As Filed: May 14, 1996 SEC File No. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Registration Statement on Form S-3
Under the Securities Act of 1933
FORELAND CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Nevada 1070 87-0422812
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
12596 West Bayaud, Suite 300, Lakewood, Colorado 80228-2019 (303) 988-3122
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
N. Thomas Steele, 12596 West Bayaud, Suite 300, Lakewood, Colorado 80228-2019
(303) 988-3122
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy to:
James R. Kruse
KRUSE, LANDA & MAYCOCK, L.L.C.
50 West Broadway, Eighth Floor
Salt Lake City, Utah 84101
Telephone: (801) 531-7090
Telecopy: (801) 359-3954
CompuServe E-Mail 72204,1417
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this registration statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. "
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. x
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
<TABLE>
CALCULATION OF REGISTRATION FEE
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Amount Proposed Maxi- Proposed Maxi- Amount of
Title of Each Class of to be mum Offering mum Aggregate Registration
Securities Being Registered Registered Price Per Unit(1) Offering Price Fee
- --------------------------- --------------- -------------- -------------------- ----------
<S> <C> <C> <C> <C>
Common Stock(2) 6,461,814 $1.47 $9,490,789 $3,273
- ------------------------------------------------------------------------------
</TABLE>
(1) Bona fide estimate of maximum offering price solely for the purpose of
calculating the registration fee. The offering price for the common stock
being sold by selling stockholders is based on the closing sales price, as
quoted on the Nasdaq SmallCapSM Market for the Registrant's Common Stock of
$1.47 as of May 10, 1996 (rule 457(c)).
(2) Consists of shares held by selling stockholders and shares to be held
following the conversion of preferred stock of the Registrant and on exercise
of common stock purchase warrants. Pursuant to rule 416, there are also
being registered such additional securities as may become issuable as a
result of the "antidilution" provisions of the preferred stock and warrants.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
section 8(a), may determine.
FORELAND CORPORATION
Cross Reference Sheet
Cross reference between items of part I of form S-3 and the prospectus
filed by Foreland Corporation as part of the Registration Statement.
REGISTRATION STATEMENT ITEM NUMBER AND HEADING PROSPECTUS CAPTION
1. Forepart of the Registration Statement Front Cover
and Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Inside Front Cover
Pages of Prospectus and Outside Back
Cover
3. Summary Information, Risk Factors and PROSPECTUS SUMMARY
Ratio of Earnings to Fixed Charges and RISK FACTORS
4. Use of Proceeds USE OF PROCEEDS
5. Determination of Offering Price PLAN OF
DISTRIBUTION
6. Dilution DILUTION
7. Selling Security Holders SELLING
STOCKHOLDERS
8. Plan of Distribution PLAN OF
DISTRIBUTION
9. Description of Securities DESCRIPTION OF
SECURITIES
10. Interest of Named Experts and Counsel EXPERTS and LEGAL
MATTERS
11. Material Changes n/a
12. Incorporation of Certain Information by Inside Front Cover
Reference
13. Disclosure of Commission Position on n/a
Indemnification for Securities Act
Liabilities
<PAGE>
Preliminary Prospectus
Dated May 14, 1996
FORELAND CORPORATION
6,461,814 Shares of Common Stock
This Prospectus relates to the public offer and sale by certain
shareholders (the "Selling Stockholders") of an aggregate of 6,461,814 shares of
common stock, par value $0.001 per share (the "Common Stock"), of Foreland
Corporation, a Nevada corporation (the "Company"), (See "SELLING STOCKHOLDERS"
and "DESCRIPTION OF SECURITIES").
The Selling Stockholders will offer their Common Stock through or to
securities brokers or dealers designated by them in the over-the-counter market
or in other transactions negotiated by the Selling Stockholders. Any such sale
of Common Stock by Selling Stockholders must be accompanied by, or follow the
delivery of, a prospectus filed with a current registration statement relating
to the Common Stock being offered, unless a Selling Stockholder elects to rely
on Rule 144 or another exemption from the registration requirements in
connection with a particular transaction. The Selling Stockholders and any
broker, dealer, or agent that participates with the Selling Stockholders in the
sale of the Common Stock offered hereby may be deemed "underwriters" within the
meaning of the Securities Act of 1933, as amended (the "Securities Act"), and
any commissions or discounts received by them and any profit on the resale of
the Common Stock purchased by them may be deemed to be underwriting commissions
under the Securities Act. (See "SELLING STOCKHOLDERS" and "PLAN OF
DISTRIBUTION.")
The Company's Common Stock is included on the Nasdaq SmallCapSM Market
("Nasdaq") under the symbol "FORL." On May 10, 1996, the closing sales price
for the Company's Common Stock on Nasdaq was $1.47.
THE ACQUISITION AND OWNERSHIP OF THE COMMON STOCK INVOLVE A HIGH DEGREE OF RISK.
THE COMMON STOCK SHOULD BE PURCHASED ONLY BY INVESTORS WHO ARE ABLE TO AFFORD
THE RISK OF LOSS OF THEIR ENTIRE INVESTMENT. (SEE "RISK FACTORS.")
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE OR OTHER REGULATORY AUTHORITY, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE OR REGULATORY AUTHORITY PASSED
ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Offering Proceeds to
Price to Commissions Selling Proceeds to
Public(1) (2) Stockholders Company(3)
By Selling
Stockholders
Per Share $ 1.47 -- $ 1.47 --
Total $9,490,789 -- $9,490,789 --
(1)The price per share for the securities offered by the Selling Stockholders
is estimated at the closing sales price quoted by Nasdaq for the Common
Stock at $1.47 on May 10, 1996. The Common Stock may be offered at the
current market price, which may vary through the period during which the
securities may be offered, or at such other prices as may be negotiated by
the Selling Stockholder and the purchaser at the time of sale. (See
"LIMITED MARKET FOR COMMON STOCK" in the Company's 1995 10-K.)
(2)The securities to be sold by Selling Stockholders may be sold by them
through or to securities brokers or dealers, which sales may involve the
payment of commissions by the Selling Stockholders.
(3)Does not reflect expenses of this offering payable by the Company estimated
at $20,000. (See "PLAN OF DISTRIBUTION" below.)
The date of this Prospectus is May , 1996.
--
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholders. However, the Company would receive proceeds upon the
exercise of options and warrants held by Selling Stockholders prior to the sale
of Common Stock issuable on such exercise. (See "USE OF PROCEEDS.") In
connection with this offering, the Company estimates that it will incur costs of
approximately $20,000 for legal, accounting, printing, and other costs. Any
separate costs of the Selling Stockholders will be borne by them. Commissions
or discounts paid in connection with the sale of securities by the Selling
Stockholders will be determined by negotiations between them and the broker-
dealer through or to which the securities are to be sold and may vary depending
on the broker-dealers' commission or mark up schedule, the size of the
transaction, and other factors. (See "PLAN OF DISTRIBUTION" below.)
The Selling Stockholders and any broker, dealer, or agent that participates
with the Selling Stockholders in the sale of the Common Stock offered hereby may
be deemed "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), and any commissions or discounts received by
them and any profit on the resale of the Common Stock purchased by them may be
deemed to be underwriting commissions under the Securities Act. (See "SELLING
STOCKHOLDERS" and "PLAN OF DISTRIBUTION" below.)
All dollar amounts in this Prospectus are expressed in United States
dollars unless otherwise indicated.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's annual report on Form 10-K for the year ended December 31,
1995 ("1995 10-K"), is incorporated herein by reference.
All documents subsequently filed by the Company pursuant to section 13(a),
13(c), 14, or 15(d) of the Securities Exchange Act of 1934 prior to termination
of the offering shall be deemed to be incorporated by reference into this
Prospectus. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement.
The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of such person, a
copy of any or all of the documents referred to above which have been or may be
incorporated by reference in this Prospectus, other than certain exhibits to
such documents. Requests for such copies should be directed to Shareholder
Relations, Foreland Corporation, Union Terrace Office Bldg., 12596 West Bayaud,
Suite 300, Lakewood, Colorado 80228-2019; telephone (303) 988-3122.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information can be inspected and copied
at the public reference facilities of the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549; Suite 1400, Northwestern Atrium Center,
500 West Madison Street, Chicago, Illinois 60661; and 7 World Trade Center (13th
Floor), 26 Federal Plaza, New York, New York 10048. Copies of such materials
can be obtained from the public reference facilities of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Additional information regarding the Company and the securities offered
hereby is contained in the registration statement and exhibits thereto, of which
this Prospectus forms a part, filed with the Commission under the Securities
Act. This Prospectus omits certain information contained in the registration
statement. For further information, reference is made to the registration
statement and to the exhibits and other schedules filed therewith. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete, and where such contract or
other document is an exhibit to the registration statement, each such statement
is deemed to be qualified and amplified in all respects by the provisions of the
exhibit. Copies of the complete registration statement, including exhibits, may
be examined at, or copies obtained from the offices of, the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, on the payment of prescribed fees
for reproduction.
No person is authorized to give any information or make any representation
not contained in this prospectus and, if given or made, such information or
representation should not be relied on as having been authorized.
<PAGE>
SUMMARY AND INTRODUCTION
The following summary is qualified in its entirety by the more detailed
information, including the financial statements and notes thereto, appearing
elsewhere in this Prospectus or incorporated by reference herein.
Each prospective investor is urged to read this Prospectus in its entirety,
particularly the matters set forth under "RISK FACTORS."
The Company
The Company is engaged in the exploration for oil in the Great Basin and
Range geologic province in Nevada (the "Great Basin"), an area that management
believes is one of the most promising unexplored onshore domestic areas with
potential for the discovery of major oil reserves. In continuing to advance
this exploration since its organization in 1985, the Company's strategy is to
generate exploration prospects with the most recent generally available
scientific techniques, expand and improve the Company's strategic land position,
and establish arrangements with other oil exploration firms active in Nevada to
obtain additional scientific data, leases, and funding. To date, the Company
has confirmed its exploration concepts through the discovery of the North Willow
Creek and Tomera Ranch Fields in Pine Valley, both of which are in the early
stages of evaluation with limited oil production and limited proved reserves.
The Company has access to a large geophysical and geological data base
generated by its own efforts and that of others, including Gulf Oil Corporation
("Gulf"), Exxon USA, Inc. ("Exxon"), Parker & Parsley Petroleum Company
(successor-in-interest to Santa Fe Energy Resources, Inc.) ("P&P "), Mobil
Exploration and Producing USA, Inc. ("Mobil"), Chevron USA, Inc. ("Chevron"),
and Enserch Exploration, Inc., and Berry Petroleum Company ("Enserch/Berry").
This data base includes over 1,400 line miles of two dimensional ("2-D") seismic
data, much of it reprocessed with new analytical computer programs, newly
acquired high resolution three dimensional ("3-D") seismic surveys, and gravity
data, all of which are being integrated with subsurface data obtained through
drilling.
With a continuous leasing program since 1986, the Company has established
what management believes to be one of the larger property positions in Nevada's
most promising prospect areas, with approximately 209,000 gross acres under
lease. The leasing program continues as the Company acquires leases in
favorable new prospect areas and relinquishes leases with less potential. In
addition, the Company has the exclusive right to develop prospects and market
approximately 434,000 gross acres of mineral lands owned by P&P.
Effective in March 1993 the Company entered into an agreement with
Enserch/Berry that designates the Company as operator to undertake a three-year,
six-well joint exploration program on approximately 91,000 gross acres in four
separate prospect areas in Pine, Diamond, Little Smoky, and Antelope Valleys of
northeastern Nevada. Both the Company and Enserch/Berry contributed acreage and
data and provide 50% of the required funds for drilling and acquiring additional
acreage and data.
In July 1993, the Company acquired an approximately 2,800 gross acre lease
in Railroad Valley, Nevada, which included a portion of the Eagle Springs field
with nine wells, then shut in, and one water injection well. In September 1994,
the Company, with Plains Petroleum Operating Company, which was acquired in
August 1995 by Barrett Resources Corporation (together, "Barrett"), acquired
from Kanowa Petroleum, Inc., its interest in a 240-acre lease on the remainder
of the Eagle Springs field with three wells with limited intermittent production
and related equipment. Since the Company acquired the Eagle Springs field, it
has reworked eight wells to return them to production, drilled a new water
injection well, and replaced and improved surface equipment to handle increased
production and to lower long term operating costs. Under the agreement with
Barrett, the company drilled and placed into production three wells in the Eagle
Springs field in 1994 and early 1995. Five additional wells, for a total of
eight new wells, were drilled and placed into production by the Company and
Barrett in 1995. As of December 31, 1995, the Eagle Springs Field had estimated
net remaining proved reserves of 1,989,300 barrels of oil with future net cash
flows discounted at 10% to present value of $6,148,500. (See "BUSINESS: Eagle
Springs" in the Company's 1995 10-K.)
In August 1994, the Company entered into an agreement with Barrett under
which it agreed to provide, in successive phases, approximately $1,920,000 of
the next $2,400,000 in drilling to earn a 40% interest in the Company's Eagle
Springs producing properties and obtained the right to participate in other
specified Company exploration projects under agreed terms. Barrett has elected
to earn an interest in the Company's acreage in an area of mutual interest in
the North Humbolt prospect, but has declined further participation in the Dixie
Flats prospect in Huntington Valley and in the Pine Valley 3-D survey. (See
"BUSINESS: Barrett Agreement" in the Company's 1995 10-K.)
In January 1996, the Company entered into a revised agreement with Hugoton
Energy Corporation and Maxwell Petroleum, Inc. ("Hugoton/Maxwell"), respecting
exploration of the Pine Creek prospect in Pine Valley, Nevada. Under the
agreement, the Company and Hugoton/Maxwell each agreed to assign to the other
certain acreage to consolidate the Company's position in the prospect area;
Hugoton/Maxwell agreed to pay for a one-year extension of the leasehold assigned
by it; the Company agreed to initiate a well on the federal acreage assigned, in
order to obtain a two-year extension; and Hugoton/Maxwell agreed to complete and
pay for a 3-D seismic study in the area or pay the Company $75,000 as liquidated
damages.
As indicated above, during 1995, the Company and Barrett drilled five wells
in the Eagle Springs field. The first four wells are in regular continuous
production and the fifth well is being completed for production. The sixth and
seventh wells originally scheduled for the 1995 drilling program will be
included in the planned 1996 Eagle Springs drilling. In November 1995, the
Company drilled to a depth of 4,523 feet and plugged and abandoned the Eldorado
#15-1 test in Little Smokey Valley, the fifth test drilled under the Company's
agreement with Enserch/Berry. The Company has tied onto an existing production
string and is testing the Deadman Creek #44-13 well drilled in Toano Draw on
acreage on which the Company holds certain marketing and exploration rights
under its agreement with P&P.
The Company's management and technical team consists of individuals with a
broad mix of formal education and over 70 years of combined Nevada exploration
experience, including positions with major oil companies such as Gulf, Mobil,
and Chevron, all Nevada oil exploration pioneers. (See "MANAGEMENT" in the
Company's 1995 10-K.)
The Company's principal executive offices are located at 12596 West Bayaud,
Suite 300, Lakewood, Colorado 80228-2019 and its telephone number is (303) 988-
3122.
Prior Sale of Preferred Stock
1994 Private Placement. In July 1994, the Company issued 1,316,210 shares
of preferred stock designated as the 1994 Convertible Redeemable Preferred Stock
(the "1994 Preferred Stock") and 658,105 C Warrants for net proceeds of
$2,341,370. The preferred stock and warrants were sold as units at $4.00 per
unit, such units consisting of two shares of 1994 Preferred Stock and one C
Warrant. The Company issued to the placement agent in this offering warrants to
purchase 65,811 units which are exercisable before July 8, 1999, at an exercise
price of $4.40 per unit.
At the election of the holder, each share of 1994 Preferred Stock may be
converted at any time into one share of common stock. Holders of 1994 Preferred
Stock elected to convert 74,000, 808,524, and 189,046 shares into shares of
Common Stock in 1994, 1995, and the first quarter of 1996, respectively. The
1994 Preferred Stock is redeemable at any time after March 31, 1996, at $4.00
per share at the Company's option, and has a liquidation preference of $2.00 per
share.
Each C Warrant originally entitled the holder to purchase, at any time
between October 31, 1994, and July 1, 1995, for an exercise price of $3.00, one
share of Common Stock. During September 1995, the Company amended the exercise
price of the C warrants from $3.00 per share to $1.50 per share, and extended
the expiration date from September 30, 1995, to October 10, 1995. In October
1995, the Company received $191,749 in cash and a $137,500 note receivable for
the exercise of 219,500 C warrants. The remaining C Warrants, including the
65,811 C Warrants included in the units issuable to the placement agent on
exercise of warrants, have expired.
This Prospectus relates to the resale of 1,316,210 shares of Common Stock
issued and issuable by the Company on the conversion of the 1994 Preferred
Stock, 219,500 shares of Common Stock issued on the exercise of the C Warrants
and 131,622 shares of Common Stock issuable on the conversion of the shares of
1994 Preferred Stock that are issuable on exercise of the placement agent
warrant.
1995 Private Placement. Between March and September 1995, the Company
completed the sale of 507,666 non-transferable units for $3.00 per unit. Each
such unit consisted of two shares of preferred stock designated as the 1995
Series Preferred Stock (the "1995 Preferred Stock") and one M warrant. At the
election of the holder, each share of 1995 Preferred Stock may be converted into
one share of Common Stock. The 1995 Preferred Stock has a liquidation
preference of $1.50 per share.
Each M warrant entitles the holder to purchase, at any time through
December 31, 1998, one share of Common Stock at an exercise price of $4.00 per
share. M Warrants not exercised by December 31, 1998, will expire. The M
Warrants may be redeemed by the Company on at least 30 days' notice at a
redemption price of $.10 per M Warrant if the average closing price for the
Company's Common Stock is at least $6.00 per share for 20 consecutive trading
days prior to the redemption notice, subject to certain other conditions.
This Prospectus relates to the resale of shares of Common Stock issuable by
the Company on the conversion of the 1995 Preferred Stock and the exercise of
the M Warrants.
1996 Private Placement. The Company issued 500 shares of preferred stock
designated as the 1996 Series 6% Convertible Preferred Stock (the "1996
Preferred Stock") in a private placement completed in March 1996 for which the
Company received net proceeds of approximately $472,500. The Company issued to
the placement agent in such offering 25 shares of 1996 Preferred Stock and
warrants to purchase 54,700 shares of Common Stock at an exercise price equal to
$1.50, subject to adjustment in certain circumstances based on the market price
of the Common Stock at the time of exercise.
Each share of 1996 Preferred Stock is convertible at any time after 60 days
from the issuance thereof and before March 31, 1998, into that number of shares
of Common Stock equal to $1,000 divided by $1.50, subject to adjustment in
certain circumstances based on the market price of the Common Stock at the time
of conversion.
This Prospectus relates to the resale of shares of Common Stock issuable by
the Company on the conversion of the 1996 Preferred Stock and the exercise of
the placement agent warrant. For purposes of this Prospectus, a stock price of
$1.25 is assumed and, as agreed by the Company, to account for a possible
decrease in the price for the Common Stock, the Company is registering twice the
number of shares that would be issuable on conversion of the 1996 Preferred
Stock based on that price of the Common Stock.
1996-2 Private Placement. The Company issued 1,700 shares of 1996-2
Preferred Stock in a private placement completed in May 1996 for which the
Company received net proceeds of approximately $1,640,500. Up to one-third of
the 1996-2 Preferred Stock is convertible at any time after the issuance thereof
and all of the 1996-2 Preferred Stock is automatically convertible on the date
that is six months from the date of issuance, into that number of shares of
Common Stock equal to $1,000 divided by $0.91, subject to adjustment in certain
circumstances based on the market price of the Common Stock at the time of
conversion.
This Prospectus relates to the resale of shares of Common Stock issuable by
the Company on the conversion of the 1996-2 Preferred Stock.
(See "DESCRIPTION OF SECURITIES" below.)
