the Company immediately prior
thereto shall cease to constitute a majority of the board of directors of
the Company or any successor to the Company.
(b) "Fair Market Value" shall be the closing price for such stock on the
close of business on the day last preceding the occurrence of the Change of
Control as quoted on a registered national securities exchange or, if not
listed on such an exchange, the Nasdaq Stock Market or, if not listed on
such an exchange or included on the Nasdaq Stock Market, the closing price
(or, if no closing price is available from sources deemed reliable by the
Company, the closing bid quotation) for such stock as determined by the
Company through any other reliable means of determination available on the
close of business on the day last preceding the date of such Change of
Control.
14. Withholding. The Company may, in its sole discretion, satisfy any
obligation to withhold income and employment taxes resulting from the grant or
exercise of this Option (or any other event giving rise to such obligation) in
any of the following ways:
(a) The Company may require the Optionee to deliver to the Company at
the time of exercise of this Option an amount of cash equal to such
withholding obligation.
(b) If authorized by the action of the board of directors of the Company
(or a duly appointed committee of the board) upon request by the Optionee,
the Company may defer payment of the withholding obligation for a
reasonable period to allow the Optionee an opportunity to sell Shares
issuable on the exercise of this Option. In the event of such deferral,
the Optionee hereby grants to the Company a continuing security interest in
such Shares and all proceeds thereof and appoints the President of the
Company, and any successor thereto, as attorney-in-fact to sell the number
of Shares and collect the proceeds therefrom as may be necessary, in the
opinion of the Company, to satisfy all obligations for the payment of such
taxes.
(c) The Company may withhold from any compensation or other amount owing
to Optionee the amount (in cash, Common Stock, or other property as the
Company may determine) of the withholding obligation.
(d) If authorized by the action of the board of directors of the Company
(or a duly appointed committee of the board) upon request by the Optionee,
the Company may withhold a number of Shares otherwise deliverable upon
exercise of this Option having a value, determined in accordance with the
provisions of this Option, equivalent to the amount of such withholding
obligation.
In all events, delivery of Shares issuable on exercise of this Option shall be
conditioned upon and subject to the satisfaction or making provision for the
satisfaction of the withholding obligation of the Company resulting from the
exercise of this Option. The Company is hereby further authorized to take such
other action as may be necessary, in the opinion of the Company, to satisfy all
obligations for the payment of such taxes
15. Validity and Construction. The validity and construction of this
Option shall be governed by the laws of the state of Nevada.
EXECUTED as of the date first above written.
The Company:
FORELAND CORPORATION
By:
Duly Authorized Officer
Optionee:
EXHIBIT A
FORM OF EXERCISE
(TO BE SIGNED ONLY UPON EXERCISE OF OPTION)
TO: FORELAND CORPORATION
The undersigned, the owner of the attached Option, hereby irrevocably
elects to exercise the purchase rights represented by the Option for, and to
purchase thereunder, shares of Common Stock of Foreland Corporation.
Enclosed is payment in the amount of $ , the exercise price of the Common
Stock to be acquired, in the form of [insert description of manner of payment]
.
Please have the certificate(s) registered in the name of
, social security no.
and delivered to the following address:
. If this exercise does not include all of the Common Stock covered by the
attached Option, please deliver a new option of like tenor for the balance of
the Common Stock to the undersigned at the foregoing address.
DATED this day of , 199 .
Signature of Optionee (Signature must
be
guaranteed by a bank or securities
broker-
dealer)
Signature Guarantee:
<PAGE>
SCHEDULE TO FORM OF OPTION
Name Date of Grant Shares Exercise Vesting Expiration
Price
Grant Steele July 18, 1996 100,000 $4.00 100% on grant July 18, 2001
Tom Steele July 18, 1996 100,000 $4.00 100% on grant July 18, 2001
Ken Ransom July 18, 1996 100,000 $4.00 100% on grant July 18, 2001
Bruce Decker July 18, 1996 100,000 $4.00 100% on grant July 18, 2001
FORELAND CORPORATION
NON-QUALIFIED STOCK OPTION
(EXECUTIVE OFFICER)
IT IS IMPORTANT THAT YOU RETAIN THIS DOCUMENT. THIS
ORIGINAL NON-QUALIFIED STOCK OPTION MUST BE DELIVERED TO THE
COMPANY ON EXERCISE OR TRANSFER OF THE OPTION.
THIS NON-QUALIFIED STOCK OPTION (this "Option") is granted this 1st day of
September, 1996, by FORELAND CORPORATION, a Nevada corporation (the "Company"),
to ("Optionee"), pursuant to a resolution of the
board of directors of the Company.
1. Grant of Option. The Company hereby irrevocably grants to Optionee
the right and option to purchase all or any part of an aggregate of 200,000
shares of common stock, par value $0.001 per share, of the Company (the "Common
Stock") on the terms and conditions hereinafter set forth.
2. Exercise Price. The exercise price of this Option shall be $5.00
per share (the "Exercise Price"), the fair market value of the Common Stock on
the date of grant as determined by the board of directors.
3. Vesting of Option. The rights of the Optionee under the terms of
this Option shall vest and only be exercisable in installments as follows:
(a) on the date of this Option, the Optionee shall have the vested right
to acquire 50,000 shares of Common Stock on the terms and conditions of
this Option;
(b) commencing one year after the date of this Option, the Optionee
shall have the vested right to acquire 50,000 shares of Common Stock on the
terms and conditions of this Option;
(c) commencing two years after the date of this Option, the Optionee
shall have the vested right to acquire 50,000 shares of Common Stock on the
terms and conditions of this Option; and
(d) commencing three years after the date of this Option, the Optionee
shall have the vested right to acquire 50,000 shares of Common Stock on the
terms and conditions of this Option.
All rights to acquire shares of Common Stock hereunder shall expire seven years
after the date of vesting of each such right as provided above.
4. Shareholder's Rights. The Optionee shall have the rights of a
shareholder only with respect to Common Stock fully paid for by Optionee under
this Option.
5. Adjustment to Number of Shares of Common Stock.
(a) In the event that a share dividend shall be declared upon the common
stock of the Company, the number of shares of Common Stock then subject to
this Option shall be adjusted by adding to each such share the number of
shares which would be distributable in respect thereof if such Common Stock
had been outstanding on the date fixed for determining the shareholders of
the Company entitled to receive such share dividend.
(b) In the event that the outstanding shares of the Company shall be
changed into or exchanged for a different number or kind of shares or other
securities of the Company or of another corporation, whether through
reorganization, recapitalization, split-up, combination of shares, merger,
consolidation, or otherwise, then there shall be substituted for each share
of Common Stock subject to this Option the number and kind of shares or
other securities into which each outstanding share of the Company shall
have been so changed or for which each such share shall have been
exchanged. Under no circumstances shall any such reorganization,
recapitalization, split-up, combination of shares, merger, consolidation,
or other exchange be accomplished without a comparable share option being
substituted pursuant to the foregoing.
(c) In the event there shall be any change, other than as specified
elsewhere in this paragraph, in the number or kind of outstanding shares or
of any shares or other securities into which such shares shall have been
changed or for which they shall have been exchanged, then the board shall,
in its sole discretion, determine whether such change equitably requires an
adjustment in the number or kind of Common Stock to be issued on the
exercise of this Option. Such adjustment shall be made by the board and
shall be effective and binding for all purposes of this Option.
(d) In the case of any such substitution or adjustment as provided for
in this paragraph, the option price set forth in this Option for each share
of Common Stock covered hereby prior to such substitution or adjustment
shall be the option price for all shares or other securities which shall
have been substituted for such Common Stock or to which such Common Stock
shall have been adjusted pursuant to this paragraph. No adjustment or
substitution provided for in this paragraph shall require the Company to
sell a fractional share of Common Stock, and the substitution or adjustment
with respect to this Option shall be limited accordingly; provided,
however, that the aggregate option price paid shall be appropriate reduced
on account of any fractional share of Common Stock not issued. Upon any
adjustment made pursuant to this paragraph, the Company shall, upon
request, deliver to the Optionee a certificate of the Company's treasurer
setting forth the option price thereafter in effect and the number and kind
of shares or other securities thereafter purchasable on the exercise of
this Option.
