UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
Commission File Number 0-14096
Foreland Corporation
(Exact name of registrant as specified in its charter)
Nevada 87-0422812
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
12596 West Bayaud, Suite 300
Lakewood, Colorado 80228-2019
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (303) 988-3122
Securities registered pursuant to section 12(b) of the Act:
Title of each class Name of each exchange on which
registered
None None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, Par Value $0.001
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes[x] No o
The aggregate market value of the registrant's voting stock held by
nonaffiliates computed at the average closing bid and asked prices in the over-
the-counter market as quoted on the National Association of Securities Dealers
National Quotation system ("NASDAQ") on March 27, 1997, was approximately
$29,162,267.
As of March 27, 1997, the Company had outstanding 7,239,177 shares of its
common stock, par value $0.001.
Documents Incorporated by Reference. List hereunder the following
documents if incorporated by reference and the part of the form 10-K (e.g., part
I, part II, etc.) into which the document is incorporated: (1) any annual
report to security holders; (2) any proxy or information statement; and (3)
any prospectus filed pursuant to rule 424(b) or (c) under the Securities Act of
1933: NONE
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
<PAGE>
PART III.
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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Directors and Executive Officers
The following table sets forth the name, age, and principal business
experience of each director and executive officer of the Company.
Business Experience During Past
Name Age Five Years and Other Information
- -------------- ----- -------------------------------------------------------
Grant Steele 72 Co-founder and chairman. Executive officer and chairman
of the Company since organization in 1985. Employed by
Gulf Oil Corporation from 1953 to 1983. From 1973 to
1980, Chief Geologist-U.S. for Gulf Oil. Graduated from
the University of Utah, Salt Lake City, Utah, in 1949
with bachelor of science degree. Earned his doctorate in
geology from the University of Washington in 1959.
Certified professional geologist and an active member of
the American Association of Petroleum Geologists (awarded
a distinguished service award in 1984), the Houston
Geological Society, and the Society of Economic
Paleontologists and Mineralogists.
N. Thomas Steele 52 Co-founder and president. Officer and director of the
Company since organization in 1985. Elected president in
May 1996. Prior to joining the Company in 1985,
president of Magnum Resources, Inc., Ogden, Utah, a
company engaged in mineral exploration in Nevada and
Utah.
Kenneth L. Ransom 39 Co-founder and Vice-president of exploration. Director
since the Company's organization in 1985. Senior
geologist under Dr. Steele at Gulf Oil from 1981 to 1985,
involved principally in its Nevada area study. Earned
bachelor of science degree in geological engineering
from the Colorado School of Mines in 1979 and master's
degree in geological sciences from Brown University in
1981. Member of the American Association of Petroleum
Geologists and the Geological Society of America.
Published numerous papers on Nevada exploration and
geology.
Bruce Decker 45 Officer and director of the Company since 1994. Officer
of Krutex Energy Corporation from 1983 through
acquisition by the Company in 1989. Received bachelor's
degree in finance and management from the University of
Utah in 1973.
Dr. Grant Steele is the uncle of N. Thomas Steele. There is no family
relationship among any of the other officers and directors of the Company. Each
of the officers is a full-time employee of the Company. The Company has entered
into employment agreements with each of its executive officers.. See "ITEM 10.
EXECUTIVE COMPENSATION."
Under the Company's current articles of incorporation, directors are
elected to serve for a one-year term expiring at the next succeeding annual
meeting and thereafter until their respective successors shall have been elected
and qualified. The Company is proposing an amendment to its articles of
incorporation that would provide that the board of directors would be divided
into three classes as nearly equal in size as possible. The term of office of
each director would be three years and until each director's successor is
elected and qualified. If the proposal to classify the board of directors is
approved by the stockholders at the 1997 annual meeting of the stockholders, the
board of directors will designate the directors to serve in each class.
Significant Employees
Jerry Hansen. Mr. Hansen, who joined the Company in 1986, is senior
structural geologist for the Company with primary responsibility for generating
and developing exploration proposals and drilling prospects. He has 12 years of
oil and gas experience focused on prospect generation and evaluation in the
Powder River Basin, Gulf Coast, and primarily, in Nevada. He graduated with
degrees in geology from the University of Colorado in 1973 and the University of
Arizona in 1982. As senior structural geologist, Mr. Hansen's primary
responsibility is in the generation and development of drillable prospects from
inception to actual wellsite operations.
