UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 1)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NUMBER 0-14096
FORELAND CORPORATION
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(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
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (303) 988-3122
Securities registered pursuant to section 12(b) of the Act:
Title of each class Name of each exchange on which
registered registered
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NONE NONE
Securities registered pursuant to section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.001
PREFERRED STOCK PURCHASE RIGHTS
(Title of class)
<PAGE>
PART III.
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age, term of directorship, and
principal business experience of each director and executive officer of Foreland
who has served in such position since Foreland's last fiscal year.
DIRECTOR BUSINESS EXPERIENCE DURING PAST
NAME AGE SINCE FIVE YEARS AND OTHER INFORMATION
- ------------- ----- ------ -----------------------------------------------
Grant Steele* 74 1985 Co-founder and chairman. Executive officer and
chairman of the Company since organization in
1985. Employed by Gulf Oil Corporation from
1953 to 1983. From 1973 to 1980, Chief
Geologist-U.S. for Gulf Oil. Graduated from
the University of Utah, Salt Lake City, Utah,
in 1949 with bachelor of science degree.
Earned his doctorate in geology from the
University of Washington in 1959. Certified
professional geologist and an active member of
the American Association of Petroleum
Geologists (awarded a distinguished service
award in 1984), the Houston Geological Society,
and the Society of Economic Paleontologists and
Mineralogists.
N. Thomas Steele* 54 1985 Co-founder and president. Officer and director
of Foreland since organization in 1985.
Elected president in May 1996. Prior to
joining Foreland in 1985, president of Magnum
Resources, Inc., Ogden, Utah, a company engaged
in mineral exploration in Nevada and Utah.
Bruce C. Decker 47 1994 Officer and director of Foreland since 1994.
Officer of the Krutex Energy Corporation from
1983 through acquisition by Foreland in 1989.
Received bachelor's degree in finance and
management from the University of Utah in 1973.
Lee B. Van 59 1998 Has over thirty years of experience in the oil
Ramshorst and gas industry. Has held various positions
at Amoco Production Company, Texas Oil & Gas
Corp., Inexco Oil Company, and Plains
Petroleum. Received Engineering bachelor's
degree from University of Missouri-Rolla and
master's in Management Science from Texas
Christian University. During last ten years at
Plains, held positions from Vice President,
Production and Engineering to Senior Vice
President, Operations and Business Development.
Instrumental in structuring the joint venture
between Foreland and Plains in 1995.
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* Grant Steele is the uncle of N. Thomas Steele.
During 1998, Robert Gershen served on the board of directors; effective
April 28, 1999, Mr. Gershen resigned as a director. Grant Steele has given
notice that he will resign as a director in June 1999 when his present
employment term expires.
SIGNIFICANT EMPLOYEES/CONSULTANTS
Jerry Hansen. Mr. Hansen, who joined Foreland in 1986, is senior
structural geologist for Foreland with primary responsibility for generating and
developing exploration proposals and drilling prospects. He has 13 years of oil
and gas experience focused on prospect generation and evaluation in the Powder
River Basin, Gulf Coast, and primarily, in Nevada. He graduated with degrees in
geology from the University of Colorado in 1973 and the University of Arizona in
1982. As senior structural geologist, Mr. Hansen's primary responsibility is in
the generation and development of drillable prospects, from inception to actual
wellsite operations.
Carl Schaftenaar. Mr. Schaftenaar, who joined Foreland in 1993, has been a
geophysicist and geologist in the oil industry for 13 years. He holds a
bachelor's degree in geology from Hope College, Holland, Michigan, and a master
of science degree in geophysics from Texas A&M University. Mr. Schaftenaar
worked for Chevron USA on exploration and development projects in Nevada and the
Rocky Mountain area from 1982 to 1992. As senior geophysicist, Mr. Schaftenaar
is responsible for the acquisition and analysis of proprietary two- and three-
dimension seismic programs for Foreland.
David T. Greene. David T. Greene, who joined Foreland in 1995, is a
petroleum engineer with 18 years oil and gas experience. He holds a bachelor's
degree in earth science from the University of California at Santa Cruz and a
masters degree in petroleum engineering from Stanford University. Mr. Greene has
worked at Amoco Production Co. as Staff Petroleum Engineer, for Pacific
Enterprises Oil Company. as Division Engineering Manager, and for Plains
Petroleum Operating Co. as Senior Exploitation Engineer. Mr. Greene has
experience in the Rocky Mountain, Mid-Continent, Gulf Coast, and Offshore Gulf
of Mexico areas, especially in evaluation, design, and implementation of
secondary and tertiary recovery projects, especially relating to heavy oil and
tight reservoirs. Mr. Greene is responsible for providing engineering and field
supervision support of Foreland's Eagle Springs Field drilling and development
program and for overall Nevada exploitation. Mr. Greene is now a consultant to
Foreland.