(e) If at any time:
(i) The Company proposes to pay any dividend or make any
distribution, including a cash or property dividend payable out of
earnings, earned surplus, or the assets of the Company; or
(ii) The Company proposes to effectuate any plan of reorganization
or reclassification of the Common Stock; or
(iii) The Company proposes to merge, consolidate, or encumber or
sell all or substantially all of its assets other than in the ordinary
course of business;
then, and in any one or more of such events, the Company shall cause a
notice to be mailed to the registered holder(s) of this Option at the
address of such holder(s) set forth in the registration records of the
Company. Such notice shall be solely for the convenience of such
registered holders and shall not be a condition precedent to, nor shall any
defect therein or failure in connection therewith affect the validity of,
the action proposed to be taken by the Company. Such notice shall be
mailed at least twenty (20) days prior to the date on which the books of
the Company shall close or a record date shall be taken for such dividend,
share split, or reclassification, consolidation, merger, or sale of
properties and assets, as the case may be. Such notice shall specify the
record date for the closing of the Company's shareholder records.
6. Record Owner. The Company may deem and treat the registered owner
of this Option as the absolute owner hereof for all purposes and shall not be
affected by any notice to the contrary.
7. Method of Exercise. This Option may be exercised, in accordance with
all of the terms and conditions set forth in this Option, by delivery of this
Option together with a notice of exercise, a form of which is attached hereto as
Exhibit "A" and incorporated herein by this reference, indicating the number of
Shares which the Optionee then elects to purchase and with payment made in
accordance with the following:
(a) If Optionee elects to exercise the Option and make payment, in whole
or in part, for the shares of Common Stock in cash, Optionee shall include
with the notice of exercise a certified check or official bank check
payable to the order of the Company in the amount of the full option price
of the Common Stock being purchased for cash.
(b) If Optionee elects to exercise the Option and make payment, in whole
or in part, for the shares of Common Stock in installments, Optionee shall
include with the notice of exercise a certified check or official bank
check payable to the order of the Company in the amount of any cash to be
paid on exercise, and a promissory note, in form satisfactory to the
Company, executed by the Optionee and evidencing the obligation of the
Optionee to pay the balance of the exercise price on terms and conditions
acceptable to the board of directors of the Company at the time of exercise
of the Option.
(c) If Optionee elects to exercise the Option and make payment, in whole
or in part, for the shares of Common Stock by delivery of shares of Common
Stock of the Company that have been owned by Optionee for over six months,
Optionee shall surrender or transfer to the Company, in a form satisfactory
to it, such shares of Common Stock valued at their fair market value. Fair
market value shall mean the closing price for such stock as quoted on a
registered national securities exchange or, if not listed on a national
exchange, the Nasdaq Stock Market ("Nasdaq"), over the five-day trading
period immediately preceding the date of exercise of such Option, or, if
not listed on such an exchange or included on Nasdaq, shall mean the
closing price (or, if no closing price is available from sources deemed
reliable by the Company, the closing bid quotation) for such stock as
determined by the Company through any other reliable means of determination
available on the close of business on the trading day last preceding the
date of exercise of such Option.
(d) If the Optionee decides to exercise the Option in whole or in part,
and make payment, in whole or in part, for the Common Stock by the delivery
of options or other rights to purchase shares of Common Stock, whether such
options consist of the Options represented hereby or other options or
rights to purchase Common Stock, Optionee shall surrender or transfer to
the Company, in form satisfactory to it, such options or rights to purchase
Common Stock, valued at the amount by which the market value of the Common
Stock subject to such options or other rights, as determined in accordance
with the provisions of subparagraph (c) above, exceeds the exercise or
purchase price provided in such options or rights.
As soon as practicable after receipt by the Company of such notice and of
payment in full of the option price of all the shares of Common Stock with
respect to which the Option has been exercised (including interest if payment is
made in installments), a certificate or certificates representing such shares of
Common Stock shall be issued in the name of the Optionee, or, if the Optionee
shall so request in the notice exercising the Option, in the name of the
Optionee and another person jointly, with right of survivorship, and shall be
delivered to the Optionee. To the extent required by the terms of this Option,
all Common Stock shall be issued only upon receipt by the Company of the
Optionee's representation that the shares are purchased for investment and not
with a view to distribution thereof. If this Option is not exercised with
respect to all Common Stock subject hereto, Optionee shall be entitled to
receive a similar Option of like tenor covering the number of shares of Common
Stock with respect to which this Option shall not have been exercised.
8. Availability of Common Stock. During the term of this Option, the
Company shall at all times keep available for issuance the number of shares of
Common Stock Option subject to this Option.
9. No Right of Employment. Nothing contained in this Option shall be
construed as conferring any right to continue or remain as an officer, director,
or employee of the Company or any subsidiary.
10. Restrictions on Transfer. The Option and the Common Stock subject
to the Option (collectively referred to as the "Securities") are subject to
registration under the Securities Act of 1933, as amended (the "Securities
Act"), and any applicable state securities statutes. Optionee acknowledges that
unless a registration statement with respect to the Securities is filed and
declared effective by the Securities and Exchange Commission and the appropriate
state governing agency, the Securities have or will be issued in reliance on
specific exemptions from such registration requirements for transactions by an
issuer not involving a public offering and specific exemptions under state
statutes. Any disposition of the Securities may, under certain circumstances,
be inconsistent with such exemptions. The Securities may be offered for sale,
sold, or otherwise transferred only if (i) registered under the Securities Act,
and in come cases, under the applicable state securities acts, or, if not
registered, (ii) only if pursuant to an exemption from such registration
requirements and only after the Optionee provides an opinion of counsel or other
evidence satisfactory to the Company to the effect that registration is not
required. In some states, specific conditions must be met or approval of the
securities regulatory authorities may be required before any such offer or sale.
The Company is under no obligation to register the Securities with the
Securities and Exchange Commission or any state agency. If rule 144 is
available (and no assurance is given that it will be), only routine sales of the
Common Stock in limited amounts can be made after two years following the
acquisition date of the Securities, as determined under rule 144(d), in
accordance with the terms and conditions of rule 144. The Company is under no
obligation to make rule 144 available. In the event rule 144 is not available,
compliance with regulation A or some other disclosure exemption may be required
before the Optionee can sell, transfer, or otherwise dispose of the Securities
without registration. The Company and its registrar and transfer agent will
maintain a stop transfer order against the transfer of the Securities, and this
Option and any other certificate or agreement representing the Securities is
subject to the following legend:
THE SECURITIES REPRESENTED BY THIS OPTION, AGREEMENT, OR CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND ARE "RESTRICTED SECURITIES" WITHIN THE
MEANING OF RULE 144 PROMULGATED UNDER THE SECURITIES ACT. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR
TRANSFERRED WITHOUT COMPLYING WITH RULE 144 IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION OR OTHER COMPLIANCE UNDER THE SECURITIES ACT.
The Company may refuse to transfer the Securities to any transferee who
does not furnish in writing to the Company the same representations and
warranties set forth in this paragraph and agree to the same conditions with
respect to such Securities as are set forth herein. The Company may further
refuse to transfer the Securities if certain circumstances are present
reasonably indicating that the proposed transferee's representations are not
accurate. In any event, the Company may refuse to consent to any transfer in
the absence of an opinion of legal counsel, satisfactory to and independent of
counsel of the Company, that such proposed transfer is consistent with the above
conditions and applicable securities laws.
