<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1993
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
Commission File Number: 0-4597
FOREST OIL CORPORATION
(Exact name of registrant as specified in its charter)
State of incorporation: New York I.R.S. Employer Identification No. 25-0484900
1500 Colorado National Building
950 - 17th Street
Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 303-592-2400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS
Common Stock, Par Value $.10 Per Share
Warrants to purchase shares of Common Stock
$.75 Convertible Preferred Stock, Par Value $.01 Per Share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
/x/ Yes / / No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
The aggregate market value of the voting stock held by persons other than
officers and directors of the registrant was approximately $111,051,174 as of
January 31, 1994 (based on the last sale price of such stock as quoted on the
National Market System of NASDAQ System).
There were 27,942,755 shares of the registrant's Common Stock, Par Value
$.10 Per Share outstanding as of February 28, 1994.
Document incorporated by reference: Proxy Statement of Forest Oil
Corporation relative to the Annual Meeting of Shareholders to be held on
May 11, 1994, which is incorporated into Part III of this Form 10-K.
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<PAGE>
TABLE OF CONTENTS
Page No.
----------
PART I
Item 1. Business 1
Item 2. Properties 7
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of
Security Holders 13
Item 4A. Executive Officers of Forest 13
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 15
Item 6. Selected Financial and Operating Data 19
Item 7. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 20
Item 8. Financial Statements and
Supplementary Data 33
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 33
PART III
Item 10. Directors and Executive Officers
of the Registrant 65
Item 11. Executive Compensation 65
Item 12. Security Ownership of Certain Beneficial
Owners and Management 65
Item 13. Certain Relationships and Related
Transactions 65
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 65
<PAGE>
PART I
ITEM 1. BUSINESS
THE COMPANY
Forest Oil Corporation and its subsidiaries (Forest or the Company) are
engaged in the acquisition and exploitation of, exploration for and
development and production of oil and natural gas. The Company was
incorporated in New York in 1924, the successor to a company formed in 1916,
and has been a publicly held company since 1969. The Company is active in
several of the major exploration and producing areas in and offshore the
United States. Forest's principal reserves and producing properties are
located in the Gulf of Mexico and in Texas, Oklahoma and Wyoming.
The Company operates from production offices located in Lafayette, Louisiana
and Denver, Colorado. Its corporate offices are located in Denver, Colorado.
On December 31, 1993, Forest had 187 employees, of whom 129 were salaried and
58 were hourly.
OPERATING STRATEGY
In 1991, Forest adopted a new operating strategy which focuses primarily on
acquiring domestic reserves that have significant exploitation potential,
increasing production from existing fields through the application of the
Company's technical and operating expertise and participating in exploration
through farmout arrangements. The Company believes that it has competitive
advantages with respect to acquiring and exploiting properties because of its
technical and operating expertise, its seismic data base and its ability to
operate both onshore and offshore. The Company seeks to acquire interests in
properties in which it would have a significant working interest and which it
can operate. Since 1991, the Company has implemented its operating strategy
by acquiring estimated proved reserves of approximately 181 BCF of natural
gas and 8 million barrels of oil and condensate at an average property
acquisition cost of $1.08 per MCFE through December 31, 1993. (An MCF is one
thousand cubic feet of natural gas. MMCF is used to designate one million
cubic feet of natural gas and BCF refers to one billion cubic feet of natural
gas. MCFE means thousands of cubic feet of natural gas equivalents, using a
conversion ratio of one barrel of oil to 6 MCF of natural gas. With respect
to oil, the term BBL means one barrel of oil whereas MBBLS is used to
designate one thousand barrels of oil.)
During 1993, the Company completed four major acquisitions. In two separate
transactions completed in May 1993 and December 1993, the Company purchased
interests in two onshore fields and seven offshore blocks from Atlantic
Richfield Company (ARCO) for approximately $60,862,000. Total estimated
proved reserves acquired in the ARCO acquisitions were 40.1 BCF of natural
gas and 1.3 million barrels of oil. The ARCO acquisitions were financed in
part by volumetric production payments. In December 1993, the Company
purchased interests in two producing offshore fields in the West Cameron and
Eugene Island areas (the West Cameron/Eugene Island acquisition) and three
exploratory blocks from a private company for approximately $24,050,000.
Total estimated proved reserves acquired as a result of the West
Cameron/Eugene Island acquisition were 16.3 BCF of natural gas and 269,000
barrels of oil. Also in December 1993, the Company purchased interests in
the Loma Vieja Field in south Texas from another private company for
approximately $59,458,000. Total estimated proved reserves acquired as a
result of the Loma Vieja acquisition were 33.9 BCF of natural gas. In
addition, the Loma Vieja acquisition included 8 prospects with exploitation
or exploration potential, covering 2,332 net acres. The West Cameron/Eugene
Island and the Loma Vieja acquisitions were financed with proceeds of a
nonrecourse secured loan, internally generated funds, and funds obtained
under a bank credit facility. In other property acquisitions in 1993 Forest
acquired estimated proved reserves totaling 4.4 BCF of natural gas and
102,000 barrels of oil for an aggregate purchase price of $4,700,000.
The Company's operating strategy also includes exploitation activities in the
areas of reservoir management and development drilling. Reservoir management
involves the effort to enhance value by a combination of reduced costs and
the use of such techniques as workovers to increase hydrocarbon recovery.
The Company engages in development drilling for additional reserves that
offset existing production with the objective of either increasing
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the density in which wells are drilled or extending reservoirs. The Company
believes that it can increase production from, and otherwise enhance the
value of, existing fields by utilizing its technical expertise to undertake
selective workovers, recompletions and development drilling. In total, the
Company undertook 39 workover and development projects in 1993 with the
following results:
<TABLE>
<CAPTION>
Net Daily Production
Increases
----------------------------
Capital Natural Oil and
Number of Expenditures Gas Condensate
Area Projects (millions) (MCF) (BBLS)
---- --------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Offshore 28 $8,865 31,097 1,192
Onshore 11 1,130 6,620 20
-- ------ ------ -----
Total 39 $9,995 37,717 1,212
-- ------ ------- ------
-- ------ ------- ------
</TABLE>
Such results are not necessarily indicative of future results of the
Company's workover and development projects.
The Company participates in exploration activities primarily through farmout
arrangements. The Company's farmouts enable Forest to participate in its
exploration prospects without incurring additional exploration costs,
although with a reduced ownership in each prospect. During 1993, the Company
entered into farmout agreements covering 27 prospects, pursuant to which 14
wells were drilled resulting in 9 commercially productive properties. For
further information concerning the Company's farmout activity, see Item 2.
Properties.
As a part of its operating strategy, the Company also conducts an ongoing
disposition program of its non-strategic assets. Assets with little value or
which are not consistent with the Company's ongoing operating strategy are
identified for sale. During 1993, the Company sold properties with proved
reserves of approximately 1.2 BCF of natural gas and 281,000 barrels of oil
for net proceeds of $2,997,000.
The Company intends to pursue its acquisition and exploitation strategy while
continuing its efforts to improve its balance sheet, enhance its liquidity,
reduce the commodity price risk exposure of its investments in oil and gas
properties, reduce overhead on a per-unit basis of production and increase
operating efficiencies. For further information concerning the Company's
acquisitions and operations, see Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations and the Consolidated
Financial Statements and Notes thereto.
SALES AND MARKETS
Forest's production is generally sold at the wellhead to oil and natural gas
purchasing companies in the areas where it is produced. Crude oil and
condensate are typically sold at prices which are based upon posted field
prices. In February 1994, approximately 60% of the Company's natural gas was
committed to both interstate and intrastate natural gas pipeline companies,
primarily under volumetric production payment agreements and under long-term
contracts. The remainder of the Company's natural gas was sold at the
wellhead at spot market prices. The term "spot market" as used herein refers
to contracts with a term of six months or less or contracts which call for a
redetermination of sales prices every six months or earlier.
For much of the past decade, the markets for oil and natural gas have been
volatile. The Company anticipates that such markets will continue to be
volatile over the next year. Price fluctuations in the natural gas market
have a significant impact on the Company's business because most of the
Company's reserves are attributable to natural gas, most of its current
production consists of natural gas and a large portion of its natural gas
production is sold in the spot market. At December 31, 1993, approximately
85% of Forest's estimated proved reserves were attributable to natural gas on
an MCFE basis. During 1993, 82% of the Company's total production on an MCFE
basis consisted of natural gas. Approximately 54% of 1993 natural gas
production was sold in the spot market. In order to attempt to minimize the
price volatility to which the Company is subject, the Company, from time to
time,
2
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enters into energy swap agreements and other financial arrangements with
third parties to attempt to reduce the Company's exposure to anticipated
fluctuations in future oil and natural gas prices. The volumetric production
payments that the Company has entered into further minimize the price
volatility to which the Company is subject. For further information
concerning market conditions, production payments and energy swap agreements,
see Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations and Notes 5, 7 and 16 of Notes to Consolidated
Financial Statements.
Demand for natural gas is highly seasonal, with demand generally higher in
the colder winter months and in hot summer months. As a result, the price
received for spot market natural gas may vary significantly between seasonal
periods. To date, the Company generally has been able to sell all of its
available spot market natural gas at prevailing spot market prices; thus, the
volumes sold by the Company have not fluctuated materially with seasonality.
There is no assurance, however, that the Company will be able to continue to
achieve this result.
The Company believes that the loss of one or more of its current natural gas
spot purchasers should not have a material adverse effect on the Company's
business because any individual spot purchaser could be readily replaced by
another spot purchaser who would pay approximately the same sales price.
Substantially all of Forest's oil is sold under short-term contracts at
prices which are based upon posted field prices. For information concerning
sales to major customers, see Note 17 of Notes to Consolidated Financial
Statements.
COMPETITION
The oil and natural gas industry is intensely competitive. Competition is
particularly intense in the acquisition of prospective oil and natural gas
properties and oil and gas reserves. Forest's competitive position depends
on its geological, geophysical and engineering expertise, on its financial
resources, its ability to develop its properties and its ability to select,
acquire and develop proved reserves. Forest competes with a substantial
number of other companies having larger technical staffs and greater
financial and operational resources. Many such companies not only engage in
the acquisition, exploration, development and production of oil and natural
gas reserves, but also carry on refining operations, generate electricity and
market refined products. The Company also competes with major and
independent oil and gas companies in the marketing and sale of oil and gas to
transporters, distributers and end users. There is also competition between
the oil and natural gas industry and other industries supplying energy and
fuel to industrial, commercial and individual consumers. Forest also
competes with other oil and natural gas companies in attempting to secure
drilling rigs and other equipment necessary for drilling and completion of
wells. Such equipment may be in short supply from time to time, although
there is no current shortage of such equipment. Finally, companies not
previously investing in oil and natural gas may choose to acquire reserves to
establish a firm supply or simply as an investment. Such companies will also
provide competition for Forest.
Forest's business is affected not only by such competition, but also by
general economic developments, governmental regulations and other factors
that affect its ability to market its oil and natural gas production. The
prices of oil and natural gas realized by Forest are both highly volatile and
generally dependent on world supply and demand. Declines in crude oil prices
or natural gas prices adversely impact Forest's activities. The Company's
financial position and resources may also adversely affect the Company's
competitive position. Lack of available funds or financing alternatives will
prevent the Company from executing its operating strategy and from deriving
the expected benefits therefrom. For further information concerning the
Company's financial position, see Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations.
REGULATION
Various aspects of the Company's oil and natural gas operations are regulated
by administrative agencies under statutory provisions of the states where
such operations are conducted and by certain agencies of the Federal
government for operations on Federal leases. The Federal Energy Regulatory
Commission (FERC) regulates the transportation and sale for resale of natural
gas in interstate commerce pursuant to the Natural Gas Act of 1938 (NGA) and
the Natural Gas Policy Act of 1978 (NGPA). In the past, the Federal
government has regulated the prices at which oil and gas could be sold.
While sales by producers of natural gas, and all sales of crude oil,
condensate and natural gas liquids can currently be made at uncontrolled
market prices, Congress could reenact
3
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price controls in the future. Deregulation of wellhead sales in the natural
gas industry began with the enactment of the NGPA in 1978. In 1989, Congress
enacted the Natural Gas Wellhead Decontrol Act (the Decontrol Act). The
Decontrol Act removed all NGA and NGPA price and nonprice controls affecting
wellhead sales of natural gas effective January 1, 1993.
Commencing in April 1992, the FERC issued Order Nos. 636, 636-A, and 636-B
(Order No. 636), which require interstate pipelines to provide transportation
separate, or "unbundled", from the pipelines' sales of gas. Also, Order No.
636 requires pipelines to provide open-access transportation on a basis that
is equal for all gas supplies. Although Order No. 636 does not directly
regulate the Company's activities, the FERC has stated that it intends for
Order No. 636 to foster increased competition within all phases of the
natural gas industry. It is unclear what impact, if any, increased
competition within the natural gas industry under Order No. 636 will have on
the Company's activities. Although Order No. 636, assuming it is upheld in
its entirety, could provide the Company with additional market access and
more fairly applied transportation service rates, Order No. 636 could also
subject the Company to more restrictive pipeline imbalance tolerances and
greater penalties for violation of those tolerances. The FERC has issued
final orders of virtually all Order No. 636 pipeline restructuring
proceedings. Appeals of Order No. 636, as well as orders in the individual
pipeline restructuring proceedings, are currently pending and the Company
cannot predict the ultimate outcome of court review. This review may result
in the reversal, in whole or in part, of Order No. 636.
The Outer Continental Shelf Lands Act (OCSLA) requires that all pipelines
operating on or across the Outer Continental Shelf (the OCS) provide open-
access, non-discriminatory service. Although the FERC has opted not to
impose the regulations of Order No. 509, in which the FERC implemented the
OCSLA, on gatherers and other non-jurisdictional entities, the FERC has
retained the authority to exercise jurisdiction over those entities if
necessary to permit non-discriminatory access to service on the OCS. On
October 28, 1993, the FERC announced its intention to re-evaluate the
appropriateness of its traditional criteria for determining whether a
pipeline is a non-regulated gathering line in light of Order No. 636, and to
establish consistent policies for gathering rates and services for both
interstate pipelines and their affiliates. If the FERC were to apply Order
No. 509 to gatherers in the OCS, eliminate the exemption of gathering lines,
and redefine its jurisdiction over gathering lines, then these acts could
result in a reduction of available pipeline capacity for existing shippers in
the Gulf of Mexico, such as the Company.
In December 1992, the FERC issued Order No. 547, governing the issuance of
blanket marketer sales certificates to all natural gas sellers other than
interstate pipelines. The Order applies to non-first sales that remain
subject to the FERC's NGA jurisdiction. The FERC intends Order No. 547, in
tandem with Order No. 636, to foster a competitive market for natural gas by
giving natural gas purchasers access to multiple supply sources at market-
driven prices. Order No. 547 may increase competition in markets in which
the Company's natural gas is sold.
Additional proposals and proceedings that might affect the oil and gas
industry are pending before the FERC and the courts. The Company cannot
predict when or whether any such proposals may become effective. In the
past, the natural gas industry has been heavily regulated. There is no
assurance that the regulatory approach currently pursued by the FERC will
continue indefinitely. Notwithstanding the foregoing, the Company does not
anticipate that compliance with existing federal, state and local laws, rules
and regulations will have a material or significantly adverse effect upon the
capital expenditures, earnings or competitive position of the Company or its
subsidiaries. No material portion of Forest's business is subject to
renegotiation of profits or termination of contracts or subcontracts at the
election of the Federal government.
OIL SPILL FINANCIAL RESPONSIBILITY REQUIREMENTS
In August 1993, the Minerals Management Service (MMS) published an advance
notice of its intention to adopt a rule under the Oil Pollution Act of 1990
(OPA 90) that would require owners and operators of oil and gas facilities
located on or adjacent to waters of the United States to establish $150
million in financial responsibility to cover oil spill related liabilities.
The Company cannot predict the final form of the rule that will be adopted,
but such a rule has the potential to result in the imposition of substantial
additional annual costs on the Company or otherwise materially adversely
affect the Company. The impact of the rule should not be any more adverse to
the Company than it will be to other similarly situated or less capitalized
owners or operators in the Gulf of Mexico
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and other affected regions. During recent meetings with the MMS, members of
the oil and gas, banking and insurance industries have commented on the
potential detrimental effect of OPA 90 if it is implemented as enacted. The
comment period of the formal rulemaking process has expired. There is no
estimate of when proposed rules will be published.
OPERATING HAZARDS AND ENVIRONMENTAL MATTERS
The oil and gas business involves a variety of operating risks, including the
risk of fire, explosions, blow-outs, pipe failure, casing collapse,
abnormally pressured formations and environmental hazards such as oil spills,
gas leaks, ruptures and discharges of toxic gases, the occurrence of any of
which could result in substantial losses to the Company due to injury or loss
of life, severe damage to or destruction of property, natural resources and
equipment, pollution or other environmental damage, clean-up
responsibilities, regulatory investigation and penalties and suspension of
operations. In addition, the Company currently operates offshore and is
subject to the additional hazards of marine operations, such as capsizing,
collision and adverse weather and sea conditions. Such hazards may hinder or
delay drilling, development and on-line production operations.
Extensive federal, state and local laws govern oil and natural gas operations
regulating the discharge of materials into the environment or otherwise
relating to the protection of the environment. Numerous governmental
departments issue rules and regulations to implement and enforce such laws
which are often difficult and costly to comply with and which carry
substantial penalties for failure to comply. Some laws, rules and
regulations relating to protection of the environment may, in certain
circumstances, impose "strict liability" for environmental contamination,
rendering a person liable for environmental damages and cleanup costs without
regard to negligence or fault on the part of such person. Other laws, rules
and regulations may restrict the rate of oil and natural gas production below
the rate that would otherwise exist. The regulatory burden on the oil and
natural gas industry increases its cost of doing business and consequently
affects its profitability. These laws, rules and regulations affect the
operations of the Company. Compliance with environmental requirements
generally could have a material adverse effect upon the capital expenditures,
earnings or competitive position of Forest and its subsidiaries. The Company
believes that it is in substantial compliance with current applicable
environmental laws and regulations and that continued compliance with
existing requirements will not have a material adverse impact on the Company.
The Company has established guidelines to be followed to comply with
environmental laws, rules and regulations. The Company has designated a
compliance officer whose responsibility is to monitor regulatory requirements
and their impacts on the Company and to implement appropriate compliance
procedures. The Company also employs an environmental manager whose
responsibilities include causing Forest's operations to be carried out in
accordance with applicable environmental guidelines and implementing adequate
safety precautions.
Although the Company maintains insurance against some, but not all, of the
risks described above, including insuring the costs of clean-up operations,
public liability and physical damage, there is no assurance that such
insurance will be adequate to cover all such costs or that such insurance
will continue to be available in the future or that such insurance will be
available at premium levels that justify its purchase. The occurrence of a
significant event not fully insured or indemnified against could have a
material adverse effect on the Company's financial condition and operations.
FOREIGN OPERATIONS
In 1992, the Company sold substantially all of its Canadian operations to
CanEagle Resources Corporation (CanEagle). Forest's investment in the
Canadian oil and gas industry is through its investment in and advances to
CanEagle. For further information concerning this transaction, see Note 3 of
Notes to Consolidated Financial Statements.
In Canada, the petroleum industry operates under federal, provincial and
municipal legislation and regulations governing taxes, land tenure,
royalties, production rates, pricing, environmental protection, exports and
other matters. Prices of oil and natural gas in Canada have been deregulated
and are determined by market conditions and negotiations between buyers and
sellers, although oil production volumes are regulated.
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Various matters relating to the transportation and distribution of natural
gas are the subject of hearings before various regulatory tribunals. In
addition, although the price of natural gas exported from Canada is subject
to negotiation between buyers and sellers, the National Energy Board, which
regulates exports of natural gas, requires that natural gas export contracts
meet certain criteria as a condition of approving such contracts. These
criteria, including price considerations, are designed to demonstrate that
the export is in the Canadian public interest.
Several provincial governments have introduced a number of programs to
encourage and assist the oil and natural gas industry, including incentive
payments, royalty holidays and royalty tax credits.
Canadian governmental regulations may have a material effect on the economic
parameters for engaging in oil and gas activities in Canada and may have a
material effect on the advisability of investments in Canadian oil and gas
drilling activities.
Forest considers, from time to time, certain oil and gas opportunities in
other foreign countries. Foreign oil and natural gas operations are subject
to certain risks, such as nationalization, confiscation, terrorism,
renegotiation of existing contracts and currency fluctuations. Forest
monitors the political, regulatory and economic developments in any foreign
countries in which it operates.
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ITEM 2. PROPERTIES
Forest's principal properties are oil and gas properties located in the Gulf
of Mexico and in Texas, Oklahoma, and Wyoming.
RESERVES
Information regarding the Company's proved and proved developed oil and gas
reserves and the standardized measure of discounted future net cash flows and
changes therein is included in Note 19 of Notes to Consolidated Financial
Statements.
Since January 1, 1993, Forest has not filed any oil or natural gas reserve
estimates or included any such estimates in reports to any Federal or foreign
governmental authority or agency, other than the Securities and Exchange
Commission (SEC), the MMS and the Department of Energy (DOE). The reserve
estimate report filed with the MMS related to Forest's Gulf of Mexico
reserves and there were no differences between the reserve estimates included
in the MMS report, the SEC report, the DOE report and those included herein,
except for production and additions and deletions due to the difference in
the "as of" date of such reserve estimates.
PRODUCTION
The following table shows net oil and natural gas production for Forest and
its wholly-owned subsidiaries for the three years ended December 31, 1993:
<TABLE>
<CAPTION>
Net Oil and Natural Gas Production
--------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
United States:
Natural Gas (MMCF) 41,114 27,814 22,517
Oil (MBBLS) 1,493 1,308 637
Canada:
Natural Gas (MMCF) - 1,360 1,360
Oil (MBBLS) - 142 210
</TABLE>
Net production reported by CanEagle for its fiscal year ended September 30, 1993
was 2.1 BCF of natural gas and 281,000 barrels of oil. The Company's investment
in and advances to CanEagle are discussed in Note 3 of Notes to Consolidated
Financial Statements.
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AVERAGE SALES PRICES AND PRODUCTION COSTS PER UNIT OF PRODUCTION
The following table sets forth the average sales prices per MCF of natural
gas and per barrel of oil and condensate and the average production cost per
equivalent unit of production for the three years ended December 31, 1993 for
Forest and its wholly-owned subsidiaries:
<TABLE>
<CAPTION>
United States Canada
-------------------- ---------------------
1993 1992 1991 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Average Sales Prices:
Natural Gas
Production under long-term fixed
price contracts (MMCF) (1) 19,065 9,689 6,582 - - -
Average contract sales price
(per MCF) $ 1.47 1.43 2.38 - - -
Production sold on the
spot market (MMCF) 22,049 18,125 15,935 - 1,360 1,360
Spot sales price received
(per MCF) (2) (3) $ 2.36 1.96 1.68 - 1.12 1.19
Effects of energy swaps
(per MCF) (4) (.13) (.07) - - - -
--------- ------ ----- ----- ----- ------
Average spot sales price
(per MCF) (2) (3) $ 2.23 1.89 1.68 - 1.12 1.19
Total production (MMCF) 41,114 27,814 22,517 - 1,360 1,360
Average sales price
(per MCF) $ 1.88 1.73 1.89 - 1.12 1.19
Oil and Condensate
Production under long-term
contracts (MBBLS) (1) 300 201 152 - - -
Average contract sales
price (per BBL) $ 16.96 18.07 20.58 - - -
Production sold on the
spot market (MBBLS) 1,193 1,107 485 - 142 210
Spot sales price
received (per BBL) $ 16.27 18.48 24.08 - 17.61 19.77
Effects of energy swaps
(per BBL) (4) .71 (.26) 5.11 - - -
--------- ------ ----- ----- ----- ------
Average spot sales
price (per BBL) $ 16.98 18.22 29.19 - 17.61 19.77
Total production (MBBLS) 1,493 1,308 637 - 142 210
Average sales price
(per BBL) $ 16.97 18.19 25.74 - 17.61 19.77
Average production cost
(per MCFE) (5) (6) $ .39 .36 .41 - .61 .64
- --------------------------
<FN>
(1) Production under long-term fixed price contracts includes scheduled
deliveries under volumetric production payments, net of royalties. For
further information concerning volumes and prices recorded under
volumetric production payments, see Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations.
(2) The 1992 amounts exclude $1.15 per MCF attributable to the settlement of
gas contract litigation with ONEOK, Inc. (the ONEOK settlement).
Including such amount, the sales price received and the average spot
sales price for natural gas were $3.11 and $3.04 per MCF, respectively.
(3) The 1991 amounts exclude $.07 per MCF attributable to a favorable ruling
with respect to royalties on take-or-pay settlements and $.06 per MCF
related to a favorable gas purchase contract settlement. Including such
amounts, the sales price received and the average sales price for
natural gas were both $1.77 per MCF.
(4) Energy swaps were entered into to hedge against price fluctuation.
(5) Production costs were converted to common units of measure using a
conversion ratio of one barrel of oil to six MCF of natural gas. Such
production costs exclude all depreciation, depletion and amortization
associated with property and equipment.
(6) The 1992 amount excludes $.04 per MCF equivalent attributable to the
ONEOK settlement. Including such amount, the average production cost
per unit of production was $.40 per MCF equivalent.
</TABLE>
Average sales prices received by CanEagle for its fiscal year ended September
30, 1993 were $1.77 CDN per MCF of natural gas and $20.77 CDN per barrel of
oil. CanEagle's natural gas production was sold under long-term contracts
and its oil production was sold on the spot market. The average production
cost per MCFE reported by CanEagle was $.49 CDN per MCFE. The Company's
investment in and advances to CanEagle are discussed in Note 3 of Notes to
Consolidated Financial Statements.
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PRODUCTIVE WELLS
The following summarizes total gross and net productive wells of the Company
and its wholly-owned subsidiaries at December 31, 1993, all of which are in
the United States:
<TABLE>
<CAPTION>
Productive Wells (A)
--------------------------------
Gross (B) Net (C)
--------- -------
<S> <C> <C>
Oil 190 127.8
Gas 403 123.9
----- -----
Totals (D) 593 251.7
----- -----
----- -----
<FN>
(A) Productive wells are producing wells and wells capable of production,
including wells that are shut-in.
(B) A gross well is a well in which a working interest is owned. The number
of gross wells is the total number of wells in which a working interest
is owned.
(C) A net well is deemed to exist when the sum of fractional ownership
working interests in gross wells equals one. The number of net wells is
the sum of the fractional working interests owned in gross wells
expressed as whole numbers and fractions thereof.
(D) Includes 46 dual completions. Dual completions are counted as one well.
If one completion is an oil completion, the well is classified as an oil
well.
</TABLE>
At September 30, 1993, CanEagle had 33 net productive oil wells and 32 net
productive gas wells. The Company's investment in and advances to CanEagle
are discussed in Note 3 of Notes to Consolidated Financial Statements.
DEVELOPED AND UNDEVELOPED ACREAGE
Forest and its wholly-owned subsidiaries held acreage as set forth below at
December 31, 1993 and 1992. A majority of the developed acreage is subject
to a mortgage lien securing either the Company's bank indebtedness or its
nonrecourse secured debt. A portion of the developed acreage is also subject
to production payments. See Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations and Notes 4, 5 and 7 of Notes
to Consolidated Financial Statements.
<TABLE>
<CAPTION>
Developed Acreage (A) Undeveloped Acreage (B)
--------------------- -----------------------
Gross (C) Net (D) Gross (C) Net (D)
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Louisiana Offshore 177,430 170,249 147,456 100,166
Oklahoma 49,959 18,521 24,217 4,098
Texas Onshore 112,927 44,473 47,735 32,038
Texas Offshore 64,822 39,838 82,462 68,603
Wyoming 7,410 3,901 22,930 18,322
Other 14,591 2,394 13,587 7,631
------- ------- -------- --------
Total acreage at
December 31, 1993 427,139 279,376 338,387 230,858
------- ------- -------- --------
------- ------- -------- --------
Total acreage at
December 31, 1992 381,423 145,808 518,722 316,486
------- ------- -------- --------
------- ------- -------- --------
<FN>
(A) Developed acres are those acres which are spaced or assigned to
productive wells.
(B) Undeveloped acres are considered to be those acres on which wells have
not been drilled or completed to a point that would permit the
production of commercial quantities of oil or natural gas, regardless of
whether such acreage contains proved reserves. It should not be
confused with undrilled acreage held by production under the terms of
a lease.
(C) A gross acre is an acre in which a working interest is owned. The
number of gross acres is the total number of acres in which a working
interest is owned.
(D) A net acre is deemed to exist when the sum of the fractional ownership
working interests in gross acres equals one. The number of net acres
is the sum of the fractional working interests owned in gross acres
expressed as whole numbers and fractions thereof.
</TABLE>
9
<PAGE>
During 1993, the Company's gross and net developed acreage increased
approximately 12% and 92%, respectively, primarily as a result of property
acquisitions. The Company's gross and net undeveloped acreage decreased 35%
and 27%, respectively, because the acquisitions made during the year were
more than offset by reductions in acreage as a result of reclassifications to
developed acreage, lease expirations and the Company's decision not to renew
certain leases which were located primarily offshore Louisiana and in Texas.
Approximately 13% of the Company's total net undeveloped acreage is under
leases that have terms expiring in 1994, if not held by production, and
another approximately 44% of net undeveloped acreage will expire in 1995 if
not also held by production.
At September 30, 1993, CanEagle held 31,705 gross developed acres, 8,179 net
developed acres, 95,847 gross undeveloped acres and 33,478 net undeveloped
acres. The Company's investment in and advances to CanEagle are discussed in
Note 3 of Notes to Consolidated Financial Statements.
DRILLING ACTIVITY
Forest and its wholly-owned subsidiaries owned interests in net exploratory
and net development wells for the three years ended December 31, 1993 as set
forth below. This information does not include wells drilled under farmout
agreements as discussed below.
<TABLE>
<CAPTION>
United States Canada (A)
---------------------- ---------------------
1993 1992 1991 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Exploratory Wells: (B)
Dry (C) 1.2 1.0 - - - -
Productive (D) .3 - 1.0 - - .1
--- --- --- ---- ---- ----
1.5 1.0 1.0 - - .1
--- --- --- ---- ---- ----
--- --- --- ---- ---- ----
Net Development Wells: (B)
Dry (C) - - - - - -
Productive (D) 3.0 1.6 .5 - .2 .6
--- --- --- ---- ---- ----
3.0 1.6 .5 - .2 .6
--- --- --- ---- ---- ----
--- --- --- ---- ---- ----
<FN>
(A) The net development well drilled in Canada in 1992 was completed prior
to the September 30, 1992 sale of Canadian operations to CanEagle. This
well was included in properties sold.
(B) A net well is deemed to exist when the sum of fractional ownership
working interests in gross wells equals one. The number of net wells
is the sum of the fractional working interests owned in gross wells
expressed as whole numbers and fractions thereof.
(C) A dry well (hole) is a well found to be incapable of producing either
oil or natural gas in sufficient quantities to justify completion as an
oil or natural gas well.
(D) Productive wells are producing wells and wells capable of production,
including wells that are shut-in.
</TABLE>
During its fiscal year ended September 30, 1993, CanEagle drilled 2.1 productive
net development wells in Canada. The Company's investment in and advances to
CanEagle are discussed in Note 3 of Notes to Consolidated Financial Statements.
FARMOUT AGREEMENTS
Forest entered into farmout agreements with respect to 27 exploration prospects
during 1993. Under these agreements, outside parties undertake exploration
activities using prospects owned by Forest. This enables the Company to
participate in the exploration prospects without incurring additional capital
costs, although with a substantially reduced ownership interest in each
prospect. Eleven of the farmouts cover onshore prospects and 16 cover prospects
located in the Gulf of Mexico.
10
<PAGE>
Fourteen of the 27 farmout prospects were drilled during 1993, resulting in
nine productive properties. Forest retained overriding royalty interests
ranging from 2.083% to 12.5% before payout, increasing to interests ranging
from a 10% overriding royalty interest to a 40% net working interest after
payout. One additional well was drilled and commenced production in 1994; the
Company anticipates that the 12 remaining undrilled farmouts will be drilled
during 1994.
During 1993, the Company entered into an exploration agreement under which a
third party agreed to drill a minimum of six additional exploratory wells
offshore. The Company retained overriding royalty interests in these prospects
of between 8.33% and 12.5% with the option to convert to working interests
ranging from 25% to 33 1/3% after payout of the first well on each prospect.
Four of these six wells were drilled by the end of 1993, resulting in one
productive well. The remaining two wells are scheduled to be drilled in the
first half of 1994.
The Company intends to continue to seek farmouts of exploration prospects when
they can be arranged on terms that are believed to be favorable.
During its fiscal year ended September 30, 1993, CanEagle concluded two farmout
agreements under which two successful gas wells were drilled and completed. The
Company's investment in and advances to CanEagle are discussed in Note 3 of
Notes to Consolidated Financial Statements.
PRESENT ACTIVITIES
At December 31, 1993, Forest and its wholly owned subsidiaries had three
development wells that were in the process of being drilled. All three wells
were determined to be productive in January 1994 and are currently being
tested. There was one well being drilled under a farmout agreement at year-
end, which was subsequently completed as a producing well.
At September 30, 1993 CanEagle had one development well that was in the process
of being drilled. This well was determined to be a gas well and commenced
production in November 1993. The Company's investment in and advances to
CanEagle are discussed in Note 3 of Notes to Consolidated Financial Statements.
DELIVERY COMMITMENTS
At December 31, 1993 Forest and its wholly-owned subsidiaries were obligated
to deliver approximately 36.3 BCF of natural gas and 479,000 barrels of oil
under the terms of volumetric production payments. The delivery commitments
cover approximately 35% and 12% of the estimated net proved reserves of
natural gas and oil, respectively, attributable to the subject properties.
The production payments are nonrecourse to other properties owned by the
Company. The Company is further obligated to deliver approximately .8 BCF of
natural gas under existing long-term contracts. For further information
concerning the Company's production payment agreements, see Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Note 7 of Notes to Consolidated Financial Statements.
11
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company has two natural gas sales contracts with Columbia Gas Transmission
Corp. (Transmission), a subsidiary of Columbia Gas System (CGS). On July 31,
1991, CGS and Transmission filed Chapter 11 bankruptcy petitions with the United
States Bankruptcy Court for the District of Delaware. Both contracts have been
rejected pursuant to the bankruptcy proceedings. The Company has filed a proof
of claim in the bankruptcy proceeding consisting of a secured claim of
$1,600,000 based on Louisiana vendor lien laws and an unsecured claim relating
to the rejection of the contracts. The secured claim arises from Transmission's
failure to pay the contract price for a period of time prior to rejection of the
contracts. The unsecured claim was calculated on an undiscounted basis and
without any assumption of mitigation of damages through spot market sales. No
prediction can be given as to when or how these matters will ultimately be
concluded.
The Company, in the ordinary course of business, is a party to various other
legal actions. In the opinion of management, none of these actions, including
those discussed above, will have a material adverse effect, either individually
or in the aggregate, on the financial condition of the Company.
12
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 4A. EXECUTIVE OFFICERS OF FOREST
The following information with respect to the executive officers of Forest is
furnished pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
YEARS WITH
NAME (A) AGE FOREST OFFICE (B)
-------- --- ---------- ----------
William L. Dorn* 45 22 Chairman of the Board and Chairman of
the Executive Committee since July
1991. Member of the Executive
Committee since August 1988.
President from February 1990 until
November 1993 and Chief Executive
Officer since February 1990.
Executive Vice President from August
1989 until February 1990, and prior
thereto Vice President. Member of
the Royalty Bonus Committee since
August 1991.
Robert S. Boswell* 44 5 President since November 1993. Vice
President from May 1991 until
November 1993 and Chief Financial
Officer since May 1991. Financial
Vice President from September 1989
until May 1991. Member of the
Executive Committee since July 1991,
member of the Royalty Bonus
Committee since August 1991. Chief
Financial Officer of Bovaird Supply
Company, Inc., from January 1988
until September 1989.
Bulent A. Berilgen 45 9 Vice President of Operations since
December 1993. Prior thereto Vice
President - Engineering and
Development since January 1992.
Prior thereto Regional Reservoir
Engineer.
Kenton M. Scroggs 41 11 Vice President since December 1993 and
Treasurer since May 1988. Prior
thereto Assistant Treasurer. Member
of the Administrative Committee of
the Company's Retirement Savings
Plan and Chairman of the Board of
Trustees of the Company's Pension
Trust.
13
<PAGE>
YEARS WITH
NAME (A) AGE FOREST OFFICE (B)
-------- --- ---------- ----------
Forest D. Dorn 39 16 Vice President since February 1991 and
General Business Manager since
December 1993. Prior thereto General
Manager - Operations since January
1992. Prior thereto Assistant
Division Manager of the Southern
Division. Member of the
Contributions Committee.
David H. Keyte 37 6 Vice President and Chief Accounting
Officer since December 1993. Prior
thereto Corporate Controller since
January 1989. Prior thereto Manager
of Tax. Chairman of the
Administrative Committee of the
Company's Retirement Savings Plan
and member of the Board of Trustees
of the Company's Pension Trust.
Daniel L. McNamara 48 22 Secretary and Corporate Counsel since
January 1991. Prior thereto
Assistant Secretary and Associate
Corporate Counsel.
Joan C. Sonnen 40 4 Controller since December 1993. Prior
thereto Director of Financial
Accounting and Reporting since April
1991 and Manager of Financial
Systems and Reporting since July
1989. Prior thereto a principal with
Arthur Young & Company.
- -------------
*Also a Director
(A) William L. Dorn and Forest D. Dorn are brothers, and they are nephews of
John C. Dorn, a director of the Company.
(B) The term of office of each officer is one year from the date of his or her
election immediately following the last annual meeting of shareholders and
until the officer's respective successor has been elected and qualified or
until his or her earlier death, resignation or removal from office
whichever occurs first. Each of the named persons has held the office
indicated since the last annual meeting of shareholders, except as
otherwise indicated.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Forest Oil Corporation has one class of common equity securities outstanding.
The Common Stock, par value $.10 per share, has one vote per share. During
1993, each share of the Class B Stock, par value $.10 per share, which had 10
votes per share, was reclassified into 1.1 shares of Common Stock pursuant to
a vote of the shareholders. In the event of dissolution, liquidation or
insolvency, holders of Common Stock share ratably in the net assets of Forest,
subject to the liquidation rights of the holders of the $.75 Convertible
Preferred Stock.
As of March 1, 1994, 27,942,755 shares of Common Stock were held by 2,109
recordholders and 1,244,715 Warrants were held by 88 recordholders.
The Company also has outstanding Warrants to purchase shares of its Common
Stock. Each Warrant entitles the holder to purchase one share of Common
Stock at a price of $3.00, is non-callable and expires on October 1, 1996.
Subject to the prior right of the holders of Forest's $.75 Convertible
Preferred Stock, the only restrictions on its present or future ability to
pay dividends are (i) the provisions of the New York Business Corporation Law
(NYBCL), (ii) certain restrictive provisions in the Indenture executed in
connection with Forest's 11 1/4% Senior Subordinated Notes due September 1,
2003 pursuant to which the Company is currently prohibited from paying any
cash dividends other than on its $.75 Convertible Preferred Stock, and (iii)
the Company's Credit Agreement dated December 1, 1993 with The Chase
Manhattan Bank (National Association), as agent, under which the Company is
restricted in amounts it may pay as dividends (other than dividends payable
in common stock). Under the dividend restriction in the Credit Agreement,
the Company currently has the ability to pay dividends in the approximate
amount of $1,920,000, assuming the cash dividend on the $.75 Preferred Stock
declared by the Company in February 1994 is paid in May 1994. There is no
assurance that Forest will pay any dividends. For further information on
Forest's ability to pay cash dividends on its Common Stock and $.75
Convertible Preferred Stock, see Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations and Notes 4, 6, 9 and 10 of
Notes to Consolidated Financial Statements.
The Company has one class of preferred stock outstanding. Annual dividends
on the $.75 Convertible Preferred Stock are cumulative and are payable
quarterly each February 1, May 1, August 1 and November 1, when and as
declared. Dividends may be paid in cash or, at the Company's election, in
shares of Common Stock or in a combination of cash and Common Stock.
Whenever dividends on the $.75 Convertible Preferred Stock have not been
paid, the amount of the deficiency, plus an amount equal to the accumulated
dividend for the then current quarterly dividend period, must be fully paid,
or declared and set apart for payment, before any dividend may be declared
and paid or set apart for payment upon the Common Stock, except for dividends
paid in shares of Common Stock.
Whenever $.75 Convertible Preferred Stock dividends are in arrears in an
amount equivalent to six full quarterly dividends, the holders of the $.75
Convertible Preferred Stock, voting separately as a class and with one vote
per share, will have the right to elect two directors. If two consecutive
dividend payments are in arrears, the holder of each share of $.75
Convertible Preferred Stock will be entitled to a penalty conversion right
enabling such holder to convert each such share, plus accumulated dividends,
into a share of Common Stock during a two-day period 30 days after the second
dividend payment date at a conversion price of 75% of the average of the last
reported sales prices of the Common Stock during the period from such second
dividend payment date to five trading days prior to the conversion date.
The holder of each share of $.75 Convertible Preferred Stock has the right to
convert each such share into 3.5 shares of Common Stock at any time. The
conversion rate is subject to adjustment in certain events.
15
<PAGE>
The $.75 Convertible Preferred Stock may be redeemed at the option of the
Company, in whole or in part, upon notice duly given, at any time after the
earlier of (i) July 1, 1996, and (ii) the date on which the last reported
sales price of the Common Stock will have been $7.50 or higher for at least
20 of the prior 30 trading days, at the redemption prices set forth below, in
each case with an amount equal to dividends (whether or not declared) accrued
to the date fixed for redemption and remaining unpaid:
<TABLE>
<CAPTION>
Redemption
Price Per
Redemption Period Share
---------------------------- ----------
<S> <C>
July 1, 1993 to June 30, 1994 $10.50
July 1, 1994 to June 30, 1995 $10.33
July 1, 1995 to June 30, 1996 $10.17
July 1, 1996 and thereafter $10.00
</TABLE>
As of March 1, 1994, 2,880,973 shares of $.75 Convertible Preferred Stock
were held by 86 recordholders.
Forest's Common Stock is traded on the National Market System of the National
Association of Securities Dealers, Inc., Automated Quotation System
(NASDAQ/NMS). The High and Low sales prices of the Common Stock for each
quarterly period of the years presented as reported by the NASDAQ/NMS are
listed in the chart below. The Class B Stock was not traded in any public
trading market. There were no dividends on Common Stock or Class B Stock in
1992, 1993 or in the first quarter of 1994.
<TABLE>
<CAPTION>
High Low
------ -----
<S> <C> <C>
1992
-----
First Quarter $1-5/8 $1-3/16
Second Quarter 1-9/16 1-1/8
Third Quarter 3-1/4 1-3/8
Fourth Quarter 3-3/8 2-3/8
1993
----
First Quarter $4-1/2 $2-7/8
Second Quarter 5-13/16 4
Third Quarter 5-13/16 4-1/4
Fourth Quarter 5-7/16 3-5/16
1994
----
First Quarter
(through March 15) $4-3/4 $3-9/16
</TABLE>
On March 15, 1994, the last reported sales price of the Common Stock as quoted
on the NASDAQ/NMS was $3-11/16 per share.
16
<PAGE>
The Warrants are traded on the NASDAQ/NMS. The High and Low sales prices of
the Warrants for each quarterly period of the years presented as reported by
the NASDAQ/NMS are listed in the chart below.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1992
----
First Quarter $ 1/2 $ 1/8
Second Quart 5/8 1/4
Third Quarter 1-3/4 15/32
Fourth Quarter 1-1/2 1
1993
----
First Quarter $2-3/8 $1-1/8
Second Quarter 3-5/8 2-1/16
Third Quarter 3-5/8 2-5/8
Fourth Quarter 3 1-3/4
1994
----
First Quarter
(through March 15) $2-3/4 $1-7/8
</TABLE>
On March 15, 1994, the last reported sales price of the Warrants as quoted
on the NASDAQ/NMS was $1-7/8 per Warrant.
The $.75 Convertible Preferred Stock is traded on the NASDAQ/NMS. The High
and Low sales prices of the $.75 Convertible Preferred Stock for each
quarterly period of the years presented as reported by the NASDAQ/NMS are
listed in the chart below.
<TABLE>
Stock
Dividends
High Low Paid (A)
---- --- ---------
<S> <C> <C> <C>
1992
----
First Quarter $ 6-1/4 $ 4-1/4 0.092183
Second Quarter 5-3/4 4-1/4 0.175234
Third Quarter 11-1/4 5-1/4 0.153122
Fourth Quarter 12 8-3/4 0.071225
1993
----
First Quarter $15-3/4 $10-3/4 0.068587
Second Quarter 20-1/8 14-1/4 0.057176
Third Quarter 20-5/8 15-1/2 0.038513
Fourth Quarter 18-3/4 12 0.044563
1994
----
First Quarter
(through March 15) $17 $13-5/8 $ .1875
<FN>
(A) In 1992 and 1993, the dividends on the $.75 Convertible Preferred Stock
were paid in shares of Common Stock at the above stated rates. On
February 1, 1994, a cash dividend of $.1875 was paid to holders of
record on January 14, 1994. On February 20, 1994 the Board of Directors
declared a cash dividend of $.1875 payable May 1, 1994 to holders of
record on April 8, 1994.
</TABLE>
On March 15, 1994, the last reported sales price of the $.75 Convertible
Preferred Stock as quoted on the NASDAQ/NMS was $14-1/4 per share.
17
<PAGE>
In October 1993, the Board of Directors adopted a shareholders' rights plan.
The Company issued a dividend of a preferred stock purchase right (the "Rights")
on each outstanding share of Common Stock of the Company, which, after the
Rights become exercisable, entitle the holder to purchase 1/100th of a share of
a newly issued series of the Company's preferred stock at a purchase price of
$30 per 1/100th of a preferred share, subject to adjustment. The Rights expire
on October 29, 2003 unless extended or redeemed earlier. The Rights will become
exercisable (unless previously redeemed or the expiration date of the Rights has
occurred) following a public announcement that a person or group (an "Acquiring
Person") has acquired 20% or more of the Common Stock or has commenced (or
announced an intention to make) a tender offer or exchange offer for 20% or more
of the Common Stock. In certain circumstances each holder of Rights (other than
an Acquiring Person) will have the right to receive, upon exercise, (i) shares
of Common Stock of the Company having a value significantly in excess of the
exercise price of the Rights, or (ii) shares of Common Stock of an acquiring
company having a value significantly in excess of the exercise price of the
Rights.
18
<PAGE>
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
The following table sets forth selected data regarding the Company as of and for
each of the years in the five-year period ended December 31, 1993. This data
should be read in conjunction with Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations and the Consolidated Financial
Statements and Notes thereto.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1993 1992 (1) 1991 1990 1989
---- ---- ---- ---- ----
(In Thousands Except per Share Amounts and Volumes)
<S> <C> <C> <C> <C> <C>
FINANCIAL DATA
Revenue $ 105,148 113,186 69,897 84,824 131,555
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Earnings (loss) before cumulative effects of
changes in accounting principles and
extraordinary items (9,355) 7,298 (34,850) (75,549) (9,398)
Cumulative effects of changes in
accounting principles (1,123) - - - -
------- ------- ------- ------- -------
Earnings (loss) before extraordinary items (10,478) 7,298 (34,850) (75,549) (9,398)
Extraordinary items - extinguishment of debt (10,735) - 9,502 - -
------- ------- ------- ------- -------
Net earnings (loss) $ (21,213) 7,298 (25,348) (75,549) (9,398)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Weighted average number of common shares
outstanding 21,997 13,774 12,494 12,307 11,498
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Net earnings (loss) attributable to
common stock $ (23,463) 4,950 (30,557) (85,395) (15,014)
------- ------ ------- ------- -------
------- ------ ------- ------- -------
Primary earnings (loss) per share: (2)
Earnings (loss) before cumulative effects of
changes in accounting principles and
extraordinary items $ (.53) .36 (3.21) (6.94) (1.31)
Cumulative effects of changes in accounting
principles (.05) - - - -
------- ------- ------- ------- -------
Loss before extraordinary items (.58) .36 (3.21) (6.94) (1.31)
Extraordinary items - extinguishment of debt (.49) - .76 - -
------- ------- ------- ------- -------
Net earnings (loss) attributable to common
stock $ (1.07) .36 (2.45) (6.94) (1.31)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total assets $ 426,755 378,532 296,189 339,676 470,061
Long-term obligations
and redeemable preferred stock 288,588 250,672 203,136 220,508 257,672
Shareholders' equity 88,156 59,881 54,840 58,457 88,689
OPERATING DATA
Annual production:
Gas (MMCF) 41,114 29,174 23,877 31,415 36,530
Oil (MBBLS) 1,493 1,450 847 912 552
Average price received:
Gas (per MCF) $ 1.88 1.70 1.84 2.06 2.25
Oil (per Barrel) 16.97 18.14 25.31 23.19 17.94
Capital expenditures:
Property acquisitions $ 144,916 88,772 13,560 5,401 10,032
Exploration 5,433 2,297 9,723 33,067 31,497
Development 20,472 15,558 12,381 26,998 42,676
------- ------- ------- ------- -------
$ 170,821 106,627 35,664 65,466 84,205
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Overhead Costs $ 19,561 18,760 23,292 41,176 38,193
Proved Reserves:
Gas (MMCF) 273,382 194,655 193,471 205,013 272,904
Oil (MBBLS) 8,198 7,560 5,315 6,559 9,262
Standardized measure of discounted future
net cash flows relating to proved oil
and gas reserves $ 299,053 227,009 188,069 241,303 326,126
<FN>
(1) The results for 1992 include the effects of the ONEOK settlement.
(2) Fully diluted earnings (loss) per share was the same as primary earnings
(loss) per share in all years except 1992. In 1992, fully diluted earnings
per share was $.29.
</TABLE>
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto.
RESULTS OF OPERATIONS
NET EARNINGS (LOSS). The Company's net loss was $21,213,000 in 1993 compared to
net earnings of $7,298,000 in 1992 and a net loss of $25,348,000 in 1991. There
would have been a net loss of $16,745,000 in 1992 excluding the effects of the
settlement of gas contract litigation with ONEOK Inc. (the ONEOK settlement).
Total revenue less operating expenses (consisting of oil and gas production
expense and expensed general and administrative costs) increased in 1993
compared to the 1992 results (excluding the effects of the ONEOK settlement) as
a result of the acquisition of properties; however, this increase was more than
offset by higher depreciation and depletion expense, an extraordinary loss of
$10,735,000 (net of tax benefit of $4,652,000) recorded as a result of the
redemption or purchase of all of the Company's 12 3/4% Senior Secured Notes and
long-term subordinated debt and a charge of $1,123,000 to reflect the effects of
cumulative changes in accounting principles related to postretirement benefits
and income taxes. The 1992 results improved significantly compared to 1991 due
to approximately $24,043,000 of net earnings associated with the ONEOK
settlement in December 1992 and because there was no writedown of the carrying
value of the Company's oil and gas properties required in 1992 by SEC
regulations. The 1991 loss included a writedown of the Company's oil and gas
properties of $22,400,000 on an after-tax basis, offset by an extraordinary gain
of $9,502,000 (net of income taxes of $4,895,000) on extinguishment of debt.
The ONEOK settlement in 1992 had a significant impact on the Company's reported
revenue, expense and net earnings. A summary of the Company's income and
expenses for 1992, before and after the amounts recorded as a result of the
ONEOK settlement, is as follows:
<TABLE>
<CAPTION>
Year ended
Effects of December 31, 1992
Year ended ONEOK excluding ONEOK
December 31, 1992 settlement settlement
----------------- ---------- -----------------
(In Thousands)
<S> <C> <C> <C>
REVENUE:
Oil and gas sales $ 99,239 22,392 76,847
Miscellaneous, net 13,947 15,149 (1,202)
------- ------ -------
Total revenue 113,186 37,541 75,645
EXPENSES:
Oil and gas production 15,865 1,589 14,276
General and administrative 11,611 (477) 12,088
Interest 27,800 - 27,800
Depreciation and depletion 46,624 - 46,624
------- ------ -------
Total expenses 101,900 1,112 100,788
------- ------ -------
Earnings (loss) before
income taxes 11,286 36,429 (25,143)
Income tax expense
Current 435 - 435
Deferred expense (benefit) 3,553 12,386 (8,833)
------- ------ -------
3,988 12,386 (8,398)
------- ------ -------
Net earnings $ 7,298 24,043 (16,745)
------- ------ -------
------- ------ -------
</TABLE>
20
<PAGE>
The inclusion of the effects of the ONEOK settlement in a discussion of the
Company's results of operations distorts the trends which would otherwise be
reported. In the discussion which follows, results for 1992 exclude the effects
of the ONEOK settlement in order to more meaningfully compare and discuss the
Company's results of operations for 1993, 1992 and 1991.
REVENUE. Total revenue increased 39% to $105,148,000 in 1993 from $75,645,000
in 1992, primarily due to increased production from newly-acquired properties.
Total revenue increased by 8% to $75,645,000 in 1992 from $69,897,000 in 1991.
The increase is due primarily to increased production volumes, despite a
decrease in average sales prices for both oil and natural gas.
Oil and gas sales increased to $102,883,000 from $76,847,000, or by
approximately 34% in 1993 from 1992, primarily due to increased production from
newly-acquired properties and an 11% increase in the average sales price for
natural gas. In 1993, oil production volumes were up 3% and natural gas
production volumes were up 41% compared to 1992. The increase in revenue
attributable to the increased production was partially offset by a 6% decrease
in the average sales price for oil.
Oil and gas sales increased to $76,847,000 from $68,876,000 or by approximately
12% in 1992 from 1991. The increase primarily resulted from increased
production volumes, despite a decrease in average sales prices for both oil and
natural gas. In 1992, oil production volumes were up 71% and natural gas
production volumes were up 22% compared to 1991. The increased volumes were
primarily the result of property acquisitions in 1992. The increase in revenue
attributable to the increased production was partially offset by a 28% decrease
in the average sales price for oil and an 8% decrease in the average sales price
for natural gas.
21
<PAGE>
The production volumes and average sales prices for the three years ended
December 31, 1993 for Forest and its wholly-owned subsidiaries were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1993 1992 1991
------- ------ ------
<S> <C> <C> <C>
Natural Gas
-----------
Production under long-term fixed price
contracts (MMCF)(1) 19,065 9,689 6,582
Average contract sales price (per MCF) $ 1.47 1.43 2.38
Production sold on the spot market (MMCF) 22,049 19,485 17,295
Spot sales price received (per MCF)(2)(3) $ 2.36 1.90 1.64
Effects of energy swaps (per MCF)(4) (.13) (.07) -
------ ------ ------
Average spot sales price (per MCF)(2)(3) $ 2.23 1.83 1.64
Total production (MMCF) 41,114 29,174 23,877
Average sales price (per MCF) $ 1.88 1.70 1.84
Oil and Condensate
------------------
Production under long-term
fixed price contracts (MBBLS)(1) 300 201 152
Average contract sales price (per BBL) $ 16.96 18.07 20.58
Production sold on the spot market (MBBLS) 1,193 1,249 695
Spot sales price received (per BBL) $ 16.27 18.41 21.24
Effects of energy swaps (per BBL)(4) .71 (.26) 5.11
------ ------ ------
Average spot sales price (per BBL) $ 16.98 18.15 26.35
Total production (MBBLS) 1,493 1,450 847
Average sales price (per BBL) $ 16.97 18.14 25.31
<FN>
- ------------------
(1) Production under long-term fixed price contracts includes volumes delivered
under volumetric production payments, net of royalties. For further
information concerning volumes and prices recorded under volumetric
production payments, see "Volumetric Production Payments."
(2) The 1992 amounts exclude $1.15 per MCF attributable to the ONEOK
settlement. Including such amount, the sales price received and the
average spot sales price for natural gas were $3.05 and $2.98 per MCF,
respectively.
(3) The 1991 amounts exclude $.07 per MCF attributable to a favorable ruling
with respect to royalties on take-or-pay settlements and $.06 per MCF
related to a favorable gas purchase contract settlement. Including such
amounts, the sales price received and the average sales price for natural
gas were both $1.77 per MCF.
(4) Energy swaps were entered into to hedge the price of spot market volumes
against price fluctuation.
</TABLE>
22
<PAGE>
Natural gas sold pursuant to volumetric production payment agreements and other
long-term fixed price contracts represented approximately 46% of production in
1993 versus 33% in 1992 and 28% in 1991. In recent years, the industry trend
has been for more natural gas to be sold on the spot market as long-term
contracts expire. The increase experienced by Forest in natural gas sold under
long-term fixed price contracts in 1993, 1992 and 1991 was the result of the
Company entering into volumetric production payment agreements.
Miscellaneous net revenue of $2,265,000 in 1993 included $1,380,000 of interest
income on short-term investments and an adjustment to reduce accrued severance
taxes based on discussions with the applicable state taxing authorities. The
net expense of $1,202,000 in 1992 was primarily attributable to a $926,000
provision for future rent payments on vacated office space. The 1991 amount of
$1,021,000 included interest income of $1,314,000 on cash balances invested in
short-term investments and $2,032,000 of revenue associated with a favorable
ruling by a Texas court with respect to severance tax on take-or-pay
settlements, offset by $1,550,000 provided for uncollectible receivables and
$850,000 of refund claims which were abandoned.
OIL AND GAS PRODUCTION EXPENSE. Oil and gas production expense increased 37% to
$19,540,000 in 1993 compared to $14,276,000 in 1992 due primarily to increased
production from newly acquired properties and increased workover expense. Oil
and gas production expense increased 14% to $14,276,000 in 1992 compared to
$12,548,000 in 1991 due to increased production. In 1993, production expense
was approximately $.39 on an MCFE basis, compared to $.38 in 1992 and $.43 in
1991. The decrease in 1992 compared to 1991 was the result of cost-savings
measures coupled with economies of scale achieved when certain fixed operating
costs were spread over a larger asset base.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense for 1993
was $12,003,000 compared to $12,088,000 in 1992. Increases attributable to
severance and employee relocation costs and the effects of the postretirement
medical benefit accrual in 1993 were more than offset by lower office and
storage rentals and lower professional services expense. General and
administrative expense for 1992 increased 27% to $12,088,000 from $9,541,000 in
1991, reflecting a decrease in the capitalization rate applied to total overhead
costs. The decrease in the capitalization rate was the result of a decrease in
the percentage of employees' time spent working directly on exploration and
development projects. The capitalization rate remained relatively constant from
1992 to 1993.
The Company has devoted significant effort to reducing total overhead costs.
Total overhead costs, including amounts related to exploration and development
activities, were $19,561,000 in 1993, $19,237,000 in 1992 and $23,292,000 in
1991. The increase in 1993 from 1992 was only 2% despite charges amounting to
$2,300,000 for severance and employee relocation costs and $480,000 for
postretirement medical benefits; without these charges, total overhead costs
would have decreased by approximately 13% in 1993 compared to 1992. Severance
and employee relocation costs of approximately $2,300,000 in 1993 resulted from
the termination of 10 executives and middle level managers and a loss incurred
on an employee's former residence in accordance with the Company's relocation
policy. The decrease in total overhead costs in 1992 from 1991 was primarily
due to reductions in workforce which occurred during 1991. The following table
summarizes the total overhead costs incurred during the periods, including
retirement benefits for executives and directors:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1993 1992 1991
------- ------ ------
(In Thousands)
<S> <C> <C> <C>
Overhead costs capitalized $ 7,558 7,149 12,801
General and administrative costs expensed 12,003 12,088 10,491(A)
------- ------ ------
Total overhead costs $19,561(B) 19,237 23,292
------- ------ ------
------- ------ ------
<FN>
(A) Includes $950,000 in 1991 for retirement benefits for executives and
directors.
(B) Includes approximately $2,300,000 of severance and employee relocation
costs and $480,000 for postretirement medical benefits.
</TABLE>
23
<PAGE>
RETIREMENT BENEFITS FOR EXECUTIVES AND DIRECTORS. In December 1990, the Company
entered into retirement agreements with seven executives and directors
("Retirees") pursuant to which the Retirees will receive supplemental retirement
payments totalling approximately $1,127,700 per year through 1996, $1,087,400 in
1997, $938,400 in 1998 and approximately $740,400 per year in 1999 and 2000.
The liability to the Retirees was recorded in 1990. Additional expense of
$950,000 was recorded in 1991 to reflect the accrual of amounts due to certain
Retirees upon resignation as directors of the Company.
RESTRUCTURING. Restructuring expense in 1991 includes the costs of the
Company's implementation of a reorganization and consolidation plan. Costs
recorded in 1991 of approximately $3,585,000 related to reductions in workforce
and a consolidation of the Company's technical staff, reduced by a credit
recognized upon curtailment of the Company's defined benefit pension plan.
INTEREST EXPENSE. Interest expense of $23,729,000 in 1993 decreased $4,071,000
or 15% compared to 1992, primarily due to redemptions or purchases of certain of
the Company's subordinated debentures and 12 3/4% Senior Secured Notes in 1993,
partially offset by the interest expense incurred in connection with the
Company's new 11 1/4% Senior Subordinated Notes. Interest expense of
$27,800,000 in 1992 increased $4,494,000 or 19% compared to 1991 due to
increased indebtedness in the form of a dollar-denominated production payment
related to the acquisition of properties.
DEPRECIATION AND DEPLETION EXPENSE. Depreciation and depletion expense
increased 30% to $60,581,000 in 1993 from $46,624,000 in 1992 due to increased
production in the 1993 period as a result of property acquisitions and
workovers. Depreciation and depletion expense increased 22% to $46,624,000 in
1992 from $38,229,000 in 1991 due to increased production volumes despite a
slightly lower rate per MCFE. The depletion rate was $1.19 per MCFE for U.S.
production in 1993 compared to corresponding rates of $1.21 for U.S. production
and $1.19 for Canadian production in 1992 and $1.28 for U.S. production and
$1.37 for Canadian production in 1991.
IMPAIRMENT OF OIL AND GAS PROPERTIES. The Company recorded a writedown of its
oil and gas properties of $34,000,000 in 1991 due to the poor results of the
Company's 1990 exploration program and depressed natural gas prices.
Additional writedowns of the full cost pools may be required if prices decrease,
estimated proved reserve volumes are revised downward or costs incurred in
exploration, development or acquisition activities exceed the discounted future
net cash flows from additional reserves, if any.
The average spot market price received by the Company for Gulf Coast natural gas
production was approximately $2.48 per MCF at December 31, 1993. The West Texas
Intermediate price for crude oil received by the Company was $12.00 per barrel
at December 31, 1993. The average Gulf Coast spot price received by the Company
for natural gas declined from $2.48 per MCF at December 31, 1993 to $2.46 per
MCF at March 1, 1994. The West Texas Intermediate price for crude oil increased
from $12.00 per barrel at December 31, 1993 to $13.00 per barrel at March 1,
1994.
INVESTMENT IN AND ADVANCES TO AFFILIATE. In May 1992, the Company transferred
substantially all of its Canadian oil and gas properties to a wholly-owned
Canadian subsidiary, Forest Canada I Development Ltd. (FCID). On September 30,
1992 FCID sold its Canadian assets and related operations to CanEagle for
approximately $51,250,000 in Canadian funds ($41,000,000 U.S.). An independent
third party financed the purchase by CanEagle. In the transaction, FCID
received cash of approximately $28,000,000 CDN ($22,400,000 U.S.), net of
expenses, and provided financing to the third party in the aggregate principal
amount of $22,000,000 CDN ($17,600,000 U.S.).
CanEagle's capital was restructured in 1993. At December 31, 1993, the
Company's ownership interest in CanEagle consisted of 15,400,000 shares of Class
A Preferred Shares and 1,400,000 shares of Class B Preferred Shares of CanEagle
and a $6,000,000 CDN subordinated debenture.
24
<PAGE>
Substantial uncertainty exists regarding whether CanEagle is a going concern due
to a required principal payment of $16,300,000 on its Senior Debenture due June
30, 1994. CanEagle is in the process of refinancing the Senior Debenture with
its lender, but there is no assurance that such refinancing can be completed on
mutually acceptable terms prior to the due date.
No gain was recognized as a result of the CanEagle transaction because
collection of the remaining sales price was not reasonably assured. Due to its
continuing financial interest in CanEagle, the Company is accounting for its
investment in CanEagle under the equity method. Accordingly, losses will be
recognized to the extent that such losses exceed (a) amounts attributable to
securities subordinate to the Company's interest, and (b) a basis difference of
$780,000 CDN attributable to the 1993 capital restructuring of CanEagle. Under
this method, no portion of the CanEagle loss was required to be recorded by the
Company in 1993.
Earnings related to the Company's interest in CanEagle will be recognized only
if realization is assured. Accordingly, amounts received as interest on the
subordinated note during 1993 (approximately $540,000 CDN) were recorded as a
reduction of the Company's investment in and advances to CanEagle. There were
no dividends received in 1993.
The excess of the carrying value of properties sold over the cash received, or
approximately $16,451,000 U.S. at December 31, 1993, represents Forest's
investment in CanEagle.
CHANGES IN ACCOUNTING
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," (SFAS No. 106) required the
Company to accrue expected costs of providing postretirement benefits to
employees and the employees' beneficiaries and covered dependents. The Company
adopted the provisions of SFAS No. 106 in the first quarter of 1993. The
accumulated postretirement benefit obligation as of January 1, 1993 was
approximately $4,822,000. This amount, reduced by applicable income tax
benefits, was charged to operations in the first quarter of 1993 as the
cumulative effect of a change in accounting principle. The annual net
postretirement benefit cost (included in total overhead costs) was approximately
$480,000 for 1993.
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," (SFAS No. 109), required the Company to adopt the liability method of
accounting for income taxes. The Company adopted such method on a prospective
basis as of January 1, 1993 and, as such, prior periods have not been restated.
The cumulative effect of adopting SFAS No. 109 as of January 1, 1993 resulted in
a reduction of the net amount of deferred income taxes recorded as of December
31, 1992 of approximately $2,060,000. This amount was credited to operations in
the first quarter of 1993 as the cumulative effect of a change in accounting
principle.
CAPITAL RESOURCES AND LIQUIDITY
CASH FLOW. Historically, one of the Company's primary sources of capital has
been net cash provided by operating activities, which has varied dramatically in
the last three years. The majority of the increases and decreases in net cash
provided by operating activities is attributable to increases and decreases in
oil and gas revenue. While expenses associated with operations have been
relatively stable, revenue from operations has varied dramatically each year
depending upon factors such as natural gas contract settlements and price
fluctuations, which are difficult to predict.
25
<PAGE>
The following summary table reflects comparative cash flows for the Company for
the periods ended December 31, 1993, 1992 and 1991:
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1992 1991
------- ------ ------
(In Thousands)
<S> <C> <C> <C>
Funds provided by operations (A)(B) $ 52,667 24,433(C) 19,331
Net cash provided by operating activities (B) 41,560 19,124(D) 15,570
Net cash used by investing activities (170,134) (83,354) (21,546)
Net cash provided by financing activities 72,048 57,713 17,919
<FN>
(A) Funds provided by operations is equal to net cash provided by operating
activities adjusted for the change in working capital items.
(B) Includes approximately $32,702,000, $14,081,000 and $8,979,000 of revenue
recognized by the amortization of the Company's volumetric production
payments for the years ended December 31, 1993, 1992 and 1991,
respectively.