Capitalization
The following table shows the capitalization of the Company as of December
31, 1995, and as adjusted to give effect to the subsequent issuance of 525
shares of 1996 Preferred Stock for net proceeds of approximately $472,500 and
1,700 shares of 1996-2 Preferred Stock for net proceeds of approximately
$1,640,500 and the application of the net proceeds therefrom, and the subsequent
conversion of 189,046 shares of 1994 Preferred Stock and 22,000 shares of 1995
Preferred Stock into shares of Common Stock:
<TABLE>
<CAPTION>
December 31, 1995
----------------------------
Historical As Adjusted
------------ -------------
<S> <C> <C>
Current portion of long term debt $ 404,237 $ 4,237
----------- -------------
Long term debt, net of current portion 23,091 23,091
----------- -------------
Stockholders' Equity
Preferred Stock, par value $0.001 per share, 5,000,000 shares authorized
1991 Convertible Preferred Stock, 40,000 shares issued and
outstanding 40 40
1994 Convertible Redeemable Preferred Stock, 433,686 and 244,640
shares issued and outstanding, respectively 434 245
1995 Convertible Redeemable Preferred Stock, 1,015,334 and
993,334 shares issued and outstanding, respectively 1,015 993
1996 Series 6% Convertible Preferred Stock, 0 and 525 shares issued
and outstanding, respectively(1) -- 1
1996-2 Series 6% Convertible Preferred Stock, 0 and 1,700 shares
issued and outstanding, respectively -- 2
Common Stock, par value $0.001 per share, 50,000,000 shares
authorized, 14,489,401 and 14,700,447 shares outstanding
issued and outstanding, respectively 14,489 14,700
Additional paid in capital 23,301,858 25,414,856
Less note and stock subscriptions receivable (1,092,622) (1,092,622)
Accumulated deficit (19,212,342) (19,212,342)
-------------- ------------
Total stockholders' equity 3,012,872 5,125,873
----------- -------------
Total capitalization $ 3,440,200 $ 5,153,201
=========== =============
</TABLE>
The Offering
Securities offered by Selling Stockholders 6,461,814 shares of Common Stock(1)
Common Stock outstanding before the offering 14,700,447 shares
Common Stock outstanding after the offering 20,674,715 shares(1)
Common Stock reserved for issuance 3,313,000 shares(2)
Fully diluted Common Stock 23,987,715 shares(2)
Nasdaq Symbols:
Common Stock FORL
L Warrants FORLL
(1)Of the 6,461,814 shares of Common Stock offered by Selling Stockholders,
487,546 shares are currently issued and outstanding and the remaining
5,974,268 are issuable on conversion or exercise of Preferred Stock, options
or warrants for gross proceeds to the Company if all such options and
warrants in this offering were exercised of $3,787,014.
(2)Consists of (i) up to 2,793,000 shares of Common Stock issuable on the
exercise of outstanding options and warrants at a weighted average exercise
price of $4.58 per share; (ii) up to 64,000 shares of Common Stock issuable
on the exercise of outstanding options subject to vesting requirements at an
exercise price of $3.00 per share; (iii) 40,000 shares of Common Stock
issuable on conversion of the same number of shares of 1991 Preferred Stock;
and (iv) 416,000 shares of Common Stock on exercise of underwriter and
placement agent warrants and the conversion and/or exercise of securities
issuable on such exercise at a weighted average exercise price of $2.97 per
share. (See "MANAGEMENT: Executive Compensation," "PRINCIPAL
STOCKHOLDERS," and "CERTAIN TRANSACTIONS," in the Company's 1995 10-K, and
"DESCRIPTION OF SECURITIES: Preferred Stock, Warrants, and Options
Outstanding" below)
The board of directors has authority to authorize the offer and sale of
additional securities without the vote of or notice to existing shareholders,
and it is likely that additional securities will be issued to provide future
financing. The issuance of additional securities could dilute the percentage
interest and per share book value of existing shareholders, including persons
purchasing securities in this offering. (See "DESCRIPTION OF SECURITIES" below)
Use of Proceeds
The issued and outstanding shares of Preferred Stock and warrants held by
Selling Stockholders must be converted or exercised into shares of Common Stock
prior to the resale of the Common Stock offered by the Selling Stockholders
pursuant to this offering. The Company will receive no net proceeds from the
conversion of the Preferred Stock or from the sale by the Selling Stockholders
of the Common Stock currently issued or issuable on such conversion or exercise.
Proceeds received by the Company on the exercise of outstanding warrants,
aggregating $3,787,014, if all warrants held by Selling Stockholders are
exercised, will be used by the Company to pay general and administrative
expenses, to the extent not funded from operating revenue, and for additional
drilling, geological and geophysical data gathering, or lease acquisition. If
all options and warrants held by persons other than the Selling Stockholders
were exercised to acquire 3,273,000 shares of Common Stock, the Company would
receive proceeds of $14,231,580. There can be no assurance that any of the
outstanding options or warrants will be exercised to provide any proceeds
therefrom to the Company.
Risk Factors
Offerees should not purchase these securities without carefully reading and
considering the risks involved and unless they are willing and able to accept
the complete loss of their investment. The securities offered hereby are
speculative and involve an unusually high degree of risk. (See "Risk Factors"
below.)
Summary Financial Information
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1993 1994 1995
----------- ------------ ------------
<S> <C> <C> <C>
Statement of Operations Data:
Revenues ............................ $ 98,244 $ 542,991 $ 1,115,876
Net (loss) .......................... (3,578,254) (4,453,718) (2,275,565)
Net (loss) per share ............... . (0.34) (0.34) (0.16)
Weighted average number of shares
outstanding ..................... 10,405,000 12,989,000 14,271,000
</TABLE>
December 31,
---------------------------
1994 1995
----------- ------------
Balance Sheet Data:
Working capital (deficit) ........... $ 47,629 $(2,005,407)
Total assets ........................ 5,197,414 5,601,098
Long-Term Debt ...................... 400,000 23,091
Current Portion of Long-Term Debt ... -- 404,237
Stockholders' equity ................ 3,708,472 3,012,872
No Dividends
The Company has not paid dividends. The Company seeks growth and expansion
of its business through the reinvestment of profits, if any, and does not
anticipate that it will pay dividends in the foreseeable future.
RISK FACTORS
The purchase of the Common Stock involves certain risks. Prospective
purchasers should consider, in addition to the negative implications of the
other information set forth herein, the following risk factors:
Risks Related to the Business of the Company
Company's Ability to Continue as a Going Concern/Shortages of Working
Capital and Continuing Losses
As of December 31, 1995, the Company had a working capital deficit and no
credit lines or significant source of ongoing revenues. The Company has
incurred losses of $19,212,342 since its inception in 1985 and expects that its
accumulated deficit will increase. During 1994 the Company experienced a net
loss of $4,453,718. These losses continued into 1995, with a loss of $2,275,565
for the year ended December 31, 1995. The Company anticipates continuing losses
through the second quarter of 1996 and will require cash from external sources
of approximately $70,000 to $90,000 per quarter for ongoing fixed and recurring
operating costs (which include general and administrative expenses, exploration
consisting of an allocation of employee salaries and other overhead to the
exploration function, and interest on outstanding debt), and approximately
$32,000 per quarter to meet annual lease rental and other costs on its
properties, which exceeds the Company's net revenue from oil production. Based
on current production and oil prices and giving effect to reworking several
existing Eagles Springs Wells to be accomplished during the second quarter of
1996, management believes that its production revenue will be sufficient to meet
its fixed and recurring operating costs for the second quarter of 1996 and
thereafter. However, there can be no assurance that Eagle Springs development
will result in material additional production. The Company will also incur
substantial additional exploration costs, depending on the level of its drilling
activity, which may vary dramatically from quarter to quarter. The Company's
independent auditor's report on the financial statements for the year ended
December 31, 1995, as for preceding fiscal years, contains an explanatory
paragraph as to the Company's ability to continue as a going concern. (See
"FINANCIAL STATEMENTS" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" in the Company's 1995 10-K.)
Additional Possible Expenses Related to Capitalized Costs
The Company includes in oil and gas properties on its balance sheets costs
of wells in progress, which 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 properties below the total capitalized cost of proved oil and gas reserves.
As part of the Company's evaluation of its oil and gas properties in connection
with the preparation of the Company's annual financial statements, the Company
obtains an engineering evaluation of its reserves 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. (See "BUSINESS: Oil Properties" in the Company's 1995 10-K.)
Dependence on Joint Exploration Arrangements with Industry Participants
The Company has entered into a number of joint exploration agreements with
industry participants to obtain leases, scientific data, and funds for drilling
and other exploration. These agreements typically set forth obligations that
the Company must perform timely in order to earn specified property interests,
permit funding participants to terminate their participation at specified points
during the exploration program, and condition continuation of joint efforts on
obtaining satisfactory results. In the case of the Company's agreement with
Barrett, Barrett had the right after the first three wells at Eagle Springs were
completed to terminate its commitment to participate in funding the remaining 11
of the planned 14 well Eagle Springs drilling program. After the first three
Eagle Springs wells were placed into production, Barrett elected to continue to
participate in Eagle Springs, subject to the right to make individual elections
respecting participating in future wells proposed by the Company. If Barrett
elects not to continue with respect to any well, the Company would be required
to fund all of the costs of such well, in which case it would be dependent on
proceeds from the sale of securities and production revenue, which would delay
or limit planned Eagle Springs drilling. (See "BUSINESS: Barrett Agreement" in
the Company's 1995 10-K.)
Limited Production Revenue
The Company has only recently established revenue from oil production from
its Eagle Springs, Nevada, property acquired during 1993. Production from
current wells is inadequate to meet the Company's ongoing expenses or to cover
any costs of exploration. However, based on current production and oil prices
and giving effect to reworking several existing Eagles Springs Wells to be
accomplished during the second quarter of 1996, management believes that its
production revenue will be sufficient to meet its fixed and recurring operating
costs for the second quarter of 1996 and thereafter. There can be no assurance
that Eagle Springs development will result in material additional production,
that ongoing oil production in commercial quantities will be established or that
oil reserves will be proved as a result of the Company's exploration efforts.
(See "BUSINESS" in the Company's 1995 10-K.)
Limited Commercial Drilling Success to Date
Despite the expertise of management, the significant amount of data that
the Company has collected with respect to Nevada, and the expenditure of several
million dollars in property acquisition, data collection, and exploration since
1985, the Company has established only limited reserves and developed limited
ongoing production as a result of its drilling program. The oil production from
the Eagle Springs Field was acquired by the Company in 1993 and did not result
from its exploration or drilling activities. Of the 37 wells drilled to date,
22 were plugged and abandoned, 8 were completed for production in the Eagle
Springs Field and, together with the other wells in the Eagle Springs Field, are
producing approximately 200 barrels of oil per day, 4 were completed for
production and are now producing a limited amount of oil per day, 1 is awaiting
completion, 1 is awaiting further testing, and 1 was converted to a water
disposal well. Although the Company began to receive oil production revenue
from the Eagle Springs Field in early 1994, the Company's success will continue
to depend on the results of drilling, evaluation, and testing of its various
prospects. (See "BUSINESS" and "FINANCIAL STATEMENTS" in the Company's 1995 10-
K.)
Need for Additional Funds
The nature, extent, and cost of exploring prospects in the Great Basin
province over several years cannot be predicted, but the total cost could amount
to tens of millions of dollars. Because of the size of the total exploration
possibilities and the Company's limited resources, it is likely that the
interest of the Company's shareholders in the Company and the interest of the
Company in its drilling prospects will continue to be diluted substantially as
the Company continues to obtain funding through the sale of additional
securities or through sharing arrangements with industry participants. There
can be no assurance that exploration funds will be available to the Company when
required or, if available, that such funds can be obtained on terms acceptable
or favorable to the Company. (See "FINANCIAL STATEMENTS" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" in the
Company's 1995 10-K.)
Concentration of Activities in Frontier Area
Management of the Company has focused its efforts on acquiring lease
positions, developing data, and exploring and drilling in the Great Basin area
of Nevada, a largely unproved and unexplored geological province. While the
Company holds exploration rights to a significant number of acres, its holdings
are insignificant when compared to the size of the potential geological area.
Other than in the Eagle Springs Field, no significant ongoing commercial
production of oil has been established on the Company's properties. In
addition, the areas targeted by the Company, other than the Eagle Springs Field,
have geological, geophysical, drilling, completion, and production problems
which to date have prevented the Company and others with larger exploration
budgets from developing or establishing significant production or reserves.
There is no assurance that these problems can be overcome or that the Company's
drilling program will be commercially successful. (See "BUSINESS" in the
Company's 1995 10-K.)
Dependence on Key Employees
The business of the Company is dependent on its management and technical
team and their substantial Nevada exploration experience, the loss of any one of
whom could adversely affect the Company's proposed activities. The Company does
not have and does not intend to acquire key man life insurance on any of its
executives. (See "DIRECTORS AND EXECUTIVE OFFICERS" in the Company's 1995 10-
K.)
Speculative Nature of Oil and Gas Industry
Exploration for oil is a highly speculative business. There is no way to
know in advance of drilling and testing whether any prospect will yield oil in
sufficient quantities to be economically feasible. The completion of a well for
production or the initiation of production in paying quantities does not
necessarily mean that the well will be economic because it may not produce
sufficient revenues to recover related costs and generate a financial return to
the Company.
High Operating Costs
The costs of exploring, drilling, producing, and transporting are higher in
the geological province targeted by management than they would be in a more
fully developed oil producing area. Access roads to drilling targets over
relatively long distances frequently have to be completed, drilling equipment
and services typically must be brought in from considerable distances, and there
is no collection pipeline so that any oil that is produced must be trucked to a
refinery, the nearest of which is in Salt Lake City, Utah, a distance of several
hundred miles. (See "BUSINESS: Oil Properties" in the Company's 1995 10-K.)
Dependence on Oil Prices
The Company's oil exploration and production activities are dependent on
the prevailing price for oil, which is beyond the Company's control or
influence, and there is no assurance that the Company's wells can be produced at
levels in excess of related production costs. In an effort to limit the adverse
effects of extreme declines in oil prices, the Company has entered into
agreements with Crysen Refining, Inc. ("Crysen"), Salt Lake City, Utah, to sell
oil from its currently producing fields through August 1996 at minimum fixed
prices. Notwithstanding these agreements, if oil prices in general
substantially decline, it may become more difficult, if not impossible, for the
Company to obtain funding for its oil exploration program. (See "BUSINESS: Oil
Properties" in the Company's 1995 10-K.)
Operating Risks and Uninsured Hazards
Oil drilling involves hazards such as fire, explosion, pipe failure, cave
in, collapse, encountering unusual or unexpected formations, pressures, and
other conditions, environmental damage, personal injury, and other occurrences
that could result in the Company incurring substantial losses and liabilities to
third parties. As is customary in exploration arrangements with other energy
companies under which specified drilling is to be conducted, the operator is
required to purchase and pay for insurance against risks customarily insured
against in the oil and gas industry by others conducting similar activities.
(See "BUSINESS: Operational Hazards and Insurance" in the Company's 1995 10-K.)
Nevertheless, the Company may not be insured against all losses or liabilities
that may arise from all hazards because such insurance is unavailable at
economic rates, because the operator has not fulfilled its obligation to
purchase such insurance, or because of other factors. Any uninsured loss could
have a material adverse effect on the Company.
Risks of Adverse Weather
The Company's activities are subject to periodic interruptions due to
weather conditions, which may be quite severe at various times of the year.
Periods of heavy precipitation make travel to exploration or drilling locations
difficult and/or impossible, while extremely cold temperatures limit or
interrupt drilling, pumping, and/or production activities or increase operating
costs.
Intense Competition in Oil and Gas Industry
The acquisition and exploration of oil and gas prospects are highly
competitive. Many of the Company's current and potential competitors engaged in
oil exploration in the Great Basin of Nevada have greater financial resources,
broader exploration programs, and a greater number of managerial and technical
personnel. Because the Company's resources will be limited even on successful
completion of this offering, there can be no assurance that it will be able to
compete effectively in the exploration for oil in Nevada. (See "BUSINESS:
Competition and Markets" in the Company's 1995 10-K.)
Environmental and Other Governmental Regulation
Oil and gas operations are subject to comprehensive federal, state, and
local laws and regulations controlling the exploration for and sale of oil and
the possible effects of such activities on the environment. To date, the
Company has not been required to expend significant resources in order to
satisfy applicable environmental laws and regulations respecting its own
activities. Although management believes that the Company has substantially
completed certain remediation work that it agreed to undertake in connection
with the acquisition of the Eagle Springs Field, there can be no assurance that
additional work may not be required. In addition, present as well as future
legislation and regulations could cause additional expenditures, restrictions,
and delays in the Company's business, the extent of which cannot be predicted,
and may require the Company to curtail specific activities in some circumstances
or subject the Company to various governmental controls. Because federal energy
policies are subject to constant revisions, no prediction can be made as to the
ultimate effect of such governmental policies and controls on the Company. (See
"BUSINESS: Government Regulation" in the Company's 1995 10-K.)
Proposed Energy Tax
In recent months the Clinton Administration has proposed and Congress has
considered a broad based energy tax that may reduce the economic return to
producers of oil or otherwise adversely affect the oil industry. (See
"BUSINESS: Government Regulation" in the Company's 1995 10-K.)
General Risks Relating to Offering
Substantial Warrants and Options Outstanding
The Company has issued to employees, officers, directors, and others
providing services to the Company vested options to purchase up to 1,213,000
shares of Common Stock with exercise prices ranging from $1.15 to $3.00 per
share. Options to purchase a total of 957,000 shares contain a provision that,
on exercise, the holder is granted a new option covering the number of shares
for which the prior option was exercised, with the exercise price of the new
option fixed at the then fair market value of the Common Stock. In addition,
the Company has outstanding options held by unrelated third parties to purchase
530,000 shares of Common Stock at prices ranging from $1.15 per share to $3.00
per share and warrants to purchase a total of 2,442,366 shares of Common Stock
at a weighted average exercise price of $5.36 per share, including warrants held
by Selling Stockholders to purchase 862,366 shares. The existence of such
options and warrants may prove to be a hindrance to future financing by the
Company, and the exercise of options and warrants may further dilute the
interests of the stockholders. The possible future sale of Common Stock
issuable on the exercise of such options and warrants could adversely affect the
prevailing market price of the Company's Common Stock. Further, the holders of
options may exercise them at a time when the Company would otherwise be able to
obtain additional equity capital on terms more favorable to the Company. (See
"DESCRIPTION OF SECURITIES: Preferred Stock, Warrants, and Options Outstanding"
below and "PRINCIPAL SHAREHOLDERS" in the Company's 1995 10-K.)
Issuance of Additional Common Stock
The Company has authorized 5,000,000 shares of Preferred Stock, par value
$0.001 per share, and 50,000,000 shares of Common Stock, par value $0.001 per
share. As of the date of this prospectus, 14,700,447 shares of Common Stock
were issued and outstanding, and 9,287,268 additional shares were reserved for
issuance on the exercise or conversion of options, warrants, and shares of
Preferred Stock issued and outstanding or issuable on exercise of placement
agent warrants. The Company's board of directors also has authority, without
action or vote of the shareholders, percentage ownership of shareholders and may
further dilute the book value of the Company's Common Stock.
Preferential Rights of Preferred Stock Outstanding
The Company has 40,000 shares of 1991 Preferred Stock, 244,640 shares of
1994 Preferred Stock, 993,334 shares of 1995 Preferred Stock, 525 shares of 1996
Preferred Stock, and 1,700 shares of 1996-2 Preferred Stock issued and
outstanding. The 1991 Preferred Stock has a liquidation preference of $1.25 per
share, the 1994 Preferred Stock has a liquidation preference of $2.00 per share,
the 1995 Preferred Stock has a liquidation preference of $1.50 per share, and
the 1996 and 1996-2 Preferred Stock has a liquidation preference of $1,000 per
share. On liquidation or termination of the Company, an aggregate of $4,254,281
in assets would be distributed to the holders of the currently issued and
outstanding Preferred Stock, after payment of all of the Company's obligations,
prior to any distribution to the holders of Common Stock. The 1991, 1994 and
1995 Preferred Stock vote as a single class with the Common Stock, and the 1996
and 1996-2 Preferred Stock do not vote, except as otherwise required by the
corporate statutes of Nevada. If the Company seeks to amend its certificate of
incorporation to change the provisions relating to the Preferred Stock or to
approve a merger containing provisions that would require a class vote if they
were contained in an amendment to the certificate of incorporation, the approval
of each class of Preferred Stock affected thereby, voting as a separate class,
will be required. Consequently, the holders of a relatively minor number of
shares of Preferred Stock may be able to block such proposals, even in
circumstances where they would be in the best interests of the holders of Common
Stock. (See "DESCRIPTION OF SECURITIES: Preferred Stock, Warrants, and Options
Outstanding" below.)
