AS FILED: DECEMBER 21, 1998 SEC FILE NO.
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 87-0422812
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
143 UNION BOULEVARD, SUITE 210, LAKEWOOD, COLORADO 80228-2019 (303) 988-3122
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(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
N. THOMAS STEELE, 143 UNION BOULEVARD, SUITE 210, LAKEWOOD, COLORADO 80228-2019
(303) 988-3122
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(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) 531-7091
e-mail: [email protected]
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this registration statement.
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, check the following box. x
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box.
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.
CALCULATION OF REGISTRATION FEE
--------------------------------------------
TITLE OF EACH AMOUNT TO BE PROPOSED PROPOSED MAXIMUM AMOUNT OF
CLASS OF REGISTERED MAXIMUM AGGREGATE REGISTRATION
SECURITIES TO BE OFFERING PRICE OFFERING PRICE(1) FEE
REGISTERED PER UNIT(1)
- ----------------- ----------- -------------- ---------------- -------------
Common Stock(2) 4,426,252 $1.25 $5,532,815 $1,107
Purchase Rights(3)
(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 average of the high and
low price reported on the Nasdaq SmallCapSM Market for the Registrant's
Common Stock on December 15, 1998 (rule 457(c)).
(2)Consists of shares held by or issuable to Selling Stockholders and shares to
be held following the conversion of preferred stock and 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.
(3)Preferred Stock Purchase Rights are evidenced by certificates for shares of
the Common Stock and automatically trade with the Common Stock. Value
attributable to such Preferred Stock Purchase Rights, if any, is reflected
in the market price of the Common Stock.
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.
<PAGE>
PRELIMINARY PROSPECTUS DATED DECEMBER 21, 1998
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
FORELAND CORPORATION
SHARES OF COMMON STOCK
Foreland Corporation ("Foreland") produces and explores for oil in Nevada
and, since August 1998, refines, processes, transports, and markets crude oil
and hydrocarbon products. Foreland previously issued to the Selling Stockholders
identified in this prospectus shares of Foreland common stock ("Common Stock"),
warrants to purchase Common Stock, or preferred stock convertible into Common
Stock. Under Foreland's agreements with the Selling Stockholders, Foreland is
registering the resale of such Common Stock under this prospectus.
The Selling Stockholders may publicly offer and sell from time to time
Common Stock using this prospectus in transactions
- on the Nasdaq SmallCap Market or otherwise.
- at market prices, which may vary during the offering period, or at
- negotiated prices.
- in ordinary brokerage transactions, in block transactions, in privately
negotiated transactions, or otherwise.
If the Selling Stockholders sell the shares through brokers, they expect to
pay customary brokerage commissions and charges. A Selling Stockholder must
deliver this prospectus at or prior to selling the Common Stock, unless the
Selling Stockholder is relying on Rule 144 or another exemption from the
registration requirements in connection with a particular transaction.
Foreland will not receive the proceeds from the sale of the shares, but has
agreed to pay certain legal, accounting, printing, and other expenses related to
the registration of the sale of the shares. The Selling Stockholders must pay
any selling commissions or other fees and expenses directly related to any
particular transaction.
Nasdaq SmallCap Market Symbol "FORL."
Closing Nasdaq sales price on December 15, 1998, $1.25 per share.
See "Risk Factors" beginning on page 11 of this prospectus for a discussion
of the risks that an investor should consider before investing in the Common
Stock.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED ON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus Dated December [ ], 1998
<PAGE>
AVAILABLE INFORMATION
Foreland has filed a registration statement on Form S-3 (together with all
amendments and exhibits, the "Registration Statement") with the Securities and
Exchange Commission (the "Commission") to register the shares of Common Stock
offered by the Selling Stockholders under the Securities Act of 1933, as amended
(the "Securities Act"). This prospectus, which is a part of the Registration
Statement, does not contain certain information set forth in the Registration
Statement because Commission rules permit such omission. Statements made in
this prospectus as to the content of any contract, agreement or other document
are not necessarily complete. Some contracts, agreements, or other documents
are filed or incorporated by reference as an exhibit to the Registration
Statement or to a document incorporated by reference in this prospectus. In
those cases, investors should refer to such exhibits for more complete
descriptions.
Foreland files reports, proxy and information statements and other
information with the Commission. The public may read and copy at prescribed
rates any materials Foreland files with the Commission, including the
Registration Statement and the exhibits thereto, at the Commission's offices at:
Public Reference Room Citicorp Center Seven World Trade Center
450 Fifth Street, N.W. 500 West Madison Street New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
For information, telephone the Commission's Public Reference Room at
1-800-SEC-0330.
The Commission Internet site at http://www.sec.gov contains materials Foreland
files with the Commission in electronic versions through the Commission's
Electronic Data Gathering, Analysis and Retrieval system (EDGAR).
Public information is also available at: The Nasdaq Stock Market
1735 K Street, N.W.
Washington, D.C. 20006.
INFORMATION INCORPORATED BY REFERENCE
The Commission allows Foreland to "incorporate by reference" information
Foreland files with the Commission, which means that Foreland can disclose
important information to people by referring them to other documents that
Foreland files with the Commission. The information incorporated by reference
is considered to be part of this prospectus. Later information that Foreland
files with the Commission will automatically update and supersede the
information in this prospectus. Foreland has filed the following documents with
the Commission (File No. 0-14096) pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and is incorporating those documents by
reference in this prospectus.
(1) Annual Report on Form 10-K for the year ended December 31, 1997 ("1997
Form 10-K");
(2) Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998,
June 30, 1998, and September 30, 1998 (as amended on Forms 10-Q/A filed December
2, 1998, and December 21, 1998);
(3) Current Reports on Form 8-K filed with the Commission dated July 8,
1998, July 13, 1998, July 30, 1998, August 12, 1998 (as amended on Form 8-K/A
filed October 14, 1998), and October 26, 1998;
(4) The description of the Common Stock contained in Foreland's
registration statement on Form 8-A, file no. 0-14096, as declared effective
February 18, 1986.
All documents Foreland files with the Commission pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus and
prior to the termination of the offering of the shares by the Selling
Stockholders will be deemed to be incorporated by reference in this prospectus
from the date of filing of those documents. Any statement that is contained in a
document that is incorporated or deemed to be incorporated by reference in this
prospectus will be deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained in this prospectus or in
another document that is filed after the first document and that is incorporated
or deemed to be incorporated by reference in this prospectus modifies or
supersedes that statement. Any statement that is so modified or superseded will
not be deemed, except as so modified or superseded, to be a part of this
prospectus. When this document refers to this prospectus, it includes the
information incorporated by reference as well as subsequent prospectus
supplements.
Foreland will provide at no cost to each person to whom this prospectus is
delivered, upon written or oral request of that person, a copy of any or all of
the information that has been incorporated by reference in this prospectus but
not delivered with this prospectus (not including exhibits to that information
unless those exhibits are specifically incorporated by reference in that
information). Investors should direct requests to Foreland Corporation, 143
Union Boulevard, Suite 210, Lakewood, Colorado 80228-2019, Attention: Don
Treece, Secretary, Telephone: (303) 988-3122.
No person is authorized in connection with this offering to give any
information or make any representation not contained in this prospectus. If
given or made, such information or representation must not be relied upon as
having been authorized by Foreland. Neither the delivery of this prospectus nor
any offer or sale made hereunder shall under any circumstances create any
implication that the information contained herein is correct as of any time
subsequent to the date hereof. This prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities in any jurisdiction to
any person to whom it would be unlawful to make such an offer or solicitation in
such jurisdiction.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This prospectus and all Foreland disclosures, including periodic reports
filed with the Commission, contain, or will contain, "forward- looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. Foreland intends the forward-looking statements to be
covered by the safe harbor provisions for forward-looking statements contained
in Section 27A of the Securities Act and Section 21E of the Exchange Act. When
used in this prospectus, the words "believe," "may," "will," "should," "expect,"
"anticipate," "continue," "estimate," "project," "intend" and similar words and
expressions are generally intended to identify forward-looking statements.
Statements that describe Foreland's future strategic plans, goals or objectives
are also forward-looking statements.
Readers of this prospectus are cautioned that:
* any forward-looking statements, including those regarding Foreland or its
management's intent, belief or current expectations, are not guarantees of
future performance or results or events and involve risks and
uncertainties, such as:
- quarterly fluctuations in operating results,
- the successful integration of the newly acquired refining and
transportation assets and operations with the existing exploration and
production operations of Foreland,
- the construction and operation of the asphalt processing facility,
- the availability of feedstock for refining,
- the prices of oil and the sales prices of finished goods,
- achievement of operating goals, and
- unanticipated changes in expenses or capital expenditures, and
* actual results and events may differ materially from those in the forward-
looking statements as a result of various factors, including:
- general economic conditions in the markets in which Foreland operates,
- competitive pressures within the industry and/or the markets in which
Foreland operates,
- the effect of future legislation or regulatory changes on Foreland's
operations, and
- other factors described in "Risk Factors" contained in this prospectus
or any prospectus supplement.
The forward-looking statements included in this prospectus are made only as of
the date of this prospectus. Foreland is not obligated to update such forward-
looking statements to reflect subsequent events or circumstances.
NO PROCEEDS TO FORELAND
Foreland will not receive any proceeds from the Selling Stockholders' sales
of Common Stock. The Selling Stockholders will receive all proceeds from the
sale of the shares. Foreland will receive proceeds from the exercise of the
warrants held by Energy Income Fund prior to the resale of the Common Stock
issuable on such exercise.
In connection with this offering, Foreland estimates that it will incur
costs of approximately $23,000 for legal, accounting, printing, and other costs
related to the registration and sale of the Common Stock. At the time of the
sale, Selling Stockholders and the broker-dealer handling the sale will
negotiate any commissions or discounts payable in connection with the sale.
Such commissions or discounts 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.)
ADJUSTMENTS FOR STOCK SPLIT
All share and per share data in this Prospectus have been adjusted to
reflect a 3-for-1 reverse stock split of the Common Stock effective on June 15,
1996.
SUMMARY AND INTRODUCTION
The following summary highlights information contained elsewhere in this
prospectus. It is not complete and may not contain all of the information that
investors should consider before buying Common Stock. 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.
Unless otherwise indicated, all information herein relating to oil and gas
reserves has been calculated in accordance with the rules and regulations of the
Securities and Exchange Commission (the "Commission").
EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY,
PARTICULARLY THE MATTERS SET FORTH UNDER "RISK FACTORS."