(C) Excludes $36,429,000 of net proceeds associated with the ONEOK settlement.
(D) Excludes $51,250,000 of revenue associated with the ONEOK settlement in
1992.
</TABLE>
SHORT-TERM LIQUIDITY AND WORKING CAPITAL DEFICIT. In December 1993, the Company
entered into a secured master credit facility (the Credit Facility) with The
Chase Manhattan Bank, NA. (Chase) as agent for a group of banks. Under the
Credit Facility, the Company may borrow up to $17,500,000 for acquisition or
development of proved oil and gas reserves, which amount is subject to semi-
annual redetermination, and up to $17,500,000 for working capital and general
corporate purposes. The Credit Facility is secured by a lien on, and a security
interest in, a majority of the Company's proved oil and gas properties and
related assets (subject to prior security interests granted to holders of
volumetric production payment agreements), a pledge of accounts receivable,
material contracts and the stock of material subsidiaries, and a negative pledge
on remaining assets. Borrowings under the Credit Facility bear interest at the
Chase base rate plus 3/8 of 1% or 1,2,3 or 6 month LIBOR plus 1 and 5/8%,
payable quarterly. A commitment fee of 1/2 of 1% is charged on unused
availability. The maturity date of the Credit Facility is December 31, 1996.
Under the terms of the Credit Facility, the Company is subject to certain
covenants, including restrictions or requirements with respect to working
capital, net cash flow, additional debt, asset sales, mergers, cash dividends on
capital stock and reporting responsibilities. At December 31, 1993 the
outstanding balance under this facility was $25,000,000.
Due to the significant capital requirements of acquisition and development
activities undertaken in December 1993, the Company reported a working capital
deficit of $14,496,000 at December 31, 1993. The Company did not meet the test
imposed by the working capital covenant of the Credit Facility; compliance with
this covenant was waived by Chase at December 31, 1993. The deficit was funded
in the first quarter of 1994 primarily by additional borrowings of $9,000,000
under the Credit Facility, net proceeds of $2,600,000 from the sale of non-
strategic oil and gas properties, and a short-term loan from The Chase Manhattan
Bank, N.A. of $4,000,000 secured by a pledge of the Company's CanEagle
securities. These cash inflows, in addition to cash provided by operating
activities, enabled the Company to meet its obligations with respect to
principal and interest payments and other short-term obligations. The Company
currently has no additional borrowing capacity under the Credit Facility.
The Company continues to explore additional sources of short-term liquidity to
fund its working capital deficits, including an increase in the Credit Facility,
sale of additional non-strategic properties and excess equipment, monetization
of its investment in and advances to CanEagle and other measures. Expected
increases in operating
26
<PAGE>
cash flows from recent property acquisitions are also expected to improve the
Company's short-term liquidity, although there can be no assurance that this
will be the case due to uncertainties in the markets for oil and natural gas and
the unpredictability inherent in oil and gas operations.
LONG-TERM LIQUIDITY. Since 1991, the Company has taken several significant
steps to improve its long-term liquidity. In 1991, the Company consummated its
recapitalization pursuant to which the Company's outstanding debt and preferred
stock were restructured in order to reduce its fixed financial costs. The
Company also undertook certain actions in 1991 to implement its operating
strategy, to control and reduce its operating costs, and to improve its
operating efficiency. The Company continues to devote significant efforts in
these areas.
On December 24, 1992, the Company received gross proceeds of $51,250,000 as a
result of the ONEOK settlement. The net proceeds, after payment of related
royalties and production taxes, were approximately $36,429,000. Pursuant to the
terms of its 12 3/4% Senior Secured Notes, the Company was required to make an
offer to purchase $16,000,000 principal amount of the 12 3/4% Senior Secured
Notes at a purchase price of 100% of their principal amount plus accrued
interest to the date of purchase. Pursuant to such offer, the Company purchased
approximately $3,926,000 principal amount of 12 3/4% Senior Secured Notes in
February, 1993. The remainder of the net proceeds were used for general
corporate purposes, including working capital, debt reduction and the
acquisition of oil and gas properties.
On June 15, 1993, the Company issued 11,080,000 shares of Common Stock for $5.00
per share in a public offering. The net proceeds from the issuance of the
shares totalled approximately $51,506,000 after issuance costs and underwriting
fees, of which the Company used approximately $30,300,000 to purchase or redeem
12 3/4% Senior Secured Notes. The remainder of the net proceeds was used for
general corporate purposes, including working capital, debt reduction and the
acquisition of oil and gas properties.
On September 8, 1993, the Company completed a public offering of $100,000,000
aggregate principal amount of 11-1/4% Senior Subordinated Notes due September 1,
2003. The 11 1/4% Senior Subordinated Notes were issued at a price of 99.259%
yielding 11.375% to the holders. On October 13, 1993 the Company used the net
proceeds from the sale of the 11 1/4% Senior Subordinated Notes of approximately
$95,827,000, together with approximately $19,400,000 of available cash, to
redeem all of its outstanding 12 3/4% Senior Secured Notes and long-term
subordinated debentures.
On November 9, 1993, the Company purchased $308,000 principal amount of its 5
1/2% Convertible Subordinated Debentures. The remaining $7,171,000 principal
amount of the 5 1/2% Debentures was redeemed February 1, 1994.
On December 30, 1993, the Company entered into a nonrecourse secured loan
agreement (the Enron loan) arranged by Enron Finance Corp., an affiliate of
Enron Gas Services. For a further discussion of the Enron loan, see
"Nonrecourse Secured Loan and Dollar-Denominated Production Payment" below.
This financing provided acquisition capital, and capital to execute Forest's
exploitation strategy.
Many of the factors which may affect the Company's future operating performance
and long-term liquidity are beyond the Company's control, including, but not
limited to, oil and natural gas prices, governmental actions and taxes, the
availability and attractiveness of properties for acquisition, the adequacy and
attractiveness of financing and operational results.
VOLUMETRIC PRODUCTION PAYMENTS. Through December 31, 1993, the Company received
approximately $134,705,000 (net of fees) from the sale of volumetric production
payments and, in return, committed to deliver from the subject properties
approximately 77.4 BCF of natural gas and 770,000 barrels of oil to entities
associated with Enron Corp. (Enron). As of December 31, 1993, the volumes
remaining to be delivered were approximately 36.3 BCF of natural gas and 479,000
barrels of oil. Amounts received for volumetric production payments are
recorded as deferred revenue, which is amortized as sales are recorded based
upon the scheduled deliveries under the production payment agreements.
27
<PAGE>
The purchaser of a volumetric production payment determines the amount paid to
the Company for the production payment by calculating the net present value of
the scheduled deliveries priced using the purchaser's assumed future prices.
However, the sales price per MCFE recorded by the Company upon delivery of
production payment volumes is determined by dividing the net proceeds from the
sale of the production payment by the total volumes scheduled to be delivered.
This price is therefore fixed at the inception of the production payment and
does not change. There is no interest expense recorded with respect to a
volumetric production payment, the interest factor having been effectively
netted against the calculated sales price. In addition, the Company must pay
applicable royalties on volumes delivered and is responsible for production-
related costs associated with operating the properties subject to the production
payment agreements. These accounting treatments should be considered when
assessing the Company's financial statements and related information, including
information presented with respect to cash flows and average prices for volumes
sold under fixed contracts.
Deferred revenue relating to production payments was $67,228,000 as of December
31, 1993. The annual amortization of deferred revenue and the corresponding
delivery and net sales volumes are set forth below:
<TABLE>
<CAPTION>
Net sales volumes
Volumes required to be attributable to production
delivered to Enron payment deliveries (1)
---------------------- --------------------------
Natural Natural
Annual amortization Oil Gas Oil Gas
of deferred revenue (MBBLS) (MMCF) (MBBLS) (MMCF)
------------------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
1994 $34,935 218 19,422 182 15,672
1995 19,797 174 10,425 146 8,412
1996 7,278 87 3,534 73 2,852
1997 2,390 - 1,361 - 1,098
Thereafter 2,828 - 1,551 - 1,252
------- --- ------ --- ------
$67,228 479 36,293 401 29,286
------- --- ------ --- ------
------- --- ------ --- ------
<FN>
(1) Represents volumes required to be delivered to Enron net of estimated
royalty volumes.
</TABLE>
NONRECOURSE SECURED LOAN AND DOLLAR-DENOMINATED PRODUCTION PAYMENT. Under the
terms of the Enron loan agreement and a dollar-denominated production payment
sold in February 1992 in connection with the acquisition of the Harbert Energy
Corporation properties, the Company is required to make payments based on the
net proceeds, as defined, from certain subject properties.
As of December 31, 1993, the Enron loan of $57,400,000, which bears annual
interest at the rate of 12.5%, was recorded at $53,101,000 to reflect the
conveyance to the lender of a 20% interest in the net profits, as defined, of
the Loma Vieja properties. Under the terms of the Enron loan, additional funds
may be advanced to fund a portion of the development projects which will be
undertaken by the Company on the properties pledged as security for the loan.
Payments of principal and interest under the Enron loan are due monthly and are
equal to 90% of total net operating income from the secured properties, reduced
by 80% of allowable capital expenditures, as defined. The Company's current
estimate is that 1994 payments will reduce the recorded liability by
approximately $983,000. Payments, if any, under the net profits conveyance will
commence upon repayment of the principal amount of the Enron loan and will cease
when the lender has received an internal rate of return, as defined, of 18%
(15.25% through December 31, 1995). Properties to which approximately 22% of
the Company's estimated proved reserves are attributable, on an MCFE equivalent
basis, are dedicated to repayment of the Enron loan.
The original amount of the dollar-denominated production payment was
$37,550,000, which was recorded as a liability of $28,805,000 after a discount
to reflect a market rate of interest. At December 31, 1993 the remaining
recorded liability was $21,305,000. Under the terms of the dollar-denominated
production payment, the Company must make a monthly cash payment which is the
greater of a base amount or 85% of the net proceeds from the subject properties,
as defined, except that the amount required to be paid in any given month shall
not exceed 100% of the net proceeds from the subject properties. The Company's
current estimate is that 1994 payments will
28
<PAGE>
reduce the recorded liability by approximately $3,388,000. Properties to which
approximately 7% of the Company's estimated proved reserves are attributable, on
an MCFE basis, are dedicated to this production payment financing through July
1999.
HEDGING PROGRAM. In addition to the volumes of natural gas and oil dedicated to
volumetric production payments, the Company has also used energy swaps and other
financial agreements to hedge against the effects of fluctuations in the sales
prices for oil and natural gas. In a typical swap agreement, the Company
receives the difference between a fixed price per unit of production and a price
based on an agreed upon third-party index if the index price is lower. If the
index price is higher, the Company pays the difference. The Company's current
swaps are settled on a monthly basis. At December 31, 1993 the Company had
natural gas swaps for an aggregate of approximately 30 MMBTU per day of natural
gas during 1994 at fixed prices ranging from $1.90 to $2.30 per MMBTU. At
December 31, 1993 the Company had no oil swaps in place.
OPTION AGREEMENT. Under another agreement (the Option Agreement), the Company
paid a premium of $516,000 in conjunction with the closing of the Enron loan
agreement. The payment of this premium gives Forest the right to set a floor
price of $1.70 per MMBTU on a total of 18.4 BBTU of natural gas over a five year
period commencing January 1, 1995. In order to exercise this right to set a
floor, the Company must pay an additional premium of 10 CENTS per MMBTU,
effectively setting the floor at $1.60 per MMBTU. The premium of $516,000
related to the Option Agreement was recorded as a long-term asset and will be
amortized as a reduction to oil and gas income beginning in 1995 based on the
volumes involved.
TRIGGER AGREEMENTS. Two trigger agreements were entered into during 1993.
Under a "trigger" agreement, the Company agrees to enter into a swap agreement
at a later date based upon a specified margin over an agreed-upon third party
index. One agreement originally entered into in July 1993 obligated the Company
to enter into a gas swap arrangement in 1994. This agreement was terminated in
December 1993, in exchange for which the Company will pay $0.2675 per MMBTU on
5,000 MMBTU per day for each contract month, which equates to $488,000. The
discounted value of this amount, or $457,000, has been recorded as expense and
as a liability at December 31, 1993 and will be paid in monthly installments of
approximately $41,000 during 1994. The second trigger agreement was converted
into a natural gas swap and is included in the natural gas swaps discussed
above. The Company currently has no open trigger agreements.
SUMMARY OF CASH FLOW CONSIDERATIONS AND EXPOSURE TO PRICE AND RESERVE RISK.
Pursuant to certain of the Company's financing arrangements, significant amounts
of production are contractually dedicated to production payments and the
repayment of nonrecourse debt over the next five years (dedicated volumes). The
dedicated volumes decrease over the next five years and also decrease as a
percentage of the Company's total production during this period. The production
volumes not contractually dedicated to repayment of nonrecourse debt
(undedicated volumes) are relatively stable but increase as a percentage of the
Company's total production over the next five years. This relative stability of
undedicated volumes is due to the fact that the decrease in dedicated volumes
corresponds generally to the Company's estimates of the decrease in its total
production. In the Company's opinion, the relative stability of undedicated
volumes should provide a more constant level of cash flow available for
corporate purposes other than debt repayment. The following table presents, on
a percentage basis, the Company's estimates of dedicated and undedicated volumes
as a percentage of estimated total production:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Dedicated volumes 60% 58% 41% 40% 30% 9% 36%
Undedicated volumes 40 42 59 60 70 91 64
--- --- --- --- --- --- ---
Total production 100% 100% 100% 100% 100% 100% 100%
--- --- --- --- --- --- ---
--- --- --- --- --- --- ---
</TABLE>
As a result of volumetric production payments, energy swaps, and fixed
contracts, the Company currently estimates that approximately 62% of its natural
gas production and 15% of its oil production will not be subject to price
fluctuations from January 1994 through December 1994. Existing hedge agreements
currently cover approximately 42% of the Company's natural gas production and
12% of its oil production for the year ending
29
<PAGE>
December 31, 1995. Currently, it is the Company's intention to commit no more
than 75% of its production to such arrangements at any point in time. See
"Hedging Program" below.
The Company's hedging strategy for dedicated volumes differs from that for
undedicated volumes. The Company believes that hedging of dedicated volumes
provides for greater assurance of debt repayment and decreased financial risk.
The Company believes that hedging undedicated volumes is also warranted in order
to facilitate its short-term planning and budgeting. The Company has not hedged
significant amounts of undedicated volumes beyond 24 months. The Company may
consider long-term hedging of undedicated volumes in the future if product
prices rise to significantly higher levels. The Company believes that stability
of cash flow should be considered by separately reviewing its hedge position
relative to dedicated volumes and undedicated volumes. The following table
reflects the estimated hedge position as a percentage of the Company's
undedicated volumes:
<TABLE>
<CAPTION>
1994 1995 1996 Thereafter Total
---- ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C>
Volumes not hedged 68% 87% 100% 100% 95%
Volumes hedged 32 13 - - 5
--- --- --- --- ---
Total undedicated volumes 100% 100% 100% 100% 100%
--- --- --- --- ---
--- --- --- --- ---
</TABLE>
The Company believes it is important to hedge volumes dedicated to production
payments or required to repay debt. The following table reflects the estimated
hedge position as a percentage of the Company's dedicated volumes. (Volumes
dedicated to volumetric production payments are treated as hedged for purposes
of this presentation):
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Volumes not hedged 29% 30% 41% 52% 51% 69% 39%
Volumes hedged 71 70 59 48 49 31 61
--- --- --- --- --- --- ---
Total dedicated
volumes 100% 100% 100% 100% 100% 100% 100%
--- --- --- --- --- --- ---
--- --- --- --- --- --- ---
</TABLE>
Estimates of commercially recoverable oil and gas reserves and of the future net
cash flows therefrom are based upon a number of variable factors and
assumptions, such as historical production from the subject properties,
comparison with other producing properties, the assumed effects of regulation by
governmental agencies and assumptions concerning future oil and gas prices and
future operating costs, severance and excise taxes, abandonment costs,
development costs and workover and remedial costs, all of which may in fact vary
considerably from actual results. All such estimates are to some degree
speculative. Actual production, revenues, severance and excise taxes,
development expenditures, workover and remedial expenditures, abandonment
expenditures and operating expenditures with respect to the Company's reserves
will likely vary from such estimates, and such variances may be material.
30
<PAGE>
CAPITAL EXPENDITURES. In 1991, the Company implemented its capital investment
strategy of acquiring proved properties. During 1992 and 1993, the Company
completed six major acquisitions under this strategy. The Company's
expenditures for property acquisition, exploration and development for the past
three years, including overhead related to these activities which was
capitalized, were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Property acquisition costs:
Proved properties $ 121,882 70,466 13,560
Undeveloped properties 23,034 18,306 -
------- ------ ------
144,916 88,772 13,560
Exploration costs:
Direct costs 4,923 1,391 2,123
Overhead capitalized 510 906 7,600
------- ------ ------
5,433 2,297 9,723
Development costs:
Direct costs 13,424 9,315 7,180
Overhead capitalized 7,048 6,243 5,201
------- ------ ------
20,472 15,558 12,381
------- ------ ------
$ 170,821 106,627 35,664
------- ------- ------
------- ------- ------
</TABLE>
In 1993, the Company's property acquisition expenditures of $144,916,000
resulted in proved reserve additions of an estimated 94.7 BCF of natural gas and
1.7 million barrels of oil, as measured at the closing dates of the acquisitions
for financial accounting purposes, as well as eight exploitation prospects and
three exploratory offshore blocks. In 1992, the Company's property acquisition
expenditures, as measured at the closing dates, of $88,772,000 resulted in
proved reserve additions of an estimated 63 BCF of natural gas and 5.8 million
barrels of oil, including reserves acquired as a result of gas balancing
settlements.
For the year ended December 31, 1993, finding costs were $1.26 per MCFE and
reserve replacement was 271%. This compares to $1.20 and 235% in 1992 and $1.56
and 79% in 1991. Finding costs are the total costs incurred in oil and gas
acquisition, exploration and development activities, including capitalized
overhead, for any period, divided by net additions to proved reserves on an MCFE
basis (including revisions, extensions and discoveries and purchases of reserves
in place) for such period. Reserve replacement represents estimated proved
reserve additions as a percentage of production before taking into account sales
of oil and gas reserves in place.
It is currently anticipated that the Company's 1994 expenditures for exploration
and development will be approximately $3,900,000, and $24,300,000, respectively,
including capitalized overhead of $900,000 and $5,600,000, respectively. Under
the terms of the Enron loan, 80% of direct development expenditures on the
properties subject to the loan reduce payments which would otherwise be due;
however, planned levels of capital expenditures may still be restricted if the
Company experiences lower than anticipated net cash provided by operations or
other liquidity problems.
During 1994, the Company intends to aggressively pursue a strategy of acquiring
reserves; however, no assurance can be given that the Company can locate or
finance any property acquisitions. In order to finance future acquisitions, the
Company is exploring many options including, but not limited to: a variety of
debt instruments; the issuance of net profits interests; sales of non-strategic
properties, prospects and technical information; joint venture financing; the
issuance of common or preferred equity of the Company; sale of production
payments and other nonrecourse financing; as well as additional bank financing.
Availability of these sources of capital will depend upon a number of factors,
some of which are beyond the control of the Company.
31
<PAGE>
DIVIDENDS. To increase liquidity and fund a portion of its capital budget, the
Company deferred payment of dividends on its $15.75 Redeemable Preferred Stock
and its $2.125 Convertible Preferred Stock throughout 1991. All dividend
arrearages were eliminated at the end of 1991 when the $15.75 Redeemable
Preferred Stock and $2.125 Convertible Preferred Stock were recapitalized.
Throughout most of 1991, the Company did not have the legal ability under the
NYBCL to pay dividends. Upon completion of the recapitalization, this
restriction was removed and the Company once again has the legal ability under
the NYBCL to pay dividends, although it is subject to certain restrictive
provisions in the Indenture executed in connection with the 11 1/4% Senior
Subordinated Notes due 2003 and in the Credit Facility. The Company was
required to pay dividends, when and if declared, on its $.75 Convertible
Preferred Stock in shares of Common Stock through 1993. On February 1, 1994, a
cash dividend of $.1875 on its $.75 Convertible Preferred Stock was paid to
holders of record on January 14, 1994. On February 20, 1994 the Board of
Directors declared a cash dividend of $.1875 on the $.75 Convertible Preferred
Stock, payable May 1, 1994 to holders of record on April 8, 1994. For further
information concerning dividends, see Item 5. Market for Registrant's Common
Equity and Related Stockholder Matters and Notes 4, 6, 9 and 10 of Notes to
Consolidated Financial Statements.
OTHER MATTERS
GAS BALANCING. It is customary in the industry for various working interest
partners to produce more or less than their entitlement share of natural gas
from time to time. During 1993, the Company's net overproduced position
decreased from approximately 13 BCF to approximately 10 BCF. In 1992, the
Company's net overproduced position decreased from approximately 16 BCF to
approximately 13 BCF. In 1991, the Company's net overproduced position did not
change appreciably due to the offseting effects of gas balancing settlements and
production in excess of entitlements. The Company has entered into gas
balancing agreements for most of its imbalance position and currently estimates
that approximately 3 BCF and 2 BCF will be repaid in 1994 and 1995 under such
agreements. In the absence of a gas balancing agreement, the Company is unable
to determine when its partners may choose to make up their share of production.
If and when the Company's partners do make up their share of production, the
Company's deliverable natural gas volumes could decrease, adversely affecting
revenue and cash flow. For futher information, see Note 1 of Notes to
Consolidated Financial Statements.
UNFUNDED PENSION LIABILITIES. In 1993, in response to market conditions, the
Company lowered from 9% to 7.5% the discount rate used in determining the
actuarial present value of the projected benefit obligations under its qualified
defined benefit trusteed pension plan and its supplemental executive retirement
plan. As a result of the change in the discount rate, the Company recorded a
liability of $3,038,000 representing the unfunded liabilities of these plans and
a corresponding decrease in capital surplus. The Company does not expect the
change in discount rate to have a significant impact on future expense due to a
pension plan curtailment effected May 31, 1991. The Company currently is not
required to make a contribution to the pension plan under the minimum funding
requirements of ERISA, but may choose to do so or be required to do so in the
future.
NATURAL GAS SALES CONTRACTS. The Company had two natural gas sales contracts
with Columbia Gas Transmission Corp. (Transmission), a subsidiary of Columbia
Gas System (CGS). On July 31, 1991, CGS and Transmission filed Chapter 11
bankruptcy petitions with the United States Bankruptcy Court for the District of
Delaware. Both contracts have been rejected pursuant to the bankruptcy
proceedings. The Company has filed a proof of claim in the bankruptcy
proceeding consisting of a secured claim of $1,600,000 based on Louisiana vendor
lien laws and an unsecured claim relating to the rejection of the contracts.
The secured claim arises from Transmission's failure to pay the contract price
for a period of time prior to rejection of the contracts. The unsecured claim
was calculated on an undiscounted basis and without any assumption of mitigation
of damages through spot market sales. No prediction can be given as to when or
how these matters will ultimately be concluded.
NET OPERATING LOSS AND TAX CREDIT CARRYFORWARDS. At December 31, 1993, the
Company estimated that for United States federal income tax purposes, it had
consolidated net operating loss carryforwards of $28,439,000, depletion
carryforwards of approximately $20,174,000 and investment tax credit
carryforwards of approximately $3,885,000. The availability of some of these tax
attributes to reduce current and future taxable income of the
32
<PAGE>
Company is subject to various limitations under the Internal Revenue Code of
1986, as amended (the Code). In particular, the Company's ability to utilize
such tax attributes could be severely restricted due to the occurrence of an
"ownership change" within the meaning of Section 382 of the Code resulting from
the 1991 recapitalization. At December 31, 1993, the Company estimated that net
operating loss and investment tax credit carryforwards would be limited to
offset current taxable income to the extent described below.
The net operating loss carryforwards, which expire in 2008, are not subject to
the provisions of Section 382 as they were generated subsequent to the ownership
change. Even though the Company is limited in its ability to use the remaining
net operating loss carryforwards under the general provisions of Section 382, it
may be entitled to use these net operating loss carryovers to offset (a) gains
recognized in the five years following the ownership change on the disposition
of certain assets, to the extent that the value of the assets disposed of
exceeds its tax basis on the date of the ownership change or (b) any item of
income which is properly taken into account in the five years following the
ownership change but which is attributable to periods before the ownership
change ("built-in gain"). The ability of the Company to use these net operating
loss carryovers to offset built-in gain first requires that the Company have
total built-in gains at the time of the ownership change which are greater than
a threshold amount. In addition, the use of these net operating loss
carryforwards to offset built-in gain cannot exceed the amount of the total
built-in gain.
The Company believes that due to the amount of built-in gain as of the date of
ownership change, and the recognition of such gain through December 31, 1993,
that there will be no significant limitation on the Company's ability to use
these net operating loss carryforwards or investment tax credit carryforwards.
CHANGE IN FEDERAL CORPORATE INCOME TAX RATES. The Omnibus Budget Reconciliation
Act of 1993 increased the federal corporate tax rate from 34% to 35%
retroactively to January 1, 1993. As a result of this tax increase, the tax
benefit at December 31, 1993 on the loss from continuing operations was
approximately $167,000 less than it would have been without such increase in the
tax rate. However, due to limitations on the recognition of deferred tax assets
under FAS 109, the total tax benefit at December 31, 1993, including the tax
benefit on the extraordinary loss on extinguishment of debt, is unaffected by
the tax rate increase. The impact of the tax rate increase on the Company's
total tax expense will be recognized when future taxable income absorbs the
present unrecognized deferred tax asset.
ACCOUNTING POLICIES. In November 1992, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" (SFAS No. 112). This statement requires
the accrual of the estimated cost of certain postemployment benefits provided to
former employees. SFAS No. 112 is effective for years beginning after December
15, 1993. The initial effect of applying this statement is to be accounted for
as a cumulative effect of a change in accounting principle. The Company has not
determined precisely what effect, if any, the adoption of SFAS No. 112 will have
on its financial statements, but believes the effect will be immaterial because
the Company has already recorded liabilities for any of the affected costs that
would be significant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information concerning this Item begins on the following page.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
33
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Forest Oil Corporation:
We have audited the accompanying consolidated balance sheets of Forest Oil
Corporation and subsidiaries as of December 31, 1993 and 1992, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1993. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Forest Oil
Corporation and subsidiaries as of December 31, 1993 and 1992, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1993 in conformity with generally accepted accounting
principles.
As discussed in Notes 8 and 13 to the consolidated financial statements, the
Company adopted the provisions of Financial Accounting Standards Board Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" and
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" in 1993.
KPMG PEAT MARWICK
Denver, Colorado
February 22, 1994
34
<PAGE>
FOREST OIL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1993 1992
---- ----
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,949 63,487
Accounts receivable 25,257 27,521
Other current assets 3,309 3,684
------------ ------------
Total current assets 35,515 94,692
Property and equipment, at cost:
Oil and gas properties - full cost accounting method (Note 2) 1,140,656 971,981
Buildings, transportation and other equipment 12,420 12,532
------------ ------------
1,153,076 984,513
Less accumulated depreciation, depletion and valuation allowance 787,380 725,939
------------ ------------
Net property and equipment 365,696 258,574
Investment in and advances to affiliate (Note 3) 16,451 16,847
Other assets 9,093 8,419
------------ ------------
$ 426,755 378,532
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 3,894 5,241
Current portion of nonrecourse secured loan and
production payment obligation (Note 5) 4,371 4,462
Current portion of subordinated debentures (Note 6) 7,171 -
Senior secured notes (Note 6) - 3,926
Accounts payable 28,348 36,479
Retirement benefits payable to executives and directors (Note 13) 553 475
Accrued expenses and other liabilities:
Interest 3,817 3,895
Other 1,857 3,625
------------ ------------
Total current liabilities 50,011 58,103
Long-term bank debt (Note 4)
Nonrecourse secured loan and production payment obligation (Note 5) 25,000 -
Senior secured notes (Note 6) 70,035 22,823
Subordinated debentures (Note 6) - 56,323
Retirement benefits payable to executives and directors (Note 13) 99,272 89,175
Other liabilities 4,135 4,551
Deferred revenue (Note 7) 22,918 10,734
Deferred Federal income taxes (Note 8) 67,228 67,066
- 9,876
Shareholders' equity (Notes 4, 6, 9 and 10):
Preferred stock. Authorized 10,000,000 shares. Par value $.01 per share.
Issued 2,880,973 of $.75 Convertible Preferred Stock in 1993
(3,129,790 shares in 1992); aggregate liquidation preference of
$28,809,730 in 1993 ($31,297,900 in 1992) 15,845 17,214
Common Stock. Authorized 50,000,000 shares. Par value $.10 per share.
Issued 28,250,445 shares in 1993 (11,338,665 shares in 1992) 2,825 1,134
Class B Stock. Par value $.10 per share. (3,652,468 shares in 1992) - 365
Capital surplus 193,717 145,393
Accumulated deficit (117,656) (96,443)
Foreign currency translation (785) (427)
Treasury stock, at cost, 335,813 shares in 1993 (410,583 shares in 1992) (5,790) (7,355)
------------ ------------
Total shareholders' equity 88,156 59,881
------------ ------------
Commitments and contingencies (Notes 13 and 15)
$ 426,755 378,532
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements
35
<PAGE>
FOREST OIL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1993 1992 1991
------------ ------------ ------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenue:
Oil and gas sales:
Gas $ 77,249 72,011 46,315
Oil and condensate 25,341 26,299 21,439
Products and other 293 929 1,122
------------ ------------ ------------
102,883 99,239 68,876
Miscellaneous, net 2,265 13,947 1,021
------------ ------------ ------------
Total revenue 105,148 113,186 69,897
Expenses:
Oil and gas production 19,540 15,865 12,548
General and administrative 12,003 11,611 9,541
Retirement benefits for executives and directors (Note 13) - - 950
Restructuring (Note 12) - - 3,585
Interest 23,729 27,800 23,306
Depreciation and depletion 60,581 46,624 38,229
Provision for impairment of oil and gas properties - - 34,000
------------ ------------ ------------
Total expenses 115,853 101,900 122,159
------------ ------------ ------------
Earnings (loss) before income taxes, cumulative effects of changes in
accounting principles and extraordinary items (10,705) 11,286 (52,262)
Income tax expense (benefit) (Note 8):
Current 254 435 455
Deferred (1,604) 3,553 (17,867)
------------ ------------ ------------
(1,350) 3,988 (17,412)
------------ ------------ ------------
Earnings (loss) before cumulative effects of changes in
accounting principles and extraordinary items (9,355) 7,298 (34,850)
Cumulative effects of changes in accounting principles (Notes 8 and 13):
Postretirement benefits, net of income tax benefit of $1,639,000 (3,183) - -
Income taxes 2,060 - -
------------ ------------ ------------
(1,123) - -
Earnings (loss) before extraordinary items (10,478) 7,298 (34,850)
Extraordinary items - extinguishment of debt, net of income tax benefit of
$4,652,000 in 1993 and tax expense of $4,895,000 in 1991 (Note 6) (10,735) - 9,502
------------ ------------ ------------
Net earnings (loss) $ (21,213) 7,298 (25,348)
------------ ------------ ------------
------------ ------------ ------------
Weighted average number of common shares outstanding 21,997 13,774 12,494
------------ ------------ ------------
------------ ------------ ------------
Net earnings (loss) attributable to common stock $ (23,463) 4,950 (30,557)
------------ ------------ ------------
------------ ------------ ------------
Primary earnings (loss) per common share (1):
Earnings (loss) before cumulative effects of changes in accounting
principles and extraordinary items $ (.53) 0 (3)
Cumulative effects of changes in accounting principles (.05) - -
------------ ------------ ------------
Earnings (loss) before extraordinary items (.58) 0 (3.21)
Extraordinary items - extinguishment of debt (.49) - 1
------------ ------------ ------------
Net earnings (loss) attributable to common stock $ (1.07) 0 (2.45)
------------ ------------ ------------
------------ ------------ ------------
<FN>
(1) Fully diluted earnings (loss) per share was the same as primary earnings (loss) per share in all years except 1992.
In 1992, fully diluted earnings per share was $.29.
</TABLE>
See accompanying notes to consolidated financial statements
36
<PAGE>
FOREST OIL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
$0.75 $2.125
CONVERTIBLE CONVERTIBLE
PREFERRED PREFERRED COMMON CLASS B
STOCK STOCK STOCK STOCK
------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance December 31, 1990 $ - 57,500 873 377
Net loss - - - -
+$2.125 CONVERTIBLE PREFERRED
Stock reclassified as $.75
Convertible Preferred
Stock (Note 9) 12,650 (57,500) - -
Redeemable Preferred Stock
acquired for $.75 Convertible
Preferred Stock (Note 9) 4,396 - - -
+$.75 CONVERTIBLE PREFERRED STOCK
issue costs - - - -
Warrants issued in exchange
offers (Note 10) - - - -
Redeemable Preferred Stock - - - -
dividends (Note 9) - - - -
Treasury stock contributed to
the Retirement Savings
Plan and other 234 - 78 (2)
Foreign currency translation - - - -
------------ ------------ ------------ ------------
Balance December 31, 1991 17280 - 951 375
Net earnings - - - -
+$.75 CONVERTIBLE PREFERRED
Stock dividends paid in
Common Stock (Note 9) - - 153 -
Conversions of $.75 Convertible
Preferred Stock to
Common Stock (66) - 4 -
Issuance of Common Stock in
payment of executive
retirement liability (Note 13) - - 16 -
Treasury stock contributed to
the Retirement Savings
Plan and other - - 10 (10)
Foreign currency translation - - - -
------------ ------------ ------------ ------------
Balance December 31, 1992 17214 - 1,134 365
Net loss - - - -
Common Stock issued, net of
offering costs (Note 10) - - 1,108 -
+$.75 CONVERTIBLE PREFERRED
Stock dividends paid in
Common Stock (Note 9) - - 64 -
Conversions of $.75 Convertible
Preferred Stock to
Common Stock (1,369) - 87 -
Reclassification of Class B to
Common Stock (Note 10) - - 396 (360)
Exercise of employee stock
options (Note 10) - - 13 -
Stock issued to the Retirement
Savings Plan for profit-
sharing contributions (Note 13) - - 18 -
Unfunded pension liability (Note 13) - - - -
Treasury stock contributed to
the Retirement Savings
Plan and other - - 5 (5)
Foreign currency translation - - - -
------------ ------------ ------------ ------------
Balance December 31, 1993 $ 15845 - 2,825 -
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
ACCUMU- FOREIGN
CAPITAL LATED CURRENCY TREASURY
SURPLUS DEFICIT TRANSLATION STOCK
------------ ------------ ------------ ------------
<C> <C> <C> <C>
Balance December 31, 1990
Net loss 92,511 (78,393) 2,074 (16,485)
+$2.125 CONVERTIBLE PREFERRED - (25,348) - -
Stock reclassified as $.75
Convertible Preferred
Stock (Note 9)
Redeemable Preferred Stock 44,850 - - -
acquired for $.75 Convertible
Preferred Stock (Note 9)
+$.75 CONVERTIBLE PREFERRED STOCK 22,500 - - -
issue costs
Warrants issued in exchange (1,500) - - -
offers (Note 10)
Redeemable Preferred Stock 373 - - -
dividends (Note 9) - - - -
Treasury stock contributed to (5,209) - - -
the Retirement Savings
Plan and other
Foreign currency translation (4,456) - - 4,915
- - 402 -
------------ ------------ ------------ ------------
Balance December 31, 1991
Net earnings 149,069 (103,741) 2,476 (11,570)
+$.75 CONVERTIBLE PREFERRED - 7,298 - -
Stock dividends paid in
Common Stock (Note 9)
Conversions of $.75 Convertible (153) - - -
Preferred Stock to
Common Stock
Issuance of Common Stock in 62 - - -
payment of executive
retirement liability (Note 13)
Treasury stock contributed to 173 - - -
the Retirement Savings
Plan and other
Foreign currency translation (3,758) - - 4,215
- - (2,903) -
------------ ------------ ------------ ------------
Balance December 31, 1992
Net loss 145,393 (96,443) (427) (7,355)
Common Stock issued, net of - (21,213) - -
offering costs (Note 10)
+$.75 CONVERTIBLE PREFERRED 50,398 - - -
Stock dividends paid in
Common Stock (Note 9)
Conversions of $.75 Convertible (64) - - -
Preferred Stock to
Common Stock
Reclassification of Class B to 1,282 - - -
Common Stock (Note 10)
Exercise of employee stock (36) - - -
options (Note 10)
Stock issued to the Retirement 383 - - -
Savings Plan for profit-
sharing contributions (Note 13)
Unfunded pension liability (Note 13) 597 - - -
Treasury stock contributed to (3,038) - - -
the Retirement Savings
Plan and other
Foreign currency translation (1,198) - - 1,565
- - (358) -
------------ ------------ ------------ ------------
Balance December 31, 1993 193,717 (117,656) (785) (5,790)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements
37
<PAGE>
FOREST OIL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1993 1992 1991
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Earnings (loss) before cumulative effects of changes in
accounting principles and extraordinary items $ (9,355) 7,298 (34,850)
Adjustments to reconcile earnings (loss) before cumulative effects of
changes in accounting principles and extraordinary items
to net cash provided by operating activities:
Depreciation and depletion 60,581 46,624 38,229
Provision for impairment of oil and gas properties - - 34,000
Deferred Federal income tax expense (benefit) (1,604) 3,553 (17,867)
Gain on curtailment of pension plan - - (806)
Other, net 3,045 3,387 625
--------- --------- ---------
52,667 60,862 19,331
Net changes in current assets and liabilities:
(Increase) decrease in accounts receivable 2,264 (3,447) 4,795
(Increase) decrease in other current assets 375 (1,903) 1,020
Increase (decrease) in accounts payable (12,668) 13,090 (8,678)
Increase (decrease) in accrued expenses and other liabilities (1,078) 1,772 (898)
--------- --------- ---------
Net cash provided by operating activities 41,560 70,374 15,570
Cash flows from investing activities:
Capital expenditures for property and equipment (171,166) (107,425) (36,449)
Proceeds of sales of property and equipment, net 2,997 25,730 15,658
Increase in other assets, net (1,965) (1,659) (755)
--------- --------- ---------
Net cash used by investing activities (170,134) (83,354) (21,546)
Cash flows from financing activities:
Proceeds of long-term bank debt 25,000 9,623 9,000
Repayments of long-term bank debt - (9,623) (23,000)
Proceeds of nonrecourse secured loan 57,400 - -
Proceeds of production payment - 28,805 -
Repayments of production payment (5,980) (1,520) -
Redemptions and repurchases of subordinated debentures and secured notes (148,918) (1,115) -
Proceeds of volumetric production payments 40,468 45,057 49,180
Amortization of deferred revenue (40,306) (18,190) (8,981)
Proceeds of common stock offering, net of offering costs 51,506 - -
Issuance of senior subordinated notes, net of offering costs 95,827 - -
Deferred debt and exchange offer costs (1,336) (285) (6,400)
Increase (decrease) in cash overdraft (1,347) 2,963 509
Increase (decrease) in other liabilities, net (266) 1,998 (2,389)
--------- --------- ---------
Net cash provided by financing activities 72,048 57,713 17,919
Effect of exchange rate changes on cash (12) (110) 16
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (56,538) 44,623 11,959
Cash and cash equivalents at beginning of year 63,487 18,864 6,905
--------- --------- ---------
Cash and cash equivalents at end of year $ 6,949 63,487 18,864
--------- --------- ---------
--------- --------- ---------
Cash paid during the year for:
Interest $ 23,123 26,079 22,675
--------- --------- ---------
--------- --------- ---------
Income taxes $ 452 177 672
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
38
<PAGE>
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- --------------------------------------------------------------------------------
BASIS OF CONSOLIDATION - The consolidated financial statements include the
accounts of Forest Oil Corporation (the Company) and its wholly-owned
subsidiaries. Significant intercompany balances and transactions are
eliminated. The Company's investment in CanEagle Resources Corporation
(CanEagle) is accounted for using the equity method (See Note 3).
CASH EQUIVALENTS - For purposes of the statements of cash flows, the Company
considers all debt instruments with original maturities of three months or less
to be cash equivalents.
PROPERTY AND EQUIPMENT - The Company uses the full cost method of accounting for
oil and gas properties. Separate cost centers are maintained for each country
in which the Company has operations. All costs incurred in the acquisition,
exploration and development of properties (including costs of surrendered and
abandoned leaseholds, delay lease rentals, dry holes and overhead related to
exploration and development activities) are capitalized. Costs applicable to
each cost center, including capitalized costs as wells as estimated costs of
future development, surrender and abandonment, are depleted using the units of
production method. Unusually significant investments in seismic data and
unproved properties, including related capitalized interest costs, are not
depleted pending the determination of the existence of proved reserves and the
commencement of sales from the properties. As of December 31, 1993 and 1992,
there were undeveloped property costs of $41,216,000 and $18,306,000,
respectively, in the United States which were not being depleted, all of which
relate to property acquisitions in 1992 and 1993. At December 31, 1991 there
were no costs in any cost centers which were not subject to depletion.
Depletion per unit of production was determined based on conversion to common
units of measure using one barrel of oil as an equivalent to six MCF of natural
gas. Depletion per unit of production (MCFE) for each of the Company's cost
centers was as follows:
UNITED STATES CANADA
------------- ------
1993 $ 1.19 -
1992 1.21 1.19
1991 1.28 1.37
Capitalized costs less related accumulated depletion and deferred income taxes
may not exceed the sum of (1) the present value of future net revenue from
estimated production of proved oil and gas reserves; plus (2) the cost of
properties not being amortized, if any; plus (3) the lower of cost or estimated
fair value of unproved properties included in the costs being amortized, if any;
less (4) income tax effects related to differences in the book and tax basis of
oil and gas properties. As a result of this limitation on capitalized costs of
each of the cost centers, the accompanying financial statements include a
provision for impairment of oil and gas property costs of $15,000,000 in the
United States and $19,000,000 in Canada in 1991. There was no impairment of oil
and gas property costs required to be recorded in 1993 or 1992.
No gain or loss is recognized on the sale of oil and gas properties except in
the case of properties involving significant remaining reserves. Proceeds from
sales of insignificant reserves and undeveloped properties are applied to reduce
the costs in the cost centers.
Buildings, transportation and other equipment are depreciated on the straight-
line method based upon estimated useful lives of the assets ranging from five to
forty-five years.
39
<PAGE>
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D):
- --------------------------------------------------------------------------------
INCOME TAXES - The adoption of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (SFAS No. 109), effective January 1, 1993
changed the Company's method of accounting for income taxes from the deferred
method to an asset and liability method. Previously, the Company deferred the
tax effects of timing differences between financial reporting and taxable
income. The asset and liability method requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between tax bases and financial reporting bases of all other assets
and liabilities. Temporary differences are principally the result of certain
development, exploration and other costs which are deducted for income tax
purposes but capitalized for financial accounting purposes.
FOREIGN CURRENCY TRANSLATION - Balance sheet accounts of Canadian activities are
translated into United States dollars using the year-end exchange rates. Income
and expense items have been translated at rates applicable during each year.
Adjustments resulting from these translations are accumulated in a separate
component of shareholders' equity.
GAS REVENUE - The Company uses the sales method of accounting for amounts
received from natural gas sales. Under this method, all proceeds from
production credited to the Company are recorded as revenue until such time as
the Company has produced its share of related estimated remaining reserves.
Thereafter, additional amounts received are recorded as a liability.
As of December 31, 1993 the Company had produced approximately 10 BCF more than
its entitled share of production. The undiscounted value of this imbalance is
approximately $17,000,000 using the lower of the price received for the natural
gas, the current market price or the contract price, as applicable. Amounts
received for approximately 7 BCF of this production have been recorded as
revenue and as reductions of the Company's reserve quantities and reserve values
described in Note 19. Amounts received for the remaining 3 BCF of this
production have been recorded as a liability as this volume exceeds the
Company's share of the related estimated remaining reserves. The liability is
recorded in accordance with the settlement provisions of the applicable gas
balancing agreements and amounted to approximately $3,887,000 at December 31,
1993.
ENERGY SWAPS AND OTHER FINANCIAL ARRANGEMENTS - In order to hedge against the
effects of declines in oil and natural gas prices, the Company enters into
energy swap agreements and other financial arrangements with third parties. In
a typical swap agreement, the Company receives the difference between a fixed
price per unit of production and a price based on an agreed-upon third party
index if the index price is lower. If the index price is higher, the Company
pays the difference. The Company's current swaps are settled on a monthly
basis. For the years ended December 31, 1993, 1992 and 1991, the Company
incurred swap gains (losses) of $(2,050,000), $(1,642,000) and $3,564,000,
respectively. The Company recognizes gains or losses on such agreements as
adjustments to revenue recorded for the related production.
EARNINGS (LOSS) PER SHARE - Primary earnings (loss) per share is computed by
dividing net earnings (loss) attributable to common stock by the weighted
average number of common shares and common share equivalents outstanding during
each period, excluding treasury shares. Net earnings (loss) attributable to
common stock represents net earnings (loss) less preferred stock dividend
requirements of $2,250,000 in 1993, $2,348,000 in 1992, and $5,209,000 in 1991.
Common share equivalents include, when applicable, dilutive stock options and
warrants using the treasury stock method.
Fully diluted earnings per share assumes, in addition to the above, (i) that
convertible debentures were converted at the beginning of each period or date of
issuance, if later, with earnings being increased for interest expense, net of
taxes, that would not have been incurred had conversion taken place, (ii) that
convertible preferred stock was converted at the beginning of each period or
date of issuance, if later, and (iii) the additional dilutive effect of stock
options and warrants. The effects of these assumptions were anti-dilutive in
1993 and 1991. The weighted average number of shares outstanding on a fully-
diluted basis was 26,515,000 for the year ended December 31, 1992.
40
<PAGE>
(2) ACQUISITIONS:
- --------------------------------------------------------------------------------
On May 18, 1993 and December 10, 1993, the Company purchased interests in
properties from Atlantic Richfield Company (ARCO) for approximately $60,862,000.
In conjunction with the acquisitions, the Company sold volumetric production
payments from certain of the ARCO properties for approximately $40,468,000 (net
of fees). On December 14, 1993, the Company purchased interests in offshore
properties in the West Cameron/Eugene Island area from a private company for
approximately $24,050,000. On December 30, 1993, the Company purchased
interests in properties in the Loma Vieja field in south Texas for approximately
$59,458,000. In conjunction with the acquisitions, the Company entered into a
nonrecourse secured loan agreement for $51,600,000. The remainder of the
purchase price for these two acquisitions, $31,908,000, was financed through
internal funds and from funds obtained under the Company's secured master credit
facility. The Company's results of operations for the year ended December 31,
1993 include the effects of the first ARCO acquisition since May 1, 1993 and the
West Cameron/Eugene Island properties and the second ARCO acquisition since
December 1, 1993.
On February 1, 1992, Forest I Development Company, a wholly-owned subsidiary of
the Company, purchased substantially all of the assets of Harbert Energy
Corporation and its associated entities in an acquisition accounted for as a
purchase. The purchase price of $40,400,000 consisted of payment of
approximately $7,120,000 in cash (including acquisition costs), assumption by
Forest of certain liabilities, and the sale of a dollar-denominated production
payment which was recorded at its present value of $28,805,000. On July 31,
1992, the Company purchased Transco Exploration and Production Company (TEPCO)
for approximately $45,000,000. In conjunction with the acquisition, the Company
sold a volumetric production payment from certain of the TEPCO properties for
approximately $38,500,000 (net of fees). In addition, the Company issued a
$2,000,000 promissory note to Transco Energy Corporation as part of the purchase
price. Approximately $4,062,000 was paid in cash, including acquisition costs.
The Company's results of operations for the year ended December 31, 1992 include
the effects of the Harbert and TEPCO acquisitions since February 1, 1992 and
July 31, 1992, respectively.
(3) INVESTMENT IN AND ADVANCES TO AFFILIATE:
- --------------------------------------------------------------------------------
In May 1992, the Company transferred substantially all of its Canadian oil and
gas properties to a wholly-owned Canadian subsidiary, Forest Canada I
Development Ltd. (FCID). On September 30, 1992, FCID sold its Canadian assets
and related operations to CanEagle for approximately $51,250,000 in Canadian
funds ($41,000,000 U.S.). CanEagle was formed for the purpose of acquiring the
assets and related operations of FCID. An independent third party financed the
purchase by CanEagle. In the transaction, FCID received cash of approximately
$28,000,000 CDN ($22,400,000 U.S.), net of expenses, and provided financing to
the third party in the aggregate principal amount of $22,000,000 CDN
($17,600,000 U.S.).
In connection with the transaction, CanEagle issued to the third party (a) a
$19,000,000 CDN senior debenture, secured by its oil and gas properties, (b) a
$6,000,000 CDN subordinated debenture, secured by its oil and gas properties and
subordinated to the senior debenture, (c) a $16,000,000 CDN senior subordinated
note, unsecured and subordinated to the debentures, (d) convertible notes for
$6,250,000 CDN, unsecured and subordinated to the debentures and the senior
subordinated note, and (e) preferred stock for $4,000,000 CDN. A Canadian bank
provided financing to the third party secured by a pledge of the senior
debenture. Forest's financing to the third party is secured by a pledge of the
subordinated debenture and the senior subordinated note. The notes received by
Forest from the third party, the subordinated debenture and the senior
subordinated note were due March 31, 1998 and bore interest at 9% per annum
payable quarterly.
As part of the transaction, Forest retained 100% of the common equity of
CanEagle and granted an option to a third party to purchase 80% of the common
equity of CanEagle for nominal consideration. The original option lapsed
unexercised in December 1992. Forest subsequently agreed to sell all of the
common equity interest to the third party, subject to certain revisions to
aspects of CanEagle's capital structure. This sale was completed on September
29, 1993 for nominal consideration.
41
<PAGE>
(3) INVESTMENT IN AND ADVANCES TO AFFILIATE (CONT'D):
- --------------------------------------------------------------------------------
On September 29, 1993, Forest exchanged the $16,000,000 CDN senior subordinated
note plus $780,000 CDN accrued interest thereon for 15,400,000 shares of Class A
Preferred Shares and 1,400,000 shares of Class B Preferred Shares of CanEagle.
The Class A and Class B Preferred Shares have liquidation preference rights of
$1.00 CDN per share. The Class A Preferred Shares are entitled to annual fixed
cumulative preferential cash dividends of $.03 per share, payable quarterly.
Dividends may be paid through issuance of noninterest-bearing promissory notes
due not later than September 30, 1998. Class B Preferred Shares are entitled to
an annual $.03 fixed cumulative cash dividend payable only after all Class A
Preferred Shares have been redeemed.
CanEagle may redeem first the Class A and then the Class B Preferred Shares at
$1.00 CDN per share plus all accumulated but unpaid dividends thereon at any
time subsequent to issuance, on a pro rata basis from all holders of each issue,
but is required to redeem all of the then outstanding shares of both issues on
or before September 30, 1998.
While any of the Class A and Class B Preferred Shares are outstanding, CanEagle
is prohibited from making dividends or distributions on, or redeeming or
purchasing any of its common shares, issuing any additional preferred shares,
incurring any indebtedness other than as permitted under the restated articles
of incorporation or undertaking certain other prohibited transactions unless
unanimously approved by holders of the Class A shares.
No gain was recognized as a result of the CanEagle transaction because
collection of the remaining sales price was not reasonably assured. Due to its
continuing financial interest in CanEagle, the Company is accounting for its
investment in CanEagle under the equity method. Accordingly, losses will be
recognized to the extent that such losses exceed (a) amounts attributable to
securities subordinate to the Company's interest, and (b) the basis difference
of $780,000 CDN attributable to the 1993 capital restructuring of CanEagle.
Under this method, no portion of the CanEagle loss was required to be recorded
by the Company in 1993.
Earnings related to the Company's interest in CanEagle will be recognized only
if realization is assured. Accordingly, amounts received as interest on the
subordinated note during 1993 (approximately $540,000 CDN) were recorded as a
reduction of the Company's investment in and advances to CanEagle. No dividends
were paid on the Class A Preferred Shares in 1993.
The excess of the carrying value of properties sold over the cash received, or
approximately $16,451,000 U.S. at December 31, 1993, represents Forest's
investment in CanEagle.
In March 1994, the Company pledged its CanEagle securities as collateral for a
$4,000,000 loan from The Chase Manhattan Bank, NA due June 1, 1994.
42
<PAGE>
(3) INVESTMENT IN AND ADVANCES TO AFFILIATE (CONT'D):
- --------------------------------------------------------------------------------
CanEagle reports its annual results on a fiscal year ending on September 30.
Condensed financial statement information for CanEagle as of September 30, 1993
and 1992 and for the year ended September 30, 1993 is as follows:
<TABLE>
<CAPTION>
BALANCE SHEET
SEPTEMBER 30,
---------------------
1993 1992
------ ------
(In Thousands of Canadian dollars)
<S> <C> <C>
ASSETS
Current assets - cash and accounts receivable $ 4,637 20
Oil and gas properties:
Proved 21,017 39,386
Unproved 29,086 12,000
------ ------
50,103 51,386
Less accumulated depreciation and depletion 4,568 -
------ ------
Net oil and gas properties 45,535 51,386
Note receivable 2,980 -
------ ------
$53,152 51,406
------ ------
------ ------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,650 136
Current portion of senior debenture 16,300 5,700
------ ------
20,950 5,836
Senior debenture - 13,300
Subordinated debenture 6,000 6,000
Senior note - 16,000
Convertible notes - 6,250
Other liabilities 91 -
Shareholders' equity:
Common stock 20 20
Preferred stock:
Class A 15,400 -
Series A - 4,000
Class B 12,500 -
Series B 600 -
Accumulated deficit (2,409) -
------ ------
Total shareholders' equity 26,111 4,020
------ ------
$53,152 51,406
------ ------
------ ------
</TABLE>
43
<PAGE>
(3) INVESTMENT IN AND ADVANCES TO AFFILIATE (CONT'D):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
YEAR ENDED
SEPTEMBER 30, 1993
------------------
(In Thousands of Canadian dollars)
<S> <C>
Oil and gas sales $ 8,819
Expenses:
Oil and gas production 1,861
General and administrative 514
Interest 3,812
Depreciation and depletion 4,660
------
Total expenses 10,847
Loss before income taxes (2,028)
Income tax expense 101
------
Net loss (2,129)
Preferred stock dividend requirements (280)
-------
Net loss attributable to common stock $(2,409)
-------
-------
</TABLE>
Substantial uncertainty exists regarding whether CanEagle is a going concern due
to the required principal payment of $16,300,000 on its Senior Debenture due
June 30, 1994. CanEagle is in the process of refinancing the Senior Debenture
with its lender, but there is no assurance that such refinancing can be
completed on mutually acceptable terms prior to the due date. The above
condensed financial statements do not include any adjustments relating to the
ultimate outcome of this uncertainty.
The following information is presented in accordance with Statement of Financial
Accounting Standards No. 69, "Disclosure about Oil and Gas Producing
Activities," (SFAS No. 69).
(A) Unaudited information with respect to costs incurred by CanEagle for oil
and gas exploration and development activities is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, 1993
------------------
(In Thousands of Canadian Dollars)
<S> <C>
Property acquisition costs $ 44
Exploration costs 642
Development costs 1,670
-----
Total $2,356
-----
-----
</TABLE>
(B) Unaudited information with respect to CanEagle's estimated proved oil and
gas reserves at September 30, 1993 and 1992 follows. Such estimates are
inherently imprecise and may be subject to substantial revisions.
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1993 1992
------------ -------------
<S> <C> <C>
Proved reserves:
Oil and condensate (MBBLS) 3,795 2,075
Gas (MMCF) 18,159 22,173
Proved developed reserves:
Oil and condensate (MBBLS) 2,930 2,036
Gas (MMCF) 10,948 11,290
</TABLE>
44
<PAGE>
(3) INVESTMENT IN AND ADVANCES TO AFFILIATE (CONT'D):
- --------------------------------------------------------------------------------
(C) The standardized measure of discounted future net cash flows of
CanEagle, calculated in accordance with the provisions of SFAS 69 is as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1993 1992
------------ -------------
(In Thousands of Canadian Dollars)
<S> <C> <C>
Standardized measure of
discounted future net cash flows $37,854 40,623
------ ------
------ ------
</TABLE>
(4) LONG-TERM BANK DEBT:
- --------------------------------------------------------------------------------
In December 1993, the Company entered into a secured master credit facility (the
Credit Facility) with The Chase Manhattan Bank, NA. (Chase) as agent for a group
of banks. Under the Credit Facility, the Company may borrow up to $17,500,000
for acquisition or development of proved oil and gas reserves, which amount is
subject to semi-annual redetermination, and up to $17,500,000 for working
capital and general corporate purposes. The Credit Facility is secured by a
lien on, and a security interest in, a majority of the Company's proved oil and
gas properties and related assets (subject to prior security interests granted
to holders of volumetric production payment agreements), a pledge of accounts
receivable, material contracts and the stock of material subsidiaries, and a
negative pledge on remaining assets. Borrowings under the Credit Facility bear
interest at the Chase base rate plus 3/8 of 1% or 1,2,3 or 6 month LIBOR plus 1
and 5/8%, payable quarterly. A commitment fee of 1/2 of 1% is charged on unused
availability. The maturity date of the Credit Facility is December 31, 1996.
Under the terms of the Credit Facility, the Company is subject to certain
covenants, including restrictions or requirements with respect to working
capital, net cash flow, additional debt, asset sales, mergers, cash dividends on
capital stock and reporting responsibilities.
At December 31, 1993 the outstanding balance under the credit facility was
$25,000,000 at an interest rate of 6.375%. The Company did not meet the test
imposed by the working capital covenant of the Credit Facility; compliance with
this covenant was waived by Chase at December 31, 1993.
(5) NONRECOURSE SECURED LOAN AND PRODUCTION PAYMENT OBLIGATION:
- --------------------------------------------------------------------------------
NONRECOURSE SECURED LOAN:
On December 30, 1993, the Company entered into a nonrecourse secured loan
agreement which bears annual interest at the rate of 12.5%, arranged by Enron
Finance Corp., an affiliate of Enron Gas Services (the Enron loan).
Approximately $51,600,000 was advanced on December 30, 1993 to provide financing
for a portion of the West Cameron/Eugene Island and Loma Vieja acquisitions.
Another $5,800,000 of the available balance was advanced on December 30, 1993 to
fund a portion of the development projects which will be undertaken by the
Company on the properties pledged as security for the loan. Under the terms of
the Enron loan, additional funds may be advanced to fund additional development
projects which will be undertaken by the Company on the properties pledged as
security for the loan. The loan amount of $57,400,000 was recorded as a
liability of $53,101,000 to reflect conveyance to the lender of a 20% interest
in the net profits, as defined, of the Loma Vieja properties. The loan discount
of $4,299,000 will be amortized over the life of the loan using the effective
interest method.
Payments of principal and interest under the Enron loan are due monthly and are
equal to 90% of total net operating income from the secured properties, reduced
by 80% of allowable capital expenditures, as defined. The Company's current
estimate, based on expected production and prices, budgeted capital expenditure
levels and expected discount amortization, is that 1994 payments will reduce the
recorded liability by approximately $983,000; this amount is included in current
liabilities. Estimated liability reductions for 1995 through 1997,
45
<PAGE>
(5) NONRECOURSE SECURED LOAN AND PRODUCTION PAYMENT OBLIGATION (cont'd):
- -------------------------------------------------------------------------------
under the same production, pricing, capital expenditure and amortization
scenario, are $12,385,000, $20,485,000, and $19,248,000, respectively.
Payments, if any, under the net profits conveyance will commence upon repayment
of the principal amount of the Enron loan and will cease when the lender has
received an internal rate of return, as defined, of 18% (15.25% through December
31, 1995). Properties to which approximately 22% of the Company's estimated
proved reserves are attributable, on an MCF equivalent basis, are dedicated to
repayment of the Enron loan.
PRODUCTION PAYMENT OBLIGATION:
The original amount of the dollar-denominated production payment was
$37,550,000, which was recorded as a liability of $28,805,000 after a discount
to reflect a market rate of interest of 15.5%. At December 31, 1993 the
remaining recorded liability was $21,305,000. Under the terms of the dollar-
denominated production payment agreement entered into in 1992 in connection with
the Harbert acquisition, Forest I Development Company must make a monthly cash
payment which is the greater of a base amount or 85% of net proceeds from the
subject properties, as defined, except that the amount required to be paid in
any given month shall not exceed 100% of the net proceeds from the subject
properties. The Company's current estimate, based on expected production and
prices, budgeted capital expenditure levels and expected discount amortization,
is that 1994 payments will reduce the recorded liability by approximately
$3,388,000; this amount is included in current liabilities. Estimated liability
reductions for 1995 through 1998, under the same production, pricing, capital
expenditure and discount scenario, are $1,949,000, $3,522,000, $4,492,000 and
$2,340,000, respectively. Properties to which approximately 7% of the Company's
estimated proved reserves are attributable, on an equivalent barrel basis, are
pledged under the production payment financing through July 1999.
(6) SENIOR SECURED NOTES AND SUBORDINATED DEBENTURES:
SENIOR SECURED NOTES:
The Senior Secured Notes were issued in 1991 in connection with the Company's
recapitalization and were redeemed in full during 1993. Amounts outstanding at
December 31, 1992 were as follows (In Thousands):
<TABLE>
<CAPTION>
<S> <C>
Principal amount $ 65,773
Unamortized original issue discount (5,524)
-------
60,249
Less current portion (3,926)
-------
$ 56,323
-------
-------
</TABLE>
Accretion of the original issue discount relating to the Senior Secured Notes
was calculated using the effective interest method over the life of the issue.
The Senior Secured Notes bore interest at 12-3/4%, were due June 1, 1998, and
were initially secured by liens on substantially all of the Company's oil and
gas properties in the United States, including all reserves attributable
thereto. The provisions of the Senior Secured Notes contained restrictions on
dividends or cash distributions on or purchases of capital stock, prohibited
payment of cash dividends on the Company's Common Stock and Class B Stock prior
to January 1, 1994 and were subject to required purchase provisions upon
occurrence of certain specified events.
Pursuant to the provisions of the Senior Secured Notes, the Company was required
to make an offer to purchase Senior Secured Notes with 50% of the net cash
proceeds (as defined) of the ONEOK litigation. (See Note 11). The amount of
Senior Secured Notes tendered pursuant to such offer was $3,926,000. The
purchase resulted in a loss of $614,000 which was recorded as a reduction of
miscellaneous net revenue in 1992.
46
<PAGE>
(6) SENIOR SECURED NOTES AND SUBORDINATED DEBENTURES (cont'd):
- -------------------------------------------------------------------------------
The Senior Secured Notes were senior in right of payment to the 13-5/8%
Debentures, 12-1/2% Debentures, 13-7/8% Debentures and 5-1/2% Debentures.
The redemption of the Senior Secured Notes was completed using the net proceeds
from a Common Stock offering and a portion of the proceeds from the sale of 11-
1/4% Senior Subordinated Notes described below. The outstanding principal value
of the Senior Secured Notes of $61,847,000 at December 31, 1992 was redeemed
during 1993, resulting in a loss of $9,419,000.
Subordinated Debentures:
Subordinated debentures outstanding at December 31 were as follows:
<TABLE>
<CAPTION>
1993 1992
------ ------
(In Thousands)
<S> <C> <C>
11-1/4% Senior Subordinated Notes,
net of unamortized original issue
discount of $728,000 $99,272 -
13-5/8% Debentures - 72,374
12-1/2% Debentures - 4,408
13-7/8% Debentures - 4,914
5-1/2% Debentures 7,171 7,479
------- -------
106,443 89,175
Less current portion (7,171) -
------- -------
$99,272 89,175
------- -------
------- -------
</TABLE>
On September 8, 1993 the Company completed a public offering of $100,000,000
aggregate principal amount of 11-1/4% Senior Subordinated Notes due September 1,
2003. The Senior Subordinated Notes were issued at a price of 99.259% yielding
11.375% to the holders. The Company used the net proceeds from the sale of the
Senior Subordinated Notes of approximately $95,827,000, together with
approximately $19,400,000 of available cash, to redeem all of its outstanding
Senior Secured Notes and long-term subordinated debentures.
The Senior Subordinated Notes will be redeemable at the option of the Company,
in whole or in part, at any time on or after September 1, 1998 initially at a
redemption price of 105.688%, plus accrued interest to the date of redemption,
declining at the rate of 1.896% per year to September 9, 2000 and at 100%
thereafter. In addition, the Company may, at its option, redeem prior to
September 1, 1996, up to 30% of the initially outstanding principal amount of
the Notes at 110% of the principal amount thereof, plus accrued interest to the
date of redemption, with the net proceeds of any future public offering of its
Common Stock.
Under the terms of the Senior Subordinated Notes, the Company must meet certain
tests before it is able to pay cash dividends (other than dividends on the
Company's $.75 Convertible Preferred Stock) or make other restricted payments,
incur additional indebtedness, engage in transactions with its affiliates, incur
liens and engage in certain sale and leaseback arrangements. The terms of the
Senior Secured Notes also limit the Company's ability to undertake a
consolidation, merger or transfer all or substantially all of its assets. In
addition, the Company is, subject to certain conditions, obligated to offer to
repurchase Senior Subordinated Notes at par value plus accrued and unpaid
interest to the date of repurchase, with the net cash proceeds of certain sales
or dispositions of assets. Upon a change of control, as defined, the Company
will be required to make an offer to purchase the Senior Subordinated Notes at
101% of the principal amount thereof, plus accrued interest to the date of
purchase.
The 13-5/8% Debentures were due September 15, 1998. The outstanding balance of
the 13-5/8% Debentures of $72,374,000 at December 31, 1992 was redeemed during
1993, resulting in a loss of $5,839,000.
The 12-1/2% Debentures were due May 1, 1999. The outstanding balance of the 12-
1/2% Debentures of $4,408,000 at December 31, 1992 was redeemed during 1993,
resulting in a loss of $78,450.
47
<PAGE>
(6) SENIOR SECURED NOTES AND SUBORDINATED DEBENTURES (CONT'D):
- -------------------------------------------------------------------------------
The 13-7/8% Debentures were due June 1, 2000. The outstanding balance of the
13-7/8% Debentures of $4,914,000 at December 31, 1992 was redeemed during 1993,
resulting in a loss of $53,000.
During 1993, the Company purchased $308,000 principal amount of its 5-1/2%
Convertible Subordinated Debentures, resulting in a gain of $2,000. The
remaining balance of $7,171,000 was paid in full on the February 1, 1994 due
date.
In 1991, the Company consummated exchange offers pursuant to which the Company's
outstanding debt was exchanged for Senior Secured Notes and warrants to purchase
Common Stock. Holders of $62,010,000 principal amount of the Company's 12-1/2%
Debentures, 13-7/8% Debentures and 13-5/8% Debentures accepted the Company's
exchange offers, which were accounted for as extinguishments of debt.
Therefore, the Company recognized an extraordinary gain on such transactions
equal to the excess of the carrying amount of the debentures exchanged over the
estimated market value of the Senior Secured Notes and Warrants issued. The
gain on the transactions of $14,397,000, reduced by applicable income taxes of
$4,895,000, was recorded as an extraordinary gain on extinguishment of debt in
1991.