11. Regulatory Compliance. If the board of directors of the Company, in
its sole discretion, shall determine that it is necessary or desirable to list,
register, or qualify the Common Stock under any state or federal law, this
Option may not be exercised, in whole or part, until such listing, registration,
or qualification shall have been obtained free of any conditions not acceptable
to the board of directors. If no registration statement is effective on the date
of exercise of this Option, the shares of Common Stock will not be issued unless
and until there is available to the Company evidence, including representations
from the Optionee, that such shares are being acquired for investment and not
for resale, on which the Company may reasonably rely as to the availability of
an exemption from registration in issuing such Common Stock. The Company shall
utilize its best efforts to comply with the requirements of each regulatory
commission or agency having jurisdiction in order to issue and sell the Common
Stock to satisfy the Option. Such compliance will be a condition precedent to
the right to exercise the Option. The inability of the Company to effect such
compliance with any such regulatory commission or agency which counsel for the
Company deems necessary for the lawful issuance and sale of the Common Stock to
satisfy this Option shall relieve the Company from any liability for failure to
issue and sell the Common Stock to satisfy the Option for such period of time as
such compliance is not effectuated.
12. Assignment of Option. This Option may not be assigned by the
Optionee without the prior written consent of the Company. If the Company
consents to any assignment, it shall, upon request and upon surrender of this
Option by the Optionee at the principal office of the Company accompanied by
payment of all transfer taxes, if any, payable in connection therewith, transfer
this Option on the books of the Company. If the assignment is in whole, the
Company shall execute and deliver a new option of like tenor to this Option to
the appropriate assignee expressly evidencing the right to purchase the
aggregate number of Shares of Common Stock purchasable hereunder as of the date
of such assignment; and if the assignment is in part, the Company shall execute
and deliver to the appropriate assignee a new option of like tenor expressly
evidencing the right to purchase the portion of the aggregate number of Shares
of Common Stock as shall be contemplated by any such agreement, and shall
concurrently execute and deliver to the Optionee a new option of like tenor to
this Option evidencing the right to purchase the remaining portion of the Shares
of Common Stock purchasable hereunder which have not been transferred to the
assignee. On such transfer, every holder hereof agrees that the Company may deem
and treat the registered holder of this Option as the true and lawful owner
thereof for all purposes, and the Company shall not be affected by any notice to
the contrary. Neither this Option nor any right hereunder shall be subject to
lien, attachment, execution, or similar process. In the event of any
alienation, assignment, pledge, hypothecation, or other transfer of this Option
or any right hereunder or in the event of any levy, attachment, execution, or
similar process, this Option and all rights granted hereunder shall be
immediately null and void.
13. Payment in the Event of a Change in Control. In the event of a "Change in
Control" (as defined), at the election of the Optionee, in consideration of the
cancellation of this Option, the Company shall pay promptly to Optionee an
amount equal to the number of Optionee's unexercised Options (but excluding any
Options previously exercised, terminated, canceled, or expired) times the amount
by which the "Fair Market Value" (as defined) exceeds the exercise price of such
Options. For purposes hereof:
(a) A "Change in Control" shall be deemed to have occurred if (i) the
Company shall be merged or consolidated into another corporation and as a
result of such merger or consolidation less than seventy-five percent (75%)
of the outstanding voting securities of the surviving or resulting
corporation shall be owned in the aggregate by the former shareholders of
the Company as the same shall have existed prior to such merger or
consolidation, (ii) the Company shall sell, lease, exchange, or otherwise
transfer (in one transaction or a series of transactions) all or
substantially all of the assets of the Company to an entity that is not a
wholly owned subsidiary of the Company or to a group of associated
purchasers, (iii) a person, within the meaning of Section 3(a)(9) or
Section 13(d)(3) (as in effect on the date hereof) of the Exchange Act,
shall become the beneficial owner (within the meaning of rule 13d-3 of the
Exchange Act as in effect on the date hereof) of fifty percent (50%) or
more of the outstanding voting securities of the Company, or (iv) if as a
result of a merger, consolidation, sale of all or substantially all of the
Company's assets, a contested election, or any combination of the
foregoing, the persons who were directors of the Company immediately prior
thereto shall cease to constitute a majority of the board of directors of
the Company or any successor to the Company.
(b) "Fair Market Value" shall be the closing price for such stock on the
close of business on the day last preceding the occurrence of the Change of
Control as quoted on a registered national securities exchange or, if not
listed on such an exchange, the Nasdaq Stock Market or, if not listed on
such an exchange or included on the Nasdaq Stock Market, the closing price
(or, if no closing price is available from sources deemed reliable by the
Company, the closing bid quotation) for such stock as determined by the
Company through any other reliable means of determination available on the
close of business on the day last preceding the date of such Change of
Control.
14. Withholding. The Company may, in its sole discretion, satisfy any
obligation to withhold income and employment taxes resulting from the grant or
exercise of this Option (or any other event giving rise to such obligation) in
any of the following ways:
(a) The Company may require the Optionee to deliver to the Company at
the time of exercise of this Option an amount of cash equal to such
withholding obligation.
(b) If authorized by the action of the board of directors of the Company
(or a duly appointed committee of the board) upon request by the Optionee,
the Company may defer payment of the withholding obligation for a
reasonable period to allow the Optionee an opportunity to sell Shares
issuable on the exercise of this Option. In the event of such deferral,
the Optionee hereby grants to the Company a continuing security interest in
such Shares and all proceeds thereof and appoints the President of the
Company, and any successor thereto, as attorney-in-fact to sell the number
of Shares and collect the proceeds therefrom as may be necessary, in the
opinion of the Company, to satisfy all obligations for the payment of such
taxes.
(c) The Company may withhold from any compensation or other amount owing
to Optionee the amount (in cash, Common Stock, or other property as the
Company may determine) of the withholding obligation.
(d) If authorized by the action of the board of directors of the Company
(or a duly appointed committee of the board) upon request by the Optionee,
the Company may withhold a number of Shares otherwise deliverable upon
exercise of this Option having a value, determined in accordance with the
provisions of this Option, equivalent to the amount of such withholding
obligation.
In all events, delivery of Shares issuable on exercise of this Option shall be
conditioned upon and subject to the satisfaction or making provision for the
satisfaction of the withholding obligation of the Company resulting from the
exercise of this Option. The Company is hereby further authorized to take such
other action as may be necessary, in the opinion of the Company, to satisfy all
obligations for the payment of such taxes
15. Validity and Construction. The validity and construction of this
Option shall be governed by the laws of the state of Nevada.
EXECUTED as of the date first above written.
The Company:
FORELAND CORPORATION
By:
Duly Authorized Officer
Optionee:
EXHIBIT A
FORM OF EXERCISE
(TO BE SIGNED ONLY UPON EXERCISE OF OPTION)
TO: FORELAND CORPORATION
The undersigned, the owner of the attached Option, hereby irrevocably
elects to exercise the purchase rights represented by the Option for, and to
purchase thereunder, shares of Common Stock of Foreland Corporation.
Enclosed is payment in the amount of $ , the exercise price of the Common
Stock to be acquired, in the form of [insert description of manner of payment]
.
Please have the certificate(s) registered in the name of
, social security no.
and delivered to the following address:
. If this exercise does not include all of the Common Stock covered by the
attached Option, please deliver a new option of like tenor for the balance of
the Common Stock to the undersigned at the foregoing address.
DATED this day of , 199 .
Signature of Optionee
(Signature must be
guaranteed by a bank or
securities broker-
dealer)
Signature Guarantee:
<PAGE>
Name Date of Grant Shares Exercise Vesting Expiration
Price
Grant Steele Sept. 1, 1996 200,000 $5.00 25% on grant, 25% Seven years
on each anniversary from vesting
Tom Steele Sept. 1, 1996 200,000 $5.00 25% on grant, 25% Seven years
on each anniversary from vesting
Ken Ransom Sept. 1, 1996 200,000 $5.00 25% on grant, 25% Seven years
on each anniversary from vesting
Bruce Decker Sept. 1, 1996 200,000 $5.00 25% on grant, 25% Seven years
on each anniversary from vesting
FORELAND CORPORATION
NON-QUALIFIED STOCK OPTION
(EMPLOYEE)
IT IS IMPORTANT THAT YOU RETAIN THIS DOCUMENT. THIS
ORIGINAL NON-QUALIFIED STOCK OPTION MUST BE DELIVERED TO THE
COMPANY ON EXERCISE OR TRANSFER OF THE OPTION.