AN OVERVIEW OF FORELAND
Since its organization in June 1985, Foreland has principally explored for
oil in the Great Basin and Range of Nevada (the "Great Basin"). Foreland
purchased interests in the Eagle Springs field in Railroad Valley, Nevada, in
phases in 1993, 1994, and 1998. In 1996, Foreland discovered the new Ghost
Ranch field in the Eagle Springs area. The Eagle Springs and Ghost Ranch fields
are Foreland's principal producing properties.
In August 1998, Foreland acquired certain crude oil refining and related
transportation assets. As a result, Foreland is becoming an integrated
exploration, production, and processing company. Foreland believes that it will
improve its financial return by processing the oil it produces and selling
refined products.
Exploration Activities
Management believes that the Great Basin is a promising underexplored
onshore domestic area with potential for the discovery of major oil reserves.
Foreland uses modern scientific techniques, particularly 3D seismic, to generate
exploration prospects, expand and improve Foreland's strategic land position,
and establish arrangements with other oil exploration firms active in Nevada to
obtain additional scientific data, leases, and funding.
Foreland supplemented its exploration efforts in 1993 and 1994 by
acquiring property interests in Railroad Valley, Nevada, including the Eagle
Springs field. Subsequently, on the Eagles Springs field, Foreland reworked and
returned to production eleven acquired wells, drilled a water injection well,
drilled and placed into production nine wells, replaced and improved surface
equipment, conducted a 3D seismic evaluation program, and implemented an
enhanced oil recovery ("EOR") program using high pressure air injection. During
1996, Foreland discovered the Ghost Ranch field approximately one-half mile
south of the Eagle Springs field in a different formation and geological
structure. In the Ghost Ranch field, Foreland has drilled and placed into
production three wells and plugged and abandoned one well that was uneconomic.
Much of the development work in the two fields was conducted by Foreland as
operator with an industry partner providing a portion of the required funds.
Effective August 1, 1996, Foreland acquired the partner's interest in the Eagle
Springs field and, effective December 31, 1997, Foreland acquired the partner's
interest in the Ghost Ranch field. From time to time, Foreland has acquired
additional acreage near or adjacent to its producing properties.
To date during 1998, in addition to its activities in Eagle Springs and
Ghost Ranch, Foreland has
- drilled and placed into production one well in the Sand Dune prospect;
- entered into a joint venture with Conley P. Smith Operating Company for
exploration in Cave Valley, Nevada, for a 33% interest, and under such
joint venture drilled one exploration test, the Flat Top 27-15, which
was plugged and abandoned;
- entered into an agreement with McMurry Oil Company to participate in
Foreland's Dixie Flats prospect for a 50% interest, and under such
agreement drilled the initial test well, which was plugged and
abandoned; and
- drilled and tested North Pine Creek 1-6 exploratory well, subsequently
plugged and abandoned.
Management anticipates that it will take several years to explore fully
the Great Basin target areas that have been identified by Foreland, as is the
case in many frontier areas of exploration. In such a long-term exploration
effort, the results of early exploration serve as a guide for identifying new
prospects. Therefore, management believes it is important to continually
identify new prospect concepts and areas for possible future exploration while
advancing existing prospects to the drilling stage. Foreland continues to
increase and improve its geological and geophysical expertise respecting the
Great Basin through its own drilling and field exploration efforts and by
obtaining data from third parties as part of joint exploration, property
acquisition, or data sharing. In addition, Foreland continually reanalyzes
existing information as additional drilling data is gathered and as new computer
modeling and other analytical tools become available to the industry. This has
enabled Foreland to increase substantially its understanding of the geology,
location, potential, and other characteristics of exploration prospects in
Nevada. Foreland has benefited from capital provided by oil industry
participants for drilling and other exploration of certain oil prospects through
joint arrangements typical in the oil industry.
As part of its exploration and development program, and subject to
availability of funding, Foreland will continue to
- explore and develop the Great Basin;
- acquire 3D seismic data and reanalysis of existing 2D seismic data;
- evaluate data to identify additional exploration targets and expand its
leaseholdings where warranted; and
- seek additional exploration arrangements with other industry
participants.
Refining and Transportation
On December 31, 1997, Foreland obtained an option to purchase certain
Nevada-based oil refining and transportation assets and operations from Petro
Source Corporation, an independent crude oil processing, transportation, and
trading firm based in Houston, Texas ("Petro Source"). Foreland paid $520,000
for the option by issuing 130,000 shares of Common Stock.
Foreland subsequently exercised the option and, on August 12, 1998,
completed the purchase of the refining and transportation assets. These assets
include the Eagle Springs Nevada refinery, which manufactures asphalt and
ancillary products from crude oil produced by Foreland and other Nevada
operators, a processing facility in Tonopah, Nevada, and trucks and related
equipment to gather crude oil and distribute products. To complete the
acquisition, Foreland paid $5,000,000 in cash and $2,676,322 in Common Stock and
issued 100,000 additional shares of Common Stock. Foreland is required to issue
additional shares to Petro Source in certain circumstances. Foreland is now
integrating the operation of the refining and transportation assets with its oil
production in Nevada and selling finished asphalt and other hydrocarbon
products. Foreland is constructing an asphalt roofing facility in Utah to
further its marketing of and increase margins from asphalt products sales.
Foreland now processes crude oil at its Eagle Springs atmospheric and
vacuum distillation plant into asphalt, fuels, and solvents. At its Tonopah
specialty fractionation plant, Foreland processes transmix and other feedstock
into gasoline, diesel, and other specialty products. The refineries have a
combined rated capacity of approximately 12,000 barrels of feedstock per day,
but currently refine approximately 2,300 barrels of feedstock per day. Foreland
processes the crude oil it produces as well as all oil produced by others in
Nevada. Foreland sells finished products in bulk sales to government, mining,
and paving industry customers in five Western states and unfinished products to
other West Coast and Rocky Mountain refiners. The transportation assets and
operations acquired consist of approximately 24 truck tractors and 80 bulk crude
oil gathering and finished goods delivery tank trailers with lease operators and
related maintenance and operating facilities. Foreland now employs about 60
employees who previously worked for Petro Source in refinery and transportation
management and operations.
The original option and purchase agreement to acquire the assets and
operations was negotiated in December 1997 based on throughput of 1,300 barrels
of crude oil per day. In anticipation of exercising its option and
significantly improving operating results, Foreland increased the refinery
throughput by 1,000 barrels per day by adding production from its own wells and
securing other Nevada production. Foreland now processes all of the crude oil
produced in Nevada. Foreland's long-term success in operating its refinery will
depend on the establishment by Foreland and others of additional oil production
in Nevada. Foreland will attempt to increase daily refinery throughput by
development and exploration drilling, EOR projects, acquisitions, and refinery
feedstock purchase contracts. Foreland expects that refinery gross margins will
likely decline as throughput increases and a broader range and volume of lower
margin products are sold.
Funding and Financial Condition
Through 1996, Foreland funded its exploration program principally from the
sale of common and preferred stock. In November 1996, Foreland established a
bank credit facility to borrow money for certain proposed activities. Foreland
has now repaid this bank loan. In early 1998, Foreland arranged to borrow up to
$16.9 million from Energy Income Fund, L.P. ("Energy Income Fund") to implement
and continue the EOR program and development drilling in the Eagle Springs
field, acquire 3D seismic, drill 3D defined exploration targets, acquire
producing properties and retire existing debt. This borrowing arrangement was
subsequently revised to draw $5,000,000 to fund the purchase of the refinery and
transportation assets from Petro Source and to enable Foreland to draw
additional funds for refinery working capital and revised enhanced oil recovery,
development, and other corporate expenditures. As of September 30, 1998,
Foreland had borrowed $12,375,279 from Energy Income Fund. In connection with
the Energy Income Fund financing, Foreland granted Energy Income Fund warrants
to purchase an aggregate of 1,500,000 shares of Common Stock at $6.00 per share
and sold for $2,000,000 in cash 2,000 shares of 1998 Series Preferred Stock
convertible into an aggregate of 333,333 shares of Common Stock.
Pursuant to the terms of the financing arrangement, Foreland was required
to make payments of interest only through November 1998, after which payments of
principal and interest required to amortize the indebtedness generally over a
48-month period were to commence. Prior to such payment date, Foreland
recognized that it had insufficient cash to make these payments and would be
unable to meet certain financial ratios and covenants under the loan.
Therefore, Foreland began seeking to renegotiate the terms of the Energy Income
Fund loan. On October 4, 1998, Energy Income Fund agreed in principle, subject
to negotiation and execution of definitive agreements, to defer all payments
under the financing arrangement, other than monthly interest payments, until
April 1999, extend certain financial covenants of Foreland until such date, and
waive its exercise of remedies upon default until such date. In consideration
of these loan modifications, Foreland agreed that it would issue shares of
restricted Common Stock to Energy Income Fund and extend the exercise period of
and, in specified circumstances, adjust the exercise price of the Common Stock
purchase warrants held by Energy Income Fund. Under the new terms being
discussed, Foreland would be permitted to draw approximately an additional
$1,500,000 under the loan arrangement for certain specified purposes, and
additional loan commitments would be canceled. Foreland is continuing to
negotiate the definitive terms to restructure the loan agreement. In
anticipation of completing such ongoing negotiations, Foreland did not pay
principal of $228,104 due November 1 and December 1, 1998, or $1,300,000 due
November 10, 1998, respecting certain inventory financing. Further, Foreland is
not in compliance with certain financial ratios and other terms and conditions
of the loan. Accordingly, $10,941,000 of the outstanding balance under the loan
arrangement, which represents the $12,375,279 borrowed less $1,434,275 treated
as the unamortized discount representing the value of warrants granted to Energy
Income Fund, has been reclassified as a short term obligation for financial
reporting purposes.
Foreland had a working capital deficit of $5,851,700 as of September 30,
1998, as a result of the reclassification as a short-term liability of
$10,941,000 of the amount due Energy Income Fund under its long-term debt
arrangement. Foreland and Energy Income Fund have agreed in principle to
certain measures discussed above intended to enable Foreland to obtain Energy
Income Fund's forbearance from exercising its default remedies under the
operative agreements. However, if definitive agreements are not timely
negotiated and executed, Energy Income Fund could determine to exercise such
remedies immediately, although it has not indicated its intent to do so.
Foreland expects that it will have to implement significant cost cutting
measures, restrict certain activities, and obtain additional equity financing in
order to be able to obtain Energy Income Fund's continued voluntary cooperation
and forbearance. There can be no assurance that Foreland will be successful in
attaining any of these objectives. If, in April, Energy Income Fund were to
elect to do so, it may be able to foreclose on essentially all of the oil
producing, exploratory, refining, and transportation assets of Foreland, which
would likely make it impossible for Foreland to continue.