(7) DEFERRED REVENUE:
- --------------------------------------------------------------------------------
In April 1991, the Company sold a volumetric production payment from the
Company's interest in four properties to Enron Reserve Acquisition Corporation
(Enron) for net proceeds of $43,680,000. The production payment agreement
covered approximately 30 BCF of natural gas to be delivered over six years at an
average price of $1.38 per MMBTU. From November 1991 through February 1992, the
Company acquired additional interests in one of the subject properties for
$15,465,000 and sold a second volumetric production payment to Enron for net
proceeds of $12,035,000. This second production payment covered approximately 9
BCF of natural gas to be delivered over four years at an average price of $1.26
per MMBTU. In connection with the purchase of TEPCO in July 1992, a volumetric
production payment from certain of the TEPCO properties was sold to Enron for
net proceeds of $38,522,000. This production payment covered approximately 18
BCF of natural gas at an average price of $1.39 per MMBTU and 770,000 barrels of
oil at an average price of $15.99 per barrel to be delivered over four years.
In connection with the purchase of interests in properties from ARCO in May
1993, a volumetric production payment from certain of the ARCO properties was
sold to Enron for net proceeds of $27,260,000. This production payment covered
approximately 13.1 BCF of natural gas at an average price of $1.92 per MMBTU to
be delivered over three years.
Effective November 1, 1993, the four separate volumetric payment financings
described above between the Company and Enron were consolidated into one
production payment. The delivery schedules from the previously separate
production payments were not adjusted; however, delivery shortfalls on any
property can now be made up from excess production from any other property which
is dedicated to the production payment obligation. The consolidation also
provided that certain acreage previously committed to the production payments
was released and can be developed by the Company unburdened by the delivery
obligations of the production payment. The Company may grant liens on
properties subject to this production payment agreement, but it must notify
prospective lienholders that their rights are subject to the prior rights of the
production payment owner.
In connection with the purchase of interests in properties from ARCO in December
1993, a volumetric production payment from certain of the ARCO proerties was
sold to Enron for net proceeds of $13,207,000. This production payment covered
approximately 7.3 BCF of natural gas at an average price of $1.68 per MMBTU to
be delivered over 8 years.
The Company is responsible for royalties and for production costs associated
with operating the properties subject to the production payment agreements.
48
<PAGE>
(7) DEFERRED REVENUE (CONT'D):
- --------------------------------------------------------------------------------
Amounts received were recorded as deferred revenue. Annual amortization of
deferred revenue, based on the scheduled deliveries under the production payment
agreements, is as follows:
<TABLE>
<CAPTION>
SCHEDULED DELIVERIES
--------------------------
ANNUAL NATURAL GAS OIL
AMORTIZATION (MCF) (BARRELS)
------------ ----------- ---------
(In Thousands)
<S> <C> <C> <C>
1994 $34,935 19,422 218
1995 19,797 10,425 174
1996 7,278 3,534 87
1997 2,390 1,361 -
Thereafter 2,828 1,551 -
------ ------ ---
$67,228 36,293 479
------ ------ ---
------ ------ ---
</TABLE>
The Company includes reserves dedicated to the volumetric production payments in
its estimated proved oil and gas reserves. (See Note 19.)
(8) INCOME TAXES:
- --------------------------------------------------------------------------------
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," (SFAS No. 109) on a prospective basis effective
January 1, 1993. The cumulative effect of this change in accounting for income
taxes of $2,060,000 is determined as of January 1, 1993 and is reported
separately in the Consolidated Statement of Operations for the year ended
December 31, 1993.
The income tax expense (benefit) is different from amounts computed by applying
the statutory Federal income tax rate for the following reasons:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Tax expense (benefit) at 35% (34% for 1992 and
1991) of earnings (loss) before income taxes,
changes in accounting and extraordinary
gain (loss) $ (3,747) 3,837 (17,769)
Change in the balance of the valuation
allowance for deferred tax assets 2,034 - -
Other 363 151 357
------ ----- ------
Total income tax expense (benefit) $ (1,350) 3,988 (17,412)
------ ----- ------
------ ----- ------
</TABLE>
The Omnibus Budget Reconciliation Act of 1993 increased the federal corporate
tax rate from 34% to 35% retroactively to January 1, 1993. As a result of this
tax increase, the tax benefit at December 31, 1993 on the loss from continuing
operations was approximately $167,000 less than it would have been without such
increase in the tax rate. However, due to limitations on the recognition of
deferred tax assets under SFAS No. 109, the total tax benefit at December 31,
1993, including the tax benefit on the extraordinary loss on extinguishment of
debt, is unaffected by the tax rate increase. The impact of the tax rate
increase on the Company's total tax expense will be recognized when future
taxable income absorbs the present unrecognized deferred tax asset.
49
<PAGE>
(8) INCOME TAXES (CONT'D):
- --------------------------------------------------------------------------------
Income taxes that are classified as deferred are generally the result of
recognizing income and expenses at different times for financial and tax
reporting. These differences result from recording proceeds from the sale of
properties in the full cost pool, capitalization of certain development,
exploration and other costs under the full cost method of accounting and the
provision for impairment of oil and gas properties for financial accounting
purposes.
The components of the net deferred tax liability, computed in accordance with
SFAS No. 109 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1993 JANUARY 31, 1993
----------------- ----------------
(In Thousands)
<S> <C> <C>
Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts $ 428 455
Current and long term liabilities due to accrual for retirement benefits 1,644 1,709
Current and long term liabilities due to accrual for medical benefits 1,688 -
Net operating loss carryforward 9,953 2,821
Depletion carryforward 7,061 6,723
Contribution carryforward 348 619
Investment tax credit carryforward 3,885 4,178
Alternative minimum tax credit carryforward 2,206 2,215
Other 96 119
------ ------
Total gross deferred tax assets 27,309 18,839
Less valuation allowance (7,268) (5,234)
------ ------
Net deferred tax assets 20,041 13,605
Deferred tax liabilities:
Full cost pool, due principally to capitalized expenditures (20,041) (21,421)
------ ------
Net deferred tax liability $ - (7,816)
------ ------
------ ------
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1993 was
$5,234,000. The net change in the total valuation allowance for the year ended
December 31, 1993 was an increase of $2,034,000.
The Alternative Minimum Tax (AMT) credit carryforward available to reduce future
Federal regular taxes aggregated $2,206,000 at December 31, 1993. This amount
may be carried forward indefinitely. Regular and AMT net operating loss
carryforwards at December 31, 1993 were $28,439,000 and $23,916,000,
respectively, and will expire in the years indicated below:
<TABLE>
<CAPTION>
REGULAR AMT
------- ---
(In Thousands)
<S> <C> <C>
2000 $ 2,665 4,127
2005 8,307 -
2008 17,467 19,789
------ ------
$28,439 23,916
------ ------
------ ------
</TABLE>
AMT net operating loss carryforwards can be used to offset 90% of AMT income in
future years.
Investment tax credit carryforwards available to reduce future Federal income
taxes aggregated $3,885,000 at December 31, 1993 and expire at various dates
through the year 2001. Percentage depletion carryforwards available to reduce
future Federal taxable income aggregated $20,174,000 at December 31, 1993. This
amount may be carried forward indefinitely. The net operating loss and
investment tax credit carryforwards have been recognized as a reduction of
deferred taxes, subject to a valuation allowance.
50
<PAGE>
(8) INCOME TAXES (cont'd):
- --------------------------------------------------------------------------------
The availability of some of these tax attributes to reduce current and future
taxable income of the Company is subject to various limitations under the
Internal Revenue Code. In particular, the Company's ability to utilize such tax
attributes could be severely restricted due to the occurrence of an "ownership
change" within the meaning of Section 382 of the Internal Revenue Code resulting
from the Recapitalization. At December 31, 1993, the Company estimated that
net operating loss and investment tax credit carryforwards would be limited to
offset current taxable income to the extent described below.
The net operating loss carryforwards which expire in 2008 are not subject to the
provisions of Section 382 as they were generated subsequent to the ownership
change. Even though the Company is limited in its ability to use the remaining
net operating loss carryovers under the general provisions of Section 382, it
may be entitled to use these net operating loss carryovers to offset (a) gains
recognized in the five years following the ownership change on the disposition
of certain assets, to the extent that the value of the assets disposed of
exceeds its tax basis on the date of the ownership change or (b) any item of
income which is properly taken into account in the five years following the
ownership change but which is attributable to periods before the ownership
change ("built-in gain"). The ability of the Company to use these net operating
loss carryovers to offset built-in gain first requires that the Company have
total built-in gains at the time of the ownership change which are greater than
a threshold amount. In addition, the use of these net operating loss
carryforwards to offset built-in gain cannot exceed the amount of the total
built-in gain.
The Company believes that due to the amount of built-in gain as of the date of
ownership change, and the recognition of such gain through December 31, 1993,
there is no significant limitation on the Company's ability to use these net
operating loss carryforwards or investment tax credit carryforwards.
(9) PREFERRED STOCK:
- -------------------------------------------------------------------------------
At December 31, 1993, there were 2,880,973 outstanding shares of $.75
Convertible Preferred Stock, par value $.01 per share. This stock is
convertible at any time, at the option of the holder, at the rate of 3.5 shares
of Common Stock for each share of $.75 Convertible Preferred Stock, subject to
adjustment upon occurrence of certain events. During 1993, 248,817 shares of
$.75 Convertible Preferred Stock were converted into 870,858 shares of Common
Stock. The $.75 Convertible Preferred Stock is redeemable, in whole or in part,
at the option of the Company, at any time after the earlier of (i) July 1, 1996
or (ii) the date on which the last reported sales price of the Common Stock will
have been $7.50 or higher for at least 20 of the prior 30 trading days, at a
redemption price of $10.50 per share during the twelve-month period which began
July 1, 1993 and declining ratably to $10.00 per share at July 1, 1996 and
thereafter, including accumulated and unpaid dividends. Cumulative annual
dividends of $.75 per share are payable quarterly, in arrears, on the first day
of February, May, August and November, when and as declared. Until December 31,
1993, the Company has paid such dividends in shares of Common Stock.
Thereafter, dividends may be paid in cash or, at the Company's election, in
shares of Common Stock or in a combination of cash and Common Stock. Common
Stock delivered in payment of dividends will be valued for dividend payment
purposes at between 75% and 90%, based on trading volume, of the average last
reported sales price of the Common Stock during a specified period prior to the
record date for the dividend payment. If two consecutive dividend payments are
in arrears, the holders of $.75 Convertible Preferred Stock may exercise a
penalty conversion right during a specified period and may convert shares of
$.75 Convertible Preferred Stock, plus accumulated dividends, to Common Stock at
a conversion price of 75% of the average last reported sales price during a
specified period prior to the conversion date. If six consecutive dividend
payments are in arrears, the holders of the $.75 Convertible Preferred Stock
shall have the right to elect two directors.
During any period in which dividends on preferred stock are in arrears, no
dividends or distributions, except for dividends paid in shares of Common Stock,
may be paid or declared on the Common Stock, nor may any shares of Common Stock
be acquired by the Company.
In 1985, the Company issued 350,000 shares of $15.75 Cumulative Preferred Stock
(Redeemable Preferred Stock), par value $.01 per share. In February 1990, the
Company issued 2,300,000 shares of $2.125 Convertible Preferred
51
<PAGE>
(9) PREFERRED STOCK (cont'd):
- --------------------------------------------------------------------------------
Stock with a par value of $.01 per share and liquidation value of $25 per share.
In December 1991, in connection with the Company's recapitalization, the
Company's shareholders approved an amendment to the Company's Restated
Certificate of Incorporation whereby each share of Redeemable Preferred Stock,
including accumulated dividends, was acquired by the Company for seven shares of
$.75 Convertible Preferred Stock or, at the election of the holder, for $50
principal amount of Senior Secured Notes and 1.2 shares of $.75 Convertible
Preferred Stock and whereby each share of the Company's $2.125 Convertible
Preferred Stock, including accumulated dividends, was reclassified into one
share of $.75 Convertible Preferred Stock. In December 1991, also in connection
with the recapitalization, the Company's shareholders approved an amendment to
the Company's Restated Certificate of Incorporation whereby each share of the
Company's $2.125 Convertible Preferred Stock, including accumulated dividends,
was reclassified into one share of $.75 Convertible Preferred Stock.
(10) COMMON STOCK:
- --------------------------------------------------------------------------------
At December 31, 1993 the Company has one class of Common Stock, par value $.10
per share, which is entitled to one vote per share. Prior to May 1993 the
Company also had Class B stock which had superior voting rights to the Company's
Common Stock, had limited transferability and was not traded in any public
market but was convertible at any time into shares of Common Stock on a share-
for-share basis.
At the Company's Annual Meeting of Shareholders on May 12, 1993, the
shareholders adopted amendments to the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of Common Stock to
112,000,000 and to reclassify each share of Class B Stock into 1.1 shares of
Common Stock.
On June 15, 1993, the Company issued 11,080,000 shares of Common Stock for $5.00
per share in a public offering. The net proceeds from the issuance of the
shares totalled approximately $51,506,000 after deducting issuance costs and
underwriting fees.
On October 29, 1993 the Company paid a dividend distribution of one Preferred
Share Purchase Right on each outstanding share of the Company's Common Stock.
The Rights are exercisable only if a person or group acquires 20% or more of the
Company's Common Stock or announces a tender offer which would result in
ownership by a person or group of 20% or more of the Common Stock. Each Right
initially entitles each shareholder to buy 1/100th of a share of a new series of
Preferred Stock at an exercise price of $30.00, subject to adjustment upon
certain occurrences. Each 1/100th of a share of such new Preferred Stock that
can be purchased upon exercise of a Right has economic terms designed to
approximate the value of one share of Common Stock. The Rights will expire on
October 29, 2003, unless extended or terminated earlier.
The Company has Warrants outstanding which permit holders thereof to purchase
1,244,715 shares of Common Stock at an exercise price of $3.00 per share. The
Warrants are noncallable by the Company and expire on October 1, 1996. The
exercise price is payable in cash.
In March 1992, the Company adopted the 1992 Stock Option Plan under which non-
qualified stock options may be granted to key employees and non-employee
directors. The aggregate number of shares of Common Stock which the Company may
issue under options granted pursuant to this plan may not exceed 10% of the
total number of shares outstanding or issuable at the date of grant pursuant to
outstanding rights, warrants, convertible or exchangeable securities or other
options. The exercise price of an option may not be less than 85% of the fair
market value of one share of the Company's Common Stock on the date of grant.
During 1992 the Company granted options to 42 employees to purchase a total of
1,740,000 shares of Common Stock at an exercise price of $3.00 per share.
During 1993, the Company granted options to 33 employees to purchase a total of
1,525,000 shares of Common Stock at an exercise price of $5.00 per share. The
options vest 20% on the date of grant and an additional 20% on each grant
anniversary date thereafter. The Company may, in its discretion, grant each
optionee a cash bonus upon the exercise of each granted option. At December 31,
1993, there are 1,529,000 options outstanding at an exercise price of $3.00 per
share, of which 776,600 are exercisable, and 1,525,000 options outstanding at
$5.00 per share, of which 525,000 are exercisable.
52
<PAGE>
(11) GAS PURCHASE CONTRACT SETTLEMENT:
- --------------------------------------------------------------------------------
On December 17, 1992, the Company and ONEOK, Inc. (ONEOK) agreed to settle the
case styled Forest Oil Corporation v. ONEOK, Inc. (Number 71,582) and its
companion case styled Forest Oil Corporation v. ONEOK, Inc. (Case No. C-89-53).
The cases involved take-or-pay damages relating to a natural gas purchase
contract between the Company and ONEOK. The settlement encompassed all disputed
contracts, claims and future claims. The cash proceeds of $51,250,000 were
received by the Company on December 24, 1992. Proceeds after deducting related
royalties and production taxes were approximately $36,429,000.
The ONEOK settlement increased the Company's net earnings for 1992 by
approximately $24,043,000 or $1.75 per share.
(12) RESTRUCTURING:
- --------------------------------------------------------------------------------
Restructuring expense in 1991 of approximately $3,585,000 related to reductions
in workforce and a consolidation of the Company's technical staff, reduced by a
credit recognized upon curtailment of the Company's defined benefit pension
plan.
(13) EMPLOYEE BENEFITS:
- --------------------------------------------------------------------------------
PENSION PLANS:
The Company has a qualified defined benefit pension plan (Pension Plan). In
1991, in conjunction with its reorganization, the Company effected a curtailment
of the Pension Plan pursuant to which all benefit accruals were suspended
effective May 31, 1991. As a result of the curtailment, the projected benefit
obligation was reduced significantly. Accordingly, the Company recorded a
credit to restructuring expense of $806,000 in accordance with Statement of
Financial Accounting Standards No. 88.
The benefits under the Pension Plan are based on years of service and the
employee's average compensation during the highest consecutive sixty-month
period in the fifteen years prior to retirement. The Company's funding policy
has been to contribute annually an amount in excess of the minimum required by
Federal regulations. No contribution was made in 1993, 1992 or 1991. The
following table sets forth the Pension Plan's funded status and amounts
recognized in the Company's consolidated financial statements at December 31:
<TABLE>
<CAPTION>
1993 1992
---- ----
(In Thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of
$28,484,000 in 1993 and $23,994,000 in 1992 $(28,484) (23,994)
------- -------
------- -------
Projected benefit obligation for service rendered to date $(28,484) (23,994)
Plan assets at fair market value, consisting primarily of
listed stocks, bonds and other fixed income obligations 25,576 24,431
------- -------
Plan assets in excess of projected benefit obligation (unfunded
pension liability) (2,908) 437
Unrecognized net loss from past experience different from that
assumed and effects of changes in assumptions 3,642 243
------- -------
Pension asset recognized in the balance sheet $ 734 680
------- -------
------- -------
</TABLE>
For 1993 the discount rate used in determining the actuarial present value of
the projected benefit obligation was 7.5% and the expected long-term rate of
return on assets was 9%. The discount rate used in determining the actuarial
present value of the projected benefit obligation was 9% and the expected long-
term rate of return on assets was 9% for both 1992 and 1991.
53
<PAGE>
(13) EMPLOYEE BENEFITS (cont'd):
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The components of net pension expense (benefit) for the three years ended December 31, are as follows:
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Net pension expense (benefit) included the following components:
Service cost, benefits earned during the period $ - - 239
Interest cost on projected benefit obligation 2,039 2,074 2,153
Actual return on plan assets (3,534) (1,890) (3,705)
Net amortization and deferral 1,441 (240) 952
Net effect of curtailment - - (806)
------ ------ ------
Net pension expense (benefit) $ (54) (56) (1,167)
------- ------ ------
------- ------ ------
</TABLE>
In 1990, the Company adopted a non-qualified unfunded supplementary retirement
plan that provides certain officers with defined retirement benefits in excess
of qualified plan limits imposed by Federal tax law. Benefit accruals under
this plan were suspended effective May 31, 1991 in connection with suspension of
benefit accruals under the Company's Pension Plan. At December 31, 1993 the
projected benefit obligation under this plan totaled $493,000, which is included
in other liabilities in the accompanying balance sheet. The projected benefit
obligation is determined using the same discount rate as is used for
calculations for the Pension Plan.
As a result of the change in the discount rate for the Pension Plan and the
supplementary retirement plan, the Company recorded a liability of $3,038,000
representing the unfunded pension liability and a corresponding decrease in
capital surplus.
RETIREMENT SAVINGS PLAN:
The Company sponsors a qualified tax deferred savings plan in accordance with
the provisions of Section 401(k) of the Internal Revenue Code. Employees may
defer up to 10% of their compensation, subject to certain limitations. The
Company matches the employee contributions up to 5% of employee compensation.
In 1993, 1992 and 1991, Company contributions were made using treasury stock.
The expense associated with the Company's contribution was $367,000 in 1993,
$454,000 in 1992 and $492,000 in 1991.
Effective January 1, 1992 the plan was amended to include profit-sharing
contributions by the Company. The Company's profit-sharing contributions were
made using Company stock valued at $276,000 and $465,000 for 1993 and 1992,
respectively.
ANNUAL INCENTIVE PLAN:
The Forest Oil Corporation Annual Incentive Plan (the Incentive Plan), which
became effective January 1, 1992, permits participating employees to earn annual
bonus awards payable in cash or in whole shares of the Company's Common Stock,
generally based in part upon the Company attaining certain levels of
performance. In 1993 and 1992, the Company accrued bonuses of $426,000 and
$930,000, respectively, under the Incentive Plan. Amounts awarded will be
disbursed in equal annual installments over the succeeding three-year period.
EXECUTIVE RETIREMENT AGREEMENTS:
The Company entered into Agreements in December 1990 (the Agreements) with
certain executives and directors (the Retirees) whereby each executive retired
from the employ of the Company as of December 28, 1990. Pursuant to the terms
of the Agreements, the Retirees are entitled to receive supplemental retirement
payments from the Company in addition to the amounts to which they are entitled
under the Company's retirement plan. In addition, the Retirees and their
spouses are entitled to lifetime coverage under the Company's group medical and
dental plans, tax and other financial services, and payments by the Company in
connection with certain club membership dues. The Retirees will also continue
to participate in the Company's royalty bonus program until December 31,
54
<PAGE>
(13) EMPLOYEE BENEFITS (cont'd):
- -------------------------------------------------------------------------------
1995. The Company has also agreed to maintain certain life insurance policies
in effect at December 1990, for the benefit of each of the Retirees.
Six of the Retirees have subsequently resigned as directors. One of the
Retirees continues to serve as a director and will be paid the customary non-
employee director's fee. Pursuant to the terms of the retirement agreements,
the former directors and any other Retiree who ceases to be a director (or his
spouse) will be paid $2,500 a month until December 2000.
The Company's obligation to one retiree under a revised retirement agreement is
payable in Common Stock or cash, at the Company's option, in May of each year
from 1993 through 1996 at approximately $190,000 per year with the balance
($149,000) payable in May 1997. The retirement agreements for the other six
Retirees, one of whom received in 1991 the payments scheduled to be made in 1999
and 2000, provide for supplemental retirement payments totalling approximately
$938,400 per year through 1998 and approximately $740,400 per year in 1999 and
2000.
The present value of the amounts due under the agreements discounted at an
annual rate of 13% has been recorded as retirement benefits payable to
executives and directors.
LIFE INSURANCE:
The Company provides life insurance benefits for certain key employees and
retirees under split dollar life insurance plans. The premiums paid for the
life insurance policies were $861,000, $995,000, and $1,534,000 in 1993, 1992
and 1991, respectively, including $766,000, $765,000, and $1,335,000 paid for
policies for retired executives. Under the split dollar life insurance plans,
the Company was assigned a portion of the benefits payable under the policies
which were generally designed to recover the premiums paid by the Company as
well as any bonuses paid to the employees and retirees in connection with the
policies. In December 1991 the Company replaced the existing policies with new,
lower cost policies which provide the same death benefits to the employees and
retirees. The Company is assigned a portion of the benefits which is designed
to recover the premiums paid. As a result of the change in policies, the
Company was able to receive 100% of the cash surrender value of the old
policies, net of outstanding policy loans. The net cash surrender value of
$4,422,000 was received in 1992.
HEALTH AND DENTAL INSURANCE:
The Company provides health and dental insurance to all of its employees,
eligible retirees and eligible dependents. The Company provides these benefits
at nominal cost to employees and retirees and recognizes the expense in the year
incurred. Effective January 1, 1992, the Company replaced its health and dental
plans with new plans which require employees and eligible retirees to contribute
an estimated 50% of the cost of dependent coverage. In 1993, 1992 and 1991 the
costs of providing these benefits for both active and retired employees totalled
$1,350,000, $1,359,000, and $2,111,000, respectively. The 1993 cost includes
$993,110 related to 184 participating active employees and 4 employees on long-
term disability and $356,890 related to 125 eligible retirees. The 1992 cost
includes $1,011,000 related to 183 participating active employees and $348,000
related to 119 eligible retirees. The cost of providing these benefits during
1991 for the 164 eligible retirees are not separable from the costs of providing
these benefits for the 182 participating active employees.
POSTRETIREMENT BENEFITS:
In December 1990, the Financial Accounting Standards Board issued the Statement
of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," (SFAS No. 106). This statement
required the Company to accrue expected costs of providing postretirement
benefits to employees, their beneficiaries and covered dependents effective for
fiscal years beginning after December 15, 1992. The Company adopted the
provisions of SFAS No. 106 in the first quarter of 1993. The estimated
accumulated postretirement benefit obligation as of January 1, 1993 was
approximately $4,822,000. This amount, reduced by applicable income tax
benefits, was charged to operations in the first quarter of 1993 as the
cumulative effect of a change in accounting principle. The annual net
postretirement benefit cost was approximately $483,000 for 1993.
55
<PAGE>
(13) EMPLOYEE BENEFITS (cont'd):
- -------------------------------------------------------------------------------
At January 1 and December 31, 1993 the discount rates used in determining the
actuarial present value of the accumulated postretirement benefit obligation
were 8.5% and 7.5%, respectively.
POSTEMPLOYMENT BENEFITS:
In November 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" (SFAS No. 112). This statement requires the accrual of
the estimated cost of certain postemployment benefits provided to former
employees. SFAS No. 112 is effective for years beginning after December 15,
1993. The initial effect of applying this statement is to be accounted for as a
cumulative effect of a change in accounting principle. The Company has not
determined precisely what effect, if any, the adoption of SFAS No. 112 will have
on its financial statements, but believes the effect will be immaterial because
the Company has already recorded liabilities for many of the affected costs.
(14) RELATED PARTY TRANSACTIONS:
- -------------------------------------------------------------------------------
The Company uses a real estate complex (the Complex) owned directly or
indirectly by certain stockholders and members of the Board of Directors for
Company-sponsored seminars, the accommodation of business guests, the housing of
personnel attending corporate meetings and for other general business purposes.
The Company incurred expenses for its use of the Complex of $635,000 in 1993,
$611,000 in 1992, and $691,000 in 1991. The Company has notified the owners
that it intends to terminate its annual usage after 1994, and it will pay
$600,000 for its 1994 usage and $300,000 as a partial reimbursement of deferred
maintenance costs.
John F. Dorn resigned as an executive officer and director of the Company in
1993. The Company has agreed to pay John F. Dorn his salary at time of
resignation through September 30, 1996. In addition, the Company has provided
certain other benefits and services to Mr. Dorn. The present value of the
severance package is estimated at $500,000, which amount was recorded as an
expense and a liability at December 31, 1993.
In March 1994, the Company sold certain non-strategic oil and gas properties for
$4,400,000 to an entity controlled by John F. Dorn and another former executive
officer of the Company. The Company established the sales price based upon an
opinion from an independent third party. The purchasers financed 100% of the
purchase price with a loan bearing interest at the rate of prime plus 1%. The
loan is secured by a mortgage on the properties and personal guarantees of the
purchasers. The Company participated as a lender in the loan in the amount of
approximately $800,000. In addition, the Company agreed to subordinate to the
other lender its right of payment of principal on default. The purchasers have
separately agreed with the Company that certain options to purchase company
stock will be cancelled to the extent that the Company's participation in the
loan is not repaid in full. Collectively, the purchasers have options to
purchase 275,000 shares of the Company's Common Stock at $3.00 per share and
275,000 shares at $5.00 per share.
56
<PAGE>
(15) COMMITMENTS AND CONTINGENCIES:
- -------------------------------------------------------------------------------
Future rental payments for office facilities and equipment under the remaining
terms of noncancelable leases are $2,210,000, $1,324,000 and $130,000 for the
years ending December 31, 1994, 1995 and 1996, respectively.
Net rental payments applicable to exploration and development activities and
capitalized in the oil and gas property accounts aggregated $688,000 in 1993,
$874,000 in 1992 and $1,562,000 in 1991. Net rental payments charged to expense
amounted to $3,098,000 in 1993, $3,112,000 in 1992 and $2,748,000 in 1991.
Rental payments include the short-term lease of vehicles. None of the leases
are accounted for as capital leases.
The Company, in the ordinary course of business, is a party to various legal
actions. In the opinion of management, none of these actions, either
individually or in the aggregate, will have a material adverse effect on the
financial condition of the Company.
(16) FINANCIAL INSTRUMENTS:
- -------------------------------------------------------------------------------
Statement of Financial Accounting Standards No. 105 requires certain disclosures
about financial instruments with off-balance-sheet risk. The Company is exposed
to off-balance-sheet risks associated with energy swap agreements arising from
movements in the prices of oil and natural gas and from the unlikely event of
non-performance by the counterparty to the swap agreements.
In order to hedge against the effects of declines in oil and natural gas prices,
the Company enters into energy swap agreements with third parties. In a typical
swap agreement, the Company receives the difference between a fixed price per
unit of production and a price based on an agreed-upon third party index if the
index price is lower. If the index price is higher, the Company pays the
difference. The Company's current swaps are settled on a monthly basis. The
following table indicates outstanding energy swaps of the Company which were in
place at December 31, 1993:
<TABLE>
<CAPTION>
Fixed
Product Volume Price Duration
------- ------ ----- --------
<S> <C> <C> <C>
Natural Gas 5,000 MMBTU/day 1.945 1/94-12/94
Natural Gas 1,368 to 2,751 MMBTU/day 2.0275 1/94-12/94
Natural Gas 5,000 MMBTU/day 2.300 1/94-12/94
Natural Gas 850 to 1,377 MMBTU/day 2.255 1/95-9/95
Natural Gas 194 to 17,1000 MMBTU/day 1.955-2.535 1/94-12/99
</TABLE>
Under another agreement (the Option Agreement), the Company paid a premium of
$516,000 in conjunction with the closing of the Enron loan agreement. The
payment of this premium gives Forest the right to set a floor price of $1.70 per
MMBTU on a total of 18.4 BBTU of natural gas over a five year period commencing
January 1, 1995. In order to exercise this right to set a floor, the Company
must pay an additional premium of 10 cents per MMBTU, effectively setting the
floor at $1.60 per MMBTU. The premium of $516,000 related to the Option
Agreement was recorded as a long-term asset and will be amortized as a
reduction to oil and gas income beginning in 1995 based on the volumes
involved.
In December 1991, the Financial Accounting Standards Board issued Statement 107,
"Disclosures about Fair Value of Financial Instruments." The statement requires
disclosure of the estimated fair value of certain on and off-balance sheet
financial instruments in the financial statements. The following methods and
assumptions were used to estimate the fair value of the Company's financial
instruments as of December 31, 1993:
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLES AND ACCOUNTS PAYABLE:
The carrying amount of these instruments approximates fair value because of
their short maturity.
57
<PAGE>
(16) FINANCIAL INSTRUMENTS (cont'd):
- --------------------------------------------------------------------------------
PRODUCTION PAYMENT OBLIGATION:
The fair value of the Company's production payment obligation has been estimated
as approximately $20,433,000 by discounting the projected future cash payments
required under the agreement by 12.5%. This rate corresponds to the rate on the
Company's recent nonrecourse loan agreement.
SENIOR SUBORDINATED NOTES
The fair value of the Company's 11 1/4% Subordinated Notes was approximately
$112,179,000, based upon quoted market prices for the same or similar issues.
ENERGY SWAP AGREEMENTS:
The fair value of the Company's energy swap agreements was approximately
$508,000, based upon the estimated net amount the Company would receive to
terminate the agreements.
(17) MAJOR CUSTOMERS:
- --------------------------------------------------------------------------------
The Company's sales of oil and natural gas to individual customers which
exceeded 10% of the Company's total sales (exclusive of the effects of energy
swaps and hedges) were:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Enron Affiliates (A) $63,075 12,646 11,836
ONEOK Exploration Company (B) - 22,392 -
KNEnergy, Inc. - - 7,338
<FN>
(A) The amount shown for Enron Affiliates includes oil and natural gas sales to
Enron Gas Marketing Inc., Enron Oil & Gas Company, EOTT Energy Corporation,
Cactus Funding Corporation, and Enron Reserve Acquisition. Approximately
$32,702,000, $14,081,000 and $8,979,000 represent sales recorded for
deliveries under volumetric production payments in the years ended December
31, 1993, 1992 and 1991, respectively.
(B) The amount shown for ONEOK Exploration Company represents the amount
recorded as a result of the gas purchase contract settlement described in
Note 11.
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
(18) SELECTED QUARTERLY FINANCIAL DATA (unaudited):
- --------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C> <C>
1993
- ----
Revenue $ 25,126 27,975 26,214 25,833
------ ------ ------ ------
Net loss $ (2,389) (938) (13,102) (4,784)
------ ------ ------ ------
Net loss attributable to $ (2,976) (1,508) (13,653) (5,326)
common stock ------ ------ ------ ------
Primary loss per share $ (.20) (.09) (.50) (.19)
------ ------ ------ ------
Fully diluted loss per $ (.20) (.09) (.50) (.19)
share ------ ------ ------ ------
1992
- ----
Revenue $ 17,294 16,960 21,768 57,164 (A)
------ ------ ------ ------
Net earnings (loss) $ (4,513) (4,993) (1,897) 18,701 (B)
------ ------ ------ ------
Net earnings (loss)
attributable to common $ (5,100) (5,580) (2,484) 18,114 (B)
stock ------ ------ ------ ------
Primary earnings (loss) $ (.40) (.41) (.18) 1.25 (B)
per share ------ ------ ------ ------
Fully diluted earnings $ (.40) (.41) (.18) .69 (B)
(loss) per share ------ ------ ------ ------
<FN>
(A) Includes $37,541,000 attributable to the ONEOK settlement.
(B) Includes $24,043,000 or $1.66 per share attributable to the ONEOK
settlement.
</TABLE>
59
<PAGE>
(19) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES
(unaudited):
- --------------------------------------------------------------------------------
The following information is presented in accordance with Statement of Financial
Accounting Standards No. 69, "Disclosure about Oil and Gas Producing
Activities," (SFAS No. 69).
(A) COSTS INCURRED IN OIL AND GAS EXPLORATION AND DEVELOPMENT ACTIVITIES - The
following costs were incurred in oil and gas exploration and development
activities during the three years ended December 31, 1993:
<TABLE>
<CAPTION>
UNITED
STATES CANADA TOTAL
------ ------ -----
(In Thousands)
1993
- ----
<S> <C> <C> <C>
PROPERTY ACQUISITION COSTS
(UNDEVELOPED LEASES AND PROVED
PROPERTIES) $ 144,247 669 144,916
EXPLORATION COSTS 5,433 - 5,433
DEVELOPMENT COSTS 20,472 - 20,472
------- ------ -------
TOTAL $ 170,152 669 170,821
------- ------ -------
------- ------ -------
1992
- ----
Property acquisition costs
(undeveloped leases and proved
properties) $ 88,770 2 88,772
Exploration costs 2,171 126 2,297
Development costs 14,828 730 15,558
------- ------ -------
Total $ 105,769 858 106,627
------- ------ -------
------- ------ -------
1991
- ----
Property acquisition costs
(proved properties) $ 13,013 547 13,560
Exploration costs 8,556 1,167 9,723
Development costs 10,715 1,666 12,381
------- ------ -------
Total $ 32,284 3,380 35,664
------- ------ -------
------- ------ -------
</TABLE>
(B) AGGREGATE CAPITALIZED COSTS - The aggregate capitalized costs relating to
oil and gas activities were incurred as of the date indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
1993 1992
---- -----
(In Thousands)
<S> <C> <C>
Costs related to proved properties $ 1,079,164 928,890
Costs related to unproved properties:
Costs subject to depletion (including
wells in progress) 20,276 24,785
Costs not subject to depletion 41,216 18,306
--------- -------
1,140,656 971,981
Less accumulated depletion and
valuation allowance 778,226 717,444
--------- -------
$ 362,430 254,537
--------- -------
--------- -------
</TABLE>
60
<PAGE>
(19) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES
(unaudited) (cont'd)
- --------------------------------------------------------------------------------
(C) RESULTS OF OPERATIONS FROM PRODUCING ACTIVITIES - Results of operations
from producing activities for 1993, 1992 and 1991 are presented below. Income
taxes are different from income taxes shown in the Consolidated Statements of
Operations because this table excludes general and administrative and interest
expense.
<TABLE>
<CAPTION>
UNITED
STATES CANADA TOTAL
------ ------ -----
(In Thousands)
<S> <C> <C> <C>
1993
----
Oil and gas sales $ 102,883 - 102,883
Production expense 19,540 - 19,540
Depletion expense 59,759 - 59,759
Income tax expense 8,141 - 8,141
------- ------ -------
87,440 - 87,440
------- ------ -------
Results of operations from producing activities $ 15,443 - 15,443
------- ------ -------
------- ------ -------
1992
----
Oil and gas sales $ 94,289 (A) 4,950 99,239 (A)
Production expense 14,516 (B) 1,349 15,865 (B)
Depletion expense 43,052 2,625 45,677
Income tax expense 12,615 332 12,947
------ ------ ------
70,183 4,306 74,489
------ ------ ------
Results of operations from producing activities $ 24,106 644 24,750
------ ------ ------
------ ------ ------
1991
----
Oil and gas sales $ 61,166 7,710 68,876
Production expense 10,874 1,674 12,548
Depletion expense 33,668 3,594 37,262
Provision for impairment of oil and
gas properties 15,000 19,000 34,000
Income tax expense (benefit) 525 (5,630) (5,105)
------ ------ ------
60,067 18,638 78,705
------ ------ ------
Results of operations from producing activities $ 1,099 (10,928) (9,829)
------ ------ ------
------ ------ ------
<FN>
(A)Includes $22,392,000 attributable to the ONEOK settlement.
(B)Includes $1,589,000 attributable to the ONEOK settlement.
</TABLE>
61
<PAGE>
(19) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (unaudited)
(cont'd):
- --------------------------------------------------------------------------------
(D) ESTIMATED PROVED OIL AND GAS RESERVES - The Company's estimate of its
proved and proved developed future net recoverable oil and gas reserves and
changes for 1991, 1992 and 1993 follows. Such estimates are inherently
imprecise and may be subject to substantial revisions.
Proved oil and gas reserves are the estimated quantities of crude oil, natural
gas and natural gas liquids which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions; i.e., prices and
costs as of the date the estimate is made. Prices include consideration of
changes in existing prices provided only by contractual arrangement, including
energy swap agreements (see Note 16), but not on escalations based on future
conditions. The Company has decreased these quantities for overproduced volumes
recognized as revenue, as discussed in Note 1. The reserve volumes include
quantities subject to volumetric production payments discussed in Note 7.
Proved developed oil and gas reserves are reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods.
Additional oil and gas expected to be obtained through the application of fluid
injection or other improved mechanisms of primary recovery are included as
"proved developed reserves" only after testing by a pilot project or after the
operation of an installed program has confirmed through production response that
increased recovery will be achieved.
<TABLE>
<CAPTION>
OIL AND CONDENSATE GAS
-------------------------------- --------------------------------
(MBBLS) (MMCF)
United United
States Canada Total States Canada Total
------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1990 4,175 2,384 6,559 178,605 26,408 205,013
Revisions of previous estimates (417) (160) (577) (2,808) (1,296) (4,104)
Extensions and discoveries 79 - 79 4,164 - 4,164
Production (637) (210) (847) (22,517) (1,360) (23,877)
Sale of reserves in place (365) - (365) (10,684) - (10,684)
Purchases of reserves in place 296 170 466 22,959 - 22,959
----- ----- ----- ------- ------ -------
Balance at December 31, 1991 3,131 2,184 5,315 169,719 23,752 193,471
Revisions of previous estimates (139) 33 (106) (9,837) (219) (10,056)
Extensions and discoveries 9 - 9 1,127 - 1,127
Production (1,308) (142) (1,450) (27,814) (1,360) (29,174)
Sale of reserves in place - (2,075) (2,075) (1,883) (22,173) (24,056)
Purchases of reserves in place 5,867 - 5,867 63,343 - 63,343
----- ----- ----- ------- ------ -------
Balance at December 31, 1992 7,560 - 7,560 194,655 - 194,655
Revisions of previous estimates 507 - 507 17,874 - 17,874
Extensions and discoveries 201 - 201 8,395 - 8,395
Production (1,493) - (1,493) (41,114) - (41,114)
Sales of reserves in place (281) - (281) (1,158) - (1,158)
Purchases of reserves in place 1,704 - 1,704 94,730 - 94,730
----- ----- ----- ------- ------ -------
Balance at December 31, 1993 8,198 - 8,198 273,382 - 273,382
----- ----- ----- ------- ------ -------
----- ----- ----- ------- ------ -------
</TABLE>
Purchases of reserves in place represent volumes recorded on the closing dates
of the acquisitions for financial accounting purposes.
62
<PAGE>
(19) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (unaudited)
(cont'd):
- --------------------------------------------------------------------------------
(D) ESTIMATED PROVED OIL AND GAS RESERVES (cont'd)
<TABLE>
<CAPTION>
OIL AND CONDENSATE GAS
----------------------- -----------------------
(MBBLS) (MMCF)
UNITED UNITED
STATES CANADA TOTAL STATES CANADA TOTAL
------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Proved developed reserves:
Balance at:
December 31, 1990 3,509 2,147 5,656 151,576 22,592 174,168
December 31, 1991 2,903 1,824 4,727 153,395 20,807 174,202
December 31, 1992 6,418 - 6,418 176,282 - 176,282
December 31, 1993 6,778 - 6,778 216,820 - 216,820
</TABLE>
(E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS - The standardized
measure of discounted net cash flows is calculated in accordance with the
provisions of SFAS No. 69.
Future oil and gas sales and production and development costs have been
estimated using prices and costs in effect at the end of the years indicated,
except in those instances where the sale of oil and natural gas is covered by
contracts, energy swap agreements or volumetric production payments. In the
case of contracts, the applicable contract prices, including fixed and
determinable escalations, were used for the duration of the contract.
Thereafter, the current spot price was used. Prior to December 31, 1993 the
contracts included natural gas sales contracts with a Company which is involved
in Chapter 11 bankruptcy proceedings. At December 31, 1993 the volumes
applicable to this contract were priced at spot prices. Future oil and gas
sales include the estimated effects of existing energy swap agreements and the
volumetric production payments, as discussed in Notes 7 and 16, and have been
reduced for overproduced volumes recognized as revenue, as discussed in Note 1.
Future income tax expenses are estimated using the statutory tax rate of 35%.
Estimates for future general and administrative and interest expenses have not
been considered.
Changes in the demand for oil and natural gas, inflation and other factors make
such estimates inherently imprecise and subject to substantial revision. This
table should not be construed to be an estimate of the current market value of
the Company's proved reserves. Management does not rely upon the information
that follows in making investment decisions.
<TABLE>
<CAPTION>
UNITED STATES
DECEMBER 31,
---------------------------
1993 1992
---- ----
(In Thousands)
<S> <C> <C>
Future oil and gas sales $ 716,663 549,643
Future production and development costs (254,407) (200,432)
------- -------
Future net revenue 462,256 349,211
10% annual discount for estimated timing of cash flows (138,917) (103,636)
------- -------
Present value of future net cash flows before income taxes 323,339 245,575
Present value of future income tax expense (24,286) (18,566)
------- -------
Standardized measure of discounted future net cash flows $ 299,053 227,009
------- -------
------- -------
</TABLE>
Undiscounted future income tax expense in the United States was $35,028,000 at
December 31, 1993 and $32,718,000 at December 31, 1992.
63
<PAGE>
(19) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (unaudited)
(cont'd):
- --------------------------------------------------------------------------------
(E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (cont'd)
<TABLE>
<CAPTION>
United
States Canada Total
------ ------ -----
(In Thousands)
<S> <C> <C> <C>
December 31, 1991
Future oil and gas sales $ 388,497 82,008 470,505
Future production and development costs (138,887) (24,692) (163,579)
------- ------ -------
Future net revenue 249,610 57,316 306,926
Future income tax expense (20,704) (2,856) (23,560)
------- ------ -------
Future net cash flows 228,906 54,460 283,366
10% annual discount for estimated timing of cash flows (71,256) (24,041) (95,297)
------- ------ -------
Standardized measure of discounted future net cash flows $ 157,650 30,419 188,069
------- ------ -------
------- ------ -------
</TABLE>
CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING
TO PROVED OIL AND GAS RESERVES - An analysis of the decrease during each of the
last three years of the total standardized measure of discounted future net cash
flows is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Beginning of year $ 227,009 188,069 241,303
Changes resulting from:
Sales of oil and gas, net of production costs (83,343) (62,572) (56,329)
Net changes in prices and future production costs (23,189) 15,076 (69,078)
Net changes in future development costs (18,724) (2,444) 2,451
Extensions, discoveries and improved recovery 15,322 2,122 4,165
Previously estimated development costs incurred during the period 13,424 9,315 7,180
Revisions of previous quantity estimates 25,262 (11,450) (10,305)
Sales of reserves in place (2,964) (42,354) (12,167)
Purchases of reserves in place 127,418 113,567 30,628
Accretion of discount on reserves at beginning of year before
income taxes 24,558 20,392 27,944
Net change in income taxes (5,720) (2,712) 22,277
------- ------- -------
End of year $ 299,053 227,009 188,069
------- ------- -------
------- ------- -------
</TABLE>
64
<PAGE>
PART III
For information concerning Item 10 - Directors and Executive Officers of the
Registrant, Item 11 - Executive Compensation, Item 12 - Security Ownership of
Certain Beneficial Owners and Management and Item 13 - Certain Relationships and
Related Transactions, see the definitive Proxy Statement of Forest Oil
Corporation relative to the Annual Meeting of Shareholders to be held on May 11,
1994, which will be filed with the Securities and Exchange Commission, which
information is incorporated herein by reference. For information concerning
Item 10 - Executive Officers of Registrant, see Part I - Item 4A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a).(1) FINANCIAL STATEMENTS
1. Independent Auditors' Report
2. Consolidated Balance Sheets - December 31, 1993 and 1992
3. Consolidated Statements of Operations - Years ended December 31,
1993, 1992 and 1991
4. Consolidated Statements of Shareholders' Equity - Years ended
December 31, 1993, 1992 and 1991
5. Consolidated Statements of Cash Flows - Years ended December 31,
1993, 1992 and 1991
6. Notes to Consolidated Financial Statements - Years ended December 31,
1993, 1992 and 1991
(2) FINANCIAL STATEMENT SCHEDULES
1. Independent Auditors' Report
2. Schedule V: Property and Equipment - Years ended December 31, 1993,
1992 and 1991
3. Schedule VI: Accumulated Depreciation, Depletion and Valuation
Allowance of Property and Equipment - Years ended December 31,
1993, 1992 and 1991
4. Schedule X: Supplementary Operating Statement Information - Years
ended December 31, 1993, 1992 and 1991
Financial statement schedules omitted:
All other schedules have been omitted because the information is either
not required or is set forth in the financial statements or the notes
thereto.
(3) Exhibits - Forest shall, upon written request to Daniel L. McNamara,
Corporate Secretary of Forest, addressed to Forest Oil Building, Bradford,
Pennsylvania 16701, provide copies of each of the following Exhibits:
65
<PAGE>
Exhibit 3(i) Restated Certificate of Incorporation of Forest Oil Corporation
dated October 14, 1993, incorporated herein by reference to Exhibit 3(i) to Form
10-Q for Forest Oil Corporation for the quarter ended September 30, 1993 (File
No. 0-4597).
Exhibit 3(ii) Restated By-Laws of Forest Oil Corporation as of May 9, 1990,
Amendment No. 1 to By-Laws dated as of April 2, 1991, Amendment No. 2 to By-Laws
dated as of May 8, 1991, Amendment No. 3 to By-Laws dated as of July 30, 1991,
Amendment No. 4 to By-Laws dated as of January 17, 1992, Amendment No. 5 to
By-Laws dated as of March 18, 1993 and Amendment No. 6 to By-Laws dated as of
September 14, 1993, incorporated herein by reference to Exhibit 3(ii) to Form
10-Q for Forest Oil Corporation for the quarter ended September 30, 1993 (File
No. 0-4597).
*Exhibit 3(ii)(a) Amendment No. 7 to By-Laws dated as of December 3, 1993.
*Exhibit 3(ii)(b) Amendment No. 8 to By-Laws dated as of February 24, 1994.
Exhibit 4.1 Indenture dated as of September 8, 1993 between Forest Oil
Corporation and Shawmut Bank Connecticut, National Association, incorporated
herein by reference to Exhibit 4.1 to Form 10-Q for Forest Oil Corporation for
the quarter ended September 30, 1993 (File No. 0-4597).
*Exhibit 4.2 Credit Agreement dated as of December 1, 1993 between Forest Oil
Corporation and Subsidiary Borrowers and Subsidiary Guarantors and The Chase
Manhattan Bank (National Association), as agent.
*Exhibit 4.3 Amendment No. 1 dated as of December 28, 1993 relating to
Exhibit 4.2 hereof.
*Exhibit 4.4 Amendment No. 2 dated as of January 27, 1994 relating to Exhibit
4.2 hereof.
*Exhibit 4.5 Security Agreement dated as of December 1, 1993 between Forest
Oil Corporation and The Chase Manhattan Bank (National Association), as agent.
*Exhibit 4.6 Deed of Trust, Mortgage, Security Agreement, Assignment of
Production, Financing Statement (Personal Property including Hydrocarbons), and
Fixture Filing dated as of December 1, 1993 between Forest Oil Corporation and
The Chase Manhattan Bank (National Association), as agent.
Exhibit 4.7 Loan Agreement between Forest Oil Corporation and Joint Energy
Development Investments Limited Partnership dated as of December 28, 1993,
incorporated herein by reference to Exhibit 4.1 to Form 8-K for Forest Oil
Corporation dated December 30, 1993 (File No. 0-4597).
Exhibit 4.8 Deed of Trust, Assignment of Production, Security Agreement and
Financing Statement dated as of December 28, 1993 by and between Forest Oil
Corporation and Joint Energy Development Investments Limited Partnership,
incorporated herein by reference to Exhibit 4.2 to Form 8-K for Forest Oil
Corporation dated December 30, 1993 (File No. 0-4597).
Exhibit 4.9 Act of Mortgage, Assignment of Production, Security Agreement
and Financing Statement dated as of December 28, 1993 between Forest Oil
Corporation and Joint Energy Development Investments Limited Partnership,
incorporated herein by reference to Exhibit 4.3 to Form 8-K for Forest Oil
Corporation dated December 30, 1993 (File No. 0-4597).
Exhibit 4.10 Warrant Agreement dated as of December 3, 1991 between Forest
Oil Corporation and The Chase Manhattan Bank (National Association), as Warrant
Agent (including Form of Warrant), incorporated herein by reference to Exhibit
4.7 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1991
(File No. 0-4597).
Exhibit 4.11 Rights Agreement between Forest Oil Corporation and Mellon
Securities Trust Company, as Rights Agent dated as of October 14, 1993,
incorporated herein by reference to Exhibit 4.3 to Form 10-Q for Forest Oil
Corporation for the quarter ended September 30, 1993 (File No. 0-4597).
66
<PAGE>
No other instruments regarding long-term debt are filed because the amount of
the securities authorized thereunder do not, in any case, exceed 10% of the
total assets of Forest Oil Corporation on a consolidated basis, but a copy of
such instruments will be furnished to the Commission upon request.
+Exhibit 10.1 Description of Employee Overriding Royalty Bonuses, incorporated
herein by reference to Exhibit 10.1 to Form 10-K for Forest Oil Corporation for
the year ended December 31, 1990 (File No. 0-4597).
+Exhibit 10.2 Description of Executive Life Insurance Plan, incorporated
herein by reference to Exhibit 10.2 to Form 10-K for Forest Oil Corporation for
the year ended December 31, 1991 (File No. 0-4597).
+Exhibit 10.3 Form of non-qualified Deferred Compensation Agreement,
incorporated herein by reference to Exhibit 10.3 to Form 10-K for Forest Oil
Corporation for the year ended December 31, 1990 (File No. 0-4597).
+Exhibit 10.4 Form of non-qualified Supplemental Executive Retirement Plan,
incorporated herein by reference to Exhibit 10.4 to Form 10-K for Forest Oil
Corporation for the year ended December 31, 1990 (File No. 0-4597).
+Exhibit 10.5 Form of Executive Retirement Agreement, incorporated herein by
reference to Exhibit 10.5 to Form 10-K for Forest Oil Corporation for the year
ended December 31, 1990 (File No. 0-4597).
+Exhibit 10.6 Forest Oil Corporation 1992 Stock Option Plan and Option
Agreement, incorporated herein by reference to Exhibit 10.7 to Form 10-K for
Forest Oil Corporation for the year ended December 31, 1991 (File No. 0-4597).
+Exhibit 10.7 Letter Agreement with Richard B. Dorn relating to a revision to
Exhibit 10.5 hereof, incorporated herein by reference to Exhibit 10.11 to Form
10-K for Forest Oil Corporation for the year ended December 31, 1991 (File No.
0-4597).
+Exhibit 10.8 Forest Oil Corporation Annual Incentive Plan effective as of
January 1, 1992, incorporated herein by reference to Exhibit 10.8 to Form 10-K
for Forest Oil Corporation for the year ended December 31, 1992 (File No.
0-4597).
*+Exhibit 10.9 Form of Executive Severance Agreement.
*+Exhibit 10.10 Form of Settlement Agreement and General Release between John F.
Dorn and Forest Oil Corporation dated March 7, 1994.
*Exhibit 11 Forest Oil Corporation and Subsidiaries - Calculation of
Earnings per Share of Common Stock.
*Exhibit 24 Independent Auditors' Consent.
*Exhibit 25 Powers of Attorney of the following Officers and
Directors:
Donald H. Anderson, Austin M. Beutner, Robert S. Boswell, Richard J.
Callahan, Dale F. Dorn, John C. Dorn, William L. Dorn, Harold D.
Hammar, David H. Keyte, James H. Lee, Daniel L. McNamara, Jeffrey W.
Miller, Jack D. Riggs and Michael B. Yanney.
**Exhibit 28 Form 11-K of the Thrift Plan of Forest Oil
Corporation for the year ended December 31, 1993.
* Filed with this report.
**To be filed by amendment.
+ Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report.
67
<PAGE>
(b). REPORTS ON FORM 8-K
The following reports on Form 8-K were filed by Forest during the last
quarter of 1993:
<TABLE>
<CAPTION>
Date of Report Item Reported Financial Statements Filed
-------------- ------------- --------------------------
<S> <C> <C>
October 14, 1993 Items 5 and 7 None
December 17, 1993 Items 5 and 7 None
December 30, 1993 Items 2 and 7 None
</TABLE>
68
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
FOREST OIL CORPORATION
(Registrant)
Date: March 28, 1994 By: /s/ Daniel L. McNamara
--------------------------------
Daniel L. McNamara
Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
William L. Dorn* Chairman of the Board and March 28, 1994
(William L. Dorn) Chief Executive Officer
(Principal Executive Officer)
Robert S. Boswell* President and Chief Financial Officer March 28, 1994
(Robert S. Boswell) (Principal Financial Officer)
David H. Keyte* Vice President and Chief Accounting March 28, 1994
(David H. Keyte) Officer
(Principal Accounting Officer)
Donald H. Anderson*
(Donald H. Anderson)
Austin M. Beutner*
(Austin M. Beutner)
Robert S. Boswell*
(Robert S. Boswell)
Directors of the Registrant March 28, 1994
Richard J. Callahan*
(Richard J. Callahan)
Dale F. Dorn*
(Dale F. Dorn)
John C. Dorn*
(John C. Dorn)
69
<PAGE>
SIGNATURES TITLE DATE
---------- ----- ----
William L. Dorn*
(William L. Dorn)
Harold D. Hammar*
(Harold D. Hammar)
James H. Lee*
(James H. Lee)
Directors of the Registrant March 28, 1994
Jeffrey W. Miller*
(Jeffrey W. Miller)
Jack D. Riggs*
(Jack D. Riggs)
Michael B. Yanney*
(Michael B. Yanney)
*By /s/ Daniel L. McNamara March 28, 1994
-----------------------------
Daniel L. McNamara
(as attorney-in-fact for
each of the persons indicated)
70
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Forest Oil Corporation:
Under date of February 22, 1994, we reported on the consolidated balance sheets
of Forest Oil Corporation and subsidaries as of December 31, 1993 and 1992, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1993, as contained in the annual report on Form 10-K for the year 1993. In
connection with our audits of the aforementioned consolidated financial
statements, we have also audited the related financial statement schedules V,
VI, and X. These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statement schedules based on our audit.
In our opinion, the related financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
As discussed in Notes 8 and 13 to the financial statements, the Company changed
its method of accounting for income taxes and postretirement benefits.
KPMG PEAT MARWICK
Denver, Colorado
February 22, 1994
<PAGE>
SCHEDULE V
FOREST OIL CORPORATION AND CONSOLIDATED SUBSIDIARIES
Property and Equipment
Years ended December 31, 1993, 1992 and 1990
(In Thousands)
<TABLE>
<CAPTION>
Balance at Other Balance
beginning Additions changes at end
Classification of period at cost Retirements (A) of period
------------------- ----------- --------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Oil and gas properties $ 971,981 170,821 2,146 - 1,140,656
Land and buildings 2,413 17 402 - 2,028
Transportation equipment 115 - 45 - 70
Furniture and fixtures 7,957 327 10 - 8,274
Other 2,047 1 - - 2,048
---------- ------- ----- ------ ---------
$ 984,513 171,166 2,603 - 1,153,076
---------- ------- ----- ------ ---------
---------- ------- ----- ------ ---------
Year ended December 31, 1992:
Oil and gas properties $ 993,781 106,627 128,427 - 971,981
Land and buildings 2,013 400 - - 2,413
Transportation equipment 142 194 221 - 115
Furniture and fixtures 8,368 138 549 - 7,957
Other 3,753 66 1,772 - 2,047
---------- ------- ----- ------ ---------
$1,008,057 107,425 130,969 - 984,513
---------- ------- ----- ------ ---------
---------- ------- ----- ------ ---------
Year ended December 31, 1991:
Oil and gas properties $1,024,392 35,664 66,703 428 993,781
Land and buildings 2,014 - 1 - 2,013
Transportation equipment 274 19 156 5 142
Furniture and fixtures 7,675 713 11 (9) 8,368
Other 3,929 53 230 1 3,753
---------- ------- ----- ------ ---------
$1,038,284 36,449 67,101 425 1,008,057
---------- ------- ----- ------ ---------
---------- ------- ----- ------ ---------
<FN>
(A) Foreign currency translation.
</TABLE>
<PAGE>
SCHEDULE VI
FOREST OIL CORPORATION AND CONSOLIDATED SUBSIDIARIES
Accumulated Depreciation, Depletion and Valuation Allowance
of Property and Equipment
Years ended December 31, 1993, 1992 and 1991
(In Thousands)
<TABLE>
<CAPTION>
Additions
Balance at charged to Other Balance
Beginning costs and changes at end
Description of period expenses(A) Retirements (B) of period
------------- ---------- ----------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Oil and gas properties $ 717,444 59,900 (882) - 778,226
Land and buildings 122 10 13 - 119
Transportation equipment 14 13 4 - 23
Furniture and fixtures 6,360 641 5 - 6,996
Other 1,999 17 - - 2,016
---------- ------ ------ ----- -------
$ 725,939 60,581 (860) - 787,380
---------- ------ ------ ----- -------
---------- ------ ------ ----- -------
Year ended December 31, 1992:
Oil and gas properties $ 754,768 45,716 83,040 - 717,444
Land and buildings 100 22 - - 122
Transportation equipment 78 20 84 - 14
Furniture and fixtures 5,952 800 392 - 6,360
Other 3,477 66 1,544 - 1,999
---------- ------ ------ ----- -------
$ 764,375 46,624 85,060 - 725,939
---------- ------ ------ ----- -------
---------- ------ ------ ----- -------
Year ended December 31, 1991:
Oil and gas properties $ 734,536 71,262 51,045 15 754,768
Land and buildings 91 9 - - 100
Transportation equipment 123 16 65 4 78
Furniture and fixtures 5,185 808 50 9 5,952
Other 3,429 134 87 1 3,477
$ 743,364 72,229 51,247 29 764,375
---------- ------ ------ ----- -------
---------- ------ ------ ----- -------
<FN>
(A) Includes a $15,000,000 valuation allowance related to the U.S. full cost pool, and a $19,000,000 valuation allowance related to
the Canadian full cost pool for 1991.
(B) Foreign currency translation.
</TABLE>
<PAGE>
SCHEDULE X
FOREST OIL CORPORATION AND CONSOLIDATED SUBSIDIARIES
Supplementary Income Statement Information
Years ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
CHARGED TO COSTS AND EXPENSES
---------------------------------------
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Taxes, other than payroll and Federal
income taxes:
Production $ 1,373 3,031 (1) 1,725
Ad valorem 629 377 320
State franchise and other 189 137 (49)
---------- ------ ------
Total taxes $ 2,191 3,545 1,996
---------- ------ ------
---------- ------ ------
<FN>
(1) Includes $1,589,000 related to the ONEOK settlement described in Note 11 of Notes to Consolidated Financial Statements.
</TABLE>
Other supplementary income statement information required by Rule 12-11 is not
presented because the required item does not exceed 1 percent of total sales and
revenues reported in the related income statement, except for maintenance and
repair costs included in the Company's oil and gas production expense. Such
maintenance and repair costs cannot be distinguished from other components of
lease operating expense.
<PAGE>
Exhibit 3(ii)(a)
Amendment No. 7 to By-Laws
RESOLVED, That effective immediately, the by-laws of this
corporation adopted on May 9, 1990 be and the same hereby are amended as
follows:
1. Section 1 of ARTICLE VI shall be amended by adding the following offices:
Vice President of Operations
General Business Manager
Chief Accounting Officer
2. Section 4 of ARTICLE VI shall be deleted in its entirety and the following
shall be substituted therefor:
"Section 4. The president shall have general and active management of the
business of the corporation and shall preside at all meetings of the
shareholders and, in the absence of the co-chairmen of the board or the
chairman of the board, as the case may be, at all meetings of the board of
directors and shall perform such other duties as may be assigned to him by
the board of directors."
3. Section 5 of ARTICLE VI shall be amended by adding the designations of
vice president - legal and vice president of operations thereto.
<PAGE>
Exhibit 3(ii)(b)
VIII. AMENDMENT ADOPTED FEBRUARY 24, 1994
RESOLVED, That, effective immediately, Section 1 of ARTICLE III of the by-laws
of this corporation adopted on May 9, 1990 shall be deleted in its entirety and
that the following shall be substituted therefor:
"Section 1. The business of the corporation shall be conducted and managed by a
board of directors consisting of twelve (12) directors which may exercise all
such powers of the corporation and do all such lawful acts and things as are not
by statute or by the certificate of incorporation or by these by-laws directed
or required to be exercised by the shareholders."
<PAGE>
===========================================================================
Exhibit 4.2
FOREST OIL CORPORATION
and
SUBSIDIARY BORROWERS
and
SUBSIDIARY GUARANTORS
_____________________________
CREDIT AGREEMENT
Dated as of December 1, 1993
______________________________
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
as Agent
===========================================================================
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which
it is attached but is inserted for convenience of reference only.
Page
Section 1. Definitions and Accounting Matters 2
1.01 Certain Defined Terms 2
1.02 Accounting Terms and Determinations 25
1.03 Borrowing Base 26
1.04 Classes and Types of Loans 28
Section 2. Commitments, Loans, Notes and Prepayments 29
2.01 Loans 29
2.02 Borrowings 30
2.03 Letters of Credit 30
2.04 Changes of Commitments 35
2.05 Commitment Fee 35
2.06 Lending Offices 35
2.07 Several Obligations; Remedies Independent 35
2.08 Notes 36
2.09 Optional Prepayments and Conversions or
Continuations of Loans 36
2.10 Mandatory Prepayments and Reductions of
Commitments 37
Section 3. Payments of Principal and Interest 39
3.01 Repayment of Loans 39
3.02 Interest 39
Section 4. Payments; Pro Rata Treatment; Computations;etc 40
4.01 Payments 40
4.02 Pro Rata Treatment 41
4.03 Computations 42
4.04 Minimum Amounts 42
4.05 Certain Notices 42
4.06 Non-Receipt of Funds by the Agent 43
4.07 Sharing of Payments, Etc. 45
Section 5. Yield Protection, Etc. 46
5.01 Additional Costs 46
5.02 Limitation on Types of Loans 49
5.03 Illegality 49
5.04 Treatment of Affected Loans 49
5.05 Compensation 50
5.06 Additional Costs in Respect of Letters
of Credit 51
Section 6. Guarantee 52
6.01 Guarantee 52
6.02 Obligations Unconditional 52
6.03 Reinstatement 53
6.04 Subrogation 53
6.05 Remedies 54
6.06 Continuing Guarantee 54
6.07 Rights of Contribution 54
6.08 Limitation on Guarantee Obligations 54
<PAGE>
Section 7. Conditions Precedent 55
7.01 Initial Extension of Credit 55
7.02 Initial and Subsequent Extensions of Credit 58
Section 8. Representations and Warranties 59
8.01 Corporate Existence 59
8.02 Financial Condition 59
8.03 Litigation 60
8.04 No Breach 60
8.05 Action 60
8.06 Approvals 61
8.07 Use of Credit 61
8.08 ERISA 61
8.09 Taxes 61
8.10 Investment Company Act 62
8.11 Public Utility Holding Company Act 62
8.12 Material Agreements and Liens 62
8.13 Environmental Matters 62
8.14 Subsidiaries, Etc. 65
8.15 True and Complete Disclosure 65
Section 9. Covenants of the Obligors 66
9.01 Financial Statements Etc 66
9.02 Litigation 69
9.03 Existence, Etc. 70
9.04 Insurance 70
9.05 Prohibition of Fundamental Changes 71
9.06 Limitation on Liens 72
9.07 Indebtedness 75
9.08 Investments 75
9.09 Dividend Payments 77
9.10 Debt Coverage Ratio; Interest Coverage Ratio 78
9.11 Working Capital 78
9.12 Lines of Business 78
9.13 Transactions with Affiliates 78
9.14 Use of Proceeds 79
9.15 Certain Obligations Respecting Subsidiaries 79
9.16 Additional Borrowers and Subsidiary Guarantors 80
9.17 Modifications and Payments of Subordinated
Indebtedness 80
9.18 Property Schedule 81
9.19 Asset Valuation 81
Section 10. Events of Default 82
Section 11. The Agent 86
11.01 Appointment, Powers and Immunities 86
11.02 Reliance by Agent 87
11.03 Defaults 87
11.04 Rights as a Bank 87
11.05 Indemnification 88
11.06 Non-Reliance on Agent and Other Banks 88
11.07 Failure to Act 89
11.08 Resignation or Removal of Agent 89
11.09 Consents under Other Basic Documents 89
11.10 Collateral Sub-Agents 90
Section 12. Miscellaneous 90
12.01 Waiver 90
12.02 Notices 90
<PAGE>
12.03 Expenses. 91
12.04 Amendments, Etc. 91
12.05 Successors and Assigns 92
12.06 Assignments and Participations 92
12.07 Indemnification. 95
12.08 Survival 96
12.08 Captions 96
12.09 Counterparts 96
12.10 Governing Law; Submission to Jurisdiction 96
12.11 Waiver of Jury Trial 96
12.12 Treatment of Certain Information 97
SCHEDULE I - Material Agreements and Liens
SCHEDULE II - Hazardous Materials
SCHEDULE III - Subsidiaries and Investments
SCHEDULE IV - Indebtedness to be Repaid
SCHEDULE V - Unrestricted Properties
EXHIBIT A-1 - Form of A Note
EXHIBIT A-2 - Form of B Note
EXHIBIT B - Form of Security Agreement
EXHIBIT C - Form of Opinion of Counsel to the Obligors
EXHIBIT D - Form of Opinion of Special Counsel to Chase
EXHIBIT E - Form of Mortgage
EXHIBIT F - Form of Pledge Agreement
EXHIBIT G - Form of Confidentiality Agreement
<PAGE>
CREDIT AGREEMENT dated as of December 1, 1993, between: FOREST OIL
CORPORATION, a corporation duly organized and validly existing under the laws of
the State of New York (the "Company"); each of the Subsidiaries of the Company
that becomes a borrower pursuant to Section 9.16 hereof (individually, a
"Subsidiary Borrower" and, collectively with the Company, the "Borrowers"); each
of the Subsidiaries of the Company that becomes a guarantor pursuant to Section
9.16 hereof (individually, a "Subsidiary Guarantor" and, collectively, the
"Subsidiary Guarantors" and, together with the Borrowers, the "Obligors"); each
of the lenders that is a signatory hereto identified under the caption "BANKS"
on the signature pages hereto or which, pursuant to Section 12.06(b) hereof,
shall become a "Bank" hereunder (individually, a "Bank" and, collectively, the
"Banks"); and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), a national
banking association, as agent for the Banks (in such capacity, together with its
successors in such capacity, the "Agent").