THIS NONQUALIFIED STOCK OPTION (this "Option") is granted this day of
, 1996, by FORELAND CORPORATION, a Nevada corporation (the
"Company"), to ("Optionee"), pursuant to a resolution of
the board of directors of the Company.
1. Grant of Option. The Company hereby irrevocably grants to Optionee
the right and option to purchase all or any part of an aggregate of 8,000 shares
of common stock, par value $0.001 per share, of the Company (the "Common Stock")
on the terms and conditions hereinafter set forth.
2. Exercise Price. The exercise price of this Option shall be $4.00 per
share (the "Exercise Price").
3. Vesting of Option. The rights of the Optionee under the terms of this
Option shall vest and only be exercisable in installments as follows:
(a) on the date of this Option, the Optionee shall have the vested
right to acquire 2,000 shares of Common Stock on the terms and conditions
of this Option;
(b) commencing one year after the date of this Option, the Optionee
shall have the vested right to acquire 2,000 shares of Common Stock on the
terms and conditions of this Option;
(c) commencing two years after the date of this Option, the Optionee
shall have the vested right to acquire 2,000 shares of Common Stock on the
terms and conditions of this Option; and
(d) commencing three years after the date of this Option, the
Optionee shall have the vested right to acquire 2,000 shares of Common
Stock on the terms and conditions of this Option.
All rights to acquire shares of Common Stock hereunder shall expire seven years
after the date of vesting of each such right as provided above. No rights under
this Option, whether vested or unvested, may be exercised unless the holder was,
within 30 days of such exercise, and had been since the date of this Option, an
eligible employee of the Company as specified in the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), which would be applicable if this
Option were issued pursuant to an incentive plan, unless the employment was
terminated as a result of the death or disability (as defined in the Code and
the regulations promulgated thereunder as they may be amended from time to time)
of the employee or the employee dies within 30 days after the termination. In
the event of termination as a result of disability, the holder shall have a one
year period following termination in which to exercise the Option. In the event
of death of the holder, the Option must be exercised within six months of the
issuance of letters testamentary or administration or the appointment of an
administrator, executor, or personal representative, but not later than one year
after the date of termination of employment. An authorized absence or leave
approved by the Board or a duly authorized committee for a period of 90 days or
less shall not be considered an interruption of employment for any purpose under
this Option.
4. Shareholder's Rights. The Optionee shall have the rights of a
shareholder only with respect to Common Stock fully paid for by Optionee under
this Option.
5. Adjustment to Number of Shares of Common Stock.
(a) In the event that a share dividend shall be declared upon the
common stock of the Company, the number of shares of Common Stock then
subject to this Option shall be adjusted by adding to each such share the
number of shares which would be distributable in respect thereof if such
Common Stock had been outstanding on the date fixed for determining the
shareholders of the Company entitled to receive such share dividend.
(b) In the event that the outstanding shares of the Company shall be
changed into or exchanged for a different number or kind of shares or other
securities of the Company or of another corporation, whether through
reorganization, recapitalization, split-up, combination of shares, merger,
consolidation, or otherwise, then there shall be substituted for each share
of Common Stock subject to this Option the number and kind of shares or
other securities into which each outstanding share of the Company shall
have been so changed or for which each such share shall have been
exchanged. Under no circumstances shall any such reorganization,
recapitalization, split-up, combination of shares, merger, consolidation,
or other exchange be accomplished without a comparable share option being
substituted pursuant to the foregoing.
(c) In the event there shall be any change, other than as specified
elsewhere in this paragraph, in the number or kind of outstanding shares or
of any shares or other securities into which such shares shall have been
changed or for which they shall have been exchanged, then the board shall,
in its sole discretion, determine whether such change equitably requires an
adjustment in the number or kind of Common Stock to be issued on the
exercise of this Option. Such adjustment shall be made by the board and
shall be effective and binding for all purposes of this Option.
(d) In the case of any such substitution or adjustment as provided
for in this paragraph, the option price set forth in this Option for each
share of Common Stock covered hereby prior to such substitution or
adjustment shall be the option price for all shares or other securities
which shall have been substituted for such Common Stock or to which such
Common Stock shall have been adjusted pursuant to this paragraph. No
adjustment or substitution provided for in this paragraph shall require the
Company to sell a fractional share of Common Stock, and the substitution or
adjustment with respect to this Option shall be limited accordingly;
provided, however, that the aggregate option price paid shall be
appropriate reduced on account of any fractional share of Common Stock not
issued. Upon any adjustment made pursuant to this paragraph, the Company
shall, upon request, deliver to the Optionee a certificate of the Company's
treasurer setting forth the option price thereafter in effect and the
number and kind of shares or other securities thereafter purchasable on the
exercise of this Option.
(e) If at any time:
(i) The Company proposes to pay any dividend or make any
distribution, including a cash or property dividend payable out of
earnings, earned surplus, or the assets of the Company; or
(ii) The Company proposes to effectuate any plan of
reorganization or reclassification of the Common Stock; or
(iii) The Company proposes to merge, consolidate, or encumber
or sell all or substantially all of its assets other than in the
ordinary course of business;
then, and in any one or more of such events, the Company shall cause a
notice to be mailed to the registered holder(s) of this Option at the
address of such holder(s) set forth in the registration records of the
Company. Such notice shall be solely for the convenience of such
registered holders and shall not be a condition precedent to, nor shall any
defect therein or failure in connection therewith affect the validity of,
the action proposed to be taken by the Company. Such notice shall be
mailed at least twenty (20) days prior to the date on which the books of
the Company shall close or a record date shall be taken for such dividend,
share split, or reclassification, consolidation, merger, or sale of
properties and assets, as the case may be. Such notice shall specify the
record date for the closing of the Company's shareholder records.
6. Record Owner. The Company may deem and treat the registered owner of
this Option as the absolute owner hereof for all purposes and shall not be
affected by any notice to the contrary.
7. Method of Exercise. This Option may be exercised, in accordance with
all of the terms and conditions set forth in this Option, by delivery of this
Option together with a notice of exercise, a form of which is attached hereto as
Exhibit "A" and incorporated herein by this reference, indicating the number of
Shares which the Optionee then elects to purchase and with payment made in
accordance with the following:
(a) If Optionee elects to exercise the Option and make payment, in
whole or in part, for the shares of Common Stock in cash, Optionee shall
include with the notice of exercise a certified check or official bank
check payable to the order of the Company in the amount of the full option
price of the Common Stock being purchased for cash.
(b) If Optionee elects to exercise the Option and make payment, in
whole or in part, for the shares of Common Stock in installments, Optionee
shall include with the notice of exercise a certified check or official
bank check payable to the order of the Company in the amount of any cash to
be paid on exercise, and a promissory note, in form satisfactory to the
Company, executed by the Optionee and evidencing the obligation of the
Optionee to pay the balance of the exercise price on terms and conditions
acceptable to the board of directors of the Company at the time of exercise
of the Option.
(c) If Optionee elects to exercise the Option and make payment, in
whole or in part, for the shares of Common Stock by delivery of shares of
Common Stock of the Company that have been owned by Optionee for over six
months, Optionee shall surrender or transfer to the Company, in a form
satisfactory to it, such shares of Common Stock valued at their fair market
value. Fair market value shall mean the closing price for such stock as
quoted on a registered national securities exchange or, if not listed on a
national exchange, the Nasdaq Stock Market ("Nasdaq"), over the five-day
trading period immediately preceding the date of exercise of such Option,
or, if not listed on such an exchange or included on Nasdaq, shall mean
the closing price (or, if no closing price is available from sources deemed
reliable by the Company, the closing bid quotation) for such stock as
determined by the Company through any other reliable means of determination
available on the close of business on the trading day last preceding the
date of exercise of such Option.