Fred Merian. Mr. Merian, who joined Foreland in 1997, is Manager of
Corporate Development for Foreland. He has 19 years of oil and gas experience
and has held engineering, managerial and executive positions with Amoco
Production Company, Tenneco Oil Company, Union Pacific Resources Corporation
(Champlin) and recently as President-COO of Vessels Oil and Gas Company. Mr.
Merian has had direct finance and operational responsibilities for integrated
oil and gas project development in most western state of the U.S. Mr. Merian's
technical knowledge coupled with finance and M&A experience has enhanced
Foreland's corporate development opportunities. Mr. Merian graduated with a
degree in Geological Engineering from the University of Missouri-Rolla in 1978.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of forms 3, 4, and 5, and amendments thereto,
furnished to Foreland during or respecting its last fiscal year, no director,
officer, beneficial owner of more than 10% of any class of equity securities of
Foreland or any other person known to be subject to Section 16 of the Exchange
Act, failed to file on a timely basis reports required by Section 16(a) of the
Exchange Act for the last fiscal year, except that Robert D. Gershen failed to
timely file one report respecting the acquisition of warrants to purchase Common
Stock by Energy Income Fund, L.P.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth for each of the last three fiscal years the
annual and long term compensation earned by, awarded to, or paid to the chief
executive officer of Foreland and Bruce C. Decker, the only other executive
officer who received total annual salary and bonuses in excess of $100,000 for
all services rendered in all capacities to Foreland and its subsidiaries during
the last fiscal year (the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------- -------------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(A) (B) (C) (D) (E) (F) (G) (H) (I)
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING AWARD ALL OTHER
NAME AND YEAR COMPEN- STOCK OPTIONS/ PLAN COMPEN-
PRINCIPAL ENDED SALARY BONUS SATION AWARD(S) SARS PAYOUTS SATION
POSITION DEC. 31 ($) ($) ($) ($) (#) ($) ($)
- --------------- ------- ------ ------ --------- ------- ---------- ------- --------
N. Thomas Steele 1998 129,800 -- 24,000 -- --/-- -- --
President (CEO) 1997 129,800 23,884 24,000 -- 300,000/-- -- --
1996 104,320 -- 10,000 -- 200,000/-- -- 37,500
Bruce C. Decker 1998 119,000 -- 24,000 -- --/-- -- --
1997 119,000 10,836 24,000 -- 300,000/-- -- --
1996 88,958 -- 10,000 -- 200,000/-- -- --
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
There were no grants of options or stock appreciation rights during the
last completed fiscal year to any Named Executive Officer of Foreland.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
The following table sets forth information respecting the exercise of
options and SARs during the last completed fiscal year by the Named Executive
Officers of Foreland and the fiscal year end values of unexercised options and
SARs.
(A) (B) (C) (D) (E)
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
SHARES UNEXERCISED OPTIONS/SARS
ACQUIRED OPTIONS/SARS AT AT FY END ($)
ON VALUE FY END (#) EXERCISABLE/
EXERCISE REALIZED EXERCISABLE/ UNEXERCISABLE
NAME (#) ($) UNEXERCISABLE(1) (2)
- ---------------- -------- -------- ---------------- -------------
N. Thomas Steele, -- -- 324,000/150,000 --/--
President (CEO)
Bruce C. Decker -- -- 250,000/150,000 --/--
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(1) For a complete description of the terms of options held by the Named
Executive Officers, see "Principal Shareholders" below.
(2) Based on the closing sales price on Nasdaq for the Common Stock of $1.125
on December 31, 1998.
EMPLOYMENT AGREEMENTS
Effective September 2, 1997, Foreland entered into new executive employment
agreements with its executive officers in order to provide a prospective lender
assurances that key management personnel would have a strong incentive to remain
in their positions during the term of the loan. Under the agreements, during
1998, N. Thomas Steele, and Bruce C. Decker received base salaries of $125,000,
and $119,000, respectively. The agreements provide for a $48,000 increase in
each such executive officer's annual salary at such time as Foreland achieves
sustained net oil production of at least 1,000 barrels per day for any calendar
month. Each employment agreement is for a 36-month term and is automatically
renewed each month for a new 36-month term. The employment agreements contain
covenants not to compete for two years after termination of employment,
restrictions on the disclosure of confidential information, provisions for
reimbursement of expenses and payment of major medical insurance coverage, and
an agreement of Foreland to register securities of Foreland held by such persons
at the request of the employees.