No Shareholder Meetings or Reports
Since its formation, the Company has not held a meeting of its shareholders
for purposes of electing directors or for any other purpose and has not
distributed any annual report or financial information to its stockholders.
Under Nevada law, the Company has been required since inception to have an
annual shareholders' meeting for the election of directors, but has not done so
because of the costs involved in the preparation and mailing of required proxy
materials and holding meetings. In any year in which the Company has not held
or does not hold a shareholders' meeting, a shareholder may force the Company to
call such a meeting for the election of directors and such other purposes as may
come before the shareholders for consideration. This could result in a change
in management.
Determination of Purchase and Exercise Price
The conversion ratio of the Preferred Stock, the exercise prices of the
options and warrants, and the sales price of stock to be offered by the Company,
were determined by the Company, taking into account the history of, and recent
prices for, the Common Stock as quoted on Nasdaq at the time the Preferred
Stock, Options, and Warrants were issued, the business history and prospects of
the Company, the number of securities to be offered, and the general condition
of the securities market, all as assessed by the Company's management. Such
prices bear no relationship to the assets, earnings, or net tangible book value
of the Company or any other traditional criteria of value. (See "PLAN OF
DISTRIBUTION" and "DESCRIPTION OF SECURITIES" below.)
Substantial and Immediate Dilution
Persons purchasing the Common Stock will suffer a substantial and immediate
dilution to the net tangible book value below the purchase price of such Common
Stock. (See "DILUTION" below.)
No Dividends
The Company has not paid dividends in the past and does not plan to pay
dividends in the foreseeable future, even if it were profitable. Earnings, if
any, are expected to be used to advance the Company's exploration activities and
for general corporate purposes, rather than to make distributions to
shareholders.
Registration Rights of Existing Shareholders
The Company has previously granted to existing shareholders and holders of
options and warrants, including officers and directors, registration rights that
require the Company to include securities in future registration statements
filed by the Company, subject to the approval of the managing underwriter in
such future offerings and, in some cases, to file registration statements with
respect to the resale, exercise, or conversion of the securities held by the
holders of such registration rights, all at the expense of the Company. The
Company has obtained the effectiveness of a registration statement respecting
all of its registration obligations, subject to the requirement for updating
through supplements or post-effective amendments. (See "DESCRIPTION OF
SECURITIES: Registration Rights" below.)
NO NET PROCEEDS
The issued and outstanding shares of Preferred Stock and warrants held by
Selling Stockholders must be converted or exercised into shares of Common Stock
prior to the resale of the Common Stock offered by the Selling Stockholders
pursuant to this offering. The Company will receive no net proceeds from the
conversion of the Preferred Stock or from the sale by the Selling Stockholders
of the Common Stock currently issued or issuable on such conversion or exercise.
Proceeds received by the Company on the exercise of outstanding warrants,
aggregating $3,787,014, if all warrants held by Selling Stockholders are
exercised, will be used by the Company to pay general and administrative
expenses, to the extent not funded from operating revenue, and for additional
drilling, geological and geophysical data gathering, or lease acquisition. If
all options and warrants held by persons other than the Selling Stockholders
were exercised to acquire an additional 3,273,000 shares of Common Stock, the
Company would receive proceeds of $14,231,580. There can be no assurance that
any of the outstanding options or warrants will be exercised to provide any
proceeds therefrom to the Company.
THE COMPANY
For information regarding the Company, reference is made to the Company's
annual report on Form 10-K for the year ended December 31, 1995, and all
documents subsequently filed by the Company pursuant to section 13(a), 13(c),
14, or 15(d) of the Exchange Act.
DILUTION
Immediately prior to this offering, the Company had a pro forma net
tangible book value of $7,093,598, with 14,700,447 shares of Common Stock issued
and outstanding, or approximately $0.48 per share. The pro forma net tangible
book value per share decreases to $0.19 after deducting liquidation preferences
of an aggregate of $4,254,281 with respect to the shares of outstanding 1991,
1994, 1995, 1996 and 1996-2 Preferred Stock. The pro forma net tangible book
value is determined by adjusting the net tangible book value of the Company as
of December 31, 1995, to give pro forma effect to the subsequent issuance of 525
shares of 1996 Preferred Stock for net proceeds of approximately $472,500, 1,700
shares of 1996-2 Preferred Stock for net proceeds of approximately $1,020,000,
and 211,046 shares of Common Stock on the conversion of shares of 1994 Preferred
Stock and 1995 Preferred Stock. (See "FINANCIAL STATEMENTS" in the Company's
1995 10-K.)
Purchasers of shares of Common Stock from Selling Stockholders will likely
suffer substantial and immediate dilution in the adjusted net tangible book
value per share of the Common Stock they purchase below the purchase price for
such shares. Similarly, holders of Preferred Stock Warrants will suffer
dilution in the adjusted net tangible book value per share received on
conversion or exercise below their effective purchase price per share. Based on
the Company's net tangible book value immediately prior to this offering, after
giving further effect to the conversion of all outstanding shares of Company
Preferred Stock and the exercise of all Warrants owned by all Selling
Stockholders to acquire the 5,974,268 shares of Common Stock to be sold in this
offering, the Company would have a net tangible book value of $10,830,612, or
approximately $0.52 per share, which represents a reduction of $0.95 per share
from the closing sales price of $1.47 for the Company's Common Stock on Nasdaq
on May 10, 1996.
SELLING STOCKHOLDERS
The following table provides certain information, as of the date of this
Prospectus, respecting the Selling Stockholders, the shares of Common Stock held
by them, to be sold, and to be held following the offering, assuming the sale by
such Selling Stockholders of all shares of Common Stock offered.
<TABLE>
<CAPTION>
Securities Owned Prior to the Offering(1) Shares
-------------------------------------------------------------------- Owned After
1994 1995 M 1996 1996-2 Warrants Shares Offering
Common Preferred Preferred Warrants Preferred Preferred and to be -------------
Selling Stockholders Stock(2) Stock(3) Stock(4) (5) Stock(6) Stock(7) Options(8) Offered Number %
- -------------------------------- ---------- --------- --------- --------- --------- --------- ---------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Steve and Isabelle A. Aiello -- 30,000 -- -- -- -- -- 30,000 -- --
Lawrence R. Albert -- -- 26,666 13,333 -- -- -- 39,999 -- --
Van Henry Archer -- -- 62,564 31,282 -- -- -- 93,846 -- --
Van Henry Archer, Jr. (9) 70,124 -- 33,000 16,500 -- -- -- 57,000 62,624 *
Harry J. Aretakis, MDPC, Profit
Sharing Plan & Trust -- 25,500 -- -- -- -- -- 25,500 -- --
Joe L. and Karen G. Baker
JTWROS(10) 20,769 -- 20,000 10,000 -- -- -- 30,000 20,769 *
Yakov Barber -- -- -- -- 853,334 -- -- 853,334 -- --
Brault & Associated 401k Plan
FBO Jean-Pierre Brault(11) -- -- 40,000 20,000 -- -- -- 60,000 -- --
Jean-Pierre Brault(11) 24,000 -- -- -- -- -- -- 24,000 -- --
Nancy B. Burghardt 15,000 -- -- -- -- -- -- 15,000 -- --
Barney J. Cacioppo -- -- 30,000 15,000 -- -- -- 45,000 -- --
Wayne Canale 22,000 -- -- -- -- -- -- 22,000 -- --
Capital Relations Group, Inc. -- -- -- -- -- -- 500,000 500,000 -- --
CapitalPro International(12) -- -- -- -- -- -- 200,000 200,000 -- --
Ben J. Chilcutt 15,500 -- -- -- -- -- -- 15,500 -- --
Jennifer Craig(13) 17,000 -- -- 5,000 -- -- -- 15,000 7,000 *
Jennifer Craig and Jennie L.
Cage(13) -- -- 4,000 2,000 -- -- -- 6,000 -- --
Jerry and Patricia Crater JTWROS -- -- 2,000 1,000 -- -- -- 3,000 -- --
Kenneth W. Dietz -- 6,000 -- -- -- -- -- 6,000 -- --
Jimmy Dean Dowda -- -- -- -- -- 61,538 -- 61,538 -- --
Harry Doyle 6,000 -- -- -- -- -- -- 6,000 -- --
George E. Dullnig & Co. -- 131,622 -- -- -- -- -- 131,622 -- --
Robert Elliot -- -- 31,000 15,500 -- -- -- 46,500 -- --
Jay W. Enyart -- -- -- -- -- -- 25,000 25,000 -- --
Dr. William G. Field 18,000 -- 10,000 5,000 -- -- -- 33,000 -- --
First Geneva Holdings, Inc. -- -- -- -- 53,333 -- 54,700 108,033 -- --
Fondo de Adquisiciones e
Inversiones Internacionales
XL, S.A. -- -- -- -- -- 800,000 -- 800,000 -- --
Brian R. and Deborah H. Forcey -- -- 40,000 20,000 -- -- -- 60,000 -- --
Glick Enterprises -- -- -- -- 213,333 -- -- 213,333 -- --
Barry J. and Lynn K. Gross(14) 37,500 -- -- -- -- -- -- 37,500 -- --
Barry J. Gross IRA(14) 37,530 -- -- -- -- -- -- 37,530 -- --
Barry J. Gross, D.O. P.C., Money
Purchase Plan(14) 133,388 -- -- -- -- -- -- 133,388 -- --
Barry J. Gross, D.O. P.C. Profit
Sharing Plan (14) 30,788 -- -- -- -- -- -- 30,788 -- --
Barry J. Gross, custodian FBO
Lydia R. Gross, UGMA(14) 15,000 -- -- -- -- -- -- 15,000 -- --
Lynn K. Gross IRA(14) 11,340 -- -- -- -- -- -- 11,340 -- --
Custodian under IRA Rollover of
Howard S. Gross -- -- 27,000 13,500 -- -- -- 40,500 -- --
Robert M. Herber, Trustee 3,000 -- -- -- -- -- -- 3,000 -- --
Lawrence M. Hjermstad 6,000 12,000 -- -- -- -- -- 18,000 -- --
Adam S. Holtzman -- -- 18,600 9,300 -- -- -- 27,900 -- --
Donald Holtzman(15) 48,146 147,140 15,500 7,750 -- -- -- 170,390 48,146 *
Elisa Holtzman(15) 84,512 -- 22,000 11,000 -- -- -- 33,000 84,512 *
Dennis Hoover -- -- -- -- -- -- 30,000 30,000 -- --
Edward & Shari K. Hoppenrath 12,000 -- -- -- -- -- -- 12,000 -- --
Howard Beiles Evelyn Hambleton
Investment Club(10) -- -- 16,667 8,333 -- -- -- 25,000 -- --
Robert Howard -- -- 10,000 5,000 -- -- -- 15,000 -- --
Scott G. Howard 12,000 -- -- 6,000 -- -- -- 18,000 -- --
Donald G. Hunter 115,000 -- 60,000 30,000 -- -- -- 90,000 115,000 *
Emil Inama(16) 8,816 -- 10,000 5,000 -- -- -- 15,000 8,816 *
Edward V. Kazazian(17) -- -- 30,000 15,000 -- -- -- 45,000 -- --
Edward V. Kazazian, Trustee,
Haig H. Kazazian Living Trust
U/A dated 12/18/83(17) -- -- 20,000 10,000 -- -- -- 30,000 -- --
Linda R. Kazazian -- -- 25,000 12,500 -- -- -- 37,500 -- --
Nina H. Kazazian -- -- 6,000 3,000 -- -- -- 9,000 -- --
Josphine A. Kerr 40,000 -- -- -- -- -- -- 40,000 -- --
Bruce R. Knox -- -- -- -- -- 61,538 -- 61,538 -- --
Hans-Udo Kurr -- -- 20,000 10,000 -- -- -- 30,000 -- --
David LaPorte 5,000 -- -- -- -- -- -- 5,000 -- --
Joe and David LaPorte 5,000 -- -- -- -- -- -- 5,000 -- --
Lisa K. Lauterbach -- -- 6,000 3,000 -- -- -- 9,000 -- --
Fred Lenz -- -- -- -- -- 61,538 -- 61,538 -- --
Allan M. Lipman, Jr. -- -- 30,000 15,000 -- -- -- 45,000 -- --
Patricia D. Livingston Jan E. and
Todd L. Flood, JTWROS -- -- 6,670 3,335 -- -- -- 10,005 -- --
Christopher Lloyd -- 12,000 -- -- -- -- -- 12,000 -- --
Albert H. McWhirr -- -- 10,000 5,000 -- -- -- 15,000 -- --
John Mitchell -- -- -- -- -- 61,538 -- 61,538 -- --
New Concepts, L.L.C. -- -- -- -- -- 1,046,154 1,046,154
Ned F. Parson(18) 30,854 -- 40,000 20,000 -- -- -- 60,000 30,854 *
Thomas F. Poop -- -- 10,000 5,000 -- -- -- 15,000 -- --
Thomas K. Poulakidas 55,000 -- 10,000 5,000 -- -- -- 15,000 55,000 *
Bruce E. and Pnina I. Sabel(19) 15,000 -- 6,000 3,000 -- -- -- 9,000 15,000 *
Donald C. Seibert 15,000 -- 20,000 10,000 -- -- -- 30,000 15,000 *
Kevin L. Spencer IRA -- -- -- -- -- -- 75,000 75,000 -- --
Mike Steele 63,372 -- 30,000 15,000 -- -- -- 45,000 63,372 *
Ronald C. and Joy L. Tepner 9,000 -- -- -- -- -- -- 9,000 -- --
The Pinnacle Fund, LP, Barry
Kitt, General Partner of The
Pinnacle Fund -- -- 200,000 100,000 -- -- -- 300,000 -- --
Malcolm G. Thomas -- -- 6,667 3,333 -- -- -- 10,000 -- --
Don & Elaine Treece(20) -- -- 2,000 1,000 -- -- -- 3,000 -- --
Steven Tsengas 12,000 -- -- -- -- -- -- 12,000 -- --
Donal G. & M. Joan Waddell -- -- 20,000 10,000 -- -- -- 30,000 -- --
Steven T. Walker -- -- 16,000 8,000 -- -- -- 24,000 -- --
Paul R. Yoder -- 12,000 -- -- -- -- -- 12,000 -- --
Total 1,013,639 376,262 993,334 507,666 1,120,000 2,092,306 884,700 6,461,814 526,093 2.6
</TABLE>
*Less than one percent.
(1) Shares owned prior to the offering include all shares of Common Stock and
underlying securities convertible or exercisable into shares of Common
Stock owned by the Selling Stockholder. Shares owned after the offering
assume the sale of all shares of Common Stock offered pursuant to this
offering. Percentage figures respecting the securities owned after the
offering give effect to the conversion of all shares of Preferred Stock and
the exercise of all Warrants and Options by all Selling Stockholders.
(2) Includes 526,093 shares of Common Stock held by Selling Stockholders not
offered in this offering, 246,046 shares of Common Stock issued on
conversion of a like number of 1994 Preferred Stock, 219,500 shares of
Common Stock issued on exercise of a like number of C Warrants, and 22,000
shares of Common Stock issued on conversion of a like number of 1995
Preferred Stock.
(3) Includes 244,640 shares of 1994 Preferred Stock issued and outstanding and
131,622 shares issuable to the placement agent in the 1994 Preferred Stock
offering on exercise of a placement agent warrant. Each share of 1994
Preferred Stock is convertible into shares of Common Stock at the rate of
one share of Common Stock for each share of 1994 Preferred Stock held.
Such shares of 1994 Preferred Stock must be converted into shares of Common
Stock before the resale of the Common Stock offered by the Selling
Stockholder pursuant to this offering.
(4) Each share of 1995 Preferred Stock is convertible into shares of Common
Stock at the rate of one share of Common Stock for each share of 1995
Preferred Stock held. Such shares of 1995 Preferred Stock must be
converted into shares of Common Stock before the resale of the Common Stock
offered by the Selling Stockholder pursuant to this offering.
(5) The M Warrants are exercisable into shares of Common Stock at an exercise
price of $4.00 per share. Such Warrants must be exercised to purchase
shares of Common Stock before the resale of the Common Stock offered by the
Selling Stockholder pursuant to this offering.
(6) Each share of 1996 Preferred Stock is convertible at any time after May 14,
1996, and before March 31, 1998, into that number of shares of Common Stock
equal to $1,000 divided by $1.50, subject to adjustment in certain
circumstances based on the market price of the Common Stock at the time of
conversion. (See "DESCRIPTION OF SECURITIES" below.) For purposes of this
Prospectus, a stock price of $1.25 is assumed and twice the number of
shares are registered to account for a possible decrease in the price for
the Common Stock. The figures shown reflect the number of shares of Common
Stock into which the 1996 Preferred Stock is convertible and not the actual
number of shares of 1996 Preferred Stock issued and outstanding. Such
shares of 1996 Preferred Stock must be converted into shares of Common
Stock before the resale of the Common Stock offered by the Selling
Stockholder pursuant to this offering.
(7)One-third of the 1996-2 Preferred Stock is convertible at any time after
issuance, and all of the 1996-2 Preferred Stock is automatically
convertible on the date that is six-months after the date of issuance, into
that number of shares of Common Stock equal to $1,000 divided by $0.91,
subject to adjustment in certain circumstances based on the market price of
the Common Stock at the time of conversion. (See "DESCRIPTION OF
SECURITIES" below.) For purposes of this Prospectus, a stock price of
$1.25 is assumed. The figures shown reflect the number of shares of Common
Stock into which the 1996-2 Preferred Stock is convertible and not the
actual number of shares of 1996-2 Preferred Stock issued and outstanding.
Such shares of 1996-2 Preferred Stock must be converted into shares of
Common Stock before the resale of the Common Stock offered by the Selling
Stockholder pursuant to this offering.
(8) Consists of (i) warrants to purchase 200,000 shares of Common Stock at an
exercise price of $2.00 per share by an unrelated third party issued in
connection with a loan to the Company in the amount of $400,000; (ii)
warrants to purchase 54,700 shares of Common Stock by the placement agent
in the 1996 Preferred Stock offering at an exercise price of $1.50, subject
to adjustment in certain circumstances based on the market price of the
Common Stock at the time of exercise; (iii) warrants to purchase 100,000
shares of Common Stock at an exercise price of $1.50 per share by two
individuals; (iv) options to purchase 30,000 shares of Common Stock at an
exercise price of $1.25 per share by an unrelated third party; and (v)
options to purchase 500,000 shares of Common Stock at exercise prices
ranging from $1.15 per share to $2.30 per share by an unrelated third
party. Such warrants and options must be exercised to purchase shares of
Common Stock before the resale of the Common Stock offered by the Selling
Stockholder pursuant to this offering.
(9) Mr. Archer is also deemed to be the beneficial owner of 5,000 shares of
Common Stock held by his spouse, Edna Myrick Archer and 2,000 shares of
Common Stock held by his minor son, Stephen Stanton Archer.
(10)Joe Baker also holds 500 shares of Common Stock as custodian for Brad Baker
under a Uniform Gift to Minors Act.
(11)Jean-Pierre Brault is deemed to be the beneficial owner of the shares held
by Brault & Associated, of which Mr. Brault is a principal.
(12)CapitalPro International also holds an option to purchase 200,000 shares of
Common Stock through June 6, 1996, at an exercise price of $1.50 per share.
(13)Ms. Craig also holds 4,000 shares of 1995 Preferred Stock and 2,000 M
Warrants jointly with Jennie L. Cage. Ms. Craig is the spouse of N. Thomas
Steele and is deemed to be the beneficial owner of 277,741 shares of Common
Stock and options to purchase 422,000 shares of Common Stock at an average
weighted exercise price of $1.78 per share held by Mr. Steele.
(14)Mr. Gross is also deemed to be the beneficial owner of the shares held in
the Barry J. Gross IRA, in the Barry J. Gross, D.O. P.C., Money Purchase
Plan, in the Barry J. Gross, D.O. P.C., Profit Sharing Plan, and by Mr.