The Obligors are engaged as an integrated group in the business of the
acquisition and exploitation of, exploration for and development and production
of oil and gas and other hydrocarbon reserves, and in related businesses, and in
furnishing the required supplies, services, equipment, credit and other
facilities for such integrated operation. The integrated operation requires
financing on such a basis that credit supplied to the Borrowers be made
available from time to time to the Subsidiary Guarantors, as required for the
continued successful operation of each of the Obligors, separately, and the
integrated operation as a whole. In that connection, the Obligors have requested
the Banks to extend credit to the Borrowers (to be made available by the
Borrowers in part to the Subsidiary Guarantors) in an aggregate principal amount
not exceeding $50,000,000 to finance the operations of the Borrowers and the
Subsidiary Guarantors and to enable certain acquisitions and capital
expenditures by the Borrowers and the Subsidiary Guarantors, and for other
purposes.
To induce the Banks to extend such credit, the Obligors, the Banks and the
Agent are entering into this Agreement pursuant to which the Banks will make
loans to and issue letters of credit for the account of the Borrowers, and each
Subsidiary Guarantor will guarantee the credit so extended to the Borrowers and
certain Obligors will agree to execute and deliver mortgages, pledges and/or
security agreements providing for security interests and liens to be granted by
the Obligors on certain of their respective Properties as collateral security
for the obligations of the Obligors to the Banks and the Agent hereunder. Each
of the Obligors expects to derive benefit, directly or indirectly, from the
credit so extended to the Borrowers, both in its separate capacity and as a
member of the integrated group, since the successful operation of each of the
Obligors is dependent on the continued successful performance of the functions
of the integrated group as a whole.
Accordingly, the parties hereto agree as follows:
<PAGE>
Section 1. Definitions and Accounting Matters.
1.01 CERTAIN DEFINED TERMS. As used herein, the following terms shall have
the following meanings (all terms defined in this Section 1.01 or in other
provisions of this Agreement in the singular to have the same meanings when used
in the plural and vice versa):
"A Banks" shall mean (a) on the date hereof, the Banks having A Commitments
as indicated on the signature pages hereof and (b) thereafter, the Banks from
time to time holding A Loans and (if the same have not expired or been
terminated) A Commitments after giving effect to any assignments thereof
permitted by Section 12.06 hereof.
"A Commitment" shall mean, for each A Bank, the obligation of such Bank to
make A Loans in an aggregate principal amount up to but not exceeding (a) in the
case of a Bank that is a party to this Agreement as of the date hereof, the
amount set opposite the name of such Bank on the signature pages hereof under
the caption "A Commitment" or (b) in the case of any other A Bank, the aggregate
amount of the A Commitments of other A Banks acquired by it pursuant to Section
12.06(b) hereof (in each case, as the same may be reduced from time to time
pursuant to Section 2.04 hereof or increased or reduced from time to time
pursuant to said Section 12.06(b)).
"A Loans" shall mean the loans provided for by Section 2.01(a) hereof.
"Affiliate" shall mean any Person that directly or indirectly controls, or is
under common control with, or is controlled by, the Company and, if such Person
is an individual, any member of the immediate family (including parents, spouse,
children and siblings) of such individual and any trust whose principal
beneficiary is such individual or one or more members of such immediate family
and any Person who is controlled by any such member or trust. As used in this
definition, "control" (including, with its correlative meanings, "controlled by"
and "under common control with") shall mean possession, directly or indirectly,
of power to direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership interests, by
contract or otherwise), provided that, in any event, any Person that owns
directly or indirectly securities having 10% or more of the voting power for the
election of directors or other governing body of a corporation or 10% or more of
the partnership or other ownership interests of any other Person (other than as
a limited partner of such other Person) will be deemed to control such
corporation or other Person. Notwithstanding the foregoing, (a) no individual
shall be an Affiliate solely by reason of his or her being a director, officer
or employee of the Company or any of its Subsidiaries and (b) none of the
Restricted Subsidiaries of the Company shall be, for purposes of this
definition, Affiliates of the Company.
<PAGE>
"Applicable Lending Office" shall mean, for each Bank and for each Type of
Loan, the "Lending Office" of such Bank (or of an affiliate of such Bank)
designated for such Type of Loan on the signature pages hereof or such other
office of such Bank (or of an affiliate of such Bank) as such Bank may from time
to time specify to the Agent and the Company as the office by which its Loans of
such Type are to be made and maintained.
"Applicable Margin" shall mean: (a) with respect to Base Rate Loans, 3/8 of
1% per annum; and (b) with respect to Eurodollar Loans, 1-5/8% per annum.
"B Banks" shall mean (a) on the date hereof, the Banks having B Commitments
as indicated on the signature pages hereof and (b) thereafter, the Banks from
time to time holding B Loans and (if the same have not expired or been
terminated) B Commitments after giving effect to any assignments thereof
permitted by Section 12.06 hereof.
"B Commitment" shall mean, for each B Bank, the obligation of such Bank to
make B Loans in an aggregate principal amount up to but not exceeding (a) in the
case of a Bank that is a party to this Agreement as of the date hereof, the
amount set opposite the name of such Bank on the signature pages hereof under
the caption "B Commitment" or (b) in the case of any other B Bank, the aggregate
amount of the B Commitments of other B Banks acquired by it pursuant to Section
12.06(b) hereof (in each case, as the same may be reduced from time to time
pursuant to Section 2.04 hereof or increased or reduced from time to time
pursuant to said Section 12.06(b)).
"B Loans" shall mean the loans provided for by Section 2.01(b) hereof.
"Bankruptcy Code" shall mean the Federal Bankruptcy Code of 1978, as amended
from time to time.
"Base Rate" shall mean, for any day, a rate per annum equal to the higher of
(a) the Federal Funds Rate for such day plus 1/2 of 1% and (b) the Prime Rate
for such day. Each change in any interest rate provided for herein based upon
the Base Rate resulting from a change in the Base Rate shall take effect at the
time of such change in the Base Rate.
"Base Rate Loans" shall mean Loans that bear interest at rates based upon the
Base Rate.
"Basic Documents" shall mean, collectively, this Agreement, the Notes, the
Letter of Credit Documents and the Security Documents.
"Borrowing Base" has the meaning given to such term in Section 1.03 hereof.
"Borrowing Base Deficiency" has the meaning given to such term in Section
2.10(a) hereof.
<PAGE>
"Business Day" shall mean (a) any day on which commercial banks are not
authorized or required to close in New York City and (b) if such day relates to
a borrowing of, a payment or prepayment of principal of or interest on, a
Conversion of or into, or an Interest Period for, a Eurodollar Loan or a notice
by any of the Borrowers with respect to any such borrowing, payment, prepayment,
Conversion or Interest Period, any day on which dealings in Dollar deposits are
carried out in the London interbank market.
"Capital Expenditures" shall mean, for any period, expenditures (including,
without limitation, the aggregate amount of Capital Lease Obligations incurred
during such period) made by the Company or any of its Subsidiaries in connection
with the acquisition and exploitation of, or the exploration for or development
or production of, hydrocarbon reserves or to acquire or construct fixed assets,
plant and equipment (including renewals, improvements and replacements, but
excluding repairs) during such period computed in accordance with GAAP.
"Capital Lease Obligations" shall mean, for any Person, all obligations of
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) Property to the extent such obligations are required
to be classified and accounted for as a capital lease on a balance sheet of such
Person under GAAP, and, for purposes of this Agreement, the amount of such
obligations shall be the capitalized amount thereof, determined in accordance
with GAAP.
"Capital Stock" shall mean, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of corporate
stock or partnership interests and any and all warrants, options and rights with
respect thereto (whether or not currently exercisable), including each class of
common stock and preferred stock of such Person.
"Cash Flow" shall mean, for any period, for the Company and the Restricted
Subsidiaries (determined on a consolidated basis without duplication in
accordance with GAAP), the sum of the following: the total sales revenue from
natural gas, oil and other hydrocarbon products for such period plus cash
dividend payments, if any, by an Unrestricted Subsidiary to the Company or a
Restricted Subsidiary in an aggregate amount in excess of the aggregate amount
of the Investments in such Unrestricted Subsidiary by the Company and the
Restricted Subsidiaries during such period plus the total Net Cash Payments
(excluding the fair market value of non-cash consideration) received by the
Company and its Restricted Subsidiaries during such period minus (a) the revenue
attributable to Volumetric Production Payments for such period, (b) the interest
and principal paid in satisfaction of obligations under Non-Recourse Debt
financings for such period (other than Volumetric Production Payments), (c) oil
and gas production expenses for such period and (d) total overhead costs paid or
required to be
<PAGE>
paid in cash during such period (whether or not capitalized, but net of credits
related to such expenses).
"Casualty Event" shall mean, with respect to any Property of any Person, any
loss of or damage to, or any condemnation or other taking of, such Property for
which such Person or any of its Subsidiaries receives insurance proceeds, or
proceeds of a condemnation award or other compensation.
"Change of Control" shall mean any event or series of events by which: (i)
any "Person" (as such term is used in Sections 13(d) and 14(d) of the Exchange
Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act) of 40% or more of the total voting power of the Voting
Stock of the Company; (ii) the Company consolidates with or merges or
amalgamates with or into another Person or conveys, transfers, or leases all or
substantially all of its assets to any other Person, or any Person consolidates
with, or merges or amalgamates with or into the Company, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the Company
is changed into or exchanged for cash, securities or other property, other than
any such transaction where (a) the outstanding Voting Stock of the Company is
changed into or exchanged for Voting Stock of the surviving corporation which is
not Disqualified Stock and (b) the holders of the Voting Stock of the Company
immediately prior to such transaction own, directly or indirectly, not less than
a majority of the Voting Stock of the surviving corporation immediately after
such transaction; (iii) the shareholders of the Company approve any plan of
liquidation or dissolution of the Company; or (iv) during any period of 12
consecutive months, individuals who at the beginning of such period constituted
the board of directors of the Company (or whose nomination for election by the
shareholders of the Company was approved by a vote of not less than a majority
of the directors of the Company then still in office who were either directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
board of directors of the Company then in office.
"Chase" shall mean The Chase Manhattan Bank (National Association).
"Class" shall have the meaning assigned to such term in Section 1.04 hereof.
"Closing Date" shall mean the date upon which the initial extension of credit
hereunder is made.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral Account" shall have the meaning assigned to such term in Section
4.01 of the Security Agreement.
"Commitments" shall mean A Commitments and B
<PAGE>
Commitments.
"Commitment Percentage" shall mean, with respect to any Bank of either Class,
the ratio of the amount of the Commitment of such Bank of such Class to the
aggregate amount of the Commitments of all of the Banks of such Class.
"Commitment Termination Date" shall mean December 31, 1996.
"Commodity Hedging Agreement" shall mean, for any Person, an agreement or
arrangement between such Person and one or more financial institutions or other
entities providing for the transfer or mitigation of risks of fluctuations in
prices of hydrocarbons, either generally or under specific circumstances.
"Consolidated Subsidiary" shall mean, for any Person, each Subsidiary of such
Person (whether now existing or hereafter created or acquired) the financial
statements of which are (or should have been) consolidated with the financial
statements of such Person in accordance with GAAP.
"Continue", "Continuation" and "Continued" shall refer to the continuation
pursuant to Section 2.09 hereof of a Eurodollar Loan from one Interest Period
to the next Interest Period.
"Convert", "Conversion" and "Converted" shall refer to a conversion pursuant
to Section 2.09 hereof of one Type of Loans into another Type of Loans, which
may be accompanied by the transfer by a Bank (at its sole discretion) of a Loan
from one Applicable Lending Office to another.
"Debt Coverage Ratio" shall mean, for any period, the ratio of (a) Cash Flow
for such period to (b) Debt Service for such period.
"Debt Service" shall mean, for any period, the sum, for the Company and the
Restricted Subsidiaries (determined on a consolidated basis without duplication
in accordance with GAAP), of the following: (a) all payments of principal of
Indebtedness (other than Non-Recourse Debt) scheduled to be made during such
period plus (b) all Interest Expense for such period.
"Deficiency Notice" shall have the meaning assigned to such term in Section
2.10 hereof.
"Default" shall mean an Event of Default or an event that with notice or
lapse of time or both would become an Event of Default.
"Determination Date" shall mean (a) initially, September 30, 1994, and
thereafter each April 15 and September 30 of each year prior to the Commitment
Termination Date and (b) 30 days after each other date, if any, on which a
Reserve Evaluation Report is delivered to the Agent as contemplated hereby.
<PAGE>
"Determination Period" shall mean, initially, the period beginning April 16,
1994 to and including September 30, 1994 and, thereafter, each period commencing
on a Determination Date and ending on the day next preceding the next succeeding
Determination Date.
"Disposition" shall mean any sale, assignment, transfer or other disposition
of any Property (whether now owned or hereafter acquired) by the Company or any
of its Restricted Subsidiaries to any Person (other than by any such Restricted
Subsidiary to the Company or any other Restricted Subsidiary, or by the Company
to a Restricted Subsidiary), excluding any sale, assignment, transfer or other
disposition of (i) any Property sold or disposed of in the ordinary course of
business and on ordinary business terms and (ii) any Unrestricted Properties.
"Disqualified Stock" means any Capital Stock of the Company or any Material
Subsidiary of the Company which, by its terms (or by the terms of any security
into which it is convertible or for which it is exchangeable), or upon the
happening of any event or with the passage of time, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
Commitment Termination Date or which is exchangeable or convertible into debt
securities of the Company or any Material Subsidiary of the Company, except to
the extent that such exchange or conversion rights cannot be exercised prior to
the Commitment Termination Date.
"Dividend Payment" shall mean dividends (in cash, Property or obligations)
on, or other payments or distributions on account of, or the setting apart of
money for a sinking or other analogous fund for, or the purchase, redemption,
retirement or other acquisition of, any shares of any class of stock of the
Company or any of its Subsidiaries or of any warrants, options or other rights
to acquire the same (or to make any payments to any Person, such as "phantom
stock" payments, where the amount thereof is calculated with reference to the
fair market or equity value of the Company or any of its Subsidiaries), but
excluding dividends payable solely in shares of common stock of the Company.
"Dollar-Denominated Production Payments" shall mean production payment
obligations of the Company or any of its Subsidiaries which are payable from a
specified share of proceeds received from production from specific Properties,
together with all undertakings and obligations in connection therewith.
"Dollars" and "$" shall mean lawful money of the United States of America.
"Environmental Claim" shall mean, with respect to any Person, (a) any written
or oral notice, claim, demand or other communication (collectively, a "claim")
by any other Person alleging or asserting such Person's liability for
<PAGE>
investigatory costs, cleanup costs, governmental response costs, damages to
natural resources or other Property, personal injuries, fines or penalties
arising out of, based on or resulting from (i) the presence, or Release into the
environment, of any Hazardous Material at any location, whether or not owned by
such Person, or (ii) circumstances forming the basis of any violation, or
alleged violation, of any Environmental Law. The term "Environmental Claim"
shall include, without limitation, any claim by any governmental authority for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Law, and any claim by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from the presence of Hazardous Materials or arising
from alleged injury or threat of injury to health, safety or the environment.
"Environmental Laws" shall mean any and all present and future Federal,
state, local and foreign laws, rules or regulations, and any orders or decrees,
in each case as now or hereafter in effect, relating to the regulation or
protection of human health, safety or the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals or toxic or hazardous substances or wastes into the indoor or outdoor
environment, including, without limitation, ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or toxic or
hazardous substances or wastes.
"Equity Rights" shall mean, with respect to any Person, any outstanding
subscriptions, options, warrants, commitments, preemptive rights or agreements
of any kind (including, without limitation, any stockholders' or voting trust
agreements) for the issuance, sale, registration or voting of, or outstanding
securities convertible into, any additional shares of Capital Stock of any
class, or partnership or other ownership interests of any type in, such Person.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade or business that is a
member of any group of organizations (a) described in Section 414(b) or (c) of
the Code of which the Company is a member and (b) solely for purposes of
potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of
the Code and the lien created under Section 302(f) of ERISA and Section 412(n)
of the Code, described in Section 414(m) or (o) of the Code of which the Company
is a member.
"Eurodollar Base Rate" shall mean, with respect to any Eurodollar Loan for
any Interest Period therefor, the arithmetic mean (rounded upwards, if
necessary, to the
<PAGE>
nearest 1/16 of 1%) of the respective rates per annum quoted by the respective
Reference Banks at approximately 11:00 a.m. London time (or as soon thereafter
as practicable) on the date two Business Days prior to the first day of such
Interest Period for the offering by the respective Reference Banks to leading
banks in the London interbank market of Dollar deposits having a term comparable
to such Interest Period and in amounts comparable to the principal amount of the
Eurodollar Loan to be made by the respective Reference Banks for such Interest
Period. If any Reference Bank is not participating in any Eurodollar Loan during
any Interest Period therefor, the Eurodollar Base Rate for such Loan for such
Interest Period shall be determined by reference to the amount of the Loan that
such Reference Bank would have made or had outstanding had it been participating
in such Loan during such Interest Period.
"Eurodollar Loans" shall mean Loans the interest rates on which are
determined on the basis of rates referred to in the definition of "Eurodollar
Base Rate" in this Section 1.01.
"Eurodollar Rate" shall mean, for any Eurodollar Loan for any Interest Period
therefor, a rate per annum (rounded upwards, if necessary, to the nearest 1/100
of 1%) determined by the Agent to be equal to the Eurodollar Base Rate for such
Loan for such Interest Period divided by 1 minus the Reserve Requirement for
such Loan for such Interest Period.
"Event of Default" shall have the meaning assigned to such term in Section 10
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated by the SEC thereunder.
"Federal Funds Rate" shall mean, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank of New York on the Business Day next succeeding such
day, provided that (a) if the day for which such rate is to be determined is not
a Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Business Day as so published on the next
succeeding Business Day and (b) if such rate is not so published for any
Business Day, the Federal Funds Rate for such Business Day shall be the average
rate charged to Chase on such Business Day on such transactions as determined by
the Agent.
"Fee Letter" shall mean the letter agreement of even date herewith between
the Agent and the Company.
"Future Net Revenues" shall mean, for any period, the future gross revenues
attributable to all or a part (as specified herein) of Proved Reserves
constituting part of
<PAGE>
the Mortgaged Properties for such period less the sum for such period of all
projected Operating Expenses with respect thereto, as set forth in the related
Reserve Evaluation Report, and less (without duplication) all amounts projected
to be applied to the discharge of any Production Payment and to the unearned
balance of any advance payment received under any contract to be performed
relating to such Proved Reserves.
"GAAP" shall mean generally accepted accounting principles applied on a basis
consistent with those which, in accordance with the last sentence of Section
1.02(a) hereof, are to be used in making the calculations for purposes of
determining compliance with this Agreement.
"Government Authority" shall mean any federal, state, municipal, local,
territorial, or other governmental subdivision, department, commission, board,
bureau, agency, regulatory authority, instrumentality, judicial or
administrative body, domestic or foreign.
"Guarantee" shall mean a guarantee, an endorsement, a contingent agreement to
purchase or to furnish funds for the payment or maintenance of, or otherwise to
be or become contingently liable under or with respect to, the Indebtedness,
other obligations, net worth, working capital or earnings of any Person or any
production or revenues generated by (or any capital or other expenditures
incurred in connection with the acquisition and exploitation of, exploration
for, development of or production from) any hydrocarbon reserves, or a guarantee
of the payment of dividends or other distributions upon the stock or equity
interests of any Person, or an agreement to purchase, sell or lease (as lessee
or lessor) Property, products, materials, supplies or services primarily for the
purpose of enabling a debtor to make payment of such debtor's obligations or an
agreement to assure a creditor against loss, and including, without limitation,
causing a bank, surety company or other financial institution or similar entity
to issue a letter of credit, surety bond or other similar instrument for the
benefit of another Person, but excluding endorsements for collection or deposit
in the ordinary course of business. The terms "Guarantee" and "Guaranteed" used
as a verb shall have a correlative meaning.
"Hazardous Material" shall mean, collectively, (a) any petroleum or petroleum
products, flammable explosives, radioactive materials, asbestos in any form that
is or could become friable, urea formaldehyde foam insulation, and transformers
or other equipment that contain dielectric fluid containing polychlorinated
biphenyls (PCB's), (b) any chemicals or other materials or substances which are
now or hereafter become defined as or included in the definition of "hazardous
substances", "hazardous wastes", "hazardous materials", "extremely hazardous
wastes", "restricted hazardous wastes", "toxic substances", "toxic pollutants",
"contaminants", "pollutants" or words of similar import under any Environmental
Law and (c) any other chemical or other material or substance, exposure to which
is now or
<PAGE>
hereafter prohibited, limited or regulated under any Environmental Law.
"Hydrocarbon Properties" shall mean interests which one or more of the
Obligors have from time to time in hydrocarbon reserves.
"Inactive Subsidiary" shall mean, as at any date, any Subsidiary of the
Company that, as at the end of and for the quarterly accounting period ending on
or most recently ended prior to such date, had $1,000 or less in assets and
$1,000 or less in gross revenues.
"Indebtedness" shall mean, for any Person: (a) obligations created, issued or
incurred by such Person for borrowed money (whether by loan, the issuance and
sale of debt securities or the sale of Property to another Person subject to an
understanding or agreement, contingent or otherwise, to purchase or repurchase
the same or similar Property from such Person); (b) obligations of such Person
to pay the deferred purchase or acquisition price of Property or services, other
than trade accounts payable (other than for borrowed money) arising, and accrued
expenses incurred, in the ordinary course of business so long as such trade
accounts payable are payable within 90 days of the date the respective goods are
delivered or the respective services are rendered; (c) obligations of others
secured by a Lien on the Property of such Person, whether or not the respective
obligations so secured has been assumed by such Person; (d) obligations of such
Person in respect of letters of credit, surety bonds or similar instruments
issued or accepted by banks, surety companies and other financial institutions
for account of such Person; (e) Capital Lease Obligations of such Person; (f)
obligations of such Person in respect of obligations of the types specified in
other clauses of this definition as a general partner or joint venturer of any
partnership or joint venture (other than in respect of obligations incurred in
the ordinary course of business); (g) upon the failure of such Person to perform
or fulfill any warranties or guaranties of, or similar obligations relating to,
production or payment contained in any Non-Recourse Debt, the maximum amount of
the obligation of such Person in respect of such warranties, guaranties or
similar obligations; (h) the unearned balance of any advance payment received by
such Person under any contract to be performed in excess of $250,000 in the
aggregate (other than as provided in clause (i) below); (i) the unearned balance
of any advance payment received by such Person under any contract to be
performed in excess of $2,000,000 in the aggregate resulting from transactions
in the ordinary course of such Person's business; and (j) Indebtedness of others
Guaranteed by such Person.
"Independent Petroleum Engineer" shall mean (a) Ryder Scott Company or (b)
such other firm of independent petroleum engineers expert in the matters
required to be performed in connection with the preparation and delivery of a
Reserve Evaluation Report and satisfactory to the Majority Banks.
<PAGE>
"Interest Coverage Ratio" shall mean, for any period, the ratio of (a) Cash
Flow for such period to (b) Interest Expense for such period.
"Interest Expense" shall mean, for any period, interest expense for the
Company and the Restricted Subsidiaries for such period (determined on a
consolidated basis without duplication in accordance with GAAP) including,
without limitation, the following: all interest in respect of Indebtedness
accrued or capitalized during such period (whether or not actually paid during
such period) (other than interest paid in common stock of the Company) and the
net amounts payable (or minus the net amounts receivable) under Interest Rate
Protection Agreements accrued during such period (whether or not actually paid
or received during such period), but excluding the non-cash amortization of
deferred debt issuance costs and original issue discount for such period and the
interest expense attributable to Non-Recourse Debt for such period.
"Interest Period" shall mean, with respect to any Eurodollar Loan, each
period commencing on the date such Eurodollar Loan is made or Converted from a
Base Rate Loan or the last day of the next preceding Interest Period for such
Loan and ending on the numerically corresponding day in the first, second, third
or sixth calendar month thereafter, as the applicable Borrower may select as
provided in Section 4.05 hereof, except that each Interest Period that commences
on the last Business Day of a calendar month (or on any day for which there is
no numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Business Day of the appropriate subsequent calendar month.
Notwithstanding the foregoing: (i) if any Interest Period would otherwise end
after the Commitment Termination Date, such Interest Period shall end on the
Commitment Termination Date; (ii) each Interest Period that would otherwise end
on a day which is not a Business Day shall end on the next succeeding Business
Day (or, if such next succeeding Business Day falls in the next succeeding
calendar month, on the next preceding Business Day); and (iii) notwithstanding
clause (i) above, no Interest Period shall have a duration of less than one
month and, if the Interest Period for any Eurodollar Loan would otherwise be a
shorter period, such Loan shall not be available as a Eurodollar Loan hereunder
for such period.
"Interest Rate Protection Agreement" shall mean, for any Person, an interest
rate swap, cap or collar agreement or similar arrangement between such Person
and one or more financial institutions or other entities providing for the
transfer or mitigation of interest risks, either generally or under specific
contingencies.
"Investment" shall mean, for any Person: (a) the acquisition (whether for
cash, Property, services or securities or otherwise) of capital stock, bonds,
notes, debentures, partnership or other ownership interests or other securities
of any other Person or any agreement to make any such acquisition (including,
without limitation,
<PAGE>
any "short sale" or any sale of any securities at a time when such securities
are not owned by the Person entering into such short sale); (b) the making of
any deposit with, or advance, loan or other extension of credit to, any other
Person (including the purchase of Property from another Person subject to an
understanding or agreement, contingent or otherwise, to resell such Property to
such Person, but excluding any such advance, loan or extension of credit having
a term not exceeding 90 days representing the purchase price of inventory or
supplies sold by such Person in the ordinary course of business); (c) the
entering into of any Guarantee of, or other contingent obligation with respect
to, Indebtedness or other liability of any other Person and (without
duplication) any amount committed to be advanced, lent or extended to such
Person; or (d) the entering into of any Interest Rate Protection Agreement or
Commodity Hedging Agreement.
"Issuing Bank" shall mean Chase, as the issuer of Letters of Credit under
Section 2.03 hereof, together with its successors and assigns in such capacity.
"Letter of Credit" shall have the meaning assigned to such term in Section
2.03 hereof.
"Letter of Credit Documents" shall mean, with respect to any Letter of
Credit, collectively, any application therefor and any other agreements,
instruments, guarantees or other documents (whether general in application or
applicable only to such Letter of Credit) governing or providing for (a) the
rights and obligations of the parties concerned or at risk with respect to such
Letter of Credit or (b) any collateral security for any of such obligations,
each as the same may be modified and supplemented and in effect from time to
time.
"Letter of Credit Interest" shall mean, for each Bank, such Bank's
participation interest (or, in the case of the Issuing Bank, the Issuing Bank's
retained interest) in the Issuing Bank's liability under Letters of Credit and
such Bank's rights and interests in Reimbursement Obligations and fees, interest
and other amounts payable in connection with Letters of Credit and Reimbursement
Obligations.
"Letter of Credit Liability" shall mean, without duplication, at any time and
in respect of any Letter of Credit, the sum of (a) the undrawn face amount of
such Letter of Credit plus (b) the aggregate unpaid principal amount of all
Reimbursement Obligations of the Company at such time due and payable in respect
of all drawings made under such Letter of Credit. For purposes of this
Agreement, a Bank (other than the Issuing Bank) shall be deemed to hold a Letter
of Credit Liability in an amount equal to its participation interest in the
related Letter of Credit under Section 2.03 hereof, and the Issuing Bank shall
be deemed to hold a Letter of Credit Liability in an amount equal to its
retained interest in the related Letter of Credit after giving effect to the
acquisition by the Banks other than the Issuing Bank of their participation
interests
<PAGE>
under said Section 2.03.
"Lien" shall mean, with respect to any Property, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such Property
(including any Production Payments, advance payment or similar arrangements with
respect to minerals in place). For purposes of this Agreement and the other
Basic Documents, a Person shall be deemed to own subject to a Lien any Property
that it has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement (other than an operating lease) relating to such Property.
"Loans" shall mean A Loans and B Loans.
"Majority Banks" shall mean Majority A Banks and the Majority B Banks.
"Majority A Banks" shall mean A Banks having at least 66-2/3% of the
aggregate amount of the A Commitments, or if the A Commitments shall have been
terminated, A Banks holding at least 66-2/3% of the sum of the aggregate unpaid
principal amount of the A Loans and the Letter of Credit Liabilities.
"Majority B Banks" shall mean B Banks having at least 66-2/3% of the
aggregate amount of the B Commitments or, if the B Commitments shall have
terminated, B Banks holding at least 66-2/3% of the aggregate unpaid principal
amount of the B Loans.
"Margin Stock" shall mean "margin stock" within the meaning of Regulations U
and X.
"Material Adverse Effect" shall mean a material adverse effect on (a) the
Property, business, operations, financial condition, prospects, liabilities or
capitalization of the Company and its Subsidiaries taken as a whole, (b) the
ability of any Obligor to perform its obligations under any of the Basic
Documents to which it is a party, (c) the validity or enforceability of any of
the Basic Documents, (d) the rights and remedies of the Banks and the Agent
under any of the Basic Documents or (e) the timely payment of the principal of
or interest on the Loans or the Reimbursement Obligations or other amounts
payable in connection therewith.
"Material Subsidiary" shall mean, at any time, a Subsidiary of the Company
whose assets at such time exceed 5% of the Tangible Net Worth of the Company and
its Consolidated Subsidiaries determined on a consolidated basis in accordance
with GAAP, provided that, notwithstanding the foregoing, each Subsidiary
Guarantor and each Restricted Subsidiary shall be deemed to be a "Material
Subsidiary".
"Mortgage(s)" shall mean, collectively, one or more Mortgages, Deeds of
Trust, Assignments of Rents, Security Agreements and Fixture Filings or similar
documents executed by the Company in favor of the Agent and Bettylou
<PAGE>
J. Robert, as Trustee, for the benefit of the Agent and the Banks, in each case
substantially in the form of Exhibit E hereto and covering the respective
Mortgaged Properties and leasehold interest identified in Schedules I and II
thereto, as the same shall be modified and supplemented and in effect from time
to time.
"Mortgaged Properties" shall mean Hydrocarbon Properties which are subject to
the Liens created hereunder and under the Security Documents.
"Multiemployer Plan" shall mean a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by the Company or
any ERISA Affiliate and which is covered by Title IV of ERISA.
"Net Available Proceeds" shall mean:
(a) in the case of any Disposition by the Company or a Restricted
Subsidiary, the amount of Net Cash Payments received in connection with
such Disposition; provided that if 20% or less of the total value of such
Net Cash Payments consists of non-cash consideration, and if such
non-cash consideration is subjected to the Lien of the Security Documents
within 90 days after its receipt by the Company or a Restricted
Subsidiary, the amount of such Net Cash Payments received shall be
deemed to equal the amount of all cash payments received in connection
with such Disposition;
(b) in the case of any Casualty Event, the aggregate amount of proceeds
of insurance, condemnation awards and other compensation received by the
Company and its Restricted Subsidiaries in respect of such Casualty
Event net of (i) reasonable expenses incurred by the Company and its
Restricted Subsidiaries in connection therewith and (ii) contractually
required repayments of Indebtedness to the extent secured by a Lien on
such Property and any income and transfer taxes payable by the Company or
any of its Restricted Subsidiaries in respect of such Casualty Event; and
(c) in the case of any Equity Issuance, the aggre gate amount of all cash
received by the Company and its Restricted Subsidiaries in respect of
such Equity Issuance net of commissions, discounts and other
transaction costs incurred by the Company and its Restricted Subsidiaries
in connection therewith.
"Net Cash Payments" shall mean, with respect to any Disposition, the
aggregate amount of all cash payments, and the fair market value of any non-cash
consideration, received by the Company and its Subsidiaries directly or
indirectly in connection with such Disposition; provided that (a) Net Cash
Payments shall be net of (i) the amount of any legal, title and recording tax
expenses, commissions and other fees and expenses paid by the Company and its
Subsidiaries in connection with such Disposition and (ii) any Federal, state and
local income or other taxes estimated to be payable by the Company and its
Subsidiaries
<PAGE>
as a result of such Disposition (but only to the extent that (x) such estimated
taxes are in fact paid to the relevant Federal, state or local governmental
authority within three months of date of such Disposition or placed in escrow
for the payment of such taxes or (y) the amount of such estimated taxes is less
than $2,000,000 and the payment of such taxes is being contested in good faith
and by appropriate proceedings), (b) Net Cash Payments shall not include any
cash payment (or portion thereof) received in any fiscal year of the Company in
respect of such Disposition to the extent that such cash payment (or portion
thereof), together with all cash payments with respect to other Dispositions
theretofore received in such fiscal year, does not exceed $1,000,000 and (c) Net
Cash Payments shall be net of any repayments by the Company or any of its
Subsidiaries of Indebtedness or Non-Recourse Debt to the extent that (i) such
Indebtedness or Non-Recourse Debt, as the case may be, is secured by a Lien on
the Property that is the subject of such Disposition and (ii) such Indebtedness
or Non Recourse Debt, as the case may be, is to be repaid as a condition to the
Disposition of such Property.
"New Wholly-Owned Subsidiary" shall have the meaning assigned to such term in
Section 9.08 hereof.
"Non-Recourse Debt" shall mean any Indebtedness of the Company or a
Subsidiary of the Company in respect of which the sole recourse of the holder or
holders thereof (except to the extent approved by the Majority Banks) is to
specified Properties of the Company or one of its Subsidiaries and the revenues
generated thereby or to a Subsidiary of the Company whose only assets (except to
the extent approved by the Majority Banks) consist of such specified Properties
and the revenues generated thereby and the terms and conditions of which
(including, without limitation, the amortization and other payment provisions of
which and the interest and other compensation payable in respect of which, the
non-recourse provisions of which and the other terms of which including, without
limitation, covenants and events of default), and the documentation for which,
are acceptable to the Majority Banks or which have been disclosed in writing to
the Banks on or prior to the date hereof; provided that the existence in any
document executed by the Company or such Subsidiary in connection with such
Non-Recourse Debt (the "Subject Debt") of a provision which provides for
recourse to the Properties or assets of the Company or such Subsidiary generally
by reason of the gross negligence or willful misconduct of the Company or such
Subsidiary, will not cause the Subject Debt to be excluded from the definition
of "Non-Recourse Debt" prior to the time that a claim is made against the
Company or such Subsidiary, as the case may be, alleging the gross negligence or
willful misconduct of the Company or such Subsidiary, as the case may be (it
being understood that immediately upon any such claim being made against the
Company or such Subsidiary the amount of such claim shall cease to be
Non-Recourse Debt); provided, further, upon the failure of the Company or any
such Subsidiary to perform or fulfill any warranties or guaranties of, or
similar
<PAGE>
obligations relating to, production or payment relating to any such Non-Recourse
Debt, the maximum amount of the obligations of the Company or such Subsidiary,
as the case may be, in respect of such warranties, guaranties or similar
obligations shall cease to be Non-Recourse Debt. Notwithstanding any provision
of this Agreement to the contrary, Production Payments shall be considered "Non-
Recourse Debt"; provided that upon the failure of the Company or any Subsidiary
of the Company to perform or fulfill any warranties or guaranties of, or similar
obligations relating to, production or payment relating to any such Production
Payments, the maximum amount of the obligations of the Company or such
Subsidiary, as the case may be, in respect of such warranties or guaranties or
similar obligations shall cease to be Non-Recourse Debt.
"Notes" shall mean the promissory notes provided for by Section 2.08 hereof
and all promissory notes delivered in substitution or exchange therefor, in each
case as the same shall be modified and supplemented and in effect from time to
time.
"Operating Expenses" shall mean, for any period, the sum of the following for
the Company and its Consolidated Subsidiaries (determined on a consolidated
basis in accordance with GAAP) to the extent accrued or paid during such period
(without duplication): (i) lease operating expenses; (ii) Taxes; (iii) general
and administrative and other overhead expenditures; (iv) Capital Expenditures;
and (v) all other expenses paid or accrued.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Investments" shall mean: (a) direct obligations of the United
States of America, or of any agency thereof, or obligations guaranteed as to
principal and interest by the United States of America, or of any agency
thereof, in either case maturing not more than 90 days from the date of
acquisition thereof; (b) certificates of deposit issued by any bank or trust
company organized under the laws of the United States of America or any state
thereof and having capital, surplus and undivided profits of at least
$500,000,000, maturing not more than 90 days from the date of acquisition
thereof; (c) commercial paper rated A-1 or better or P-1 by Standard & Poor's
Rating Group or Moody's Investors Services, Inc., respectively, maturing not
more than 90 days from the date of acquisition thereof; and (d) commercial paper
rated A-2 or better (but less than A-1) or P-2 or better (but less than P-1) by
Standard and Poor's Rating Group or Moody's Investors Services, Inc.
respectively, maturing not more than 30 days from the date of acquisition
thereof.
"Person" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, trust, unincorporated organization or
government (or any agency, instrumentality or political subdivision thereof).
<PAGE>
"Plan" shall mean an employee benefit or other plan established or maintained
by the Company or any ERISA Affiliate and that is covered by Title IV of ERISA,
other than a Multiemployer Plan.
"Pledge Agreement" shall mean a Pledge Agreement substantially in the form of
Exhibit F hereto between any Obligor required to execute a Pledge Agreement at
any time after the date hereof and the Agent, as the same shall be modified and
supplemented and in effect from time to time.
"Post-Default Rate" shall mean, in respect of any principal of any Loan, any
Reimbursement Obligation or any other amount under this Agreement, any Note or
any other Basic Document that is not paid when due (whether at stated maturity,
by acceleration, by optional or mandatory prepayment or otherwise), a rate per
annum during the period from and including the due date to but excluding the
date on which such amount is paid in full equal to 2% plus the Base Rate as in
effect from time to time plus the Applicable Margin for Base Rate Loans
(provided that, if the amount so in default is principal of a Eurodollar Loan
and the due date thereof is a day other than the last day of the Interest Period
therefor, the "Post-Default Rate" for such principal shall be, for the period
from and including such due date to but excluding the last day of the Interest
Period, 2% plus the interest rate for such Loan as provided in Section 3.02(b)
hereof and, thereafter, the rate provided for above in this definition).
"Present Value of Reserves" shall mean, on any date, estimated net cash flow
expressed in Dollars (after development expenses and production taxes) in
respect of Proved Reserves attributable to Hydrocarbon Properties calculated in
accordance with the Agent's risk factors and product pricing models in effect
from time to time and discounted to present value at a discount rate acceptable
to the Majority Banks from time to time for Proved Reserves.
"Prime Rate" shall mean the rate of interest from time to time announced by
Chase at the Principal Office as its prime commercial lending rate.
"Principal Office" shall mean the principal office of Chase, located on the
date hereof at 1 Chase Manhattan Plaza, New York, New York 10081.
"Production Payments" shall mean, collectively, Dollar-Denominated Production
Payments and Volumetric Production Payments.
"Property" shall mean any right or interest in or to property of any kind
whatsoever, whether real, personal or mixed and whether tangible or intangible.
"Proved Reserves" shall mean reserves (to the extent of the net interest of
the Company and its Subsidiaries therein) comprised of quantities of
hydrocarbons that geologic and engineering data demonstrate with reasonable
certainty to be recoverable in the future
<PAGE>
from known reservoirs under existing conditions, provided that such reserves are
recoverable from (a) existing wells, whether from completion intervals currently
open and producing to market, or completion intervals currently open but not
currently producing or zones behind casing of existing wells, or (b) new wells
on undrilled acreage. Proved Reserves on undrilled acreage shall be limited to
those drilling units offsetting productive units that are reasonably certain to
be productive when drilled. Other undrilled units may also be credited with
Proved Reserves where continuity of production from existing productive
formations can be demonstrated with reasonable certainty.
"Quarterly Dates" shall mean the last day of March, June, September and
December in each year, the first of which shall be the first such day after the
date of this Agreement; provided that if any such day is not a Business Day,
then such Quarterly Date shall be the next succeeding Business Day (unless such
Business Day falls in a subsequent calendar month, in which event such Quarterly
Date shall be the next preceding Business Day).
"Reference Banks" shall mean Chase and such other Banks as are agreed to from
time to time by the Agent (with the consent of the Majority Banks) and the
Company (or their respective Applicable Lending Offices, as the case may be).
"Regulation A", "Regulation D", "Regulation U" and Regulation X" shall mean,
respectively, Regulations A, D, U and X of the Board of Governors of the Federal
Reserve System (or any successor), as the same may be modified and supplemented
and in effect from time to time.
"Regulatory Change" shall mean, with respect to any Bank, any change after
the date of this Agreement in Federal, state or foreign law or regulations
(including, without limitation, Regulation D) or the adoption or making after
such date of any interpretation, directive or request applying to a class of
banks including such Bank of or under any Federal, state or foreign law or
regulations (whether or not having the force of law and whether or not failure
to comply therewith would be unlawful) by any court or governmental or monetary
authority charged with the interpretation or administration thereof.
"Reimbursement Obligations" shall mean, at any time, the obligations of the
Borrowers then outstanding, or which may thereafter arise in respect of all
Letters of Credit then outstanding, to reimburse amounts paid by the Issuing
Bank in respect of any drawings under a Letter of Credit.
"Release" shall mean any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment, including, without limitation, the movement
of Hazardous Materials through ambient air, soil, surface water, ground water,
wetlands, land or subsurface strata.
"Report Delivery Date" shall mean, with respect to
<PAGE>
any Reserve Evaluation Report, 30 days prior to the applicable Determination
Date.
"Reserve Evaluation Report" shall mean an unsuperceded report that (a) is (i)
prepared, in the case of the report required to be delivered by the Company
pursuant to Section 9.01(f) hereof in connection with the Determination Date
occurring on April 15 of each year, by the Independent Petroleum Engineer on the
basis of assumptions and projections which the Company believes in good faith to
be reasonable or, in the case of the report required to be delivered by the
Company pursuant to Section 9.01(f) hereof in connection with each other
Determination Date, by the Company, and (ii) satisfactory in form and substance
to the Majority Banks (including as to assumptions) and (b)(x) is prepared on
the basis of findings and material data as of a date not more than 60 days prior
to the effective date of such report, in the case of a report prepared by the
Company and (y) not more than 90 days prior to the effective date of such
report, in the case of a report prepared by the Independent Petroleum Engineer,
(i) identifies the Hydrocarbon Properties covered thereby, (ii) identifies (in
the case of any report prepared by the Company) the Mortgaged Properties, (iii)
as to each of the Hydrocarbon Properties, sets forth (A) the Proved Reserves
attributable to such Hydrocarbon Property, (B) the total amount of such Proved
Reserves attributable to such Hydrocarbon Property that, in the opinion of the
preparer of such report, the Company and its Subsidiaries have the right to
produce for their own account in the current and each succeeding calendar year,
(C) a projection of the rate of production and the Future Net Revenues of the
Company and its Subsidiaries (including as additional information the data and
assumptions used to determine such Future Net Revenues) from such Proved
Reserves for the current and each succeeding calendar year, (D) the quantity and
type of hydrocarbons recoverable from such Proved Reserves in the current and
each succeeding calendar year, (E) an estimate of the projected revenues and
expenses attributable to such Proved Reserves in the current and each succeeding
calendar year, and (F) any reports or evaluations prepared by the Company
regarding the expediency of any change in methods of treatment or operation of
all or any wells drilled to produce any of such Proved Reserves that are
producing or capable of producing hydrocarbons, any new drilling or development,
any method of secondary recovery by repressuring or otherwise, or any other
action with respect to such Proved Reserves, the decision as to which may
increase or reduce the quantity of hydrocarbons ultimately recoverable, or the
rate of production thereof and (c) reconciles (i) the total amount of Proved
Reserves attributable to each Hydrocarbon Property and (ii) any material changes
in Operating Expenses or Capital Expenditures contained in such Reserve
Evaluation Report with the information contained in the immediately preceding
Reserve Evaluation Report, if any.
"Reserve Requirement" shall mean, for any Interest Period for any Eurodollar
Loan, the average maximum rate at which reserves (including, without limitation,
any marginal,
<PAGE>
supplemental or emergency reserves) are required to be maintained during such
Interest Period under Regulation D by member banks of the Federal Reserve System
in New York City with deposits exceeding one billion Dollars against
"Eurocurrency liabilities" (as such term is used in Regulation D). Without
limiting the effect of the foregoing, the Reserve Requirement shall include any
other reserves required to be maintained by such member banks by reason of any
Regulatory Change with respect to (i) any category of liabilities that includes
deposits by reference to which the Eurodollar Base Rate is to be determined as
provided in the definition of "Eurodollar Base Rate" in this Section 1.01 or
(ii) any category of extensions of credit or other assets that includes
Eurodollar Loans.
"Restricted Subsidiary" shall mean any Subsidiary of the Company other than
an Unrestricted Subsidiary.
"Security Agreement" shall mean a Security Agreement substantially in the
form of Exhibit B hereto between the Borrowers and the Agent, as the same shall
be modified and supplemented and in effect from time to time.
"Security Documents" shall mean, collectively, the Security Agreement, the
Pledge Agreement, the Mortgages and all Uniform Commercial Code financing
statements required by this Agreement, the Security Agreement, the Pledge
Agreement or the Mortgages to be filed with respect to the security interests in
personal Property and fixtures created pursuant to the Security Agreement, the
Pledge Agreement or the Mortgages.
"Senior Subordinated Debt" shall mean the Indebtedness of the Company in
respect of the 11 1/4% Senior Subordinated Notes of the Company due September 1,
2003 issued pursuant to the Senior Subordinated Debt Documents.
"Senior Subordinated Debt Documents" shall mean all documents and agreements
executed and delivered in connection with the original issuance of the Senior
Subordinated Debt, including the Indenture dated as of September 8, 1993 between
the Company and Shawmut Bank Connecticut, National Association, as trustee, as
the same shall, subject to Section 9.17 hereof, be modified and supplemented and
in effect from time to time.
"Subordinated Indebtedness" shall mean, collectively, (a) the Senior
Subordinated Debt, and (b) any other Indebtedness of any of the Obligors
outstanding on the date hereof (i) for which any Obligor is directly and
primarily liable, (ii) in respect of which none of the Company's other
Subsidiaries is contingently or otherwise obligated and (iii) which is
subordinated to the obligations of the respective Obligors to pay principal of
and interest on the Loans, Reimbursement Obligations and Notes hereunder, and
any extensions on renewals thereof, but excluding any increases in the
outstanding amount thereof, on terms, and pursuant to documentation containing
other terms (including interest, amortization, covenants and events of default),
in form and substance satisfactory to the Majority Banks.
<PAGE>
"Subsidiary" shall mean, for any Person, any corporation, partnership or
other entity of which at least a majority of the securities or other ownership
interests having by the terms thereof ordinary voting power to elect a majority
of the board of directors or other persons performing similar functions of such
corporation, partnership or other entity (irrespective of whether or not at the
time securities or other ownership interests of any other class or classes of
such corporation, partnership or other entity shall have or might have voting
power by reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by such Person or one or more Subsidiaries of
such Person or by such Person and one or more Subsidiaries of such Person.
"Wholly Owned Subsidiary" shall mean any such corporation, partnership or other
entity of which all of the equity securities or other ownership interests (other
than, in the case of a corporation, directors' qualifying shares) are so owned
or controlled.
"Tangible Net Worth" shall mean, as at any date for any Person, the sum for
such Person and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), of the following:
(a) the amount of capital stock, plus
(b) the amount of surplus and retained earnings (or, in the case of a
surplus or retained earnings deficit, minus the amount of such deficit),
minus
(c) the sum of the following: cost of treasury shares and the book value
of all assets which should be classified as intangibles (without
duplication of deductions in respect of items already deducted in
arriving at surplus and retained earnings) but in any event including
goodwill, minority interests, research and development costs, trademarks,
trade names, copyrights, patents and franchises, unamortized debt
discount and expense, all accounting reserves.
"Taxes" shall mean all taxes, levies, imposts, stamp taxes, duties, charges
to tax, fees, deductions, withholdings, royalties, charges, compulsory loans or
restrictions or conditions resulting in a charge which are imposed, levied,
collected, withheld or assessed by any political subdivision or taxing authority
as of the date of this Agreement or at any time in the future together with
interest thereon and penalties with respect thereto, if any, and any payments of
principal, interest, charges, fees or other amounts made on or in respect
thereof, including without limitation production and severance taxes and
windfall profit taxes, and "Tax" and "Taxation" shall be construed accordingly.
"Type" shall have the meaning assigned to such term in Section 1.04 hereof.
"Unrestricted Properties" shall mean the
<PAGE>
Hydrocarbon Properties of the Company and its Restricted Subsidiaries listed on
Schedule V hereto.
"Unrestricted Subsidiary" shall mean such Subsidiaries of the Company (other
than Subsidiary Borrowers) as may be designated by the Company as "Unrestricted
Subsidiaries" as provided in Section 1.05 hereof.
"Usage Report" shall have the meaning assigned to such term in Section 9.19
hereof.
"Volumetric Production Payments" shall mean production payment obligations of
the Company or any of its Subsidiaries which are payable from a specified share
of production from specific Properties, together with all undertakings and
obligations in connection therewith.
"Voting Stock" means, with respect to any Person, securities of any class or
classes of Capital Stock in such Person entitling the holders thereof (whether
at all times or only so long as no senior class of stock has voting power by
reason of any contingency) to vote in the election of members of the Board of
Directors or other governing body of such Person.
1.02 Accounting Terms and Determinations.
(a) Except as otherwise expressly provided herein, all accounting terms used
herein shall be interpreted, and all financial statements and certificates and
reports as to financial matters required to be delivered to the Banks hereunder
shall (unless otherwise disclosed to the Banks in writing at the time of
delivery thereof in the manner described in subsection (b) below) be prepared,
in accordance with GAAP applied on a basis consistent with those used in the
preparation of the latest financial statements furnished to the Banks hereunder
(which, prior to the delivery of the first financial statements under Section
9.01 hereof, shall mean the audited financial statements as at December 31, 1992
referred to in Section 8.02 hereof). All calculations made for the purposes of
determining compliance with this Agreement shall (except as otherwise expressly
provided herein) be made by application of GAAP applied on a basis consistent
with those used in the preparation of the latest annual or quarterly financial
statements furnished to the Banks pursuant to Section 9.01 hereof (or, prior to
the delivery of the first financial statements under Section 9.01 hereof, used
in the preparation of the audited financial statements as at December 31, 1992
referred to in Section 8.02 hereof) unless (i) the Company objects to the Banks
in writing to determining such compliance on such basis at the time of delivery
of such financial statements to the Banks or (ii) the Majority Banks shall
object to the Company (through the Agent) in writing to so determining such
compliance within 30 days after such delivery of such financial state ments, in
either of which events such calculations shall be made on a basis consistent
with those used in the preparation of the latest financial statements as to
which
<PAGE>
such objection shall not have been made (which, if objection is made in respect
of the first financial statements delivered under Section 9.01 hereof, shall
mean the financial statements referred to in Section 8.02 hereof).
(b) At the reasonable request of the Majority Banks the Borrowers shall
deliver to the Banks (i) a description in reasonable detail of any material
variation between the application of accounting principles employed in the
preparation of such statement and the application of accounting principles
employed in the preparation of the next preceding annual or quarterly financial
statements as to which no objection has been made in accordance with the last
sentence of subsection (a) above and (ii) reasonable estimates of the difference
between such statements arising as a consequence thereof.
(c) None of the Company and its Subsidiaries will change the last day of
their respective fiscal years from December 31 of each year, or the last days of
the first three fiscal quarters in each of its fiscal years from March 31, June
30 and September 30 of each year, respectively.
1.03 Borrowing Base.
(a) Reserve Evaluation Reports. The Company has furnished to the Agent and
the Banks on the date hereof a reserve report, which report shall be deemed to
be the initial Reserve Evaluation Report. On or before each Report Delivery
Date, the Company shall furnish to the Agent and the Banks an updated Reserve
Evaluation Report.
(b) Borrowing Base. During the period commencing on the date hereof and
ending on such date the first redetermination of the Borrowing Base becomes
effective as provided below in this Section 1.03(b), the Borrowing Base shall be
$25,000,000 (subject to any adjustments and redeterminations provided for by
Sections 1.03(c), 1.03(d) and 1.03(e) hereof) which amount has been determined
on the basis of the initial Reserve Evaluation Report referred to in the first
sentence of Section 1.03(a) hereof (with such adjustments to the rates, factors,
values, estimates, assump tions and computations set forth in such Reserve
Evaluation Report as are acceptable to the Majority Banks). As promptly as
reasonably practicable after its receipt of each Reserve Evaluation Report
furnished to it pursuant to the second sentence of Section 1.03(a) hereof, the
Agent (in consultation with the Majority Banks) shall endeavor to redetermine
the Borrowing Base on the basis of such Reserve Evaluation Report in the manner
provided in this clause (b), notify the Banks of such redetermination and, if
such redetermination is approved by each of the Banks (in the case of an
increase in the Borrowing Base) or by the Majority Banks (in the case of a
decrease in the Borrowing Base), as applicable, notify the Company of the
Borrowing Base as so redetermined and such redetermined Borrowing Base shall
become effective on the Determination Date next following each Report Delivery
Date (or, if later, on the date notified by the Agent to the Company) and shall
remain effective until again redetermined as provided in this
<PAGE>
Section 1.03(b) (subject to any adjustments and redeterminations provided for by
Sections 1.03(c), 1.03(d) and 1.03(e) hereof). The determination by the Agent
and each of the Banks or the Majority Banks, as the case may be, of the
Borrowing Base for any Determination Period shall be made on the basis of
parameters which may include the Present Value of Reserves attributable to
Hydrocarbon Properties included in the Mortgaged Properties as set forth in the
Reserve Evaluation Report for such Determination Period, subject, however, to
such adjustments as the Agent, with the concurrence of each of the Banks or the
Majority Banks, as the case may be, may make in its and their sole discretion to
the rates, factors, values, estimates, assumptions and computations set forth in
such Reserve Evaluation Report and any other relevant information or factors,
including without limitation, any additional Indebtedness or other obligations
that may be incurred by the Company and its Subsidiaries that the Majority Banks
may deem appropriate.
(c) Material Change. The Company agrees to notify the Agent promptly of any
material change of which the Company or any of its Subsidiaries is aware which
reduces or may result in a reduction of the Borrowing Base by more than 10%.
Promptly upon receipt of such notice, the Agent (in consultation with the Banks)
shall endeavor to adjust the Borrowing Base pursuant to the procedures set forth
in Section 1.03(b) hereof.
(d) Redetermination. If so requested by the Majority Banks or the Company at
any time, the Agent shall, as promptly as reasonably practicable after the
receipt of such request, endeavor to redetermine (in consultation with the
Company and the Banks) the Borrowing Base as then in effect on the basis of the
then most recent Reserve Evaluation Report (subject, however, to such additional
adjustments to the rates, factors, values, estimates, assumptions and
computations as set forth therein as the Agent, with the concurrence of the
Majority Banks, may determine to be appropriate) and any other relevant
information and factors, including, without limitation, any additional
Indebtedness or other obligations that have been or are reasonably anticipated
to be incurred by the Company and its Subsidiaries and any Hydrocarbon
Properties acquired by the Company and its Subsidiaries which are not subject to
any Lien other than Liens created hereunder or under the Security Documents,
Liens permitted by Section 9.06 hereof, that the Majority Banks may deem
appropriate and otherwise as provided in Section 1.03(b) hereof, provided that
no Hydrocarbon Properties acquired by any Subsidiary of the Company (other than
Forest I Development Company) after the date hereof shall be included in the
calculation of the Borrowing Base unless such Subsidiary is a Borrower under
this Agreement.
(e) Determinations, Etc. All determinations and redeterminations and
adjustments by the Agent provided for above in this Section 1.03 or in the
definition of "Present Value of Reserves" in Section 1.01 (and any
determinations and decisions by the Majority Banks in connection therewith,
<PAGE>
including any thereof approving or disapproving a proposed redetermination or
redetermination by the Agent or effecting any adjustment to any element included
in a Reserve Evaluation Report or the determination or redetermination of the
Borrowing Base) shall be made on a reasonable basis, in good faith and in a
manner reasonably consistent with the basis on which the initial Borrowing Base
was determined to be acceptable to the Banks (but after giving effect to changes
in facts and circumstance occurring after the date of such initial determination
including, but not limited to, reserves and production, operating expenses and
economic assumptions with respect to price of hydrocarbons and inflation), and
any such determination, redetermination or adjustment shall consider any other
relevant information or factors, including without limitation, any additional
Indebtedness or other obligations that may be incurred by the Company and its
Subsidiaries that the Majority Banks may deem appropriate, provided that no
Hydrocarbon Properties acquired by any Subsidiary of the Company (other than
Forest I Development Company) after the date hereof shall be included in the
calculation of the Borrowing Base unless such Subsidiary is a Borrower under
this Agreement.
1.04 Classes and Types of Loans. Loans, Commitments and Banks hereunder are
distinguished by "Class" and by "Type". The "Class" of a Loan, a Commitment to
make a Loan or a Bank refers to whether such Loan is an A Loan or a B Loan, an A
Commitment or a B Commitment or an A Bank or a B Bank. The "Type" of a Loan
refers to whether such Loan is a Base Rate Loan or a Eurodollar Loan, each of
which constitutes a Type. Loans may be identified by both Class and Type.
1.05 Designation of Subsidiaries as Restricted or Unrestricted Subsidiaries.
The Company may, but only with the approval of the Majority Banks, designate (by
notice to the Agent which shall promptly notify the Banks) a Restricted
Subsidiary (other than a Subsidiary Borrower) to be an Unrestricted Subsidiary
or an Unrestricted Subsidiary to be a Restricted Subsidiary; provided that the
Company may, without such approval, designate (by notice to the Agent which
shall promptly notify the Banks) a corporation or other entity that is formed or
acquired as a direct or indirect Subsidiary of the Company after the date hereof
(no part of the business or assets of which was owned by the Company or a
Restricted Subsidiary prior to the date of such formation or acquisition) to be
an Unrestricted Subsidiary on or prior to the date of such formation or
acquisition if, after giving effect thereto, the Company would be in compliance
with its obligations with respect to such Subsidiary as an Unrestricted
Subsidiary under Section 9.22 hereof and no other Default shall have occurred
and be continuing.
1.06 References to Subsidiaries, Restricted Subsidiaries and Unrestricted
Subsidiaries in Connection with Calculations of Certain Financial Ratios.
References (whether in the singular or the plural) to Subsidiaries, Restricted
Subsidiaries and Unrestricted Subsidiaries in the definitions of "Cash Flow",
"Debt Service" and "Interest
<PAGE>
Expense" in Section 1.01 hereof shall, for purposes of calculating Cash Flow,
Debt Service or Interest Expense (as the case may be) for a period or part of a
period ending prior to the date of this Agreement, be deemed to refer to
corporations or other entities that would have been "Subsidiaries", "Restricted
Subsidiaries" or "Unrestricted Subsidiaries" (as the case may be) had this
Agreement been in effect on the first day of such period.
Section 2. Commitments, Loans, Notes and Prepayments.
2.01 Loans.
(a) A Loans. Each A Bank severally agrees, in accordance with the terms and
conditions of this Agreement, to make one or more loans to the Borrowers in
Dollars during the period from and including the date hereof to and including
the Commitment Termination Date in an aggregate amount, as to all Borrowers, up
to but not exceeding the A Commitment of such Bank at any one time outstanding;
provided that (i) in no event shall the aggregate principal amount of all A
Loans, together with the aggregate amount of all Letter of Credit Liabilities,
exceed the aggregate amount of the A Commitments as in effect from time to time
and (ii) the Borrowers may not borrow A Loans or obtain Letters of Credit under
this Agreement at any time while a Borrowing Base Deficiency exists. The
aggregate of the A Commitments of the A Banks on the date hereof is $10,000,000.
(b) B Loans. Each B Bank severally agrees, in accordance with the terms and
conditions of this Agreement, to make one or more loans to the Borrowers in
Dollars (i) during the period from and including the date hereof to and
including September 30, 1994, in an aggregate amount, as to all Borrowers, up to
but not exceeding the B Commitment of such Bank at any one time outstanding,
provided that in no event during such period shall the aggregate principal
amount of the B Loans as to all B Banks exceed $25,000,000 unless the Borrowing
Base has been increased with the consent of each of the Banks as provided in
Section 1.03(b) hereof, and (ii) during the period from September 30, 1994 to
the Commitment Termination Date, in an aggregate principal amount, as to all
Borrowers, up to but not exceeding the B Commitment of such Bank or such lesser
amount as provided pursuant to the immediately preceding Reserve Evaluation
Report; provided that (x) in no event shall the aggregate amount of the B Loans
as to all B Banks exceed $40,000,000 at any time; and (y) the Borrowers may not
borrow B Loans under this Agreement at any time while a Borrowing Base
Deficiency exists.
(c) Subject to the terms and conditions of this Agreement, during the period
from and including the date hereof to but not including the Commitment
Termination Date, the Borrowers may borrow, repay and reborrow the Loans under
each Class of Commitments by means of Base Rate Loans and Eurodollar Loans, and
may Convert Loans of one type and Class into Loans of another Type of the same
Class (as
<PAGE>
provided in Section 2.08 hereof) or Continue Loans of one Type and Class as
Loans of the same Type and Class (as provided in Section 2.08 hereof); provided
that no more than three separate Interest Periods in respect of Eurodollar Loans
may be outstanding at any one time.
2.02 Borrowings. The Company shall give the Agent (which shall promptly
notify the Banks of the relevant Class) notice of each borrowing hereunder as
provided in Section 4.05 hereof. Not later than 1:00 p.m. New York time on the
date specified for each borrowing hereunder, each Bank shall make available the
amount of the Loan or Loans to be made by it on such date to the Agent, at
account number NYAO-DI-900-9-000002 maintained by the Agent with Chase at the
Principal Office, in immediately available funds, for account of the Borrowers.
The amount so received by the Agent shall, subject to the terms and conditions
of this Agreement, be made available to the Borrowers by depositing the same, in
immediately available funds, in an account of the Borrowers maintained with
Chase at the Principal Office designated by the Company.
2.03 Letters of Credit. Subject to the terms and conditions of this
Agreement, the A Commitments may be utilized, upon the request of the Company,
in addition to the Loans provided for by Section 2.01(a) hereof, for the
issuance by the Issuing Bank of letters of credit (collectively, "Letters of
Credit") for account of the Borrowers, provided that in no event shall (i) the
aggregate amount of all Letter of Credit Liabilities, together with the
aggregate principal amount of the A Loans, exceed the aggregate amount of the A
Commitments as in effect from time to time, (ii) the outstanding aggregate
amount of all Letter of Credit Liabilities exceed $10,000,000 and (iii) the
expiration date of any Letter of Credit extend beyond the earlier of the
Commitment Termination Date and the date 12 months following the issuance of
such Letter of Credit. The following additional provisions shall apply to
Letters of Credit:
(a) The Company shall give the Agent at least three Business Days'
irrevocable prior notice (effective upon receipt) specifying the Business
Day (which shall be no later than 30 days preceding the Commitment
Termination Date) each Letter of Credit is to be issued and the account
party or parties therefor and describing in reasonable detail the
proposed terms of such Letter of Credit (including the beneficiary
thereof) and the nature of the transactions or obligations proposed to be
supported thereby (including whether such Letter of Credit is to be a
commercial letter of credit or a standby letter of credit). Upon
receipt of any such notice, the Agent shall advise the Issuing Bank of
the contents thereof.
(b) On each day during the period commencing with the issuance by the
Issuing Bank of any Letter of Credit and until such Letter of Credit shall
have expired or been terminated, the A Commitment of each A Bank shall be
deemed to be utilized for all purposes of
<PAGE>
this Agreement in an amount equal to such Bank's A Commitment Percentage of
the then undrawn face amount of such Letter of Credit. Each A Bank (other
than the Issuing Bank) agrees that, upon the issuance of any Letter of
Credit hereunder, it shall automatically acquire a participation in the
Issuing Bank's liability under such Letter of Credit in an amount equal to
such Bank's A Commitment Percentage of such liability, and each A Bank
(other than the Issuing Bank) thereby shall absolutely, unconditionally and
irrevocably assume, as primary obligor and not as surety, and shall be
unconditionally obligated to the Issuing Bank to pay and discharge when
due, its A Commitment Percentage of the Issuing Bank's liability under such
Letter of Credit.
(c) Upon receipt from the beneficiary of any Letter of Credit of any
demand for payment under such Letter of Credit, the Issuing Bank shall
promptly notify the Company (through the Agent) of the amount to be paid by
the Issuing Bank as a result of such demand and the date on which payment
is to be made by the Issuing Bank to such beneficiary in respect of such
demand. Notwithstanding the identity of the account party of any Letter of
Credit, the Borrowers hereby jointly and severally unconditionally agree to
pay and reimburse the Agent for account of the Issuing Bank for the amount
of each demand for payment under such Letter of Credit at or prior to the
date on which payment is to be made by the Issuing Bank to the beneficiary
there under, without presentment, demand, protest or other formalities of
any kind.
(d) Forthwith upon its receipt of a notice referred to in clause (c) of
this Section 2.03, the Company shall advise the Agent whether or not the
Borrowers intend to borrow hereunder to finance their obligations to
reimburse the Issuing Bank for the amount of the related demand for payment
and, if it does, submit a notice of such borrowing as provided in Section
4.05 hereof. In the event that the Company fails to so advise the Agent, or
if the Borrowers fail to reimburse the Issuing Bank for a demand for
payment under a Letter of Credit by the date of such payment, the Agent
shall give each A Bank prompt notice of the amount of the demand for
payment, specifying such Bank's A Commitment Percentage of its A Commitment
of the amount of the related demand for payment.