In connection with the agreements, N. Thomas Steele and Bruce C. Decker
received ten-year options to purchase 200,000 shares of Common Stock at a price
of $2.50 per share. Additionally, each executive received ten-year options to
purchase 100,000 shares of Common Stock at an exercise price of $5.00 per share.
Such options are now 50% vested and vest in equal increments on the next two
anniversary dates. In the event of termination of employment resulting from a
change in control not approved by the board of directors, each executive will
receive payment, in cash or Common Stock, at the executive's option, in an
amount equal to the executive's base salary for the remaining term of his
respective employment agreement plus any incentive compensation previously
earned. In addition, all options held by the executive shall immediately become
vested and exercisable and the executive shall receive payment equal to the fair
market value of the options granted under the employment agreement times the
number of unexercised options in consideration of the cancellation of such
options.
DIRECTORS' COMPENSATION
The board previously approved the payment of $2,000 per month to each of
Foreland's directors who are also employees of Foreland. This payment was
waived subsequent to December 31, 1998. Foreland has a stock option plan to
compensate those directors who are not employees. Under this plan, Lee B. Van
Ramshorst and Robert D. Gershen were each granted options to purchase an
aggregate of 45,000 shares of Common Stock at an exercise price of $5.00 per
share. Such options are presently vested to purchase 15,000 each. Mr. Van
Ramshorst's options will vest to purchase an additional 10,000 shares at the
next three anniversaries of election; provided that he continues to serve as a
director. Mr. Gershen resigned from the board of directors in April 1999.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The articles of incorporation of Foreland limit or eliminate the personal
liability of directors for damages for breaches of their fiduciary duty, unless
the director has engaged in intentional misconduct, fraud, or a knowing
violation of law, or paid a dividend in violation of the Nevada Revised
Statutes.
Foreland's articles of incorporation and bylaws further provide for the
indemnification of officers and directors for certain civil liabilities,
including liabilities arising under the Securities Act, unless such person is
adjudged in any action, suit, or proceeding to be liable for his own negligence
or misconduct in the performance of his duty. In the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of the date hereof, the outstanding
Common Stock of Foreland owned of record or beneficially by each person who
owned of record, or was known by Foreland to own beneficially, more than 5% of
Foreland's shares of Common Stock issued and outstanding, and the name and share
holdings of each director and all of the executive officers and directors as a
group:
NUMBER OF
COMMON PERCENTAGE
NATURE OF SHARES OF
NAME OF BENEFICIAL OWNER OWNERSHIP OWNED(1) OWNERSHIP(2)
- --------------------------- --------- --------- ------------
DIRECTORS AND PRINCIPAL
STOCKHOLDERS
Grant Steele Common Stock 78,832 0.8%
Options 183,333(3) 1.9
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Total 262,165 2.7
N. Thomas Steele Common Stock 50,888 0.5
Options 474,000(4) 4.7
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Total 524,888 5.2
Bruce C. Decker Common Stock 13,334 0.1
Options 400,000(5) 3.9
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Total 413,334 4.1
Lee B. Van Ramshorst Common Stock 1,000 --
Options 0 --
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Total 1,000 --
Energy Income Fund, LP Common Stock 250,000 2.6
Warrants 1,500,000(5) 13.4
Preferred
Stock 333,333(5) 3.3
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Total 2,083,333 18.1
Petro Source
Corporation Common Stock 863,602 8.9
ALL EXECUTIVE OFFICERS AND
DIRECTORS AS A GROUP
(FOUR PERSONS) Common Stock 144,054 1.5
Options 1,057,333 9.8
Warrants -- --
---------
Total 1,201,387 11.2%
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(1) Except as otherwise noted, shares are owned beneficially and of record, and
such record shareholder has sole voting, investment, and dispositive power.
The address of all such persons for purposes of this table is deemed to be
the address of Foreland.
(2) Calculations of total percentages of share ownership for each individual
assumes the exercise of all options held by that individual to which the
percentage relates, including options subject to vesting provisions.
Percentages calculated for totals of all executive officers and directors
as a group assume the exercise of all options held by the indicated group.