Gross as custodian under a Uniform Gift to Minors Act for the benefit of
Lydia R. Gross, his daughter. In addition, Mr. Gross is deemed to be the
beneficial owner of the shares held in the IRA account of his spouse, Lynn
K. Gross. Likewise, Ms. Gross is deemed to be the beneficial owner of all
of the foregoing shares held or deemed to be held by Mr. Gross.
(15)Mr. Holtzman also holds 100 shares of Common Stock as custodian for Lisa
Holtzman under a Uniform Gift to Minors Act. In addition, Mr. Holtzman and
his spouse, Elisa Holtzman, are deemed to be the beneficial owners of the
shares held by the other. Ms. Holtzman also holds 22,705 shares of Common
Stock as custodian for Adam Scott Holtzman under a Uniform Gift to Minors
Act.
(16)Mr. Inama also holds 7,000 shares of Common Stock jointly with Ann Mary
Inama.
(17)Mr. Kazazian is also deemed to be the beneficial owner of the shares he
holds as trustee of the Haig H. Kazazian Living Trust.
(18)Mr. Parson also holds 15,000 shares of Common Stock jointly with Marilyn M.
Parson and is deemed to be the beneficial owner of 10,000 shares of Common
Stock owned by Ned F. Parson Limited Partnership of which Mr. Parson is
general partner.
(19)Mr. Sabel also owns 3,225 shares of Common Stock solely in his name.
(20)Mr. Treece is currently employed by the Company as chief financial officer
and controller.
MANAGEMENT
For information regarding management of the Company, reference is made to
the Company's annual report on Form 10-K for the year ended December 31, 1995.
DESCRIPTION OF SECURITIES
The Company is authorized to issue 5,000,000 shares of preferred stock, par
value $0.001 per share, and 50,000,000 shares of Common Stock, par value $0.001
per share.
Common Stock
The holders of the Company's Common Stock are entitled to one vote per
share on each matter submitted to vote at any meeting of shareholders. Shares
of Common Stock do not carry cumulative voting rights, and therefore, a majority
of the shares of outstanding Common Stock is able to elect the entire board of
directors, and if they do so, minority shareholders would not be able to elect
any persons to the board of directors. The Company's bylaws provide that one-
third of the issued and outstanding shares of the Company shall constitute a
quorum for shareholders' meetings, except with respect to certain matters for
which a greater percentage quorum is required.
Shareholders of the Company have no preemptive right to acquire additional
shares of Common Stock or other securities. The Common Stock is not subject to
redemption and carries no subscription or conversion rights. In the event of
liquidation of the Company, the shares of Common Stock are entitled to share
equally in corporate assets after satisfaction of all liabilities. The shares
of Common Stock, when issued, are fully paid and nonassessable.
Holders of Common Stock are entitled to receive such dividends as the board
of directors may from time to time declare out of funds legally available for
the payment of dividends. The Company seeks growth and expansion of its
business through the reinvestment of profits, if any, and does not anticipate
that it will pay dividends in the foreseeable future.
The board of directors has the authority to issue the authorized but
unissued shares without action by the shareholders. The issuance of such shares
would reduce the percentage ownership held by persons purchasing stock in this
offering and may dilute the book value of the then existing shareholders.
Preferred Stock, Warrants and Options Outstanding
As of the date of this Prospectus, the Company had the following Preferred
Stock, options and warrants outstanding as discussed in detail below.
Number of Price Per
Shares of Share of
Common Stock Common Stock
Description or or
Common Stock Common Stock
Equivalent Equivalent
Preferred Stock
1991 Series 40,000 $1.25
1994 Series 244,640 $2.00
1995 Series 993,334 $1.50
1996 Series 560,000 (1) $1.50 (2)
1996-2 Series 2,092,306 (1) $0.91 (2)
Warrants to purchase Common Stock 300,000 $1.50
138,000 $1.60
200,000 $2.00
507,666 $4.00
1,242,000 $6.00
54,700 $0.94
Options to purchase Common Stock 100,000 $1.15
30,000 $1.25
100,000 $1.38
68,000 $1.31
384,000 $1.50
100,000 $1.61
25,000 $1.81
100,000 $1.84
650,000 $2.125
100,000 $2.30
20,000 $2.50
105,000 $3.00
25,000 $3.38
(1)Based on an assumed current price for the Common Stock of $1.25.
(2)Subject to adjustment in certain circumstances based on the market price of
the Common Stock at the time of conversion
Preferred Stock
The Company has 40,000 shares designated as 1991 Series Convertible
Preferred Stock, 244,640 shares designated as 1994 Series Convertible Redeemable
Preferred Stock, 993,334 shares designated as the 1995 Series Convertible
Preferred Stock, 525 shares designated as the 1996 Series 6% Convertible
Preferred Stock, and 1,700 shares designated as the 1996-2 Series 6% Convertible
Preferred Stock issued and outstanding as of the date of this Prospectus. The
Company has no current plans to issue any additional Preferred Stock, except
70,000 shares of 1993 Preferred Stock to be issued on the exercise of the
outstanding 1993 Placement Agent Warrants and 131,622 shares of 1994 Preferred
Stock to be issued on the exercise of the outstanding 1994 Placement Agent
Warrants. The Company's articles of incorporation provide that the board of
directors of the Company has authority, without action by the shareholders, to
issue the authorized but unissued Preferred Stock in one or more series, and to
determine the voting rights, preferences as to dividends and liquidation,
conversion rights, and other rights of such series.
The 1991, 1994 and 1995 Preferred Stock is convertible, at the election of
the holder, into the Company's Common Stock at the rate of one share of
Preferred Stock for one share of Common Stock. The 1993 Preferred Stock issuable
on the exercise of the 1993 Placement Agent Warrants is convertible, at the
election of the holder, into the Company's Common Stock at the rate of two
shares of Common Stock for one share of Preferred Stock. The 1996 Preferred
Stock is convertible, at the election of the holder, into the Company's Common
Stock at the rate of one share of 1996 Preferred Stock for the number of shares
of Common Stock determined by dividing $1,000 by the lesser of $1.50 or 75% of
the closing bid price of the Common Stock as reported on Nasdaq on the day
preceding the date of conversion. The 1996-2 Preferred Stock is convertible, at
the election of the holder, into the Company's Common Stock at the rate of one
share of 1996-2 Preferred Stock for the number of shares of Common Stock
determined by dividing $1,000 by the lesser of $0.91 or 65% of the average
closing bid price of the Common Stock as reported on Nasdaq for the five days
preceding the date of conversion.
The 1991 Preferred Stock carries a preference of $1.25 per share on
dissolution and liquidation of the Company, the 1994 Preferred Stock carries a
preference of $2.00 per share, the 1995 Preferred Stock carries a liquidation
preference of $1.50 per share, and the 1996 and 1996-2 Preferred Stock carries a
liquidation preference of $1,000 per share. The 1991, 1994 and 1995 Preferred
Stock votes as a single class with the Common Stock except as otherwise provided
by the corporate laws of the state of Nevada. Shares of 1991, 1994 and 1995
Preferred Stock are entitled to one vote per share. The 1996 and 1996-2
Preferred Stock are not entitled to vote except as required by the corporate
laws of the state of Nevada and on certain specific matters. Except for the
1996 and 1996-2 Preferred Stock, none of the issued and outstanding Preferred
Stock is entitled to preferential dividends, but participates with the Common
Stock in the unlikely event that a dividend is declared. The 1996 and 1996-2
Preferred Stock are entitled to a 6% dividend payable in cash in the event the
1996 and/or 1996-2 Preferred Stock is redeemed or in additional shares of Common
Stock upon the conversion of the 1996 and/or 1996-2 Preferred Stock.
The 1991 Preferred Stock is redeemable at $1.25 per share at any time after
December 31, 1995, the 1994 Preferred Stock is redeemable at $4.00 per share at
any time after March 31, 1996, the 1995 Preferred Stock is redeemable at $3.00
per share at any time after December 31, 1995, and the 1996 Preferred Stock is
redeemable at $1,330 per share at any time after April 1, 1997. The 1996-2
Preferred Stock is not redeemable by the Company, but will automatically convert
into shares of Common Stock at the rate indicated above on the date that is six
months from the date of issuance. In each case the Preferred Stock can be
converted prior to the redemption date fixed in the notice.
This prospectus relates to the resale of Common Stock issued or issuable on
conversion of the 1994, 1995, 1996 and 1996-2 Preferred Stock.
Warrants
The Company has issued and outstanding the following warrants to purchase
Common Stock and has reserved an equivalent number of shares of Common Stock for
issuance on exercise of such warrants. Each of the warrants described below is
governed by a warrant agreement between the Company and the warrant agent. The
following summary is subject to the detailed provisions of the warrant agreement
governing such warrants.
Holders of warrants are deemed to be shareholders of the Company only to
the extent of the shares of Common Stock held by them. Holders of warrants, as
such, are not entitled to vote with respect to matters submitted to the
shareholders of the Company, are not entitled to participate in dividends, if
any, and do not have ownership rights on termination or liquidation of the
Company.
$1.50 Warrants. The Company has issued and outstanding 300,000 warrants to
purchase Common Stock at an exercise price of $1.50 per share, 200,000 of which
expire June 6, 1996, and the remaining 100,000 of which expire in June 2000.
$2.00 Warrants. The Company has issued and outstanding 200,000 warrants to
purchase Common Stock at an exercise price of $2.00 per share (the "$2.00
Warrants") through April 30, 1997.
A, B and L Warrants. Prior to October 30, 1994, the Company had issued and
outstanding 1,242,000 B Warrants ("B Warrants") to purchase one share of Common
Stock at an exercise price of $3.90 at any time prior to October 30, 1994. On
October 30, 1994, the B Warrants expired pursuant to their terms without any
Warrants being exercised. In October 1994, the Company issued L Warrants to the
holders of record of the B Warrants on October 30, 1994, at the rate of one L
Warrant for each B Warrant held. Each L Warrant entitles the holder to purchase
one share of Common Stock at $6.00 through December 31, 1995, or at $8.00
thereafter through December 31, 1996.
The L Warrants are subject to redemption by the Company at a price of $0.10
per L Warrant on 30 days' prior written notice if the closing bid price of the
Common Stock of the Company as quoted on Nasdaq exceeds the L Warrant exercise
price by at least 20% for 20 of 30 trading days during a period ending within 10
days of the notice of redemption. All L Warrants in any class must be redeemed
if any L Warrant in that class is redeemed. L Warrants may be exercised during
the 30 day period after notice of redemption has been given.
The underwriter in the offering in which the B Warrants were sold has an
option to acquire 400 Units, entitling the underwriter to purchase up to 108,000
shares of Common Stock, 108,000 A Warrants, and 108,000 B Warrants at a price of
$2.04. The underwriter warrants were subsequently adjusted pursuant to their
terms so that they are now exercisable at $552 per unit and entitle the
underwriter to purchase 138,000 shares of Common Stock, 138,000 A Warrants and
138,000 B Warrants at an equivalent exercise price of $1.60 per share of Common
Stock. The underwriter's A and B Warrants are not redeemable and are
exercisable only between October 30, 1992, and October 30, 1996, at an exercise
price of $2.25 and $3.90, respectively, to acquire one share of Common Stock for
each A and B Warrant exercised.
M Warrants. The Company has issued and outstanding 507,666 M Warrants.
Each M Warrant entitles the holder to purchase one share of Common Stock $4.00
at any time through December 1, 1998. The M Warrants are subject to redemption
by the Company at a redemption price of $0.10 per Warrant if the average closing
price of the Common Stock is at least $6.00 per share for 20 consecutive trading
days preceding the date of notice of redemption, subject to certain other
conditions. Such Warrants may be exercised during the period after notice of
redemption has been given and prior to the redemption date.
1996 Placement Agent Warrants. The placement agent in the offering in
which the 1996 Preferred Stock was sold has an option to acquire 54,700 shares
of Common Stock at a price equal to the lesser of $1.50 or 75% of the closing
bid price of the Common Stock as reported on Nasdaq on the day preceding the
date of exercise. The placement agent's warrants are exercisable before March
25, 2001.
Options
The Company has issued and outstanding options to purchase up to 1,807,000
shares of Common Stock at a weighted average exercise price of $1.89 per share,
including options to purchase 1,277,000 shares of Common Stock at a weighted
average exercise price of $1.99 per share of Common Stock issued to executive
officers, directors and employees of the Company.
General
Each of the foregoing warrants and options contain provisions that protect
the holders thereof against dilution by adjustment in the number of shares of
Common Stock purchasable on exercise of the warrants and options in certain
events such as stock splits or stock dividends. In the event the number of
warrant or option shares purchasable is increased, through the operation of the
anti-dilution provisions, the exercise price will be reduced proportionately.
Conversely, if the number of warrant or option shares purchasable is decreased,
the exercise price will be increased proportionately.
Registrar and Transfer Agent
The registrar and transfer agent of the Company's securities is Atlas Stock
Transfer Corporation, 5899 South State Street, Salt Lake City, Utah 84107,
telephone (801) 266-7151.
PLAN OF DISTRIBUTION
General
This Prospectus relates to the public offer and sale by certain
shareholders (the "Selling Stockholders") of an aggregate of 6,461,814 shares of
Common Stock of the Company (i) issued or issuable on conversion of 490,686
shares of 1994 Preferred Stock; (ii) issued on exercise of C Warrants to
purchase 219,500 shares; (iii) issuable on exercise by the placement agent in
the 1994 Preferred Stock offering of placement agent warrants to purchase
131,622 shares at an exercise price of $2.20 per share; (iv) issued or issuable
on conversion of 1,015,334 shares of 1995 Preferred Stock; (v) issuable on
exercise of 507,666 M Warrants at an exercise price of $4.00 per share; (vi)
issuable on conversion of 525 shares of 1996 Preferred Stock to acquire
1,120,000 shares of Common Stock, subject to adjustment depending on the trading
price of the Common Stock at the time of conversion; (vii) issuable on exercise
by the placement agent in the 1996 Preferred Stock offering of placement agent
warrants to purchase 54,700 shares; (viii) issuable on conversion of 1,700
shares of 1996-2 Preferred Stock to acquire 2,092,306 shares of Common Stock,
subject to adjustment depending on the trading price of the Common Stock at the
time of conversion; and (ix) issuable on exercise of warrants and options to
purchase 830,000 shares of Common Stock at an average weighted exercise price of
$1.71 per share. (See "SELLING STOCKHOLDERS" and "DESCRIPTION OF SECURITIES"
above.)
Sale of Common Stock
The Common Stock to be sold by the Selling Stockholders may be sold by them
from time to time directly to purchasers. Alternatively, the Selling
Stockholders may, from time to time, offer the Common Stock for sale in the
over-the-counter market through or to securities brokers or dealers that may
receive compensation in the form of discounts, concessions, or commissions from
the Selling Stockholders and/or the purchasers of Common Stock for whom they may
act as agent. Any such sale of Common Stock by Selling Stockholders must be
accompanied by, or follow the delivery of, a prospectus filed with a current
registration statement relating to the Common Stock being offered, unless a
Selling Stockholder elects to rely on Rule 144 or another exemption from the
registration requirements in connection with a particular transaction. The
Selling Stockholders, and any dealers or brokers that participate in the
distribution of the Common Stock, may be deemed to be "underwriters" as that
term is defined in the Securities Act, and any profit on the sale of Common
Stock by them and any discounts, commissions, or concessions received by any
such dealers or brokers may be deemed to be underwriting discounts and
commissions under the Securities Act.
The Common Stock may be sold by the Selling Stockholders from time to time
in one or more transactions at a fixed offering price, which may be changed, or
at prices that may vary through the period during which the securities may be
offered, or at such other prices as may be negotiated by the Selling Stockholder
and the purchaser at the time of sale. The Company does not intend to enter into
any arrangement with any securities dealer concerning solicitation of offers to
purchase the Common Stock.
The Company estimates that it will incur costs of approximately $20,000 in
connection with this offering for legal, accounting, printing, and other costs.
Any separate costs of the Selling Stockholders will be borne by them.
Commissions or discounts paid in connection with the sale of securities by the
Selling Stockholders will be determined by negotiations between them and the
broker-dealer through or to which the securities are to be sold and may vary
depending on the broker-dealers' commission or mark up schedule, the size of the
transaction, and other factors.
LEGALITY OF SECURITIES
The validity under the Nevada Revised Statutes of the issuance of the
Common Stock have been passed on for the Company by Kruse, Landa & Maycock,
L.L.C.
EXPERTS
The consolidated financial statements and the related supplemental
schedules incorporated in this Prospectus by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 1995, have been audited by
Hein + Associates LLP, certified public accountants, as stated in their reports,
which are incorporated herein by reference, and have been so incorporated in
reliance upon such reports given on the authority of that firm as experts in
accounting and auditing.
The year end independent reserve dated December 31, 1995, incorporated by
reference into this Prospectus by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1995, has been prepared by the firm of
Malkewicz Hueni Associates, Inc., Golden, Colorado, as stated in its report,
which is incorporated by reference and has been so incorporated by reference in
reliance and upon such report given on the authority of that firm as experts in
mining engineering.
- -------------------------------------
TABLE OF CONTENTS
- -------------------------------------
Section Page
FORELAND CORPORATION
SUMMARY AND INTRODUCTION....3
RISK FACTORS................9
NO NET PROCEEDS............14
THE COMPANY ...............14
DILUTION ..................15
SELLING STOCKHOLDERS ......15
MANAGEMENT ................18
DESCRIPTION OF SECURITIES .18
PLAN OF DISTRIBUTION ......22 SHARES OF COMMON STOCK
LEGALITY OF SECURITIES ....23
EXPERTS ...................23
No dealer, salesman, or other
person has been authorized in
connection with this offering to give
any information or to make any
representation other than as
contained in this Prospectus and, if PROSPECTUS
made, such information or
representation must not be relied on
as having been authorized by the
Company. This Prospectus does not May , 1996
constitute an offer to sell or the ---
solicitation of an offer to buy any
securities covered by this Prospectus
in any state or other jurisdiction to
any person to whom it is unlawful to
make such offer or solicitation in
such state or jurisdiction.
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses in connection with the securities
being registered:
Securities and Exchange Commission registration fee $ 3,273
Attorneys' fees 11,000
State "blue sky" fees and expenses (including
attorneys' fees) 2,000
Printing expenses 2,000
Miscellaneous 1,727
---------
Total 20,000
========
All expenses with the exception of the Securities and Exchange Commission
registration fee are estimates.
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
There is no statute, charter provision, bylaw, contract, or other
arrangement under which controlling persons, directors, or officers are insured
or indemnified in any manner against liability.
ITEM 16. EXHIBITS
Exhibit Index
The following exhibits are included as part of this registration statement:
SEC
Exhibit Reference
No. No. Title of Document Location
Item 3. Articles of Incorporation and Bylaws
3.01 3 Articles of Incorporation Incorporated by
Reference(4)
3.02 3 Bylaws Incorporated by
Reference(4)
Instruments Defining the Rights of
Security Holders, Including
Item 4. Indentures
4.01 4 Specimen Common Stock Certificate Incorporated by
Reference(1)
4.02 4 Designation of Rights, Privileges, Incorporated by
and Preferences of 1991 Series Reference(1)
Preferred Stock
4.03 4 Designation of Rights, Privileges Incorporated by
and Preferences of 1994 Series Reference(8)
Convertible Preferred Stock
4.04 4 Designation of Rights, Privileges Incorporated by
and Preferences of 1995 Series Reference(13)
Convertible Preferred Stock
4.05 4 Designation of Rights, Privileges Incorporated by
and Preferences of 1996 Series 6% Reference(14)
Convertible Preferred Stock
4.06 4 Designation of Rights, Privileges This Filing
and Preferences of
1996-2 Series 6% Convertible
Preferred Stock
4.07 4 Form of Underwriter's Warrant to Incorporated by
Purchase Units Reference(10)
4.08 4 Warrant Agreement between the Incorporated by
Company and Atlas Stock Transfer Reference(3)
Corporation relating to X and Y
Warrants
4.09 4 Amendment to Warrant Agreement Incorporated by
between the Company and Atlas Stock Reference(9)
Transfer Corporation relating to X
and Y Warrants
4.10 4 Amendment to Warrant Agreement Incorporated by
between the Company and Atlas Stock Reference(10)
Transfer Corporation relating to X
and Y Warrants
4.11 4 Form of Warrant Agreement between Incorporated by
the Company and Atlas Stock Transfer Reference(10)
Corporation relating to L Warrants
4.12 4 Warrant relating to $2.00 Warrants Incorporated by
Reference(10)
4.13 4 Form of Warrant Agreement between Incorporated by
the Company and Atlas Stock Transfer Reference(13)
Corporation relating to M Warrants
4.14 4 Form of Warrants to Kevin L. Spencer This Filing
and Jay W. Enyart
4.15 4 Warrant to First Geneva Holdings, This Filing
Inc., relating to offering of 1996
Preferred Stock
Item 5. Opinion re Legality
5.01 5 Opinion and Consent of Kruse, Landa & This Filing
Maycock, L.L.C.