(e) Each A Bank (other than the Issuing Bank) shall pay to the Agent
for the account of the Issuing Bank at the Principal Office in Dollars
and in immediately available funds, the amount of such Bank's A
Commitment Percentage of its A Commitment of any payment under a Letter
of Credit upon notice by the Issuing Bank (through the Agent) to such
Bank requesting such payment and specifying such amount. Each A Bank's
obligation to make such payments to the Agent for account of the Issuing
Bank under this clause (e), and the Issuing Bank's right to receive the
<PAGE>
same, shall be absolute and unconditional and shall not be affected by any
circumstance whatsoever, including, without limitation, (i) the failure of
any other A Bank to make its payment under this clause (e), the financial
condition of the Borrowers and the other Obligors (or any other account
party), the existence of any Default or (ii) the termination of the A
Commitments. Each such payment to the Issuing Bank shall be made without
any offset, abatement, withholding or reduction whatsoever. If any A Bank
shall default in its obligation to make any such payment to the Agent for
account of the Issuing Bank, for so long as such default shall continue the
Agent shall at the request of the Issuing Bank withhold from any payments
received by the Agent under this Agreement or any Note for account of such
A Bank the amount so in default and the Agent shall pay the same to the
Issuing Bank in satisfaction of such defaulted obligation.
(f) Upon the making of each payment by an A Bank to the Issuing Bank
pursuant to clause (e) above in respect of any Letter of Credit, such Bank
shall, automatically and without any further action on the part of the
Agent, the Issuing Bank or such Bank, acquire (i) a participation in an
amount equal to such payment in the Reimbursement Obligation owing to the
Issuing Bank by such Borrower hereunder and under the Letter of Credit
Documents relating to such Letter of Credit and (ii) a participation in a
percentage equal to such Bank's A Commitment Percentage of its A Commitment
in any interest or other amounts payable by such Borrower hereunder and
under such Letter of Credit Documents in respect of such Reimbursement
Obligation (other than the commissions, charges, costs and expenses payable
to the Issuing Bank pursuant to clause (g) of this Section 2.03). Upon
receipt by the Issuing Bank from or for account of such Borrower of any
payment in respect of any Reimbursement Obligation or any such interest or
other amount (including by way of setoff or application of proceeds of any
collateral security) the Issuing Bank shall promptly pay to the Agent for
account of each A Bank entitled thereto, such Bank's A Commitment
Percentage of its A Commitment of such payment, each such payment by the
Issuing Bank to be made in the same money and funds in which received by
the Issuing Bank. In the event any payment received by the Issuing Bank and
so paid to the A Banks hereunder is rescinded or must otherwise be returned
by the Issuing Bank, each A Bank shall, upon the request of the Issuing
Bank (through the Agent), repay to the Issuing Bank (through the Agent) the
amount of such payment paid to such Bank, with interest at the rate
specified in clause (j) of this Section 2.03.
(g) The Borrowers jointly and severally agree to pay to the Agent for
account of the Issuing Bank in respect of each Letter of Credit issued to
such Borrower an issuance fee in an amount equal to 1.25% per annum of
the daily average undrawn face amount of such Letter of Credit for the
period from and including
<PAGE>
the date of issuance of such Letter of Credit to and including the date
such Letter of Credit is drawn in full, expires or is terminated (such fee
to be non-refundable, to be paid in arrears on each Quarterly Date and on
the Commitment Termination Date and to be calculated, for any day, after
giving effect to any payments made under such Letter of Credit on such
day). The Issuing Bank shall pay to the Agent for account of each A Bank
(other than the Issuing Bank), from time to time at reasonable intervals
(but in any event at least quarterly), but only to the extent actually
received from the Borrowers, an amount equal to such Bank's Commitment
Percentage of all such fees in respect of each Letter of Credit (including
any such fee in respect of any period of any renewal or extension
thereof). In addition, the Borrowers jointly and severally agree to pay to
the Agent for account of the Issuing Bank a fronting fee in respect of
each Letter of Credit in an amount equal to the greater of (i) $1,000 and
(ii) 1/2 of 1% per annum of the daily average undrawn face amount of such
Letter of Credit for the period from and including the date of issuance
of such Letter of Credit to and including the date such Letter of Credit
is drawn in full, expires or is terminated (such fee to be non-refundable,
$1,000 of such fee to be paid on the date of the issuance of such Letter
of Credit, with the balance, if any, to be paid in arrears on each
Quarterly Date and on the Commitment Termination Date and to be
calculated, for any day, after giving effect to any payments made under
such Letter of Credit on such day) plus all commissions, charges, costs
and expenses in the amounts customarily charged by the Issuing Bank from
time to time in like circumstances with respect to the issuance of each
Letter of Credit and drawings and other transactions relating thereto.
(h) Promptly following the end of each calendar month, the Issuing Bank
shall deliver (through the Agent) to each Bank and the Company notice
describing the aggregate amount of all Letters of Credit outstanding at
the end of such month. Upon the request of any A Bank from time to time,
the Issuing Bank shall deliver any other information in its possession
reasonably requested by such Bank with respect to each Letter of Credit
then outstanding.
(i) The issuance by the Issuing Bank of each Letter of Credit shall, in
addition to the conditions precedent set forth in Section 7 hereof, be
subject to the conditions precedent that (i) such Letter of Credit shall
be in such form, contain such terms and support such transactions as shall
be satisfactory to the Issuing Bank consistent with its then current
practices and procedures with respect to letters of credit of the same
type and (ii) each Borrower shall have executed and delivered such
applications, agreements and other instruments relating to such Letter of
Credit as the Issuing Bank shall have reasonably requested consistent
with its then current practices and procedures with
<PAGE>
respect to letters of credit of the same type, provided that in the event
of any conflict between any such application, agreement or other
instrument and the provisions of this Agreement or any Security Document,
the provisions of this Agreement and the Security Documents shall control.
(j) To the extent that any A Bank fails to pay any amount required to
be paid pursuant to clause (e) or (f) of this Section 2.03 on the due date
therefor, such Bank shall pay interest to the Issuing Bank (through the
Agent) on such amount from and including such due date to but excluding
the date such payment is made (i) during the period from and including
such due date to but excluding the date three Business Days thereafter, at
a rate per annum equal to the Federal Funds Rate (as in effect from time
to time) and (ii) thereafter, at a rate per annum equal to the Base Rate
(as in effect from time to time) plus 2%.
(k) The issuance by the Issuing Bank of any modification or supplement to
any Letter of Credit hereunder shall be subject to the same conditions
applicable under this Section 2.03 to the issuance of new Letters of
Credit, and no such modification or supplement shall be issued hereunder
unless either (x) the respective Letter of Credit affected thereby would
have complied with such conditions had it originally been issued hereunder
in such modified or supplemented form or (y) each A Bank shall have
consented thereto.
The Borrowers hereby jointly and severally indemnify and hold harmless each A
Bank and the Agent from and against any and all claims and damages, losses,
liabilities, costs or expenses which such Bank or the Agent may incur (or which
may be claimed against such Bank or the Agent by any Person whatsoever) by
reason of or in connection with the execution and delivery or transfer of or
payment or refusal to pay by the Issuing Bank under any Letter of Credit;
provided that the Borrowers shall not be required to indemnify any A Bank or the
Agent for any claims, damages, losses, liabilities, costs or expenses to the
extent caused by (x) the willful misconduct or gross negligence of the Issuing
Bank in determining whether a request presented under any Letter of Credit
complied with the terms of such Letter of Credit or (y) in the case of the
Issuing Bank, such Bank's failure to pay under any Letter of Credit after the
presentation to it of a request strictly complying with the terms and conditions
of such Letter of Credit. Nothing in this Section 2.03 is intended to limit the
other obligations of the Borrowers, any Bank or the Agent under this Agreement.
2.04 Changes of Commitments.
(a) The aggregate amount of the Commitments shall be automatically reduced to
zero on the Commitment Termination Date.
(b) The Borrowers shall have the right at any time or from time to time (i)
so long as no Loans or (in the
<PAGE>
case of the A Commitments) Letter of Credit Liabilities are outstanding, to
terminate either Class of Commitments and (ii) to reduce the aggregate unused
amount of either Class of Commitments (for which purpose use of the A
Commitments shall be deemed to include the aggregate amount of Letter of Credit
Liabilities); provided that (x) the Company shall give notice of each such
termination or reduction as provided in Section 4.05 hereof and (y) each partial
reduction shall be in an aggregate amount at least equal to $1,000,000 or in
multiples of $500,000 in excess thereof.
(c) The Commitments once terminated or reduced may not be reinstated.
2.05 Commitment Fee. The Borrowers shall pay to the Agent for account of each
Bank a commitment fee on the daily average unused amount of each of such Bank's
Commitments (for which purpose the aggregate amount of any Letter of Credit
Liabilities shall be deemed to be a pro rata (based on the A Commitments) use of
each A Bank's A Commitment), for the period from and including the date of this
Agreement to but not including the earlier of the date such Commitment is
terminated and the Commitment Termination Date, at a rate per annum equal to 1/2
of 1%. Accrued commitment fee shall be payable on each Quarterly Date and on the
earlier of the date the Commitments are terminated and the Commitment
Termination Date.
2.06 Lending Offices. The Loans of each Type made by each Bank shall be made
and maintained at such Bank's Applicable Lending Office for Loans of such Type.
2.07 Several Obligations; Remedies Independent. The failure of any Bank to
make any Loan to be made by it on the date specified therefor shall not relieve
any other Bank of its obligation to make its Loan on such date, but neither any
Bank nor the Agent shall be responsible for the failure of any other Bank to
make a Loan to be made by such other Bank, and no Bank shall have any obligation
to the Agent or any other Bank for the failure by such Bank to make any Loan
required to be made by such Bank. The amounts payable by the Borrowers at any
time hereunder and under the Notes to each Bank shall be a separate and
independent debt and each Bank shall be entitled to protect and enforce its
rights arising out of this Agreement and the Notes, and it shall not be
necessary for any other Bank or the Agent to consent to, or be joined as an
additional party in, any proceedings for such purposes.
2.08 Notes.
(a) The A Loans made by each Bank shall be evidenced by a single promissory
note of the Borrowers substantially in the form of Exhibit A-1 hereto, dated the
date hereof, payable to such Bank in a principal amount equal to the amount of
its A Commitment as originally in effect and otherwise duly completed.
(b) The B Loans made by each Bank shall be evidenced by a single promissory
note of the Borrowers
<PAGE>
substantially in the form of Exhibit A-2 hereto, payable to such Bank in a
principal amount equal to the amount of its B Commitment as originally in effect
and otherwise duly completed.
(c) The date, amount, Type, interest rate and duration of Interest Period (if
applicable) of each Loan made by each Bank to the Borrowers, and each payment
made on account of the principal thereof, shall be recorded by such Bank on its
books and, prior to any transfer of the Note evidencing the Loans of the related
Class held by it, endorsed by such Bank on the schedule attached to such Note or
any continuation thereof; provided that the failure of such Bank to make any
such recordation or endorsement shall not affect the obligations of the
Borrowers to make a payment when due of any amount owing hereunder or under such
Note in respect of the Loans evidenced by such Note.
(d) No Bank shall be entitled to have either of its Notes subdivided, by
exchange for promissory notes of lesser denominations or otherwise, except in
connection with a permitted assignment of all or any portion of such Bank's
Commitment, Loans and Note of the related Class pursuant to Section 12.06(b)
hereof.
2.09 Optional Prepayments and Conversions or Continuations of Loans. Subject
to Section 4.04 hereof, the Borrowers shall have the right to prepay Loans, or
to Convert Loans of one Type into Loans of another Type or Continue Loans of one
Type as Loans of the same Type, at any time or from time to time, provided that:
(a) the Company shall give the Agent notice of each such prepayment, Conversion
or Continuation as provided in Section 4.05 hereof (and, upon the date specified
in any such notice of prepayment, the amount to be prepaid shall become due and
payable hereunder); and (b) Eurodollar Loans may be prepaid or Converted only on
the last day of an Interest Period for such Loans. Notwithstanding the
foregoing, and without limiting the rights and remedies of the Banks under
Section 10 hereof, in the event that any Event of Default shall have occurred
and be continuing, the Agent may (and at the request of the Majority Banks
shall)by notice to the Company suspend the right of the Borrowers to Convert any
Loan into a Eurodollar Loan, or to Continue any Loan as a Eurodollar Loan, in
which event all Loans shall be Converted (on the last day(s) of the respective
Interest Periods therefor) or Continued, as the case may be, as Prime Rate
Loans.
2.10 Mandatory Prepayments and Reductions of Commitments.
(a) Borrowing Base. The Agent shall notify the Borrowers (in a "Deficiency
Notice") any time the Borrowing Base as then in effect is less than the
aggregate principal amount of the Loans and Letter of Credit Liabilities
outstanding at such time (the amount of such difference being called herein the
"Borrowing Base Deficiency") and within 30 days after the date of the Deficiency
Notice the Company shall notify the Agent of the Borrowers' intentions
<PAGE>
with respect to compliance with the procedures set forth in this Section
2.10(a). As specified in such notice from the Borrowers, the Borrowers shall
(within 90 days after the date of the Deficiency Notice) (i) prepay (in
accordance with the procedures of this Agreement) the outstanding principal of
the B Loans and/or (ii) add to the Hydrocarbon Properties included in the
Mortgaged Properties (each such additional Property to have a Present Value of
Reserves at least equal to $1,000,000) having a loan value, as determined by the
Majority Banks, in an amount sufficient so that the aggregate amount of such
prepayments and the loan value of such additional Properties shall equal or
exceed the Borrowing Base Deficiency (any such additional Property to be deemed
added to the Hydrocarbon Properties on the date the Borrowers deliver to the
Agent a written commitment to subject such additional Property to the Lien of
the Mortgages). The Borrowers shall, within 120 days of receipt of notice from
the Agent that the Properties to be added to the Borrowing Base are acceptable
to the Majority Banks, subject such Properties to the Lien of the Mortgages
pursuant to documentation and otherwise in a manner satisfactory to the Majority
Banks.
(b) Casualty Events. Upon the date 30 days following the receipt by the
Company or any of its Subsidiaries of the proceeds of insurance, condemnation
award or other compensation in respect of any Casualty Event affecting any
Hydrocarbon Property other than Unrestricted Properties of any Borrower, the
Borrowers (jointly and severally) shall prepay the Loans (and/or provide cover
for Letter of Credit Liabilities as specified in clause (e) below), and the
Commitments shall be subject to automatic reduction, in an aggregate amount, if
any, equal to 100% of the Net Available Proceeds of such Casualty Event not
theretofore applied to the repair or replacement of such Hydrocarbon Property,
or such lesser amount as is specified in a written notice from the Majority
Banks, such prepayment and reduction to be effected in each case in the manner
and to the extent specified in clause (d) of this Section 2.10. Nothing in this
clause (b) shall be deemed to limit any obligation of the Company and any of its
Subsidiaries pursuant to any of the Security Documents to remit to a collateral
or similar account (including, without limitation, the Collateral Account)
maintained by the Agent pursuant to any of the Security Documents the proceeds
of insurance, condemnation award or other compensation received in respect of
any Casualty Event.
(c) Sale of Assets. Without limiting the obligation of the Obligors to obtain
the consent of the Majority Banks pursuant to Section 9.05 hereof to any
Disposition not otherwise permitted hereunder, no later than five Business Days
prior to the occurrence of any Disposition, the Company, on behalf of the
applicable Obligor will deliver to the Banks a statement, certified by the chief
financial officer or treasurer of the Company, in form and detail satisfactory
to the Agent, of the amount of the Net Available Proceeds of such Disposition
and, to the extent such Net Available Proceeds (when taken together with the Net
Available Proceeds of all prior Dispositions as to
<PAGE>
which a prepayment has not yet been made under this Section 2.10(c)) shall
exceed $1,000,000, the Borrowers (jointly and severally) shall prepay the Loans
(and/or provide cover for Letter of Credit Liabilities as specified in clause
(e) below), and the Commitments shall be subject to automatic reduction, in an
aggregate amount equal to 100% of the Net Available Proceeds of such
Disposition, or such lesser amount as is specified in a written notice from the
Majority Banks (together with 100%, or such lesser amount as is specified in a
written notice from the Majority Banks, of the Net Available Proceeds of all
prior Dispositions as to which a prepayment has not yet been made under this
Section 2.10(c)), such prepayment and reduction to be effected in each case in
the manner and to the extent specified in clause (d) of this Section 2.10.
(d) Application. Prepayments and reductions of Commitments described in the
above clauses of this Section 2.10 (other than clause (a) above) shall be
effected as follows:
(i) first the B Commitments shall be automatically reduced by an amount
equal to the amount specified in such clauses (and to the extent that,
after giving effect to such reduction the aggregate outstanding principal
amount of the B Loans would exceed the B Commitment, the Borrowers shall
prepay B Loans in an amount equal to such excess); and
(ii) second, if the B Commitment has been reduced to zero through the
application of prepayments or reductions of the B Commitments pursuant to
Section 2.10(d)(i) above or otherwise, and following such reduction to
zero the aggregate remaining Net Available Proceeds from the events
described in clauses (b) and (c) of this Section 2.10 exceed $10,000,000
(the "Excess Amount"), the A Commitments shall be automatically reduced
by an amount equal to the Excess Amount (and to the extent that, after
giving effect to such reduction, the aggregate principal amount of the A
Loans, together with the aggregate amount of all Letter of Credit
Liabilities, would exceed the A Commitments, the Borrowers shall first
prepay the A Loans and second provide cover for Letter of Credit
Liabilities as specified in clause (e) below, in an aggregate amount
equal to the Excess Amount).
(e) Cover for Letter of Credit Liabilities. In the event that the Borrowers
shall be required pursuant to this Section 2.10, or pursuant to Section 3.01 or
5.07(c) hereof, to provide cover for Letter of Credit Liabilities, the Borrowers
shall effect the same by paying to the Agent immediately available funds in an
amount equal to the required amount, which funds shall be retained by the Agent
in the Collateral Account (as provided in Section 4.04 of the Security Agreement
as collateral security in the first instance for the Letter of Credit
Liabilities) until such time as the Letters of Credit shall have been terminated
and all of the Letter of Credit Liabilities have been paid in full.
<PAGE>
Section 3. Payments of Principal and Interest.
3.01 Repayment of Loans. The Borrowers hereby jointly and severally
promise to pay to the Agent for the account of each Bank the entire outstanding
principal amount of such Bank's Loans, and each Loan shall mature, on the
Commitment Termination Date. In addition, if following any (a) reduction in the
A Commitments, the aggregate principal amount of the A Loans, together with the
aggregate amount of all Letter of Credit Liabilities shall exceed the A
Commitments, the Borrowers shall first, prepay A Loans and second, provide cover
for Letter of Credit Liabilities as specified in Section 2.10(e) above, in an
aggregate amount equal to such excess or (b) reduction in the B Commitments, the
aggregate principal amount of the B Loans shall exceed the B Commitments, the
Borrowers shall prepay B Loans in an aggregate amount equal to such excess.
3.02 Interest. The Borrowers hereby jointly and severally promise to
pay to the Agent for the account of each Bank interest on the unpaid principal
amount of each Loan made by such Bank for the period from and including the date
of such Loan to but excluding the date such Loan shall be paid in full, at the
following rates per annum:
(a) during such periods as such Loan is a Base Rate Loan, the Base
Rate (as in effect from time to time) plus the Applicable Margin, and
(b) during such periods as such Loan is a Eurodollar Loan, for each
Interest Period relating thereto, the Eurodollar Rate for such Loan for
such Interest Period plus the Applicable Margin.
Notwithstanding the foregoing, the Borrowers hereby jointly and severally
promise to pay to the Agent for account of each Bank interest at the applicable
Post-Default Rate on any principal of any Loan made by such Bank, on any
Reimbursement Obligation held by such Bank and on any other amount payable by
the Borrowers hereunder or under the Note held by such Bank to or for account of
such Bank, which shall not be paid in full when due (whether at stated maturity,
by acceleration, by mandatory prepayment or otherwise), for the period from and
including the due date thereof to but excluding the date the same is paid in
full. Accrued interest on each Loan shall be payable (i) in the case of a Base
Rate Loan, quarterly on the Quarterly Dates, (ii) in the case of a Eurodollar
Loan, on the last day of each Interest Period therefor and (iii) in the case of
any Loan, upon the payment or prepayment thereof or the Conversion of such Loan
to a Loan of another Type (but only on the principal amount so paid, prepaid or
Converted), except that interest payable at the Post-Default Rate shall be
payable from time to time on demand. Promptly after the determination of any
interest rate provided for herein or any change therein, the Agent shall give
notice thereof to the Banks to which such interest is payable and to the
Company.
<PAGE>
Section 4. Payments; Pro Rata Treatment; Computations; Etc.
4.01 Payments.
(a) Except to the extent otherwise provided herein, all payments of
principal, interest, Reimbursement Obligations and other amounts to be made by
the Borrowers under this Agreement and the Notes, and, except to the extent
otherwise provided therein, all payments to be made by the Obligors under any
other Basic Document, shall be made in Dollars, in immediately available funds,
without deduction, set-off or counterclaim, to the Agent at account number
NYAO-DI-900-9-000002 maintained by the Agent with Chase at the Principal Office,
not later than 1:00 p.m. New York time on the date on which such payment shall
become due (each such payment made after such time on such due date to be deemed
to have been made on the next succeeding Business Day).
(b) Any Bank for whose account any such payment is to be made may (but
shall not be obligated to) debit the amount of any such payment that is not made
by such time to any ordinary deposit account of one or more of the Borrowers
with such Bank (with notice to the Borrowers, through the Company, and the
Agent).
(c) The Company shall, at the time of making each payment under this
Agreement or any Note for the account of any Bank, specify to the Agent (which
shall so notify the intended recipient(s) thereof) the Loans, Reimbursement
Obligations or other amounts payable by the Borrowers hereunder to which such
payment is to be applied (and in the event that the Company fail to so specify,
or if an Event of Default has occurred and is continuing, the Agent may
distribute such payment to the Banks for application in such manner as it or the
Majority Banks, subject to Section 4.02 hereof, may determine to be
appropriate).
(d) Except to the extent otherwise provided in the last sentence of
Section 2.03(e) hereof, each payment received by the Agent under this Agreement
or any Note for account of any Bank shall be paid by the Agent promptly to such
Bank, in immediately available funds, for account of such Bank's Applicable
Lending Office for the Loan or other obligation in respect of which such payment
is made.
(e) If the due date of any payment under this Agreement or any Note
would otherwise fall on a day that is not a Business Day, such date shall be
extended to the next succeeding Business Day, and interest shall be payable for
any principal so extended for the period of such extension.
4.02 Pro Rata Treatment. Except to the extent otherwise provided
herein: (a) each borrowing of Loans of a particular Class from the Banks under
Section 2.01 hereof shall be made from the relevant Banks, each payment of
commitment fee under Section 2.05 hereof in respect of
<PAGE>
Commitments of a particular Class shall be made for account of the relevant
Banks, and each termination or reduction of the amount of the Commitments of a
particular Class under Section 2.04 hereof shall be applied to the respective
Commitments of such Class of the relevant Banks, pro rata according to the
amounts of their respective Commitments of such Class; (b) the making,
Conversion and Continuation of Loans of a particular Type and Class (other than
Conversions provided for by Section 5.04 hereof) shall be made pro rata among
the Banks of such Class according to the amounts of their respective Commitments
(in the case of the making of Loans) or their respective Loans of such Class (in
the case of Conversions and Continuations of Loans) and the then current
Interest Period for each Eurodollar Loan shall be coterminous; (c) each payment
or prepayment of principal of Loans by the Borrowers shall be made for the
account of the Banks pro rata in accordance with the respective unpaid principal
amounts of the Loans held by them; provided that if immediately prior to giving
effect to any such payment in respect of any Loans of either Class the
outstanding principal amount of the Loans of such Class shall not be held by the
Banks of such Class pro rata in accordance with their respective Commitments of
such Class in effect at the time such Loans were made (whether by reason of a
failure of a Bank to make a Loan hereunder in the circumstances described in the
last paragraph of Section 12.04 hereof or otherwise), then such payment shall be
applied to the Loans of such Class in such manner as shall result, as nearly as
is practicable, in the outstanding principal amount of the Loans of such Class
being held by the Banks pro rata in accordance with their respective Commitments
of such Class; and (d) each payment of interest on Loans by the Borrowers shall
be made for account of the Banks pro rata in accordance with the amounts of
interest on such Loans then due and payable to the respective Banks.
4.03 Computations. Interest on Eurodollar Loans and commitment fee and
letter of credit fees shall be computed on the basis of a year of 360 days and
actual days elapsed (including the first day but excluding the last day)
occurring in the period for which payable and interest on Base Rate Loans and
Reimbursement Obligations shall be computed on the basis of a year of 365 or 366
days, as the case may be, and actual days elapsed (including the first day but
excluding the last day) occurring in the period for which payable.
Notwithstanding the foregoing, for each day that the Base Rate is calculated by
reference to the Federal Funds Rate, interest on Base Rate Loans and
Reimbursement Obligations shall be computed on the basis of a year of 360 days
and actual days elapsed.
4.04 Minimum Amounts. Except for mandatory prepayments made pursuant
to Section 2.10 hereof and Conversions or prepayments made pursuant to Section
5.04 hereof, each borrowing, Conversion and partial prepayment of principal of
Loans shall be in an aggregate amount at least equal to $500,000 or in multiples
of $100,000 in excess thereof (borrowings, Conversions or prepayments of or into
Loans of different Types or Classes or, in the case of Eurodollar Loans, having
different Interest Periods at the
<PAGE>
same time hereunder to be deemed separate borrowings, Conversions and
prepayments for purposes of the foregoing, one for each Type or Interest
Period).
4.05 Certain Notices. Notices by the Borrowers to the Agent of
terminations or reductions of the Commitments and of borrowings, Conversions,
Continuations and optional prepayments of Loans, of Types of Loans and of the
duration of Interest Periods shall be irrevocable and shall be effective only if
received by the Agent not later than 11:00 a.m. New York time on the number of
Business Days prior to the date of the relevant termination, reduction,
borrowing, Conversion, Continuation or prepayment or the first day of such
Interest Period specified below:
<TABLE>
<CAPTION>
Number of
Business
Notice Days Prior
<S> <C>
Termination or reduction 2
of Commitments
Borrowing or prepayment of 1
Base Rate Loans
Borrowing or prepayment of, 3
Conversions of or into,
Continuations as, or duration
of Interest Period for,
Eurodollar Loans
</TABLE>
Each such notice of termination or reduction shall specify the amount and Class
of the Commitments to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation or optional prepayment shall specify the Loans
(including the Class of the Loans) to be borrowed, Converted, Continued or
prepaid and the amount (subject to Section 4.04 hereof) and Type of each Loan to
be borrowed, Converted, Continued or prepaid and the date of borrowing,
Conversion, Continuation or optional prepayment (which shall be a Business Day).
Each such notice of the duration of an Interest Period shall specify the Loans
(including the Class of the Loans) to which such Interest Period is to relate.
The Agent shall promptly notify the Banks of the contents of each such notice.
In the event that the Borrowers fail to select the Type of Loan, or the duration
of any Interest Period for any Eurodollar Loan, within the time period and
otherwise as provided in this Section 4.05, such Loan (if outstanding as a
Eurodollar Loan) will be automatically Converted into a Base Rate Loan on the
last day of the then current Interest Period for such Loan or (if outstanding as
a Base Rate Loan) will remain as, or (if not then outstanding) will be made as,
a Base Rate Loan.
4.06 Non-Receipt of Funds by the Agent. Unless the Agent shall have
been notified by a Bank or a Borrower (the "Payor") prior to the date on which
the Payor is to make payment to the Agent of (in the case of a Bank) the
proceeds of a Loan to be made by such Bank, or a
<PAGE>
participation in a Letter of Credit drawing to be acquired by such Bank,
hereunder or (in the case of the Borrowers) a payment to the Agent for account
of one or more of the Banks hereunder (such payment being herein called the
"Required Payment"), which notice shall be effective upon receipt, that the
Payor does not intend to make the Required Payment to the Agent, the Agent may
assume that the Required Payment has been made and may, in reliance upon such
assumption (but shall not be required to), make the amount thereof available to
the intended recipient(s) on such date; and, if the Payor has not in fact made
the Required Payment to the Agent, the recipient(s) of such payment shall, on
demand, repay to the Agent the amount so made available together with interest
thereon in respect of each day during the period commencing on the date (the
"Advance Date") such amount was so made available by the Agent until the date
the Agent recovers such amount at a rate per annum equal to the Federal Funds
Rate for such day and, if such recipient(s) shall fail promptly to make such
payment, the Agent shall be entitled to recover such amount, on demand, from the
Payor, together with interest as aforesaid, provided that if neither the
recipient(s) nor the Payor shall return the Required Payment to the Agent within
three Business Days of the Advance Date, then, retroactively to the Advance
Date, the Payor and the recipient(s) shall each be obligated to pay interest on
the Required Payment as follows:
(i) if the Required Payment shall represent a payment to be made by
the Borrowers to the Banks, the Borrowers (jointly and severally) and the
recipient(s) shall each be obligated retroactively to the Advance Date to
pay interest in respect of the Required Payment at the Post-Default Rate
(and, in case the recipient(s) shall return the Required Payment to the
Agent, without limiting the obligation of the Borrowers under Section
3.02 hereof to pay interest to such recipient(s) at the Post-Default Rate
in respect of the Required Payment) and
(ii) if the Required Payment shall represent proceeds of a loan to be
made by a Bank to the Borrowers, the Payor and the Borrowers shall each be
obligated retroactively to the Advance Date to pay interest in respect of
the Required Payment at the rate of interest provided for such Required
Payment pursuant to Section 3.02 hereof (and, in case the Borrowers shall
return the Required Payment to the Agent, without limiting any claim the
Borrowers may have against the Payor in respect of the Required Payment);
provided that the Agent shall only be entitled to retain interest in respect of
a Required Payment pursuant to clause (i) or (ii) above from either the Payor or
the recipient.
4.07 Sharing of Payments, Etc.
(a) Each of the Obligors agrees that, in addition to (and without
limitation of) any right of set-off, banker's lien or counterclaim a Bank may
otherwise have, each Bank shall be entitled, at its option, to offset
<PAGE>
balances held by it for account of such Obligor at any of its offices, in
Dollars or in any other currency, against any principal of or interest on any of
such Bank's Loans, Reimbursement Obligations or any other amount payable to such
Bank hereunder, that is not paid when due (regardless of whether such balances
are then due to the Borrowers), in which case it shall promptly notify such
Obligor (through the Company) and the Agent thereof, provided that such Bank's
failure to give such notice shall not affect the validity thereof.
(b) If any Bank shall obtain from any Obligor payment of any principal
of or interest on any Loan of either Class or Letter of Credit Liability owing
to it or payment of any other amount under this Agreement or any other Basic
Document through the exercise of any right of set-off, banker's lien or
counterclaim or similar right or otherwise (other than from the Agent as
provided herein), and, as a result of such payment, such Bank shall have
received a greater percentage of the principal of or interest on the Loans of
such Class or Letter of Credit Liabilities or such other amounts then due
hereunder or thereunder by such Obligor to such Bank than the percentage
received by any other Bank, it shall promptly purchase from such other Banks
participations in (or, if and to the extent specified by such Bank, direct
interests in) the Loans of such Class or Letter of Credit Liabilities or such
other amounts, respectively, owing to such other Banks (or in interest due
thereon, as the case may be) in such amounts, and make such other adjustments
from time to time as shall be equitable, to the end that all the Banks shall
share the benefit of such excess payment (net of any expenses that may be
incurred by such Bank in obtaining or preserving such excess payment) pro rata
in accordance with the unpaid principal of and/or interest on the Loans of such
Class or Letter of Credit Liabilities or such other amounts, respectively, owing
to each of the Banks, provided that if at the time of such payment the
outstanding principal amount of the Loans of either Class shall not be held by
the Banks pro rata in accordance with their respective Commitments of such Class
in effect at the time such Loans were made (whether by reason of a failure of a
Bank to make a Loan hereunder in the circumstances described in the last
paragraph of Section 12.04 hereof or otherwise), then such purchases of
participations and/or direct interests shall be made in such manner as will
result, as nearly as is practicable, in the outstanding principal amount of the
Loans being held by the Banks pro rata according to the amounts of such
Commitments. To such end all the Banks shall make appropriate adjustments among
themselves (by the resale of participations sold or otherwise) if such payment
is rescinded or must otherwise be restored.
(c) The Borrowers agree that any Bank so purchasing such a
participation (or direct interest) may exercise all rights of set-off, banker's
lien, counterclaim or similar rights with respect to such participation as fully
as if such Bank were a direct holder of Loans or other amounts (as the case may
be) owing to such Bank in the amount of such participation.
<PAGE>
(d) Nothing contained herein shall require any Bank to exercise any
such right or shall affect the right of any Bank to exercise, and retain the
benefits of exercising, any such right with respect to any other indebtedness or
obligation of any Obligor. If, under any applicable bankruptcy, insolvency or
other similar law, any Bank receives a secured claim in lieu of a set-off to
which this Section 4.07 applies, such Bank shall, to the extent practicable,
exercise its rights in respect of such secured claim in a manner consistent with
the rights of the Banks entitled under this Section 4.07 to share in the
benefits of any recovery on such secured claim.
Section 5. Yield Protection, Etc.
5.01 Additional Costs.
(a) The Borrowers (jointly and severally) shall pay directly to each
Bank from time to time such amounts as such Bank may determine to be necessary
to compensate such Bank for any costs that such Bank determines are attributable
to its making or maintaining of any Eurodollar Loans or its obligation to make
any Eurodollar Loans hereunder, or any reduction in any amount receivable by
such Bank hereunder in respect of any of such Loans or such obligation (such
increases in costs and reductions in amounts receivable being herein called
"Additional Costs"), resulting from any Regulatory Change that:
(i) changes the basis of taxation of any amounts payable to such Bank
under this Agreement or its Notes in respect of any of such Loans (other
than taxes imposed on or measured by the overall net income of such Bank
or of its Applicable Lending Office for any of such Loans by the
jurisdiction in which such Bank has its principal office or such
Applicable Lending Office); or
(ii) imposes or modifies any reserve, special deposit or similar
requirements (other than the Reserve Requirement utilized in the
determination of the Eurodollar Rate for such Loan) relating to any
extensions of credit or other assets of, or any deposits with or other
liabilities of, such Bank (including, without limitation, any of such
Loans or any deposits referred to in the definition of "Eurodollar Base
Rate" in Section 1.01 hereof), or any commitment of such Bank (including,
without limitation, either of the Commitments of such Bank hereunder); or
(iii) imposes any other condition affecting this Agreement or its
Note (or any of such extensions of credit or liabilities) or its
Commitments.
If any Bank requests compensation from the Borrowers under this Section 5.01(a),
the Company may, by notice to such Bank (with a copy to the Agent), suspend the
obligation of such Bank thereafter to make or Continue Eurodollar Loans,
<PAGE>
or to Convert Prime Rate Loans into Eurodollar Loans, until the Regulatory
Change giving rise to such request ceases to be in effect (in which case the
provisions of Section 5.04 hereof shall be applicable), provided that such
suspension shall not affect the right of such Bank to receive the compensation
so requested.
(b) Without limiting the effect of the provisions of paragraph (a) of
this Section 5.01, in the event that, by reason of any Regulatory Change, any
Bank either (i) incurs Additional Costs based on or measured by the excess above
a specified level of the amount of a category of deposits or other liabilities
of such Bank that includes deposits by reference to which the interest rate on
Eurodollar Loans is determined as provided in this Agreement or a category of
extensions of credit or other assets of such Bank that includes Eurodollar Loans
or (ii) becomes subject to restrictions on the amount of such a category of
liabilities or assets that it may hold, then, if such Bank so elects by notice
to the Company (with a copy to the Agent), the obligation of such Bank to make
or Continue, or to Convert Base Rate Loans into, Eurodollar Loans hereunder
shall be suspended until such Regulatory Change ceases to be in effect (in which
case the provisions of Section 5.04 hereof shall be applicable).
(c) Without limiting the effect of the foregoing provisions of this
Section 5.01 (but without duplication), the Borrowers (jointly and severally)
shall pay directly to each Bank from time to time on request such amounts as
such Bank may determine to be necessary to compensate such Bank (or, without
duplication, the bank holding company of which such Bank is a subsidiary) for
any costs that it determines are attributable to the maintenance by such Bank
(or any Applicable Lending Office or such bank holding company), pursuant to any
law or regulation or any interpretation, directive or request (whether or not
having the force of law and whether or not failure to comply therewith would be
unlawful) of any court or governmental or monetary authority (i) following any
Regulatory Change or (ii) implementing any risk-based capital guideline or other
requirement (whether or not having the force of law and whether or not the
failure to comply therewith would be unlawful) heretofore or hereafter issued by
any government or governmental or supervisory authority implementing at the
national level the Basel Accord (including, without limitation, the Final
Risk-Based Capital Guidelines of the Board of Governors of the Federal Reserve
System (12 C.F.R. Part 208, Appendix A; 12 C.F.R. Part 225, Appendix A) and the
Final Risk-Based Capital Guidelines of the Office of the Comptroller of the
Currency (12 C.F.R. Part 3, Appendix A)), of capital in respect of its
Commitment or Loans (such compensation to include, without limitation, an amount
equal to any reduction of the rate of return on assets or equity of such Bank
(or any Applicable Lending Office or such bank holding company) to a level below
that which such Bank (or any Applicable Lending Office or such bank holding
company) could have achieved but for such law, regulation, interpretation,
directive or request). For purposes of this Section 5.01(c) and Section 5.06
hereof, "Basel Accord"
<PAGE>
shall mean the proposals for risk-based capital framework described by the Basel
Committee on Banking Regulations and Supervisory Practices in its paper entitled
"International Convergence of Capital Measurement and Capital Standards" dated
July 1988, as amended, modified and supplemented and in effect from time to time
or any replacement thereof.
(d) Each Bank shall notify the Company of any event occurring after
the date of this Agreement entitling such Bank to compensation under paragraph
(a) or (c) of this Section 5.01 as promptly as practicable, but in any event
within 45 days, after such Bank obtains actual knowledge thereof; provided that
(i) if any Bank fails to give such notice within 45 days after it obtains actual
knowledge of such an event, such Bank shall, with respect to compensation
payable pursuant to this Section 5.01 in respect of any costs resulting from
such event, only be entitled to payment under this Section 5.01 for costs
incurred from and after the date 45 days prior to the date that such Bank does
give such notice and (ii) each Bank will designate a different Applicable
Lending Office for the Loans of such Bank affected by such event if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in the sole opinion of such Bank, be disadvantageous to such Bank,
except that such Bank shall have no obligation to designate an Applicable
Lending Office located in the United States of America. Each Bank will furnish
to the Borrowers a certificate setting forth the basis and amount of each
request by such Bank for compensation under paragraph (a) or (c) of this Section
5.01. Determinations and allocations by any Bank for purposes of this Section
5.01 of the effect of any Regulatory Change pursuant to paragraph (a) or (b) of
this Section 5.01, or of the effect of capital maintained pursuant to paragraph
(c) of this Section 5.01, on its costs or rate of return of maintaining Loans or
its obligation to make Loans, or on amounts receivable by it in respect of
Loans, and of the amounts required to compensate such Bank under this Section
5.01, shall be conclusive, provided that such determinations and allocations are
made on a reasonable basis.
5.02 Limitation on Types of Loans. Anything herein to the contrary
notwithstanding, if, on or prior to the determination of any Eurodollar Base
Rate for any Interest Period:
(a) the Agent determines, which determination shall be conclusive,
that quotations of interest rates for the relevant deposits referred to in
the definition of "Eurodollar Base Rate" in Section 1.01 hereof are not
being provided in the relevant amounts or for the relevant maturities for
purposes of determining rates of interest for Eurodollar Loans as provided
herein; or
(b) the Majority Banks of either Class determine, which determination
shall be conclusive, and notify the Agent that the relevant rates of
interest referred to in the definition of "Eurodollar Base Rate" in Section
1.01 hereof upon the basis of which the rate of
<PAGE>
interest for Eurodollar Loans for such Interest Period is to be determined
are not likely to be adequate to cover the cost to such Banks of making or
maintaining Eurodollar Loans for such Interest Period;
then the Agent shall give the Company and each Bank prompt notice thereof and,
so long as such condition remains in effect, the Banks shall be under no
obligation to make additional Eurodollar Loans, to Continue Eurodollar Loans or
to Convert Base Rate Loans into Eurodollar Loans, and the Borrowers shall, on
the last day(s) of the then current Interest Period(s) for the outstanding
Eurodollar Loans, either prepay such Loans or Convert such Loans into Base Rate
Loans in accordance with Section 2.09 hereof.
5.03 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Bank or its Applicable
Lending Office to honor its obligation to make or maintain Eurodollar Loans
hereunder, then such Bank shall promptly notify the Company thereof (with a copy
to the Agent) and such Bank's obligation to make or Continue, or to Convert
Loans of any other Type into, Eurodollar Loans shall be suspended until such
time as such Bank may again make and maintain Eurodollar Loans (in which case
the provisions of Section 5.04 hereof shall be applicable).
5.04 Treatment of Affected Loans. If the obligation of any Bank to
make Eurodollar Loans of either Class or to Continue, or to Convert Base Rate
Loans of either Class into, Eurodollar Loans of such Class shall be suspended
pursuant to Section 5.01 or 5.03 hereof, such Bank's Eurodollar Loans of such
Class shall be automatically Converted into Base Rate Loans of such Class on the
last day(s) of the then current Interest Period(s) for Eurodollar Loans of such
Class (or, in the case of a Conversion required by Section 5.01(b) or 5.03
hereof, on such earlier date as such Bank may specify to the Company with a copy
to the Agent) and, unless and until such Bank gives notice as provided below
that the circumstances specified in Section 5.01 or 5.03 hereof that gave rise
to such Conversion no longer exist:
(a) to the extent that such Bank's Eurodollar Loans of such Class
have been so Converted, all payments and prepayments of principal that
would otherwise be applied to such Bank's Eurodollar Loans of such Class
shall be applied instead to its Base Rate Loans of such Class; and
(b) all Loans that would otherwise be made or Continued by such Bank
as Eurodollar Loans of such Class shall be made or Continued instead as
Base Rate Loans of such Class, and all Base Rate Loans of such Bank that
would otherwise be Converted into Eurodollar Loans shall remain as Base
Rate Loans of such Class.
If such Bank gives notice to the Company with a copy to the Agent that the
circumstances specified in Section 5.01 or 5.03 hereof that gave rise to the
Conversion of such
<PAGE>
Bank's Eurodollar Loans of either Class pursuant to this Section 5.04 no longer
exist (which such Bank agrees to do promptly upon such circumstances ceasing to
exist) at a time when Eurodollar Loans of such Class made by other Banks are
outstanding, such Bank's Base Rate Loans of such Class shall be automatically
Converted, on the first day(s) of the next succeeding Interest Period(s) for
such outstanding Eurodollar Loans, to the extent necessary so that, after giving
effect thereto, all Loans of such Class held by the Banks holding Eurodollar
Loans of such Class and by such Bank are held pro rata (as to principal amounts,
Types and Interest Periods) in accordance with their respective Commitments.
5.05 Compensation. The Borrowers (jointly and severally) shall pay to
the Agent for the account of each Bank, upon the request of such Bank through
the Agent, such amount or amounts as shall be sufficient (in the reasonable
opinion of such Bank) to compensate it for any loss, cost or expense that such
Bank determines is attributable to:
(a) any payment, mandatory or optional prepayment or Conversion of a
Eurodollar Loan made by such Bank for any reason (including, without
limitation, the acceleration of the Loans pursuant to Section 10 hereof) on
a date other than the last day of an Interest Period for such Loan; or
(b) any failure by the Borrowers for any reason (including, without
limitation, the failure of any of the conditions precedent specified in
Section 7 hereof to be satisfied) to borrow a Eurodollar Loan from such
Bank on the date for such borrowing specified in the relevant notice of
borrowing given pursuant to Section 2.02 hereof.
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
that otherwise would have accrued on the principal amount so paid, prepaid or
Converted or not borrowed for the period from the date of such payment,
prepayment, Conversion or failure to borrow to the last day of the then current
Interest Period for such Loan (or, in the case of a failure to borrow, the
Interest Period for such Loan that would have commenced on the date specified
for such borrowing) at the applicable rate of interest for such Loan provided
for herein over (ii) the amount of interest that otherwise would have accrued on
such principal amount at a rate per annum equal to the interest component of the
amount such Bank would have bid in the London interbank market for Dollar
deposits of leading banks in amounts comparable to such principal amount and
with maturities comparable to such period (as reasonably determined by such
Bank).
5.06 Additional Costs in Respect of Letters of Credit. Without
limiting the obligations of the Borrowers under Section 5.01 hereof (but without
duplication), if as a result of any Regulatory Change or any risk-based capital
guideline or other requirement heretofore or hereafter
<PAGE>
issued by any government or governmental or supervisory authority implementing
at the national level the Basel Accord there shall be imposed, modified or
deemed applicable any tax, reserve, special deposit, capital adequacy or similar
requirement against or with respect to or measured by reference to Letters of
Credit issued or to be issued hereunder and the result shall be to increase the
cost to any Bank or Banks of issuing (or purchasing participations in) or
maintaining its obligation hereunder to issue (or purchase participations in)
any Letter of Credit hereunder or reduce any amount receivable by any Bank
hereunder in respect of any Letter of Credit (which increases in cost, or
reductions in amount receivable, shall be the result of such Bank's or Banks'
reasonable allocation of the aggregate of such increases or reductions resulting
from such event), then, upon demand by such Bank or Banks (through the Agent),
the Borrowers (jointly and severally) shall pay immediately to the Agent for
account of such Bank or Banks, from time to time as specified by such Bank or
Banks (through the Agent), such additional amounts as shall be sufficient to
compensate such Bank or Banks (through the Agent) for such increased costs or
reductions in amount. A statement as to such increased costs or reductions in
amount incurred by any such Bank or Banks, submitted by such Bank or Banks to
the Company shall be conclusive in the absence of manifest error as to the
amount thereof.
Section 6. Guarantee.
6.01 Guarantee. The Subsidiary Guarantors hereby jointly and
severally guarantee to each Bank and the Agent and their respective successors
and assigns the prompt payment in full when due (whether at stated maturity, by
acceleration or otherwise) of the principal of and interest on the Loans made by
the Banks to, and the Notes held by each Bank of, the Borrowers and all other
amounts from time to time owing to the Banks or the Agent by the Borrowers under
this Agreement and under the Notes and by any Obligor under any of the other
Basic Documents, in each case strictly in accordance with the terms thereof
(such obligations being herein collectively called the "Guaranteed
Obligations"). The Subsidiary Guarantors hereby further jointly and severally
agree that if the Borrowers shall fail to pay in full when due (whether at
stated maturity, by acceleration or otherwise) any of the Guaranteed
Obligations, the Subsidiary Guarantors will promptly pay the same, without any
demand or notice whatsoever, and that in the case of any extension of time of
payment or renewal of any of the Guaranteed Obligations, the same will be
promptly paid in full when due (whether at extended maturity, by acceleration or
otherwise) in accordance with the terms of such extension or renewal.
6.02 Obligations Unconditional. The obligations of the Subsidiary
Guarantors under Section 6.01 hereof are absolute and unconditional, joint and
several, irrespective of the value, genuineness, validity, regularity or
enforceability of the obligations of any of the Borrowers under this Agreement,
the Notes or any other agreement or instrument referred to herein or therein, or
any
<PAGE>
substitution, release or exchange of any other guarantee of or security for any
of the Guaranteed Obligations, and, to the fullest extent permitted by
applicable law, irrespective of any other circumstance whatsoever which might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor, it being the intent of this Section 6.02 that the obligations of the
Subsidiary Guarantors hereunder shall be absolute and unconditional, joint and
several, under any and all circumstances. Without limiting the generality of the
foregoing, it is agreed that the occurrence of any one or more of the following
shall not alter or impair the liability of the Subsidiary Guarantors hereunder
which shall remain absolute and unconditional as described above:
(i) at any time or from time to time, without notice to the
Subsidiary Guarantors, the time for any performance of or compliance with
any of the Guaranteed Obligations shall be extended, or such performance
or compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions of this
Agreement or the Notes or any other agreement or instrument referred to
herein or therein shall be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under this Agreement
or the Notes or any other agreement or instrument referred to herein or
therein shall be waived or any other guarantee of any of the Guaranteed
Obligations or any security therefor shall be released or exchanged in
whole or in part or otherwise dealt with; or
(iv) any Lien granted to, or in favor of, the Agent or any Bank or
Banks as security for any of the Guaranteed Obligations shall fail to be
perfected.
Each of the Subsidiary Guarantors hereby expressly waive diligence, presentment,
demand of payment, protest and all notices whatsoever, and any requirement that
the Agent or any Bank exhaust any right, power or remedy or proceed against any
or all of the Borrowers and the other Subsidiary Guarantors under this Agreement
or the Notes or any other agreement or instrument referred to herein or therein,
or against any other Person under any other guarantee of, or security for, any
of the Guaranteed Obligations.
6.03 Reinstatement. The obligations of the Subsidiary Guarantors under
this Section 6 shall be automatically reinstated if and to the extent that for
any reason any payment by or on behalf of the Borrowers in respect of the
Guaranteed Obligations is rescinded or must be otherwise restored by any holder
of any of the Guaranteed Obligations, whether as a result of any proceedings in
bankruptcy or reorganization or otherwise and the Subsidiary Guarantors jointly
and severally agree that they will
<PAGE>
indemnify the Agent and each Bank on demand for all reasonable costs and
expenses (including, without limitation, fees of counsel) incurred by the Agent
or such Bank in connection with such rescission or restoration, including any
such costs and expenses incurred in defending against any claim alleging that
such payment constituted a preference, fraudulent transfer or similar payment
under any bankruptcy, insolvency or similar law.
6.04 Subrogation. Each Subsidiary Guarantor hereby waives all rights
of subrogation or contribution, whether arising by contract or operation of law
(including, without limitation, any such right arising under the Bankruptcy
Code) or otherwise by reason of any payment by it pursuant to the provisions of
this Section 6 and further agrees with the Borrowers for the benefit of each of
its creditors (including, without limitation, each Bank and the Agent) that any
such payment by it shall constitute a contribution of capital by such Subsidiary
Guarantor to the Borrowers.
6.05 Remedies. The Subsidiary Guarantors jointly and severally agree
that, as between the Subsidiary Guarantors and the Banks, the obligations of the
Borrowers under this Agreement and the Notes may be declared to be forthwith due
and payable as provided in Section 10 hereof (and shall be deemed to have become
automatically due and payable in the circumstances provided in said Section 10)
for purposes of Section 6.01 hereof notwithstanding any stay, injunction or
other prohibition preventing such declaration (or such obligations from becoming
automatically due and payable) as against the Borrowers and that, in the event
of such declaration (or such obligations being deemed to have become
automatically due and payable), such obligations (whether or not due and payable
by the Borrowers) shall forthwith become due and payable by the Subsidiary
Guarantors for purposes of said Section 6.01.
6.06 Continuing Guarantee. The guarantee in this Section 6 is a
continuing guarantee, and shall apply to all Guaranteed Obligations whenever
arising.
6.07 Rights of Contribution. The Subsidiary Guarantors hereby agree,
as between themselves, that if any Subsidiary Guarantor (an "Excess Funding
Guarantor") shall pay Guaranteed Obligations in excess of the Excess Funding
Guarantor's Pro Rata Share (as hereinafter defined) of such Guaranteed
Obligations, the other Subsidiary Guarantors shall, on demand (but subject to
the next sentence hereof), pay to the Excess Funding Guarantor an amount equal
to their respective Pro Rata Shares of such Excess Funding Guarantor's payment.
The payment obligation of any Subsidiary Guarantor to any Excess Funding
Guarantor under this Section 6.07 shall be subordinate and subject in right of
payment to the prior payment in full of the obligations of such Subsidiary
Guarantor under the other provisions of this Section 6 and such Excess Funding
Guarantor shall not exercise any right or remedy with respect to such excess
until payment and satisfaction in full of all of such obligations. For the
purposes hereof, "Pro Rata Share"
<PAGE>
shall mean, for any Subsidiary Guarantor, a percentage equal to the percentage
that such Subsidiary Guarantor's Tangible Net Worth as of the Closing Date is of
the aggregate Tangible Net Worth of all of the Subsidiary Guarantors as of the
Closing Date. If any Subsidiary of the Company becomes a Subsidiary Guarantor
hereunder subsequent to the Closing Date, then for purposes of this Section 6.07
such subsequent Subsidiary Guarantor shall be deemed to have been a Subsidiary
Guarantor as of the Closing Date and the Tangible Net Worth of such Subsidiary
Guarantor as of the Closing Date shall be deemed to be equal to such Tangible
Net Worth on the date such Subsidiary Guarantor becomes a Subsidiary Guarantor
hereunder.
6.08 Limitation on Guarantee Obligations. In any action or proceeding
involving any state corporate law, or any state or Federal bankruptcy,
insolvency, reorganization or other law affecting the rights of creditors
generally, if the obligations of any Subsidiary Guarantor under Section 6.01
hereof would otherwise, taking into account the provisions of Section 6.07
hereof, be held or determined to be void, invalid or unenforceable, or
subordinated to the claims of any other creditors, on account of the amount of
its liability under said Section 6.01, then, notwithstanding any other provision
hereof to the contrary, the amount of such liability shall, without any further
action by such Subsidiary Guarantor, any Bank, the Agent or any other Person, be
automatically limited and reduced to the highest amount which is valid and
enforceable and not subordinated to the claims of other creditors as determined
in such action or proceeding.
Section 7. Conditions Precedent.
7.01 Initial Extension of Credit. The obligation of the Banks to make
the initial extension of credit hereunder (whether by making Loans or issuing a
Letter of Credit) is subject to the receipt by the Agent of the following
documents and evidence, each of which shall be satisfactory to the Agent (and to
the extent specified below, to the Majority Banks) in form and substance:
(a) Corporate Documents. The following documents, each certified as
indicated below:
(i) for each Obligor, a copy of the charter, as amended and in
effect, of such Obligor certified as of a recent date by the Secretary
of State of its jurisdiction of incorporation, and a certificate from
such Secretary of State dated as of a recent date as to the good
standing of and charter documents filed by such Obligor;
(ii) for each Obligor, a certificate of the Secretary or an
Assistant Secretary of such Obligor, dated the date hereof and
certifying (A) that attached thereto is a true and complete copy of
the by-laws of such Obligor as amended and in effect at all times from
the date on which the
<PAGE>
resolutions referred to in clause (B) were adopted to and including
the date of such certificate, (B) that attached thereto is a true and
complete copy of resolutions duly adopted by the board of directors of
such Obligor authorizing the execution, delivery and performance of
such of the Basic Documents to which such Obligor is or is intended to
be a party and the extensions of credit hereunder, and that such
resolutions have not been modified, rescinded or amended and are in
full force and effect, (C) that the charter of such Obligor has not
been amended since the date of the certification thereto furnished
pursuant to clause (i) above, and (D) as to the incumbency and
specimen signature of each officer of such Obligor executing such of
the Basic Documents to which such Obligor is intended to be a party
and each other document to be delivered by such Obligor from time to
time in connection therewith (and the Agent and each Bank may
conclusively rely on such certificate until it receives notice in
writing from such Obligor); and
(iii) for each Obligor, a certificate of another officer of
such Obligor as to the incumbency and specimen signature of the
Secretary or Assistant Secretary, as the case may be, of such Obligor.
(b) Officer's Certificate. A certificate of a senior officer of the
Company, dated the date hereof, to the effect set forth in the first
sentence of Section 7.02 hereof.
(c) Opinion of Counsel to the Obligors. An opinion, dated the date
hereof, of Daniel McNamara, Esq., Counsel of each of the Obligors,
substantially in the form of Exhibit C hereto and covering such other
matters as the Agent or any Bank may reasonably request (and each Obligor
hereby instructs such counsel to deliver such opinion to the Banks and the
Agent).
(d) Opinion of Special Counsel to Chase. An opinion, dated the date
hereof, of Milbank, Tweed, Hadley & McCloy, special counsel to Chase,
substantially in the form of Exhibit D hereto.
(e) Notes. The Notes, duly completed and executed.
(f) Security Agreement. The Security Agreement, duly executed and
delivered by the Obligors and the Agent. In addition, the Borrowers and
the Subsidiary Guarantors shall have taken such other action (including,
without limitation, delivering to the Agent, for filing, appropriately
completed and duly executed copies of Uniform Commercial Code financing
statements) as the Agent shall have requested in order to perfect the
security interests created pursuant to the Security Agreement.
<PAGE>
(g) Pledge Agreement. The Pledge Agreement, duly executed and
delivered by each of the Obligors, if any, required by the Majority Banks
to execute and deliver the Pledge Agreement and the certificates
identified in Section 3 thereof, accompanied by undated stock powers
executed in blank. In addition, each of such Obligors, if any, shall have
taken such other action (including, without limitation, delivering to the
Agent, for filing, appropriately completed and duly executed copies of
Uniform Commercial Code financing statements) as the Agent shall have
requested in order to perfect the security interests created pursuant to
the Pledge Agreement.
(h) Mortgages. One or more Mortgages covering the Hydrocarbon
Properties of the Borrowers located in Louisiana, Oklahoma, Texas and
Wyoming, in each case duly executed and delivered by the Company in
recordable form (in such number of copies as the Agent shall have
requested).
(i) Insurance. Certificates of insurance evidencing the existence of
all insurance required to be maintained by the Obligors, pursuant to
Section 9.04 hereof and the designation of the Agent as a named insured
thereunder to the extent required by said Section 9.04 in respect of all
insurance covering tangible Property, such certificates to be in such form
and contain such information as is specified in said Section 9.04.
(j) Title Opinions. Title opinions or other evidence of the Borrowers'
interest in the Mortgaged Properties acceptable to the Majority Banks in
their sole discretion covering all of the Mortgaged Properties. Each such
opinion or acceptable alternative shall be satisfactory to the Majority
Banks in form and substance.
(k) Reserve Report. A reserve report, which report shall be deemed to
be the initial Reserve Evaluation Report.
(l) Opinion of Local Counsel. A favorable opinion from each of Liskow
& Lewis, Conner & Winters, Vinson & Elkins L.L.P. and Brown & Drew, special
counsel to the Banks in each of Louisiana, Oklahoma, Texas and Wyoming,
respectively, dated the Closing Date, for each such state and with respect
to the properties covered by the Mortgages and located in such respective
states, as to the following:
(i) Compliance with all applicable state laws, including all
applicable recording, filing and registration laws, of the Mortgages
and the Notes, and the form and manner of the authorization,
execution, acknowledgment and delivery of each thereof;
<PAGE>
(ii) the legal, valid and binding nature of the Mortgages, and
the Notes, and the enforceability thereof in accordance with their
respective terms;
(iii) the fact that the Mortgages constitute a legal, valid and
effective mortgage lien upon the mortgaged properties as security for
the Indebtedness referred to therein;
(iv) the absence of any requirement for any authorization or
approval by any public regulatory body or authority, with regard to
the valid execution and delivery of, and the validity, legality and
effectiveness of, the Mortgages and the Notes;
(v) as to all recording, filing and registration procedures as
shall be necessary under applicable state laws to constitute the
Mortgages, a mortgage, pledge and financing statement in accordance
with the terms thereof and the intention of the parties thereto, and
as to the necessity of any periodic or other rerecording or refiling
of the Mortgages, or any other instrument in order to maintain the
lien of the Mortgages; and
(vi) as to such state or local mortgage recording taxes, stamp
taxes, or other fees, taxes or governmental charges as shall be
required to be paid in connection with the execution, delivery, filing
for record or recording of the Mortgages and the Notes.
(m) Agreement Among Lienholders. The Agreement, dated as of December
2, 1993 among Cactus III Hydrocarbon Limited Partnership, Enron Reserve
Acquisition Corp. and the Agent, duly executed and delivered by each of
the parties thereto.
(n) Other Documents. Such other documents as the Agent or any Bank or
special New York counsel to Chase may reasonably request.
The obligation of the Banks to make their initial extension of credit hereunder
is also subject to the payment by the Borrowers of such fees as the Borrowers
shall have agreed to pay or deliver to any Bank or the Agent in connection
herewith, including, without limitation, the reasonable fees and expenses of
Milbank, Tweed, Hadley & McCloy, special New York counsel to Chase in connection
with the negotiation, preparation, execution and delivery of this Agreement and
the Notes and the other Basic Documents and the extensions of credit hereunder
(to the extent that statements for such fees and expenses have been delivered to
the Company).
7.02 Initial and Subsequent Extensions of Credit.
<PAGE>
The obligation of the Banks to make any Loans or otherwise extend
credit to the Borrower upon the occasion of each borrowing or other extension of
credit hereunder (including the initial extension of credit) is subject to the
further conditions precedent that, both immediately prior to the making of such
Loans or other extension of credit and also after giving effect thereto and to
the intended use thereof: (a) no Default shall have occurred and be continuing;
(b) the representations and warranties made by each of the Borrowers in Section
8 hereof, and by each Obligor in each of the other Basic Documents to which it
is a party, shall be true and complete on and as of the date of the making of
such Loans or other extension of credit with the same force and effect as if
made on and as of such date (or, if any such representation or warranty is
expressly stated to have been made as of a specific date, as of such specific
date); and (c) the aggregate principal amount of B Loans shall not exceed the
Borrowing Base as determined pursuant to Section 1.03 hereof. Each notice of
borrowing or request for the issuance of a Letter of Credit by the Borrowers
hereunder shall constitute a certification by the Borrowers to the effect set
forth in the preceding sentence (both as of the date of such notice or request
and, unless the Company otherwise notifies the Agent prior to the date of such
borrowing or issuance, as of the date of such borrowing or issuance).
Section 8. Representations and Warranties. Each of the Borrowers
represents and warrants to the Banks that:
8.01 Corporate Existence. Each of the Company and its Material
Subsidiaries (including, without limitation, the Subsidiary Borrowers): (a) is a
corporation, partnership or other entity duly incorporated, validly existing and
in good standing under the laws of the jurisdiction of its organization; (b) has
all requisite corporate power, and has all material governmental licenses,
authorizations, consents and approvals necessary to own its assets and carry on
its business as now being or as proposed to be conducted; and (c) is qualified
to do business and is in good standing in all jurisdictions in which the nature
of the business conducted by it makes such qualification necessary and where
failure so to qualify could have a Material Adverse Effect.
8.02 Financial Condition. The Company has heretofore furnished to each
of the Banks the consolidated balance sheet of the Company and its Consolidated
Subsidiaries as at December 31, 1992 and the related consolidated statements of
income, retained earnings and cash flow of the Company and its Consolidated
Subsidiaries for the fiscal year ended on said date, with the opinion thereon of
KPMG Peat Marwick, and the unaudited consolidated balance sheet of the Company
and its Consolidated Subsidiaries as at September 30, 1993 and the related
consolidated statements of income, retained earnings and cash flow of the
Company and its Consolidated Subsidiaries for the nine-month period ended on
such date. All such financial statements are complete and correct and fairly
<PAGE>
present the consolidated financial condition of the Company and its Consolidated
Subsidiaries as at said dates and the consolidated results of operations for the
fiscal year and nine-month period ended on said dates (subject, in the case of
such financial statements as at September 30, 1993, to normal year-end audit
adjustments), all in accordance with GAAP. Neither the Company nor any of its
Subsidiaries has on the date hereof any material contingent liabilities,
liabilities for taxes, unusual forward or long-term commitments or unrealized or
anticipated losses from any unfavorable commitments, except as referred to or
reflected or provided for in said balance sheets as at said dates. Since
September 30, 1993 there has been no material adverse change in the consolidated
financial condition, operations, business or prospects taken as a whole of the
Company and its Consolidated Subsidiaries from that set forth in said financial
statements as at said date.
8.03 Litigation. Except as disclosed to the Banks in writing prior to
the date of this Agreement, there are no legal or arbitral proceedings, or any
proceedings by or before any governmental or regulatory authority or agency, now
pending or (to the knowledge of the Company or any of its Subsidiaries)
threatened against the Company or any of its Subsidiaries which, if adversely
determined could have a Material Adverse Effect.
8.04 No Breach. None of the execution and delivery of this Agreement
and the Notes and the other Basic Documents, the consummation of the
transactions herein and therein contemplated or compliance with the terms and
provisions hereof and thereof will conflict with or result in a breach of, or
require any consent under, the charter or by-laws of any Obligor, or any
applicable law or regulation, or any order, writ, injunction or decree of any
court or governmental authority or agency, or any agreement or instrument to
which the Company or any of its Subsidiaries is a party or by which any of them
or any of their Property is bound or to which any of them is subject, or
constitute a default under any such agreement or instrument, or (except for the
Liens created pursuant to the Security Documents) result in the creation or
imposition of any Lien upon any Property of the Company or any of its
Subsidiaries pursuant to the terms of any such agreement or instrument.
8.05 Action. Each Obligor has all necessary corporate power, authority
and legal right to execute, deliver and perform its obligations under each of
the Basic Documents to which it is or is intended to be a party; the execution,
delivery and performance by each Obligor of each of the Basic Documents to which
it is or is intended to be a party have been duly authorized by all necessary
corporate action on its part (including, without limitation, any required
shareholder approvals); and this Agreement has been duly and validly executed
and delivered by each Obligor and constitutes, and each of the Notes and the
other Basic Documents to which it is a party when executed and delivered by such
Obligor (in the case of the Notes, for value) will constitute, its legal, valid
and binding obligation, enforceable against each Obligor in accordance with its
<PAGE>
terms, except as such enforceability may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or similar laws of general applicability
affecting the enforcement of creditors' rights and (b) the application of
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
8.06 Approvals. No authorizations, approvals or consents of, and no
filings or registrations with, any governmental or regulatory authority or
agency, or any securities exchange, are necessary for the execution, delivery or
performance by any Obligor of the Basic Documents to which it is a party or for
the legality, validity or enforceability hereof or thereof, except for filings
and recordings in respect of the Liens created pursuant to the Security
Documents.
8.07 Use of Credit. Neither the Company nor any of its Subsidiaries
is engaged principally, or as one of its important activities, in the business
of extending credit for the purpose, whether immediate, incidental or ultimate,
of buying or carrying Margin Stock, and no part of the proceeds of any extension
of credit hereunder will be used to buy or carry any Margin Stock.
8.08 ERISA. Each Plan, and, to the knowledge of the Company, each
Multiemployer Plan, is in compliance in all material respects with, and has been
administered in all material respects in compliance with, the applicable
provisions of ERISA, the Code and any other Federal or State law, except where
non-compliance will not have a Material Adverse Effect and no event or condition
has occurred and is continuing as to which the Company would be under an
obligation to furnish a report to the Banks under Section 9.01(e) hereof.
8.09 Taxes. The Company and its Subsidiaries are members of an
affiliatedgroup of corporations filing consolidated returns for Federal income
tax purposes, of which the Company is the "common parent" (within the meaning of
Section 1504 of the Code) of such group. The Company and its Subsidiaries have
filed either directly or indirectly through the Company all Federal income tax
returns and all other material tax returns that are required to be filed by them
and have paid either directly or indirectly through the Company all taxes due
pursuant to such returns or pursuant to any assessment received by the Company
or any of its Subsidiaries. The charges, accruals and reserves on the books of
the Company and its Subsidiaries in respect of taxes and other governmental
charges are, in the opinion of the Company, adequate. Except as disclosed to the
Banks in writing, the Company has not given or been requested to give a waiver
of the statute of limitations relating to the payment of Federal, state, local
and foreign taxes or other impositions.
8.10 Investment Company Act. Neither the Company nor any of its
Subsidiaries is an "investment company", or a company "controlled" by an
"investment company", within the
<PAGE>
meaning of the Investment Company Act of 1940, as amended.