Carl Schaftenaar. Mr. Schaftenaar, who joined the Company in 1993, has
been a geophysicist and geologist in the oil industry for 12 years. He holds a
bachelor's degree in geology from Hope College, Holland, Michigan, and a master
of science degree in geophysics from Texas A&M University. Mr. Schaftenaar
worked for Chevron USA on exploration and development projects in Nevada and the
Rocky Mountain area from 1982 to 1992. As senior geophysicist, Mr. Schaftenaar
is responsible for the acquisition and analysis of proprietary two- and
three-dimension seismic programs for the Company.
David T. Greene. David T. Greene, who joined the Company in 1995, is a
petroleum engineer with 17 years oil and gas experience. He holds a bachelor's
degree in earth science from the University of California at Santa Cruz and a
masters degree in petroleum engineering from Stanford University. Mr. Greene
has worked at Amoco Production Co. as Staff Petroleum Engineer, for Pacific
Enterprises Oil Co.as Division Engineering Manager, and for Plains Petroleum
Operating Co. as Senior Exploitation Engineer. Mr. Greene has experience in the
Rocky Mountain, Mid-Continent, Gulf Coast, and Offshore Gulf of Mexico areas,
especially in evaluation, design, and implementation of secondary and tertiary
recovery projects, especially relating to heavy oil and tight reservoirs. Mr.
Greene is responsible for providing engineering and field supervision support
of the Company's Eagle Springs Field drilling and development program and for
overall Nevada exploitation.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of forms 3, 4, and 5, and amendments thereto,
furnished to the Company during or respecting its last fiscal year, no director,
officer, beneficial owner of more than 10% of any class of equity securities of
the Company or any other person known to be subject to Section 16 of the
Exchange Act, failed to file on a timely basis reports required by Section 16(a)
of the Exchange Act for the last fiscal year, except that two reports respecting
three transactions were filed late by Bruce Decker, one report respecting three
transactions was filed late by Grant Steele, and one report respecting two
transactions was filed late by Don W. Treece.
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ITEM 11. EXECUTIVE COMPENSATION
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Summary Compensation
The following table sets forth for each of the last three fiscal years the
annual and long term compensation earned by, awarded to, or paid to the chief
executive officer of the Company during the last fiscal year. No other
executive officer received total annual salary and bonuses in excess of $100,000
for all services rendered in all capacities to the Company and its subsidiaries.
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------
Annual Compensation Awards Payouts
------------------------- --------------------- -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities
Annual Restricted Underlying All Other
Name and Year Compen- Stock Options/ LTIP Compen-
Principal Ended Salary Bonus sation Award(s) SARs Payouts sation
Position Dec. 31 ($) ($) ($) ($) (#) ($) ($)
- --------------- ------- -------- ------ --------- ---------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
N. Thomas Steele 1996 104,320 -- 10,000 -- 200,000/-- -- 37,500
President (CEO) 1995 80,400 -- -- -- --/-- -- --
1994 99,046 -- -- -- 200,000/-- -- 84,200(1)
</TABLE>
(1) During 1994, the Company incurred a loss of $84,200 on its guarantee of a
minimum sales price of $375,000 on Mr. Steele's former residence in
connection with his move to Denver, Colorado, to become president and chief
executive officer of the Company. (See "ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS: Relocation Agreement.")
Option/SAR Grants in Last Fiscal Year
The following table sets forth information respecting all individual grants
of options and stock appreciation rights ("SARs") made during the last completed
fiscal year to the chief executive officer of the Company.
<TABLE>
<CAPTION>
Potential Realized Value at
Assumed Annual Rates of Stock
Appreciation for
Individual Grants Option Term
- -------------------------------------------------------------- ---------------------------------
(a) (b) (c) (d) (e) (f) (g) (h)
Number of Options/SARs
Securities Granted to Exercise
Underlying Employees or Base
Options/SARs During Fiscal Price Expiration
Name Granted (#) Year ($/share) Date 0%($) 5%($) 10%($)
- --------------- --------------- ------------- --------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
N. Thomas 200,000(1)/-- 24.9% 5.00 9/1/2007 37,500 573,052 1,345,786
Steele,
President (CEO)
</TABLE>
(1) These options were granted effective September 1, 1996, in connection with
the chief executive officer's employment agreement. They were immediately
exercisable to purchase 50,000 shares of Common Stock and vest to purchase
an additional 50,000 shares at the next three anniversaries of the date of
grant. The options expire in increments seven years from the date of
vesting. On a change in control of the Company, the optionee is entitled
to payment in an amount equal to the unexercised options times the fair
market value of the options.
Aggregate Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values
The following table sets forth information respecting the exercise of
options and SARs during the last completed fiscal year by the chief executive
officer of the Company and the fiscal year end values of unexercised options and
SARs.