Item 10. Material Contracts
10.01 10 Option Agreement between N. Thomas Incorporated by
Steele and Foreland Corporation, Reference(12)
dated June 24, 1985**
10.02 10 Option Agreement between Kenneth L. Incorporated by
Ransom and Foreland Corporation, Reference(12)
dated June 24, 1985**
10.03 10 Option Agreement between Grant Incorporated by
Steele and Foreland Corporation, Reference(12)
dated June 24, 1985**
10.04 10 Form of Options to directors dated Incorporated by
April 30, 1991 with respect to Reference(1)
options previously granted 1986**
10.05 10 Agreement Regarding Oil and Gas Incorporated by
Investments, dated May 15, 1991, Reference(6)
between the Company and Santa Fe
Energy Resources, Inc.
10.06 10 Agreement Regarding Oil and Gas Incorporated by
Investments, dated May 15,1991, Reference(6)
between the Company and Santa Fe
Operating Partners, Ltd.
10.07 10 Exploration Agreement, dated Incorporated by
December 1, 1992, entered into by Reference(2)
and between Santa Fe Energy
Resources, Inc., Santa Fe Energy
Operating Partners, L.P., and the
Company
10.08 10 Form of Placement Agent Warrant Incorporated by
Agreement, dated February 4, 1993, Reference(9)
between the Company and George E.
Dullnig & Co.
10.09 10 Form of Executive Employment Incorporated by
Agreement between the Company and Reference(9)
executive officers, with form of
letter and related schedule**
10.10 10 Form of Stock Appreciation Rights Incorporated by
Agreement between the Company and Reference (9)
officers, with related schedule**
10.11 10 Form of Nonqualified Stock Option Incorporated by
between the Company and unrelated Reference(9)
third parties, with related schedule
10.12 10 Operating Agreement between the Incorporated by
Company and Enserch Exploration, Reference(9)
Inc., and Berry Petroleum Company
dated June 17, 1993 (as revised June
22, 1993)
10.13 10 Crude Oil Purchase Agreement between Incorporated by
the Company and Crysen Refining, Reference(8)
Inc., dated September 1, 1993 (Nye
County, Nevada)
10.14 10 Crude Oil Purchase Agreement between Incorporated by
the Company and Crysen Refining, Reference(8)
Inc., dated September 1, 1993
(Eureka County, Nevada)
10.15 10 Loan Agreement by and among Foreland Incorporated by
Corporation together with its two Reference(8)
subsidiaries Krutex Energy
Corporation and Eagle Springs
Production Limited Liability Company
and CapitalPro International, Inc.,
dated April 30, 1994
10.16 10 Letters from Executive Officers re: Incorporated by
Salary deferrals** Reference (13)
10.17 10 Conditional Letter of Acceptance Incorporated by
dated June 22, 1994, and related Reference(8)
Farmout Letter Agreement between
Yates Petroleum Corporation and
Trail Mountain, Inc.
10.18 10 Lease Agreement dated June 7, 1993, Incorporated by
by and between Ulster Joint Venture Reference(8)
and the Company regarding Union
Terrace Office, as amended
10.19 10 Agreement dated August 9, 1994, Incorporated by
between Plains Petroleum Operating Reference(8)
Company and the Company
10.20 10 Letter Agreement dated September 29, Incorporated by
1994, between the Company, Kanowa Reference (10)
Petroleum, Inc., and D&R Investments
relating to interest in Eagle
Springs lease.
10.21 10 Letter Agreement dated October 1, Incorporated by
1994, between Krutex Energy Reference (10)
Corporation and Caldera & Clements
Minerals regarding Lulling Farmout
Agreement.
10.22 10 Letter Agreement dated September 28, Incorporated by
1994, between the Company and Mobil Reference (10)
Exploration & Producing U.S., Inc.
regarding the Rustler Prospect
Farmout Agreement.
10.23 10 Form of Options to employees, with Incorporated by
related schedule Reference (10)
10.24 10 Form of Promissory Notes relating to Incorporated by
certain options exercised by Reference (10)
officers, with related schedule
10.25 10 Form of Option granted pursuant to Incorporated by
reload provisions of previously Reference (10)
granted options with related
schedule
10.26 10 Letter dated January 25, 1995 from Incorporated by
Plains Petroleum Operating Company Reference (13)
regarding Plains' election under the
Agreement dated August 9, 1994.
10.27 10 Form of Letter Agreement dated March Incorporated by
8, 1995 between the Company and Reference (13)
Parsley & Parsley Development, L.P.
regarding Exploration Agreement.
10.28 10 Form of Letter Agreement dated March Incorporated by
24, 1995 between the Company and Reference (13)
Mobil Exploration & Producing U.S.,
Inc., regarding the Rustler Prospect
Farmout Agreement
10.29 10 Form of Registration Agreement Incorporated by
relating to Units consisting of 1995 Reference (13)
Series Preferred Stock and M
Warrants
10.30 10 Crysen Refining, Inc., document Incorporated by
respecting extension of Crude Oil Reference (13)
Purchase Agreement
10.31 10 Form of Registration Agreement This Filing
relating to 1996 Series Convertible
Preferred Stock
Item 23. Consents of Experts and Counsel
23.01 23 Consent of Kruse, Landa & Maycock, L.L.C., See Item 5
counsel to Registrant
23.02 23 Consent of Hein + Associates LLP, This Filing
certified public accountants
23.03 23 Consent of Malkewicz Hueni Associates, Inc. This Filing
Item 24. Power of Attorney
24.01 24 Power of Attorney See Signature
Page
(1) Incorporated by reference from the Company's registration statement on form
S-2, SEC file number 33-42828.
(2) Incorporated by reference from the Company's annual report on form 10-K for
the fiscal year ended December 31, 1992.
(3) Incorporated by reference from the Company's quarterly report on form 10-Q
for the period ending March 31, 1993.
(4) Incorporated by reference from the Company's registration statement on form
S-1, SEC file number 33-19014.
(5) Incorporated by reference from the Company's registration statement on form
S-2, SEC file number 33-34970.
(6) Incorporated by reference from the Company's annual report on form 10-K for
the fiscal year ended December 31, 1991.
(7) Incorporated by reference from the Company's annual report on form 10-K for
the fiscal year ended December 31, 1993.
(8) Incorporated by reference from the Company's registration statement on form
S-1, SEC file number 33-81538.
(9) Incorporated by reference from the Company's registration statement on form
S-2, SEC file number 33-64756.
(10)Incorporated by reference from the Company's registration statement
on form S-2, , SEC file number 33-86076.
(11)Incorporated by reference from the Company's quarterly report on
form 10-Q for the period ending March 31, 1993.
(12)Incorporated by reference from the Company's annual report on form
10-K for the fiscal year ended December 31, 1985.
(13)Incorporated by reference from the Company's annual report on form
10-K for the fiscal year ended December 31, 1994.
(14)Incorporated by reference from the Company's annual report on form
10-K for the fiscal year ended December 31, 1995.
** Identifies each management contract or compensatory plan or arrangement
required to be filed as an exhibit.
ITEM 17. UNDERTAKINGS
Filings Incorporating Subsequent Exchange Act Documents by Reference (Regulation
S-K, Item 512(b))
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Incorporated Annual and Quarterly Reports (Regulation S-K, Item 512(e))
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of rule 14a-3 or rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
article 3 of regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
Rule 415 Offerings: Post-Effective Amendments (Regulation S-K, Item 512(a))
The undersigned Registrant will:
(1) File, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to include any
additional or changed material information on the plan of distribution.
(2) For the purpose of determining liability under the Securities
Act, treat each such post-effective amendment as a new registration
statement of the securities offered, and the offering of such securities at
that time to be the initial bona fide offering thereof.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the termination of the offering.
Indemnification (Regulation S-B, Item 512(h))
Insofar are indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer, or controlling person of the small business issuer
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the securities
being registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Lakewood, state of Colorado, on the 14th day of May,
1996.
FORELAND CORPORATION
(Registrant)
By /s/ N. Thomas Steele
----------------------------
N. Thomas Steele, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints N. Thomas Steele and Bruce C. Decker, and each of
them, with power of substitution, as his attorney-in-fact for him, in all
capacities, to sign any amendments to this Registration Statement and to file
the same with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact or his substitutes may do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities
indicated and on the 14th day of May, 1996.
/s/ N. Thomas Steele
- -----------------------------
N. Thomas Steele, Director and President
(Principal Executive, Financial and
Accounting Officer)
/s/ Grant Steele
- -----------------------------
Dr. Grant Steele, Director
/s/ Kenneth L. Ransom
- -----------------------------
Kenneth L. Ransom, Director
- -----------------------------
Bruce C. Decker, Director
/s/ Dennis J. Gustafson
- -----------------------------
Dennis J. Gustafson, Director
KRUSE, LANDA & MAYCOCK, L.L.C.
EIGHTH FLOOR, BANK ONE TOWER
50 WEST BROADWAY (300 SOUTH)
SALT LAKE CITY, UTAH 84101-2034
TELEPHONE:(801) 531-7090
ATTORNEYS AT LAW TELECOPY: (801) 359-3954
(801) 531-9892
May 14, 1996
Board of Directors
Foreland Corporation
12596 West Bayaud, Suite 300
Lakewood, Colorado 80228-2019
Re: Foreland Corporation
Registration Statement on Form S-3
Gentlemen:
We have been engaged by Foreland Corporation (the "Company") to render our
opinion respecting the legality of certain securities to be offered and sold
pursuant to the registration statement on form S-3 being filed by the Company
with the Securities and Exchange Commission (the "Registration Statement").
Capitalized terms used but not defined herein have the same meanings as set
forth in the Registration Statement.
In connection with this engagement, we have examined the following:
1. Articles of incorporation of the Company;
2. Bylaws of the Company;
3. The Registration Statement; and
4. Unanimous consents of the Company's board of directors.
We have examined such other corporate records and documents and have made
such other examination as we deemed relevant.
Based upon the above examination, we are of the opinion that the Common
Stock to be sold pursuant to the Registration Statement will be, when sold in
accordance with the terms set forth in the Registration Statement, legally
issued, fully paid, and nonassessable under the Nevada Revised Statutes, as
amended.
This firm consents to being named in the Prospectus included in the
Registration Statement as having rendered the foregoing opinion and as having
represented the Company in connection with the Registration Statement.
Sincerely yours,
/s/ Kruse, Landa & Maycock, L.L.C.
KRUSE, LANDA & MAYCOCK, L.L.C.
KL&M/RCT:pjc
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUED UPON
EXERCISE HEREOF, MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT"), OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE ACT WHICH SHALL BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.
Void after 3:30 P.M., Denver Time, on June 28, 2000
Warrant to Purchase
Shares
-------
of Common Stock
WARRANT TO PURCHASE SHARES OF COMMON STOCK
OF
FORELAND CORPORATION
This is to Certify That, FOR VALUE RECEIVED,
-----------------------
or registered assigns ("Holder"), is entitled to purchase, subject to the
provisions of this Warrant, from FORELAND CORPORATION, a Nevada corporation
("Company"), at any time not later than 3:30 P.M., Denver Time, on June 28, 2000
(the "Expiration Date"), shares of common stock, having $.001 par value
--------
per share, of the Company ("Common Stock") at an exercise price, subject to
adjustment as set forth below, equal to the lower of $1.50 per share or the
average of the current market value (determined pursuant to Section (c)(1) or
Section (c)(2) herein) ("Current Market Value") of the Common Stock for the 20
trading days preceding the date of exercise. The number of shares of Common
Stock to be received upon the exercise of this Warrant and the price to be paid
for a share of Common Stock are subject to adjustment form time to time as
hereinafter set forth. The shares of the Common Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter sometimes referred
to as "Warrant Stock" and the exercise price of a share of Common Stock in
effect at any time and as adjusted from time to time is hereinafter sometimes
referred to as the "Exercise Price." This Warrant is one of a series of
identical Warrants (except as to the number of shares of Warrant Stock issuable
upon exercise thereof) for the purchase of an aggregate of 100,000 shares of
Warrant Stock.
(a) Exercise of Warrant. Subject to the provisions of Section (p)
hereof, this Warrant may be exercised in whole or in part at any time or
from time to time not later than 3:30 P.M., Denver Time, on the Expiration
Date, or if the Expiration Date is a day on which banking institutions are
authorized by law to close, then on the next succeeding day which shall not
be such a day, by presentation and surrender hereof to the Company with the
Purchase Form annexed hereto duly executed and accompanied by payment of
the Exercise Price for the number of shares specified in such form,
together with all federal and state taxes applicable upon such exercise.
If this Warrant should be exercised in part only, the Company shall, upon
surrender of this Warrant for cancellation, execute and deliver a new
Warrant evidencing the right of the holder to purchase the balance of the
shares purchasable hereunder. Upon receipt by the Company of this Warrant
at the office or agency of the Company, in proper form for exercise
accompanied by payment of the Exercise Price, the Holder shall be deemed to
be the holder of record of the shares of Common Stock issuable upon such
exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such securities
shall not then be actually delivered to the Holder. The Exercise Price
shall be paid in cash or by certified or bank cashier's check.
(b) Reservation of Shares. The Company hereby agrees that at all
times there shall be reserved for issuance and/or delivery upon exercise of
this Warrant such number of shares of its Common Stock as shall be required
for issuance or delivery upon exercise of this Warrant.
(c) Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the Current Market Value of such fractional share, determined
as follows:
(1) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange
or listed on the Nasdaq Stock Market, the Current Market Value shall
be the last reported sale price of the Common Stock on the composite
tape of such exchange or on Nasdaq on the last trading day prior to
the date of exercise of this Warrant or if no such sale is made on
such day, the average closing bid and asked prices for such day on the
composite tape of such exchange or on Nasdaq; or
(2) If the Common Stock is not so listed or admitted to unlisted
trading privileges, the Current Market Value shall be the mean of the
last reported bid and asked prices reported by the National Quotation
Bureau, Inc., or the OTC Bulletin Board on the last trading day prior
to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the
Current Market Value shall be an amount, not less than book value,
determined in such reasonable manner as may be prescribed by the Board
of Directors of the Company, such determination to be final and
binding on the Holder.
(d) Exchange, Assignment or Loss of Warrant. This Warrant is
assignable and exchangeable, without expense, at the option of the Holder,
upon presentation and surrender hereof to the Company or at the office of
its stock transfer agent, if any, for other Warrants of different
denominations entitling the holder thereof to purchase in the aggregate the
same number of shares of Common Stock purchasable hereunder. Any such
assignment shall be made by surrender of this Warrant to the Company or at
the office of its stock transfer agent, if any, with the Assignment Form
annexed hereto duly executed and funds sufficient to pay any transfer tax;
whereupon the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment
and this Warrant promptly shall be canceled. This Warrant may be divided
or combined with other Warrants which carry the same rights upon
presentation hereof at the office of the Company or at the office of its
stock transfer agent, if any, together with a written notice specifying the
names and denominations in which new Warrants are to be issued and signed
by the Holder hereof. The term "Warrant" as used herein includes any
Warrants issued in substitution for or replacement of this Warrant, or into
which this Warrant may be divided or exchanged. Upon receipt by the
Company of evidence satisfactory to it of the loss, theft, destruction, or
mutilation of this Warrant, and (in the case of loss, theft or destruction)
of reasonably satisfactory indemnification including a surety bond, and
upon surrender and cancellation of this Warrant, if mutilated, the Company
will execute and deliver a new Warrant of like tenor and date. Any such
new Warrant executed and delivered shall constitute an additional
contractual obligation on the part of the Company, whether or not this
Warrant so lost, stolen, destroyed, or mutilated shall be at any time
enforceable by anyone.
(e) Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder of the Company, either at law or
equity, and the rights of the Holder are limited to those expressed in this
Warrant and are not enforceable against the Company except to the extent
set forth herein.
(f) Anti-Dilution Provisions.
(1) Adjustments of Exercise Price. If the Company should at any
time or from time to time hereafter issue or sell any shares of Common
Stock (other than the Warrant Stock which may be purchased under the
Warrants) without consideration or for a consideration per share less
than the Exercise Price in effect immediately prior to the time of
such issue or sale, then forthwith upon such issue or sale, the
Exercise price shall be adjusted to a price (computed to the nearest
cent) determined by dividing (i) the sum of (x) the number of shares
of Common Stock outstanding immediately prior to such issue or sale
multiplied by the Exercise Price in effect immediately prior to such
issue or sale, and (y) the consideration, if any, received by the
Company upon such issue or sale, by (ii) the total number of shares of
Common Stock outstanding immediately after such issue or sale. For
purposes of this subsection (f)(1), the following provisions (A) to
(F) shall also be applicable:
(A) Options. In case at any time hereafter the Company shall in
any manner grant any right to subscribe for or to purchase, or any
option for the purchase of Common Stock or any stock or other
securities convertible into or exchangeable for Common Stock (such
convertible or exchangeable stock or securities being hereinafter
referred to as "Convertible Securities"), and the minimum price per
share for which Common Stock is issuable pursuant to such rights or
options or upon conversion or exchange of such convertible Securities
(determined by dividing (i) the total amount, if any, received or
receivable by the Company as consideration for the granting of such
rights or options, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of such rights
or options, plus, in the case of such Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable
upon the conversion or exchange thereof, by (ii) the total maximum
number of shares of Common Stock issuable pursuant to such rights or
options or upon the conversion or exchange of the total maximum amount
of such convertible Securities issuable upon the exercise of such
rights or options) shall be less than the Exercise Price in effect
immediately prior to the time of the granting of such rights or
options, then the total maximum number of shares of Common Stock
issuable pursuant to such rights or options or upon conversion or
exchange of the total maximum amount of such Convertible Securities
issuable upon the exercise of such rights or options shall (as of the
date of granting of such rights or options) be deemed to be
outstanding and to have been issued for said price per share as so
determined; provided that, no further adjustment of the Exercise Price
shall be made upon the actual issue of Common Stock so deemed to have
been issued, except to reflect any change in the purchase or exercise
price of such convertible securities; and further provided that, upon
the expiration of such rights (including rights to convert or
exchange) or options, (a) the number of shares of Common Stock deemed
to have been issued and outstanding by reason of the fact that they
were issuable pursuant to such rights or options (including rights to
convert or exchange) were not exercised, shall no longer be deemed to
be issued and outstanding, and (b) the Exercise Price shall forthwith
be adjusted to the price which would have prevailed had all
adjustments been made on the basis of the issue only of the shares of
Common Stock actually issued upon the exercise of such rights or
options or upon conversion or exchange of such Convertible Securities.
(B) Convertible Securities. In case the Company shall in any
manner issue or sell any Convertible Securities, and the minimum price
per share for which Common Stock is issuable, upon conversion or
exchange of such Convertible Securities (determined by dividing (i)
the total amount, if any, received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange thereof, by
(ii) the total maximum number of shares of Common Stock issuable upon
the conversion or exchange of all such Convertible Securities) shall
be less than the Exercise Price in effect immediately prior to the
time of such issue, then the total maximum number of shares of Common
Stock issuable upon conversion or exchange of all such Convertible
Securities shall (as of the date of the issue or sale of such
Convertible Securities) be deemed to be outstanding and to have been
issued for said price per share as so determined; provided that, no
further adjustment of the Exercise Price shall be made upon the actual
issue of Common Stock so deemed to have been issued, except to reflect
any change in the purchase or exercise price of such convertible
securities; and further provided that, if any such issue or sale of
such Convertible Securities is made upon any exercise of any right to
subscribe for or to purchase or any option to purchase any such
Convertible Securities for which an adjustment of the Exercise Price
has been or is to be made pursuant to other provisions of this
subsection (f)(1), no further adjustment of the Exercise Price shall
be made by reason of such issue or sale, except to reflect any change
in the purchase or exercise price of such convertible securities; and,
further provided that, upon the termination of the right to convert or
to exchange such Convertible Securities for Common Stock, (a) the
number of shares of Common Stock deemed to have been issued and
outstanding by reason of the fact that they were issuable upon
conversion or exchange of any such Convertible Securities, which were
not so converted or exchanged, shall no longer be deemed to be issued
and outstanding, and (b) the Exercise Price shall forthwith be
adjusted to the price which would have prevailed had all adjustments
been made on the basis of the issue only of the shares of Common Stock
actually issued upon the exercise of such rights or options or upon
conversion or exchange of such Convertible Securities.
