SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT UNDER TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): May 12, 1997
Commission File Number: 0-14096
FORELAND CORPORATION
(Exact Name of Registrant as Specified in its Charter)
NEVADA 87-0422812
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
12596 W. BAYAUD AVENUE
SUITE 300, LAKEWOOD, COLORADO 80228
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(303) 988-3122
N/A
(Former name, former address, and formal fiscal year, if changed since
last report)
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ITEM 5. OTHER EVENTS
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ADOPTION OF STOCKHOLDERS' RIGHTS PLAN
The board of directors of Foreland Corporation (the Company") has
unanimously adopted a Rights Agreement (the "Rights Agreement") under which
Preferred Stock purchase rights ("Rights") will be distributed, as a dividend,
to stockholders of record as of July 1, 1997 (the "Record Date"), as soon as
practicable after such date, at a rate of one Right for each share of the
Company's common stock, par value $0.001 ("Common Stock"), held on the Record
Date. The Rights Agreement was unanimously adopted by the board of directors
effective May 12, 1997.
The Rights contain provisions that are designed to protect stockholders in
the event of an unsolicited attempt to acquire the Company, including a gradual
accumulation of shares in the open market, a partial or two-tiered tender offer
that does not treat all stockholders equally, and other takeover tactics that
are currently prevalent and which the board of directors believes may be abusive
and not in the best interests of stockholders. The board of directors believes
that these tactics tend to pressure stockholders unfairly, coerce them to
relinquish their investment without giving them any meaningful choice, and
deprive them of the full value of their shares. The implementation of the
Rights Agreement increases the board of directors' ability to represent
effectively the interests of stockholders of the Company in the event of an
unsolicited proposal by enabling it, among other things, to assure the various
constituencies of the Company (i.e., its creditors, customers, employees, etc.)
that the Company's stability can be maintained in a takeover environment. In
addition, the Rights Agreement will give the board of directors more time and
the opportunity to evaluate an offer and exercise its good faith business
judgment to take appropriate steps to protect and advance shareholder interests
by negotiating with the bidder, auctioning the Company, implementing a
recapitalization or restructuring designed as an alternative to the offer, or
taking other action.
The Rights are not intended to prevent a takeover of the Company and will
not preclude a successful cash tender offer for all of the outstanding shares of
Common Stock coupled with a requirement for the tender of Rights formerly
attached to such shares. However, the board of directors believes it should
discourage most efforts to acquire the Company (short of such an all inclusive
tender offer) in a manner or on terms not approved by the board of directors and
should deter any attempt by a 20% shareholder to take advantage of the Company
through self-dealing transactions sought to be effectuated by obtaining control
of the Company's board of directors. The Rights are designed to deal with the
very serious problem of a raider using what the board of directors perceives to
be coercive tactics to deprive the Company's board or directors and stockholders
of any real opportunity to determine the destiny of the Company. The Rights may
be redeemed by the Company at a redemption price of $0.01 per Right, subject to
adjustment, prior to the public announcement that 20% or more of Common Stock
has been accumulated by a single acquirer or group, and thus they should not
interfere with any merger or other business combination approved by the board of
directors nor affect any prospective offeror willing to negotiate in good faith
with the board of directors. The Rights Agreement does not inhibit any
stockholder from utilizing the proxy mechanism to promote a change in the
management or direction of the Company. However, the Company's classified board
does inhibit any stockholder from utilizing the proxy mechanism to promote an
immediate change in the management or direction of the Company.
The board of directors has viewed with concern the possibility of abusive
tactics in attempts to take over public companies. While the board of directors
is not aware of any effort to acquire control of the Company, it believes that
the Rights Agreement represents a sound and reasonable means of safeguarding the
investment of stockholders in the Company.
Distribution of the Rights will not in any way alter the financial strength
of the Company or interfere with its business plans. The distribution of the
Rights is not dilutive, does not affect reported earnings per share, is not
taxable either to the recipient or to the Company, and will not change the way
in which stockholders can currently trade shares of Common Stock. However,
under certain circumstances, more specifically described below, particularly
where the Rights are "triggered" as the result of certain potentially abusive
tactics (that is, tactics that are perceived by the board of directors to be
either coercive, unfair, or discriminatory), exercise of the Rights may be
dilutive or affect reported earnings per share. The Right's discriminatory
feature exposes an acquirer to a substantial penalty for proceeding without the
board of directors' approval. If the Rights not attached to the acquirer's
shares are triggered, they may be exercised by someone even if an initial holder
cannot pay the exercise price, since they detach from the underlying shares and
become separately tradable no later than the flip-in event (a "flip-in" event
occurs if any person, including affiliates and associates, or group acting in
concert, without the board of director's prior approval, acquires beneficial
ownership of 20% or more of the Company's voting stock). If a significant
number of rights were exercised, both the economic value and the voting power of
the acquiring person's shares would be immediately and substantially diluted by
the issuance of new shares to exercising holders. Further, as to any rights
left outstanding after their flip-in exercise period, the acquirer must contend
with the flip-over (a "flip-over" event occurs if, following a flip-in event,
the Company consummates any business combination in which its stock is changed
or exchanged with, or any substantial asset sold to, any person) if it wants to
acquire the entire equity interest in the target (since a non-board-approved
"squeeze-out" merger cannot eliminate, and will trigger, the detached rights).