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares FY End (#) FY End ($)
Acquired on Value Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
- ------------------ ------------ -------------- --------------- ---------------
N. Thomas Steele, -- -- 190,667/150,000 $24,833/--
President (CEO)
Employment Agreements
In September 1996, the Company entered into executive employment agreements
Grant Steele, N. Thomas Steele, Kenneth L. Ransom, and Bruce C. Decker at annual
salaries of $18,000, $125,000, $119,000, and $119,000, respectively, with
increases to be determined by the board of directors, provided that on each
anniversary the amount is increased by the percentage increase, if any, in the
Consumer Price Index of all Urban Consumers for the year preceding such
anniversary date. Such agreements provide for a $48,000 increase in each
executive officer's annual salary ($18,000 in the case of Grant Steele) at such
time as the Company achieves sustained net oil production of at least 1,000
barrels per day for any calendar month. Each such employment agreement is for a
36-month term and is automatically renewed each month for a new 36-month term.
The employment agreements contain covenants not to compete for two years after
termination of employment, restrictions on the disclosure of confidential
information, provisions for reimbursement of expenses and payment of major
medical insurance coverage, and an agreement of the Company to register
securities of the Company held by such persons at the request of the employees.
These agreements provide for the grant of options to purchase 200,000
shares of Common Stock at an exercise price of $5.00 per share. The options
were exercisable effective September 1, 1996, to purchase 50,000 shares of
Common Stock and vested on the next three successive anniversary dates of such
options to purchase an additional 50,000 shares. In the event of termination of
employment resulting from a change in control not approved by the board of
directors, each executive will receive payment, in cash or Common Stock, in an
amount equal to the executive's base salary for the remaining term of his
respective employment agreement plus any incentive compensation previously
earned. In addition, all options held by the executive shall immediately become
vested and exercisable and the executive shall receive payment equal to the fair
market value of the options granted under the employment agreement times the
number of unexercised options in consideration of the cancellation of such
options.
Directors' Compensation
The board has also approved the payment of $2,000 per month to each of the
Company's directors, whether or not such director is also then an employee of
the Company.
Options to Purchase Common Stock
In addition to the options granted pursuant to the employment agreements
discussed above, in July 1996, the Company granted to each of Grant Steele, N.
Thomas Steele, Kenneth L. Ransom, and Bruce C. Decker five-year options to
purchase 100,000 shares of Common Stock at an exercise price of $4.00 per share.
These options provide that, in the event of termination of employment resulting
from a change in control not approved by the board of directors, each executive
will receive payment equal to the fair market value of the options times the
number of unexercised options in consideration of the cancellation of such
options. These options are subject to approval by the Company's stockholders at
the 1997 annual meeting.
Limitation of Liability and Indemnification
The articles of incorporation of the Company limit or eliminate the
personal liability of directors for damages for breaches of their fiduciary
duty, unless the director has engaged in intentional misconduct, fraud, or a
knowing violation of law, or paid a dividend in violation of the Nevada Revised
Statutes.
The Company's articles of incorporation and bylaws further provide for the
indemnification of officers and directors for certain civil liabilities,
including liabilities arising under the Securities Act, unless such person is
adjudged in any action, suit, or proceeding to be liable for his own negligence
or misconduct in the performance of a duty. In the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
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The following table sets forth, as of <record date>, 1997, the outstanding
Common Stock of the Company owned of record or beneficially by each person who
owned of record, or was known by the Company to own beneficially, more than 5%
of the Company's 14,489,401 shares of Common Stock issued and outstanding, and
the name and share holdings of each director and all of the executive officers
and directors as a group:
Number of Percentage
Common of
Name of Beneficial Owner Nature of Shares Ownership
Ownership Owned(1) (2)
- ----------------------------- ----------------- ------------- ------------
Directors and Principal Stockholders
Grant Steele Common Stock 141,191 (3) 1.9%
Options 300,000 (4)(9) 3.9%
---------
Total 441,191 5.8%
N. Thomas Steele Common Stock 92,580 (5) 1.3%
Options 340,667 (6)(9) 4.5%
---------
Total 433,247 5.7%
Kenneth L. Ransom Common Stock 125,204 1.7%
Options 300,001 (7)(9) 3.9%
---------
Total 425,205 5.6%
Bruce C. Decker Common Stock 18,492 0.3%
Options 208,333 (8)(9) 2.8%
---------
Total 226,625 3.0%
All Executive Officers and Common Stock 377,467 5.2%
Directors as a Group Options 1,149,001 13.6%
(4 persons) ---------
Total 1,526,468 18.1%
(1) Except as otherwise noted, shares are owned beneficially and of record, and
such record shareholder has sole voting, investment, and dispositive power.
The address of all such persons for purposes of this table is deemed to be
the address of the Company.