(C) Determination of Issue Price. In case any shares of Common
Stock or Convertible Securities or any rights or options to purchase
any such stock or securities shall be issued for cash the
consideration received therefor shall be deemed to be the amount
received by the Company therefor. In case any shares of Common Stock
or Convertible Securities or any rights or options to purchase any
such stock or securities shall be issued for a consideration part or
all of which shall be other than cash, then, for the purpose of this
subsection (f)(1), the Board of Directors of the Company shall
reasonably determine the fair value of such consideration,
irrespective of accounting treatment and such Common Stock,
Convertible Securities, rights or options shall be deemed to have been
issued for an amount of cash equal to the value so determined by the
Board of Directors. The reclassification of securities other than
Common Stock into securities including Common Stock shall be deemed to
involve the issuance for a consideration other than cash of such
Common Stock immediately prior to the close of business on the date
fixed for the determination of security holders entitled to receive
such Common Stock. In cash any shares of Common Stock or Convertible
Securities or any rights or options to purchase any such stock or
other securities shall be issued together with other stock or
securities or other assets of the Company for a consideration which
includes both, the Board of Directors of the Company shall reasonably
determine what part of the consideration so received is to be deemed
to be consideration for the issue of such shares of such Common Stock,
Convertible Securities, rights or options.
(D) Determination of Date of Issue. In case the Company shall
take a record of the holders of any Common Stock for the purpose of
entitling them (i) to receive a dividend or other distribution payable
in Common Stock or in Convertible Securities or (ii) to subscribe for
or purchase Common Stock or Convertible Securities, then such record
date shall be deemed to be the date of the issue or sale of the shares
of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase,
as the case may be.
(E) Treasury Shares. For the purpose of this subsection (f)(1),
shares of Common Stock at any relevant time owned or held by, or for
the account of, the Company shall not be deemed outstanding.
(2) No Adjustment for Small Amounts. Anything in this Section
(f) to the contrary notwithstanding, the Company shall not be required
to give effect to any adjustment in the Exercise Price unless and
until the net effect of one or more adjustments, determined as above
provided, shall have required a change of the Exercise Price by at
least one cent, but when the cumulative net effect of more than one
adjustment so determined shall be to change the actual Exercise Price
by at least two cents, such change in the Exercise Price shall
thereupon be given effect.
(3) Stock Splits and Stock Dividends. Anything in this Section
(f) to the contrary notwithstanding, in case the Company shall at any
time issue Common Stock or securities convertible into or exercisable
or exchangeable for Common Stock by way of dividend or other
distribution on any stock of the Company or subdivide or combine the
outstanding shares of Common Stock, the Exercise Price shall be
proportionately decreased in the case of such issuance (on the day
following the date fixed for determining shareholders entitled to
receive such dividend or other distribution) or decreased in the case
of such subdivision or increased in the case of such combination (on
the date that such subdivision or combination shall become effective);
provided, however, that the Exercise Price shall never be less than
the par value per share of Common Stock.
(4) Number of Shares Adjusted. Upon any adjustment of the
Exercise Price, the holder of this Warrant shall thereafter (until
another such adjustment) be entitled to purchase, at the new Exercise
Price, the number of Shares, calculated to the nearest full share,
obtained by multiplying the number of shares of Common Stock initially
issuable upon exercise of this Warrant by the Exercise Price in effect
on the date hereof and dividing the product so obtained by the new
Exercise Price.
(5) Common Stock Defined. Whenever reference is made in this
Section (f) to the issue or sale of shares of Common Stock, the term
"Common Stock" shall mean the Common Stock of the Company of the class
authorized as of the date hereof and any other class of stock ranking
on a parity with such Common Stock. However, subject to the
provisions of Section (i) hereof, shares issuable upon exercise hereof
shall include only shares of the class designated as Common Stock of
the Company as of the date hereof.
(g) Officer's Certificate. Whenever the Exercise Price shall be
adjusted as required by the provisions of Section (f) hereof, the Company
shall forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal office, and with its stock transfer agent, if
any, an officer's certificate showing the adjusted Exercise Price
determined as herein provided and setting forth in reasonable detail the
facts requiring such adjustment and the calculation thereof. Each such
officer's certificate shall be made available at all reasonable times for
inspection by the Holder and the Company shall, forthwith after each such
adjustment, mail a copy of such certificate to the Holder.
(h) Notices to Holders. So long as this Warrant shall be outstanding
and unexercised (i) if the Company shall pay any dividend or make any
distribution upon the Common Stock, or (ii) if the Company shall offer to
the holders of Common Stock for subscription or purchase by them any shares
of stock of any class or any other rights, or (iii) if any capital
reorganization of the Company, reclassification of the capital stock of the
Company, consolidation or merger of the Company with or into another
corporation, sale, lease or transfer of all or substantially all of the
property and assets of the Company to another corporation, or voluntary or
involuntary dissolution, liquidation or winding up of the Company shall be
effected, then, in any such case, the Company shall cause to be delivered
to the Holder, at least 30 days prior to the date specified in (x) or (y)
below, as the case may be, a notice containing a brief description of the
proposed action and stating the date on which (x) a record is to be taken
for the purpose of such dividend, distribution or rights, or (y) such
reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if
any, is to be fixed, as of which the holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up.
(i) Reclassification, Reorganization or Merger. In the case of any
reclassification, capital reorganization or other change of outstanding
shares of Common Stock of the Company (other than a change in par value, or
from par value to no par value, or as a result of an issuance of Common
Stock by way of dividend or other distribution or of a subdivision or
combination), or in case of any consolidation or merger of the Company with
or into another corporation (other than a merger with a subsidiary in which
merger the Company is the continuing corporation and which does not result
in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable on exercise of
this Warrant) or in case of any sale or conveyance to another corporation
of the property of the Company as an entirety or substantially as an
entirety, the Company shall cause effective provision to be made so that
the holder shall have the right thereafter, by exercising this Warrant, to
purchase the kind and amount of shares of stock and other securities and
property receivable upon such reclassification, capital reorganization or
other change, consolidation, merger, sale or conveyance as if the holder
had exercised this Warrant prior to such transaction. Any such provision
shall include provision for adjustments which shall be as nearly equivalent
as may be practicable to the adjustments provided for in this Warrant. A
copy of such provision shall be furnished to the holder(s) of Warrants
within ten days after execution of the appropriate agreement pertaining to
same and, in any event, prior to any consolidation, merger, sale or
conveyance subject to the provisions of this Section (i). The foregoing
provisions of this Section (i) shall similarly apply to successive
reclassifications, capital reorganizations and changes of shares of Common
Stock and to successive consolidations, mergers, sales or conveyances.
(j) Dissolution. If, at any time prior to the expiration of this
Warrant and prior to the exercise thereof, any dissolution, liquidation or
winding up of the Company shall be proposed, the Company shall cause at
least 30 days' notice to be mailed by certified mail to the registered
holder of this Warrant Certificate at his address as it appears on the
books of the Company. Such notice shall specify the date as of which
holders of record of Common Stock shall participate in any distribution or
shall be entitled to exchange their Common Stock for securities or other
property, deliverable upon such dissolution, liquidation or winding up, as
the case may be; to the end that, during such period of 30 days, the
holders of this Warrant may exercise this Warrant and purchase Common Stock
(or other stock substituted therefor as hereinbefore provided) and be
entitled in respect of shares so purchased to all of the rights of the
other holders of Common Stock of the Company. In case of a dissolution,
liquidation or winding up of the Company, all purchase rights under this
Warrant shall terminate at the close of business on the date as of which
holders of record of the Common Stock shall be entitled to participate in a
distribution of the assets of the Company in connection with such
dissolution, liquidation or winding up (provided that in no event shall
said date be less than 30 days after completion of service by certified
mail of notice as aforesaid). Any Warrant not exercised prior to such time
shall be void and not rights shall exist thereunder. In any such case of
termination of purchase rights, a statement thereof shall be included in
the notice provided for herein.
(k) Spin-Offs. In the event the Company spins-off a subsidiary or
stock held in another corporation as an investment by distributing to the
shareholders of the Company, as a dividend or otherwise, the stock of the
subsidiary or other corporation, the Company shall reserve, for the life of
the Warrant, shares of the subsidiary or other corporation to be delivered
to the holders of the Warrants upon exercise to the same extent as if they
were owners of record of the Warrant Stock on the record date for payment
of the shares of the subsidiary or other corporation.
(l) Registration of Warrant Stock Under the Securities Act of 1933.
The Company agrees to register the Warrant Stock under the Securities Act
of 1933, as amended, in accordance with all terms, conditions and
provisions of that certain Registration Rights Agreement in the form of
Exhibit A attached hereto and incorporated herein by this reference.
(m) Notice. Any notices or certificates by the Company to the Holder
and by the Holder to the Company shall be deemed delivered if in writing
and delivered personally (including by telex, telecopier, telegram or other
acknowledged receipt) or three business days following deposit in the
United States mails, sent by registered or certified mail, return receipt
requested, addressed as follows:
Holder:
-----------------
-----------------
Company: Foreland Corporation
12596 West Bayaud, Suite 300
Lakewood, Colorado 80228
Attention: President
Any person may change the address for the giving of notice by notice duly
given effective five (5) business days thereafter.
(n) Amendments and Waivers. Any term, condition or provision of this
Warrant may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the Holders.
(o) Entire Agreement. This Warrant constitutes the entire agreement
among the parties thereto and supersedes any and all prior agreements
whether written or oral regarding the subject matter hereof.
(p) Transfer to Comply with the Securities Act of 1933
(1) This Warrant or the Warrant Stock or any other security
issued or issuable upon exercise of this Warrant may not be offered or
sold except in conformity with the Securities Act of 1933, as amended,
and then only against receipt of an agreement of such person to whom
such offer of sale is made to comply with the provisions of this
Section (p) with respect to any resale or other disposition of such
securities.
(2) The Company may cause the following legend to be set forth
on each certificate representing Warrant Stock or any other security
issued or issuable on exercise of this Warrant not theretofore
distributed to the public or sold to underwriters for distribution to
the public pursuant to Section (l) hereof, unless counsel for the
Company is of the opinion as to any such certificate that such legend
is unnecessary:
The securities represented by this certificate may not be offered
for sale, sold or otherwise transferred except pursuant to an
effective registration statement made under the Securities Act of
1933 (the "Act"), or pursuant to an exemption from registration
under the Act the availability of which is to be established to
the satisfaction of the Company.
(q) Applicable Law. This Warrant shall be governed by, and construed
in accordance with, the laws of the State of Colorado.
ATTEST: FORELAND CORPORATION
/s/ Dennis Gustafson By: /s/ N. Thomas Steele
------------------------- --------------------------------
, Secretary N. Thomas Steele, President
----------
[SEAL] Date: March 18, 1996, as of June 28, 1995
--
<PAGE>
PURCHASE FORM
Dated
-----------------
The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing shares of Common Stock and hereby makes
-----------
payment of $ in payment of the actual exercise price thereof.
---------
INSTRUCTIONS FOR REGISTRATION OF UNITS
Name
--------------------------------------------------------
(please typewrite or pint in block letters)
Address
-----------------------------------------------------
Signature
---------------------------------------------------
Social Security or Employer I.D. No.
------------------------
FOR VALUE RECEIVED, hereby
--------------------------------------------
sells, assigns and transfers unto
Name
-------------------------------------------------------------
(please typewrite or print in block letters)
Address
----------------------------------------------------------
the right to purchase Common Stock represented by this Warrant to the extent of
Shares as to which such right is exercisable and does hereby
- --------
irrevocable constitute and appoint , attorney, to transfer the same on
----------
the books of the Company with full power of substitution in the premises.
Signature:
-----------------------------------
Dated:
-----------------------------------
FORELAND CORPORATION
(A NEVADA CORPORATION)
WARRANT FOR THE PURCHASE OF
54,700 SHARES OF COMMON STOCK, PAR VALUE $0.001
THIS WARRANT WILL BE VOID
AFTER 11:59 P.M. MOUNTAIN TIME ON MARCH 25, 2001
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES
OR TO U.S. PERSONS UNLESS THE SECURITIES ARE REGISTERED UNDER THE
SECURITIES ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT IS AVAILABLE. IF ISSUED TO U.S. PERSONS, THE SECURITIES
ARE "RESTRICTED SECURITIES" WITHIN THE MEANING OF RULE 144 PROMULGATED
UNDER THE SECURITIES ACT, 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.
This certifies that, for value received, FIRST GENEVA HOLDINGS, INC., or
registered assigns (the "Holder"), is entitled to subscribe for, purchase, and
receive 54,700 fully paid and nonassessable shares (the "Warrant Shares") of
common stock, par value $0.001 (the "Common Stock"), of Foreland Corporation, a
Nevada corporation (the "Company"), at the price of the lesser of (i) U.S. $1.50
per Warrant Share, or (ii) 75% of the closing bid price of the Common Stock of
the Company as reported by Nasdaq for the trading day immediately preceding the
date of exercise (the "Exercise Price"), at any time or from time to time after
April 30, 1996, and on or before 11:59 p.m. mountain time on March 25, 2001 (the
"Exercise Period"), on presentation and surrender of this Warrant with the
purchase form attached hereto, duly executed, at the principal office of the
Company at 12596 West Bayaud, Suite 300, Lakewood, Colorado 80228-2019, and by
paying in full and in lawful money of the United States of America by cash or
cashier's check, the Exercise Price for the Warrant Shares as to which this
Warrant is exercised, on all the terms and conditions hereinafter set forth.
The number of Warrant Shares to be received on exercise of this Warrant and the
Exercise Price may be adjusted on the occurrence of such events as described
herein. If the subscription rights represented hereby are not exercised by
11:59 p.m. mountain time on March 25, 2001, this Warrant shall automatically
become void and of no further force or effect, and all rights represented hereby
shall cease and expire.
Subject to the terms set forth herein, this Warrant may be exercised by the
Holder in whole or in part by execution of the form of exercise attached hereto
and payment of the Exercise Price in the manner described above.
1. Exercise of Warrants. On the exercise of all or any portion of this
Warrant in the manner provided above, the Holder exercising the same shall be
deemed to have become a holder of record of the Warrant Shares for all purposes,
and certificates for the securities so purchased shall be delivered to the
Holder within a reasonable time, but in no event longer than ten days after this
Warrant shall have been exercised as set forth above. If this Warrant shall be
exercised in respect to only a part of the Warrant Shares covered hereby, the
Holder shall be entitled to receive a similar Warrant of like tenor and date
covering the number of Warrant Shares with respect to which this Warrant shall
not have been exercised.
2. Limitation on Transfer. Subject to the restrictions set forth in
paragraph 6 hereof, this Warrant is transferable at the offices of the Company.
In the event this Warrant is assigned in the manner provided herein, the
Company, upon request and upon surrender of this Warrant by the Holder at the
principal office of the Company accompanied by payment of all transfer taxes, if
any, payable in connection therewith, shall transfer this Warrant on the books
of the Company. If the assignment is in whole, the Company shall execute and
deliver a new Warrant or Warrants of like tenor to this Warrant to the
appropriate assignee expressly evidencing the right to purchase the aggregate
number of shares of Common Stock purchasable hereunder; and if the assignment is
in part, the Company shall execute and deliver to the appropriate assignee a new
Warrant or Warrants of like tenor expressly evidencing the right to purchase the
portion of the aggregate number of Warrant Shares as shall be contemplated by
any such agreement, and shall concurrently execute and deliver to the Holder a
new Warrant of like tenor to this Warrant evidencing the right to purchase the
remaining portion of the Warrant Shares purchasable hereunder which have not
been transferred to the assignee.
3. Exchange of Warrants. This Warrant is exchangeable, on the
presentation and surrender hereof by the Holder at the office of the Company,
for a new Warrant or Warrants of like tenor representing in the aggregate the
right to subscribe for and purchase the number of Warrant Shares which may be
subscribed for and purchased hereunder.
4. Fully Paid Shares. The Company covenants and agrees that the Warrant
Shares which may be issued on the exercise of the rights represented by this
Warrant will be, when issued, fully paid and nonassessable and free from all
taxes, liens, and charges with respect to the issue thereof. The Company
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will have authorized
and reserved a sufficient number of shares of Common Stock to provide for the
exercise of the rights represented by this Warrant.
5. Antidilution Provisions. The Warrant Price and number of Warrant
Shares purchasable pursuant to this Warrant may be subject to adjustment from
time to time as follows:
(a) If the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend in shares,
the Warrant Price in effect immediately prior to such record date shall be
proportionately decreased, such adjustment to become effective immediately
after the opening of business on the day following such record date.
(b) If the Company shall subdivide the outstanding shares of Common
Stock into a greater number of shares, combine the outstanding shares of
Common Stock into a smaller number of shares, or issue by reclassification
any of its shares, the Warrant Price in effect immediately prior thereto
shall be adjusted so that the Holder of this Warrant thereafter surrendered
for exercise shall be entitled to receive, after the occurrence of any of
the events described, the number of Warrant Shares to which the Holder
would have been entitled had such Warrant been exercised immediately prior
to the occurrence of such event. Such adjustment shall become effective
immediately after the opening of business on the day following the date on
which such subdivision, combination, or reclassification, as the case may
be, becomes effective.
(c) If any capital reorganization or reclassification of the
Company's Common Stock, or consolidation or merger of the Company with
another corporation or the sale of all or substantially all of its assets
to another corporation shall be effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities, or assets with
respect to or in exchange for Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger, or sale, lawful
adequate provisions shall be made whereby the Holder of this Warrant shall
thereafter have the right to acquire and receive on exercise hereof such
shares of stock, securities, or assets as would have been issuable or
payable (as part of the reorganization, reclassification, consolidation,
merger, or sale) with respect to or in exchange for such number of
outstanding shares of Common Stock of the Company as would have been
received on exercise of this Warrant immediately before such
reorganization, reclassification, consolidation, merger, or sale.
In any such case, appropriate provision shall be made with
respect to the rights and interests of the Holder of this Warrant to the
end that the provisions hereof shall thereafter be applicable in relation
to any shares of stock, securities, or assets thereafter deliverable on the
exercise of this Warrant. In the event of a merger or consolidation of the
Company with or into another corporation or the sale of all or
substantially all of its assets which results in the issuance of a number
of shares of common stock of the surviving or purchasing corporation
greater or less than the number of shares of Common Stock of the Company
outstanding immediately prior to such merger, consolidation, or purchase
are issuable to holders of Common Stock of the Company, then the Warrant
Price in effect immediately prior to such merger, consolidation, or
purchase shall be adjusted in the same manner as though there was a
subdivision or combination of the outstanding shares of Common Stock of the
Company. The Company will not effect any such consolidation, merger, or
sale unless prior to the consummation thereof the successor corporation
resulting from such consolidation or merger or the corporation purchasing
such assets shall assume by written instrument mailed or delivered to the
Holder hereof at its last address appearing on the books of the Company,
the obligation to deliver to such Holder such shares of stock, securities,
or assets as, in accordance with the foregoing provisions, such Holder may
be entitled to acquire on exercise of this Warrant.