Management and Facilities
Foreland has assembled a management and technical team of persons with
specialized technical training and experience concentrated on Nevada oil
exploration. Additionally, in connection with the acquisition of the refining
and transportation assets, Foreland now employs individuals previously
responsible for management of the refining and transportation operations
acquired from Petro Source. In all, Foreland's technical team has over 80
years of combined Nevada oil exploration experience, much of it with major oil
companies. (See "ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT" in
Foreland's 1997 Form 10-K.) Foreland believes that the working experience of its
executives and employees in Nevada is a significant factor in Foreland's
exploration progress to date and in its ability to act as operator under
exploration arrangements with other exploration firms such as Enserch
Exploration, Inc., Berry Petroleum Company, Parker and Parsley Petroleum Company
(successor-in-interest to Santa Fe Energy Resources, Inc.), and Barrett
Resources Corporation.
Foreland's principal executive offices are located at 143 Union Boulevard,
Suite 210, Lakewood, Colorado 80228-2019 and its telephone number is (303)
988-3122.
CAPITALIZATION
Foreland's capitalization as of September 30, 1998, is as follows:
September 30, 1998
------------------
Long term debt, net of current portion $ 14,169
Stockholders' Equity
Preferred Stock, par value $0.001 per share,
5,000,000 shares authorized
1991 Convertible Preferred Stock, 20,000 shares
issued and outstanding...................... 20
1994 Convertible Redeemable Preferred
Stock, 153,140 shares issued and outstanding 153
1995 Convertible Redeemable Preferred
Stock, 361,103 shares issued and outstanding 361
1998 Convertible Redeemable Preferred
Stock, 2,000 shares issued and outstanding.. 2
Common Stock, par value $0.001 per share,
50,000,000 shares authorized, 9,419,190 shares
Issued and outstanding,....................... 9,419
Additional paid in capital...................... 39,196,900
Less stock subscriptions receivable............. (331,410)
Accumulated deficit............................. (29,727,015)
------------
Total stockholders' equity...................... 9,148,430
------------
Total capitalization...................... $ 9,162,599
============
THE OFFERING
Common Stock offered by Selling Stockholders 4,426,252 shares of Common
Stock(1)
Common Stock outstanding before the offering... 9,423,190 shares(2)
Common Stock outstanding after the offering.... 12,985,840 shares(1)
Common Stock reserved for issuance............. 4,433,648 shares(3)
Fully diluted Common Stock..................... 15,542,281 shares(2)(3)
Nasdaq Common Stock Symbol..................... FORL
(1) Of the 4,426,252 shares offered by the Selling Stockholders, 863,602
shares are currently held by Petro Source, 1,500,000 shares are issuable on
exercise of warrants held by Energy Income Fund and 333,333 shares are issuable
on conversion of preferred stock held by Energy Income Fund. Pursuant to the
acquisition of the refining and transportation assets, Foreland agreed to issue
to Petro Source a sufficient number of shares of Common Stock that would yield
proceeds on resale equal to $2,676,332 plus interest at 10% per annum. The
number of shares issued to Petro Source was based on the approximate trading
price of the Common Stock of $3.50 on such date. Foreland has included an
additional 1,729,317 shares in the Registration Statement and this prospectus
that may be issued to Petro Source based on the Common Stock closing sales price
of $1.25 on December 15, 1998, and interest at 10% for one year from closing of
the acquisition. In the event Petro Source sells any shares at a greater price,
Foreland would not be required to issue all of such additional shares and, if
sales by Petro Source yielded proceeds exceeding the $2,676,332 plus interest,
Petro Source would be required to return shares to Foreland. (See "SELLING
STOCKHOLDERS.")
(2) Includes 4,000 shares issued subsequent to September 30, 1998.
(3) Includes 1,833,333 shares issuable to Energy Income Fund on exercise of
warrants and conversion of preferred stock. Consists of (i) up to 507,415
shares issuable on the conversion of outstanding shares of Preferred Stock; (ii)
up to 3,358,359 shares issuable on the exercise of outstanding vested options
and warrants at a weighted average exercise price of $6.44 per share; and (iii)
up to 524,000 shares issuable on the exercise of outstanding options subject to
vesting requirements at a weighted average exercise price of $3.29 per share;
and 43,874 shares that may be issued in connection with preferred stock issuable
on warrants at a weighted average exercise price of $12.45 per common share
equivalent. Does not include the additional shares that may be issued to Petro
Source described above. (See "ITEM 11. EXECUTIVE COMPENSATION," "ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT," and "ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS," in Foreland's 1998 Form 10-K,
and "DESCRIPTION OF SECURITIES--Preferred Stock, Warrants, and Options
Outstanding" and "SELLING STOCKHOLDERS" 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 Common Stock in this offering. (See "DESCRIPTION OF SECURITIES"
below)
NO NET PROCEEDS TO FORELAND
Foreland will not receive any net proceeds from the sale by the Selling
Stockholders of the Common Stock covered by this prospectus. Foreland will
receive proceeds from the exercise of the warrants held by Energy Income Fund
prior to the resale of the Common Stock issuable on such exercise.
NO DIVIDENDS
Foreland has not paid dividends on the Common Stock. Foreland seeks growth
and expansion of its business through the reinvestment of profits, if any, and
does not anticipate that it will pay dividends on the Common Stock in the
foreseeable future. In addition, Foreland's debt financing with Energy Income
Fund currently prohibits paying dividends on the Common Stock. The 1998
Preferred Stock bears a cumulative preferred dividend of 12% per annum.
RISK FACTORS
OFFEREES SHOULD NOT PURCHASE COMMON STOCK WITHOUT CAREFULLY READING AND
CONSIDERING THE RISKS INVOLVED AND UNLESS THEY ARE WILLING AND ABLE TO ACCEPT
THE COMPLETE LOSS OF THEIR INVESTMENT. THE COMMON STOCK OFFERED HEREBY ARE
SPECULATIVE AND INVOLVE AN UNUSUALLY HIGH DEGREE OF RISK. (SEE "RISK FACTORS"
BELOW.)
RISK FACTORS
Investing in the Common Stock involves certain risks. Prospective
purchasers should consider, in addition to the negative implications of the
other information in this prospectus, the following risk factors before making
an investment in the Common Stock.
Company's Ability to Continue as a Going Concern, Shortages of Working
Capital, and Continuing Losses
In October 1998, Foreland and Energy Income Fund agreed in principle to
certain measures intended to enable Foreland to obtain Energy Income Fund's
forbearance from exercising its default remedies under Foreland's financing
arrangement. Such terms would require Foreland to commence principal
amortization and make certain payments in April 1999 and Energy Income Fund
would extend certain financial covenants and waive its exercise of remedies on
default until such date. If definitive agreements are not timely executed,
Energy Income Fund could immediately determine to exercise its remedies under
the financing agreement. Due to insufficient cash and in anticipation of
completing these ongoing negotiations, Foreland did not make the required
principal payments of $228,104 due November 1, 1998, and December 1, 1998, or
the payment of $1,300,000 due November 10, 1998, respecting certain inventory
financing. Additionally, Foreland was not in compliance with certain financial
ratios and other terms and conditions of the Energy Income Fund loan.
Accordingly, $10,941,000 has been reclassified as a short-term liability as of
September 30, 1998, for financial reporting purposes, which amount is the
$12,375,279 borrowed less $1,434,279 treated as the unamortized discount for the
imputed value of the warrants granted to Energy Income Fund. Foreland had a
working capital deficit of $5,851,700 as of September 30, 1998 as a result of
such reclassification.
Based on currently forecast cash flows from present operations, Foreland
may not be able to make the required principal amortization payments or other
payments anticipated to commence in April 1999. Additionally, Foreland may not
be in compliance with certain financial covenants and ratios at such time.
Foreland expects that it will have to implement significant cost cutting
measures, restrict certain activities, and obtain additional equity financing in
order to be able to obtain Energy Income Fund's continued voluntary cooperation
and forbearance. There can be no assurance that Foreland will be successful in
attaining any of these objectives. If, in April, Energy Income Fund were to
elect to do so, it may be able to foreclose on essentially all of the oil
producing, exploratory, refining, and transportation assets of Foreland, which
would likely make it impossible for Foreland to continue.
As of September 30, 1998, Foreland had an accumulated deficit of
$29,727,015 since its inception in 1985 and expects that its accumulated deficit
will increase. Foreland had losses of $3,129,900 for the year ended December
31, 1997, and $1,472,506 for the nine months ended September 30, 1998. Foreland
anticipates continuing losses. Based on current oil production and prices,
refinery throughput, and finished goods sales and margins, Foreland's
production, refinery, transportation, and marketing revenues cannot satisfy its
cash requirements for oil and gas exploration and production, general and
administrative expenses, ongoing shareholder/investor relations, property
maintenance expenditures, and payments of indebtedness. Foreland's independent
auditor's report on the December 31, 1997, financial statements as for preceding
fiscal years, contains a qualification as to Foreland's ability to continue as a
going concern. Foreland expects that the auditor's report on Foreland's
December 31, 1998, financial statements will also contain a going concern
qualification. (See "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" and
"ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION" in Foreland's 1997 Form 10-K and the September 30, 1998,
Form 10-Q.)
Debt Financing Obligations
The acquisition of the refining and transportation assets and operations
and certain other activities of Foreland have been financed and leveraged
through the Energy Income Fund financing arrangement. Investment in such
operations will only be profitable if they generate cash flows sufficient to
cover the principal and interest payments under the financing arrangement.
Notwithstanding any results of operations or available cash, Foreland will be
required to make payments of principal and interest on the Energy Income Fund
loan when due. Such payments may leave Foreland with insufficient cash to fund
operations, which may materially affect its ability to continue. Because
essentially all of Foreland's oil producing, exploratory, refining, and
transportation properties and assets are encumbered to secure the Energy Income
Fund financing, failure to make a payment could result in foreclosure on and
loss of such properties and assets. Additionally, because of such encumbrances,
it may be difficult or impossible for Foreland to obtain alternative debt
financing.
Need for Additional Funds
Although Cash flows from Foreland's refinery and transportation operations
and finished goods sales are significant, they are not sufficient to fund all of
Foreland's continuing exploration, development, and production operations.