(d) If the Optionee decides to exercise the Option in whole or in
part, and make payment, in whole or in part, for the Common Stock by the
delivery of options or other rights to purchase shares of Common Stock,
whether such options consist of the Options represented hereby or other
options or rights to purchase Common Stock, Optionee shall surrender or
transfer to the Company, in form satisfactory to it, such options or rights
to purchase Common Stock, valued at the amount by which the market value of
the Common Stock subject to such options or other rights, as determined in
accordance with the provisions of subparagraph (c) above, exceeds the
exercise or purchase price provided in such options or rights.
As soon as practicable after receipt by the Company of such notice and of
payment in full of the option price of all the shares of Common Stock with
respect to which the Option has been exercised (including interest if payment is
made in installments), a certificate or certificates representing such shares of
Common Stock shall be issued in the name of the Optionee, or, if the Optionee
shall so request in the notice exercising the Option, in the name of the
Optionee and another person jointly, with right of survivorship, and shall be
delivered to the Optionee. To the extent required by the terms of this Option,
all Common Stock shall be issued only upon receipt by the Company of the
Optionee's representation that the shares are purchased for investment and not
with a view to distribution thereof. If this Option is not exercised with
respect to all Common Stock subject hereto, Optionee shall be entitled to
receive a similar Option of like tenor covering the number of shares of Common
Stock with respect to which this Option shall not have been exercised.
8. Availability of Shares. During the term of this Option, the Company
shall at all times keep available for issuance the number of shares of Common
Stock Option subject to this Option.
9. No Right of Employment. Nothing contained in this Option shall be
construed as conferring any right to continue or remain as an officer, director,
or employee of the Company or any subsidiary.
10. Restrictions on Transfer. The Option and the Common Stock subject to
the Option (collectively referred to as the "Securities") are subject to
registration under the Securities Act of 1933, as amended (the "Securities
Act"), and any applicable state securities statutes. Optionee acknowledges
that unless a registration statement with respect to the Securities is filed and
declared effective by the Securities and Exchange Commission and the appropriate
state governing agency, the Securities have or will be issued in reliance on
specific exemptions from such registration requirements for transactions by an
issuer not involving a public offering and specific exemptions under state
statutes. Any disposition of the Securities may, under certain circumstances,
be inconsistent with such exemptions. The Securities may be offered for sale,
sold, or otherwise transferred only if (i) registered under the Securities Act,
and in come cases, under the applicable state securities acts, or, if not
registered, (ii) only if pursuant to an exemption from such registration
requirements and only after the Optionee provides an opinion of counsel or other
evidence satisfactory to the Company to the effect that registration is not
required. In some states, specific conditions must be met or approval of the
securities regulatory authorities may be required before any such offer or sale.
The Company is under no obligation to register the Securities with the
Securities and Exchange Commission or any state agency. If rule 144 is
available (and no assurance is given that it will be), only routine sales of the
Common Stock in limited amounts can be made after two years following the
acquisition date of the Securities, as determined under rule 144(d), in
accordance with the terms and conditions of rule 144. The Company is under no
obligation to make rule 144 available. In the event rule 144 is not available,
compliance with regulation A or some other disclosure exemption may be required
before the Optionee can sell, transfer, or otherwise dispose of the Securities
without registration. The Company and its registrar and transfer agent will
maintain a stop transfer order against the transfer of the Securities, and this
Option and any other certificate or agreement representing the Securities is
subject to the following legend:
THE SECURITIES REPRESENTED BY THIS OPTION, AGREEMENT, OR CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND ARE "RESTRICTED SECURITIES" WITHIN THE
MEANING OF RULE 144 PROMULGATED UNDER THE SECURITIES ACT. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR
TRANSFERRED WITHOUT COMPLYING WITH RULE 144 IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION OR OTHER COMPLIANCE UNDER THE SECURITIES ACT.
The Company may refuse to transfer the Securities to any transferee who
does not furnish in writing to the Company the same representations and
warranties set forth in this paragraph and agree to the same conditions with
respect to such Securities as are set forth herein. The Company may further
refuse to transfer the Securities if certain circumstances are present
reasonably indicating that the proposed transferee's representations are not
accurate. In any event, the Company may refuse to consent to any transfer in
the absence of an opinion of legal counsel, satisfactory to and independent of
counsel of the Company, that such proposed transfer is consistent with the above
conditions and applicable securities laws.
11. Regulatory Compliance. If the board of directors of the Company, in
its sole discretion, shall determine that it is necessary or desirable to list,
register, or qualify the Common Stock under any state or federal law, this
Option may not be exercised, in whole or part, until such listing, registration,
or qualification shall have been obtained free of any conditions not acceptable
to the board of directors. If no registration statement is effective on the date
of exercise of this Option, the shares of Common Stock will not be issued unless
and until there is available to the Company evidence, including representations
from the Optionee, that such shares are being acquired for investment and not
for resale, on which the Company may reasonably rely as to the availability of
an exemption from registration in issuing such Common Stock. The Company shall
utilize its best efforts to comply with the requirements of each regulatory
commission or agency having jurisdiction in order to issue and sell the Common
Stock to satisfy the Option. Such compliance will be a condition precedent to
the right to exercise the Option. The inability of the Company to effect such
compliance with any such regulatory commission or agency which counsel for the
Company deems necessary for the lawful issuance and sale of the Common Stock to
satisfy this Option shall relieve the Company from any liability for failure to
issue and sell the Common Stock to satisfy the Option for such period of time as
such compliance is not effectuated.
12. Assignment of Option. This Option may not be assigned by the Optionee
without the prior written consent of the Company. If the Company consents to
any assignment, it shall, upon request and upon surrender of this Option by the
Optionee at the principal office of the Company accompanied by payment of all
transfer taxes, if any, payable in connection therewith, transfer this Option on
the books of the Company. If the assignment is in whole, the Company shall
execute and deliver a new option of like tenor to this Option to the appropriate
assignee expressly evidencing the right to purchase the aggregate number of
Shares of Common Stock purchasable hereunder as of the date of such assignment;
and if the assignment is in part, the Company shall execute and deliver to the
appropriate assignee a new option of like tenor expressly evidencing the right
to purchase the portion of the aggregate number of Shares of Common Stock as
shall be contemplated by any such agreement, and shall concurrently execute and
deliver to the Optionee a new option of like tenor to this Option evidencing the
right to purchase the remaining portion of the Shares of Common Stock
purchasable hereunder which have not been transferred to the assignee. On such
transfer, every holder hereof agrees that the Company may deem and treat the
registered holder of this Option as the true and lawful owner thereof for all
purposes, and the Company shall not be affected by any notice to the contrary.
Neither this Option nor any right hereunder shall be subject to lien,
attachment, execution, or similar process. In the event of any alienation,
assignment, pledge, hypothecation, or other transfer of this Option or any right
hereunder or in the event of any levy, attachment, execution, or similar
process, this Option and all rights granted hereunder shall be immediately null
and void.
13. Withholding. The Company may, in its sole discretion, satisfy any
obligation to withhold income and employment taxes resulting from the grant or
exercise of this Option (or any other event giving rise to such obligation) in
any of the following ways:
(a) The Company may require the Optionee to deliver to the Company at
the time of exercise of this Option an amount of cash equal to such
withholding obligation.