8.11 Public Utility Holding Company Act. Neither the Company nor any
of its Subsidiaries is a "holding company", or an "affiliate" of a "holding
company" or a "subsidiary company" of a "holding company", within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
8.12 Material Agreements and Liens.
(a) Part A of Schedule I hereto is a complete and correct list, as of
the date of this Agreement, of each credit agreement, loan agreement, indenture,
purchase agreement, guarantee, letter of credit or other arrangement providing
for or otherwise relating to any Indebtedness or any extension of credit (or
commitment for any extension of credit) to, or guarantee by, the Company or any
of its Material Subsidiaries the aggregate principal or face amount of which
equals or exceeds (or may equal or exceed) $1,000,000, and the aggregate
principal or face amount outstanding or that may become outstanding under each
such arrangement is correctly described in Part A of said Schedule I.
(b) Part B of Schedule I hereto is a complete and correct list, as of
the date of this Agreement, of each Lien securing Indebtedness of any Person the
aggregate principal or face amount of which equals or exceeds (or may equal or
exceed) $1,000,000 and covering any Property of the Company or any of its
Material Subsidiaries, and the aggregate Indebtedness secured (or which may be
secured) by each such Lien and the Property covered by each such Lien is
correctly described in Part B of said Schedule I.
8.13 Environmental Matters. Each of the Company and its Subsidiaries
has obtained all environmental, health and safety permits, licenses and other
authorizations required under all Environmental Laws to carry on its business as
now being or as proposed to be conducted, except to the extent failure to have
any such permit, license or authorization would not have a Material Adverse
Effect. Each of such permits, licenses and authorizations is in full force and
effect and each of the Company and its Subsidiaries is in compliance with the
terms and conditions thereof, and is also in compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in any applicable Environmental
Law or in any regulation, code, plan, order, decree, judgment, injunction,
notice or demand letter issued, entered, promulgated or approved thereunder,
except to the extent failure to comply therewith would not have a Material
Adverse Effect.
In addition, except as set forth in Schedule II hereto:
(a) No notice, notification, demand, request for information,
citation, summons or order has been
<PAGE>
issued, no complaint has been filed, no penalty has been assessed and no
investigation or review is pending or threatened by any governmental or other
entity with respect to any alleged failure by the Company or any of its
Subsidiaries to have any environmental, health or safety permit, license or
other authorization required under any Environmental Law in connection with the
conduct of the business of the Company or any of its Subsidiaries or with
respect to any generation, treatment, storage, recycling, transportation,
discharge or disposal, or any Release of any Hazardous Materials generated by
the Company or any of its Subsidiaries.
(b) Neither the Company nor any of its Subsidiaries owns, operates or
leases a treatment, storage or disposal facility requiring a permit under
the Resource Conservation and Recovery Act of 1976, as amended, or under
any comparable state or local statute; and
(i) to the knowledge of the Company after due inquiry, no
polychlorinated biphenyls (PCB's) are or have been present at any site
or facility now or previously owned, operated or leased by the Company
or any of its Subsidiaries;
(ii) to the knowledge of the Company after due inquiry, no asbestos
or asbestos-containing materials is or has been present at any site or
facility now or previously owned, operated or leased by the Company or
any of its Subsidiaries;
(iii) to the knowledge of the Company after due inquiry, there are no
underground storage tanks or surface impoundments for Hazardous
Materials, active or abandoned, at any site or facility now or
previously owned, operated or leased by the Company or any of its
Subsidiaries;
(iv) to the knowledge of the Company after due inquiry, no Hazardous
Materials have been Released at, on or under any site or facility now
or previously owned, operated or leased by the Company or any of its
Subsidiaries in a reportable quantity established by statute, ordinance,
rule, regulation or order; and
(v) to the knowledge of the Company after due inquiry, no Hazardous
Materials have been otherwise Released at, on or under any site or
facility now or previously owned, operated or leased by the Company or
any of its Subsidiaries that would have a Material Adverse Effect.
(c) Neither the Company nor any of its Subsidiaries has transported or
arranged for the transportation of any Hazardous Material to any location
that is listed on the National Priorities List ("NPL") under the
Comprehensive Environmental Response,
<PAGE>
Compensation and Liability Act of 1980, as amended ("CERCLA"), listed for
possible inclusion on the NPL by the Environmental Protection Agency in the
Comprehensive Environmental Response and Liability Information System, as
provided for by 40 C.F.R. 300.5 ("CERCLIS"), or on any similar state or
local list or that is the subject of Federal, state or local enforcement
actions or other investigations that may lead to Environmental Claims
against the Company or any of its Subsidiaries.
(d) No Hazardous Material generated by the Company or any of its
Subsidiaries has been recycled, treated, stored, disposed of or Released by
the Company or any of its Subsidiaries at any location other than those
listed in Schedule II hereto.
(e) No oral or written notification of a Release of a Hazardous
Material has been filed by or on behalf of the Company or any of its
Subsidiaries and no site or facility now or previously owned, operated or
leased by the Company or any of its Subsidiaries is listed or proposed for
listing on the NPL, CERCLIS or any similar state list of sites requiring
investigation or clean-up.
(f) No Liens have arisen under or pursuant to any Environmental Laws on
any site or facility owned, operated or leased by the Company or any of its
Subsidiaries , and no government action has been taken or is in process
that could subject any such site or facility to such Liens and neither the
Company nor any of its Subsidiaries would be required to place any notice
or restriction relating to the presence of Hazardous Materials at any site
or facility owned by it in any deed to the real property on which such site
or facility is located.
(g) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by or that are in the possession
of the Company or any of its Subsidiaries in relation to any site or
facility now or previously owned, operated or leased by the Company or any
of its Subsidiaries which have not been made available to the Banks.
8.14 Subsidiaries, Etc.
(a) Set forth in Part A of Schedule III hereto is a complete and
correct list, as of the date of this Agreement, of all of the Subsidiaries of
the Company, together with, for each such Subsidiary, (i) the jurisdiction of
organization of such Subsidiary, (ii) each Person holding ownership interests in
such Subsidiary and (iii) the nature of the ownership interests held by each
such Person and the percentage of ownership of such Subsidiary represented by
such ownership interests. Except as disclosed in Part A of Schedule III hereto,
(x) each of the Company and its Subsidiaries owns, free and clear of
<PAGE>
Liens (other than Liens created pursuant to the Security Documents), and has the
unencumbered right to vote, all outstanding ownership interests in each Person
shown to be held by it in Part A of Schedule III hereto, (y) all of the issued
and outstanding capital stock of each such Person organized as a corporation is
validly issued, fully paid and nonassessable and (z) there are no outstanding
Equity Rights with respect to such Person.
(b) Set forth in Part B of Schedule III hereto is a complete and
correct list, as of the date of this Agreement, of all Investments (other than
Investments disclosed in Part A of said Schedule III hereto and other than
Permitted Investments) held by the Company or any of its Subsidiaries in any
Person and, for each such Investment, (x) the identity of the Person or Persons
holding such Investment and (y) the nature of such Investment. Except as
disclosed in Part B of Schedule III hereto, each of the Company and its
Subsidiaries owns, free and clear of all Liens (other than Liens created
pursuant to the Security Documents), all such Investments.
(c) None of the Restricted Subsidiaries of the Company, other than
Forest I Development Company, is, on the date of this Agreement, subject to any
indenture, agreement, instrument or other arrangement of the type described in
the last sentence of 9.15 hereof.
8.15 True and Complete Disclosure. The information, reports, financial
statements, exhibits and schedules furnished in writing by or on behalf of the
Obligors to the Agent or any Bank in connection with the negotiation,
preparation or delivery of this Agreement and the other Basic Documents or
included herein or therein or delivered pursuant hereto or thereto, when taken
as a whole do not contain any untrue statement of material fact or omit to state
any material fact necessary to make the statements herein or therein, in light
of the circumstances under which they were made, not misleading. All written
information furnished after the date hereof by the Obligors to the Agent and the
Banks in connection with this Agreement and the other Basic Documents and the
transactions contemplated hereby and thereby will be true, complete and accurate
in every material respect, or (in the case of projections) based on reasonable
estimates, on the date as of which such information is stated or certified.
There is no fact known to any Obligor that could have a Material Adverse Effect
that has not been disclosed herein, in the other Basic Documents or in a report,
financial statement, exhibit, schedule, disclosure letter or other writing
furnished to the Banks for use in connection with the transactions contemplated
hereby or thereby.
<PAGE>
Section 9. Covenants of the Obligors. Each Obligor covenants and
agrees with the Banks and the Agent that, so long as any Commitment, Loan or
Letter of Credit Liability is outstanding and until payment in full of all
amounts payable by the Borrowers hereunder:
9.01 Financial Statements Etc. The Company shall (for itself and on
behalf of each of the other Obligors) deliver to the Agent and each of the
Banks:
(a) as soon as available and in any event within 60 days after the end
of each quarterly fiscal period of each fiscal year of the Company,
consolidated and, if prepared, or if the Company has designated any
Subsidiary an Unrestricted Subsidiary, consolidating statements of income,
retained earnings and cash flow of the Company and its Consolidated
Subsidiaries for such period and for the period from the beginning of the
respective fiscal year to the end of such period, and the related
consolidated and, if prepared, or if the Company has designated any
Subsidiary an Unrestricted Subsidiary, consolidating balance sheets of the
Company and its Consolidated Subsidiaries as at the end of such period,
setting forth in each case in comparative form the corresponding
consolidated and, if prepared, or if the Company has designated any
Subsidiary an Unrestricted Subsidiary, consolidating figures for the
corresponding period in the preceding fiscal year, accompanied by a
certificate of a senior financial officer of the Company, which certificate
shall state that said consolidated financial statements fairly present the
consolidated financial condition and results of operations of the Company
and its Consolidated Subsidiaries, and said consolidating financial
statements are materially correct and reconcile to the consolidated
financial statements of the Company and its Consolidated Subsidiaries, and
that such consolidated financial statements have been prepared in
accordance with GAAP, as at the end of, and for, such period (subject to
normal year-end audit adjustments);
(b) as soon as available and in any event within 100 days after the end
of each fiscal year of the Company, consolidated and, if prepared,
consolidating statements of income, retained earnings and cash flow of the
Company and its Consolidated Subsidiaries for such fiscal year and the
related consolidated and, if prepared, or if the Company has designated any
Subsidiary an Unrestricted Subsidiary, consolidating balance sheets of the
Company and its Consolidated Subsidiaries as at the end of such fiscal
year, setting forth in each case in comparative form the corresponding
consolidated and consolidating figures for the preceding fiscal year, and
accompanied (i) in the case of said consolidated statements and balance
sheet of the Company, by an opinion thereon of independent certified public
accountants of recognized national standing, which opinion shall state that
said
<PAGE>
consolidated financial statements fairly present the consolidated financial
condition and results of operations of the Company and its Consolidated
Subsidiaries as at the end of, and for, such fiscal year in accordance with
generally accepted accounting principles, and (ii) in the case of said
consolidating statements and balance sheet, by a certificate of a senior
financial officer of the Company, which certificate shall state that said
consolidating financial statements are materially correct and reconcile to
the consolidated financial statements of the Company and its Consolidated
Subsidiaries, and that such consolidated financial statements have been
prepared in accordance with GAAP, as at the end of, and for, such fiscal
year;
(c) promptly upon their becoming available, copies of all registration
statements and regular periodic reports, if any, which the Company shall
have filed with the Securities and Exchange Commission (or any governmental
agency substituted therefor) or any national securities exchange;
(d) promptly upon the mailing thereof to the shareholders of the
Company generally or to holders of Subordinated Indebtedness generally,
copies of all financial statements, reports and proxy statements so mailed;
(e) as soon as possible, and in any event within ten days after the
Company knows or has reason to believe that any of the events or conditions
specified below with respect to any Plan or Multiemployer Plan has occurred
or exists, a statement signed by a senior financial officer of the Company
setting forth details respecting such event or condition and the action, if
any, that the Company or its ERISA Affiliate proposes to take with respect
thereto (and a copy of any report or notice required to be filed with or
given to PBGC by the Company or an ERISA Affiliate with respect to such
event or condition):
(i) any reportable event, as defined in Section 4043(b) of ERISA and
the regulations issued thereunder, with respect to a Plan, as to which
PBGC has not by regulation waived the requirement of Section 4043(a)
of ERISA that it be notified within 30 days of the occurrence of such
event (provided that a failure to meet the minimum funding standard of
Section 412 of the Code or Section 302 of ERISA, including, without
limitation, the failure to make on or before its due date a required
installment under Section 412(m) of the Code or Section 302(e) of ERISA,
shall be a reportable event regardless of the issuance of any waivers
in accordance with Section 412(d) of the Code); and any request for a
waiver under Section 412(d) of the Code for any Plan;
<PAGE>
(ii) the distribution under Section 4041(c) of ERISA of a notice of
intent to terminate any Plan or any action taken by the Company or an
ERISA Affiliate to terminate any Plan (other than in connection with a
standard termination under Section 4041(b) of ERISA);
(iii) the institution by PBGC of proceedings under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to
administer, any Plan, or the receipt by the Company or any ERISA
Affiliate of a notice from a Multiemployer Plan that such action has
been taken by PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a Multiemployer Plan by
the Company or any ERISA Affiliate that results in liability under
Section 4201 or 4204 of ERISA (including the obligation to satisfy
secondary liability as a result of a purchaser default) or the receipt
by the Company or any ERISA Affiliate of notice from a Multiemployer
Plan that it is in reorganization or insolvency pursuant to Section
4241 or 4245 of ERISA or that it intends to terminate or has terminated
under Section 4041A of ERISA;
(v) the institution of a proceeding by a fiduciary of any
Multiemployer Plan against the Company or any ERISA Affiliate to enforce
Section 515 of ERISA, which proceeding is not dismissed within 30 days;
and
(vi) the adoption of an amendment to any Plan that, pursuant to
Section 401(a)(29) of the Code or Section 307 of ERISA, would result
in the loss of tax-exempt status of the trust of which such Plan is a
part if the Company or an ERISA Affiliate fails to timely provide
security to the Plan in accordance with the provisions of said
Sections;
(f) on or before each Report Delivery Date, a Reserve Evaluation
Report;
(g) promptly after the Company or any of its Subsidiaries knows or has
reason to believe that any Default has occurred, a notice of such Default
describing the same in reasonable detail and, together with such notice or
as soon thereafter as possible, a description of the action that the
Company or any of its Subsidiaries has taken or proposes to take with
respect thereto; and
(h) within ten days after the Company or any of its Subsidiaries
receives notice of any change in the schedule of payment or delivery of any
Production Payment to which the Company or such Subsidiary is a party, the
Company shall give the Agent notice of such change, together with an
explanation of the reason for
<PAGE>
such change; and
(i) from time to time such other information regarding the financial
condition, operations, business, prospects or Properties of the Company
or any of its Subsidiaries (including, without limitation, any Plan or
Multiemployer Plan and any reports or other information required to be
filed under ERISA) as any Bank or the Agent may reasonably request.
The Company will furnish to each Bank, at the time it furnishes each set of
financial statements pursuant to paragraph (a) or (b) above, a certificate of a
senior financial officer of the Company (i) to the effect that no Default has
occurred and is continuing (or, if any Default has occurred and is continuing,
describing the same in reasonable detail and describing the action that the
Company has taken or proposes to take with respect thereto) and (ii) setting
forth in reasonable detail the computations necessary to determine whether the
Company is in compliance with Sections 9.06(k), 9.07(e) and (f), 9.08(g), 9.09,
9.10, 9.11 and 9.16 hereof as of the end of the respective quarterly fiscal
period or fiscal year, which computations in respect of Sections 9.09, 9.10,
9.11 and 9.16 shall be in accordance with GAAP.
9.02 Litigation. The Company will promptly give to each Bank notice of
all legal or arbitral proceedings, and of all proceedings by or before any
governmental or regulatory authority or agency, and any material development in
respect of such legal or other proceedings, affecting the Company or any of its
Subsidiaries , except proceedings which, if adversely determined, would not have
a Material Adverse Effect. Without limiting the generality of the foregoing, the
Company will give to each Bank notice of the assertion of any Environmental
Claim by any Person against, or with respect to the activities of, the Company
or any of its Subsidiaries and notice of any alleged violation of or
non-compliance with any Environmental Laws or any permits, licenses or
authorizations, other than any Environmental Claim or alleged violation which,
if adversely determined, would not have a Material Adverse Effect.
9.03 Existence, Etc. The Company will, and will cause each of its
Subsidiaries to:
(a) preserve and maintain its legal existence and all of its material
rights, privileges, licenses and franchises (provided that nothing in this
Section 9.03 shall prohibit any transaction expressly permitted under
Section 9.05 hereof);
(b) comply with the requirements of all applicable laws, rules,
regulations and orders of governmental or regulatory authorities if failure
to comply with such requirements could have a Material Adverse Effect;
(c) pay and discharge all taxes, assessments and governmental charges
or levies imposed on it or on its
<PAGE>
income or profits or on any of its Property prior to the date on which
penalties attach thereto, except for any such tax, assessment, charge or
levy the payment of which is being contested in good faith and by proper
proceedings and against which adequate reserves are being maintained;
(d) maintain all of its Properties used or useful in its business in
good working order and condition, ordinary wear and tear excepted;
(e) keep adequate records and books of account, in which complete
entries will be made in accordance with generally accepted accounting
principles consistently applied; and
(f) permit representatives of any Bank or the Agent, at their own risk
during normal business hours, to examine, copy and make extracts from its
books and records, to inspect any of its Properties, and to discuss its
business and affairs with its officers, all to the extent reasonably
requested by such Bank or the Agent (as the case may be).
9.04 Insurance. The Company will, and will cause each of its
Subsidiaries (including without limitation the Subsidiary Borrowers) to, keep
insured by financially sound and reputable insurers all Property of a character
usually insured by corporations engaged in the same or similar business
similarly situated against loss or damage of the kinds and in the amounts
customarily insured against by such corporations and carry such other insurance
as is usually carried by such corporations or as is required by law.
9.05 Prohibition of Fundamental Changes. The Company will not, and
will not permit any of its Restricted Subsidiaries to, enter into any
transaction of merger or consolidation or amalgamation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution). The Company will
not, and will not permit any of its Restricted Subsidiaries to, acquire any
business or Property from, or capital stock of, or be a party to any acquisition
of, any Person except for purchases of inventory and other Property to be sold
or used in the ordinary course of business and Investments permitted under
Section 9.08 hereof. The Company will not, and will not permit any of its
Restricted Subsidiaries to, convey, sell, lease, transfer or otherwise dispose
of, in one transaction or a series of transactions, all or a substantial part of
its business or Property, whether now owned or hereafter acquired (including,
without limitation, receivables and leasehold interests, but excluding (i)
obsolete or worn-out Property, tools or equipment no longer used or useful in
its business so long as the amount thereof sold in any single fiscal year by the
Company and its Subsidiaries shall not have a fair market value in excess of
$1,000,000, (ii) any hydrocarbons produced or sold in the ordinary course of
business and on ordinary business terms (excluding, with respect to Properties
of the Company or any Restricted Subsidiary existing on the date hereof, and
with respect to
<PAGE>
any Mortgaged Property, Production Payments or any other sale or lease of
interests in hydrocarbons in the ground other than Production Payments entered
into by the Company or any of its Restricted Subsidiaries prior to the date
hereof), (iii) other Properties of the Company and its Restricted Subsidiaries
provided that the aggregate fair market value of such other Properties conveyed,
sold, leased, transferred or otherwise disposed of on or after the date hereof
shall not exceed $10,000,000, (iv) the expiration of leases covering hydrocarbon
producing properties and (v) Unrestricted Properties, provided the Net Available
Proceeds of such conveyance, sale, lease, transfer or other disposition of such
Unrestricted Properties be applied in accordance with Section 9.21 hereof.
Notwithstanding the foregoing provisions of this Section 9.05:
(a) any Subsidiary of the Company may be merged or consolidated with or
into: (i) the Company if the Company shall be the continuing or surviving
corporation or (ii) any other such Subsidiary; provided that (x) if any
such transaction shall be between a Subsidiary and a Wholly Owned
Subsidiary, the Wholly Owned Subsidiary shall be the continuing or
surviving corporation and (y) that if any such transaction shall be between
a Subsidiary Guarantor and a Subsidiary not a Subsidiary Guarantor, and
such Subsidiary Guarantor is not the continuing or surviving corporation,
then the continuing or surviving corporation shall have assumed all of the
obligations of such Subsidiary Guarantor hereunder;
(b) any Subsidiary of the Company may sell, lease, transfer or
otherwise dispose of any or all of its Property (upon voluntary liquidation
or otherwise) to the Company or a Wholly Owned Subsidiary of the Company;
provided that if any such sale is by a Subsidiary Guarantor to a Subsidiary
of the Company not a Subsidiary Guarantor, then such Subsidiary shall have
assumed all of the obligations of such Subsidiary Guarantor hereunder; and
(c) the Company or any Subsidiary of the Company may merge or
consolidate with any other Person if (i) in the case of a merger or
consolidation of the Company, the Company is the surviving corporation and,
in any other case, the surviving corporation is a Wholly Owned Subsidiary
of the Company and (ii) after giving effect thereto no Default would exist
hereunder.
9.06 Limitation on Liens. The Company will not, nor will it permit any
of its Restricted Subsidiaries to, create, incur, assume or suffer to exist any
Lien upon any of their Property, whether now owned or hereafter acquired,
except:
(a) Liens created pursuant to the Security Documents;
(b) Liens in existence on the date hereof and
<PAGE>
listed in Part B of Schedule I hereto (excluding, however, following the
making of the initial Loans hereunder, Liens securing Indebtedness to be
repaid with the proceeds of such Loans, if any, indicated on said Schedule
I);
(c) Liens imposed by any governmental authority for taxes, assessments,
charges or levies not yet due or which are being contested in good faith
and by appropriate proceedings if, unless the amount thereof is not
material with respect to it or its financial condition, adequate reserves
with respect thereto are maintained on the books of the Company or the
affected Subsidiaries, as the case may be, in accordance with GAAP;
(d) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business which are
not overdue for a period of more than 45 days or which are being contested
in good faith and by appropriate proceedings and Liens securing judgments
(but only to the extent, for an amount and for a period not resulting in an
Event of Default under Section 10(h) hereof);
(e) pledges or deposits under worker's compensation, unemployment
insurance and other social security or similar legislation;
(f) deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety, stay,
appeal and indemnity bonds, performance bonds and other obligations of a
like nature incurred in the ordinary course of business;
(g) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and encumbrances
consisting of zoning restrictions, easements, licenses, restrictions on the
use of Property or minor imperfections in title thereto which, in the
aggregate, are not material in amount, and which do not in any case
materially detract from the value of the Property subject thereto or
interfere with the ordinary conduct of the business of the Company or any
of its Subsidiaries;
(h) Liens on Property of any corporation which becomes a Subsidiary of
the Company after the date of this Agreement, provided that such Liens are
in existence at the time such corporation becomes a Subsidiary of the
Company and were not created in anticipation thereof;
(i) Liens upon real and/or tangible personal Property acquired after
the date hereof (by purchase, construction or otherwise) by the Company or
any of its Subsidiaries, each of which Liens either (A) existed on such
Property before the time of its acquisition and
<PAGE>
was not created in anticipation thereof, or (B) was created solely for the
purpose of securing Indebtedness representing, or incurred to finance,
refinance or refund, the cost (including the cost of construction) of such
Property; provided that (x) no such Lien shall extend to or cover any
Property of a Borrower or a Subsidiary of the Company other than the
Property so acquired and improvements thereon; (y) the principal amount of
Indebtedness secured by any such Lien shall at no time exceed 80% of the
fair market value (as determined in good faith by a senior financial
officer of the applicable Borrower) of such Property at the time it was
acquired (by purchase, construction or otherwise); provided that the
obligations of the Company or any Subsidiary of the Company in respect of
Capital Lease Obligations under a capital lease of Property other than
Hydrocarbon Property entered into in the ordinary course of business may be
secured by a Lien on the Property subject to such capital lease and (z) no
such Lien shall be incurred in connection with any Production Payment
unless the Company, as promptly as reasonably practicable, and in any event
within 10 days after the creation of such Lien, provides the Agent with
information concerning the Production Payment which gave rise to such Lien
and delivers to the Agent, promptly upon request, such additional
information concerning such Production Payment or such Lien as the Agent or
any Bank may reasonably request;
(j) Liens for farm-in, farm-out, joint operating, area of mutual
interest agreements or similar agreements entered into by the Borrowers in
the ordinary course of business which the Borrowers determine in good faith
to be necessary for or advantageous to the economic development of their
Properties; provided any farm-out agreements covering any Mortgaged
Property shall require the prior written consent of the Majority Banks;
(k) additional Liens upon real and/or personal Property created after
the date hereof, provided that the aggregate Indebtedness secured thereby
and incurred on and after the date hereof shall not exceed $1,000,000 in
the aggregate at any one time outstanding;
(l) Liens created pursuant to any Commodity Hedging Agreement or
Interest Rate Protection Agreement (i) with any Bank or any Affiliate of
such Bank, provided that the Majority Banks consent to the creation of
such Lien or (ii) with any other Person, provided that the aggregate
Indebtedness secured by all such Liens permitted by this clause (ii) shall
not exceed $2,000,000 in the aggregate at any one time outstanding and no
such Liens shall extend to any Mortgaged Properties;
(m) Liens securing Indebtedness of the Company or its Subsidiaries
permitted pursuant to Section 9.07(g) hereof, provided that the Company
will not and will not
<PAGE>
permit its Subsidiaries to create any such Liens on any Mortgaged Property;
(n) Liens securing obligations of a Subsidiary of the Company to the
Company or to any Restricted Subsidiary or any obligations of the Company
to a Restricted Subsidiary provided that such Liens are not (i) on
Mortgaged Properties existing on the date hereof or (ii) on Mortgaged
Properties acquired after the date hereof that are not subject to any Lien
prior to the Lien of the Mortgage; and
(o) any extension, renewal or replacement of the foregoing, provided
that the Liens permitted hereunder shall not be spread to cover any
additional Indebtedness or Property (other than a substitution of like
Property).
9.07 Indebtedness. The Company will not, and will not permit any of its
Subsidiaries to, create, incur or suffer to exist any Indebtedness except:
(a) Indebtedness to the Banks hereunder;
(b) Indebtedness outstanding on the date hereof and listed in Part A of
Schedule I hereto (excluding, however, following the making of the initial
Loans hereunder, the Indebtedness to be repaid with the proceeds of such
Loans, if any, indicated on said Schedule I);
(c) Subordinated Indebtedness;
(d) Indebtedness of Subsidiaries of the Company to the Company or to
other Subsidiaries of the Company;
(e) Indebtedness of the Company and its Subsidiaries secured by Liens
permitted by Section 9.06(j) hereof up to but not exceeding $500,000 at any
one time outstanding;
(f) additional Indebtedness of the Company up to but not exceeding
$1,000,000 at any one time outstanding;
(g) Non-Recourse Debt; provided that with respect to any Non-Recourse
Debt of Unrestricted Subsidiary, such Indebtedness may have full recourse
to the assets of such Unrestricted Subsidiary;
(h) Indebtedness of the Company and its Subsidiaries secured by Liens
permitted by Section 9.06(l) hereof; and
(i) Indebtedness ("Refinancing Indebtedness") issued in exchange for or
the proceeds of which are used to repay, refund, refinance or discharge or
otherwise retire any Indebtedness ("Refinanced Indebtedness") specified in
clause (b) above, such Refinancing Indebtedness not to exceed the principal
<PAGE>
amount of, accelerate the maturity of, or increase the interest rate
applicable to, the Refinanced Indebtedness outstanding on the date of the
issuance of the Refinancing Indebtedness.
9.08 Investments. The Company will not, and will not permit any of its
Restricted Subsidiaries to, make or permit to remain outstanding any Investments
except:
(a) Investments outstanding on the date hereof and identified in
Schedule III Part B hereto (excluding Investments in Unrestricted
Subsidiaries);
(b) operating deposit accounts with banks;
(c) Permitted Investments;
(d) Investments by the Company and its Subsidiaries in capital stock of
Restricted Subsidiaries to the extent outstanding on the date of the
financial statements of the Company and its Consolidated Subsidiaries
referred to in Section 8.02 hereof and advances by the Company and its
Restricted Subsidiaries to Restricted Subsidiaries of the Company in the
ordinary course of business; provided that the Company may make loans or
other advances to any Restricted Subsidiary that is a Subsidiary Borrower;
(e) Investments in the Capital Stock of any Wholly-Owned Subsidiary of
the Company formed or acquired by the Company or any of its other Wholly-
Owned Subsidiaries (other than Unrestricted Subsidiaries) after the date
hereof (a "New Wholly-Owned Subsidiary"), provided that (i) such New
Wholly-Owned Subsidiary is maintained as a separate Subsidiary of the
Company (unless the Majority Banks consent to the merger of such New
Wholly-Owned Subsidiary into the Company or into another Wholly-Owned
Subsidiary of the Company, except that no such consent shall be required
to merge such New Wholly-Owned Subsidiary into another Wholly-Owned
Subsidiary of the Company established solely for the purpose of
facilitating the acquisition of such New Wholly-Owned Subsidiary (which
Wholly-Owned Subsidiary, following such merger, shall have no assets
other than the assets of such New Wholly-Owned Subsidiary)), (ii) such New
Wholly-Owned Subsidiary is engaged principally in the business of the
acquisition and exploitation of, exploration for and/or development,
production and processing of oil, gas or other hydrocarbons, (iii)
immediately following the consummation of each such Investment, such New
Wholly-Owned Subsidiary shall have no Indebtedness other than
Non-Recourse Debt (provided such Indebtedness may have full recourse to
the assets of such Wholly-Owned Subsidiary or any Unrestricted Subsidiary)
and, if applicable, Indebtedness hereunder and (iv) the Company complies
with Section 9.16 hereof with respect to such New Wholly-Owned Subsidiary
immediately following the consummation of such Investment by the Company;
<PAGE>
(f) Investments permitted by Section 9.07(h) hereof;
(g) additional Investments up to but not exceeding $5,000,000 (or the
equivalent) in the aggregate, including, without limitation, Investments in
Unrestricted Subsidiaries; provided that any cash dividends received by the
Company or any Restricted Subsidiary from an Unrestricted Subsidiary, up to
the amount of the Investments in such Unrestricted Subsidiary, shall reduce
pro tanto the aggregate amount of the Investments in such Unrestricted
Subsidiary for purposes of calculating compliance with such $5,000,000
limitation; and
(h) undivided fractional interests in hydrocarbon reserves.
9.09 Dividend Payments. The Company will not, nor will it permit any of
its Subsidiaries to, declare or make any Dividend Payment at any time; provided
that (i) any Wholly-Owned Subsidiaries of the Company may declare and make
Dividend Payments to the Company and (ii) the Company or any Subsidiary may
declare and make Dividend Payments in cash, subject to the satisfaction of each
of the following conditions on the date of such Dividend Payment and after
giving effect thereto:
(i) no Default shall have occurred and be continuing or shall occur as a
result of the making of such Dividend Payment; and
(ii) immediately after giving effect to such Dividend Payment, the
aggregate amount of Dividend Payments made during the period commencing on
the date hereof through and including the date of such Dividend Payment
shall not exceed an amount equal to the sum of (A) 50% of consolidated net
income of the Company and its Consolidated Subsidiaries for the period
commencing on October 1, 1993 through and including the last day of the
fiscal quarter most recently ended prior to the date of such Dividend
Payment (the "Tracking Period") (treated for these purposes as a single
accounting period), minus 100% of consolidated net losses of the Company
and its Consolidated Subsidiaries for the Tracking Period (treated for
these purposes as a single accounting period), plus 50% of the net cash
proceeds received by the Company during the Tracking Period from any Person
other than a Subsidiary of the Company as a result of the issuance or sale
of Capital Stock (other than Disqualified Capital Stock) of the Company
(reduced by 100% of the amount of such net cash proceeds used or intended
to be used to prepay, redeem or retire any Subordinated Indebtedness
pursuant to Section 9.17 hereof); provided that no more than 10% of such
net cash proceeds may be used to make any Dividend Payment during any
fiscal year of the Company and (B) $3,000,000; provided that in no event
will the amount determined pursuant to clause (A) hereof be less than zero.
For the purpose of this paragraph 9.09(ii),
<PAGE>
consolidated net income or loss of the Company and its Consolidated
Subsidiaries shall exclude the following non-cash items (provided that the
same shall be included when the become cash items): (i) any impairment of
Properties for accounting purposes under a ceiling test adjustment, (ii)
any extraordinary item or (iii) any gain or loss attributable to a change
in accounting method which, at the time of recognition in the financial
statements of the Company and its Subsidiaries is not a cash item. To the
extent future cash payments are made or received with respect to a change
in accounting method and such payment is not otherwise included in the
computation of consolidated net income or loss for such period,
consolidated net income or loss shall be reduced or increased by the amount
of such cash payment or receipt.
9.10 Debt Coverage Ratio; Interest Coverage Ratio.
(a) The Company will not permit the Debt Coverage Ratio for any period
of two complete consecutive fiscal quarters (treated for this purpose as a
single accounting period) following the date hereof or, if less than two
complete fiscal quarters have elapsed since the date hereof, the complete
fiscal quarter which has elapsed since the date hereof to be less than 1.3
to 1; and
(b) The Company will not permit the Interest Coverage Ratio for any
period of two complete consecutive fiscal quarters (treated for this
purpose as a single accounting period) following the date hereof or, if
less than two complete fiscal quarters have elapsed since the date hereof,
the complete fiscal quarter which has elapsed since the date hereof to be
less than 2.0 to 1.
9.11 Working Capital. The Company will not permit the current assets of
the Company and its Consolidated Subsidiaries (determined on a consolidated
basis in accordance with GAAP) to be equal to or less than the current
liabilities of the Company and its Consolidated Subsidiaries (so determined).
For purposes hereof, the terms "current assets" and "current liabilities" shall
have the respective meanings assigned to them by GAAP, provided that in any
event there shall be (i) included in current assets the aggregate amount of the
unused A Commitments (but only to the extent such unused Commitments could then
be utilized as provided in Section 7.02 hereof), (ii) excluded from current
liabilities all Indebtedness hereunder and (iii) excluded from current
liabilities all Non-Recourse Debt.
9.12 Lines of Business. The Company will not, and will not permit any of
its Subsidiaries to, engage to any substantial extent in any line or lines of
business activity other than the business of the acquisition, exploration,
development, production, processing, marketing, gathering and sale of
hydrocarbons.
9.13 Transactions with Affiliates. Except as
<PAGE>
expressly permitted by this Agreement, the Company will not, and will not permit
any Restricted Subsidiaries to, directly or indirectly: (a) make any Investment
in an Affiliate; (b) transfer, sell, lease, assign or otherwise dispose of any
Property to an Affiliate; (c) merge into or consolidate with or purchase or
acquire Property from an Affiliate; or (d) enter into any other transaction
directly or indirectly with or for the benefit of an Affiliate (including,
without limitation, guarantees and assumptions of obligations of an Affiliate);
provided that (x) any Affiliate who is an individual may serve as a director,
officer or employee of any of the Company and its Subsidiaries and receive
reasonable compensation for his or her services in such capacity and (y) any of
the Company and its Restricted Subsidiaries may enter into transactions with
Affiliates (other than extensions of credit to Affiliates) providing for the
leasing of Property, the rendering or receipt of services or the purchase or
sale of inventory and other Property in the ordinary course of business if the
monetary or business consideration arising therefrom would be substantially as
advantageous to the Company and its Restricted Subsidiaries as the monetary or
business consideration which would obtain in a comparable transaction with a
Person not an Affiliate.
9.14 Use of Proceeds. The Borrowers will use the proceeds of (i) the A
Loans hereunder and will use Letters of Credit solely for general working
capital purposes and general corporate purposes and (ii) the B Loans for the
acquisition or development of Proved Reserves (in compliance with all applicable
legal and regulatory requirements); provided that neither the Agent nor any Bank
shall have any responsibility as to the use of any of such proceeds.
9.15 Certain Obligations Respecting Subsidiaries. The Company will, and
will cause each of its Restricted Subsidiaries to, take such action from time to
time as shall be necessary to ensure that the Company and each of its Restricted
Subsidiaries at all times own (subject only to the Lien of the Pledge Agreement)
at least the same percentage of the issued and outstanding shares of each class
of stock of each of such Restricted Subsidiaries the stock of which is subject
to the Lien of the Pledge Agreement as is owned on the date hereof or, in the
case of New Wholly-Owned Subsidiaries created or acquired after the date hereof,
the stock of which are required to be subject to the Lien of the Pledge
Agreement, 100% of each class of stock of each of such Subsidiaries (each of the
Subsidiaries referred to above being herein called, a "Pledged Subsidiary").
Without limiting the generality of the foregoing, none of the Company and its
Restricted Subsidiaries will sell, transfer or otherwise dispose of any shares
of stock in any Pledged Subsidiary owned by it, nor permit any Pledged
Subsidiary to issue any shares of stock of any class whatsoever to any Person
(other than to the Company or another Obligor). In the event that any such
additional shares of stock are issued by any Pledged Subsidiary, the respective
Obligor agrees forthwith to deliver to the Agent pursuant to the Pledge
Agreement the certificates evidencing such shares of stock, accompanied by
<PAGE>
undated stock powers executed in blank and shall take such other action as the
Agent shall request to perfect the security interest created therein pursuant to
the Pledge Agreement. The Company will not and will not permit any of its
Restricted Subsidiaries to enter into any indenture, agreement, instrument or
other arrangement (other than the Indenture included in the Senior Subordinated
Debt Documents as initially in effect) that, directly or indirectly, prohibits
or restrains, or has the effect of prohibiting or restraining, or imposes
materially adverse conditions upon, the incurrence or payment of Indebtedness of
the Company and its Restricted Subsidiaries, the granting of Liens (other than
Liens on Properties securing Non-Recourse Debt), the declaration or payment of
dividends, the making of loans, advances or Investments or the sale, assignment,
transfer or other disposition of Property.
9.16 Additional Borrowers and Subsidiary Guarantors. The Company will
take such action, and will cause each of its Subsidiaries to take such action,
including without limitation the action specified below in this Section 9.16
from time to time as shall be necessary to ensure that (i) each of such
Subsidiaries (other than Unrestricted Subsidiaries and Forest I Development
Company) with Tangible Net Worth of more than 5% of the Tangible Net Worth of
the Company and its Consolidated Subsidiaries determined on a consolidated basis
in accordance with GAAP is a Subsidiary Borrower hereunder and (ii) all
Subsidiaries that Guarantee the Company's obligations in respect of the Senior
Subordinated Indebtedness are Subsidiary Guarantors and in each case, thereby,
"Obligors" hereunder. Each Subsidiary of the Company that is required to become
a Subsidiary Borrower after the date hereof shall execute such instruments and
agreements, in form and substance satisfactory to, and as required by, the Agent
to acknowledge that such Subsidiary has all of the rights and obligations of a
Borrower under this Agreement. Each Subsidiary of the Company that is required
to become a Subsidiary Guarantor after the date hereof shall execute such
instruments and agreements, in form and substance satisfactory to, and as
required by, the Agent to acknowledge that such Subsidiary has all of the
obligations of a Subsidiary Guarantor pursuant to this Agreement.
9.17 Modifications and Payments of Subordinated Indebtedness. The
Company will not, and will not permit any of its Subsidiaries to, (a) agree to
any amendment, supplement or other modification of any of the Senior
Subordinated Debt Documents or any other documents providing for or evidencing
any Subordinated Indebtedness or (b) pay, prepay, redeem, retire, purchase or
otherwise acquire for value, or defease, any Subordinated Indebtedness except
for (subject to the subordination provisions relating thereto) regularly
scheduled payments of principal thereof and interest thereon or regularly
scheduled redemptions thereof on the respective dates on which such payments or
redemptions are required to be made; provided that the Company may (if no
Default has occurred and is continuing or will result therefrom) (i) apply 30%
of the net cash proceeds received by the Company from any Person other than
<PAGE>
a Subsidiary of the Company as a result of the issuance or sale of Capital Stock
of the Company (other than Disqualified Capital Stock) to prepay, redeem or
retire any Subordinated Indebtedness and (ii) refinance such Senior Subordinated
Debt provided that (w) the subordination provisions for such Indebtedness remain
unchanged; (x) the interest rate applicable to such Indebtedness is not
increased; (y) the final maturity of such Indebtedness is not accelerated and
(z) the covenants and other provisions thereof are not modified in any respect
determined by the Majority Banks to be materially adverse to the Company or the
Banks.
9.18 Property Schedule. The Company will, within 60 days after the date
hereof and on each anniversary of the date hereof, deliver to the Agent a
schedule, certified by a senior officer of the Company, in form and substance
satisfactory to the Agent, of each of the Mortgaged Properties, which schedule
shall indicate (a) the gross and net working interests (before and after payout)
of each such Property, (b) the status (before or after payout) of such working
interests, (c) the value of each such Property as determined by either the most
recent report of the Independent Petroleum Engineer, if any, or by the Company,
as the case may be, (d) a description of each such Property and (e) title and
mortgage recordation information for each such Property.
9.19 Asset Valuation. The Borrowers will, within 60 days after the
acquisition of any Hydrocarbon Properties or any Investment permitted pursuant
to Section 9.08(e) hereof, which acquisition or Investment required, or will
require B Loans to be borrowed, deliver to the Agent a usage report setting
forth the value of the assets acquired (a "Usage Report"), in form and substance
satisfactory to the Agent, which usage report shall indicate that additional
Proved Reserves with a Present Value of Reserves equal to the aggregate
principal amount of such B Loans have been added to the Mortgaged Properties.
9.20 Changes to Production Payments. The Company will not, and will not
permit any Material Subsidiary to voluntarily change, agree or consent to any
change in the delivery or payment schedule of any Production Payment or similar
agreement without the prior written consent of the Majority Banks.
9.21 Reinvestment of Net Available Proceeds of Unrestricted Properties.
The Company will, and will cause each of its Subsidiaries, within 365 days after
the receipt of the Net Available Proceeds from the sale, conveyance, transfer or
other disposition of any Unrestricted Property, to reinvest no less than 90% of
such Net Available Proceeds in Hydrocarbon Properties, either through a purchase
of Hydrocarbon Properties or the establishment or acquisition of a New
Wholly-Owned Subsidiary and (x) within 45 days of such purchase or acquisition
provide the Agent with a description of such Hydrocarbon Properties, in form and
substance satisfactory to the Agent, and (y) as soon as reasonably practicable,
subject such Hydrocarbon Properties
<PAGE>
to the Lien of the Mortgage.
9.22 Unrestricted Subsidiaries. The Company:
(a) will cause the management, business and affairs of each of the
Company and its Subsidiaries to be conducted in such a manner (including,
without limitation, by keeping separate books of account, furnishing separate
financial statements of Unrestricted Subsidiaries to creditors and potential
creditors thereof and by not permitting Properties of the Company and its
respective Subsidiaries to be commingled) so that each Unrestricted Subsidiary
that is a corporation will be treated as a corporate entity separate and
distinct from the Company and the Restricted Subsidiaries;
(b) will not, and will not permit any of the Restricted Subsidiaries
to, incur, assume, Guarantee or be or become liable for any Indebtedness or
other obligations of any of the Unrestricted Subsidiaries; and
(c) will not permit any Unrestricted Subsidiary to hold any capital
stock of or other ownership interest in, or any Indebtedness of, any Restricted
Subsidiary.
Section 10. Events of Default. If one or more of the following events
(herein called "Events of Default") shall occur and be continuing:
(a) The Borrowers shall default in the payment when due (whether at
stated maturity or upon mandatory or optional prepayment) of any principal
of or interest on any Loan or any Reimbursement Obligation, any fee or
any other amount payable by it hereunder or under any other Basic
Document; or
(b) The Company or any of its Material Subsidiaries shall default in
the payment when due of any principal of or interest on any of its other
Indebtedness aggregating $500,000 or more, or in the payment when due of
$100,000 or more under any Interest Rate Protection Agreement; or any
event specified in any note, agreement, indenture or other document
evidencing or relating to any such Indebtedness or any event specified in
any Interest Rate Protection Agreement shall occur if the effect of such
event is to cause, or (with the giving of any notice or the lapse of time
or both) to permit the holder or holders of such Indebtedness (or a
trustee or agent on behalf of such holder or holders) to cause, such
Indebtedness to become due, or to be prepaid in full (whether by
redemption, purchase, offer to purchase or otherwise), prior to its stated
maturity or to have the interest rate thereon reset to a level so that
securities evidencing such Indebtedness trade at a level specified in
relation to the par value thereof or, in the case of an Interest Rate
Protection Agreement, to permit the payments owing under such Interest
Rate Protection Agreement to be liquidated; or
<PAGE>
(c) Any representation, warranty or certification made or deemed made
herein or in any other Basic Document (or in any modification or supplement
hereto or thereto) by any Obligor, or any certificate furnished to any Bank
or the Agent pursuant to the provisions hereof or thereof, shall prove to
have been false or misleading as of the time made or furnished in any
material respect; or
(d) The Company shall default in the performance of any of its
obligations under any of Sections 9.01(g), 9.05, 9.06, 9.07, 9.08, 9.09,
9.10, 9.11, 9.12, 9.14, 9.15 or 9.17 hereof or any Obligor shall default
in the performance of any of its obligations under Section 4.02 or 5.02 of
the Security Agreement; or any Obligor shall default in the performance of
any of its other obligations in this Agreement or any other Basic
Document and such default shall continue unremedied for a period of 30
days after notice thereof to the Company by the Agent or any Bank (through
the Agent); or
(e) The Company or any of its Material Subsidiaries shall admit in
writing its inability to, or be generally unable to, pay its debts as such
debts become due; or
(f) The Company or any of its Material Subsidiaries shall (i) apply
for or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee, examiner or liquidator of itself or of all
or a substantial part of its Property, (ii) make a general assignment for
the benefit of its creditors, (iii) commence a voluntary case under the
Bankruptcy Code, (iv) file a petition seeking to take advantage of any
other law relating to bankruptcy, insolvency, reorganization, liquidation,
dissolution, arrangement or winding-up, or composition or readjustment of
debts, (v) fail to controvert in a timely and appropriate manner, or
acquiesce in writing to, any petition filed against it in an involuntary
case under the Bankruptcy Code or (vi) take any corporate action for the
purpose of effecting any of the foregoing; or
(g) A proceeding or case shall be commenced, without the application
or consent of the Company or any of its Material Subsidiaries, in any court
of competent jurisdiction, seeking (i) its reorganization, liquidation,
dissolution, arrangement or winding-up, or the composition or readjustment
of its debts, (ii) the appointment of a receiver, custodian, trustee,
examiner, liquidator or the like of the Company or such Subsidiary or of
all or any substantial part of its Property, or (iii) similar relief in
respect of the Company or such Subsidiary under any law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or
adjustment of debts, and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering any of
the
<PAGE>
foregoing shall be entered and continue unstayed and in effect, for a
period of 60 or more days; or an order for relief against the Company or
such Subsidiary shall be entered in an involuntary case under the
Bankruptcy Code; or
(h) A final judgment or judgments for the payment of money in excess
of $1,000,000 in the aggregate (exclusive of judgment amounts fully covered
by insurance where the insurer(s) has or have admitted liability in respect
of the full amount of such judgment(s) in excess of $1,000,000 and in
respect of which the Majority Banks believe such insurer(s) has or have the
financial ability to satisfy the full amount of such judgment(s)) shall be
rendered by a one or more courts, administrative tribunals or other bodies
having jurisdiction against the Company or any of its Material Subsidiaries
and the same shall not be discharged (or provision shall not be made for
such discharge), or a stay of execution thereof shall not be procured,
within 60 days from the date of entry thereof and the Company or the
relevant Subsidiary shall not, within said period of 60 days, or such
longer period during which execution of the same shall have been stayed,
appeal therefrom and cause the execution thereof to be stayed during such
appeal; or
(i) An event or condition specified in Section 9.01(e) hereof shall
occur or exist with respect to any Plan or Multiemployer Plan and, as a
result of such event or condition, together with all other such events or
conditions, the Company or any ERISA Affiliate shall incur or in the
opinion of the Majority Banks shall be reasonably likely to incur a
liability to a Plan, a Multiemployer Plan or PBGC (or any combination of
the foregoing) which would constitute, in the determination of the Majority
Banks, a Material Adverse Effect; or
(j) Any Governmental Authority shall assert claims against the Company
or any of its Subsidiaries, or any other Person shall commence any
proceeding against the Company or any of its Subsidiaries before any court,
administrative tribunal or other body having jurisdiction over the Company
or any of its Subsidiaries, in either such case based on or arising from
the generation, storage, transport, handling or disposal of Hazardous
Materials by the Company or any of its Subsidiaries or Affiliates, or any
predecessor in interest of the Company or any of its Subsidiaries or
Affiliates, or relating to any site or facility owned, operated or leased
by the Company or any of its Subsidiaries or Affiliates, which claims or
liabilities (insofar as they are payable by the Company or any of its
Subsidiaries but after deducting any portion thereof which is reasonably
expected to be paid by other creditworthy Persons jointly and severally
liable therefor), and the amount thereof is, singly or in the aggregate,
reasonably anticipated to have a Material Adverse Effect and such claim is
not withdrawn or such
<PAGE>
proceeding is not withdrawn or dismissed, as the case may be, within 45
days after the assertion or commencement thereof, as applicable; or
(k) A Change of Control; or
(l) Except for expiration in accordance with its terms, any of the
Security Documents shall be terminated or shall cease to be in full force
and effect, for whatever reason;
THEREUPON: (1) in the case of an Event of Default other than one referred to in
clause (f) or (g) of this Section 10 with respect to any Obligor, the Agent may
and, upon request of the Majority Banks, shall, by notice to the Company,
terminate the Commitments and/or declare the principal amount then outstanding
of, and the accrued interest on, the Loans, the Reimbursement Obligations and
all other amounts payable by the Obligors hereunder and under the Notes
(including, without limitation, any amounts payable under Section 5.05 or 5.06
hereof) to be forthwith due and payable, whereupon such amounts shall be
immediately due and payable without presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by each
Obligor; and (2) in the case of the occurrence of an Event of Default referred
to in clause (f) or (g) of this Section 10 with respect to any Obligor, the
Commitments shall automatically be terminated and the principal amount then
outstanding of, and the accrued interest on, the Loans, the Reimbursement
Obligations and all other amounts payable by the Obligors hereunder and under
the Notes (including, without limitation, any amounts payable under Section 5.05
or 5.06 hereof) shall automatically become immediately due and payable without
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by each Obligor.
In addition, upon the occurrence and during the continuance of any
Event of Default (if the Agent has declared the principal amount then
outstanding of, and accrued interest on, the Loans and all other amounts payable
by the Borrowers hereunder and under the Notes to be due and payable), the
Borrowers jointly and severally agree that they shall, if requested by the Agent
or the Majority Banks through the Agent (and, in the case of any Event of
Default referred to in clause (f) or (g) of this Section 10 with respect to the
Company, forthwith, without any demand or the taking of any other action by the
Agent or such Banks) provide cover for the Letter of Credit Liabilities by
paying to the Agent immediately available funds in an amount equal to the then
aggregate undrawn face amount of all Letters of Credit, which funds shall be
held by the Agent in the Collateral Account as collateral security in the first
instance for the Letter of Credit Liabilities and be subject to withdrawal only
as therein provided.
Section 11. The Agent.
<PAGE>
11.01 Appointment, Powers and Immunities. Each Bank hereby
irrevocably appoints and authorizes the Agent to act as its agent hereunder and
under the other Basic Documents with such powers as are specifically delegated
to the Agent by the terms of this Agreement and of the other Basic Documents,
together with such other powers as are reasonably incidental thereto. The Agent
(which term as used in this sentence and in Section 11.05 and the first sentence
of Section 11.06 hereof shall include reference to its affiliates and its own
and its affiliates' officers, directors, employees and agents): (a) shall have
no duties or responsibilities except those expressly set forth in this Agreement
and in the other Basic Documents, and shall not by reason of this Agreement or
any other Basic Document be a trustee for any Bank; (b) shall not be responsible
to the Banks for any recitals, statements, representations or warranties
contained in this Agreement or in any other Basic Document, or in any
certificate or other document referred to or provided for in, or received by any
of them under, this Agreement or any other Basic Document, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of any
collateral security provided for by any of the Security Documents, or of this
Agreement, any Note or any other Basic Document or any other document referred
to or provided for herein or therein, or for any failure by the Borrowers or any
other Person to perform any of its obligations hereunder or thereunder; (c)
shall not be required to initiate or conduct any litigation or collection
proceedings hereunder or under any other Basic Document; and (d) shall not be
responsible for any action taken or omitted to be taken by it hereunder or under
any other Basic Document or under any other document or instrument referred to
or provided for herein or therein or in connection herewith or therewith, except
for its own gross negligence or willful misconduct. The Agent may employ agents
and attorneys-in-fact and shall not be responsible for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it in good
faith. The Agent may deem and treat the payee of any Note as the holder thereof
for all purposes hereof unless and until a notice of the assignment or transfer
thereof shall have been filed with the Agent, together with the consent of the
Borrowers to such assignment or transfer (to the extent provided in Section
12.06(b) hereof).
11.02 Reliance by Agent. The Agent shall be entitled to rely upon any
certification, notice or other communication (including, without limitation, any
thereof by telephone, telecopy, telex, telegram or cable) believed by it to be
genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Agent. As to any
matters not expressly provided for by this Agreement or any other Basic
Document, the Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder or thereunder in accordance with instructions
given by the Majority Banks, and such instructions of the Majority Banks and any
action taken or failure to act pursuant thereto shall be binding on all of the
Banks.
<PAGE>
11.03 Defaults. The Agent shall not be deemed to have knowledge or
notice of the occurrence of a Default (other than the non-payment of principal
of or interest on Loans, Reimbursement Obligations or of commitment fees) unless
the Agent has received notice from a Bank or the Company specifying such Default
and stating that such notice is a "Notice of Default". In the event that the
Agent receives such a notice of the occurrence of a Default, the Agent shall
give prompt notice thereof to the Banks (and shall give each Bank prompt notice
of each such non-payment). The Agent shall (subject to Section 11.07 hereof)
take such action with respect to such Default as shall be directed by the
Majority Banks, provided that, unless and until the Agent shall have received
such directions, the Agent may (but shall not be obligated to) take such action,
or refrain from taking such action, with respect to such Default as it shall
deem advisable in the best interest of the Banks except to the extent that this
Agreement expressly requires that such action be taken, or not be taken, only
with the consent or upon the authorization of the Majority Banks or all of the
Banks.
11.04 Rights as a Bank. With respect to its Commitment and the Loans
made by it, Chase (and any successor acting as Agent) in its capacity as a Bank
hereunder shall have the same rights and powers hereunder as any other Bank and
may exercise the same as though it were not acting as the Agent, and the term
"Bank" or "Banks" shall, unless the context otherwise indicates, include the
Agent in its individual capacity. Chase (and any successor acting as Agent) and
its affiliates may (without having to account therefor to any Bank) accept
deposits from, lend money to, make investments in and generally engage in any
kind of banking, trust or other business with the Obligors (and any of their
Subsidiaries or Affiliates) as if it were not acting as the Agent, and Chase and
its affiliates may accept fees and other consideration from the Obligors for
services in connection with this Agreement or otherwise without having to
account for the same to the Banks.
11.05 Indemnification. The Banks agree to indemnify the Agent (to the
extent not reimbursed under Sections 12.03 and 12.07 hereof, but without
limiting the obligations of the Company under said Sections 12.03 and 12.07, and
including in any event any payments under any indemnity that the Agent is
required to issue to any bank referred to in Section 4.02 of the Security
Agreement to which remittances in respect of Accounts, as defined therein, are
to be made) ratably in accordance with the aggregate principal amount of the
Loans and Reimbursement Obligations held by the Banks (or, if no Loans or
Reimbursement Obligations are at the time outstanding, ratably in accordance
with their respective Commitments or, if no Loans, Reimbursement Obligations or
Commitments are at the time outstanding or in effect, ratably in accordance with
their respective Commitments as most recently in effect), for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind and nature whatsoever
<PAGE>
that may be imposed on, incurred by or asserted against the Agent (including by
any Bank) arising out of or by reason of any investigation in or in any way
relating to or arising out of this Agreement or any other Basic Document or any
other documents contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby (including, without limitation, the
costs and expenses that the Borrowers are obligated to pay under Sections 12.03
and 12.07 hereof, and including also any payments under any indemnity that the
Agent is required to issue to any bank referred to in Section 4.02 of the
Security Agreement to which remittances in respect of Accounts, as defined
therein, are to be made, but excluding, unless a Default has occurred and is
continuing, normal administrative costs and expenses incident to the performance
of its agency duties hereunder) or the enforcement of any of the terms hereof or
thereof or of any such other documents, provided that no Bank shall be liable
for any of the foregoing to the extent they arise from the gross negligence or
willful misconduct of the party to be indemnified.
11.06 Non-Reliance on Agent and Other Banks. Each Bank agrees that it
has, independently and without reliance on the Agent or any other Bank, and
based on such documents and information as it has deemed appropriate, made its
own credit analysis of the Company and its Subsidiaries and decision to enter
into this Agreement and that it will, independently and without reliance upon
the Agent or any other Bank, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under this Agreement. The Agent shall
not be required to keep itself informed as to the performance or observance by
any Obligor of this Agreement or any of the other Basic Documents or any other
document referred to or provided for herein or therein or to inspect the
Properties or books of the Company or any of its Subsidiaries. Except for
notices, reports and other documents and information expressly required to be
furnished to the Banks by the Agent hereunder, the Agent shall not have any duty
or responsibility to provide any Bank with any credit or other information
concerning the affairs, financial condition or business of the Company or any of
its Subsidiaries (or any of their Affiliates) that may come into the possession
of the Agent or any of its affiliates.
11.07 Failure to Act. Except for action expressly required of the
Agent hereunder and under the other Basic Documents, the Agent shall in all
cases be fully justified in failing or refusing to act hereunder and thereunder
unless it shall receive further assurances to its satisfaction from the Banks
of their indemnification obligations under Section 11.05 hereof against any and
all liability and expense that may be incurred by it by reason of taking or
continuing to take any such action.
11.08 Resignation or Removal of Agent. Subject to the appointment and
acceptance of a successor Agent as provided below, the Agent may resign at any
time by giving notice thereof to the Banks and the Company, and the Agent
<PAGE>
may be removed at any time with or without cause by the Majority Banks. Upon any
such resignation or removal, the Majority Banks shall have the right to appoint
a successor Agent. If no successor Agent shall have been so appointed by the
Majority Banks and shall have accepted such appointment within 30 days after
the retiring Agent's giving of notice of resignation or the Majority Banks'
removal of the retiring Agent, then the retiring Agent may, on behalf of the
Banks, appoint a successor Agent, that shall be a bank which has an office in
New York, New York with a combined capital and surplus of at least
$1,000,000,000. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resigna tion or removal hereunder as
Agent, the provisions of this Section 11 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as the Agent.
11.09 Consents Under Other Basic Documents. The Agent may, with the
prior consent of the Majority Banks (but not otherwise), consent to any
modification, supplement or waiver under any of the Basic Documents other than
this Agreement, provided that, without the prior consent of each Bank, the Agent
shall not (except as provided herein or in the Security Documents) release any
collateral or otherwise terminate any Lien under any Basic Document providing
for collateral security, or agree to additional obligations being secured by
such collateral security (unless the Lien for such additional obligations shall
be junior to the Lien in favor of the other obligations secured by such Basic
Document), except that no such consent shall be required, and the Agent is
hereby authorized, to release any Lien covering Property which is the subject of
a disposition of Property permitted hereunder or to which the Majority Banks
have consented.
11.10 Collateral Sub-Agents. Each Bank by its execution and delivery
of this Agreement agrees, as contemplated by Section 4.03 of the Security
Agreement, that, in the event it shall hold any Permitted Investments referred
to therein, such Permitted Investments shall be held in the name and under the
control of such Bank, and such Bank shall hold such Permitted Investments as a
collateral sub-agent for the Agent thereunder. The Company by its execution and
delivery of this Agreement hereby consents to the foregoing.
Section 12. Miscellaneous.
12.01 Waiver. No failure on the part of the Agent or any Bank to
exercise and no delay in exercising, and no course of dealing with respect to,
any right, power or privilege under this Agreement or any Note shall operate as
a waiver thereof, nor shall any single or partial exercise of any right, power
or privilege under this
<PAGE>
Agreement or any Note preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The remedies provided herein
are cumulative and not exclusive of any remedies provided by law.
12.02 Notices. All notices, requests and other communications provided
for herein and under the Security Documents (including, without limitation, any
modifications of, or waivers or consents under, this Agreement) shall be given
or made in writing (including, without limitation, by telex or telecopy)
delivered to the intended recipient at the "Address for Notices" specified below
its name on the signature pages hereof (below the name of the Company, in the
case of any Subsidiary Borrower or any Subsidiary Guarantor); or, as to any
party, at such other address as shall be designated by such party in a notice to
each other party. Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when transmitted by telex
or telecopier or personally delivered or, in the case of a mailed notice, upon
receipt, in each case given or addressed as aforesaid.
12.03 Expenses. The Borrowers hereby jointly and severally agree to
pay or reimburse each of the Banks and the Agent for paying: (a) all reasonable
out-of-pocket costs and expenses of the Agent (including, without limitation,
the reasonable fees and expenses of (i) Milbank, Tweed, Hadley & McCloy, special
New York counsel to Chase and (ii) each of the special counsel to the Banks set
forth in Section 7.01(l) hereof), in connection with (i) the negotiation,
preparation, execution and delivery of this Agreement and the other Basic
Documents and the extensions of credit hereunder and (ii) any modification,
supplement or waiver of any of the terms of this Agreement or any of the other
Basic Documents; (b) all reasonable out-of-pocket costs and expenses of the
Banks and the Agent (including, without limitation, reasonable counsels' fees)
in connection with (i) any Default and any enforcement or collection proceedings
resulting therefrom or in connection with the negotiation of any restructuring
or "work-out" (whether or note consummated), or the obligations of the Borrowers
hereunder and (ii) the enforcement of this Section 12.03 or Section 12.07; and
(c) all transfer, stamp, documentary or other similar taxes, assessments or
charges levied by any governmental or revenue authority in respect of this
Agreement or any of the other Basic Documents or any other document referred to
herein or therein and all costs, expenses, taxes, assessments and other charges
incurred in connection with any filing, registration, recording or perfection of
any security interest contemplated by any Basic Document or any other document
referred to therein.
12.04 Amendments, Etc. Except as otherwise expressly provided in this
Agreement, any provision of this Agreement may be modified or supplemented only
by an instrument in writing signed by the Obligors, the Agent and the Majority
Banks, or by the Obligors and the Agent acting with the consent of the Majority
Banks, and any provision of this Agreement may be waived by the Majority Banks
or by the Agent acting with the consent of the Majority Banks;
<PAGE>
provided that: (a) no modification, supplement or waiver shall, unless by an
instrument signed by all of the Banks or by the Agent acting with the consent of
all of the Banks whose rights or interests are affected thereby: (i) increase,
or extend the term of any of the Commitments, or extend the time or waive any
requirement for the reduction or termination of any of the Commitments, (ii)
extend the date fixed for the payment of principal of or interest on the Loans,
the Reimbursement Obligations or any fee hereunder, (iii) reduce the amount of
any such payment of principal, (iv) reduce the rate at which interest is payable
thereon or any fee is payable hereunder, (v) alter the rights or obligations of
the Company to prepay Loans, (vi) alter the terms of this Section 12.04 or (vii)
modify the definition of the term "Majority Banks" or modify in any other manner
the number or percentage of the Banks required to make any determinations or
waive any rights hereunder or to modify any provision hereof, any modification
or supplement of this Agreement that increases any of the obligations or reduces
or impairs any of the rights of, or otherwise adversely affects the interests
of, the Agent or the Issuing Bank under this Agreement or any of the other Basic
Documents shall require the consent of the Agent or the Issuing Bank (as the
case may be).
Anything in this Agreement to the contrary notwithstanding, if:
(x) at a time when the conditions precedent set forth in Section 7
hereof to any Loans or other extension of credit hereunder are, in the
opinion of the Majority A Banks or the Majority B Banks, as the case may
be, satisfied, any Bank shall fail to fulfill its obligations to make the
Loan to be made by it; or
(y) any A Bank shall fail to pay to the Agent for the account of the
Issuing Bank the amount of such Bank's A Commitment Percentage of the A
Commitments of any payment under a Letter of Credit pursuant to Section
2.04(e) hereof,
then, for so long as such failure shall continue, such Bank shall (unless the
Majority A Banks or Majority B Banks, as the case may be, determined as if such
Bank were not a "Bank" hereunder, shall otherwise consent in writing) be deemed
for all purposes relating to amendments, modifications, waivers or consents
under this Agreement or any of the other Basic Documents (including, without
limitation, under this Section 12.04 and under Section 11.10 hereof) to have no
Loans, Letter of Credit Liabilities or Commitments, shall not be treated as a
"Bank" hereunder when performing the computation of Majority A Banks or Majority
B Banks, as the case may be, and shall have no rights under the preceding
paragraph of this Section 12.04 or under Section 11.10 hereof; provided that any
action taken by the other Banks with respect to the matters referred to in
clause (a) of the preceding paragraph shall not be effective as against such
Bank.
12.05 Successors and Assigns. This Agreement
<PAGE>
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
12.06 Assignments and Participations.
(a) No Obligor may assign any of its rights or obligations hereunder
or under the Notes without the prior consent of the Majority Banks and the
Agent.
(b) Each Bank may assign any of its Loans, its Note, its Commitment,
and its Letter of Credit Interest (but only with the consent of, in the case of
an outstanding Commitment, the Company and the Agent and, in the case of a
Commitment or a Letter of Credit Interest, the Issuing Bank (which consent, in
the case of the Company, shall not be unreasonably withheld)); provided that (i)
no such consent by the Company or the Agent or the Issuing Bank, if applicable,
shall be required in the case of any assignment to another Bank; (ii) any such
partial assignment shall be in an amount at least equal to $3,000,000; (iii)
each such assignment by a Bank of any of its A Loans, A Notes, A Commitments or
Letter of Credit Interests shall be made in such manner so that the same portion
of its A Loans, A Notes, A Commitments and Letter of Credit Interests is
assigned to the respective assignee; and (iv) each such assignment by a Bank of
its B Loans, B Notes or B Commitments shall be made in such manner so that the
same proportion of its B Loans, B Notes or B Commitments is assigned to the
respective assignee. Upon execution and delivery by the assignee to Company, the
Agent and the Issuing Bank of an instrument in writing pursuant to which such
assignee agrees to become a "Bank" hereunder (if not already a Bank) having the
Commitments, Loans, and, if applicable, Letter of Credit Interests specified in
such instrument, and upon the consent thereto by the Company, the Agent and the
Issuing Bank, to the extent required above, the assignee shall have, to the
extent of such assignment (unless otherwise provided in such assignment with the
consent of the Company, the Agent and the Issuing Bank), the obligations, rights
and benefits of a Bank hereunder holding the Commitments, Loans and, if
applicable, Letter of Credit Interests (or portions thereof) assigned to it (in
addition to the Commitments, Loans and Letter of Credit Interests, if any,
theretofore held by such assignee) and the assigning Bank shall, to the extent
of such assignment, be released from the Commitments (or portion thereof) so
assigned. Upon each such assignment the assigning Bank shall pay the Agent an
assignment fee of $50,000.