The operation of the Rights is explained in greater detail below, under
"Summary of the Rights Agreement."
THE BOARD OF DIRECTORS' REASONS FOR ADOPTING THE RIGHTS AGREEMENT
Although the Rights Agreement was not adopted by the board of directors in
reaction to any known efforts to acquire the Company's stock, the board of
directors of the Company is generally concerned that various tactics which in
its view could potentially be inequitable to stockholders and disruptive to the
Company, its board of directors, and management, have become relatively
commonplace in corporate takeover practice. These tactics include: (a) the
accumulation of a substantial block of stock without payment of any premium in
an effort to, among other things, influence or control the affairs of a
corporation or acquire a corporation at a price viewed by the board of directors
as unfair, (b) partial and "two-tier" tender offers in which an acquirer does
not treat all stockholders equally (e.g., offers involving cash for most of the
stock and securities for the balance, as opposed to an all cash offer for all
the shares), and (c) highly leveraged offers that are financed by the
dismemberment of a corporation or by the issuance to its stockholders of
low-quality, high-risk "junk" bonds. The board of directors believes that such
tactics often unfairly pressure stockholders without giving them any real
choice, deprive stockholders of the full value of their shares, and severely
disrupt the conduct of a corporation's business. The board of directors
believes that its adoption of the Rights Agreement will deter such tactics and
enhance the ability of the board of directors to protect the interest of the
stockholders of the Company. The Rights also contain protections against a
controlling shareholder taking advantage of its position by engaging in certain
self-dealing transactions for its own benefit or to the detriment of other
stockholders.
A major function of the Rights Agreement is to give the board of directors
of the Company the opportunity and additional time to evaluate an acquisition
offer and determine if it reflects the full value of the Company and is fair to
all stockholders, and if not, to reject the offer or to seek an alternative that
meets such criteria. Even in the case of an all-cash offer to all stockholders,
the Rights Agreement serves the further function of providing leverage for the
board of directors to facilitate a bidding process and to negotiate for a better
price for the stockholders.
The Rights Agreement is not intended to prevent, and should not prevent,
well-financed (as opposed to low quality, high-risk "junk bond" financing, or
other financing that relies on the target company's assets and imperils its
viability) and adequate offers for all of the Company's shares. The Rights
Agreement is similarly not intended to prevent and should not prevent a proxy
contest for control of, or representation on, the board of directors.
Notwithstanding the intent of the Rights Agreement, the board of directors would
continue to have the power to reject any offer it chooses, including those that
may be at a premium over prevailing market prices, and if that were done, the
Rights Agreement might have the effect of preventing stockholders from realizing
the maximum value of their investment. In addition, the Rights Agreement,
particularly when coupled with a classified board of directors (see discussion
above) may have the practical effect of entrenching the board of directors and
incumbent management. Nevertheless, the Rights Agreement does not relieve the
board of directors of its fiduciary obligation to consider in good faith any
proposal to acquire the Company and does not allow the board of directors to act
in violation of its fiduciary duties to the detriment of the Company's
stockholders or for the purpose of entrenching management. The board of
directors is required by law, and in any event intends in all cases, to make
decisions in good faith and act in the best interests of all of the Company's
stockholders. The board of directors, consistent with such fiduciary
obligations, will represent all of the stockholders and other affected
constituencies (i.e., creditors, customers, employees, and perhaps even the
community generally) of the Company when and if a decision is to be made in the
context of a specified proposal. The Rights Agreement represents a very
important instrument which the board of directors may use to maximize stock
values and to protect the interests of all of the Company's stockholders and
other constituents.