(b) If authorized by the action of the board of directors of the
Company (or a duly appointed committee of the board) upon request by the
Optionee, the Company may defer payment of the withholding obligation for a
reasonable period to allow the Optionee an opportunity to sell Shares
issuable on the exercise of this Option. In the event of such deferral,
the Optionee hereby grants to the Company a continuing security interest in
such Shares and all proceeds thereof and appoints the President of the
Company, and any successor thereto, as attorney-in-fact to sell the number
of Shares and collect the proceeds therefrom as may be necessary, in the
opinion of the Company, to satisfy all obligations for the payment of such
taxes.
(c) The Company may withhold from any compensation or other amount
owing to Optionee the amount (in cash, Common Stock, or other property as
the Company may determine) of the withholding obligation.
(d) If authorized by the action of the board of directors of the
Company (or a duly appointed committee of the board) upon request by the
Optionee, the Company may withhold a number of Shares otherwise deliverable
upon exercise of this Option having a value, determined in accordance with
the provisions of this Option, equivalent to the amount of such withholding
obligation.
In all events, delivery of Shares issuable on exercise of this Option shall be
conditioned upon and subject to the satisfaction or making provision for the
satisfaction of the withholding obligation of the Company resulting from the
exercise of this Option. The Company is hereby further authorized to take such
other action as may be necessary, in the opinion of the Company, to satisfy all
obligations for the payment of such taxes.
14. Validity and Construction. The validity and construction of this
Option shall be governed by the laws of the state of Nevada.
EXECUTED as of the date first above written.
The Company:
FORELAND CORPORATION
By
Duly Authorized Officer
Optionee:
EXHIBIT A
FORM OF EXERCISE
(TO BE SIGNED ONLY UPON EXERCISE OF OPTION)
TO: FORELAND CORPORATION
The undersigned, the owner of the attached Option, hereby irrevocably
elects to exercise the purchase rights represented by the Option for, and to
purchase thereunder, shares of Common Stock of Foreland Corporation.
Enclosed is payment in the amount of $ , the exercise price of the Common
Stock to be acquired, in the form of [insert description of manner of payment]
.
Please have the certificate(s) registered in the name of
, social security no.
and delivered to the following address:
. If this exercise does not include all of the Common Stock covered by the
attached Option, please deliver a new option of like tenor for the balance of
the Common Stock to the undersigned at the foregoing address.
DATED this day of , 199 .
Signature of Optionee (Signature must
be
guaranteed by a bank or securities
broker-dealer)
Signature Guarantee:
<PAGE>
SCHEDULE TO FORM OF OPTION AGREEMENT
<TABLE>
<CAPTION>
Name Date of Grant Shares Exercise Vesting Expiration
Price
<S> <C> <C> <C> <C> <C>
Grant Steele Sept. 1, 1996 200,000 $5.00 25% on grant, 25% Seven years
on each anniversary from vesting
Tom Steele Sept. 1, 1996 200,000 $5.00 25% on grant, 25% Seven years
on each anniversary from vesting
Ken Ransom Sept. 1, 1996 200,000 $5.00 25% on grant, 25% Seven years
on each anniversary from vesting
Bruce Decker Sept. 1, 1996 200,000 $5.00 25% on grant, 25% Seven years
on each anniversary from vesting
</TABLE>
FORM OF
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of
November 8, 1996, by and among Foreland Corporation, a Nevada corporation
("Company"), Swartz Investments, LLC, a Georgia limited liability company
("Swartz Investments") and the subscribers (hereinafter referred to as
"Subscribers" or "Investors") to the Company's offering ("Offering") of up to
Five Million Dollars ($5,000,000) of Series 1996-4 Convertible Preferred Stock
(the "Preferred Stock") pursuant to the Regulation D Securities Subscription
Agreement between the Company and the Subscribers ("Subscription Agreement").
1. DEFINITIONS. For purposes of this Agreement:
(a) The terms "register", "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933 (the "Act"), and
pursuant to Rule 415 under the Act or any successor rule, and the declaration or
ordering of effectiveness of such registration statement or document;
(b) For purposes of the Required Registration under Section 2 hereof,
the term "Registrable Securities" means the shares of the Company's Common Stock
together with any capital stock issued in replacement of, in exchange for or
otherwise in respect of such Common Stock, the "Common Stock"), issuable or
issued upon (i) conversion of the Series 1996-4 Preferred Stock (the "Preferred
Stock") issued to Subscribers in the Offering and (ii) exercise of the Warrants.
For purposes of a Demand Registration under Section 3 hereof or a
Piggyback Registration under Section 4 hereof, "Registrable Securities" shall
have the meaning set forth above, except that the following shall not constitute
Registrable Securities for purposes of a Demand Registration under Section 3
hereof or a Piggyback Registration under Section 4 hereof:
1. shares of Common Stock obtainable (x) on conversion of the
Preferred Stock (in whole or in part) and (y) on exercise of the
Warrant (the "Warrant Shares"), shall not constitute Registrable
Securities if those shares of Common Stock may be resold in a public
transaction without registration under the Act, including without
limitation pursuant to Rule 144 under the Act; and
2. any Registrable Securities resold in a public transaction shall
cease to constitute Registrable Securities.
(c) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock which have been
issued or are issuable upon conversion of the Preferred Stock and exercise of
the Warrants at the time of such determination;
(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any permitted assignee thereof;
(e) The terms "Warrant" and "Warrants" refer to the warrants to be
issued to Subscribers as securities in connection with the Offering and the
warrants granted to Swartz Investments or to persons designated by Swartz
Investments in connection with this Offering;
(f) The term "Initiating Holders" means (i) holders of Registrable
Securities obtained or obtainable upon conversion of at least Fifty (50) shares
of Preferred Stock; and
(g) The term "Due Date" means the date which is four (4) months after
the Last Closing (as defined in the Subscription Agreement) of the Offering (as
defined in the Subscription Agreement).
2. REQUIRED REGISTRATION.
(a) On or before December 31, 1996, the Company shall file a
registration statement ("Registration Statement") on Form S-3 (or other suitable
form, at the Company's discretion but subject to the reasonable approval of the
Investors), covering the resale of all shares of Registrable Securities then
outstanding including a indeterminate number of shares of Common Stock as
required to effect conversion of the Preferred Stock and exercise of the
Warrants.
(b) The Registration Statement shall be prepared as a "shelf"
registration statement under Rule 415, and shall be maintained effective until
the distribution described in the Registration Statement is completed. The
Company shall use its best efforts to have the Registration Statement declared
effective within four (4) months after the Last Closing (as defined in the
Subscription Agreement).
(c) If the Registration Statement is not declared effective by the Due
Date, the Company must continue to use its best efforts to obtain a declaration
of effectiveness and shall pay the Investors an amount equal to two percent
(2%) per month of the aggregate amount of Preferred Stock sold in the Offering,
compounded monthly and accruing daily, until the Registration Statement or a
registration statement filed pursuant to Section 3 or Section 4 is declared
effective, payable in common stock, which common stock shall also be deemed
"Registrable Securities" for the purpose of this Agreement. The accrual amount
payable will be tolled for any periods occasioned by a delay of a Registration
Statement under Section 3 as a result of the choice of the Holders to have that
Registration Statement underwritten.
3. DEMAND REGISTRATION.
(a) If the Registration Statement described in Section 2 above is not
effective by the Due Date, Initiating Holders may notify the Company in writing
and, subject to the terms of Section 5(d) below, demand that the Company file a
registration statement under the Securities Act (a "Demand Registration
Statement") covering the resale of the Registrable Securities then outstanding.
Upon receipt of such notice, the Company shall, within ten (10) days thereafter,
give written notice of such request to all Holders and shall, subject to the
limitations of subsections 3(b) and 5(b), as soon as practicable, and in any
event within sixty (60) days after the receipt of such request, effect
registration under the Act of all Registrable Securities which the Holders
request, by notice given to the Company within ten (10) days of receipt of the
Company's notice.
(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 3
and the Company shall include such information in the written notice referred to
in subsection 3(a). In such event, the right of any other Holder to include such
Holder's Registrable Securities in such registration shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and such Holder) to
the extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company as provided in
subsection 6(f)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders, and reasonably acceptable to the Company.