(d) If: (i) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend payable otherwise than in cash, or any other distribution in
respect of the shares of Common Stock (including cash), pursuant to,
without limitation, any spin-off, split-off, or distribution of the
Company's assets; or (ii) the Company shall take a record of the holders of
its shares of Common Stock for the purpose of entitling them to subscribe
for or purchase any shares of any class or to receive any other rights; or
(iii) in the event of any classification, reclassification, or other
reorganization of the shares which the Company is authorized to issue,
consolidation or merger of the Company with or into another corporation, or
conveyance of all or substantially all of the assets of the Company; or
(iv) in the event of the voluntary or involuntary dissolution, liquidation,
or winding up of the Company; then, and in any such case, the Company shall
mail to the Holder of this Warrant, at least 30 days prior thereto, a
notice stating the date or expected date on which a record is to be taken
for the purpose of such dividend, distribution or rights, or the date on
which such classification, reclassification, reorganization, consolidation,
merger, conveyance, dissolution, liquidation, or winding up, as the case
may be, is to occur. Such notice shall also specify the date or expected
date, if any is to be fixed, as of which holders of shares of Common Stock
of record shall be entitled to participate in such dividend, distribution,
or rights, or shall be entitled to exchange their shares of Common Stock
for securities or other property deliverable upon such classification,
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation, or winding up, as the case may be.
(e) If the Company, at any time while this Warrant shall remain
unexpired and unexercised, shall sell all or substantially all of its
property, dissolve, liquidate, or wind up its affairs, the Holder of this
Warrant may thereafter receive upon exercise hereof, in lieu of each share
of Common Stock of the Company which it would have been entitled to
receive, the same kind and amount of any securities or assets as may be
issuable, distributable, or payable upon any such sale, dissolution,
liquidation, or winding up with respect to each share of Common Stock of
the Company.
(f) If the Company, at any time while this Warrant shall remain
unexpired and unexercised, sells shares of Common Stock, excluding shares
issued on the exercise of options and warrants issued and outstanding as of
the date hereof, at a price lower than the Exercise Price provided herein,
as the same may from time to time be adjusted pursuant to this section 5,
then the Exercise Price of these Warrants shall be reduced automatically to
such lower price at which the Company has sold Common Stock.
(g) No fraction of a share shall be issued on exercise, but, in lieu
thereof, the Company, notwithstanding any other provision hereof, may pay
therefor in cash at the fair value of any such fractional share at the time
of exercise.
6. Disposition of Warrants or Warrant Shares. The registered owner of
this Warrant, by acceptance hereof, agrees for himself and any subsequent
owner(s) that, before any disposition is made of any Warrant Shares, the
owner(s) shall give written notice to the Company describing briefly the manner
of any such proposed disposition. No such disposition shall be made unless and
until:
(a) the Company has received an opinion from counsel for the owner(s)
of the Warrant Shares stating that no registration under the Securities Act
is required with respect to such disposition; or
(b) a registration statement or post-effective amendment to a
registration statement under the Securities Act has been filed by the
Company and made effective by the Commission covering such proposed
disposition, and the disposition has been registered or qualified or is
exempt therefrom under the state having jurisdiction over such disposition.
7. Registration of Warrant Shares. Within 90 days after the date hereof,
the Company shall file a registration statement under the Securities Act to
register the Warrant Shares (but not the Warrants) for issuance and delivery to
the Holder on the exercise of this Warrant, shall utilize its best efforts to
cause such registration statement to become effective, and shall maintain the
effectiveness of such registration statement for the unexpired term of the
Exercise Period, unless the Company's legal counsel is of the opinion that
registration is not required in order to dispose of the Warrant Shares. The
Holder(s) shall cooperate with the Company and shall furnish such information as
the Company may request in connection with any such registration statement
hereunder, on which the Company shall be entitled to rely.
8. Governing Law. This agreement shall be construed under and be
governed by the laws of the state of Nevada.
9. Notices. All notices, demands, requests, or other communications
required or authorized hereunder shall be deemed given sufficiently if in
writing and if personally delivered; if sent by facsimile transmission,
confirmed with a written copy thereof sent by second day express delivery or
registered mail, return receipt requested and postage prepaid; if sent by
registered mail or certified mail, return receipt requested and postage prepaid;
or if sent by second day express delivery:
If to the Holder, to: First Geneva Holdings, Inc.
Attn:
-----------------
--------------------
Telecopy No.: ( )
--- -------
If to the Company, to: Foreland Corporation
Attn: N. Thomas Steele
Union Terrace Office Bldg.
12596 West Bayaud
Suite 300
Lakewood, Colorado 80228-2019
Telecopy No.: (303) 988-3234
or other such addresses and facsimile numbers as shall be furnished by any party
in the manner for giving notices hereunder, and any such notice, demand,
request, or other communication shall be deemed to have been given as of the
date so delivered or sent by facsimile transmission, three days after the date
so mailed, or two days after the date so sent by second day delivery.
10. Loss, Theft, Destruction, or Mutilation. Upon receipt by the Company
of reasonable evidence of the ownership of and the loss, theft, destruction, or
mutilation of this Warrant, the Company will execute and deliver, in lieu
thereof, a new Warrant of like tenor.
11. Taxes. The Company will pay all taxes in respect of the issue of this
Warrant or the Warrant Shares issuable upon exercise thereof, except transfer
taxes pursuant to an assignment of this Warrant made under Section 2 hereof.
DATED this 18th day of March, 1996.
FORELAND CORPORATION
By /s/ N. Thomas Steele
-------------------------------
N. Thomas Steele, President
FORM OF ASSIGNMENT
(TO BE SIGNED ONLY UPON ASSIGNMENT OF WARRANT)
TO: Foreland Corporation
Attn: President
12596 West Bayaud, Suite 300
Lakewood, Colorado 80228-2019
FOR VALUE RECEIVED, does hereby sell,
------------------------------------
assign, and transfer unto the right to
------------------------------------
purchase shares of common stock of FORELAND CORPORATION
---------------------
(the "Company"), evidenced by the attached Warrant, and does hereby irrevocably
constitute and appoint attorney to transfer
------------------------------------
such right on the books of the Company with full power of substitution in the
premises.
DATED this day of , 19 .
----- ---------- ---
Signature:
---------------------
Signature Guaranteed:
----------
NOTICE: The signature to the form of assignment must correspond with the name
as written upon the face of the within Warrant in every particular without
alteration or enlargement or any change whatsoever, and must be guaranteed by a
bank, other than a savings bank, or by a trust company or by a firm having
membership on a registered national securities exchange.
FORM OF PURCHASE
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)
TO: Foreland Corporation
Attn: President
12596 West Bayaud, Suite 300
Lakewood, Colorado 80228-2019
The undersigned, the owner of the attached Warrant, hereby irrevocably
elects to exercise the purchase rights represented by the Warrant for, and to
purchase thereunder, shares of the common stock of FORELAND
-----------------
CORPORATION and herewith makes payment of U.S. $ therefor (at
----------------
the rate of U.S. $ per share of common stock). Please issue the
--------------
shares of common stock as to which this Warrant is exercised in accordance with
the enclosed instructions and, if the Warrant is being exercised with respect to
less than all of the shares to which it pertains, prepare and deliver a new
Warrant of like tenor for the balance of the shares of common stock purchasable
under the attached Warrant.
DATED this day of , 19 .
----- ---------- ---
Signature:
---------------------
Signature Guaranteed:
----------
NOTICE: The signature to the form of assignment must correspond with the name
as written upon the face of the within Warrant in every particular without
alteration or enlargement or any change whatsoever, and must be guaranteed by a
bank, other than a savings bank, or by a trust company or by a firm having
membership on a registered national securities exchange.
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the registration statement of
Foreland Corporation on Form S-3 of our report (which includes an explanatory
paragraph about the ability of the Company to continue as a going concern) dated
April 12, 1996, on our audits of the consolidated financial statements of
Foreland Corporation, as of December 31, 1994 and 1995, and for each of the
three years in the period ended December 31, 1995, which report is included in
the Company's Annual Report on Form 10-K.
HEIN + ASSOCIATES, LLP
Denver, Colorado
April 26, 1996
<Letterhead>
Malkewicz Hueni Associates, Inc.
May 14, 1996
Foreland Corporation
12596 West Bayaud, Suite 300
Lakewood, CO 80228-2019
Dear Sir:
The undersigned petroleum engineer hereby consents to incorporation by reference
in the registration statement of Foreland Corporation on Form S-3 of the reserve
report respecting Foreland's properties, as such report is referred to in
Foreland Corporation's annual report on form 10-K for its fiscal year ended
December 31, 1995.
Sincerely,
/s/
Stephen E. Malkewicz
President
14142 Denver West Parkway, Suite 190
Golden, Colorado 80401 U.S.A
(303) 277-0270
FORELAND CORPORATION
DESIGNATION OF RIGHTS, PRIVILEGES, AND PREFERENCES OF
1996-2 SERIES 6% CONVERTIBLE PREFERRED STOCK
Pursuant to the provisions of Nevada Revised Statutes, section 78.195, of
the corporation laws of the state of Nevada, the undersigned corporation,
Foreland Corporation (the "Corporation"), hereby adopts the following
Designation of Rights, Privileges, and Preferences of 1996-2 Series 6%
Convertible Preferred Stock (the "Designation"):
FIRST: The name of the Corporation is Foreland Corporation.
SECOND: The following resolution establishing a series of preferred stock
designated as the "1996-2 Series 6% Convertible Preferred Stock" consisting of
10,000 shares, par value $0.001, was duly adopted by the board of directors of
the Corporation on April 30, 1996, in accordance with the articles of
incorporation of the Corporation and the corporation laws of the state of
Nevada:
RESOLVED, there is hereby created a series of preferred stock of the
Corporation to be designated as the "1996-2 Series 6% Convertible
Preferred Stock" consisting of 10,000 shares, par value $0.001
(referred to herein as the "Preferred Stock"), with the following
powers, preferences, rights, qualifications, limitations, and
restrictions:
1. Dividends.
1.01 The Corporation shall pay dividends to the holders of the
Preferred Stock at the times and in the amounts provided for in this
section 1.
1.02 The dividend rate for each share of the Preferred Stock shall be
6% per annum of the $1,000 price at which the share was originally issued
by the Corporation, payable in shares of common stock of the Corporation,
par value $0.001 per share (the "Common Stock"), upon the conversion of the
Preferred Stock in accordance with section 3 below or in cash upon the
liquidation of the Company prior to conversion of the Preferred Stock in
accordance with section 2 below. Such dividends shall be cumulative from
the date of initial issuance of such share of Preferred Stock and shall be
payable to holders of record as their names appear on the stock transfer
books of the Corporation on the record date of payment, not more than 60
days preceding the dividend payment date, as shall be fixed by the board of
directors of the Corporation. Dividends payable for any partial dividend
period shall be computed on the basis of the actual number of days elapsed
over a 365 day year. The Preferred Stock shall be nonparticipating, and
holders thereof shall not be entitled to receive any dividends thereon
other than the dividends referred to in this section 1.
1.03 No dividend or other distribution shall be declared or paid or
set apart for payment on any stock ranking, as to dividends or upon
liquidation, junior to the Preferred Stock, including, without limitation,
the shares of the Corporation's common stock, for any period unless the
holders of the Preferred Stock shall have then been or contemporaneously
are paid (or declared and a sum sufficient for the payment thereof set
apart for such payment) all dividends for all dividend payment periods
terminating on or prior to the date of payment of the distribution on such
junior stock. No dividends shall be declared on any class or series of
stock ranking on a parity with the Preferred Stock as to dividends in
respect of any dividend period unless there shall otherwise be or have been
declared on the Preferred Stock like dividends for all annual periods
coinciding with or ending before such annual period, ratably in proportion
to the respective annual dividend rates fixed therefor. If the Corporation
is in default with respect to any dividends payable on, or any obligation
to retire shares of, the Preferred Stock, the Corporation shall not declare
or pay (or set apart a sum for such payment) any dividends or make any
distribution in cash or other property on, or redeem, purchase, or
otherwise acquire, any other class or series of stock ranking junior to the
Preferred Stock either as to dividends or upon liquidation.
1.04 Any payment of cash dividends declared and due under this section
1 with respect to any shares of Preferred Stock shall be made by means of a
check drawn on funds immediately available for the payment thereof to the
order of, and any payment of in-kind dividends declared and due under this
section 1 with respect to any shares of Preferred Stock shall be made by
means of a certificate representing shares of Common Stock in the name of,
the record holder of the share with respect to which such dividends are
paid at the address for such record holder shown on the stock records
maintained by or for the Corporation, which check or certificate
representing shares of Preferred Stock shall be mailed by United States
first class mail, postage prepaid. Any such payment shall be deemed to
have been paid by the Corporation on the date that such payment is
deposited in the United States mail as provided above; provided, that in
the event the check or other medium by which any payment shall be made
shall prove not to be immediately collectible on the date of payment, such
payment shall not be deemed to have been made until cash in the amount of
such payment shall actually be received by the person entitled to receive
such payment.
1.05 Registration of transfer of any share of Preferred Stock on the
stock records maintained by or for the Corporation to a person other than
the transferor shall constitute a transfer of any right which the
transferor may have had to receive any accrued but unpaid dividends as of
the date of transfer, whether declared or undeclared, and the Corporation
shall have no further obligation to the transferor with respect to such
accrued and unpaid dividends. Any shares of Preferred Stock represented by
a new certificate issued to a new holder shall continue to accrue dividends
as provided in this section 1.
2. Liquidation.
2.01 In the event of any voluntary or involuntary liquidation (whether
complete or partial), dissolution, or winding up of the Corporation, the
holders of the Preferred Stock shall be entitled to be paid out of the
assets of the Corporation available for distribution to its shareholders,
whether from capital, surplus, or earnings, an amount per share in cash
equal to $1,000 per share, plus all amounts to which the holders of the
Preferred Stock are entitled for unpaid dividends in accordance with
section 1 above, whether or not previously declared, accrued thereon to the
date of final distribution subject to the priority distribution required
respecting any issued and outstanding shares of any series of preferred
stock authorized prior to the date hereof. No distribution shall be made
on any common stock or other subsequent series of preferred stock of the
Corporation by reason of any voluntary or involuntary liquidation (whether
complete or partial), dissolution, or winding up of the Corporation unless
each holder of any Preferred Stock shall have received all amounts to which
such holder shall be entitled under this subsection 2.01.
2.02 If on any liquidation (whether complete or partial), dissolution,
or winding up of the Corporation, the assets of the Corporation available
for distribution to holders of Preferred Stock and any other stock ranking
as to any such distribution on a parity with the Preferred Stock shall be
insufficient to pay the holders of outstanding Preferred Stock or such
other stock the full amounts to which they otherwise would be entitled
under subsection 2.01, the assets of the Corporation available for
distribution to holders of Preferred Stock or such other stock shall be
distributed to them pro rata on the basis of the full respective
preferential amounts to which they are entitled.
3. Conversion.
3.01 Each share of Preferred Stock is convertible into shares of
Common Stock at the times, in the manner, and subject to the conditions
provided in this section 3.
3.02 One-third of the shares of Preferred Stock issued by the Company
to each original holder thereof may be converted at any time after the
issuance thereof at the election of the holder on the presentation and
surrender at the principal office of the Corporation of the certificate
representing the shares, duly endorsed, with written instructions
specifying the number of shares of Preferred Stock to be converted and the
name and address of the person to whom certificate(s) representing the
Common Stock issuable on conversion are to be issued. Notwithstanding the
foregoing, all of the shares of Preferred Stock shall be automatically
converted without any further action by any person on the date that is six
months from the initial issuance thereof.
3.03 Each share of Preferred Stock shall be convertible into Common
Stock at the rate equal to that number of shares of Common Stock as shall
equal the quotient of (i) $1,000 divided by (ii) the lesser of (x) 75% of
closing bid price of the Common Stock as reported by the Nasdaq Stock
Market, or such other inter-dealer quotation system as may then list the
Common Stock, for the trading day of the closing pursuant to which such
shares of Preferred Stock were issued; or (y) 65% of the average closing
bid price of the Common Stock as reported by the Nasdaq Stock Market, or
such other inter-dealer quotation system as may then list the Common Stock,
for the five (5) trading days immediately preceding the date of conversion
(the "Conversion Rate"). The date of conversion shall be the date of
receipt by the Corporation of a facsimile copy of the duly executed
conversion certificate(s), provided the stock certificate(s) is delivered
to the Corporation within three business days thereafter. The Corporation
shall, within five business days after the date of conversion, deliver or
cause to be delivered a stock certificate representing the number of shares
of Common Stock into which shares of Preferred Stock were converted in
accordance herewith. The Conversion Rate shall be subject to adjustment
pursuant to subsection 3.04.
3.04 In order to prevent dilution of the rights granted hereunder, the
Conversion Rate shall be subject to adjustment from time to time in
accordance with this subsection 3.04.
(a) In the event the Corporation shall declare a stock dividend
or make any other distribution on any capital stock of the Corporation
payable in Common Stock, options to purchase Common Stock, or
securities convertible into Common Stock or the Corporation shall at
any time subdivide (other than by means of a dividend payable in
Common Stock) its outstanding shares of Common Stock into a greater
number of shares or combine such outstanding stock into a smaller
number of shares, then in each such event, the Conversion Rate in
effect immediately prior to such combination shall be adjusted so that
the holders of the Preferred Stock shall be entitled to receive the
kind and number of shares of Common Stock or other securities of the
Corporation which they would have owned or had been entitled to
receive after the happening of any of the events described above, had
such shares of Preferred Stock been converted immediately prior to the
happening of such event or any record date with respect thereto; an
adjustment made pursuant to this paragraph (a) shall become effective
immediately after the effective date of such event retroactive to the
record date for such event.
(b) If any capital reorganization or reclassification of the
capital stock of the Corporation, consolidation or merger of the
Corporation with another corporation, or the sale of all or
substantially all of its assets to another corporation shall be
effected in such a way that holders of Common Stock shall be entitled
to receive stock, securities, or assets with respect to or in exchange
for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger, or sale, lawful adequate
provisions shall be made whereby the holders of the Preferred Stock
shall thereafter have the right to acquire and receive on conversion
of the Preferred Stock such shares of stock, securities, or assets as
would have been issuable or payable (as part of the reorganization,
reclassification, consolidation, merger, or sale) with respect to or
in exchange for such number of outstanding shares of Common Stock as
would have been received on conversion of the Preferred Stock
immediately before such reorganization, reclassification,
consolidation, merger, or sale. In any such case, appropriate
provision shall be made with respect to the rights and interests of
the holders of the Preferred Stock to the end that the provisions
hereof (including without limitations provisions for adjustments of
the Conversion Rate and for the number of shares issuable on
conversion of the Preferred Stock) shall thereafter be applicable in
relation to any shares of stock, securities, or assets thereafter
deliverable on the conversion of the Preferred Stock. In the event of
a merger or consolidation of the Corporation with or into another
corporation or the sale of all or substantially all of its assets as a
result of which a number of shares of Common Stock of the surviving or
purchasing corporation greater or lesser than the number of shares of
Common Stock outstanding immediately prior to such merger,
consolidation, or purchase are issuable to holders of Common Stock,
then the Conversion Rate in effect immediately prior to such merger,
consolidation, or purchase shall be adjusted in the same manner as
though there was a subdivision or combination of the outstanding
shares of Common Stock. The Corporation will not effect any such
consolidation, merger, or sale unless prior to the consummation
thereof the successor corporation resulting from such consolidation or
merger or the corporation purchasing such assets shall assume by
written instrument mailed or delivered to the holders of the Preferred
Stock at the last address of each such holder appearing on the books
of the Corporation, the obligation to deliver to each such holder such
shares of stock, securities, or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire on
conversion of Preferred Stock.
(c) No adjustment shall be made in the Conversion Rate of the
number of shares of Common Stock issuable on conversion of Preferred
Stock:
(i) In connection with the offer and sale of any shares of
Preferred Stock;
(ii) In connection with the issuance of any Common Stock,
securities, or assets on conversion or redemption of shares of
Preferred Stock;
(iii) In connection with the issuance of any shares of
Common Stock, securities, or assets on account of the
antidilution provisions set forth in this subsection 3.04;
(iv) In connection with the purchase or other acquisition by
the Corporation of any capital stock, evidence of its
indebtedness, or other securities of the Corporation; or
(v) In connection with the sale or exchange by the
Corporation for cash or other property of any Common Stock,
evidence of its indebtedness, or other securities of the
Corporation, including securities containing the right to
subscribe for or purchase Common Stock or preferred stock of the
Corporation.