The adoption of a rights plan may, under certain circumstances, have a
negative effect on stock price and may impede legitimate acquisition plans, or,
depending on the circumstances, may have a positive effect on stock price and
help maximize shareholder value. Although the issue is not free from doubt, the
board of directors, having considered these views, has concluded that those
arguments, because they are not supported by conclusive data, are speculative
and do not justify leaving the Company and its stockholders without what the
board of directors believes to be additional protection against takeover tactics
which are viewed by the board of director as abusive or unfair treatment by an
acquirer. The board of directors believes that the Rights and the Rights
Agreement represent a sound and reasonable means of addressing the complex
issues of corporate policy created by the current takeover environment.
Although it is possible that the proposed Rights Agreement might be invalidated
by a court in the future, the board of directors knows of no precedent which
will require it to be invalidated. The board of directors believes that, under
current law, the courts will not invalidate the Rights Agreement or its
administration if the board of directors can show that the Rights Agreement was
adopted and is administered to protect the Company and its stockholders against
a reasonably perceived threat to corporate policy and effectiveness and is a
reasonable response to a threat actually posed in particular circumstances.
SUMMARY OF THE RIGHTS AGREEMENT
A dividend of one right ("Right") for each outstanding share of Common
Stock of the Company is payable to holders of Common Stock as of the Record
Date. Each Right entitles the registered holder thereof to purchase from the
Company one one-thousandth (1/1000) of a share of Series A Preferred Stock (the
"Series A Preferred Stock") at an exercise price of $100 (the "Exercise Price").
The terms and conditions of the Rights are contained in the Rights Agreement
between the Company and Atlas Stock Transfer Corporation, as rights agent (the
"Rights Agent"); and the summary contained herein is qualified in its entirety
by the terms of the Rights Agreement, which is included as an exhibit to this
report.
Initially the Rights will not be exercisable, certificates for the Rights
will not be issued, and the Rights will automatically trade with the Common
Stock.
Until the close of business on the Separation Date, which will occur on the
earliest of (i) the tenth day after the public announcement that a person or
group of affiliated or associated persons ("Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 20% or more of the
outstanding Voting Shares (as defined in the Rights Agreement) of the Company
(the "Stock Acquisition Date") or (ii) the tenth day after the date of the
commencement of, or first public announcement of, the intent of any person to
commence a tender or exchange offer or take-over bid to acquire beneficial
ownership of 20% or more of the outstanding Voting Shares of the Company or
(iii) such later date as may be fixed by the board of directors from time to
time by notice to the Rights Agent and publicly announced by the Company, the
Rights will be represented by and transferred only with the Common Stock. Until
the Separation Date, new certificates issued for Common Stock after the Record
Date will contain a legend incorporating the Rights Agreement by reference, and
the surrender for transfer of any of the Common Stock certificates will also
constitute the transfer of the Rights associated with the Common Stock
represented by those certificates. Promptly following the Separation Date,
separate certificates representing the Rights will be mailed to holders of
record of Common Stock at the close of business on the Separation Date, and
thereafter the certificates representing the Rights alone will evidence the
Rights. The Rights are not exercisable until the Separation Date.
The Exercise Price payable and the number of shares of Series A Preferred
Stock or other securities or property issuable upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination, or reclassification of, the
Common Stock, (ii) upon the grant to holders of Common Stock of certain rights
or warrants to subscribe for Common Stock or convertible securities at less than
the Market Price (as defined in the Rights Agreement) of the Common Stock, or
(iii) upon the distribution to holders of Common Stock of evidences of
indebtedness or assets (excluding regular cash dividends and dividends payable
in Common Stock) or of subscription rights or warrants.
If any Person becomes an Acquiring Person, other than pursuant to a tender
or exchange offer for all outstanding Common Stock of the Company that the board
of directors, taking into account the long-term value of the Company and all
other factors that the board of directors considers relevant (such as, for
example, the adequacy of the price offered, the fairness of the offer to the
Company and its stockholders, the nature and timing of the offer, the impact on
constituencies other than stockholders, the probability of consummation, the
quality of any securities being offered in the exchange, as well as the basic
stockholder interests at stake, including stockholder interests in long-term as
compared to short-term values and in making independent, uncoerced investment
decisions), determines to be at a price and on terms that are fair to holders of
Common Stock of the Company (a "Flip-in Event"), each holder of a Right, other
than the Acquiring Person, will have the right to receive, upon payment of
one-half (1/2) the Exercise Price, in lieu of Series A Preferred Stock, a number
of shares of Common Stock of the Company having an aggregate Market Price equal
to the Exercise Price.