(3) Consists of options to acquire 33,333 shares of Common Stock at an exercise
price of $4.50 per share at any time prior to December 31, 2002, options
vesting incrementally to acquire an aggregate of 50,000 shares at $2.50 per
share expiring incrementally through September 2, 2010, and options vesting
incrementally to acquire an aggregate of 100,000 shares at $4.00 per share
expiring September 2, 2007. The options to acquire 33,333 shares at $4.50
per share contain a provision that, on exercise, the holder is granted a
new option covering the number of shares for which the prior option was
exercised, with the exercise price of the new option fixed at the then fair
market value of the Common Stock.
(4) Consists of options to acquire 38,889 shares of Common Stock at an exercise
price of $4.50 per share at any time prior to December 31, 2002, options to
acquire 11,111 shares at an exercise price of $3.93 per share at any time
prior to December 31, 2002, options to acquire 24,000 shares at $4.50 per
share at any time prior to May 19, 2003, options to acquire an aggregate of
100,000 shares at an exercise price of $5.00 per share expiring
incrementally through September 1, 2006, options vesting incrementally to
acquire an aggregate of 200,000 shares at $2.50 per share expiring
incrementally through September 2, 2010, and options vesting incrementally
to acquire an aggregate of 100,000 shares at $4.00 per share expiring
September 2, 2007. The options to acquire 38,889 shares at $4.50 per share
contain a provision that, on exercise, the holder is granted a new option
covering the number of shares for which the prior option was exercised,
with the exercise price of the new option fixed at the then fair market
value of the Common Stock.
(5) Consists of options to acquire an aggregate of 100,000 shares at $5.00 per
share expiring incrementally through September 1, 2006, options vesting
incrementally to acquire an aggregate of 200,000 shares at $2.50 per share
expiring incrementally through September 2, 2010, and options vesting to
acquire an aggregate of 100,000 shares at $4.00 per share expiring
September 2, 2007.
(6) Consists of warrants to purchase 1,500,000 shares at $6.00 per share
through January 6, 2003, and 2,000 shares of 1998 Series Preferred Stock
convertible into an aggregate of 333,333 shares of Common Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Unless otherwise indicated, the terms of the following transactions
between related parties were not determined as a result of arm's length
negotiations.
Salary Deferrals and Waivers; Officer and Director Notes Payable
Foreland owed $348,691 in salaries and interest to two current officers and
directors and a former officer and director at December 31, 1998. Foreland also
had outstanding loans from a current officer and director and two former
officers and directors in the amount of $316,279 as of such date.
Energy Income Fund Financing
In December 1997, Foreland entered into a financing arrangement with Energy
Income Fund, L.P. ("EIF"), that was amended in August 1998 and February 1999.
Amounts due under the financing arrangement are collateralized by substantially
all of the property and equipment of Foreland, and Foreland is required to
maintain certain financial ratios and comply with other terms and conditions
while any balance of indebtedness remains outstanding. In connection with the
EIF financing, Foreland granted EIF warrants to purchase an aggregate of
1,500,000 shares of common stock at $6.00 per share, issued 250,000 shares of
common stock to EIF, and sold to EIF 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. Foreland also agreed to transfer to EIF a 3% overriding royalty
interest in the Company's proved oil and gas properties and a 1% overriding
royalty interest in certain unproved properties. As of the date hereof,
Foreland has borrowed approximately $12.6 million pursuant to the financing
arrangement. Foreland is currently in default on the loan. Management continue
to negotiate a payment plan with EIF and is hopeful that EIF will continue to
make concessions to prevent acceleration of the entire principal balance.
As a condition to establishing the financing, Foreland agreed to permit EIF
to appoint one member to serve on its board of directors. On January 9, 1998,
Robert D. Gershen was appointed a director and resigned on April 28, 1999.
Petro Source Acquisition
On December 31, 1997, Foreland obtained an option to purchase certain oil
refining and transportation assets and operations from 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 by paying $5,000,000 in cash
(utilizing funds from the EIF loan), with the remaining $2,676,322 non-cash
portion of the purchase price paid by the issuance of 763,602 shares of common
stock, subject to adjustment in the number of shares and potential issuances of
additional shares if the resale of such shares by Petro Source yields net
proceeds less than $2,676,332 plus interest at 10% per annum. In addition,
Foreland issued 100,000 shares of common stock to Petro Source at the closing of
the purchase.
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange of 1934, as amended, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FORELAND CORPORATION
Dated: May 20, 1999 By /s/ N. Thomas Steele, President