The Holder will not be required to make any representation other than as to its
ownership of the Registrable Securities and its intended method of distribution.
(c) The Company is obligated to effect only one (1) demand
registration pursuant to Section 3 of this Agreement. The Company agrees to
include all Registrable Securities held by all Holders in such registration
statement without cutback or reduction. In the event the Company breaches its
obligation of the preceding sentences, any Holders of the Registrable Securities
which were not included in such registration statement shall be entitled to a
second demand registration for such excluded securities and the Company shall
keep such registration statement effective as required by Section 6.
(d) The Company represents that it is presently eligible to effect
the registration contemplated hereby on Form S-3 and will use its best efforts
to continue to take such actions as are necessary to maintain such eligibility.
4. PIGGYBACK REGISTRATION. If the Registration Statement described
in Section 2 is not effective by the Due Date, and no demand for a Demand
Registration Statement has been made pursuant to Section 3, and if (but without
any obligation to do so) the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Holders) any of its Common Stock under the Act in connection with the public
offering of such securities solely for cash (other than a registration relating
solely for the sale of securities to participants in a Company stock plan or a
registration on Form S-4 promulgated under the Act or any successor or similar
form registering stock issuable upon a reclassification, upon a business
combination involving an exchange of securities or upon an exchange offer for
securities of the issuer or another entity), the Company shall, at such time,
promptly give each Holder written notice of such registration (a "Piggyback
Registration Statement"). Upon the written request of each Holder given by fax
within ten (10) days after mailing of such notice by the Company, the Company
shall cause to be included in such registration statement under the Act all of
the Registrable Securities that each such Holder has requested to be registered
("Piggyback Registration"); nothing herein shall prevent the Company from
withdrawing or abandoning the registration statement prior to its effectiveness.
5. LIMITATION ON OBLIGATIONS TO REGISTER.
(a) In the case of a Piggyback Registration on an underwritten public
offering by the Company, if the managing underwriter determines and advises in
writing that the inclusion in the registration statement of all Registrable
Securities proposed to be included would interfere with the successful marketing
of the securities proposed to be registered by the Company, then the number of
such Registrable Securities to be included in the registration statement shall
be allocated among all Holders who had requested Piggyback Registration, in the
proportion that the number of Registrable Securities which each such Holder,
including Swartz Investments, seeks to register bears to the total number of
Registrable Securities sought to be included by all Holders, including Swartz
Investments.
(b) Notwithstanding anything to the contrary herein, the Company
shall have the right (i) to defer the initial filing or request for acceleration
of effectiveness of any Demand Registration Statement or Piggyback Registration
Statement or (ii) after effectiveness, to suspend effectiveness of any such
registration statement, if, in the good faith judgment of the board of directors
of the Company and upon the advice of counsel to the Company, such delay in
filing or requesting acceleration of effectiveness or such suspension of
effectiveness is necessary in light of (i) the requirement by the underwriter
in a public offering by the Company that such registration statement be delayed
or suspended or (ii) the existence of material non-public information (financial
or otherwise) concerning the Company, disclosure of which at the time is not, in
the opinion of the board of directors of the Company upon the advice of counsel,
(A) otherwise required and (B) in the best interests of the Company; provided,
however, that solely in the case of a demand registration the Company will not
delay filing or suspend effectiveness of such registration for more than three
(3) months from the date of the demand, unless it is then engaged in an
acquisition that would make such registration impracticable, in which case it
will use its best efforts to eliminate such impracticability as soon as possible
after such three (3) month period.
(c) In the event the Company believes that shares sought to be
registered under Section 2, Section 3 or Section 4 by Holders do not constitute
"Registrable Securities" by virtue of Section 1(b) of this Agreement, and the
status of those shares as Registrable Securities is disputed, the Company shall
provide, at its expense, an Opinion of Counsel, reasonably acceptable to the
Holders of the Securities at issue (and satisfactory to the Company's transfer
agent to permit the sale and transfer) that those securities may be sold
immediately, without restriction or resale, without registration under the Act,
by virtue of Rule 144 or applicable provisions.
(d) The Company is not obligated to effect a Demand Registration
under this Section 3: i) during the ninety (90) day period after the Due Date,
so long as the Registration Statement has been filed, and the Company is using
its best efforts to obtain a declaration of the effectiveness of the
Registration Statement during such period or, ii) if in the opinion of counsel
to the Company reasonably acceptable to the person or persons from whom written
request for registration has been received (and satisfactory to the Company's
transfer agent to permit the transfer) that registration under the Act is not
required for the immediate transfer of all of the Registrable Securities
pursuant to Rule 144 or other applicable provision.
6. OBLIGATIONS TO INCREASE THE NUMBER OF AVAILABLE SHARES. In the
event that the number of shares available under a registration statement filed
pursuant to Section 2 or Section 3 is insufficient to cover all of the
Registrable Securities then outstanding, the Company shall amend that
registration statement, or file a new registration statement, or both, so as to
cover all shares of Registrable Securities then outstanding. The Company shall
effect such amendment or new registration within sixty (60) days of the date the
registration statement filed under Section 2 or Section 3 is insufficient to
cover all the shares of Registrable Securities then outstanding. Any
registration statement filed hereunder shall, to the extent permissible by the
rules and regulations of the Securities and Exchange Commission ("SEC"), state
that, in accordance with Rule 416 under the Act, such registration statement
also covers such indeterminate numbers of additional shares of Common Stock as
may become issuable upon conversion of the Preferred stock to prevent dilution
resulting from stock changes or by reason of changes in the conversion price in
accordance with the terms thereof. Unless and until such amendment or new
registration statement is effective, the Investors shall have the rights
described in Section 2(c) above.
7. OBLIGATIONS OF THE COMPANY. Whenever required under this
Agreement to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Securities and Exchange Commission
("SEC") a registration statement with respect to such Registrable Securities and
use its best efforts to cause such registration statement to become effective.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) With respect to any registration statement filed pursuant to this
Agreement, keep such registration statement effective until the sooner to occur
of (A) such time as the Holders of Registrable Securities covered by such
registration statement have completed the distribution described in the
registration statement, and (B) such time as all of the Registrable Securities
covered by such registration statement may be sold without any volume limitation
pursuant to Rule 144 promulgated under the Act.
(d) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(e) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders of
the Registrable Securities covered by such registration statement, provided that
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions.
(f) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(g) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing.
(h) Furnish, at the request of any Holder whose shares are being
registered pursuant to this Agreement, on the date that such Registrable
Securities are delivered to the underwriters for sale in connection with a
registration pursuant to this Agreement, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the outside
counsel of recognized standing (or reasonably acceptable to Holder) representing
the Company for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Securities and (ii) a letter dated such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders whose shares are being registered pursuant to this Agreement.
(i) As promptly as practicable after becoming aware of such event,
notify each Investor of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the registration statement to correct such untrue statement or
omission, and deliver a number of copies of such supplement or amendment to each
Holder as such Holder may reasonably request.
(j) Provide Holders with written notice of the date that a
registration statement registering the resale of the Registrable Securities is
declared effective by the SEC, and the date or dates when the registration
statement is no longer effective.
(k) Provide Holders and their representatives the opportunity to
conduct a reasonable due diligence inquiry of Company's pertinent financial and
other records and make available its officers, directors and employees for
questions regarding such information as it relates to information contained in
the registration statement.
(l) Provide Holders and their representatives the opportunity to
review the registration statement and all amendments thereto no later than three
(3) days prior to their filing with the SEC.
8. FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement with
regard to each selling Holder that such selling Holders shall furnish to the
Company such information regarding themselves, the Registrable Securities held
by them, and the intended method of disposition of such securities as shall be
required to effect the registration of their Registrable Securities or to
determine that registration is not required pursuant to Rule 144 or other
applicable provision of the Act.