(c) Each Bank may sell or agree to sell to one or more other Persons a
participation in not more than 75% of its rights and obligations under this
Agreement (including, without limitation, not more than 75% of its Commitment
and the Loans and/or Letter of Credit Interest held by it), in which event each
purchaser of a participation (a "Participant") shall be entitled to the rights
and benefits of the provisions of Section 9.01(h) hereof with respect to its
participation in such Loans, Letter of Credit Interests and Commitments as if
(and the Borrowers shall be directly
<PAGE>
obligated to such Participant under such provisions as if) such Participant were
a "Bank" for purposes of said Section, but, except as otherwise provided in
Section 4.07(c) hereof, shall not have any other rights or benefits under this
Agreement or any Note or any other Basic Document (the Participant's rights
against such Bank in respect of such participation to be those set forth in the
agreements executed by such Bank in favor of the Participant). All amounts
payable by the Borrowers to any Bank under Section 5 hereof in respect of Loans,
Letter of Credit Interests held by it, and its Commitments, shall be determined
as if such Bank had not sold or agreed to sell any participations in such Loans,
Letter of Credit Interest and Commitment, and as if such Bank were funding each
of such Loans, Letter of Credit Interests and Commitments in the same way that
it is funding the portion of such Loans, Letter of Credit Interests and
Commitments in which no participations have been sold. In no event shall a Bank
that sells a participation agree with the Participant to take or refrain from
taking any action hereunder or under any other Basic Document except that such
Bank may agree with the Participant that it will not, without the consent of the
Participant, agree to any of the following (to the extent the rights or interest
of the Participant are adversely affected thereby): (i) increase or extend the
term, or extend the time or waive any requirement for the reduction or
termination, of such Bank's Commitment, (ii) extend the date fixed for the
payment of principal of or interest on the related Loan or Loans, Reimbursement
Obligations or any portion of any fee hereunder payable to the Participant,
(iii) reduce the amount of any such payment of principal, (iv) reduce the rate
at which interest is payable thereon, or any fee hereunder payable to the
Participant, to a level below the rate at which the Participant is entitled to
receive such interest or fee, (v) alter the rights or obligations of the
Borrowers to prepay the related Loans or (vi) consent to any other modification,
supplement or waiver hereof or of any of the other Basic Documents to the extent
that the same, under Section 11.09 or 12.04 hereof, requires the consent of each
Bank.
(d) In addition to the assignments and participations permitted under
the foregoing provisions of this Section 12.06, including, without limitation,
Section 12.06(c) hereof, any Bank may assign and pledge all or any portion of
its Loans and its Notes to any Federal Reserve Bank as collateral security
pursuant to Regulation A and any Operating Circular issued by such Federal
Reserve Bank. No such assignment shall release the assigning Bank from its
obligations hereunder.
(e) A Bank may furnish any information concerning the Company or any
of its Subsidiaries in the possession of such Bank from time to time to
assignees and participants (including prospective assignees and participants),
subject, however, to the provisions of Section 12.12(b) hereof.
(f) Anything in this Section 12.06 to the contrary notwithstanding, no
Bank may assign or participate any interest in any Loan or Reimbursement
Obligation held by
<PAGE>
it hereunder to the Borrowers or any of their Affiliates or Subsidiaries without
the prior written consent of each Bank.
12.07 Indemnification. The Borrowers hereby jointly and severally
agree (i) to indemnify the Agent and each Bank and their respective directors,
officers, employees, attorneys and agents from, and hold each of them harmless
against, any and all losses, liabilities, claims, damages or expenses incurred
by any of them (including, without limitation, any and all losses, liabilities,
claims, damages or expenses incurred by the Agent to any Bank, whether or not
the Agent or any Bank is a party thereto) arising out of or by reason of any
investigation or litigation or other proceedings (including any threatened
investigation or litigation or other proceedings) relating to the extensions of
credit hereunder or any actual or proposed use by the Company or any of its
Subsidiaries of the proceeds of any of the extensions of credit hereunder,
including, without limitation, the reasonable fees and disbursements of counsel
incurred in connection with any such investigation or litigation or other
proceedings (but excluding any such losses, liabilities, claims, damages or
expenses incurred by reason of the gross negligence or willful misconduct of the
Person to be indemnified) and (ii) not to assert any claim against the Agent,
any Bank, any of their affiliates, or any of their respective directors,
officers, employees, attorneys and agents, on any theory of liability, for
special, indirect, consequential or punitive damages arising out of or otherwise
relating to any of the transactions contemplated herein or in any other Basic
Document; provided that the Borrowers may enforce the obligations, if
applicable, of the Banks hereunder. Without limiting the generality of the
foregoing, the Borrowers will (x) indemnify the Agent for any payments that the
Agent is required to make under any indemnity issued to any bank referred to in
Section 4.02 of the Security Agreement to which remittances in respect to
Accounts, as defined therein, are to be made and (y) indemnify the Agent and
each Bank from, and hold the Agent and each Bank harmless against, any losses,
liabilities, claims, damages or expenses described in the preceding sentence
(but excluding, as provided in the preceding sentence, any loss, liability,
claim, damage or expense incurred by reason of the gross negligence or willful
misconduct of the Person to be indemnified) arising under any Environmental Law
as a result of the past, present or future operations of the Company or any of
its Subsidiaries (or any predecessor in interest to the Company or any of its
Subsidiaries), or the past, present or future condition of any site or facility
owned, operated or leased by the Company or any of its Subsidiaries (or any such
predecessor in interest), or any Release or threatened Release of any Hazardous
Materials from any such site or facility, including any such Release or
threatened Release which shall occur during any period when the Agent or any
Bank shall be in possession of any such site or facility following the exercise
by the Agent or any Bank of any of its rights and remedies hereunder or under
any of the Security Documents.
12.08 Survival. The obligations of the Borrowers
<PAGE>
under Sections 5.01, 5.05, 5.06, 5.07, 12.03 and 12.07 hereof and the
obligations of the Banks under Section 11.05 hereof shall survive the repayment
of the Loans and Reimbursement Obligations and the termination of the
Commitments. In addition, each representation and warranty made, or deemed to be
made by a notice of any extension of credit (whether by means of a Loan or a
Letter of Credit), herein or pursuant hereto shall survive the making of such
representation and warranty, and no Bank shall be deemed to have waived, by
reason of making any extension of credit hereunder (whether by means of a Loan
or a Letter of Credit), any Default which may arise by reason of such
representation or warranty proving to have been false or misleading,
notwithstanding that such Bank or the Agent may have had notice or knowledge or
reason to believe that such representation or warranty was false or misleading
at the time such extension of credit was made.
12.08 Captions. The table of contents and captions and section
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this
Agreement.
12.09 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
12.10 Governing Law; Submission to Jurisdiction. This Agreement and
the Notes shall be governed by, and construed in accordance with, the law of the
State of New York. Each Obligor hereby submits to the nonexclusive jurisdiction
of the United States District Court for the Southern District of New York and of
any New York state court sitting in New York City for the purposes of all legal
proceedings arising out of or relating to this Agreement or the transactions
contemplated hereby. Each Obligor irrevocably waives, to the fullest extent
permitted by applicable law, any objection which it may now or hereafter have to
the laying of the venue of any such proceeding brought in such a court and any
claim that any such proceeding brought in such a court has been brought in an
inconvenient forum.
12.11 Waiver of Jury Trial. EACH OF THE OBLIGORS, THE AGENT AND THE
BANKS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
12.12 Treatment of Certain Information.
(a) The Company acknowledges that from time to time financial
advisory, investment banking and other services may be offered or provided to
the Company or one or more of its Subsidiaries (in connection with this
Agreement or otherwise) by any Bank or by one or more subsidiaries
<PAGE>
or affiliates of such Bank and the Company, subject to Section 12.12(b) hereof,
hereby authorizes each Bank to share any information delivered to such Bank by
the Company and its Subsidiaries pursuant to this Agreement, or in connection
with the decision of such Bank to enter into this Agreement, to any such
subsidiary or affiliate.
(b) Each Bank and the Agent agrees (on behalf of itself and each of
its affiliates, directors, officers, employees and representatives) to use
reasonable precautions to keep confidential, in accordance with their customary
procedures for handling confidential information of the same nature and in
accordance with safe and sound banking practices, any non-public information
supplied by the Company or any of its Subsidiaries pursuant to this Agreement
which is identified by such Person as being confidential at the time the same is
delivered to such Bank or the Agent, provided that nothing herein shall limit
the disclosure of any such information (i) to the extent required by statute,
rule, regulation or judicial process, (ii) to counsel for any of the Banks or
the Agent, (iii) to bank examiners, auditors or accountants, (iv) to the Agent
or any other Bank, (v) in connection with any litigation to which any one or
more of the Banks or the Agent is a party, (vi) to a subsidiary or affiliate of
such Bank as provided in clause (a) above (provided that neither the Agent nor
any Bank shall disclose any non-public information delivered by the Company or
any of its Subsidiaries pursuant to this Agreement to any subsidiary or
affiliate of the Agent or any such Bank, as the case may be, which is generally
engaged in the securities business other than in connection with (x) Commodity
Hedging Agreements or Interest Rate Protection Agreements permitted pursuant to
Section 9.07(h) hereof or (y) the syndication or participation of the
Commitments, Loans or Letter of Credit Interests under this Agreement, without
the prior written consent of the Company) or (vii) to any assignee or
participant (or prospective assignee or participant) so long as such assignee or
participant (or prospective assignee or participant) first executes and delivers
to the respective Bank a Confidentiality Agreement substantially in the form of
Exhibit G hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
FOREST OIL CORPORATION
By_________________________
Title: President
Address for Notices:
<PAGE>
1500 Colorado National Building
950 17th Street
Denver, Colorado 80202
Attention: Kenton Scroggs
Telecopier No.: (303) 592-2414
Telephone No.: (303) 592-2602
BANKS
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
A Commitment $10,000,000
B Commitment $25,000,000
By_________________________
Title: Managing Director
Lending Office for all Loans:
The Chase Manhattan Bank
(National Association)
1 Chase Manhattan Plaza
3rd Floor
New York, New York 10081
Address for Notices:
The Chase Manhattan Bank
(National Association)
1 Chase Manhattan Plaza
3rd Floor
New York, New York 10081
Attention: Patricia Quinn
Telecopier No.: (212) 552-1687
Telephone No.: (212) 552-4753
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
as Agent
<PAGE>
By_________________________
Title: Managing Director
Address for Notices to
Chase as Agent:
The Chase Manhattan Bank
(National Association)
2 Chase Manhattan Plaza
4th Floor
New York, New York 10081
Attention: New York Agency
Telex No.: 6720516
(Ans. Bk. CMBNYAUW)
Telecopier No.: (212) 553-9570
Telephone No.: (212) 552-9013
================================================================================
SCHEDULE I
CHASE LOAN AGREEMENT SECTION 8.12(a)
SCHEDULE 1 PART A: INDEBTEDNESS AS OF 10-31-93 AS OF 11-30-93
1. CONVEYANCE OF PRODUCTION PAYMENT 27,465,503.17
DATED 1/31/92WITH STRAKE JESUIT COLLEGE
PREPARATORY, INC TO PURCHASE PRODUCING
PROPERTIES WHICH ARE HELD IN FOREST I
DEVELOPMENT COMPANY. DISCOUNTED FOR
FINANCIAL ACCOUNTING AND REPORTING PURPOSES.
2. AMENDED AND RESTATED (CONSOLIDATED) 61,063,802.75
CONVEYANCE OF PRODUCTION PAYMENT DATED
NOVEMBER 1, 1993 WITH CACTUS III (ENRON).
DATED NOVEMBER 1, 1993
FIELDS DEDICATED TO THE PAYMENT ARE
SOUTH TIMBALIER 245, HIGH ISLAND A20,
HIGH ISLAND 116, WEST CAMERON 241, WEST
DELTA 97/98, EUGENE ISLAND 325/326, EUGENE
ISLAND 273, SHIP SHOAL 276,SHIP SHOAL 277,
MCALLEN RANCH, BRAZOS 491, EAST CAMERON 109,
GALVESTON 223, WEST CAMERON 285, GALVESTON
ISLAND 418, MATAGORDA ISLAND 682/670, EUGENE
ISLAND 255, HIGH ISLAND 4L, AND SHIP SHOAL 58.
3. PRINCIPAL AMOUNT OF 11 1/4% SENIOR 100,000,000.00
SUBORDINATED NOTES DUE SEPTEMBER 1, 2003.
4. 5 1/2% CONVERTIBLE SUBORDINATED DEBENTURES 7,479,000.00 7,173,310.00
DUE FEBRUARY 1, 1994.
5. KN ENERGY LUMP SUM ADVANCE PAYMENT TO FOC 3,026,438.00
<PAGE>
DUE 4TH QUARTER 1995.
6. 9% NOTES PAYABLE TO TRANSCO DUE JULY 8, 1997 2,000,000.00
7. LEASE CE16 WITH COMDISCO FOR MISCELLANEOUS 834,880.95
COMPUTER AND DATA COMMUNICATIONS EQUIPMENT;
TERMINATES SEPT. '94 LEASE CE17 WITH COMDISCO
FOR CONSULTING SERVICES FOR THE AS400 CONVERSION;
TERMINATES JUNE '95
8. LIABILITY TO EMPLOYEES AND RETIREES UNDER 5,867,502.40
INCENTIVE BONUS PLANS, RETIREMENT PLANS AND
AGREEMENTS DEFERRED COMPENSATION PLANS.
9. LIABILITIES RECORDED WITH REPECT TO OIL 5,753,287.66
AND NATURAL GAS SALES CONTRACT DISPUTES AND
SETTLEMENTS. ULTIMATE OUTCOME IS DEPENDENT UPON
LITIGATION OR NEGOTIATION.
10. INSURANCE-RELATED LOANS-PREMIUM FINANCING 446,537.40
11. EMPLOYEE HOME PURCHASED BY FOC HAS A MONTHLY 146,606.00
PAYMENT of $1370.77 FOR 22 YEARS.
12. LETTER OF CREDIT AGREEMENT WITH CHASE, 1,000,000.00
MANHATTAN, LETTER OF CREDIT/ADVICE NO. P0636710
BENEFICIARY: SEABOARD SURETY COMPANY RENEWABLE
ANNUALLY EACH AUGUST. SUPPORTS BONDING
REQUIREMENTS FOR OPERATIONS.
13. CURRENT SWAP CONTRACT AGREEMENTS WITH ENRON
RISK MANAGEMENT SERVICES AND A.I.G.
ERMS: TOTAL VOLUME OF 940,543 MMBtus @1.8250,
NOV '93 THROUGH DEC '94
TOTAL VOLUME OF 610,000 MMBtus @1.9500,
NOV '93 THROUGH DEC '93
TOTAL VOLUME OF 1,498,543 MMBtus @2.0275,
NOV '93 THROUGH DEC '94
TOTAL VOLUME OF 1,825,000 MMBtus @2.3000,
JAN '94 THROUGH DEC '94
TOTAL VOLUME OF 302,125 MMBtus @2.2550,
JAN '95 THROUGH SEP '95
TOTAL VOLUME OF 40,000 BBL @20.8500,
NOV '93 THROUGH DEC '93
A.I.G.: TOTAL VOLUME OF 40,000 BBL @19.70,
NOV '93 THROUGH DEC '93
TOTAL VOLUME OF 40,000 BBL @20.00,
NOV '93 THROUGH DEC '93
(ABOVE CONTRACT ONLY PAYABLE IF PRICE
GREATER THAN $20.00)
TOTAL VOLUME OF 1,825,000 MMBtus @1.9450,
JAN '94 THROUGH DEC '94
================================================================================
<PAGE>
CHASE LOAN AGREEMENT SECTION 8.12(b)
SCHEDULE 1 PART B: LIENS
1. CONVEYANCE OF PRODUCTION PAYMENT WITH CACTUS III (ENRON) DATED NOVEMBER 1,
1993
FIELDS DEDICATED TO THE PAYMENT ARE SOUTH TIMBALIER 245, HIGH ISLAND A20, HIGH
ISLAND 116, WEST CAMERON 241, WEST DELTA 97/98, EUGENE ISLAND 325/326, EUGENE
ISLAND 273, SHIP SHOAL 276,SHIP SHOAL 277, MCALLEN RANCH, BRAZOS 491, EAST
CAMERON 109, GALVESTON 223, WEST CAMERON 285, GALVESTON ISLAND 418, MATAGORDA
ISLAND 682/670, EUGENE ISLAND 255, HIGH ISLAND 4L, AND SHIP SHOAL 58.
2. COMDISCO LEASE CE16 SECURED BY LEASED EQUIPMENT UNTIL FULL PAYOFF OF LEASE.
(PURCHASE OPTION HAS BEEN EXERCISED).
3. FIRST FEDERAL SAVINGS & LOAN MORTGAGE LENDER ON PROPERTY LOCATED AT 1506
DIANE DRIVE, SULPHUR, LOUISIANA. REFERENCED PROPERTY WAS AN EMPLOYEE HOME
PURCHASED BY FOC.
4. TEXAS STATE TAX LIEN DATED JUNE 13, 1990 IN THE AMOUNT OF $3,606,846.34
================================================================================
SCHEDULE II
EXHIBIT
To that certain Credit Agreement
dated as of December 2, 1993
between Forest Oil Corporation
and Chase Manhattan Bank as Agent
Disclosure Statement
1. Jeffery Douget v. Transco Corporation, et al. including Forest Oil
Corporation. Case No. H-93-976, USDC Southern District, Texas.
2. Jerry B. Hodgen, et al. v. Forest Oil Corporation, To: Forest Oil
Corporation. Case Number 92-0635, USDC Western District of LA.
3. Gary B. Lewter v. Kilgore Marine, Inc. et al. including Forest Oil
Corp.
4. Michael Scott Mire v. Forest Oil Corporation.
5. World Hospitality, Ltd., Inc. v. Texas Commerce Bank, et al., U.S.
District Court for the Southern District of Texas, Houston Division,
Case No. H-87-228, filed 10/22/87.
6. Jefferson Davis County Board of Education et al vs. Amerada Hess
Corporation, et al; Summons directed to Forest Oil Corporation.
Civil Action No. 92-48.
<PAGE>
7. Ignacio B. Vergara, et al vs. Forest Oil Corporation.
8. National Union Fire Insurance Company of Pittsburgh, PA, vs. Wil
McOil Corporation, et al, including Forest Oil Company.
9. State of Texas Natural Gas Production Tax claim on UTTCO & Valero
Settlements.
10. Inquiry by EPA on discharge of fluids reporting OCS.
*11. MMS letter dated September 29, 1989 pertaining to application of
NGPL Valuation Paper and cost based manufacturing allowance (time
frame involved - October, 1980 - February, 1988; relates to all
OCS leases MMS Docket 90-0386-OCS). Also reference Phillips
Petroleum Company v. Nick L. Kelly et al., United States District
Court - Northern District of Texas, Dallas Division, Civil Action
No. 3-89-CV-1707-H (consolidated with 3-89-CV-2393-H, 3-89-CV-
2727-H and 3-89-CV-2751-H).
*12. MMS letter dated April 6, 1993 asserting West Delta Block 97
royalty payment volume reporting discrepancies between data
reported to Production Accounting and Auditing System and Auditing
and Financial System.
*13. Consent Decree, United States v. ARCO Oil and Gas Company, EPA
Docket No. VI-89-1001, Civil Action No. 3-93-CV0408-T, Department
of Justice Ref. Case No. 90-5-1-13353, dated March 2, 1993.
* These items are listed to provide
complete and accurate disclosure;
however Seller is indemnified on
these items by ARCO pursuant to
Section 11.3(c) of the ARCO Purchase
Agreement
================================================================================
EXHIBIT
To that certain Credit Agreement
dated as of December 2, 1993
between Forest Oil Corporation
and Chase Manhattan Bank as Agent
Environmental Matters
1) The Company has been advised by the EPA that the EPA
believes the Company to be a potentially responsible party (a "PRP")
<PAGE>
for the cleanup of two adjacent oilfield waste disposal facilities near
Abbeville, Louisiana. The Company intends to settle its involvement in the near
future in one of the sites for an insignificant amount. In this site the Company
was one of over 300 companies notified by the EPA of PRP status. With regard to
the other site, there have been substantial remediation activities performed and
undertaken by other PRP's and the Company is waiting for further EPA test
results as to whether any more remediation by other PRP's will be required. The
site is currently owned by a subsidiary of Dow Chemical Corporation. The Company
does not believe that any liability at either of these two sites would
materially adversely affect the financial condition of the Company.
2) Three barrels of naturally occurring radioactive material are
stored at Sunrise Supply's storage facility in Louisiana.
================================================================================
PART A - SCHEDULE III
Forest Oil Corporation
Subsidiaries
_______________________
<TABLE>
<CAPTION>
Jurisdiction Holder of Percentage
Where Ownership of
Name Organized Interests Ownership
- ---- ------------ --------- ----------
<S> <C> <C> <C>
Forest Oil of Canada Ltd. Alberta, Canada Forest Oil Corporation 100%
Forest Canada I Alberta, Canada Forest Oil Corporation 99%
Development Ltd H. D. Wyman 1%
Forest Oil of Turkey, Ltd Delaware Forest Oil Corporation 100%
Forest Pipeline Company(1) Delaware Forest Oil Corporation 100%
Forest Merger Corporation Delaware Forest Oil Corporation 100%
Forest I Development Company Delaware Forest Oil Corporation 100%
Oklatex Corporation Texas Forest I Development 100%
Company
Forest Marketing Nevada Forest Oil Corporation 100%
Corporation(2)
Forest Management Inc.(2) Nevada Forest Oil Corporation 100%
____________________
<FN>
(1) This corporation was formed for the purpose of the operation of two
pipelines in the Gulf of Mexico.
(2) In the process of being dissolved.
</TABLE>
<PAGE>
______________________________________________________________________
CHASE LOAN AGREEMENT SECTION 8.14(b)
SCHEDULE III PART B: INVESTMENTS AS OF 10-31-93 AS OF 11-30-93
1. INVESTED CASH BALANCES - PREDOMINATELY 23,650,750.63
2. EMPLOYEE ACCOUNTS RECEIVABLE AND 1,582,853.11
INVESTMENT IN HOMES HELD FOR RESALE
3. INVESTMENTS IN SECURITIES - INSIGNIFICANT 34,629.03
HOLDINGS IN VARIOUS PUBLICLY HELD OIL AND GAS
COMPANIES
4. CASH SURRENDER VALUE OF EXECUTIVE LIFE 1,736,706.00
INSURANCE POLICIES
5. INVESTMENT IN AND ADVANCES TO AFFILIATE 16,225,948.35
- - CANEAGLE RESOURCES CORPORATION
6. INVESTMENT IN CANADIAN PENSION ASSETS IN 773,653.02
EXCESS OF RELATED PLAN LIABILITY
7. SWAP AGREEMENTS WITH ENRON RISK MANAGEMENT
AND A.I.G
ERMS: TOTAL VOLUME OF 940,543 MMBtus @1.8250,
NOV '93 THROUGH DEC '94
TOTAL VOLUME OF 610,000 MMBtus @1.9500,
NOV '93 THROUGH DEC '93
TOTAL VOLUME OF 1,498,543 MMBtus @2.0275,
NOV '93 THROUGH DEC '94
TOTAL VOLUME OF 1,825,000 MMBtus @2.3000,
JAN '94 THROUGH DEC '94
TOTAL VOLUME OF 302,125 MMBtus @2.2550,
JAN '95 THROUGH SEP '95
TOTAL VOLUME OF 40,000 BBL @20.8500,
NOV '93 THROUGH DEC '93
A.I.G.: TOTAL VOLUME OF 40,000 BBL @19.70,
NOV '93 THROUGH DEC '93
TOTAL VOLUME OF 40,000 BBL @20.00,
NOV '93 THROUGH DEC '93
(ABOVE CONTRACT ONLY PAYABLE IF
PRICE GREATER THAN $20.00)
TOTAL VOLUME OF 1,825,000 MMBtus
@1.9450, JAN '94 THROUGH DEC '94
--------------------
44,004,540.14
================================================================================
SCHEDULE IV
<PAGE>
Indebtedness to be Repaid
================================================================================
SCHEDULE V
SCHEDULE V (page 1)
<TABLE>
<CAPTION>
AVERAGE AVERAGE
WEIGHTED WEIGHTED
FIELD NAME FOC WI FOC NRI PROPERTY # COUNTY STATE
- ---------- ------- ------- ---------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
OFFSHORE LOUISIANA
------------------
Ship Shoal 246 0.0% 2.8% 62019 Federal Offshore Louisiana
Ship Shoal 271 0.0% 5.3% 62019 Federal Offshore Louisiana
Vermilion 161 0.0% 1.3% 62011 Federal Offshore Louisiana
Vermilion 313 0.0% 2.7% 62015 Federal Offshore Louisiana
ONSHORE LOUISIANA
-----------------
Larose 0.0% 0.0% 80005 Lafourche Louisiana
West Ridge 0.0% 0.1% 61000 Lafayette Louisiana
WYOMING
-------
Arch Unit 34.8% 26.0% 56023 Sweetwater Wyoming
Carbanera Dome 0.0% 0.0% 53009 Natrona Wyoming
Dennell Draw 0.0% 0.0% 77004 Campbell Wyoming
ONSHORE TEXAS
-------------
Block 9 8.8% 7.7% 44003 Andrews Texas
Cobb 0.0% 6.9% 63001 Pecos Texas
Moore-Hooper 4.2% 3.4% 70021 Loving Texas
Old Buzzard 30.0% 19.5% 70013 Goliad Texas
Prentice 0.0% 0.0% 45001 Yoakum Texas
Quitman 5.6% 4.4% 10054 Wood Texas
San Miguel 0.0% 0.0% 47003 McMullen Texas
South Breedlove 0.0% 8.6% 49006 Martin Texas
</TABLE>
SCHEDULE V (page 2)
<TABLE>
<CAPTION>
AVERAGE AVERAGE
WEIGHTED WEIGHTED
FIELD NAME FOC WI FOC NRI PROPERTY # COUNTY STATE
- ---------- ------- ------- ---------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
OFFSHORE TEXAS
--------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Brazos 338 0.0% 0.0% 92197 State Offshore Texas
Galveston 210 0.0% 2.5% 92201 Federal Offshore Texas
Galveston 322 0.0% 10.0% 92221 Federal Offshore Texas
Mat. Isl. 558/559 0.0% 5.0% 92232 Federal Offshore Texas
OKLAHOMA
--------
Bartlesville 0.0% 12.5% 71006 Washington Oklahoma
North Libby 5.2% 4.2% 82040 Washita Oklahoma
S. Cheyene 42.5% 33.4% 79005 Roger Mills Oklahoma
MISSISSIPPI
-----------
Oak Grove 3.1% 2.5% 67047 Simpson Mississippi
Warbucks 0.0% 0.0% 85119 Adams Mississippi
MISCELLANEOUS
-------------
Minor Properties 0.0% 1.8%
ORRI (Multi) 0.0% 1.2%
</TABLE>
================================================================================
EXHIBIT A-1
[Form of A Loan Note]
PROMISSORY NOTE
$_______________ December __, 1993
New York, New York
FOR VALUE RECEIVED, FOREST OIL CORPORATION, a New York corporation
(the "Company") [and ____________ (the "Subsidiary Borrowers", and together with
the Company, the "Borrowers")]1, hereby promise to pay to __________________
(the "Bank"), for account of its respective Applicable Lending Offices provided
for by the Credit Agreement referred to below, at the principal office of The
Chase Manhattan Bank (National Association) at 1 Chase Manhattan Plaza, New
York, New York 10081, the principal sum of _______________ Dollars (or such
lesser amount as shall equal the aggregate unpaid principal amount of the A
Loans made by the Bank to the [Company]2[Borrowers]1 under the Credit
Agreement), in lawful money of the United States of America and in immediately
available funds, on the dates and in the principal amounts provided in the
Credit Agreement, and to pay interest on the unpaid principal amount of each
such A Loan, at such office, in like money and funds, for the period commencing
on the date of such A Loan until such A Loan shall be paid in full, at the rates
per annum and on the dates provided in the Credit Agreement.
<PAGE>
The date, amount, Type, interest rate and duration of Interest Period
(if applicable) of each A Loan made by the Bank to the [Company]2[Borrowers]1,
and each payment made on account of the principal thereof, shall be recorded by
the Bank on its books and, prior to any transfer of this Note, endorsed by the
Bank on the schedule attached hereto or any continuation thereof, provided that
the failure of the Bank to make any such recordation or endorsement shall not
affect the obligations of the [Company]2[Borrowers]1 to make a payment when due
of any amount owing under the Credit Agreement or hereunder in respect of the A
Loans made by the Bank.
This Note is one of the Notes referred to in the Credit Agreement
dated as of December 2, 1993 (as modified and supplemented and in effect from
time to time, the "Credit Agreement") between the Company, [the Subsidiary
Borrowers,]1[the Subsidiaries of the Company identified on the signature pages
thereof under the caption "SUBSIDIARY GUARANTORS",]3 the lenders named therein
and The Chase Manhattan Bank (National Association), as Agent, and evidences A
Loans made by the Bank thereunder. Terms used but not defined in this Note have
the respective meanings assigned to them in the Credit Agreement.
The Credit Agreement provides for the acceleration of the maturity of
this Note upon the occurrence of certain events and for prepayments of Loans
upon the terms and conditions specified therein.
Except as permitted by Section 12.06(b) of the Credit Agreement, this
Note may not be assigned by the Bank to any other Person.
This Note shall be governed by, and construed in accordance with, the
law of the State of New York.
FOREST OIL CORPORATION
By_________________________
Title:
[SUBSIDIARY BORROWERS
[NAME]
By_________________________]1
Title:
____________________
1 Insert only if there are one or more Subsidiary Borrowers.
2 Insert if there are no Subsidiary Borrowers.
3 Insert only if there are one or more Subsidiary Guarantors.
<PAGE>
================================================================================
SCHEDULE OF A LOANS
This Note evidences A Loans made, Continued or Converted under the
within-described Credit Agreement to the [Company]2[Borrowers]1, on the dates,
in the principal amounts, of the Types, bearing interest at the rates and having
Interest Periods (if applicable) of the durations set forth below, subject to
the payments, Continuations, Conversions and prepayments of principal set forth
below:
<TABLE>
<CAPTION>
Amount
Date Prin- Paid,
Made, cipal Duration Prepaid, Unpaid
Continued Amount Type of Continued Prin-
or of of Interest Interest or cipal Notation
Converted A Loan A Loan Rate Period Converted Amount Made by
_________ ______ ______ _______ ________ _________ ______ ________
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
================================================================================
EXHIBIT A-2
[Form of B Loan Note]
PROMISSORY NOTE
$_______________ December __, 1993
New York, New York
FOR VALUE RECEIVED, FOREST OIL CORPORATION, a New York corporation
(the "Company") [and ____________ (the "Subsidiary Borrowers", and together with
the Company, the "Borrowers")]1, hereby promise to pay to __________________
(the "Bank"), for account of its respective Applicable Lending Offices provided
for by the Credit Agreement referred to below, at the principal office of The
Chase Manhattan Bank (National Association) at 1 Chase Manhattan Plaza, New
York, New York 10081, the principal sum of _______________ Dollars (or such
lesser amount as shall equal the aggregate unpaid principal amount of the B
Loans made by the Bank to the [Company]4[Borrowers]5 under the Credit
Agreement), in lawful money of the United States of America and in immediately
available funds, on the dates and in the principal amounts provided in the
Credit Agreement,
<PAGE>
and to pay interest on the unpaid principal amount of each such B
Loan, at such office, in like money and funds, for the period commencing on the
date of such B Loan until such B Loan shall be paid in full, at the rates per
annum and on the dates provided in the Credit Agreement.
The date, amount, Type, interest rate and duration of Interest Period
(if applicable) of each B Loan made by the Bank to the [Company]2[Borrowers]1,
and each payment made on account of the principal thereof, shall be recorded by
the Bank on its books and, prior to any transfer of this Note, endorsed by the
Bank on the schedule attached hereto or any continuation thereof, provided that
the failure of the Bank to make any such recordation or endorsement shall not
affect the obligations of the [Company]2[Borrowers]1 to make a payment when due
of any amount owing under the Credit Agreement or hereunder in respect of the B
Loans made by the Bank.
This Note is one of the Notes referred to in the Credit Agreement
dated as of December 2, 1993 (as modified and supplemented and in effect from
time to time, the "Credit Agreement") between the Company, [the Subsidiary
Borrowers,]1[the Subsidiaries of the Company identified on the signature pages
thereof under the caption "SUBSIDIARY GUARANTORS",]6 the lenders named therein
and The Chase Manhattan Bank (National Association), as Agent, and evidences B
Loans made by the Bank thereunder. Terms used but not defined in this Note have
the respective meanings assigned to them in the Credit Agreement.
The Credit Agreement provides for the acceleration of the maturity of
this Note upon the occurrence of certain events and for prepayments of Loans
upon the terms and conditions specified therein.
Except as permitted by Section 12.06(b) of the Credit Agreement, this
Note may not be assigned by the Bank to any other Person.
This Note shall be governed by, and construed in accordance with, the
law of the State of New York.
FOREST OIL CORPORATION
By_________________________
Title:
[SUBSIDIARY BORROWERS
[NAME]
By_________________________]1
Title:
<PAGE>
____________________
1 Insert only if there are one or more Subsidiary Borrowers.
2 Insert if there are no Subsidiary Borrowers.
3 Insert only if there are one or more Subsidiary Guarantors.
================================================================================
SCHEDULE OF B LOANS
This Note evidences B Loans made, Continued or Converted under the
within-described Credit Agreement to the [Company]2[Borrowers]1, on the dates,
in the principal amounts, of the Types, bearing interest at the rates and having
Interest Periods (if applicable) of the durations set forth below, subject to
the payments, Continuations, Conversions and prepayments of principal set forth
below:
<TABLE>
<CAPTION>
Amount
Date Prin- Paid,
Made, cipal Duration Prepaid, Unpaid
Continued Amount Type of Continued Prin-
or of of Interest Interest or cipal Notation
Converted B Loan B Loan Rate Period Converted Amount Made by
_________ ______ ______ _______ ________ _________ ______ ________
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
================================================================================
EXHIBIT B
[Form of Security Agreement]
[Exhibit 4.5 to 10-K]
================================================================================
EXHIBIT C
[Form of Opinion of Daniel McNamara, Esq.]
December __, 1993
<PAGE>
To the Banks party to the
Credit Agreement referred to
below and The Chase
Manhattan Bank (National
Association), as Agent
Re: Credit Agreement among Forest Oil Corporation, each bank which is a
signatory thereto and The Chase Manhattan Bank (National Association),
as Agent
Ladies and Gentlemen:
I have acted as counsel to Forest Oil Corporation (the "Company") in
connection with the Credit Agreement (the "Credit Agreement") dated as of
December 2, 1993, between the Company, the lenders named therein and The Chase
Manhattan Bank (National Association), as Agent, providing for extensions of
credit to be made by said lenders to the Company in an aggregate amount not
exceeding $50,000,000. Terms defined in the Credit Agreement are used herein as
defined therein.
In rendering the opinion expressed below, I have examined the
originals or conformed copies of such corporate records, agreements and
instruments of the Obligors, certificates of public officials and of officers of
the Obligors, and such other documents and records, and such matters of law, as
I have deemed appropriate as a basis for the opinions hereinafter expressed.
Based upon the foregoing, we are of the opinion that:
1. The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of New York has the
necessary corporate power to make and perform the Credit Agreement and the
Notes and the other Basic Documents and to borrow under the Credit
Agreement. Each Subsidiary of the Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the
respective state indicated opposite its name in Schedule III to the Credit
Agreement. The Company is duly qualified to transact business in the States
of Colorado, Louisiana, Oklahoma, Texas and Wyoming and, to my knowledge,
the Company is duly qualified to transact business in such other
jurisdictions, and the Subsidiaries of the Company are duly qualified to
transact business in all such jurisdictions, where failure so to qualify
would have a material adverse effect on the consolidated financial
condition, operations, business or prospects taken as a whole of the
Company and its Consolidated Subsidiaries.
2. The making and performance by the Company of the Credit Agreement
and the other Basic Documents
<PAGE>
including the Notes and the borrowings by the Company under the Credit
Agreement have been duly authorized by all necessary corporate action, and
do not and will not violate any provision of law or regulation or any
provision of the charter or by-laws of the Company or any Subsidiary of the
Company or result in the breach of, or constitute a default or require any
consent under, or (except for the Liens created pursuant to the Security
Documents) result in the creation of any Lien upon any of the Properties,
revenues or assets of the Company or any Subsidiary of the Company pursuant
to any indenture or other agreement or instrument to which the Company or
any Subsidiary of the Company is a party or by which the Company or any
Subsidiary of the Company or its Properties may be bound.
3. The Credit Agreement and the Security Agreement constitute, and the
Notes when executed and delivered for value will constitute, legal, valid
and binding obligations of the Company enforceable in accordance with their
respective terms, except as such enforceability may be limited by (a)
bankruptcy, insolvency, reorganization, moratorium or other similar laws of
general applicability affecting the enforcement of creditors' rights and
(b) the application of general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law), and
except that no opinion is expressed as to Section 4.07(c) of the Credit
Agreement.
I express no opinion as to (i) whether a Federal or state court
outside of the State of New York would give effect to the choice of New
York law provided for in the Credit Agreement and the Notes and in the
other Basic Documents, (ii) the second sentence of Section 12.10 of the
Credit Agreement, insofar as such sentences relate to the subject matter
jurisdiction of the United States District Court for the Southern District
of New York to adjudicate any controversy related to the Credit Agreement
or the Notes or (iii) the waiver of inconvenient forum set forth in Section
12.10 of the Credit Agreement with respect to proceedings in the United
States District Court for the Southern District of New York. I also wish to
point out that the obligations of the Company under the Security Agreement
may be subject to possible limitations upon the exercise of remedial or
procedural provisions contained in the Security Agreement, provided that
such limitations do not, in my opinion, make the remedies and procedures
which will be afforded to the Agent and the Banks inadequate for the
practical realization of the substantive benefits purported to be provided
to the Agent and the Banks by the Security Agreement. Finally, I wish to
point out that provisions of the Basic Documents which permit the Agent or
any Bank to take action or make determinations, or to benefit from
indemnities and similar undertakings of the Company, may be subject to a
requirement that such action be taken or such determinations be made, and
that any action or inaction
<PAGE>
by the Agent or any Bank which may give rise to a request for payment under
such an undertaking be taken or not taken, on a reasonable basis and in
good faith.
4. There are no legal or arbitral proceedings, and no proceedings by
or before any governmental or regulatory authority or agency, pending or
(to my knowledge) threatened against or affecting the Company or any of its
Subsidiaries, or any Properties or rights of any of the Company or any of
its Subsidiaries, which, if adversely determined, would have a Material
Adverse Effect.
5. No authorizations, consents, approvals, licenses, filings or
registrations with, any governmental or regulatory authority or agency are
required in connection with the execution, delivery or performance by the
Company of the Basic Documents, except the filings and recordings of Liens
to be created pursuant to the Security Documents.
6. The Security Agreement is effective to create, in favor of the
Agent for the benefit of the Banks thereunder, a valid security interest
(to the extent that Article 9 of the Uniform Commercial Code is applicable
thereto) in the right, title and interest of the Company in the Collateral
(as defined in the Security Agreement), as collateral security for the
payment of the Secured Obligations (as so defined), except that the
security interest in Collateral in which the Company acquires rights after
the commencement of a case against it under the Bankruptcy Code will be
limited by Section 552 of the Bankruptcy Code. By virtue of the filings
described in Annex 1 attached hereto, all such security interests which can
be perfected by a Uniform Commercial Code filing in the United States of
America will have been, upon such filings being completed, so perfected. I
express no opinion as to the right, title or interest of the Company in any
of the Collateral.
Very truly yours,
================================================================================
EXHIBIT D
[Form of Opinion of Special Counsel to Chase]
December __, 1993
<PAGE>
To the Banks party to the
Credit Agreement referred to
below and The Chase
Manhattan Bank
(National Association), as Agent
Ladies and Gentlemen:
We have acted as special New York counsel to The Chase Manhattan Bank
(National Association) in connection with: (i) the Credit Agreement dated as of
December 2, 1993 (the "Credit Agreement") between Forest Oil Corporation (the
"Company"), the Banks identified in the Credit Agreement (the"Banks") and The
Chase Manhattan Bank (National Association), as the Agent and (ii) the Security
Agreement dated as of December 2, 1993 (the "Security Agreement") given by the
Company in favor of the Agent for the benefit of the Banks. All capitalized
terms defined in the Credit Agreement are used with the same meanings, unless
otherwise defined, in this opinion letter.
In rendering the opinions expressed below, we have examined (a) the
Credit Agreement, the Notes, and the Security Agreement (collectively, the "Loan
Documents") and (b) such corporate records of the Company and such other
documents as we have deemed necessary as a basis for the opinions expressed
below. In our examination, we have assumed the genuineness of all signatures,
the authenticity of documents submitted to us as originals and the conformity
with authentic original documents of all documents submitted to us as copies.
When relevant facts were not independently established, we have relied upon
statements of governmental officials and upon representations made in or
pursuant to the Loan Documents and certificates of appropriate representatives
of the Company.
In rendering the opinions expressed below, we have assumed that all of
the documents referred to in this opinion have been duly authorized by, have
been or (in the case of the Notes) will be duly executed and delivered by, and
(except, to the extent set forth below, as to the Company) constitute legal,
valid, binding and enforceable obligations of, all of the parties to such
documents, that all signatories to such documents have been duly authorized and
that all such parties are duly organized and validly existing and have the power
and authority (corporate or other) to execute, deliver and perform such
documents.
Based upon and subject to the foregoing and subject also to the
comments and qualifications set forth below, and having considered such
questions of law as we have deemed necessary as a basis for the opinions
expressed below, we are of the opinion that:
(i) The Credit Agreement constitutes, and the Notes when duly executed
and delivered for value will constitute, the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except as may be limited by
<PAGE>
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights of creditors generally and except as the
enforceability of such Loan Documents is subject to the application of general
principles of equity (regardless of whether considered in a proceeding in equity
or at law), including without limitation (i) the possible unavailability of
specific performance, injunctive relief or any other equitable remedy and (ii)
concepts of materiality, reasonableness, good faith and fair dealing.
(ii) The Security Agreement constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights of
creditors generally and except as the enforceability of the Security Agreement
is subject to the application of general principles of equity (regardless of
whether considered in a proceeding in equity or at law), including without
limitation (i) the possible unavailability of specific performance, injunctive
relief or any other equitable remedy and (ii) concepts of materiality,
reasonableness, good faith and fair dealing. The Security Agreement is effective
to create, in favor of the Agent for the benefit of the Banks thereunder, a
valid security interest (to the extent that Article 9 of the relevant Uniform
Commercial Code is applicable thereto) in the right, title and interest of the
Company in the Collateral (as defined in the Security Agreement) as collateral
security for the payment of the Secured Obligations (as so defined), except that
the security interest in Collateral in which the Company acquires rights after
the commencement of a case against it under the Bankruptcy Code will be limited
by Section 552 of the Bankruptcy Code. We express no opinion as to the right,
title or interest of the Company in any of the Collateral, or as to the
perfection or priority of such security interest. We wish to point out that the
enforceability of the obligations of the Company under the Security Agreement
may be subject to possible limitations upon the exercise of remedial or
procedural provisions contained in the Security Agreement, provided that such
limitations do not, in our opinion, make the remedies and procedures which will
be afforded to the Agent and the Banks inadequate for the practical realization
of the substantive benefits purported to be provided to the Agent and the Banks
by the Security Agreement.
The foregoing opinions are also subject to the following comments and
qualifications:
(a) The enforceability of Sections 12.03 and 12.07 of the Credit
Agreement and Section 6.03 of the Security Agreement may be limited by laws
rendering unenforceable indemnification contrary to Federal or state securities
laws and the public policy underlying such laws.
(b) The enforceability of provisions in the Loan Documents to the
effect that terms may not be waived or modified except in writing may be limited
under certain
<PAGE>
circumstances.
(c) We express no opinion as to (i) the effect of the laws of any
jurisdiction in which any Bank is located (other than New York) that limits the
interest, fees or other charges it may impose, (ii) Section 4.07(c) of the
Credit Agreement, (iii) the second sentence of Section 12.10 of the Credit
Agreement and insofar as such sentence relates to the subject matter
jurisdiction of the United States District Court for the Southern District of
New York to adjudicate any controversy related to the Loan Documents and (iv)
the waiver of inconvenient forum set forth in Section 12.10 of the Credit
Agreement with respect to proceedings in the United States District Court for
the Southern District of New York.
The foregoing opinions are limited to matters involving the Federal
laws of the United States and the laws of the State of New York, and we do not
express any opinion as to the laws of any other jurisdiction.
This opinion letter is provided to you by us as your special counsel
pursuant to Section 7.01(d) of the Credit Agreement and may not be relied upon
by any other person or for any purpose other than in connection with the
transactions contemplated by the Loan Documents without our prior written
consent in each instance.
Very truly yours,
[PDR/RMG]
================================================================================
EXHIBIT E
[Form of Mortgage]
[Exhibit 4.6 to 10-K]
================================================================================
EXHIBIT F
to
Credit Agreement
[Form of Pledge Agreement]
PLEDGE AGREEMENT
PLEDGE AGREEMENT dated as of ________ __, 199_ between FOREST OIL
CORPORATION, a corporation duly organized and validly existing under the laws of
the State of New York (the "Company"); each of the Subsidiaries of the Company
identified under the captions "SUBSIDIARY PLEDGORS" on the signature pages
hereof (individually, a "Subsidiary Pledgor" and, collectively, the "Subsidiary
Pledgors" and, together with the Company, the "Pledgors"); and THE CHASE
MANHATTAN
<PAGE>
BANK (NATIONAL ASSOCIATION), as agent for the lenders or other financial
institutions or entities party, as lenders, to the Credit Agreement referred to
below (in such capacity, together with its successors in such capacity, the
"Agent").
The Company, certain Subsidiaries of the Company, certain lenders and
the Agent are parties to a Credit Agreement dated as of December 2, 1993 (as
modified and supplemented and in effect from time to time, the "Credit
Agreement"), providing, subject to the terms and conditions thereof, for
extensions of credit (by making of loans and issuing letters of credit) to be
made by said lenders to the Company in an aggregate principal or face amount not
exceeding $50,000,000.
To induce said lenders to enter into the Credit Agreement and to
extend credit thereunder, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, each Pledgor has
agreed to pledge and grant a security interest in the Collateral (as hereinafter
defined) as security for the Secured Obligations (as so defined). Accordingly,
the parties hereto agree as follows:
Section 1. Definitions. Terms defined in the Credit Agreement are used
herein as defined therein. In addition, as used herein:
"Collateral" shall have the meaning ascribed thereto in Section 3
hereof.
"Collateral Account" shall have the meaning ascribed thereto in
Section 4.01 hereof.
"Issuers" shall mean, collectively, the respective corporations
identified beneath the names of the Pledgors on Annex 1 hereto under the caption
"Issuer".
"Pledged Stock" shall have the meaning ascribed thereto in Section
3(a) hereof.
"Secured Obligations" shall mean, collectively, (a) the principal of
and interest on the Loans made by the Banks to, and the Note(s) held by each
Bank of, the Company and the Subsidiary Borrowers and all other amounts from
time to time owing to the Banks or the Agent by the Pledgors under the Basic
Documents including, without limitation, all Reimbursement Obligations and
interest thereon, (b) all obligations of the Subsidiary Guarantors under the
Credit Agreement and the other Basic Documents and (c) all obligations of the
Pledgors to the Banks and the Agent hereunder.
"Uniform Commercial Code" shall mean the Uniform Commercial Code as in
effect from time to time in the State of New York.
Section 2. Representations and Warranties. Each
<PAGE>
Pledgor represents and warrants to the Banks and the Agent that:
(a) Such Pledgor is the sole beneficial owner of the Collateral in
which it purports to grant a security interest pursuant to Section 3 hereof
and no Lien exists or will exist upon such Collateral at any time (and no
right or option to acquire the same exists in favor of any other Person),
except for Liens permitted under Section 9.06 of the Credit Agreement and
except for the pledge and security interest in favor of the Agent for the
benefit of the Banks created or provided for herein, which pledge and
security interest constitute a first priority perfected pledge and security
interest in and to all of such Collateral.
(b) The Pledged Stock represented by the certificates identified under
the name of such Pledgor in Annex 1 hereto is, and all other Pledged Stock
in which such Pledgor shall hereafter grant a security interest pursuant to
Section 3 hereof will be, duly authorized, validly existing, fully paid and
non-assessable and none of such Pledged Stock is or will be subject to any
contractual restriction, or any restriction under the charter or by-laws of
the respective Issuer of such Pledged Stock, upon the transfer of such
Pledged Stock (except for any such restriction contained herein or in the
Credit Agreement).
(c) The Pledged Stock represented by the certificates identified under
the name of such Pledgor in Annex 1 hereto constitutes all of the issued
and outstanding shares of capital stock of any class of the Issuers
beneficially owned by such Pledgor on the date hereof (whether or not
registered in the name of such Pledgor) and said Annex 1 correctly
identifies, as at the date hereof, the respective Issuers of such Pledged
Stock, the respective class and par value of the shares comprising such
Pledged Stock and the respective number of shares (and registered owners
thereof) represented by each such certificate.
Section 3. The Pledge. As collateral security for the prompt payment
in full when due (whether at stated maturity, by acceleration or otherwise) of
the Secured Obligations, each Pledgor hereby pledges and grants to the Agent,
for the benefit of the Banks as hereinafter provided, a security interest in all
of such Pledgor's right, title and interest in the following property, whether
now owned by such Pledgor or hereafter acquired and whether now existing or
hereafter coming into existence (all being collectively referred to herein as
"Collateral"):
(a) the shares of [common/preferred] stock of the Issuers represented
by the certificates identified in Annex 1 hereto under the name of such
Pledgor and all other shares of capital stock of whatever class of the
Issuers, now or hereafter owned by such Pledgor, in
<PAGE>
each case together with the certificates evidencing the same (collectively,
the "Pledged Stock");
(b) all shares, securities, moneys or property representing a dividend
on any of the Pledged Stock, or representing a distribution or return of
capital upon or in respect of the Pledged Stock, or resulting from a
split-up, revision, reclassification or other like change of the Pledged
Stock or otherwise received in exchange therefor, and any subscription
warrants, rights or options issued to the holders of, or otherwise in
respect of, the Pledged Stock;
(c) without affecting the obligations of such Pledgor under any
provision prohibiting such action hereunder or under the Credit Agreement,
in the event of any consolidation or merger in which an Issuer is not the
surviving corporation, all shares of each class of the capital stock of the
successor corporation (unless such successor corporation is such Pledgor
itself) formed by or resulting from such consolidation or merger;
(d) the balance from time to time in the Collateral Account; and
(e) all proceeds of and to any of the property of such Pledgor
described in the preceding clauses of this Section 3 (including, without
limitation, all causes of action, claims and warranties now or hereafter
held by any Pledgor in respect of any of the items listed above) and, to
the extent related to any property described in said clauses or such
proceeds, all books, correspondence, credit files, records, invoices and
other papers.
Section 4. Cash Proceeds of Collateral.
4.01 Collateral Account. There is hereby established with the Agent a
cash collateral account (the "Collateral Account") in the name and under the
control of the Agent into which there shall be deposited from time to time the
cash proceeds of any of the Collateral required to be delivered to the Agent
pursuant hereto and into which the Pledgors may from time to time deposit any
additional amounts that any of them wishes to pledge to the Agent for the
benefit of the Banks as additional collateral security hereunder. The balance
from time to time in the Collateral Account shall constitute part of the
Collateral hereunder and shall not constitute payment of the Secured Obligations
until applied as hereinafter provided. Except as expressly provided in the next
sentence, the Agent shall remit the collected balance outstanding to the credit
of the Collateral Account to or upon the order of the respective Pledgor as such
Pledgor through the Company shall from time to time instruct. However, at any
time following the occurrence and during the continuance of an Event of Default,
the Agent may (and, if instructed by the Banks as specified in Section 11.03 of
the Credit Agreement, shall) in its (or
<PAGE>
their) discretion apply or cause to be applied (subject to collection) the
balance from time to time outstanding to the credit of the Collateral Account to
the payment of the Secured Obligations in the manner specified in Section 5.09
hereof. The balance from time to time in the Collateral Account shall be subject
to withdrawal only as provided herein. In addition to the foregoing, each
Pledgor agrees that if the proceeds of any Collateral hereunder shall be
received by it, such Pledgor shall as promptly as possible deposit such proceeds
into the Collateral Account. Until so deposited, all such proceeds shall be held
in trust by such Pledgor for and as the property of the Agent and shall not be
commingled with any other funds or property of such Pledgor.
4.02 Investment of Balance in Collateral Account. Amounts on deposit
in the Collateral Account shall be invested from time to time in such Permitted
Investments as the respective Pledgor through the Company (or, after the
occurrence and during the continuance of a Default, the Agent) shall determine,
which Permitted Investments shall be held in the name and be under the control
of the Agent, provided that (i) at any time after the occurrence and during the
continuance of an Event of Default, the Agent may (and, if instructed by the
Banks as specified in Section 11.03 of the Credit Agreement, shall) in its (or
their) discretion at any time and from time to time elect to liquidate any such
Permitted Investments and to apply or cause to be applied the proceeds thereof
to the payment of the Secured Obligations in the manner specified in Section
5.09 hereof and (ii) if requested by the respective Pledgor through the Company,
such Permitted Investments may be held in the name and under the control of one
or more of the Banks (and in that connection each Bank, pursuant to Section
11.10 of the Credit Agreement) has agreed that such Permitted Investments shall
be held by such Bank as a collateral sub-agent for the Agent hereunder).
4.03 Cover for Letter of Credit Liabilities. Amounts deposited into
the Collateral Account as cover for Letter of Credit Liabilities under the
Credit Agreement pursuant to Section 2.10(e) and Section 10 thereof shall be
held by the Agent in a separate sub-account (designated "Letter of Credit
Liabilities Sub-Account") and all amounts held in such sub-account shall
constitute collateral security first for the Letter of Credit Liabilities
outstanding from time to time and second as collateral security for the other
Secured Obligations hereunder.
Section 5. Further Assurances; Remedies. In furtherance of the grant
of the pledge and security interest pursuant to Section 3 hereof, the Pledgors
hereby jointly and severally agree with each Bank and the Agent as follows:
5.01 Delivery and Other Perfection. Each Pledgor shall:
(a) if any of the shares, securities, moneys or property required to
be pledged by such Pledgor under
<PAGE>
clauses (a), (b) and (c) of Section 3 hereof are received by such Pledgor,
forthwith either (x) transfer and deliver to the Agent such shares or
securities so received by such Pledgor (together with the certificates for
any such shares and securities duly endorsed in blank or accompanied by
undated stock powers duly executed in blank), all of which thereafter shall
be held by the Agent, pursuant to the terms of this Agreement, as part of
the Collateral or (y) take such other action as the Agent shall deem
necessary or appropriate to duly record the Lien created hereunder in such
shares, securities, moneys or property in said clauses (a), (b) and (c);
(b) give, execute, deliver, file and/or record any financing
statement, notice, instrument, document, agreement or other papers that may
be necessary or desirable (in the judgment of the Agent) to create,
preserve, perfect or validate the security interest granted pursuant hereto
or to enable the Agent to exercise and enforce its rights hereunder with
respect to such pledge and security interest, including, without
limitation, causing any or all of the Collateral to be transferred of
record into the name of the Agent or its nominee (and the Agent agrees that
if any Collateral is transferred into its name or the name of its nominee,
the Agent will thereafter promptly give to the respective Pledgor copies of
any notices and communications received by it with respect to the
Collateral pledged by such Pledgor hereunder);
(c) keep full and accurate books and records relating to the
Collateral, and stamp or otherwise mark such books and records in such
manner as the Agent may reasonably require in order to reflect the security
interests granted by this Agreement; and
(d) permit representatives of the Agent, upon reasonable notice, at
any time during normal business hours to inspect and make abstracts from
its books and records pertaining to the Collateral, and permit
representatives of the Agent to be present at such Pledgor's place of
business to receive copies of all communications and remittances relating
to the Collateral, and forward copies of any notices or communications
received by such Pledgor with respect to the Collateral, all in such manner
as the Agent may require.
5.02 Other Financing Statements and Liens. Except as otherwise
permitted under Section 9.06 of the Credit Agreement, without the prior written
consent of the Agent (granted with the authorization of the Banks as specified
in Section 11.09 of the Credit Agreement), no Pledgor shall file or suffer to be
on file, or authorize or permit to be filed or to be on file, in any
jurisdiction, any financing statement or like instrument with respect to the
Collateral in which the Agent is not named as the sole secured party for the
benefit of the Banks.
<PAGE>
5.03 Preservation of Rights. The Agent shall not be required to take
steps necessary to preserve any rights against prior parties to any of the
Collateral.
5.04 Collateral.
(1) The Pledgors will cause the Collateral to constitute at all times
[100%] of the total number of shares of each class of capital stock of each
Issuer then outstanding.
(2) So long as no Event of Default shall have occurred and be
continuing, the Pledgors shall have the right to exercise all voting, consensual
and other powers of ownership pertaining to the Collateral for all purposes not
inconsistent with the terms of this Agreement, the Credit Agreement, the Notes
or any other instrument or agreement referred to herein or therein, provided
that the Pledgors jointly and severally agree that they will not vote the
Collateral in any manner that is inconsistent with the terms of this Agreement,
the Credit Agreement, the Notes or any such other instrument or agreement; and
the Agent shall execute and deliver to the Pledgors or cause to be executed and
delivered to the Pledgors all such proxies, powers of attorney, dividend and
other orders, and all such instruments, without recourse, as the Pledgors may
reasonably request for the purpose of enabling the Pledgors to exercise the
rights and powers that they are entitled to exercise pursuant to this Section
5.04(2).
(3) Unless and until an Event of Default has occurred and is
continuing, the Pledgors shall be entitled to receive and retain any dividends
on the Collateral paid in cash out of earned surplus.
(4) If any Event of Default shall have occurred, then so long as such
Event of Default shall continue, and whether or not the Agent or any Bank
exercises any available right to declare any Secured Obligation due and payable
or seeks or pursues any other relief or remedy available to it under applicable
law or under this Agreement, the Credit Agreement, the Notes or any other
agreement relating to such Secured Obligation, all dividends and other
distributions on the Collateral shall be paid directly to the Agent and retained
by it in the Collateral Account as part of the Collateral, subject to the terms
of this Agreement, and, if the Agent shall so request in writing, the Pledgors
jointly and severally agree to execute and deliver to the Agent appropriate
additional dividend, distribution and other orders and documents to that end,
provided that if such Event of Default is cured, any such dividend or
distribution theretofore paid to the Agent shall, upon request of the Pledgors
(except to the extent theretofore applied to the Secured Obligations), be
returned by the Agent to the Pledgors.
5.05 Events of Default, Etc. During the period during which an Event
of Default shall have occurred and be continuing:
<PAGE>
(a) the Agent shall have all of the rights and remedies with respect to
the Collateral of a secured party under the Uniform Commercial Code (whether or
not said Code is in effect in the jurisdiction where the rights and remedies
are asserted) and such additional rights and remedies to which a secured party
is entitled under the laws in effect in any jurisdiction where any rights and
remedies hereunder may be asserted, including, without limitation, the right,
to the maximum extent permitted by law, to exercise all voting, consensual and
other powers of ownership pertaining to the Collateral as if the Agent were the
sole and absolute owner thereof (and each Pledgor agrees to take all such
action as may be appropriate to give effect to such right);
(b) the Agent in its discretion may, in its name or in the name of the
Pledgors or otherwise, demand, sue for, collect or receive any money or
property at any time payable or receivable on account of or in exchange for
any of the Collateral, but shall be under no obligation to do so; and
(c) the Agent may, upon ten business days' prior written notice to the
Pledgors of the time and place, with respect to the Collateral or any part
thereof that shall then be or shall thereafter come into the possession, custody
or control of the Agent, the Banks or any of their respective agents, sell,
lease, assign or otherwise dispose of all or any part of such Collateral, at
such place or places as the Agent deems best, and for cash or for credit or for
future delivery (without thereby assuming any credit risk), at public or private
sale, without demand of performance or notice of intention to effect any such
disposition or of the time or place thereof (except such notice as is required
above or by applicable statute and cannot be waived), and the Agent or any Bank
or anyone else may be the purchaser, lessee, assignee or recipient of any or all
of the Collateral so disposed of at any public sale (or, to the extent permitted
by law, at any private sale) and thereafter hold the same absolutely, free from
any claim or right of whatsoever kind, including any right or equity of
redemption (statutory or otherwise), of the Pledgors, any such demand, notice
and right or equity being hereby expressly waived and released. The Agent may,
without notice or publication, adjourn any public or private sale or cause the
same to be adjourned from time to time by announcement at the time and place
fixed for the sale, and such sale may be made at any time or place to which the
sale may be so adjourned.
The proceeds of each collection, sale or other disposition under this Section
5.05 shall be applied in accordance with Section 5.09 hereof.
The Pledgors recognize that, by reason of certain prohibitions contained in
the Securities Act of 1933, as amended, and applicable state securities laws,
the Agent may
<PAGE>
be compelled, with respect to any sale of all or any part of the Collateral, to
limit purchasers to those who will agree, among other things, to acquire the
Collateral for their own account, for investment and not with a view to the
distribution or resale thereof. The Pledgors acknowledge that any such private
sales may be at prices and on terms less favorable to the Agent than those
obtainable through a public sale without such restrictions, and, notwithstanding
such circumstances, agree that any such private sale shall be deemed to have
been made in a commercially reasonable manner and that the Agent shall have no
obligation to engage in public sales and no obligation to delay the sale of any
Collateral for the period of time necessary to permit the respective Issuer or
issuer thereof to register it for public sale.
5.06 Deficiency. If the proceeds of sale, collection or other realization
of or upon the Collateral pursuant to Section 5.05 hereof are insufficient to
cover the costs and expenses of such realization and the payment in full of the
Secured Obligations, the Pledgors shall remain liable for any deficiency.
5.07 Removals, Etc. Without at least 30 days' prior written notice to the
Agent, no Pledgor shall (i) maintain any of its books and records with respect
to the Collateral at any office or maintain its principal place of business at
any place other than at the address indicated beneath the signature of the
Company to the Credit Agreement or (ii) change its name, or the name under which
it does business, from the name shown on the signature pages hereto.
5.08 Private Sale. The Agent and the Banks shall incur no liability as a
result of the sale of the Collateral, or any part thereof, at any private sale
pursuant to Section 5.05 hereof conducted in a commercially reasonable manner.
Each Pledgor hereby waives any claims against the Agent or any Bank arising by
reason of the fact that the price at which the Collateral may have been sold at
such a private sale was less than the price that might have been obtained at a
public sale or was less than the aggregate amount of the Secured Obligations,
even if the Agent accepts the first offer received and does not offer the
Collateral to more than one offeree.
5.09 Application of Proceeds. Except as otherwise herein expressly provided
and except as provided below in this Section 5.09, the proceeds of any
collection, sale or other realization of all or any part of the Collateral
pursuant hereto, and any other cash at the time held by the Agent under Section
4 hereof or this Section 5, shall be applied by the Agent:
First, to the payment of the costs and expenses of such collection, sale
or other realization, including reasonable out-of-pocket costs and expenses of
the Agent and the fees and expenses of its agents and counsel, and all
expenses incurred and advances made by the Agent in connection therewith;
<PAGE>
Next, to the payment in full of the Secured Obligations, in each case
equally and ratably in accordance with the respective amounts thereof then due
and owing or as the Banks holding the same may otherwise agree; and
Finally, to the payment to the respective Pledgor, or their respective
successors or assigns, or as a court of competent jurisdiction may direct, of
any surplus then remaining.
Notwithstanding the foregoing, the proceeds of any cash or other amounts held in
the "Letter of Credit Liabilities Sub-Account" of the Collateral Account
pursuant to Section 4.03 hereof shall be applied first to the Letter of Credit
Liabilities outstanding from time to time and second to the other Secured
Obligations in the manner provided above in this Section 5.09.
As used in this Section 5, "proceeds" of Collateral shall mean cash,
securities and other property realized in respect of, and distributions in kind
of, Collateral, including any thereof received under any reorganization,
liquidation or adjustment of debt of the Pledgors or any issuer of or obligor on
any of the Collateral.
5.10 Attorney-in-Fact. Without limiting any rights or powers granted by
this Agreement to the Agent while no Event of Default has occurred and is
continuing, upon the occurrence and during the continuance of any Event of
Default the Agent is hereby appointed the attorney-in-fact of each Pledgor for
the purpose of carrying out the provisions of this Section 5 and taking any
action and executing any instruments that the Agent may deem necessary or
advisable to accomplish the purposes hereof, which appointment as
attorney-in-fact is irrevocable and coupled with an interest. Without limiting
the generality of the foregoing, so long as the Agent shall be entitled under
this Section 5 to make collections in respect of the Collateral, the Agent shall
have the right and power to receive, endorse and collect all checks made payable
to the order of any Pledgor representing any dividend, payment or other
distribution in respect of the Collateral or any part thereof and to give full
discharge for the same.
5.11 Perfection. Prior to or concurrently with the execution and delivery
of this Agreement, each Pledgor shall deliver to the Agent all certificates
identified in Annex 1 hereto, accompanied by undated stock powers duly executed
in blank.
5.12 Termination. When all Secured Obligations shall have been paid in full
and the Commitments of the Banks under the Credit Agreement and all Letter of
Credit Liabilities shall have expired or been terminated, this Agreement shall
terminate, and the Agent shall forthwith cause to be assigned, transferred and
delivered, against receipt but without any recourse, warranty or representation
whatsoever, any remaining Collateral and money received in
<PAGE>
respect thereof, to or on the order of the respective Pledgor.
5.13 Further Assurances. Each Pledgor agrees that, from time to time upon
the written request of the Agent, such Pledgor will execute and deliver such
further documents and do such other acts and things as the Agent may reasonably
request in order fully to effect the purposes of this Agreement.
Section 6. Miscellaneous.
6.01 No Waiver. No failure on the part of the Agent or any Bank to
exercise, and no course of dealing with respect to, and no delay in exercising,
any right, power or remedy hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise by the Agent or any Bank of any right,
power or remedy hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or remedy. The remedies herein are cumulative
and are not exclusive of any remedies provided by law.
6.02 Notices. All notices, requests, consents and demands hereunder shall
be in writing and telexed, telecopied or delivered to the intended recipient at
its "Address for Notices" specified pursuant to Section 12.02 of the Credit
Agreement and shall be deemed to have been given at the times specified in said
Section 12.02.
6.03 Expenses. The Pledgors jointly and severally agree to reimburse each
of the Banks and the Agent for all reasonable costs and expenses of the Banks
and the Agent (including, without limitation, the reasonable fees and expenses
of legal counsel) in connection with (i) any Default and any enforcement or
collection proceeding resulting therefrom, including, without limitation, all
manner of participation in or other involvement with (w) performance by the
Agent of any obligations of the Pledgors in respect of the Collateral that the
Pledgors have failed or refused to perform, (x) bankruptcy, insolvency,
receivership, foreclosure, winding up or liquidation proceedings, or any actual
or attempted sale, or any exchange, enforcement, collection, compromise or
settlement in respect of any of the Collateral, and for the care of the
Collateral and defending or asserting rights and claims of the Agent in respect
thereof, by litigation or otherwise, (y) judicial or regulatory proceedings and
(z) workout, restructuring or other negotiations or proceedings (whether or not
the workout, restructuring or transaction contemplated thereby is consummated)
and (ii) the enforcement of this Section 6.03, and all such costs and expenses
shall be Secured Obligations entitled to the benefits of the collateral security
provided pursuant to Section 3 hereof.