3.05 The Corporation covenants and agrees that:
(a) The shares of Common Stock, securities, or assets issuable
on any conversion of any shares of Preferred Stock shall have been
deemed to have been issued to the person on the Conversion Date, and
on the Conversion Date, such person shall be deemed for all purposes
to have become the record holder of such Common Stock, securities, or
assets.
(b) All shares of Common Stock or other securities which may be
issued on any conversion of the Preferred Stock will, on issuance, be
fully paid and nonassessable and free from all taxes, liens, and
charges with respect to the issue thereof. Without limiting the
generality of the foregoing, the Corporation will from time to time
take all such action as may be requisite to assure that the par value
of the unissued Common Stock or other securities acquirable on any
conversion of the Preferred Stock is at all times sufficient to render
the Common Stock issued upon conversion as fully paid and non-
assessable.
(c) The issuance of certificates for Common Stock or other
securities on conversion of the Preferred Stock shall be made without
charge to the registered holder thereof for any issuance tax in
respect thereof or other costs incurred by the Corporation in
connection with the conversion of the Preferred Stock and the related
issuance of Common Stock or other securities.
4. Voting Rights. Except as provided herein, the Preferred Stock shall
not be entitled to vote except to the extent that the consent of the holders of
the Preferred Stock are specifically required by the provisions of the
corporation laws of the state of Nevada, as now existing or as hereafter
amended. Notwithstanding the foregoing, the holders of the Preferred Stock
shall vote as a separate class on any resolution proposed for adoption by the
stockholders of the Corporation which seeks to (i) authorize, create or issue,
or increase the authorized or issued amount, of any class or series of stock
ranking senior to the Preferred Stock with respect to the payment of dividends
or the distribution of assets upon dissolution, liquidation or winding up of the
Corporation or which may be convertible into any class of shares ranking senior
to the Preferred Stock as regards to participation in dividends or the
distribution of assets on dissolution, liquidation or winding up; or (ii) amend,
alter or repeal the provisions of the Corporations articles of incorporation or
this Designation, so as to adversely affect any right, preference, privilege or
voting power of the Preferred Stock or the holders thereof. In addition,
without the approval of holders of at least a majority of the issued and
outstanding shares of Preferred Stock, the Corporation shall not become subject
to any restriction on the Preferred Stock other than restrictions arising under
the general corporation laws of the state of Nevada or existing under the
articles of incorporation of the Corporation as in effect on April 30, 1996.
Whenever the holders of the Preferred Stock shall have the right to vote as
provided herein, each holder of Preferred Stock shall be entitled to one vote
for each share of such stock held by him.
5. Additional Provisions
5.01 No change in the provisions of the Preferred Stock set forth in
this Designation affecting any interests of the holders of any shares of
Preferred Stock shall be binding or effective unless such change shall have
been approved or consented to by the holders of a majority of the Preferred
Stock in the manner provided in the corporation laws of the state of
Nevada, as the same may be amended from time to time.
5.02 A share of Preferred Stock shall be transferable only on the
books of the Corporation maintained at its principal office, on delivery
thereof duly endorsed by the holder or by his duly authorized attorney or
representative or accompanied by proper evidence of succession, assignment,
or authority to transfer. In all cases of transfer by an attorney, the
original letter of attorney, duly approved, or an official copy thereof,
duly certified, shall be deposited and remain with the Corporation. In
case of transfer by executors, administrators, guardians, or other legal
representatives, duly authenticated evidence of their authority shall be
produced and may be required to be deposited and remain with the
Corporation in its discretion. On any registration or transfer, the
Corporation shall deliver a new certificate representing the share of
Preferred Stock so transferred to the person entitled thereto.
5.03 The Corporation shall not be required to issue any fractional
shares of Common Stock on the conversion or redemption of any share of
Preferred Stock. If any fraction of a share of Common Stock would, except
for the provisions of this subsection 5.03, be issuable on the conversion
or redemption of any share of Preferred Stock, the Corporation shall pay an
amount in cash equal to the current value of such fraction computed on the
basis of the closing bid price of the Common Stock as reported by the
Nasdaq Stock Market on the last business day prior to the date of
conversion or redemption, or if not so reported as determined by any
reasonable means.
5.04 Any notice required or permitted to be given to the holders of
the Preferred Stock under this Designation shall be deemed to have been
duly given if mailed by first class mail, postage prepared to such holders
at their respective addresses appearing on the stock records maintained by
or for the Corporation and shall be deemed to have been given as of the
date deposited in the United States mail.
IN WITNESS WHEREOF, the foregoing Designation of Rights, Privileges, and
Preferences of 1996-2 Series 6% Convertible Preferred Stock of the Corporation
has been executed this 30th day of April, 1996.
ATTEST: FORELAND CORPORATION
By /s/ Dennis J. Gustafson By /s/ N. Thomas Steele
------------------------------- ---------------------------------
Dennis J. Gustafson, Secretary N. Thomas Steele, President
STATE OF COLORADO )
: ss
COUNTY OF )
-----------
On May 1, 1996, before me, the undersigned, a notary public in and for the
above county and state, personally appeared N. Thomas Steele and Dennis J.
Gustafson, who being by me duly sworn, did state, each for themselves, that he,
N. Thomas Steele, is the president, and that he, Dennis J. Gustafson, is the
secretary, of Foreland Corporation, a Nevada corporation, and that the foregoing
Designation of Rights, Privileges, and Preferences of 1996-2 Series 6%
Convertible Preferred Stock of Foreland Corporation was signed on behalf of such
corporation by authority of a resolution of its board of directors, and that the
statements contained therein are true.
WITNESS MY HAND AND OFFICIAL SEAL.
/s/ Don W. Treece
------------------------------
Notary Public
Address: 9862 Carmel Ct.
Littleton, Co. 80124
My commission expires:
September 8,1998
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of March 15, 1996 (this
"Agreement"), is made by and between FORELAND CORPORATION, a Nevada corporation
(the "Company"), and the person named on the signature page hereto (the "Initial
Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Offshore
Securities Subscription Agreement, dated as of , 1996, between
the Initial Investor and the Company (the "Stock Purchase Agreement"), the
Company has agreed to issue and sell to the Initial Investor 1996 Series 6%
Convertible Preferred Stock of the Company (the "Preferred Stock") which will be
convertible into shares of the common stock, $0.001 par value (the "Common
Stock"), of the Company (the "Conversion Shares") upon the terms and subject to
the conditions of such Preferred Stock; and
WHEREAS, to induce the Initial Investor to execute and deliver the Stock
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws with respect to the
Conversion Shares;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Initial
Investor hereby agrees as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have the
following meanings.
(i) "Investor" means the Initial Investor and any transferee or
assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement
or Statements in compliance with the Securities Act and pursuant to
Rule 415 under the Securities Act or any successor rule providing for
offering securities on a continuous basis ("Rule 415"), and the
declaration or ordering of effectiveness of such Registration
Statement by the United States Securities and Exchange Commission (the
"SEC").
(iii) "Registrable Securities" means the Conversion Shares.
(iv) "Registration Statement" means a registration statement of
the Company under the Securities Act.
(b) As used in this Agreement, the term Investor includes (i) each
Investor (as defined above) and (ii) each person who is a permitted
transferee or assignee of the Registrable Securities pursuant to Section 9
of this Agreement.
(c) Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Stock Purchase
Agreement.
2. Registration.
(a) Mandatory Registration. The Company shall prepare, and on or
prior to the earlier of (i) April 15, 1996, or (ii) the later of the date
which is (x) thirty (30) days after the Closing Date (as that term is
defined in Section 4(a) of the Stock Purchase Agreement) or (y) the filing
of form 10-K or Form 10-KSB (the "Filing Date"), file with the SEC, either
a Registration Statement on Form S-3 covering at least 1,066,666 shares of
Common Stock as Registrable Securities or an amendment to any pending
Company Registration Statement on Form S-3, and such Registration Statement
or amended Registration Statement shall state that, in accordance with Rule
416 under the Securities Act, it also covers such indeterminate number of
additional shares of Common Stock as may become issuable upon conversion of
the Preferred Stock to prevent dilution resulting form stock splits, stock
dividends, or similar transactions or by reason of changes in the
conversion price of the Preferred Stock in accordance with the terms
thereof. If at any time the number of shares of Common Stock into which
the Preferred Stock may be converted exceeds 1,066,666 shares of Common
Stock, the Company shall, within ten (10) business days after receipt of a
written notice from any Investor, either (i) amend the Registration
Statement filed by the Company pursuant to the preceding sentence, if such
Registration Statement has not been declared effective by the SEC at that
time, to register all shares of Common Stock into which the Preferred Stock
may be converted, or (ii) if such Registration Statement has been declared
effective by the SEC at that time, file with the SEC an additional
Registration Statement on Form S-3 to register the shares of Common Stock
into which the Preferred Stock may be converted that exceed the 1,066,666
shares of Common Stock already registered.
(b) Underwritten Offering. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) hereof involves an
underwritten offering, the Investors who hold a majority in interest of the
Registrable Securities subject to such underwritten offering shall have the
right to select one legal counsel and an investment banker or bankers and
manager or managers to administer the offering, which investment banker or
bankers or manager or managers shall be reasonably satisfactory to the
Company. The Investors who hold the Registrable Securities to be included
in such underwriting shall pay all underwriting discounts and commission
and other fees and expenses of such investment banker or bankers and
manager or managers so selected in accordance with this Section 2(b) (other
than fees and expenses or managers so selected in accordance with this
Section 2(b) (other than fees and expenses relating to registration of
Registrable Securities under federal or state securities laws, which are
payable by the Company pursuant to Section 5 hereof) with respect to their
Registrable Securities and the fees and expenses of such legal counsel so
selected by the Investors.
(c) Eligibility for Form S-3. The Company represents and warrants
that it meets the requirements for the use of Form S-3 for registration of
the sale by the Initial Investor and any Investor of the Registrable
Securities and the Company shall file all reports required to be filed by
the Company with the SEC in a timely manner so as to maintain such
eligibility for the use of Form S-3.
3. Obligations of the Company. In connection with the registration of
the Registrable Securities, the Company shall do each of the following:
(a) Prepare promptly, and file with the SEC on or prior to the Filing
Date, a Registration Statement with respect to not less than the number of
Registrable Securities provided in Section 2(a), above, and thereafter use
its best efforts to cause each Registration Statement relating to
Registrable Securities to become effective as soon as possible after such
filing, and keep the Registration Statement effective pursuant to Rule 415
at all times until the earliest (the "Registration Period") or (i) the date
that is three years after the Closing Date (ii) the date when the Investors
may sell all Registrable Securities under Rule 144 or (iii) the date the
Investors no longer own any of the Registrable Securities, which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; and
(b) Prepare and file with the SEC such amendments (including post-
effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of
in accordance with the intended methods of disposition by the seller or
sellers thereof as set forth in the Registration Statement;
(c) Furnish to each Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel, (i) promptly
after the same is prepared and publicly distributed, filed with the SEC, or
received by the Company, one (1) copy of the Registration Statement, each
preliminary prospectus and prospectus, and each amendment or supplement
thereto, and (ii) such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents, as such Investor may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such
Investor;
(d) Use reasonable efforts to (i) register and qualify the
Registrable Securities covered by the Registration Statement under such
other securities or blue sky laws of such jurisdictions as the Investors
who hold a majority in interest of the Registrable Securities being offered
reasonably request and in which significant volumes of shares of Common
Stock are traded, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof at all times during the Registration Period, (iii)
take such other actions as may be necessary to maintain such registration
and qualifications in effect at all times during the Registration Period,
and (iv) take all other actions reasonably necessary or advisable to
qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for
this Section 3(d), (B) subject itself to general taxation in any such
jurisdiction, (C) file a general consent to service of process in any such
jurisdiction, (D) provide any undertakings that cause more than nominal
expense or burden to the Company, or (E) make any change in its charter or
by-laws, which in each case the Board of Directors of the Company
determines to be contrary to the best interests of the Company and its
stockholders;
(e) 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 Investor as such Investor
may reasonably request;
(f) As promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing underwriters) of the
issuance by the SEC of any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest possible time;
(g) Use its best efforts to arrange for at least two market makers to
register with the National Association of Securities Dealers, Inc.
("NASD"), as such with respect to such Registrable Securities;
(h) Provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of
the Registration Statement;
(i) Cooperate with the Investors who hold Registrable Securities
being offered to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to the Registration statement and enable
such certificates to be in such denominations or amounts as the case may
be, as the Investors may reasonably request and registered in such names as
the Investors may requests; and, within three (3) business days after a
Registration Statement which includes Registrable Securities is ordered
effective by the SEC, the Company shall deliver, and shall cause legal
counsel selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an appropriate
instruction and opinion of such counsel; and
(j) Take all other reasonable actions necessary to expedite and
facilitate disposition by the Investor of the Registrable Securities
pursuant to the Registration Statement.
4. Obligations of the Investors. In connection with the registration of
the Registrable Securities, the Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with
respect to the Registrable Securities of a particular Investor that such
Investor shall furnish to the Company such information regarding itself,
the Registrable Securities held by it, and the intended method of
disposition of the Registrable Securities held by it, as shall be
reasonably required to effect the registration of such Registrable
Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least five (5) days
prior to the first anticipated filing date of the Registration Statement,
the Company shall notify each Investor of the information the Company
requires from each such Investor (the "Requested Information") if such
Investor elects to have any of such Investor's Registrable Securities
included in the Registration Statement. If at least one (1) business day
prior to the filing date the Company has not received the Requested
Information form an Investor (a "Non-Responsive Investor"), then the
Company may file the Registration Statement without including Registrable
Securities of such Non-Responsive Investor;
(b) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by
the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such
Investor's Registrable Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(e)
or 3(f), above, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e) or 3(f)
and, if so directed by the Company, such Investor shall deliver to the
Company (as the expense of the Company) or destroy (and deliver to the
Company a certificate of destruction) all copies in such Investor's
possession, of the prospectus covering such Registrable Securities current
at the time of receipt of such notice.
5. Expenses of Registration. All reasonable expenses, other than
underwriting discounts and commissions and other fees and expenses of investment
bankers and other than brokerage commission, incurred in connection with
registrations, filings, or qualifications pursuant to Section 3, but including,
without limitation, all registration, listing, and qualifications fees, printers
and accounting fees, and the fees and disbursements of counsel for the Company,
shall be borne by the Company.
6. 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 Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such
Investor, each person, if any, who controls any Investor within the meaning
of the Securities Act or the Exchange Act (each, an "indemnified Person"),
against any losses, claims, damages, liabilities, or expenses (joint or
several) incurred (collectively, "Claims") to which any of them may become
subject under the Securities Act, the Exchange Act or otherwise, insofar as
such Claims (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any of the following
statements, omissions or violations in the Registration Statement, or any
post-effective amendment thereof or 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, (ii) any untrue statement or
alleged untrue statement of a material fact contained in any preliminary
prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein
any material fact necessary to make the statements made therein, in light
of the circumstances under which the statements therein were made, not
misleading or (iii) any violation or alleged violation by the Company of
the Securities Act, the Exchange Act, any state securities law or any rule
or regulation under the Securities Act, the Exchange Act or any state
securities law (the matters in the foregoing clauses (i) through (iii)
being, collectively, "Violations"). The Company shall reimburse the
Investors, promptly as such expenses are incurred and are due and payable,
for any legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a) shall not (I) apply to a Claim arising out
of or based upon a Violation which occurs in reliance upon and in
conformity with information furnished in writing to the Company by or on
behalf of any Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the
Company pursuant to Section 3(b) hereof; (II) with respect to any
preliminary prospectus, inure to the benefit of any such person from whom
the person asserting any such Claim purchased the Registrable Securities
that are the subject thereof (or to the benefit of any person controlling
such person) if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected in the prospectus, as then
amended or supplemented, if such prospectus was timely made available by
the Company pursuant to Section 3(b) hereof; (III) be available to the
extent such Claim is based on a failure of the Investor to deliver or cause
to be delivered the prospectus made available by the Company; or (IV) apply
to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not
be unreasonably withheld. Each Investor will indemnify the Company and its
officers, directors, and agents against any claims arising out of or based
upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company, by or on behalf of such
Investor, expressly for use in connection with the preparation of the
Registration Statement, subject to such limitations and conditions as are
applicable to the Indemnification provided by the Company to this Section
6. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall
survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9.
(b) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, 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 control of the defense thereof with counsel mutually
satisfactory to the indemnifying party and the Indemnified person or the
Indemnified Party, as the case may be: provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its
own counsel with the fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified
Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by
such counsel in such proceeding. In such event, the Company shall pay for
only one separate legal counsel for the Investors; such legal counsel shall
be selected by the Investors holding a majority in interest of the
Registrable Securities included in the Registration Statement to which the
Claim relates. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action shall
not relieve such indemnifying party of any liability to the Indemnified
Person or Indemnified Party under this Section 6, except to the extent that
the indemnifying party is prejudiced in its ability to defend such action.
The indemnification required by this Section 6 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as such expense, loss, damage or liability is incurred and is due
and payable.
7. Contribution. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6; (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation; and (c)
contribution by any seller of Registrable Securities shall be limited in amount
to the net amount of proceeds received by such seller from the sale of such
Registrable Securities.
8. Reports under Exchange Act. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act; and
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by
the Company that it has complied with the reporting requirements of Rule
144, the Securities Act and the Exchange 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 to permit the Investors to sell such securities
pursuant to Rule 144 without registration.
9. Assignment of the Registration Rights. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of all or any portion
of such securities (or all or any portion of any Preferred Stock of the Company
which is convertible into such securities) of Registrable Securities only if:
(a) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (b) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (i) the
name and address of such transferee or assignee and (ii) the securities with
respect to which such registration rights are being transferred or assigned, (c)
immediately following such transfer or assignment the further disposition of
such securities by the transferee or assignee is restricted under the Securities
Act and applicable state securities laws, and (d) at or before the time the
Company received the written notice contemplated by clause (b) of this sentence
the transferee or assignee agrees in writing with the Company to be bound by all
of the provisions contained herein.
10. 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 Investors who hold a majority in interest of
the Registrable Securities. Any amendment or waiver effected in accordance with
this Section 10 shall be binding upon each Investor and the Company.
11. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of such
Registrable Securities.
(b) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally
delivered (by hand, by courier, by telephone line facsimile transmission,
receipt confirmed, or other means) or sent by certified mail, return
receipt requested properly addressed and with proper postage prepaid (i) if
to the Company, at FORELAND CORPORATION, Union Terrace Office Building,
12596 West Bayaud, Suite 300, Lakewood, Colorado 80228, ATT: President,
(ii) if to the initial Investor, at the address set forth under its name in
the Stock Purchase Agreement, with a copy to Samuel Krieger, Esq., Krieger
& Prager, 319 Fifth Avenue, Third Floor, New York, New York 10016, and
(iii) if to any other Investor, at such address as such Investor shall have
provided in writing to the Company, or at such other address as each such
party furnishes by notice given in accordance with this Section 11(b), and
shall be effective, when personally delivered, upon receipt and, when so
sent by certified mail, four (4) calendar days after deposit with the
United States Postal Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be enforced, governed by, and construed in
accordance with the laws of the State of New York applicable to agreements
made and to be performed entirely within such state. In the event that any
provision of this Agreement is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be
deemed modified to conform with such statute or rule of law. Any provision
hereof which may prove invalid or unenforceable under any law shall not
effect the validity or enforceability of any other provision hereof.
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties, or undertakings, other than those set
forth or referred to herein. This Agreement supersedes all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning thereof.
(i) The Company acknowledges that any failure by the Company to
perform its obligations under this Agreement, including, without
limitation, the Company's obligations under Section 3(i), or any delay in
such performance could result in direct damages to the Investors and the
Company agrees that, in addition to any other liability the Company may
have by reason of any such failure or delay, the Company shall be liable
for all direct damages caused by any such failure or delay. Neither party
shall be liable for consequential damages.
(j) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by telephone line facsimile
transmission of a copy of this Agreement bearing the signature of the party
so delivering this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
FORELAND CORPORATION
By /s/ Dennis J. Gustafson
---------------------------------
Name: Dennis J. Gustafson
Title: Vice-President
Investor
By /s/ Zolli Jaffe
---------------------------------
Name: Shneor Z. (Zolli) Jaffe
Title: Advocate
Investor
By /s/ Y. Barber
---------------------------------
Name: Yakov Barber