9. EXPENSES OF REQUESTED OR DEMAND REGISTRATION. All expenses other
than underwriting discounts and commissions and fees and expenses of counsel to
the selling Holders incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company, shall be borne by the Company.
10. EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registration
pursuant to Section 4 for each Holder, including (without limitation) all
registration, filing, and qualification fees, printers and accounting fees
relating or apportionable thereto but excluding underwriting discounts and
commissions and fees and expenses of counsel to the selling Holders relating to
Registrable Securities.
11. INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the officers and directors of each Holder, any
underwriter (as defined in the Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the Act or the
Securities Exchange Act of 1934, as amended (the "1934 Act"), against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
by the Company of the Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the Act, the 1934 Act or any state securities law;
and the Company will reimburse each such Holder, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 11(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, officer, director, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder, severally
and not jointly, will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement, each
person, if any, who controls the Company within the meaning of the Act, any
underwriter and any other Holder selling securities in such registration
statement or any of its directors or officers or any person who controls such
Holder, against any losses, claims, damages, or liabilities (joint or several)
to which the Company or any such director, officer, controlling person, or
underwriter or controlling person, or other such Holder or director, officer or
controlling person may become subject, under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will reimburse any legal or other expenses reasonably incurred by the
Company and any such director, officer, controlling person, underwriter or
controlling person, other Holder, officer, director, or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 11(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that, in no event shall any indemnity under this subsection
11(b) exceed the net proceeds from the offering received by such Holder
(c) Promptly after receipt by an indemnified party under this Section
11 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 11, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonably incurred fees and
expenses of one such counsel to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential conflicting
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
11, but the omission so to deliver written notice to the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 11.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 11 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and each holder of Registrable
Securities agree to contribute to the aggregate claims, losses, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending same) (collectively "Losses") to which the
Company and one or more of the holders of Registrable Securities may be subject
in such proportion as is appropriate to reflect the relative fault of the
Company and the holders in connection with the statements or omissions which
resulted in such Losses; provided, however, that in no case shall any holder be
responsible for any amount in excess of the net purchase price of securities
sold by it under the registration statement. Relative fault shall be determined
by reference to whether any alleged untrue statement or omission relates to
information provided by the Company or by the holders. The Company and the
holders agree that it would not be just and equitable if contribution were
determined by pro rata allocation or any other method of allocation which does
not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 11,
each person who controls a holder of Registrable Securities within the meaning
of either the Securities Act or the Exchange Act and each director, officer,
partner, employee and agent of a holder shall have the same rights to
contribution as such holder, and each person who controls the Company within the
meaning of either the Securities Act or the Exchange Act and each director of
the Company, and each officer of the Company who has signed the registration
statement, shall have the same rights to contribution as the Company, subject in
each case to the applicable terms and conditions of this paragraph (d).
(e) The obligations of the Company and Holders under this Section 11
shall survive the redemption and conversion, if any, of the Preferred Stock, the
completion of any offering of Registrable Securities in a registration statement
under this Agreement, and otherwise.
12. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration, the
Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company, if
true, that it has complied with the reporting requirements of SEC Rule 144, the
Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company, and
(iii) such other information as may be reasonably requested in availing any
Holder of any rule or regulation of the SEC which permits the selling of any
such securities without registration.
13. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Agreement
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the holders of a majority of the Registrable
Securities provided that the amendment treats all Holders equally. Any amendment
or waiver effected in accordance with this paragraph shall be binding upon each
Holder, each future Holder, and the Company.
14. NOTICES. All notices required or permitted under this Agreement
shall be made in writing signed by the party making the same, shall specify the
section under this Agreement pursuant to which it is given, and shall be
addressed if to (i) the Company at: Foreland Corporation, 12596 W. Bayaud, #300,
Lakewood, CO 80228 Telephone No. (303) 988-3122, Telecopy No. (303) 988-3234
and (ii) the Holders at their respective last address as the party shall have
furnished in writing as a new address to be entered on such register. Any
notice, except as otherwise provided in this Agreement, shall be made by fax and
shall be deemed given at the time of transmission of the fax.
15. TERMINATION. This Agreement shall terminate on the earlier to
occur of (a) the date that is three (3) years from the date of this Agreement
and (b) the date the distribution of all Registrable Securities described in any
registration statement filed pursuant to this Agreement is completed; but
without prejudice to (i) the parties' rights and obligations arising from
breaches of this Agreement occurring prior to such termination (ii) other
indemnification obligations under this Agreement or (iii) the Company's
obligation to maintain the effectiveness of a registration statement filed prior
thereto in accordance with the terms hereof, and to fulfill its obligation
hereunder in respect thereof until it is no longer required to maintain the
effectiveness thereof.
16. ASSIGNMENT. No assignment, transfer or delegation, whether by
operation of law or otherwise, of any rights or obligations under this Agreement
by the Company or any Holder, respectively, shall be made without the prior
written consent of the majority in interest of the Holders or the Company,
respectively; provided that the rights of a Holder may be transferred to a
subsequent holder of the Holder's Registrable Securities (provided such
transferee shall provide to the Company, together with or prior to such
transferee's request to have such Registrable Securities included in a Demand
Registration or Piggyback Registration, a writing executed by such transferee
agreeing to be bound as a Holder by the terms of this Agreement); and provided
further that the Company may transfer its rights and obligations under this
Agreement to a purchaser of all or a substantial portion of its business if the
obligations of the Company under this Agreement are assumed in connection with
such transfer, either by merger or other operation of law (which may include
without limitation a transaction whereby the Registrable Securities are
converted into securities of the successor in interest) or by specific
assumption executed by the transferee.
17. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Nevada applicable to agreements made
in and wholly to be performed in that jurisdiction, except for matters arising
under the Act or the Securities Exchange Act of 1934, which matters shall be
construed and interpreted in accordance with such laws.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
FORELAND CORPORATION
By:
--------------------------------
Address:
Foreland Corporation
12596 W. Bayaud, #300
Lakewood, CO 80228
Telephone No. (303) 988-3122
Telecopy No. (303) 988-3234
SWARTZ INVESTMENTS, LLC
By:
--------------------------------
Eric Swartz,
President
Address: 200 Roswell Summit, Suite 285
1080 Holcomb Bridge Road
Roswell, GA 30076
INVESTOR(S)
Investor's Name
By:
---------------------------------
(Signature)
Address:
====================================
------------------------------------
<PAGE>
SCHEDULE TO FORM OF REGISTRATION RIGHTS AGREEMENT
The Company has entered into the foregoing form of Registration Rights
Agreement with Swartz Investments, LLC, the placement agent, and the
following purchasers of 1996-4 Series Preferred Stock:
Global Bermuda Limited Partnership
Lakeshore International, Ltd.
The Matthew Fund
Legong Investments, N.V.
Banque Scandinave en Suisse
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEETS AS OF SEPTEMBER 30, 1996 AND STATEMENTS OF OPERATIONS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 476,371
<SECURITIES> 0
<RECEIVABLES> 526,326
<ALLOWANCES> 0
<INVENTORY> 90,821
<CURRENT-ASSETS> 2,939,743
<PP&E> 8,630,176
<DEPRECIATION> (3,367,793)
<TOTAL-ASSETS> 8,333,000
<CURRENT-LIABILITIES> 1,476,108
<BONDS> 19,539
0
930
<COMMON> 7,003
<OTHER-SE> 6,829,420
<TOTAL-LIABILITY-AND-EQUITY> 8,333,000
<SALES> 1,196,732
<TOTAL-REVENUES> 1,248,107
<CGS> 0
<TOTAL-COSTS> 372,528
<OTHER-EXPENSES> 2,270,614
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (133,733)
<INCOME-PRETAX> (1,426,544)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,426,544)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,426,544)
<EPS-PRIMARY> (0.50)
<EPS-DILUTED> (0.50)
</TABLE>
