OPTION TO PURCHASE COMMON STOCK
(4,000,000 Shares)
THIS OPTION TO PURCHASE COMMON STOCK (this "Option") is granted this
15th day of February, 2001, by Foreland CORPORATION, a Nevada corporation (the
"Company"), to 2N COMPANY, L.L.C., a Minnesota limited liability company
("Optionee").
1. Grant of Option. The Company hereby irrevocably grants to Optionee
the right and option to purchase those certain 4,000,000 shares (the "Shares")
of common stock of the Company, par value $0.01 per share (the "Common Stock"),
that are pledged by the Company to secure payment of an obligation of the
Company to Petro Source Corporation evidenced by that certain Promissory Note
dated of even date with this Option in the principal amount of $600,000, in
which the Company appears as maker and Petro Source Corporation appears as
payee, a copy of which is attached hereto as Exhibit A and incorporated herein
by this reference, on the terms and conditions hereinafter set forth (the
"Note"). This Option cannot be exercised to purchase any shares other than those
specifically identified above.
2. Term of Option. Subject to the other provisions of this Option, the
Option may be exercised, in whole or in part, at any time on or before September
1, 2001.
3. Stockholder's Rights. The Optionee shall have the rights of a
stockholder only with respect to Shares of Common Stock fully paid for by it
under this Option.
4. Persons Entitled to Exercise: Restrictions on Transfer. This Option
can only be exercised by the Optionee, and neither this Option nor any right
hereunder can be transferred. Neither this Option nor any right hereunder shall
be subject to lien, attachment, execution, or similar process. In the event of
any levy, attachment, execution, or similar process, this Option and all rights
granted hereunder shall be immediately null and void.
5. Adjustment to Number of Shares of Common Stock. The number of Shares
of Common Stock subject to this Option shall be adjusted to take into account
any stock split, stock dividend, or recapitalization of the Common Stock of
Foreland Corporation.
6. Method of Exercise and Exercise Price. This Option may be exercised,
subject to all of the terms and conditions set forth in this Option, at an
exercise price equivalent to the principal amount of and accrued interest on the
Note, by delivery to Petro Source Corporation of immediately available funds in
the full amount of the exercise price against (a) delivery by the Company's
stock transfer agent to Optionee of a certificate or certificates evidencing the
Shares pursuant to that irrevocable letter of instruction to the stock transfer
agent delivered to Petro Source Corporation by the Company, a copy of which is
attached hereto as Exhibit B and incorporated herein by this reference, (b)
delivery by Petro Source Corporation to Foreland of a full release of the Note
and the associated Stock Pledge Agreement.
7. Restriction on Securities.
(a) The Option and the Shares of Common Stock subject to the
Option (collectively referred to as the "Securities") have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), or any state securities statutes. In connection with
the acquisition by the Optionee of the Securities, the Optionee
represents that the Securities are being acquired without a view to or
for resale in connection with any distribution of such Securities or
any interest therein without registration or other compliance under the
Securities Act, and that the
Optionee has no direct or indirect participation in any such
undertaking or in the underwriting of such an undertaking.
(b) The Optionee acknowledges that the Securities must be held
and may not be sold, transferred, or otherwise disposed of for value
unless subsequently registered under the Securities Act or transferable
under an exemption from such registration; the Company is not under any
obligation to register the Securities under the Securities Act or under
Section 12 of the Securities Exchange Act of 1934, as amended, except
as expressly agreed to in writing; if Rule 144 is available, and no
assurance is given that it will be, initially only routine sales of
such Securities in limited amounts can be made in reliance on Rule 144
in accordance with the terms and conditions of that rule; the Company
is not under any obligation to the Optionee to make Rule 144 available,
except as may be expressly agreed to in writing; in the event Rule 144
is not available, compliance with Regulation A or some other exemption
may be required before the Optionee can sell, transfer, or otherwise
dispose of such Securities without registration under the Securities
Act; and the certificate or certificates representing all or part of
the Securities will bear a legend so restricting the sale of such
Securities in substantially the following form:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), and are "restricted securities" within the
meaning of Rule 144 promulgated under the Securities Act. The
securities have been acquired for investment and may not be
sold or transferred without complying with Rule 144 in the
absence of an effective registration or other compliance under
the Securities Act.
(c) The Optionee understands that the Securities have not been
registered, but are being acquired by reason of a specific exemption
under the Securities Act, as well as under certain state statutes, for
transactions by an issuer not involving any public offering and that
any disposition of the Securities may, under certain circumstances, be
inconsistent with this exemption and may make the Optionee an
"underwriter" within the meaning of the Securities Act.
(d) The Optionee understands that (i) after one year from the
later of the date the Securities are acquired from the Company or an
affiliate of the Company and the full purchase price or other
consideration is paid, all as calculated in accordance with Rule
144(d), sales of the Securities in reliance on Rule 144 can only be
made in limited amounts in accordance with the terms and conditions of
that rule; (ii) after two years from the date the Securities are fully
paid for, as calculated in accordance with Rule 144(d), such Securities
can generally be sold without meeting these conditions provided the
holder is not (and has not been for the preceding three months) an
affiliate of the Company; (iii) the Company may refuse to register
transfer of the Securities in the absence of compliance with Rule 144
unless the Optionee furnishes the Company with a "no-action" or
interpretative letter from the Securities and Exchange Commission or an
opinion of counsel reasonably acceptable to the Company stating that
the transfer is proper; further, unless such letter or opinion states
that such Securities are free of any restrictions under the Securities
Act, the Company may refuse to transfer the Securities to any
transferee who does not furnish in writing to the Company the same
representations and agree to the same conditions with respect to such
Securities as are set forth herein; and (iv) the Company may also
refuse to transfer such Securities if any circumstances are present
reasonably indicating that the transferee's representations are not
accurate.
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(e) The Optionee understands that the resale of the Securities
must be effected in reliance on exemptions from registration under the
Securities Act and applicable state securities laws. The Optionee
understands that such an exemption may not be available and, in such
case, it would not be able to resell such Securities held.
8. Validity and Construction. The validity and construction of this
Option shall be governed by the laws of the state of Nevada.
EXECUTED as of the date first above written.
Company:
FORELAND CORPORATION
By: /s/ Xxxxx X. Xxxxxx
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Its duly authorized officer
Optionee:
2N COMPANY, L.L.C.
By:
---------------------------
Its duly authorized officer
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