For example, at the Exercise Price of $100 per Right, if any person
becomes the beneficial owner of 20% or more of the outstanding Common Stock of
the Company, each Right (other than Rights owned by such 20% beneficial owner or
any of its affiliates or associates, which will have become void) would entitle
its holder to purchase $200 worth of Common Stock for $100. Assuming that the
Common Stock had a per share value of $10 at such time, each Right would
effectively entitle its holder to purchase 20 shares of Common Stock for $100.
After a Flip-in Event, Rights that are (or, under certain circumstances,
Rights that were) beneficially owned by an Acquiring Person will be null and
void.
Unless the Rights are redeemed earlier, if, after the Stock Acquisition
Date, the Company is acquired in a merger or other business combination (in
which any of the Common Stock is changed into or exchanged for other securities
or assets) or more than 50% of the assets or operating income or cash flow of
the Company and its subsidiaries (taken as a whole) are sold or transferred in
one or a series of related transactions (a "Flip-over Transaction or Event"),
the Rights Agreement provides that proper provision shall be made so that each
holder of record of Rights will, from and after that time, have the right to
receive, upon payment of the Exercise Price, that number of shares of Common
Stock of the acquiring company (or, in certain circumstances, the direct or
indirect corporate parent of the acquiring company) which has a Market Price at
the time of such Flip-over Transaction or Event equal to twice the Exercise
Price. The right to purchase shares of an acquiring company would not apply to
a transaction with a person that became an Acquiring Person pursuant to a tender
or exchange offer approved by the Company's board of directors if the price paid
to holders of Common Stock in the transaction was not less than the price paid
in such tender or exchange offer.
Fractions of Series A Preferred Stock (other than fractions that are
integral multiples of one one-thousandth of a share) may, at the election of the
Company, be evidenced by depository receipts. The Company may also issue cash
in lieu of fractional shares of Series A Preferred Stock that are not integral
multiples of one one-thousandth of a share of Series A Preferred Stock.
At any time prior to the earlier of (i) the Expiration Date (defined as the
close of business on the tenth-year anniversary of the Rights Agreement) or (ii)
the close of business on the tenth day after the Stock Acquisition Date (subject
to extension by the board of directors), the board of directors may, at its
option, cause the Company to redeem the rights in whole, but not in part, at a
price of $0.01 per Right (the "Redemption Price"), subject to adjustment.
Immediately upon the action of the board of directors authorizing redemption of
the Rights, the right to exercise the Rights will terminate, and the holders of
Rights will only be entitled to receive the Redemption Price without any
interest thereon. Decisions respecting redemption of the Rights can only be
effected by the board of directors.
As long as the Rights are redeemable, the board of directors, without
further stockholder approval, may, except with respect to the Exercise Price or
Expiration Date of the Rights, amend the Rights Agreement in any manner that, in
the board of directors' opinion, does not materially adversely affect the
interests of holders of the Rights as such.
Until a Right is exercised, the holder, as such, will have no rights as a
stockholder of the Company, including, without limitation, the right to vote or
to receive dividends.
THE SERIES A PREFERRED STOCK
The following description of the Series A Preferred Stock is qualified in
its entirety by the Designation of Rights, Privileges, and Preferences included
as an exhibit to this report.
The Series A Preferred Stock is non-redeemable and subordinate to any other
series of the Company's Preferred Stock which may at any time be issued (the
Company currently does not have any Preferred Stock outstanding). The Series A
Preferred Stock may not be issued, except upon exercise of Rights (each Right to
be distributed to holders of Common Stock entitles such holder to purchase one
one-thousandth of a share of Series A Preferred Stock). Each share of Series A
Preferred Stock is entitled to receive, when, as, and if declared, a dividend in
an amount equal to one hundred times the cash dividend declared on each share of
Common Stock. In addition, each share of Series A Preferred Stock is entitled
to receive one hundred times any non-cash dividends declared with respect to
each share of Common Stock, in like kind, other than a dividend payable in
shares of Common Stock. In the event of liquidation, the holder of each share
of Series A Preferred Stock shall be entitled to receive a liquidation payment
in an amount equal to one hundred times the liquidation payment made per share
of Common Stock of the Company. Each share of Series A Preferred Stock has one
hundred votes, voting together with the Common Stock and not as a separate
class, unless otherwise required by law or the Company's articles of
incorporation. In the event of any merger, consolidation, or other transaction
in which shares of Common Stock of the Company are exchanged, each share of
Series A Preferred Stock is entitled to receive one hundred times the amount
received per share of Common Stock of the Company.