Management expects that, following completion and integration of the roofing
asphalt facility now being constructed, the refinery and transportation
operations and finished goods sales will provide sufficient funds for a portion
of its exploration, development and production operations. However, there can
be no assurance of such results and the refinery and transportation operations
will continue to be subject to the risks discussed herein. Foreland cannot
predict the nature, extent, and cost of exploring prospects in the Great Basin
province over several years; however, the total cost could amount to tens of
millions of dollars. Because of the size of the total exploration possibilities
and Foreland's limited resources, in the event the refinery and transportation
operations and finished goods sales, including roofing asphalt from the facility
currently under construction, do not ultimately result in substantially
increased cash flows, Foreland would have to seek funding through borrowings,
the sale of additional stock, or through sharing arrangements with industry
participants. Such fund raising could substantially dilute the interest of
Foreland's shareholders in Foreland and the interest of Foreland in its drilling
prospects. Foreland cannot assure that it can obtain required funds on
acceptable or favorable terms to continue exploration. (See "ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA" and "ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION" in Foreland's 1997
Form 10-K and the September 30, 1998, Form 10-Q.)
Integration of Refining and Transportation Operations
Foreland purchased the oil refining and transportation assets and
operations from Petro Source in August 1998 with the long-term strategy of
becoming an integrated exploration, production, and processing company and to
increase the net effective price it obtains for its production. This strategy
is partly based on management's belief that, in periods of depressed oil prices,
refinery margins tend to increase. Management's success in implementing this
long-term strategy will depend on its ability to successfully integrate the
refining and transportation operations with the previously existing exploration,
development, and production operations and institute the necessary policies,
systems and procedures, including accounting and financial reporting systems, to
manage the combined enterprise efficiently. Foreland's existing officers and
directors have substantial experience and expertise in Nevada oil exploration
but have limited experience with respect to refining and transportation
operations. Foreland now employs about 60 employees who previously worked for
Petro Source in refinery and transportation management and operations. The
expertise of such individuals and the ability to integrate their activities with
those of Foreland's previous management and personnel will be essential in
conducting such operations. The inability to integrate the operations or
management successfully would have a material adverse effect on Foreland's
operations and long-term strategy.
Uncertainty of Reserve Estimates and Future Net Revenues
There are numerous uncertainties inherent in estimating quantities of
proved oil reserves. The estimates in the 1997 Form 10-K which are incorporated
into this Prospectus are based on various assumptions relating to rates of
future production, timing and amount of development expenditures, oil prices and
the results of planned development work. Actual future production rates and
volumes, revenues, taxes, operating expenses, development expenditures and
quantities of recoverable oil reserves may vary substantially from those assumed
in the estimates. Any significant change in these assumptions, including
changes that result from variances between projected and actual results, could
materially and adversely affect future reserve estimates. In addition, such
reserves may be subject to downward or upward revision based upon production
history, results of future development, prevailing oil prices and other factors.
(See "ITEM 2. PROPERTIES" and "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION--Liquidity and Capital Resources"
in the 1997 Form 10-K.)
Ability to Discover Additional Reserves
The success of the refining and transportation operations will be dependent
on obtaining sufficient quantities of crude oil and other feedstock to process
into finished goods and achieving economies of scale from such refining and
processing and the selling of finished goods. It is Foreland's long-term
strategy to integrate its exploration, development, and production operations
with the refining and transportation operations and achieve higher margins and
profitability from the sale of finished goods through processing the crude oil
it produces. This will require that Foreland economically locate additional oil
and gas reserves in commercial quantities. Foreland's ability to do so is
dependent upon a number of factors, including its participation in multiple
exploration projects, its technological capabilities, and funding availability.
Foreland, thus far, has had limited success in discovering oil reserves in
Nevada. Additionally, there are a limited number of firms actively exploring
and developing for oil in Nevada, which decreases the number of industry
partners available to Foreland. Given current oil prices, it is unlikely that
this will change in the future. Except to the extent Foreland successfully
locates commercial quantities of economically recoverable oil and gas,
Foreland's reserves will decline as reserves are produced. There can be no
assurance that Foreland will be able to discover additional commercial
quantities of oil and gas.
Limited Feedstock Supply
The cash flows from current refining and transportation operations are not
sufficient to fund Foreland's exploration, development, and production
operations or to make principal payments under the Energy Income Fund
obligations. In order to increase cash flows substantially, Foreland's refining
operations must achieve economies of scale through significantly increased
throughput. The Eagle Springs and Tonopah refineries have a combined rated
capacity of 12,000 barrels per day, but the current throughput is only
approximately 2,300 barrels per day, which includes all oil currently being
produced in Nevada. Therefore, Foreland will have to acquire substantial
additional feedstock supplies, principally through the establishment by Foreland
and/or others of increased oil production in Nevada. Other than the exploration
activities of Foreland, there is presently little exploration efforts currently
conducted in Nevada, and, given the current prices of oil, there is little
incentive for exploration firms to incur substantial exploration and development
drilling costs. Foreland will attempt to increase daily refinery throughput by
development and exploration drilling, EOR projects, acquisitions, and refinery
feedstock purchase contracts. In the event such activities do not yield
additional oil production, Foreland would be required to purchase feedstock from
outside the area, which would cause Foreland to incur transportation costs.
Such transportation costs would ultimately impact the margins at which
Foreland's refined products are sold. Foreland cannot assure that it can
increase or acquire additional feedstock.
Foreland has entered into several agreements to purchase approximately
1,700 barrels per day of feedstocks at market-related prices which, in addition
to its own oil production, includes all of the oil currently being produced in
Nevada. The terms of such contracts range from one-year contracts to contracts
terminable on 30 days' written notice. Foreland believes that if any such
feedstock arrangements were interrupted or terminated, its business and
operations would be adversely affected. Foreland is unaware of any other
refinery in Salt Lake City or otherwise near Nevada at which Nevada crude oil
could be readily processed, but there is no assurance any such refineries could
not be modified or constructed. Foreland continues to identify other sources of
feedstock, including oil produced in Utah, Wyoming, and California. Obtaining
feedstock from such sources would result in increased transportation costs to
Foreland and impact the margins received from selling finished goods.
The Tonopah facility processes transmix, a mixture of combined products
transported through pipelines, purchased principally from pipeline operators.
In order to obtain such feedstock, Foreland has to compete with other processing
facilities, including transmix processors in other states. Given the
transportation of feedstock through pipelines primarily in California,
transportation costs are a significant factor in Foreland's ability to compete
for transmix feedstock.
Contingent Liabilities Associated with Refining and Transportation
Operations
Refining and transportation operations are subject to various regulations
that could result in substantial liability to those conducting such operations.
In determining to purchase the refining and transportation assets, Foreland
conducted due diligence and investigation of the potential liabilities from
Petro Source's operations of such assets. Although Foreland has made a good
faith determination that the possibility of such liabilities was not substantial
and proceeded with the acquisition, there can be no assurance that any such
liability or contingency will not materialize and have a material adverse effect
on Foreland's business, financial condition, and results of operations.
Volatility Of Gross Refining Margins; Current Market Conditions
Foreland's earnings and cash flows from operations will be primarily
dependent upon processing crude oil and selling quantities of refined products
at refining and marketing margins sufficient to cover fixed and variable
expenses and to fund its other operations. Oil refining is a complex process
that is subject to scheduled and unscheduled downtime; cost and price
fluctuations; and other factors. Crude oil costs and refined product prices
typically experience periods of extreme price volatility and may vary based on
numerous factors beyond Foreland's control, including the supply of, and demand
for, crude oil, gasoline and other refined products which, in turn, depend on,
among other factors, changes in the national and regional foreign economies,
political affairs and production levels, the availability of imports, the
marketing of competitive fuels, market demand, the extent of government
regulation, seasonal weather patterns and conditions. The prices received by
Foreland for its refined products will be affected by regional factors such as
product pipeline capacity, local market conditions and the level of operations
of competing refineries.
A substantial amount of Foreland's refined products are sold on the spot
market or under short-term contracts at market prices. Spot market prices for
feedstock and finished products are subject to volatile trading patterns in the
commodity futures markets. Foreland has entered into agreements to buy all of
the crude oil currently being produced in Nevada and is seeking to increase its
supply of feedstocks. Foreland may maintain inventories of crude oil, other
feedstocks, intermediate products and refined products, the values of which are
subject to fluctuations in market prices. Factors that are beyond the control of
Foreland may cause the cost of crude oil and other feedstocks purchased by
Foreland and the price of refined products sold by Foreland to fluctuate widely.
Although prices of crude oil and refined petroleum products generally move in
the same direction, prices of refined products often do not respond immediately
to changes in crude oil costs. An increase in market prices for crude oil and
other feedstocks obtained from others, or a decrease in market prices for
refined products, could have an adverse impact on Foreland's income and cash
flow.
The finished products sold by Foreland have widely varying margins. The
refining operations are subject to regulatory requirements of certain agencies.
In the event of changes by such regulatory agencies affecting the product
specifications of Foreland's specific products, these margins could be adversely
affected. For example, should regulations impose a decrease on the amount of
sulfur allowable in diesel fuel, Foreland's operations would be adversely
impacted as it modifies its refining process to decrease such sulfur content.
Asphalt Marketing
In addition to diesel fuel, Foreland's major finished product is asphalt,
which can be finished for roofing and paving applications. Various competitors
sell asphalt products in Foreland's market area. Foreland is presently building
a processing facility in Salt Lake City, Utah, to manufacture and market roofing
asphalt from asphalt produced at the Nevada refineries, with the intent of
obtaining higher margins from sales. There can be no assurance that Foreland
can successfully enter or compete in the roofing asphalt market. In the event
its planned asphalt operations are unsuccessful, Foreland would have to continue
to sell its existing asphalt products.
Seasonality of Finished Goods Sales
Foreland's principal customers are in the mining, construction, paving, and
agricultural industries, which are subject to seasonal fluctuations. During
years of severe winter or substantial precipitation, these industries scale back
in operations and require less finished goods produced by Foreland. Therefore,
the sale of finished products by the Foreland refineries will be subject to
substantial fluctuations in results as a consequence of weather and other
seasonal fluctuations.
Dependence on Customers
A majority of Foreland's finished products are sold in the mining,
military, construction, paving, and agricultural industries. All of these
industries are subject to significant seasonal fluctuations which may adversely
affect Foreland's operations. Additionally, the refining operations rely on a
key group of customers for the disposition of a substantial portion of
Foreland's finished products, including one mine whose business results in 20%
of the refining and transportation operations revenues. In most instances,
there is limited contractual obligations of such customers to continue to
purchase Foreland's finished products. Although Foreland generally believes,
based on historical business, such customers will continue to purchase finished
products from the Foreland refineries, there can be no assurance that this will
actually be the case.