(2) Calculations of total percentages of shares outstanding for each individual
assumes the exercise of options held by that individual to which the
percentage relates. Percentages calculated for totals of all executive
officers and directors as a group assume the exercise of all options held
by the indicated group.
(3) Represents 33,333 shares owned by Dr. Steele's wife's estate and 26,667
shares held by his Individual Retirement Account, over which Dr. Steele
exercises sole investment, voting, and dispositive power.
(4) Consists of options to acquire 33,333 shares of Common Stock at an exercise
price of $4.50 per share at any time prior to December 31, 1997, options to
acquire 66,667 shares at an exercise price of $6.375 per share at any time
prior to September 16, 1999, and options vesting to acquire an aggregate of
200,000 shares at $5.00 per share expiring incrementally through September
1, 2006. The options to acquire 33,333 shares at $4.50 per share 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.
(5) Includes 2,333 shares of Common Stock and 2,083 shares of Common Stock
issuable on conversion of outstanding preferred stock, such shares of
common and preferred stock held by Mr. Steele's wife.
(6) Consists of options to acquire 38,889 shares of Common Stock at an
exercise price of $4.50 per share at any time prior to December 31, 1997,
options to acquire 11,111 shares at an exercise price of $3.93 per share at
any time prior to December 31, 1997, options to acquire 24,000 shares at
$450 per share at any time prior to May 19, 1998, options to acquire 66,667
shares at an exercise price of $6.375 per share at any time prior to
September 16, 1999, and options vesting to acquire an aggregate an
aggregate of 200,000 shares at an exercise price of $5.00 per share
expiring incrementally through September 1, 2006. The options to acquire
38,889 shares at $4.50 per share 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.
(7) Consists of options to acquire 21,778 shares of Common Stock at an
exercise price of $4.50 per share at any time prior to December 31, 1997,
options to acquire 11,556 shares at $3.93 per share at any time prior to
December 31, 1997, options to acquire 66,667 shares at $6.375 per share at
any time prior to September 16, 1999, and options vesting to acquire an
aggregate of 200,000 shares at $5.00 per share expiring incrementally
through September 1, 2006. The options to acquire 21,778 at $4.50 per
share 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.
(8) Consists of options to acquire 8,333 shares of Common Stock at
$6.375 per share expiring September 16, 1999, and options vesting to
acquire an aggregate of 200,000 shares at $5.00 per share expiring
incrementally through September 1, 2006.
(9) Does not include options to purchase 100,000 shares of Common Stock
at an exercise price of $4.00 per share at any time through July 18, 2001,
granted to each of N. Thomas Steele, Kenneth L. Ransom, and Bruce C.
Decker. Such options are subject to stockholder approval.
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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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Unless otherwise indicated, the terms of the following transactions between
related parties were not determined as a result of arm's length negotiations.
Salary Deferrals and Waivers; Officer and Director Notes Payable
In June 1991, the Company loaned an officer and director, and a former
officer and director, an aggregate of $123,421, repayable with interest at the
prime rate and collateralized by a pledge of the obligation of the Company to
such persons for accrued but unpaid back salaries of approximately $156,720. A
portion of the proceeds from these loans was used to purchase $100,000 in
preferred stock and warrants. The notes were originally due in June 1992, but
the Company has agreed not to seek payment of $247,470 (including additional
advances and accrued interest) of the notes until back salaries owed these
individuals (totaling $285,721 at December 31, 1996) are paid. In addition,
pursuant to the terms of options exercised in 1994, certain officers and
directors executed promissory notes for approximately $1,016,000. These notes
are collateralized by the certificates representing the shares of Common Stock,
which are being held by the Company pending payment of the notes. At December
31, 1996, all of the notes receivable and related accrued interest (which are
included as a reduction of stockholders' equity in the Company's financial
statements) consist of an aggregate of $987,371 due from officers and directors,
including former officers and directors.
As of December 31, 1995, the Company owed $392,462 in salaries and
interest to its officers and directors (including a former officer and
director). During 1996, the Company paid $147,476 of such amount to its
officers and directors (including $47,895 in interest). Of the amount paid by
the Company, $25,250 (including $13,515 in interest) was returned to the Company
from one officer and director as payment on a note payable to the Company.
Pursuant to recently executed employment agreements, the second and third
installments due under promissory notes delivered to the Company by Grant
Steele, N. Thomas Steele, Kenneth L. Ransom (each in the amount of $300,000) and
Bruce C. Decker (in the amount of $56,250) in September 1994 in connection with
the exercise of stock purchase options were each deferred for one year to
September 1997 and September 1998.
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SIGNATURES
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Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange of 1934, as amended, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FORELAND CORPORATION
Dated: April 30, 1997 By /s/ N. Thomas Steele, President