Reserved Shares
The Rights Agreement contemplates that the Company will reserve a
sufficient number of authorized but unissued shares of Common Stock to permit
the exercise in full of the Rights should the Rights become exercisable. In the
event the number of authorized but unissued and non-reserved shares of Common
Stock would not be sufficient for issuance upon the Rights becoming exercisable
based on the initial terms of the Rights before the effect of any future anti-
dilution adjustment for such events as a share dividend or stock split or
consolidation and before the effect of any future adjustment resulting from a
Flip-In Event, pursuant to provisions of Nevada's corporate law, the board of
directors could effect a stock consolidation without submitting the matter to
the stockholders for their consideration, and the board of directors may do so
in the event of a possible Flip-in Event if the proposed amendment to the
articles of incorporation to increase the authorized number of shares of Common
Stock is not approved by the stockholders. Depending upon the then current
market price of the Common Stock and the Exercise Price, the number of shares of
Common Stock presently authorized or to be authorized if the additional shares
are authorized may be insufficient to permit exercise in full of the Rights upon
the occurrence of a Flip-in Event. Consequently, the effectiveness of the Rights
Agreement may be impaired if an insufficient number of shares is authorized and
reserved for issuance upon the exercise of Rights.
AMENDMENT OF THE RIGHTS AGREEMENT
At any time prior to the Exercisability Date, the board of directors may
amend any provision of the Rights Agreement in any manner, including to change
the Exercise Price, without the approval of the holders of the Common Stock.
Thereafter, subject to certain limitations, the board of directors may amend the
Rights Agreement without the approval of the holders of the Common Stock so long
as the interests of the holders of the Rights are not adversely affected,
including generally (i) to shorten or lengthen any time period under the Rights
Agreement or (ii) in any manner that the board deems necessary or desirable, so
long as such amendment is consistent with and for the purpose of fulfilling the
objectives of the board of directors in originally adopting the Rights
Agreement.
CERTAIN EFFECTS OF THE RIGHTS AGREEMENT
The Rights Agreement is intended by the board of directors to encourage
persons seeking to acquire control of the Company to initiate such an
acquisition through arm's length negotiations with the Company's management and
board of directors. However, the Rights Agreement could also have the effect of
discouraging a third-party from making a tender offer or otherwise attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its stockholders, or even though some stockholders might
otherwise desire such a tender offer or change in control. In particular, the
Rights Agreement may discourage a third-party from seeking to acquire the
Company on account of the substantial dilution to which an acquirer is
potentially exposed in the event the board of directors of the Company does not
redeem the Rights.
If persons seeking to acquire control of the Company are members of or
affiliated with management or the board of directors, then the protection of
stockholders' interest will be based on the board of directors' fiduciary
obligations generally and, in particular, its duty not to indulge in
self-dealing. Observance of such obligations and duty may, in certain
circumstances, include inviting bids from third parties.
In addition, since the Rights Agreement is designed to discourage
accumulations of large blocks of Company stock by purchasers whose objective is
to have such stock repurchased by the Company or a third-party at a premium,
adoption of the Rights Agreement could tend to reduce temporary fluctuations in
the market price of the Company's stock which are caused by accumulations of
large blocks of stock. Accordingly, stockholders could be deprived of certain
opportunities to sell their stock at a higher market price.
Takeovers or changes in management of the Company that are proposed and
effected without prior consultation and negotiation with the Company's
management are not necessarily detrimental to the Company and its stockholders.
In addition, the requirement that a potential acquirer negotiate with the board
of directors of the Company as to the terms of the proposed acquisition may
result in insulating management of the Company from certain efforts to remove
it, or affording management the opportunity to thwart an effort to oust it.
However, the board of directors believes that the benefits of enhancing the
ability to negotiate with the proponent of an unfriendly or unsolicited proposal
to take over or restructure the Company outweighs the disadvantages of
discouraging such proposals, or the possibility of self-interest by management.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
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(a) Financial statements of businesses acquired. Not applicable.
(b) Pro forma financial information. Not applicable.
(c) Exhibits. The following exhibit is included as part of this report:
SEC
EXHIBIT REFERENCE
NUMBER NUMBER TITLE OF DOCUMENT LOCATION
Item 4. Instruments Defining the Rights of Security
Holders
4.01 4 Form of Amendment To Articles Of This Filing
Incorporation Designating Rights,
Privileges, And Preferences Of Series A
Preferred Stock
4.02 4 Form of Rights Agreement dated effective This Filing
April 12, 1997, between Foreland
Corporation and Atlas Stock Transfer
Corporation
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Dated: July 3, 1997
FORELAND CORPORATION
By /s/ N. Thomas Steele, President