Hedging Activities
In order to manage its exposure to price risks in the marketing of its
refined products, Foreland may enter into fixed price delivery contracts,
financial swaps and futures contracts as hedging devices. To ensure a fixed
price for its products, Foreland may sell a futures contract and thereafter
either (i) make physical delivery of its product to comply with such contract or
(ii) buy a matching futures contract to unwind its futures position and sell its
products to a customer. Such contracts may restrict the ability of Foreland to
benefit from unexpected increases in refined product prices. Hedging by Foreland
may expose Foreland to the risk of financial loss in certain circumstances.
There can be no assurance that hedging devices utilized by Foreland will protect
against its exposure to price risk.
Additional Possible Expenses Related to Capitalized Costs
Foreland's balance sheet consists of oil and gas properties includes 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. At December 31, 1997, there were no
wells in progress included in oil and gas properties.
Foreland evaluates its proved oil and gas properties for impairment
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. When such an assessment is required, Foreland compares the
net carrying value on a lease-by-lease basis to the related estimates of
undiscounted future net cash flows for each property. If the net carrying value
exceeds the estimated net cash flows, then impairment expense is recognized to
reduce the carrying value to the estimated fair value. Estimates of future cash
flows for specific properties are based upon reserve engineering evaluations,
which are impacted by historical oil production levels, adjacent drilling
results, lease operating costs, historical and projected prices for oil (which
have typically been volatile), and a number of other factors.
Foreland had a net investment of $471,537 at December 31, 1997, in
undeveloped oil and gas leases for which no proved reserves have been
established. For these properties, it will be necessary to drill exploratory
wells to determine if sufficient economic oil and gas reserves exist.
Management periodically assesses these properties for impairment by considering
a number of factors, including unsuccessful drilling activity by Foreland or
others in the vicinity of the lease, management's plans to pay delay rentals or
to drill a well prior to the expiration of the primary lease term, opportunities
to obtain and/or evaluate seismic data related to the lease, and management's
expectations about oil and gas prices, production costs and development costs.
Based on current oil prices and market conditions, management expects it likely
that Foreland's oil reserves will be subject to impairment at year-end.
Adverse information related to any of the above matters could have a
material adverse impact on Foreland's future results of operations.
Dependence on Joint Exploration Arrangements with Industry Participants
Foreland frequently enters into joint exploration agreements with industry
participants to obtain leases, scientific data, and funds for drilling and other
exploration. Under such agreements, Foreland typically agrees to perform
certain obligations timely in order to earn specified property interests, access
to data, or other benefits. The other participants may terminate their
participation at specified points during the exploration program. If another
participant elects not to continue at any time, Foreland would be required to
spend more money, in which case, Foreland may have to borrow more money to sell
more securities. Foreland could be delayed if it could not obtain such required
money.
Limited Revenue
Based on current oil production and prices, refinery throughput, and
finished goods sales and margins, Foreland's net oil production, refinery, and
transportation revenue is not currently sufficient to meet all of its cash
requirements. Management believes that the refining and transportation
operations will enable it to increase its financial return by processing the oil
it produces and selling refined products. Foreland cannot assure that ongoing
oil production in commercial quantities will continue; that additional
production will result from development work; that oil reserves will be proved
as a result of Foreland's exploration efforts; that sufficient quantities of
feedstock can be acquired; or that volumes and margins from the sale of finished
goods will be sufficient to result in profitability and cash flows. (See "ITEM
1. BUSINESS" in Foreland's 1997 Form 10-K.)
Limited Commercial Drilling Success to Date
Despite the expertise of management, the significant amount of data that
Foreland has collected with respect to Nevada, and the expenditure of several
million dollars in property acquisition, data collection, and exploration since
1985, Foreland has established only limited reserves and developed limited
ongoing production as a result of its own drilling program. The Ghost Ranch
field, which was placed into production in 1996, is the first exploration by
Foreland that has resulted in significant ongoing production. The oil
production from the Eagle Springs field was acquired by Foreland in 1993 and,
except for the increased production resulting from certain reworking of existing
wells and the development wells drilled by Foreland, did not result from
Foreland's exploration activities. Although Foreland began to receive oil
production revenue from the Eagle Springs field in early 1994 and from the Ghost
Ranch well in mid-1996, Foreland's success will continue to depend on the
results of drilling, evaluation, and testing of its various prospects to create
additional production for refining and transportation operations. (See "ITEM 1.
BUSINESS" and "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" in
Foreland's 1997 Form 10-K.)
Concentration of Activities in Frontier Area
Foreland's focuses its exploration and development activities in the Great
Basin area of Nevada, a largely unproved and unexplored geological province.
While Foreland 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 and Ghost Ranch fields, Foreland has not
established material ongoing commercial oil production. In addition, the areas
targeted by Foreland, other than the Eagle Springs and Ghost Ranch fields and
Pine Valley area, have geological, geophysical, drilling, completion, and
production problems which to date have prevented Foreland and others with larger
exploration budgets from developing or establishing significant production or
reserves. Foreland cannot assure that it can overcome these problems or that
its drilling program will be commercially successful. (See "ITEM 1. BUSINESS"
in Foreland's 1997 Form 10-K.)
Dependence on Key Employees
Foreland's business depends on its management and technical team and their
substantial Nevada exploration experience, the loss of any one of whom could
adversely affect Foreland's proposed activities. Additionally, the refining and
transportation operations depends on the continued involvement of certain former
employees of Petro Source who were responsible for management of the refining
and transportation operations. Foreland does not have and does not intend to
acquire key man life insurance on any of its executives. (See "ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT" in Foreland's 1997 Form 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
Foreland.
High Exploration Operating Costs
The costs of exploring, drilling, producing, and transporting are higher in
Nevada 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. Further, there is no collection pipeline so that any
oil that is produced must be trucked to a refinery. (See "ITEM 1. BUSINESS -
Oil Properties" and "ITEM 2. PROPERTIES - Production and Sale of Oil" in
Foreland's 1997 Form 10-K.)
Dependence on Oil Prices
Foreland's activities are generally dependent on the prevailing price for
oil and finished goods sales, which are beyond Foreland's control or influence.
Management believes that refinery margins are less volatile than oil prices.
However, oil prices will continue to have an effect on the supply of crude oil
available to Foreland for processing, the level of exploration and development
activities generally in Nevada and surrounding areas, and the price and margins
of finished goods.
World oil and gas prices have been and are likely to continue to be
volatile and subject to wide fluctuations in response to
- relatively minor changes in the supply of and demand for oil and gas;
- market uncertainty;
- political conditions in international oil producing regions;
- the extent of domestic production and importation of oil;
- the level of consumer demand;
- weather conditions;
- the competitive position of oil or gas as a source of energy as compared
with coal, nuclear energy, hydroelectric power, and other energy
sources;
- the effect of federal and state regulation on the production,
transportation and sale of oil;
- and other factors, all of which are beyond the control or influence of
Foreland.
Operating Risks and Uninsured Hazards
Foreland is subject to the inherent risks involved in oil and gas
exploration, production, refining, and transportation and the risks of incurring
substantial losses and liabilities to third parties from hazards such as fire,
explosion, flood, pipe failure, cave in, collapse, encountering unusual or
unexpected formations, pressures, and other conditions, environmental damage,
personal injury, uncontrollable flows of oil and gas, and other occurrences.
The refining and transportation operations of Foreland could be subject to
significant interruption if the refinery or the pipelines that it utilizes were
to experience a fire, flood, major accident, shutdown or equipment failure, or
if it were damaged by severe weather or other natural disaster. Foreland
typically purchases and pays for insurance against risks customarily insured
against in the oil and gas industry by others conducting similar activities.
(See "ITEM 1. BUSINESS--Operational Hazards and Insurance" in Foreland's 1997
Form 10-K.) Nevertheless, Foreland 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 Foreland. The occurrence
of significant events against which Foreland is not fully insured or of a number
of lesser events against which Foreland is fully insured but subject to
substantial deductibles could materially and adversely affect Foreland's
operations and financial condition.
Risks of Adverse Weather
Foreland's exploration activities are subject to periodic interruptions due
to weather conditions, which may be quite severe in Nevada 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. Additionally, the refining and transportation operations are
subject to adverse consequences from seasonal weather fluctuations which impact
the construction, paving, and farming industries, Foreland's primary customers
for finished goods.
Intense Competition in Oil and Gas Industry
Foreland's oil and gas producing, refining, transportation, and marketing
activities are highly competitive. Many of Foreland'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. Additionally, many of Foreland's refining
competitors are integrated oil companies that are substantially larger and
better known that Foreland. Because of their diversity, integration of
operations, larger capitalization and greater resources, such competitors will
likely be better able to withstand volatile market conditions, compete on the
basis of price and more readily obtain crude oil in times of shortages.
Foreland may compete with such other companies for available supplies of
feedstocks and for outlets for its refined products. Because Foreland's
resources will be limited, it cannot assure that it will be able to compete
effectively in the exploration for oil in Nevada or in the refining,
transportation, and marketing of such crude oil. (See "ITEM 1. BUSINESS--
Competition and Markets" in Foreland's 1997 Form 10-K.)
Environmental and Other Governmental Regulation
Comprehensive federal, state, and local laws and regulations controlling
the exploration for and production and sale of oil and gas and the possible
effects of such activities on the environment. To date, Foreland has not been
required to expend significant resources in order to satisfy applicable
environmental laws and regulations respecting its own activities. However,
legislation and regulations could cause additional expenditures, restrictions,
and delays in Foreland's business, the extent of which cannot be predicted and
which may require Foreland to limit substantially, delay or cease operations in
some circumstances. In other circumstances, Foreland may become subject to
various governmental controls. Because federal energy and taxation policies are
subject to constant revisions, Foreland cannot predict the ultimate effect of
governmental policies and controls on its operations. (See "ITEM 1. BUSINESS--
Government Regulation" in Foreland's 1997 Form 10-K.)
GENERAL RISKS RELATING TO OFFERING
Volatility of Common Stock
The Common Stock price has been volatile in the past and could fluctuate
significantly in response to the results of specific exploration drilling tests,
variations in quarterly operating results, and changes in recommendations by
securities analysts. Further, the Common Stock's trading volume is relatively
small, so market for may not be able to efficiently accommodate significant
trades on any given day. Consequently, sizable sales or purchases of the Common
Stock have in the past, and may in the future, cause greater price volatility
for its Common Stock than in other more actively traded securities. With
trading volume, persons may not be able to effect larger transactions at the
then current market price. In addition, Foreland may experience significant
price and volume fluctuations that are unrelated or disproportionate to the
results of its operations. These broad fluctuations may adversely affect the
market price of the Common Stock. (See "ITEM 5. MARKET FOR REGISTRANT'S COMMON
STOCK AND RELATED STOCKHOLDER MATTERS" in Foreland's 1997 Form 10-K.)
Substantial Warrants and Options Outstanding
Foreland has issued to employees, officers, directors, and others providing
services to Foreland vested options to purchase up to 1,118,334 shares of Common
Stock with exercise prices ranging from $2.50 to $9.00 per share, with a
weighted average exercise price of $4.14 per share and options subject to
vesting to purchase up to 524,000 shares with a weighted average exercise price
of $3.29. Options to purchase a total of 94,000 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, Foreland has outstanding options held by unrelated third parties to
purchase 110,000 shares of Common Stock at prices ranging from $3.75 per share
to $6.90 per share, with a weighted average exercise price of $6.61 per share,
and warrants to purchase a total of 2,130,025 shares of Common Stock at a
weighted average exercise price of $7.65 per share. The foregoing options and
warrants may prove to be a hindrance to future financing by Foreland, 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 Foreland's Common Stock. Further, the holders of options and warrants may
exercise them at a time when Foreland would otherwise be able to obtain
additional equity capital on terms more favorable to Foreland. (See
"DESCRIPTION OF SECURITIES--Preferred Stock, Warrants, and Options Outstanding"
below and "ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT" in Foreland's 1997 Form 10-K.)
Issuance of Additional Common Stock
Foreland 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, 9,423,190 shares of Common Stock were
issued and outstanding, and 4,433,648 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, including those subject to vesting requirements and 1,833,333
shares issuable to Energy Income Fund. In addition, Foreland may issue
additional shares to Petro Source in connection with the acquisition of the
refining and transportation assets. Foreland's board of directors also has
authority, without action or vote of the shareholders, to issue all or part of
the authorized but unissued shares. Any such issuance will dilute the
percentage ownership of shareholders and may further dilute the book value of
Foreland's Common Stock. (See "DESCRIPTION OF SECURITIES" and "SELLING
STOCKHOLDERS" below.)
Preferential Rights of Preferred Stock Outstanding
Foreland has various classes of Preferred Stock issued and outstanding
with liquidation preferences. Under these preferences, on liquidation or
termination of Foreland, an aggregate of $2,872,934 in assets would be
distributed to the holders of the currently issued and outstanding Preferred
Stock, after payment of all of Foreland's obligations, prior to any distribution
to the holders of Common Stock. The Preferred Stock votes as a single class
with the Common Stock, except as otherwise provided by Nevada law or the
certificate of designation of such stock. If Foreland seeks to amend its
certificate of incorporation to change the provisions relating to any series of
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 affected class of Preferred Stock, 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.)
Determination of Purchase and Exercise Price
The conversion ratio of the outstanding Preferred Stock and the exercise
prices of the outstanding options and warrants were determined by Foreland,
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 Foreland, the number of securities
to be offered, and the general condition of the securities market, all as
assessed by Foreland's management. Such prices bear no relationship to the
assets, earnings, or net tangible book value of Foreland 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
Foreland has not paid dividends on the Common Stock in the past and does
not plan to pay dividends on the Common Stock in the foreseeable future, even if
it were profitable. Earnings, if any, are expected to be used to advance
Foreland's exploration activities and for general corporate purposes, rather
than to make distributions to shareholders. In addition, Foreland's November
1996 line of credit with a commercial bank prohibited Foreland from paying
dividends. The line of credit was paid in full in January 1998. New debt
financing with Energy Income Fund was established in 1998. Its terms also
prohibit the payment of dividends on the Common Stock. The 1998 Preferred Stock
bears a cumulative preferred dividend of 12% per annum.
Registration Rights of Existing Stockholders
Foreland has previously granted to existing shareholders and holders of
options and warrants, including officers and directors, registration rights that
require Foreland to include securities in future registration statements filed
by Foreland, 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 Foreland. Foreland 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
Foreland will not receive any net proceeds from the sale by the Selling
Stockholders of the Common Stock covered by this Prospectus. Foreland will
receive proceeds from the exercise of the warrants held by Energy Income Fund
prior to the resale of the Common Stock issuable on such exercise.
DILUTION
On September 30, 1998, Foreland had a pro forma net tangible book value of
approximately $9,148,430, with 9,423,190 shares of Common Stock issued and
outstanding, or approximately $0.97 per share. The pro forma net tangible book
value per share decreases to $0.67 after deducting liquidation preferences of an
aggregate of $2,872,934 with respect to the shares of outstanding 1991, 1994,
1995, and 1998 Preferred Stock. (See Item 1. "Financial Statements" in
Foreland's September 30, 1998 Form 10-Q.) Giving effect to the exercise of
warrants at the current exercise price and conversion of preferred stock held by
the Selling Stockholders, of which there can be no assurance, Foreland's net
tangible book value would be $17,275,496, after deducting liquidation
preferences of $872,934, or $1.53 per each share then outstanding. Purchasers of
shares of Common Stock from the 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. (See "SELLING STOCKHOLDERS.")
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.
EACH SELLING STOCKHOLDER NAMED BELOW CONFIRMED AT THE TIME IT ACQUIRED THE
COMMON STOCK THAT SUCH SECURITIES WERE ACQUIRED FOR INVESTMENT PURPOSES ONLY AND
WITHOUT A VIEW TOWARD THEIR RESALE AND ACKNOWLEDGED THE EXISTENCE OF
RESTRICTIONS ON RESALE APPLICABLE TO SUCH SECURITIES. EACH SELLING STOCKHOLDER
CAN SELL SUCH SECURITIES ONLY IN LIMITED CIRCUMSTANCES. THIS OFFERING RELATES
ONLY TO THE SALE OF SHARES OF COMMON STOCK HELD BY EACH SELLING STOCKHOLDER
NAMED IN THE FOLLOWING TABLE.
<TABLE>
<CAPTION>
Securities Owned Prior to the Shares Owned
Offering (1) After Offering (1)
-------------------------------------- --------------------
Common Common Stock Other Shares to
Selling Stockholder Stock Issuable Securities Be Offered Number %
- -------------------- ------- ------------ ---------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Petro Source 938,952 1,729,317(2) - 2,592,919 75,350(4) 0.6%
Corporation
Energy Income Fund,
LLC - - 1,833,333(3) 1,833,333(3) 0 0.0
Total 938,952 1,729,317 1,833,333 4,426,252 75,350 0.6
</TABLE>
(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 or issuable to the Selling Stockholder. Shares owned after
the offering assume the sale of all shares of Common Stock offered pursuant
to this offering.
(2) Petro Source presently holds 863,602 shares of Common Stock that were
issued in connection with the acquisition of certain assets, as discussed
herein, based on a value of $3.50 per share. These shares are included in
the Registration Statement and this prospectus. Pursuant to the acquisition
of the refining and transportation assets, Foreland agreed to issue to Petro
Source a sufficient number of shares of Common Stock to yield proceeds of
$2,676,332 plus interest at 10% per annum. There are an additional
1,729,317shares included in the Registration Statement and this prospectus,
which are the estimated number of shares that may become issuable to Petro
Source based on the closing sales price of the Common Stock of $1.25 on
December 15, 1998, with interest at 10% for one year from closing of the
acquisition. In the event Petro Source sells any shares at a greater
price, Foreland would not be required to issue all of such additional
shares and, if sales by Petro Source yielded proceeds exceeding the
$2,676,332 plus interest, Petro Source would be required to return
shares to Foreland.
(3) Includes 1,500,000 shares issuable on exercise of warrants currently
exercisable at $6.00 per share and 333,333 shares issuable on conversion of
1998 Preferred Stock held by Energy Income Fund.
(4) The resale of these shares has been previously registered by Foreland.
DESCRIPTION OF SECURITIES
Foreland 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 Foreland'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. Foreland's bylaws provide that one-third
of the issued and outstanding shares of Foreland shall constitute a quorum for
shareholders' meetings, except with respect to certain matters for which a
greater percentage quorum is required.
Stockholders of Foreland 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 Foreland, 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
dividend payment. Foreland seeks growth and expansion 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, Foreland had the following Preferred
Stock, options, and warrants outstanding as discussed in detail below.
Number of Shares Price Per Share
of of
Common Stock or Common Stock or
Description Common Stock Common Stock
Equivalent Equivalent
- -------------------------------- ----------------- ---------------
Preferred Stock
1991 Series 6,667 $3.75
1994 Series 51,047 $6.00
1995 Series 116,368 $4.50
1998 Series 333,333(1) $6.00
Warrants to purchase Common Stock 17,450 $4.50
(2) 1,500,000(1) $6.00
29,353 $7.50
583,222 $12.00
Options to purchase Common Stock 277,000 $2.50
(3) 10,000 $3.75
22,667 $3.93
304,000 $4.00
128,000 $4.50
350,000 $5.00
8,333 $6.375
100,000 $6.90
6,666 $7.50
28,333 $9.00
(1) Energy Income Fund, a Selling Stockholder, holds the 1998 Series Preferred
Stock and the $6.00 warrants, which must be converted or exercised before
the resale of the Common Stock pursuant to this Prospectus.
(2) Does not include warrants to purchase shares of preferred stock of Foreland
that are convertible into an aggregate of 43,874 shares of Common Stock.
Such warrants have a weighted average exercise price of $12.45 per share of
Common Stock equivalent.
(3) Does not include options subject to vesting requirements to purchase up to
524,000 shares of Common Stock at a weighted average exercise price of
$3.29 per share.
Preferred Stock
Foreland has issued and outstanding 20,000 shares designated as 1991 Series
Convertible Preferred Stock, 153,140 shares designated as 1994 Series
Convertible Redeemable Preferred Stock, and 349,104 shares designated as the
1995 Series Convertible Preferred Stock, and 2,000 shares designated as the 1998
Series Preferred Stock issued and outstanding as of the date of this Prospectus.
Foreland has no current plans to issue any additional Preferred Stock, except
131,622 shares of 1994 Preferred Stock to be issued on the exercise of the
outstanding 1994 Placement Agent Warrants. Foreland's articles of incorporation
provide that the board of directors of Foreland 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 Foreland's Common Stock at the rate of one share of Common
Stock for each three shares of Preferred Stock, after giving effect to the 3-
for-1 reverse stock split of the 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 Foreland's Common Stock at the rate of two shares
of Common Stock for each three shares of Preferred Stock.
The 1991 Preferred Stock carries a preference of $1.25 per share on
dissolution and liquidation of Foreland, the 1994 Preferred Stock carries a
preference of $2.00 per share, and the 1995 Preferred Stock carries a
liquidation preference of $1.50 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 or respective certificate of
designation. Shares of 1991, 1994 and 1995 Preferred Stock are entitled to such
number of votes in respect of the number of shares of Common Stock that would be
issuable upon conversion of the Preferred Stock held. 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 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, and the 1995 Preferred Stock is redeemable at
$3.00 per share at any time after December 31, 1995. In each case, the
Preferred Stock can be converted prior to the redemption date fixed in the
notice.
The 1998 Preferred Stock is all held by Energy Income Fund, a Selling
Stockholder under this Prospectus. The 2,000 shares of 1998 Series Preferred
Stock are convertible into an aggregate of 333,333 shares of Common Stock, or
166.6665 shares of Common Stock for each share of 1998 Series Preferred Stock,
at the election of the holder. The 1998 Preferred Stock carries a preference of
$1,000 per share on dissolution and liquidation of Foreland. The 1998 Preferred
Stock votes as a single class with the Common Stock except as otherwise provided
by the corporate laws of the state of Nevada or the certificate of designation
respecting the 1998 Preferred Stock. Shares of 1998 Preferred Stock are
entitled to such number of votes in respect of the number of shares of Common
Stock that would be issuable upon conversion of the 1998 Preferred Stock held.
Holders of 1998 Series Preferred Stock are entitled to receive cumulative
dividends of 12% per annum.
Warrants
Foreland 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 Foreland and the holder or warrant
agent, as applicable. 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 Foreland 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 Foreland, are not entitled to participate in dividends, if any,
and do not have ownership rights on termination or liquidation of Foreland.
$4.50 Warrants. Foreland has issued and outstanding warrants to purchase
8,333 shares of Common Stock at an exercise price of $4.50 per share which
expire in June 2000.
N Warrants. The outstanding N Warrants are exercisable to purchase an
aggregate of 414,000 shares of Common Stock at $12.00 per share through December
31, 1998. The N Warrants are subject to redemption by Foreland at a redemption
price of $0.10 per Warrant if the average closing price of the Common Stock is
at least $12.00 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.
M Warrants. The outstanding M Warrants are exercisable to purchase an
aggregate of 169,222 shares of Common Stock, or one share of Common Stock for
each three M Warrants held at $12.00 per whole share of Common Stock at any time
through December 31, 1998. The M Warrants are subject to redemption by Foreland
at a redemption price of $0.10 per Warrant if the average closing price of the
Common Stock is at least $12.00 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 warrants to acquire 9,117 shares of
Common Stock at a price equal to the lesser of $4.50 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.
1996-4 Placement Agent Warrants. The designees of the placement agent in
the 1996-4 Preferred Stock offering have warrants to purchase an aggregate of
29,353 shares of Common Stock at an exercise price equal to the lesser of $7.50
or 125% of the average closing price of the Common Stock as reported on Nasdaq
for the five days preceding each anniversary of the issuance of such warrants.
Such warrants are exercisable at any time prior to November 8, 2001.
Lender Warrants. In connection with the financing arrangement entered into
by Foreland with Energy Income Fund, Foreland has issued to Energy Income Fund
warrants to purchase an aggregate of 1,500,000 shares of Common Stock at $6.00
per share. Such warrants are exercisable at any time prior to January 6, 2003.
Options
Foreland has issued and outstanding vested options to purchase up to
1,228,334 shares of Common Stock at a weighted average exercise price of $4.36
per share, including options to purchase 1,118,334 shares of Common Stock at a
weighted average exercise price of $4.14 per share of Common Stock issued to
executive officers, directors and employees of Foreland. In addition, Foreland
has issued to employees and former employees of Foreland options to purchase up
to 524,000 shares of Common Stock at a weighted average exercise price of $3.34
per share that are subject to vesting requirements.
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 Foreland's securities is Atlas Stock
Transfer Corporation, 5899 South State Street, Salt Lake City, Utah 84107,
telephone (801) 266-7151.
PLAN OF DISTRIBUTION
The Selling Stockholders may sell their Common Stock 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 the 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 the Selling Stockholders 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
(a) in one or more transactions at a fixed offering price, which may be changed,
(b) at prices that may vary through the period during which the securities may
be offered, or (c) at such other prices as may be negotiated by the Selling
Stockholders and the purchaser at the time of sale. Foreland does not intend to
enter into any arrangement with any securities dealer concerning solicitation of
offers to purchase the Common Stock.
Foreland estimates that it will incur costs of approximately $23,000 in
connection with this offering for legal, accounting, printing, and other costs
related to the registration and sale of the shares of Common Stock. The Selling
Stockholders will bear other separate costs incurred by them. Commissions or
discounts paid in connection with the sale of securities by a Selling
Stockholder will be determined by negotiations between such Selling Stockholder
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 Common Stock to be
sold by the Selling Stockholder has been passed on for Foreland by Kruse, Landa
& Maycock, L.L.C.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference from Foreland's Annual Report on Form 10-K for the year ended December
31, 1997, and the financial statements of Foreland Refining Corporation
incorporated by reference from the 8-K/A filed October 14, 1998, amending the
Form 8-K dated August 12, 1998, 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 report
given on the authority of that firm as experts in accounting and auditing.
The year end independent reserve report dated December 31, 1997,
incorporated by reference into this Prospectus by reference from Foreland's
Annual Report on Form 10-K for the year ended December 31, 1997, 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 oil and gas engineering.
<PAGE>
FORELAND CORPORATION
TABLE OF CONTENTS
SECTION PAGE
SUMMARY AND INTRODUCTION..........5
RISK FACTORS.....................11
NO NET PROCEEDS..................20
DILUTION.........................20
SELLING STOCKHOLDERS.............21 SHARES OF COMMON STOCK
DESCRIPTION OF SECURITIES........22
PLAN OF DISTRIBUTION.............25
LEGALITY OF SECURITIES...........25
EXPERTS..........................25
Investors should rely on the
information contained in this
prospectus. Foreland has not PROSPECTUS
authorized anyone to provide
different information. This
Prospectus does not 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 DECEMBER [ ], 1998
state or jurisdiction.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
- -------------------------------------------------------------------------------
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses in connection with the
distribution of the securities being registered:
Securities and Exchange Commission registration fee $ 1,700
Legal fees......................................... 8,300
State "blue sky" fees and expenses (including 0
attorneys' fees) .................................
Accounting fees and expenses 5,000
Printing expenses.................................. 500
Listing fees....................................... 7,500
---------
Total $ 23,000
=========
All expenses, except the Commission fees, are estimates.
The Selling Shareholder will not bear any portion of the foregoing
expenses, but will pay fees in connection with the sale of the Common Stock
offered hereby in those transactions completed to or through securities broker
and/or dealers in the form of markups, markdowns, or commissions.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 78.037 and 78.751 of the Nevada Revised Statutes and "ARTICLE VII.
INDEMNIFICATION OF DIRECTORS AND OFFICERS" of the Registrant's articles of
incorporation provide for indemnification of the Registrant's directors and
officers and the limitation of liability thereon in a variety of circumstances,
which may include liabilities under the Securities Act of 1933, as amended.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons pursuant to the
foregoing provisions, the Registrant has been informed that in the opinion of
the Securities and Exchange Commission such indemnification is contrary to
public policy as expressed in the Securities Act and, therefore, is
unenforceable. (See "ITEM 17. UNDERTAKINGS.")
ITEM 16. EXHIBITS
Copies of the following documents are included as exhibits to this
Registration Statement, pursuant to item 601 of regulation S-K.
EXHIBITS
SEC
EXHIBIT REFERENCE
NUMBER NUMBER TITLE OF DOCUMENT LOCATION
- -------- ---------- ------------------------------------- ----------------
Plan of Acquisition, Reorganization, Arrangement,
Item 2 Liquidation, or Succession
- ----------------------------------------------------------
2.01 2 Option and Purchase Agreement between Incorporated by
Foreland Corporation and Petro Source Reference(15)
Corporation respecting the purchase of
Petro Source Transportation dated
effective December 31, 1997
2.02 2 Amendment to Option and Purchase Incorporated by
Agreement between Foreland Reference(17)
Corporation, Petro Source Corporation,
Foreland Refining Corporation and
Petrosource Transportation dated
August 11, 1998
Item 4. Instruments Defining the Rights of Security Holders
- -----------------------------------------------------------
4.01 4 Designation of Rights, Privileges, and Incorporated by
Preferences of 1991 Series Preferred Reference(1)
Stock
4.02 4 Designation of Rights, Privileges and Incorporated by
Preferences of 1994 Series Convertible Reference(2)
Preferred Stock
4.03 4 Designation of Rights, Privileges and Incorporated by
Preferences of 1995 Series Convertible Reference(6)
Preferred Stock
4.04 4 Designation of Rights, Privileges and Incorporated by
Preferences of 1998 Series Convertible Reference(16)
Preferred Stock
4.05 4 Form of Warrant Agreement between Incorporated by
Foreland and Atlas Stock Transfer Reference(14)
Corporation relating to N Warrants
4.06 4 Form of Rights Agreement dated Incorporated by
effective April 12, 1997, between Reference(12)
Foreland and Atlas Stock Transfer
Corporation
4.07 4 Warrant of Energy Income Fund, L.P., Incorporated by
dated January 6, 1998, to purchase Reference(13)
750,000 shares of common stock at
$6.00 per share
4.08 4 Warrant of Energy Income Fund, L.P., Incorporated by
dated August 10, 1998 to purchase Reference(16)
750,000 shares of common stock of
Foreland Corporation at $6.00 per
4.09 4 Registration Rights Agreement between Incorporated by
Energy Income Fund, L.P., and Foreland Reference(16)
Corporation, dated as of August 10,
1998
Item 5.Opinion re Legality
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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(5)
dated June 24, 1985**
10.02 10 Option Agreement between Grant Incorporated by
Steele and Foreland Corporation, Reference(5)
dated June 24, 1985**
10.03 10 Form of Options to directors dated Incorporated by
April 30, 1991 with respect to Reference(2)
options previously granted 1986**
10.04 10 Form of Stock Appreciation Rights Incorporated by
Agreement between Foreland and Reference(3)
officers, with related schedule**
10.05 10 Form of Nonqualified Stock Option Incorporated by
between Foreland and unrelated third Reference(3)
parties, with related schedule
10.06 10 Form of Promissory Notes relating to Incorporated by
certain options exercised by Reference(4)
officers, with related schedule
10.07 10 Form of Option granted pursuant to Incorporated by
reload provisions of previously Reference(4)
granted options with related
schedule**
10.08 10 Form of Registration Agreement Incorporated by
relating to Units Consisting of 1995 Reference(6)
Series Preferred Stock and M
Warrants
10.09 10 Form of Registration Agreement Incorporated by
relating to 1996 Series Convertible Reference(7)
Preferred Stock
10.10 10 Form of Revised Executive Employment Incorporated by
Agreement between Foreland and Reference(8)
executive officers, with related
schedule**
10.11 10 Form of Nonqualified Stock Options Incorporated by
granted to executive officers dated Reference(8)
July 18, 1996, with related
schedule**
10.12 10 Form of Nonqualified Stock Options Incorporated by
granted to executive officers in Reference(8)
connection with employment
agreements, with related schedule**
10.13 10 Form of Nonqualified Stock Options Incorporated by
granted to employees in connection Reference(8)
with employment agreements, with
related schedule
10.14 10 Purchase and Sale Agreement dated Incorporated by
November 14, 1996, Between Plains Reference(9)
Petroleum Operating Company and
Eagle Springs Production Limited
Liability Company, respecting the
purchase of Plains' interest in the
Eagle Springs Field, with related
Assignment, Conveyance, and Bill of
Sale
10.15 10 Financing Agreement dated as of Incorporated by
January 6, 1998, by and among Reference(13)
Foreland, Eagle Springs Production
Limited Liability Company and Energy
Income Fund, L.P.
10.16 10 Refinancing Note dated as of January Incorporated by
6, 1998, by Foreland and Eagle Reference(13)
Springs Production Limited Liability
Company
10.17 10 Development Note dated as of January Incorporated by
6, 1998, by Foreland and Eagle Reference(13)
Springs Production Limited Liability
Company
10.18 10 Acquisition Note dated as of January Incorporated by
6, 1998, by Foreland and Eagle Reference(13)
Springs Production Limited Liability
Company
10.19 10 Deed of Trust, Security Agreement, Incorporated by
Assignment of Production and Reference(13)
Proceeds, Financing Statement and
Fixture Filing dated as of January 6,
1998, by and among Foreland, Eagle
Springs Production Limited Liability
Company, First American Title Company
of Nevada, and Energy Income Fund,
L.P.
10.20 10 Assignment of Overriding Royalty Incorporated by
Interest dated effective as of Reference(13)
January 1, 1998, of a 3% net revenue
interest from Foreland and Eagle
Springs Production Limited Liability
Company to Energy Income Fund, L.P.
10.21 10 Assignment of Overriding Royalty Incorporated by
Interest dated effective as of Reference(13)
January 1, 1998, of a 1% net revenue
interest from Foreland and Eagle
Springs Production Limited Liability
Company to Energy Income Fund, L.P.
10.22 10 Purchase and Sale Agreement dated Incorporated by
effective December 31, 1998, between Reference(15)
Foreland Corporation and Plains
Petroleum Operating Company
10.23 10 Purchase Contract Confirmation dated Incorporated by
effective December 15, 1997, between Reference(15)
Foreland Corporation and Petro Source
Refining Partners
10.24 10 First Amendment to Financing Incorporated by
Agreement between Foreland Reference(16)
Corporation, Eagle Springs Production
Limited Liability Company, Foreland
Refining Corporation, Foreland Asset
Corporation, Petrosource
Transportation, and Energy Income
Fund, L.P., dated August 10, 1998
10.25 10 Stock Purchase Agreement dated August Incorporated by
10, 1998, between Energy Income Fund, Reference(16)
L.P., and Foreland Corporation
10.26 10 First Allonge to Acquisition Note in Incorporated by
the original principal amount of Reference(16)
$2,327,000, dated as of August 10,
1998
10.27 10 First Allonge to Development Note in Incorporated by
the original principal amount of Reference(16)
$13,893,000, dated as of August 10,
1998
10.28 10 First Allonge to Refinancing Note in Incorporated by
the original principal amount of Reference(16)
$680,000, dated as of August 10, 1998
10.29 10 Environmental Indemnity Agreement Incorporated by
between Petro Source Corporation, Reference(16)
Petrosource Investments, Inc.,
Foreland Corporation, Foreland
Refining Corporation, Foreland Asset
Corporation, and Petrosource
Transportation dated August 11, 1998
10.31 10 Second Amendment to Deed of Trust, Incorporated by
Security Agreement, Assignment of Reference(16)
Production and Proceeds, Financing
Statement and Fixture Filing dated as
of August 11, 1998, by and among
Foreland Corporation, Eagle Springs
Production Limited Liability Company,
First American Title Company of
Nevada, and Energy Income Fund, L.P.*
10.32 10 Deed of Trust, Security Agreement, Incorporated by
Assignment of Rents, Profits and Reference(16)
Proceeds Financing Statement, and
Fixture Filing, dated August 11, 1998
from Foreland Corporation, Foreland
Refining Corporation, and Foreland
Asset Corporation
Item 23. Consents of Experts and Counsel
- -----------------------------------------------------------
23.01 23 Consent of Kruse, Landa & Maycock, See Item 5
L.L.C., counsel to Registrant
23.02 23 Consent of Hein + Associates LLP, This Filing
certified public Accountants
23.03 23 Consent of Malkewicz Hueni This Filing
Associates, Inc.
Item 24. Power of Attorney
- -----------------------------------------------------------
24.01 24 Power of Attorney See Signature Page
(1) Incorporated by reference from Foreland's registration statement on form
S-2, Commission file number 33-42828.
(2) Incorporated by reference from Foreland's registration statement on form
S-1,Commission file number 33-81538
(3) Incorporated by reference from Foreland's registration statement on form
S-2, Commission file number 33-64756.
(4) Incorporated by reference from Foreland's registration statement on form
S-2, Commission file number 33-86076.
(5) Incorporated by reference from Foreland's annual report on form 10-K for
the fiscal year ended December 31, 1985.
(6) Incorporated by reference from Foreland's annual report on form 10-K for
the fiscal year ended December 31, 1994.
(7) Incorporated by reference from Foreland's registration statement on form
S-3, Commission file number 333-3779.
(8) Incorporated by reference from Foreland's quarterly report on form 10-Q
for the period ending September 30, 1996.
(9) Incorporated by reference from Foreland's interim report on form 8-K dated
November 15, 1996.
(10) Incorporated by reference from Foreland's registration statement on form
S-3, Commission file number 333-19063.
(11) Incorporated by reference from Foreland's annual report on form 10-K for
the fiscal year ended December 31, 1996.
(12) Incorporated by reference from Foreland's interim report on form 8-K dated
May 12, 1997.
(13) Incorporated by reference from Foreland's interim report on form 8-K dated
January 6, 1998.
(14) Incorporated by reference from Foreland's registration statement on form
S-2, Commission file number 333-28471.
(15) Incorporated by reference from Foreland's annual report on form 10-K for
the fiscal year ended December 31, 1997.
(16) Incorporated by reference from Foreland's interim report on form 8-K dated
August 12, 1998, as amended on Form 8-K/A filed October 26, 1998.
* OMITTED SCHEDULES AND SIMILAR ATTACHMENTS TO THIS EXHIBIT THAT ARE LISTED
AND BRIEFLY IDENTIFIED WILL BE FURNISHED SUPPLEMENTALLY TO THE COMMISSION
UPON REQUEST.
** IDENTIFIES EACH MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT
REQUIRED TO BE FILED AS AN EXHIBIT.
ITEM 17. UNDERTAKINGS
RULE 415 OFFERINGS: POST-EFFECTIVE AMENDMENTS. [Regulation S-K, Item 512(a)]
The undersigned Registrant will:
(1) File, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement to include any
material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change
to such information in the Registration Statement.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new Registration Statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
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.
INDEMNIFICATION. [Regulation S-K, Item 512(h)]
Insofar as indemnification for liabilities arising under the Securities 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 Securities 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 16th day of
December, 1998.
FORELAND CORPORATION
(Registrant)
By /s/ 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 16th day of December , 1998.
/s/ N. Thomas Steele, Director and
President (Principal Executive Officer)
/s/ Dr. Grant Steele, Director
/s/ Bruce C. Decker, Director and Vice-
President of Operations
/s/ Lee B. Van Ramshorst, Director
/S/ Robert D. Gershen, Director
/s/ Don W. Treece (Principal Accounting
and Financial Officer)
KRUSE, LANDA & MAYCOCK, L.L.C.
EIGHTH FLOOR, BANK ONE TOWER
50 WEST BROADWAY (300 SOUTH)
SALT LAKE CITY, UTAH 84101-2034
JAMES R. KRUSE TELEPHONE: (801) 531-7090
HOWARD S. LANDA TELECOPY: (801) 531-7091
ELLEN MAYCOCK MAILING ADDRESS (801) 359-3954
DAVID R. KING Post Office Box 45561
KEITH L. POPE Salt Lake City, Utah 84145-0561
LYNDON L. RICKS
JODY L. WILLIAMS
STEVEN G. LOOSLE
RICHARD C. TAGGART
DAVID C. WRIGHT
PAMELA S. NIGHSWONGER
SHANE L. HANNA
WILLIAM N. WHITE
December 17, 1998
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.
KL&M/JRK:sp
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 dated March 21, 1998, on our
audits of the consolidated financial statements of Foreland Corporation as of
December 31, 1996 and 1997, and for each of the years in the three-year period
ended December 31, 1997, which report is included in the Company's Annual Report
on Form 10-K and our report dated October 2, 1998, on the audits of the
financial statements of Foreland Refining Corporation as of December 31, 1997
and 1996 and for each of the years in the three-year period ended December 31,
1997, which report is included in the Company's Form 8-K/A dated August 12,
1998.
/s/ Hein + Associates LLP
HEIN + ASSOCIATES LLP
Denver, Colorado
December 16, 1998
MALKEWICZ HUENI
ASSOCIATES
December 15, 1998
Kruse Landa & Maycock, LLC
50 West Broadway, 8th Floor
Salt Lake City, UT 84101
Dear Sir:
The undersigned petroleum engineer hereby consents to incorporation by reference
in the 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, 1997.
Sincerely,
Malkewicz Hueni Associates, Inc.
/s/ Stephen E. Malkewicz
President
14142 Denver West Parkway, Suite 190
Golden, Colorado 80401 U.S.A.
(303) 277-0270
Fax: (303) 277-0267