6.04 Amendments, Etc. The terms of this Agreement may be waived, altered or
amended only by an instrument in writing duly executed by each Pledgor and the
<PAGE>
Agent (with the consent of the Banks as specified in Section 11.09 of the Credit
Agreement). Any such amendment or waiver shall be binding upon the Agent and
each Bank, each holder of any of the Secured Obligations and each Pledgor.
6.05 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the respective successors and assigns of each Pledgor, the
Agent, the Banks and each holder of any of the Secured Obligations (provided,
however, that no Pledgor shall assign or transfer its rights hereunder without
the prior written consent of the Agent).
6.06 Captions. The captions and section headings appearing herein are
included solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.
6.07 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
6.08 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the law of the State of New York.
6.09 Agents and Attorneys-in-Fact. The Agent may employ agents and
attorneys-in-fact in connection herewith and shall not be responsible for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it
in good faith.
6.10 Inconsistent Provisions. In the event of any inconsistency between the
provisions of this Agreement and the provisions of the Credit Agreement, the
provisions set forth in the Credit Agreement shall control.
6.11 Severability. If any provision hereof is invalid and unenforceable in
any jurisdiction, then, to the fullest extent permitted by law, (i) the other
provisions hereof shall remain in full force and effect in such jurisdiction and
shall be liberally construed in favor of the Agent and the Banks in order to
carry out the intentions of the parties hereto as nearly as may be possible and
(ii) the invalidity or unenforceability of any provision hereof in any
jurisdiction shall not affect the validity or enforceability of such provision
in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to
be duly executed and delivered as of the day and year first above written.
FOREST OIL CORPORATION
By _________________________
Title:
<PAGE>
SUBSIDIARY PLEDGORS
[SUBSIDIARY PLEDGOR]
By ________________________
Title:
[SUBSIDIARY PLEDGOR]
By ________________________
Title:
[SUBSIDIARY PLEDGOR]
By ________________________
Title:
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
as Agent
By _________________________
Title:
=====================================================================
ANNEX 1
PLEDGED STOCK
[See Section 2(b) and (c)]
[Complete for each Pledgor:]
[NAME OF PLEDGOR]
Certificate Registered
Issuer Nos. Owner Number of Shares
<PAGE>
[Issuer #1] __________ __________ _______ shares of
[common/preferred]
stock, [no] par
value [$________]
[Issuer #2] __________ __________ _______ shares of
[common/preferred]
stock, [no] par
value [$________]
[Issuer #3] __________ __________ _______ shares of
[common/preferred]
stock, [no] par
value [$________]
======================================================================
EXHIBIT G
[Form of Confidentiality Agreement]
CONFIDENTIALITY AGREEMENT
[Date]
[Insert Name and
Address of Prospective
Participant or Assignee]
Re: Credit Agreement dated as of December 2,1993
(the "Credit Agreement"), between Forest Oil
Corporation (the "Company") the lenders named
therein and The Chase Manhattan Bank
(National Association), as Agent.
Dear Ladies and Gentlemen:
As a Bank party to the Credit Agreement, we have agreed with the
Company pursuant to Section 12.12 of the Credit Agreement to use reasonable
precautions to keep confidential, except as otherwise provided therein, all
non-public information identified by the Company as being confidential at the
time the same is delivered to us pursuant to the Credit Agreement.
As provided in said Section 12.12, we are permitted to provide you, as
a prospective [holder of a participation in the Loans (as defined in the Credit
Agreement)][assignee Bank], with certain of such non-public information subject
to the execution and delivery by you, prior to receiving such non-public
information, of a Confidentiality Agreement in this form. Such information
<PAGE>
will not be made available to you until your execution and return to us of this
Confidentiality Agreement.
Accordingly, in consideration of the foregoing, you agree (on behalf of
yourself and each of your affiliates, directors, officers, employees and
representatives) that (A) such information will not be used by you except in
connection with the proposed [participation][assignment] mentioned above and (B)
you shall use reasonable precautions, in accordance with your customary
procedures for handling confidential information and in accordance with safe and
sound banking practices, to keep such information confidential, provided that
nothing herein shall limit the disclosure of any such information (i) to the
extent required by statute, rule, regulation or judicial process, (ii) to your
counsel or to counsel for any of the Banks or the Agent, (iii) to bank
examiners, auditors or accountants, (iv) to the Agent or any other Bank, (v) in
connection with any litigation to which you or any one or more of the Banks or
the Agent are a party, (vi) to a subsidiary or affiliate of yours as provided in
Section 12.12(a) of the Credit Agreement (provided that you shall not disclose
any non-public information delivered pursuant to this Confidentiality Agreement
to any subsidiary of your which is generally engaged in securities business
other than in connection with (x) commodity Hedging Agreements or Interest
Protection Agreements permitted pursuant to Section 9.07(h) of the Credit
Agreement or (y) the syndication or participation of the Commitments, Loans or
Letter of Credit Interests under the Credit Agreement without the prior written
consent of the Company) or (vii) to any assignee or participant (or prospective
assignee or participant) so long as such assignee or participant (or prospective
assignee or participant) first executes and delivers to you a Confidentiality
Agreement substantially in the form hereof; provided, further, that (x) unless
specifically prohibited by applicable law or court order, you agree, prior to
disclosure thereof, to notify the Company of any request for disclosure of any
such non-public information (A) by any governmental agency or representative
thereof (other than any such request in connection with an examination of your
financial condition by such governmental agency) or (B) pursuant to legal
process and (y) that in no event shall you be obligated to return any materials
furnished to you pursuant to this Confidentiality Agreement.
Please indicate your agreement to the foregoing by signing as provided
below the enclosed copy of this Confidentiality Agreement and returning the same
to us.
Very truly yours,
[INSERT NAME OF BANK]
By_________________________
<PAGE>
The foregoing is agreed to
as of the date of this letter.
[INSERT NAME OF PROSPECTIVE
PARTICIPANT OR ASSIGNEE]
By__________________
===============================================================================
<PAGE>
EXHIBIT 4.3
AMENDMENT NO. 1
AMENDMENT NO. 1 dated as of December 28, 1993, between FOREST OIL
CORPORATION, a corporation duly and validly existing under the laws of the State
of New York (the "Company"); each of the lenders that is a signatory hereto
(individually, a "Bank" and, collectively, the "Banks"); and THE CHASE MANHATTAN
BANK (NATIONAL ASSOCIATION), a national banking association, as agent for the
Banks (in such capacity, together with its successors in such capacity, the
"Agent").
The Company, the Banks and the Agent are parties to a Credit Agreement
dated as of December 1, 1993 (the "Credit Agreement"), providing, subject to the
terms and conditions thereof, for loans to be made by said Banks to the Company
in an aggregate principal amount not exceeding $50,000,000. The Company, the
Banks and the Agent wish to amend the Credit Agreement to provide that the
Company may incur Indebtedness pursuant to the JEDI Agreement (as defined in
Section 2 hereof) and to amend the Credit Agreement in certain other respects,
and accordingly, the parties hereto hereby agree as follows:
Section 1. Definitions. Except as otherwise defined in this Amendment
No. 1, terms defined in the Credit Agreement and are used herein as defined
therein.
Section 2. Amendments. Subject to the satisfaction of the conditions
precedent specified in Section 4 below, but effective as of the date hereof, the
Credit Agreement shall be amended as follows:
A. The definition of "Non-Recourse Debt" in Section 1.01 of the Credit
Agreement shall be amended by inserting the following at the end of such
definition:
"Notwithstanding the foregoing, Indebtedness incurred by the Company
pursuant to the JEDI Agreement shall be considered Non-Recourse Debt,
provided that if (a) any claim or claims in the aggregate in excess
of $500,000 is made against the Company by or through the JEDI Lender
seeking any recourse against the Company other than with respect to
the Company's interest in the JEDI Collateral or (b) the JEDI
Agreement is amended, modified or supplemented to expand the
circumstances in which the JEDI Lender may assert any of its claims
thereunder with recourse to the Company (other than with respect to
the Company's interest in the JEDI Collateral), Indebtedness incurred
pursuant to the JEDI Agreement shall cease to be Non-Recourse Debt."
B. The following definitions shall be added in alphabetical order in
Section 1.01 of the Credit Agreement:
"Amendment No. 1" shall mean Amendment No. 1 to this Agreement dated
as of December 28, 1993.
"JEDI Agreement" shall mean the Loan Agreement dated as of December
28, 1993 between the Company and the JEDI Lender, as the same shall be
amended, modified
<PAGE>
and supplemented and in effect from time to time.
"JEDI Collateral" shall mean the "Collateral" as defined in the JEDI
Agreement on the date of Amendment No. 1, provided that "Mortgaged
Properties", as defined in the JEDI Agreement on the date of Amendment No.
1, shall exclude all such Mortgaged Properties subject to a Lien in favor
of the JEDI Lender subsequent to the date of Amendment No. 1, other than
the Wagner & Brown Properties (as defined in the JEDI Agreement on the date
of Amendment No. 1).
"JEDI Investments" shall mean at any time of determination all
amounts, including without limitation cash expended and the fair market
value of Property contributed by the Company or any of its Subsidiaries in
connection with the JEDI Mortgaged Properties (including any such
Properties that become JEDI Mortgaged Properties subsequent to the date of
Amendment No. 1) including without limitation all expenses for Capital
Operations (excluding any general, administrative or office charges or
overhead, except to the extent allocated to such Properties in accordance
with GAAP) prior to such time of determination (on a cumulative basis) and
all Operating Costs prior to such time of determination (on a cumulative
basis) (each as defined in the JEDI Agreement on the date of Amendment No.
1), but excluding the purchase price of the JEDI Mortgaged Properties
acquired on or prior to December 31, 1993 minus Net Operating Cash Flow
received by or for the account of the Company prior to such time of
determination (on a cumulative basis) provided that the calculation of the
JEDI Investments shall not result in a number less than zero.
"JEDI Lender" shall mean Joint Energy Development Investments Limited
Partnership, a Delaware Limited Partnership and its successors and assigns.
"JEDI Mortgaged Property" shall mean "Mortgaged Properties" as defined
in the JEDI Agreement.
"Net Operating Cash Flow" shall have the meaning assigned to such
term in the JEDI Agreement on the date of Amendment No. 1.
C. The Credit Agreement is hereby amended by adding a new clause (i)
in Section 9.01 as follows, and by relettering existing clause "(i)" as "(j)":
(i) as soon as available, and in any event no later than the day
on which it is delivered to the JEDI Lender, the statement of the
calculation of the Monthly Payment Amount for such month delivered or to
be delivered to the JEDI Lender, provided that if such statement is no
longer required to be delivered to the JEDI Lender, a statement containing
all of the information that is required to be delivered to the JEDI
Lender pursuant to Section 4.01(g) of the JEDI Agreement as in effect on
the date of Amendment No. 1.
D. Section 9.08(g) of the Credit Agreement is hereby amended in its
entirety to read as follows:
(g) additional Investments up to but not exceeding $5,000,000
(or the equivalent) in the
<PAGE>
aggregate, including, without limitation, Investments in Unrestricted
Subsidiaries and JEDI Investments; provided that any cash dividends
received by the Company or any Restricted Subsidiary from an
Unrestricted Subsidiary, up to the amount of the Investments in such
Unrestricted Subsidiary, shall reduce pro tanto the aggregate amount of
the Investments in such Unrestricted Subsidiary for purposes of
calculating compliance with such $5,000,000 limitation; and
E. Section 10(b) of the Credit Agreement shall be amended by inserting
the following at the end of such Section:
";provided that a default under the JEDI Agreement shall not be an Event
of Default under this Section 10(b) unless such a default has occurred
and a claim is made against the Company by or through the JEDI Lender
seeking any recourse against the Company other than with respect to the
Company's interest in the JEDI Collateral."
Section 3. Representations and Warranties. The Company represents and
warrants to the Agent and the Banks that the representations and warranties set
forth in Section 8 of the Credit Agreement are true and complete on the date
hereof as if made on and as of the date hereof and as if each reference in said
Section 8 to "this Agreement" included reference to this Amendment No. 1.
Section 4. Conditions Precedent. As provided in Section 2 above, the
amendments to the Credit Agreement set forth in said Section 2 shall become
effective, as of the date hereof, upon the satisfaction of the following
conditions precedent:
A. Execution by All Parties. This Amendment No. 1 shall have been
executed and delivered by each of the parties hereto.
B. Documents. The Agent shall have received the following documents,
each of which shall be satisfactory to the Agent in form and substance:
(1) Corporate Documents. The following documents, each certified as
indicated below:
(a) a certificate of the Secretary or an Assistant Secretary of
the Company, dated as of a recent date and certifying (i) that the
by-laws of the Company have not been amended since the date of the
certification thereto delivered pursuant to Section 7.01 of the Credit
Agreement, (ii) that attached thereto is a true and complete copy of
resolutions duly adopted by the board of directors of the Company
authorizing the execution, delivery and performance of this Amendment
No. 1 and the Credit Agreement as amended hereby and that such
resolutions have not been modified, rescinded or amended and are in
full force and effect, (iii) that the charter of the Company has not
been amended since the date of the certification thereto furnished
pursuant to Section 7.01 of the Credit Agreement and (iv) as to the
incumbency and specimen signature of the officer of the Company
<PAGE>
executing this Amendment; and
(b) a certificate of another officer of the Company as to the
incumbency and specimen signature of the Secretary or such Assistant
Secretary of the Company, and a corresponding certificate of another
officer of the Company as to its signing officers.
(2) Opinion of Counsel to the Company. An opinion of Daniel McNamara,
counsel to the Company confirming the opinion set forth in paragraphs 1
through 5 of Exhibit C of the Credit Agreement, except that references to the
Credit Agreement shall be to the Credit Agreement as amended by this Amendment
No. 1.
(3) JEDI Agreement. Copies of each document delivered by, on behalf of or
at the request of the Company or the JEDI Lender in connection with the JEDI
Agreement.
(4) Other Documents. Such other documents as the Agent or any Bank or
special counsel to the Agent may reasonably request.
Section 5. Miscellaneous. Except as herein provided, the Credit Agreement
shall remain unchanged and in full force and effect. This Amendment No. 1 may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same amendatory instrument and any of the parties hereto
may execute this Amendment No. 1 by signing any such counterpart. This Amendment
No. 1 shall be governed by, and construed in accordance with, the law of the
State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to
be duly executed and delivered as of the day and year first above written.
FOREST OIL CORPORATION
By _________________________
Title:
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
By_________________________
Title:
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION), as Agent
By_________________________
Title:
<PAGE>
EXHIBIT 4.4
AMENDMENT NO. 2
AMENDMENT NO. 2 dated as of January 27, 1994, between FOREST OIL
CORPORATION, a corporation duly and validly existing under the laws of the State
of New York (the "Company"); each of the lenders that is a signatory hereto
(individually, a "Bank" and, collectively, the "Banks"); and THE CHASE MANHATTAN
BANK (NATIONAL ASSOCIATION), a national banking association, as agent for the
Banks (in such capacity, together with its successors in such capacity, the
"Agent").
The Company, the Banks and the Agent are parties to a Credit Agreement
dated as of December 1, 1993, as amended by Amendment No. 1 dated as of
December 28, 1993 (as amended, the "Credit Agreement"), providing, subject to
the terms and conditions thereof, for loans to be made by said Banks to the
Company in an aggregate principal amount not exceeding $50,000,000. The Company,
the Banks and the Agent wish to amend the Credit Agreement allow the Company to
use up to $7,500,000 of the B Loans for working capital and general corporate
purposes and to require A Loans and Letter of Credit Liabilities to be supported
by the Borrowing Base and to amend the Credit Agreement in certain other
respects, and accordingly, the parties hereto hereby agree as follows:
Section 1. Definitions. Except as otherwise defined in this Amendment
No. 2, terms defined in the Credit Agreement and are used herein as defined
therein.
Section 2. Amendments. Subject to the satisfaction of the conditions
precedent specified in Section 4 below, but effective as of the date hereof,
the Credit Agreement shall be amended as follows:
A. The following definition shall be added in alphabetical order in
Section 1.01 of the Credit Agreement:
"'Amendment No. 2' shall mean Amendment No. 2 to this Agreement dated
as of January 27, 1994."
B. Section 1.03(b) of the Credit Agreement shall be amended by
deleting the number "$25,000,000" therein and replacing it with the number
"$35,000,000".
C. Sections 2.01(a) and (b) of the Credit Agreement shall be amended
in their entirety to read as follows:
"(a) A Loans. Each A Bank severally agrees, in accordance with the
terms and conditions of this Agreement, to make one or more loans to the
Borrowers in Dollars (i) during the period from and including the date
hereof to and including September 30, 1994 in an aggregate amount, as to
all Borrowers, up to but not exceeding the A Commitment of such Bank at any
one time outstanding and (ii) during the period from October 1, 1994 to the
Commitment Termination Date, in an aggregate amount, as to all Borrowers,
up to but not exceeding the lesser of (x) the A Commitment of such Bank and
(y) an amount equal to such Bank's Commitment Percentage multiplied by the
Borrowing Base determined pursuant to the immediately preceding Reserve
Evaluation Report; provided that (A) in no event shall the aggregate
principal amount of all A Loans, together with the aggregate amount of all
Letter of Credit Liabilities, exceed the aggregate amount of the A
Commitments as in effect from time
<PAGE>
to time and (B) the Borrowers may not borrow A Loans or obtain Letters of
Credit under this Agreement at any time while a Borrowing Base Deficiency
exists. The aggregate of the A Commitments of the A Banks on the date
hereof is $10,000,000.
(b) B Loans. Each B Bank severally agrees, in accordance with the
terms and conditions of this Agreement, to make one or more loans to the
Borrowers in Dollars (i) during the period from and including the date
hereof to and including September 30, 1994, in an aggregate amount, as to
all Borrowers, up to but not exceeding the B Commitment of such Bank at any
one time outstanding, provided that in no event during such period shall
the aggregate principal amount of the B Loans as to all B Banks exceed
$25,000,000 unless the Borrowing Base has been increased with the consent
of each of the Banks as provided in Section 1.03(b) hereof, and (ii) during
the period from October 1, 1994 to the Commitment Termination Date, in an
aggregate principal amount, as to all Borrowers, up to but not exceeding
the lesser of (x) the B Commitment of such Bank and (y) an amount equal to
such Bank's Commitment Percentage multiplied by the Borrowing Base
determined pursuant to the immediately preceding Reserve Evaluation Report
minus the aggregate of the A Commitments at such time; provided that (A) in
no event shall the aggregate amount of the B Loans as to all B Banks exceed
$40,000,000 at any time; and (B) the Borrowers may not borrow B Loans under
this Agreement at any time while a Borrowing Base Deficiency exists."
D. Section 2.03 of the Credit Agreement shall be amended by deleting
clause "(i)" of the first paragraph therein in its entirety and replacing
it as follows:
"(i) (A) during the period from and including the date hereof to and
including September 30, 1994, the aggregate amount of all Letter of
Credit Liabilities, together with the aggregate principal amount of the
A Loans, exceed the aggregate of the A Commitments as in effect from time
to time and (B) during the period from October 1, 1994 to the
Commitment Termination Date, the aggregate amount of all Letter of Credit
Liabilities together with the aggregate principal amount of A Loans,
exceed the lesser of (x) the aggregate of the A Commitments and (y) the
Borrowing Base as determined pursuant to the immediately preceding
Reserve Evaluation Report,"
E. Section 2.10(a) of the Credit Agreement shall be amended by
deleting clause "(i)" therein in its entirety and replacing it as follows:
"(i) prepay (in accordance with the procedures of this Agreement) the
outstanding principal of the Loans and, if all of the Loans have been
prepaid and a Borrowing Base Deficiency still exists, provide cover for
Letter of Credit Liabilities in an amount equal to such Deficiency as
specified in clause (e) below."
F. Section 2.10(d) of the Credit Agreement shall be amended in its entirety
to read as follows:
"(d) Application. Prepayments and reductions of Commitments described
in the above clauses of this Section
<PAGE>
2.10 shall be effected as follows:
(i) first the B Commitments shall be automatically reduced by an
amount equal to the amount specified in such clauses (and to the extent
that, after giving effect to such reduction the aggregate outstanding
principal amount of the B Loans would exceed the B Commitments, the
Borrowers shall prepay B Loans in an amount equal to such excess); and
(ii) second, the A Commitments shall be automatically reduced by an
amount equal to any excess over the amount referred to in the foregoing
clause (i) (and to the extent that, after giving effect to such reduction,
the aggregate principal amount of the A Loans, together with the aggregate
amount of all Letter of Credit Liabilities, would exceed the A Commitments,
the Borrowers shall first prepay the A Loans and second provide cover for
Letter of Credit Liabilities as specified in clause (e) below, in an
aggregate amount equal to such excess)."
G. Section 7.02 of the Credit Agreement shall be amended by deleting the
term "B Loans" therein and inserting the following in its place "Loans and
Letter of Credit Liabilities".
H. Section 9.14 of the Credit Agreement is amended by adding the following
at the end of clause (ii) thereof immediately preceding "; provided"
", provided that up to $7,500,000 of the B Loans may be used for
general working capital purposes and general corporate purposes".
Section 3. Representations and Warranties. The Company represents and
warrants to the Agent and the Banks that the representations and warranties set
forth in Section 8 of the Credit Agreement are true and complete on the date
hereof as if made on and as of the date hereof and as if each reference in said
Section 8 to "this Agreement" included reference to this Amendment No. 2.
Section 4. Conditions Precedent. As provided in Section 2 above, the
amendments to the Credit Agreement set forth in said Section 2 shall become
effective, as of the date hereof, upon the satisfaction of the following
conditions precedent:
A. Execution by All Parties. This Amendment No. 2 shall have been executed
and delivered by each of the parties hereto.
B. Documents. The Agent shall have received the following documents, each
of which shall be satisfactory to the Agent in form and substance:
(1) Corporate Documents. The following documents, each certified as
indicated below:
(a) a certificate of the Secretary or an Assistant Secretary of
the Company, dated as of a recent date and certifying (i) that the
by-laws of the Company have not been amended since the date of the
certification thereto delivered pursuant to
<PAGE>
Section 7.01 of the Credit Agreement, (ii) that attached thereto is a
true and complete copy of resolutions duly adopted by the board of
directors of the Company authorizing the execution, delivery and
performance of this Amendment No. 2 and the Credit Agreement as
amended hereby and that such resolutions have not been modified,
rescinded or amended and are in full force and effect, (iii) that the
charter of the Company has not been amended since the date of the
certification thereto furnished pursuant to Section 7.01 of the Credit
Agreement and (iv) as to the incumbency and specimen signature of the
officer of the Company executing this Amendment; and
(b) a certificate of another officer of the Company as to the
incumbency and specimen signature of the Secretary or such Assistant
Secretary of the Company, and a corresponding certificate of another
officer of the Company as to its signing officers.
(2) Other Documents. Such other documents as the Agent or any Bank or
special counsel to the Agent may reasonably request.
C. Fee Letter. The Company shall have executed and delivered to the Agent
the fee letter dated January 27, 1994 from the Agent to the Company and paid to
the Agent the fees set forth in such fee letter.
Section 5. Miscellaneous. Except as herein provided, the Credit Agreement
shall remain unchanged and in full force and effect. This Amendment No. 2 may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same amendatory instrument and any of the parties hereto
may execute this Amendment No. 2 by signing any such counterpart. This Amendment
No. 2 shall be governed by, and construed in accordance with, the law of
the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to
be duly executed and delivered as of the day and year first above written.
FOREST OIL CORPORATION
By
-------------------------
Title:
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
By
-------------------------
Title:
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION), as Agent
By
-------------------------
Title:
<PAGE>
EXHIBIT 4.5
Exhibit B
to
Credit Agreement
SECURITY AGREEMENT
SECURITY AGREEMENT dated as of December 1, 1993 between FOREST OIL
CORPORATION, a corporation duly organized and validly existing under the laws of
the State of New York (the "Company"); each of the Subsidiaries of the Company
that becomes a borrower pursuant to Section 9.16 of the Credit Agreement
referred to below (the "Subsidiary Borrowers", and together with the Company,
the "Obligors"); and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as agent
for the Banks party to the Credit Agreement (the "Banks") (in such capacity,
together with its successors in such capacity, the "Agent").
The Company, the Subsidiary Borrowers, certain Subsidiaries of the
Company that become Subsidiary Guarantors pursuant to Section 9.16 of the Credit
Agreement (the "Subsidiary Guarantors"), the Banks, and the Agent are parties to
a Credit Agreement dated as of December 1, 1993 (as modified and supplemented
and in effect from time to time, the "Credit Agreement"), providing, subject to
the terms and conditions thereof, for extensions of credit (by making of loans
and issuing letters of credit) to be made by said Banks to the Obligors in an
aggregate principal or face amount not exceeding $50,000,000.
To induce said Banks to enter into the Credit Agreement and to extend
credit thereunder, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, each Obligor has agreed to
pledge and grant a security interest in the Collateral (as hereinafter defined)
as security for the Secured Obligations (as so defined). Accordingly, the
parties hereto agree as follows:
Section 1. Definitions. Terms defined in the Credit Agreement are used
herein as defined therein. In addition, as used herein:
"Accounts" shall have the meaning ascribed thereto in Section 3(a)
hereof.
"Collateral" shall have the meaning ascribed thereto in Section 3
hereof.
"Collateral Account" shall have the meaning ascribed thereto in
Section 4.01 hereof.
"Documents" shall have the meaning ascribed thereto in Section 3(g)
hereof.
"Equipment" shall have the meaning ascribed thereto in Section 3(i)
hereof.
"Hydrocarbons" shall mean, collectively, oil, gas, casinghead gas,
condensate, natural gas liquids
<PAGE>
finished and unfinished petroleum products and other liquid or gaseous
hydrocarbons (including, without limitation, all liquefiable hydrocarbons
and other products that may be extracted from gas and gas condensate by
processing thereof in a gas processing plant).
"Instruments" shall have the meaning ascribed thereto in Section 3(b)
hereof.
"Inventory" shall have the meaning ascribed thereto in Section 3(c)
hereof.
"Secured Obligations" shall mean, collectively, (a) the principal of
and interest on the Loans made by the Banks to, and the Note(s) held by
each Bank of, the Company and all other amounts from time to time owing to
the Banks or the Agent by the Obligors under the Basic Documents including,
without limitation, all Reimbursement Obligations and interest thereon, (b)
all obligations of the Subsidiary Guarantors under the Credit Agreement and
the other Basic Documents and (c) all obligations of the Obligors to the
Banks and the Agent hereunder.
"Uniform Commercial Code" shall mean the Uniform Commercial Code as in
effect from time to time in the State of New York.
Section 2. Representations and Warranties. Each Obligor represents and
warrants to the Banks and the Agent that:
(a) Such Obligor is the sole beneficial owner of the Collateral in
which it purports to grant a security interest pursuant to Section 3 hereof
and no Lien exists or will exist upon such Collateral at any time (and no
right or option to acquire the same exists in favor of any other Person)
except for Liens permitted under Section 9.06 of the Credit Agreement and
except for the pledge and security interest in favor of the Agent for the
benefit of the Banks created or provided for herein, which pledge and
security interest constitute a first priority perfected pledge and security
interest in and to all of such Collateral.
(b) Any goods or products now or hereafter produced by such Obligor or
any of its Subsidiaries included in the Collateral have been and will be
produced in compliance with the requirements of the Fair Labor Standards
Act, as amended.
Section 3. Collateral. As collateral security for the prompt payment
in full when due (whether at stated maturity, by acceleration or otherwise) of
the Secured Obligations, each Obligor hereby pledges and grants to the Agent,
for the benefit of the Banks as hereinafter provided, a security interest in all
of such Obligor's right, title and interest in the following property, whether
now owned by such Obligor or hereafter acquired and whether now existing or
hereafter coming into existence (all being collectively referred to herein as
"Collateral"):
(a) all accounts and general intangibles (each as
<PAGE>
defined in the Uniform Commercial Code) of such Obligor constituting any
right to the payment of money, including (but not limited to) all moneys
due and to become due to such Obligor in respect of any loans or advances
or for sales of Hydrocarbons, Inventory, Equipment or other goods or
products sold or leased or for services rendered, all moneys due and to
become due to such Obligor under any guarantee (including a letter of
credit) of the purchase price of Hydrocarbons, Inventory or other goods or
products sold by such Obligor and all tax refunds (such accounts, general
intangibles and moneys due and to become due being herein called
collectively "Accounts");
(b) all instruments, chattel paper or letters of credit (each as
defined in the Uniform Commercial Code) of such Obligor evidencing,
representing, arising from or existing in respect of, relating to, securing
or otherwise supporting the payment of, any of the Accounts, including (but
not limited to) promissory notes, drafts, bills of exchange and trade
acceptances (herein collectively called "Instruments");
(c) all inventory (as defined in the Uniform Commercial Code) of such
Obligor, all goods obtained by such Obligor in exchange for such inventory,
and any products made or processed from such inventory including all
substances, if any, commingled therewith or added thereto (herein
collectively called "Inventory");
(d) all other accounts or general intangibles of such Obligor not
constituting Accounts;
(e) each contract and other agreement of such Obligor relating to the
sale or other disposition of Hydrocarbons, Inventory, Equipment or other
goods or products, and all operating agreements, farmout agreements, farmin
agreements, development agreements, participation agreements, area of
mutual interest agreements, equipment leases, purchase agreements, sale
agreements, option agreements and other agreements which cover, affect or
otherwise relate to the production, sale, purchase, exchange, processing,
handling, storing, transporting or marketing of the Hydrocarbons;
(f) all rights, titles, interests and estates now owned or hereafter
acquired by the Obligors in and to all Hydrocarbons which are contained in
or under, or which are produced from the Mortgaged Properties, including
without limitation, all oil and gas in tanks and all rents, issues,
profits, proceeds (including without limitation, all prepayment for
production not taken or payments in lieu of production), products and
revenues;
(g) all documents of title (as defined in the Uniform Commercial Code)
or other receipts of such Obligor covering, evidencing or representing the
sale of Hydrocarbons, Inventory, Equipment or other goods or products
(herein collectively called "Documents");
(h) all rights, claims and benefits of such Obligor against any Person
arising out of, relating to or in connection with the purchasing by such
Obligor of
<PAGE>
any rights, titles, interests and estates in any minerals including
Hydrocarbons, Inventory, Equipment or such other goods and products,
including, without limitation, any such rights, claims or benefits
against any Person storing or transporting such items;
(i) all fixtures and equipment (as such terms are defined in the
Uniform Commercial Code) which are now owned or may otherwise be
acquired by the Obligor, including, without limitation, any and all
property, equipment, fixtures and other property now owned or hereafter
acquired, including, without limitation, oil wells, gas wells,
injection wells or other wells or well equipment, field separators, liquid
extraction plants, plant compressors, pumps, pumping units, pipelines,
sales and flow lines, gathering lines, field gathering systems, salt water
disposal facilities, tanks and tank batteries, valves, fittings, machinery
and parts, engines, boilers, meters, apparatus, equipment, appliances,
tools, implements, cables, wires, towers, casing, tubing and rods,
power and telephone and telegraph lines (herein collectively called
"Equipment");
(j) the balance from time to time in the Collateral Account;
(k) all proceeds, products, offspring, accessions, rents, profits,
income, benefits, substitutions and replacements of and to any of the
property of such Obligor described in the preceding clauses of this Section
3 (including, without limitation, any proceeds of insurance thereon and all
causes of action, claims and warranties now or hereafter held by any
Obligor in respect of any of the items listed above) and, to the extent
related to any property described in said clauses or such proceeds,
products and accessions, all books, correspondence, credit files, records,
invoices and other papers, including without limitation all tapes, cards,
computer runs and other papers and documents in the possession or under the
control of such Obligor or any computer bureau or service company from time
to time acting for such Obligor; and
(l) any property that may from time to time hereafter, by delivery or
by writing of any kind, be subjected to the lien and security interest
hereof by such Obligor or by anyone on such Obligor's behalf.
Section 4. Cash Proceeds of Collateral.
4.01 Collateral Account. There is hereby established with the Agent
a cash collateral account (the "Collateral Account") in the name and under the
control of the Agent into which there shall be deposited from time to time the
cash proceeds of any of the Collateral (including proceeds of insurance thereon)
required to be delivered to the Agent pursuant hereto and into which the
Obligors may from time to time deposit any additional amounts that any of them
wishes to pledge to the Agent for the benefit of the Banks as additional
collateral security hereunder. The balance from time to time in the Collateral
Account shall constitute part of the Collateral hereunder and shall not
constitute payment of the Secured Obligations until applied
<PAGE>
as hereinafter provided. Except as expressly provided in the next sentence, the
Agent shall remit the collected balance outstanding to the credit of the
Collateral Account to or upon the order of the respective Obligor as such
Obligor through the Company shall from time to time instruct. However, at any
time following the occurrence and during the continuance of an Event of Default,
the Agent may (and, if instructed by the Banks in accordance with the Credit
Agreement, shall) in its (or their) discretion apply or cause to be applied
(subject to collection) the balance from time to time outstanding to the credit
of the Collateral Account to the payment of the Secured Obligations in the
manner specified in Section 5.08 hereof. The balance from time to time in the
Collateral Account shall be subject to withdrawal only as provided herein.
4.02 Proceeds of Accounts. At any time after the occurrence and
during the continuance of an Event of Default, each Obligor shall, upon the
request of the Agent, instruct all account debtors and other Persons obligated
in respect of all Accounts to make all payments in respect of the Accounts
either (a) directly to the Agent (by instructing that such payments be remitted
to a post office box which shall be in the name and under the control of the
Agent) or (b) to one or more other banks in the United States of America (by
instructing that such payments be remitted to a post office box which shall be
in the name and under the control of the Agent) under arrangements, in form and
substance satisfactory to the Agent pursuant to which such Obligor shall have
irrevocably instructed such other bank (and such other bank shall have agreed)
to remit all proceeds of such payments directly to the Agent for deposit into
the Collateral Account. All payments made to the Agent, as provided in the
preceding sentence, shall be immediately deposited in the Collateral Account.
In addition to the foregoing, each Obligor agrees that, at any time after the
occurrence and during the continuance of an Event of Default, if the proceeds of
any Collateral hereunder (including the payments made in respect of Accounts)
shall be received by it, such Obligor shall, upon the request of the Agent, as
promptly as possible deposit such proceeds into the Collateral Account. Until
so deposited, all such proceeds shall be held in trust by such Obligor for and
as the property of the Agent and shall not be commingled with any other funds or
property of such Obligor.
4.03 Investment of Balance in Collateral Account. Amounts on deposit
in the Collateral Account shall be invested from time to time in such Permitted
Investments as the respective Obligor through the Company (or, after the
occurrence and during the continuance of a Default, the Agent) shall determine,
which Permitted Investments shall be held in the name and be under the control
of the Agent, provided that (i) at any time after the occurrence and during the
continuance of an Event of Default, the Agent may (and, if instructed by the
Banks in accordance with the Credit Agreement, shall) in its (or their)
discretion at any time and from time to time elect to liquidate any such
Permitted Investments and to apply or cause to be applied the proceeds thereof
to the payment of the Secured Obligations in the manner specified in Section
5.08 hereof and (ii) if requested by the respective Obligor through the Company,
such Permitted Investments may be held in the name and under the control of one
or more of the Banks (and in that connection each Bank, pursuant to Section
11.10 of the
<PAGE>
Credit Agreement) has agreed that such Permitted Investments shall be held by
such Bank as a collateral sub-agent for the Agent hereunder).
4.04 Cover for Letter of Credit Liabilities. Amounts deposited into
the Collateral Account as cover for Letter of Credit Liabilities under the
Credit Agreement pursuant to Section 2.10(e) or 10 thereof shall be held by the
Agent in a separate sub-account (designated "Letter of Credit Liabilities
Sub-Account") and all amounts held in such sub-account shall constitute
collateral security first for the Letter of Credit Liabilities outstanding from
time to time and second as collateral security for the other Secured Obligations
hereunder.
4.05 Authority to Collect. Until the occurrence of an Event of
Default, each Obligor (i) shall, at its own expense, endeavor to collect, as and
when due, all amounts due to such Obligor with respect to the Collateral,
including the taking of any action with respect to such collection as the Agent
may reasonably request, or, in the absence of such request, as such Obligor may
deem advisable and (ii) may grant, in the ordinary course of business, to any
account debtor, any rebate, refund or allowance to which such account debtor may
lawfully be entitled, and may accept, in connection therewith, the return of
Hydrocarbons, the sale of which shall have given rise to Accounts.
Section 5. Further Assurances; Remedies. In furtherance of the grant
of the pledge and security interest pursuant to Section 3 hereof, the Obligors
hereby jointly and severally agree with each Bank and the Agent as follows:
5.01 Delivery and Other Perfection. Each Obligor shall:
(a) deliver and pledge to the Agent any and all Instruments,
endorsed and/or accompanied by such instruments of assignment and transfer
in such form and substance as the Agent may request; provided, that so long
as no Default shall have occurred and be continuing, such Obligor may
retain for collection in the ordinary course any Instruments received by
such Obligor in the ordinary course of business and the Agent shall,
promptly upon request of such Obligor through the Company, make appropriate
arrangements for making any Instrument pledged by such Obligor available to
such Obligor for purposes of presentation, collection or renewal (any such
arrangement to be effected, to the extent deemed appropriate by the
Agent, against trust receipt or like document);
(b) give, execute, deliver, file and/or record any financing
statement, notice, instrument, document, agreement or other papers that may
be necessary or desirable (in the judgment of the Agent) to create,
preserve, perfect or validate the security interest granted pursuant
hereto or to enable the Agent to exercise and enforce its rights hereunder
with respect to such pledge and security interest, provided that notices
to account debtors in respect of any Accounts or Instruments shall be
subject to the provisions of clause (e) below;
(c) keep full and accurate books and records relating to the
Collateral, and stamp or otherwise mark
<PAGE>
such books and records in such manner as the Agent may reasonably require
in order to reflect the security interests granted by this Agreement;
(d) permit representatives of the Agent, upon reasonable notice, at
any time during normal business hours to inspect and make abstracts from
its books and records pertaining to the Collateral, and permit
representatives of the Agent to be present at such Obligor's place of
business to receive copies of all communications and remittances relating
to the Collateral, and forward copies of any notices or communications
received by such Obligor with respect to the Collateral, all in such manner
as the Agent may require; and
(e) upon the occurrence and during the continuance of any Default, upon
request of the Agent, promptly notify (and such Obligor hereby authorizes
the Agent so to notify) each account debtor in respect of any Accounts or
Instruments that such Collateral has been assigned to the Agent hereunder,
and that any payments due or to become due in respect of such Collateral
are to be made directly to the Agent.
5.02 Other Financing Statements and Liens. Except as otherwise
permitted under Section 9.06 of the Credit Agreement, without the prior written
consent of the Agent (granted with the authorization of the Banks as specified
in Section 12.04 of the Credit Agreement), no Obligor shall file or suffer to be
on file, or authorize or permit to be filed or to be on file, in any
jurisdiction, any financing statement or like instrument with respect to the
Collateral in which the Agent is not named as the sole secured party for the
benefit of the Banks.
5.03 Preservation of Rights. The Agent shall not be required to take
steps necessary to preserve any rights against prior parties to any of the
Collateral.
5.04 Events of Default, Etc. During the period during which an Event
of Default shall have occurred and be continuing:
(a) each Obligor shall, at the request of the Agent, assemble the
Collateral owned by it at such place or places, reasonably convenient to
both the Agent and such Obligor, designated in its request;
(b) the Agent may make any reasonable compromise or settlement deemed
desirable with respect to any of the Collateral and may extend the time of
payment, arrange for payment in installments, or otherwise modify the terms
of, any of the Collateral;
(c) the Agent shall have all of the rights and remedies with respect
to the Collateral of a secured party under the Uniform Commercial Code
(whether or not said Code is in effect in the jurisdiction where the rights
and remedies are asserted) and such additional rights and remedies to which
a secured party is entitled under the laws in effect in any jurisdiction
where any rights and remedies hereunder may be asserted, including, without
limitation, the right, to the maximum extent permitted by law, to exercise
all voting, consensual and other powers of ownership
<PAGE>
pertaining to the Collateral as if the Agent were the sole and absolute
owner thereof (and each Obligor agrees to take all such action as may be
appropriate to give effect to such right);
(d) the Agent in its discretion may, in its name or in the name of the
Obligors or otherwise, demand, sue for, collect or receive any money or
property at any time payable or receivable on account of or in exchange for
any of the Collateral, but shall be under no obligation to do so; and
(e) the Agent may, upon ten business days' prior written notice to the
Obligors of the time and place, with respect to the Collateral or any part
thereof that shall then be or shall thereafter come into the possession,
custody or control of the Agent, the Banks or any of their respective
agents, sell, lease, assign or otherwise dispose of all or any part of such
Collateral, at such place or places as the Agent deems best, and for cash
or for credit or for future delivery (without thereby assuming any credit
risk), at public or private sale, without demand of performance or notice
of intention to effect any such disposition or of the time or place thereof
(except such notice as is required above or by applicable statute and
cannot be waived), and the Agent or any Bank or anyone else may be the
purchaser, lessee, assignee or recipient of any or all of the Collateral so
disposed of at any public sale (or, to the extent permitted by law, at any
private sale) and thereafter hold the same absolutely, free from any claim
or right of whatsoever kind, including any right or equity of redemption
(statutory or otherwise), of the Obligors, any such demand, notice and
right or equity being hereby expressly waived and released. The Agent may,
without notice or publication, adjourn any public or private sale or cause
the same to be adjourned from time to time by announcement at the time and
place fixed for the sale, and such sale may be made at any time or place to
which the sale may be so adjourned.
The proceeds of each collection, sale or other disposition under this Section
5.04 shall be applied in accordance with Section 5.08 hereof.
The Obligors recognize that, by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, and applicable state
securities laws, the Agent may be compelled, with respect to any sale of all or
any part of the Collateral, to limit purchasers to those who will agree, among
other things, to acquire the Collateral for their own account, for investment
and not with a view to the distribution or resale thereof. The Obligors
acknowledge that any such private sales may be at prices and on terms less
favorable to the Agent than those obtainable through a public sale without such
restrictions, and, notwithstanding such circumstances, agree that any such
private sale shall be deemed to have been made in a commercially reasonable
manner and that the Agent shall have no obligation to engage in public sales and
no obligation to delay the sale of any Collateral for the period of time
necessary to permit the issuer thereof to register it for public sale.
5.05 Deficiency. If the proceeds of sale, collection or other
realization of or upon the Collateral
<PAGE>
pursuant to Section 5.04 hereof are insufficient to cover the costs and expenses
of such realization and the payment in full of the Secured Obligations, the
Obligors shall remain liable for any deficiency.
5.06 Removals, Etc. Without at least 30 days' prior written notice
to the Agent, no Obligor shall (i) maintain any of its books and records with
respect to the Collateral at any office or maintain its principal place of
business at any place, or permit any Inventory or Equipment to be located
anywhere, other than at the address indicated beneath the signature of the
Company to the Credit Agreement or at one of the locations identified in Annex 1
hereto under its name or in transit from one of such locations to another or
(ii) change its name, or the name under which it does business, from the name
shown on the signature pages hereto.
5.07 Private Sale. The Agent and the Banks shall incur no liability
as a result of the sale of the Collateral, or any part thereof, at any private
sale pursuant to Section 5.04 hereof conducted in a commercially reasonable
manner. Each Obligor hereby waives any claims against the Agent or any Bank
arising by reason of the fact that the price at which the Collateral may have
been sold at such a private sale was less than the price that might have been
obtained at a public sale or was less than the aggregate amount of the Secured
Obligations, even if the Agent accepts the first offer received and does not
offer the Collateral to more than one offeree.
5.08 Application of Proceeds. Except as otherwise herein expressly
provided and except as provided below in this Section 5.08, the proceeds of any
collection, sale or other realization of all or any part of the Collateral
pursuant hereto, and any other cash at the time held by the Agent under Section
4 hereof or this Section 5, shall be applied by the Agent:
First, to the payment of the costs and expenses of such collection,
sale or other realization, including reasonable out-of-pocket costs and
expenses of the Agent and the fees and expenses of its agents and counsel,
and all expenses incurred and advances made by the Agent in connection
therewith;
Next, to the payment in full of the Secured Obligations, in each case
equally and ratably in accordance with the respective amounts thereof then
due and owing or as the Banks holding the same may otherwise agree; and
Finally, after payment in full of all of the Secured Obligations and
the termination of the Commitments to the payment to the respective
Obligor, or their respective successors or assigns, or as a court of
competent jurisdiction may direct, of any surplus then remaining.
Notwithstanding the foregoing, the proceeds of any cash or other amounts held in
the "Letter of Credit Liabilities Sub-Account" of the Collateral Account
pursuant to Section 4.04 hereof shall be applied first to the Letter of Credit
Liabilities outstanding from time to time and second to the other Secured
Obligations in the manner provided above in this Section 5.08.
<PAGE>
As used in this Section 5, "proceeds" of Collateral shall mean cash,
securities and other property realized in respect of, and distributions in kind
of, Collateral, including any thereof received under any reorganization,
liquidation or adjustment of debt of the Obligors or any issuer of or obligor on
any of the Collateral.
5.09 Attorney-in-Fact. Without limiting any rights or powers granted
by this Agreement to the Agent while no Event of Default has occurred and is
continuing, upon the occurrence and during the continuance of any Event of
Default the Agent is hereby appointed the attorney-in-fact of each Obligor for
the purpose of carrying out the provisions of this Section 5 and taking any
action and executing any instruments that the Agent may deem necessary or
advisable to accomplish the purposes hereof, which appointment as
attorney-in-fact is irrevocable and coupled with an interest. Without limiting
the generality of the foregoing, so long as the Agent shall be entitled under
this Section 5 to make collections in respect of the Collateral, the Agent shall
have the right and power to receive, endorse and collect all checks made payable
to the order of any Obligor representing any dividend, payment or other
distribution in respect of the Collateral or any part thereof and to give full
discharge for the same.
5.10 Perfection. Prior to or concurrently with the execution and
delivery of this Agreement, each Obligor shall (i) file such financing
statements and other documents in such offices as the Agent may request to
perfect the security interests granted by Section 3 of this Agreement.
5.11 Termination. When all Secured Obligations shall have been paid
in full and the Commitments of the Banks under the Credit Agreement and all
Letter of Credit Liabilities shall have expired or been terminated, this
Agreement shall terminate, and the Agent shall forthwith cause to be assigned,
transferred and delivered, against receipt but without any recourse, warranty or
representation whatsoever, any remaining Collateral and money received in
respect thereof, to or on the order of the respective Obligor. The Agent shall
also execute and deliver to the respective Obligor upon such termination such
Uniform Commercial Code termination statements and such other documentation as
shall be reasonably requested by the respective Obligor to effect the
termination and release of the Liens on the Collateral.
5.12 Further Assurances. Each Obligor agrees that, from time to time
upon the written request of the Agent, such Obligor will execute and deliver
such further documents and do such other acts and things as the Agent may
reasonably request in order fully to effect the purposes of this Agreement.
Section 6. Miscellaneous.
6.01 No Waiver. No failure on the part of the Agent or any Bank to
exercise, and no course of dealing with respect to, and no delay in exercising,
any right, power or remedy hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise by the Agent or any Bank of any right,
power or remedy hereunder preclude any
<PAGE>
other or further exercise thereof or the exercise of any other right, power or
remedy. The remedies herein are cumulative and are not exclusive of any
remedies provided by law.
6.02 Notices. All notices, requests, consents and demands hereunder
shall be in writing and telexed, telecopied or delivered to the intended
recipient at its "Address for Notices" specified pursuant to Section 12.02 of
the Credit Agreement and shall be deemed to have been given at the times
specified in said Section 12.02.
6.03 Expenses. The Obligors jointly and severally agree to reimburse
each of the Banks and the Agent for all reasonable costs and expenses of the
Banks and the Agent (including, without limitation, the reasonable fees and
expenses of legal counsel) in connection with (i) any Default and any
enforcement or collection proceeding resulting therefrom, including, without
limitation, all manner of participation in or other involvement with (w)
performance by the Agent of any obligations of the Obligors in respect of the
Collateral that the Obligors have failed or refused to perform, (x) bankruptcy,
insolvency, receivership, foreclosure, winding up or liquidation proceedings, or
any actual or attempted sale, or any exchange, enforcement, collection,
compromise or settlement in respect of any of the Collateral, and for the care
of the Collateral and defending or asserting rights and claims of the Agent in
respect thereof, by litigation or otherwise, including expenses of insurance,
(y) judicial or regulatory proceedings and (z) workout, restructuring or other
negotiations or proceedings (whether or not the workout, restructuring or
transaction contemplated thereby is consummated) and (ii) the enforcement of
this Section 6.03, and all such costs and expenses shall be Secured Obligations
entitled to the benefits of the collateral security provided pursuant to Section
3 hereof.
6.04 Amendments, Etc. The terms of this Agreement may be waived,
altered or amended only by an instrument in writing duly executed by each
Obligor and the Agent (with the consent of the Banks as specified in Section
12.04 of the Credit Agreement). Any such amendment or waiver shall be binding
upon the Agent and each Bank, each holder of any of the Secured Obligations and
each Obligor.
6.05 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the respective successors and assigns of each
Obligor, the Agent, the Banks and each holder of any of the Secured Obligations
(provided, however, that no Obligor shall assign or transfer its rights
hereunder without the prior written consent of the Agent).
6.06 Captions. The captions and section headings appearing herein
are included solely for convenience of reference and are not intended to affect
the interpretation of any provision of this Agreement.
6.07 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
6.08 Governing Law. This Agreement shall be
<PAGE>
governed by, and construed in accordance with, the law of the State of New York.
6.09 Agents and Attorneys-in-Fact. The Agent may employ agents and
attorneys-in-fact in connection herewith and shall not be responsible for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it
in good faith.
6.10 Inconsistent Provisions. In the event of any inconsistency
between the provisions of this Agreement and the provisions of the Credit
Agreement, the provisions set forth in the Credit Agreement shall control.
6.11 Severability. If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(i) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of the Agent and the
Banks in order to carry out the intentions of the parties hereto as nearly as
may be possible and (ii) the invalidity or unenforceability of any provision
hereof in any jurisdiction shall not affect the validity or enforceability of
such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused
this Security Agreement to be duly executed and delivered as
of the day and year first above written.
FOREST OIL CORPORATION
By _________________________
Title: President
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
as Agent
By _________________________
Title: Managing Director
<PAGE>
ANNEX 1
LIST OF LOCATIONS
[SEE SECTION 5.06]
[Complete for each Obligor:]
[NAME OF OBLIGOR]
<PAGE>
EXHIBIT 4.6
Exhibit E
to
Credit Agreement
DEED OF TRUST, MORTGAGE, SECURITY AGREEMENT,
ASSIGNMENT OF PRODUCTION, FINANCING STATEMENT
(PERSONAL PROPERTY INCLUDING HYDROCARBONS),
AND FIXTURE FILING
THIS DEED OF TRUST, MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION,
FINANCING STATEMENT (PERSONAL PROPERTY INCLUDING HYDROCARBONS), AND FIXTURE
FILING (this "Instrument"), dated as of December 1, 1993 at 9:00 a.m., Mountain
Time (the "Effective Date"), is given by FOREST OIL CORPORATION, a New York
corporation (the "Mortgagor"), with an address at 1500 Colorado National
Building, 950 17th Street, Denver, Colorado 80202 to:
1. THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), with an address at
One Chase Manhattan Plaza, New York, New York 10081, as agent for each bank
referred to below (in such capacity, the "Agent") (the Agent, together with
its successors in such capacity, is hereinafter referred to as the "Secured
Party"), as to any and all portions of the Collateral (as hereinafter
defined) EXCEPT those portions of the Collateral which (i) are located in
the State of Texas or in offshore waters adjacent to the State of Texas and
subject to the laws of the State of Texas and (ii) constitute interests in
or to real property under the law of the State of Texas (the "DT
Collateral"); and
2. Bettylou J. Robert, with an address at 1 Chase Manhattan Plaza, New
York, New York 10081, as trustee (in such capacity, together with her
successors and assigns in such capacity, the "Trustee"), but only as to
the DT Collateral.
A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT. IN CERTAIN STATES, A POWER
OF SALE MAY ALLOW THE SECURED PARTY TO TAKE THE COLLATERAL AND SELL IT WITHOUT
GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE MORTGAGOR UNDER THIS
INSTRUMENT.
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS.
TO COMPLY WITH THE REQUIREMENTS OF THE UNIFORM COMMERCIAL CODE IN SEVERAL
STATES, (A) THE NAMES OF THE MORTGAGOR AND THE SECURED PARTY, THE MAILING
ADDRESS OF THE SECURED PARTY FROM WHICH INFORMATION CONCERNING THE SECURITY
INTEREST MAY BE OBTAINED, THE MAILING ADDRESS OF THE MORTGAGOR AND OTHER
RELEVANT INFORMATION ARE SET FORTH IN THE INTRODUCTORY PARAGRAPHS HEREOF AND
SECTION 8.06 HEREOF AND (B) A STATEMENT INDICATING THE TYPES, OR DESCRIBING THE
ITEMS, OF COLLATERAL IS SET FORTH IN RECITAL 3 HEREOF.
PORTIONS OF THE COLLATERAL ARE GOODS WHICH ARE OR ARE TO BECOME AFFIXED TO OR
FIXTURES ON THE LAND DESCRIBED IN OR REFERRED TO IN EXHIBIT A HERETO. THIS
FINANCING STATEMENT IS TO BE FILED FOR RECORD OR RECORDED, AMONG OTHER PLACES,
IN THE REAL ESTATE RECORDS OF EACH COUNTY (OR, TO THE EXTENT SIMILAR RECORDS ARE
MAINTAINED AT THE CITY OR TOWN LEVEL
<PAGE>
INSTEAD OF THE COUNTY LEVEL, EACH SUCH CITY OR TOWN) IN WHICH SAID LAND OR ANY
PORTION THEREOF IS LOCATED. THE MORTGAGOR IS THE OWNER OF RECORD INTEREST IN THE
REAL ESTATE CONCERNED. THIS INSTRUMENT IS ALSO TO BE INDEXED IN THE INDEX OF
FINANCING STATEMENTS.
THIS INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES, IT BEING CONTEMPLATED THAT
THE MORTGAGOR MAY HEREAFTER BECOME INDEBTED TO THE SECURED PARTY IN FURTHER SUM
OR SUMS.
PURSUANT TO THE PROVISIONS OF SECTION 8.13 HEREOF, THOSE PORTIONS OF THE
COLLATERAL WHICH ARE HYDROCARBONS OR OTHER SUBSTANCES OF VALUE WHICH MAY BE
EXTRACTED FROM THE EARTH (INCLUDING, WITHOUT LIMITATION, OIL AND GAS), AND THE
ACCOUNTS RELATING THERETO, WILL BE FINANCED AT THE WELLHEADS OF THE WELLS
LOCATED ON THE LAND DESCRIBED OR REFERENCED TO IN EXHIBIT A ATTACHED HERETO
WHICH IS INCORPORATED HEREIN AND MADE A PART HEREOF BY THIS REFERENCE.
THE AMOUNT INVOLVED IS $200 OR MORE.
RECITALS
1. Pursuant to the terms of the Credit Agreement dated as of
December 1, 1993 among the Mortgagor, certain banks (collectively, the "Banks"),
the Subsidiary Borrowers, the Subsidiary Guarantors and the Secured Party (as
amended, supplemented and otherwise modified and in effect from time to time,
the "Credit Agreement"), the Banks have agreed to make loans from time to time
under a revolving credit facility to the Mortgagor the aggregate principal or
stated amount of which shall not exceed $50,000,000.00 at any one time
(involving the extension of A Loans not to exceed $10,000,000 at any one time
maturing December 31, 1996 and B Loans not to exceed $40,000,000 at any one time
maturing December 31, 1996), and issue or acquire participation interests in
letters of credit for account of the Mortgagor the aggregate amount of the
liabilities of the Banks under which shall not exceed $10,000,000 minus the
amount of A Loans outstanding.
2. The Secured Party, for the benefit of itself and the Banks, is
intended to have the benefit of the security provided hereby and of the proceeds
hereinafter assigned. The Secured Party is to act hereunder for the benefit of
itself and the Banks and the Trustee is to act hereunder for the benefit of the
Secured Party in accordance with the terms of this Instrument.
3. The following are hereinafter collectively referred to as the
"Collateral":
A. All rights, titles and interests of the Mortgagor (but at a minimum
the undivided interests specified in Exhibit A attached hereto and
incorporated herein by this reference) in and to the oil and gas leases,
the oil, gas and mineral leases and other mineral properties or interests
described in Exhibit A hereto (collectively, the "Leases") and in the lands
and premises covered or affected thereby (the "Lands"), except the rights,
titles and interests of the Mortgagor expressly excluded in Exhibit A
hereto;
B. without limitation of the foregoing, all
<PAGE>
other right, title and interest of the Mortgagor of whatever kind or
character in and to the Leases and Lands described in Exhibit A hereto, or
lands which are otherwise described in any of the Leases or other
instruments described in Exhibit A hereto, even though such lands may be
incorrectly described in, or omitted from, Exhibit A hereto, except the
rights, titles and interests of the Mortgagor expressly excluded in Exhibit
A hereto;
C. all rights, titles, interests and estates owned by the Mortgagor in
and to (i) the properties now or hereafter pooled or unitized with the
Leases; (ii) all presently existing or future unitization, communitization,
pooling agreements, orders and/or declarations of pooled units and the
units created thereby (including, without limitation, all units created
under orders, regulations, rules or other official acts of any Federal,
state or other governmental body or agency having jurisdiction and so
called "working interest units" created under operating agreements, surface
use agreements, support agreements or otherwise) which may affect all or
any portion of the Leases including, without limitation, those units which
may be described or referred to in Exhibit A hereto; and (iii) all
operating agreements, farmout agreements, farmin agreements, development
agreements, participation agreements, area of mutual interest agreements,
equipment leases, purchase agreements, sale agreements, option agreements
and other agreements which cover, affect or otherwise relate to any of the
Leases or Lands or interests in the Leases or Lands described or referred
to herein or in Exhibit A hereto or to the production, sale, purchase,
exchange, processing, handling, storing, transporting or marketing of the
Hydrocarbons (as defined in Section 6.02 hereof) produced from or
attributable to such Leases or Lands or interests therein;
D. any property that may from time to time hereafter, by delivery or
by writing of any kind, be subjected to the lien and security interest
hereof by the Mortgagor or by anyone on the Mortgagor's behalf; and the
Secured Party on behalf of the Banks is hereby authorized to receive the
same at any time as additional security hereunder;
E. all of the rights, titles and interests of every nature whatsoever
now owned by the Mortgagor (as the same may be enlarged by the removal of
any prior Encumbrance) in and to the Lands, Leases, rights, titles,
interests and estates and every part and parcel thereof, including, without
limitation, the Lands, Leases, rights, titles, interests and estates as the
same may be enlarged by the discharge of any payments out of production or
by the removal of any charges or Encumbrances (as defined in Section 2.02
hereof) to which any of the Lands, Leases, rights, titles, interests or
estates are subject, or otherwise; together with any and all renewals and
extensions of any of the Lands, Leases, rights, titles, interests or
estates; all contracts and agreements supplemental to or amendatory of or
in substitution for the contracts and agreements described or mentioned
above; and any and all additional interests of any kind hereafter acquired
by the Mortgagor in and to such Lands, Leases,
<PAGE>
rights, titles, interests and estates, excluding any additional undivided
interests in such Lands, Leases, rights, titles, interests and estates,
hereafter acquired by the Mortgagor;
F. all tenements, hereditaments, appurtenances and properties in any
way appertaining, belonging, affixed or incidental to the Lands, Leases,
rights, titles, interests and estates described or referred to in
paragraphs A, B, C, D and E above, which are now owned or, except with
respect to any additional undivided interests as provided in paragraph E
above, which may hereafter be acquired (by operation of law or otherwise)
by the Mortgagor, including, without limitation, any and all property, real
or personal, equipment, improvements, fixtures and other property now owned
or hereafter acquired and situated upon, used, held for use, or useful in
connection with the operating, working or development of any of the Leases
or the lands covered thereby or pooled or unitized therewith including,
without limitation, any and all of the Mortgagor's rights, titles and
interests in oil wells, gas wells, injection wells or other wells
(including, without limitation, the wells described in Exhibit A hereto) or
well equipment, buildings, structures, field separators, liquid extraction
plants, plant compressors, pumps, pumping units, pipelines, sales and flow
lines, gathering lines, field gathering systems, salt water disposal
facilities, tanks and tank batteries, fixtures, valves, fittings, machinery
and parts, engines, boilers, meters, apparatus, equipment, appliances,
tools, implements, cables, wires, towers, casing, tubing and rods, power,
telephone and telegraph lines, surface leases, rights-of-way, easements,
servitudes and other surface rights situated upon, used, held for use or
useful in connection with the operation and development of the Leases and
the Lands covered thereby or pooled or unitized therewith, together with
all additions, substitutions, replacements, accessions and attachments to
any and all of the foregoing properties (the foregoing rights, interests
and properties described in paragraphs A, B, C, D, E and this paragraph F
above, and all rights, estates, powers and privileges appurtenant thereto
are referred to herein collectively as the "Mortgaged Properties" and,
individually, as a "Mortgaged Property"); and
G. all rights, titles, interests and estates now owned by the
Mortgagor in and to all Hydrocarbons in and under and which may be produced
from or attributable to the Leases and the Lands or lands pooled or
unitized therewith including, without limitation, all natural gas in tanks
and all rents, issues, profits, proceeds (including without limitation, any
prepayment for production not taken or payments in lieu of production),
products, revenues and other income from or attributable to the Leases and
the Lands covered thereby or pooled or unitized therewith which are
subjected or required to be subjected to the liens and security interests
of this Instrument; and further including, without limitation, any and all
liens and security interests in the Hydrocarbons securing payment of
proceeds from the sale of Hydrocarbons.
<PAGE>
To secure the performance of the Obligations (as hereinafter defined)
and for and in consideration of the Loans made, and the Letters of Credit
issued, pursuant to the Credit Agreement, the Mortgagor hereby:
A. GRANTS, BARGAINS, SELLS, ASSIGNS, TRANSFERS, PLEDGES, MORTGAGES,
WARRANTS and CONVEYS, and grants a security interest in, the Collateral
other than the DT Collateral to the Secured Party WITH POWER OF SALE
pursuant to this Instrument and applicable law, for the benefit and
security of the Secured Party, subject to the rights of the Secured Party
under the assignment made in paragraph D below;
B. GRANTS, BARGAINS, SELLS, ASSIGNS, TRANSFERS and CONVEYS the DT
Collateral to the Trustee, IN TRUST, WITH POWER OF SALE pursuant to this
Instrument and applicable law, for the benefit of the Secured Party; and
C. without limiting the grant in paragraph A above, grants to the
Secured Party a security interest in those portions of the Collateral which
(i) are located in the State of Texas or in offshore waters adjacent to the
State of Texas and subject to the laws of the State of Texas and (ii) do
not constitute DT Collateral;
TO HAVE AND TO HOLD the Collateral other than the DT Collateral unto the
Secured Party, its successors and assigns, forever, and TO HAVE AND TO HOLD
the DT Collateral unto the Trustee, its successors and assigns, forever, in
trust, subject to all of the terms, conditions, covenants and agreements
herein set forth, for the security and benefit of the Secured Party and its
successors and assigns as holders of the Obligations (as hereinafter
defined); and
D. UNCONDITIONALLY AND ABSOLUTELY ASSIGNS, CONVEYS, TRANSFERS and SETS
OVER to the Secured Party any and all of the Mortgagor's rights in respect
of the Hydrocarbons, including, without limitation, all severed and
extracted Hydrocarbons and other minerals produced from or attributable to
the Mortgaged Property, including, without limitation, all of the proceeds
thereof.
AND, in furtherance thereof, the Mortgagor warrants, represents,
covenants and agrees as follows:
ARTICLE I
Obligations Secured
Section 1.01 Obligations. This Instrument is executed, acknowledged
and delivered by the Mortgagor to secure and enforce the following obligations
(herein collectively called the "Obligations"):
A. Payment in full when due (whether at stated maturity, by
acceleration or otherwise) of the principal of and interest on the Loans
made by the Banks and evidenced by the Notes held by the Banks and all
other amounts (including, without limitation, Reimbursement Obligations)
from time to time owing to, and obligations to be performed in favor of,
the
<PAGE>
Secured Party and the Banks by the Mortgagor under the Credit Agreement,
the Notes and under any of the other Basic Documents (any reborrowings,
future advances, readvances, modifications, extensions, substitutions,
exchanges and renewals shall enjoy the same priority as the initial
advances evidenced by the Notes);
B. Payment of all sums advanced and costs and expenses
(including, without limitation, all legal and engineering fees) incurred by
the Secured Party (whether directly or indirectly on behalf of itself and
any of the Banks) in connection with the Obligations or any part thereof,
any reborrowing, future advance, readvance, modification, extension,
substitution, exchange and renewal of the Obligations or any part thereof,
or the acquisition or perfection of the security therefor, whether such
advances, costs and expenses were made or incurred at the request of the
Mortgagor or the Secured Party; and
C. Payment of all other indebtedness and liabilities and
performance of all other obligations of the Mortgagor to the Secured Party
or the Trustee arising pursuant to this Instrument or in connection
herewith, including without limitation all sums advanced by the Secured
Party or the Trustee to protect the Collateral, each of which Obligation
(unless otherwise specified in the writing creating such Obligation) shall
be due and payable five days after demand for payment is made upon the
Mortgagor by the Secured Party and shall bear interest at the Post-Default
Rate.
ARTICLE II
Warranties, Representations and Covenants
The Mortgagor hereby represents, warrants and covenants as follows:
Section 2.01 Performance of Obligations. The Mortgagor shall pay when
due the principal of and the interest on the Obligations as the same shall
become due and payable in accordance with the terms hereof and the Credit
Agreement.
Section 2.02 Warranty of Title.
(a) The Mortgagor has good and marketable title in and to the
undivided interests specified as fractional, percentage or decimal interests in
Exhibit A hereto in the Lands and Leases identified in Exhibit A hereto. Any
fractional, percentage or decimal interests specified in Exhibit A in referring
to Mortgagor's interests in the Mortgaged Property are solely for the purposes
of the representations and warranties set forth herein and shall in no manner
limit the quantum of the interests of the Mortgagor in the Mortgaged Property
mortgaged and pledged by the Mortgagor hereunder. All Leases are valid,
subsisting and in full force and effect, none of such Leases is in default and
no event has occurred and is continuing, and no condition exists that, after
notice or the passage of time or both could become a default under any such
Lease.
(b) The Collateral is free and clear of (i) all
<PAGE>
Liens, and (ii) except as otherwise disclosed to Agent in writing prior to the
date hereof, any and all preferential purchase rights or other rights,
restrictions or limitations of any nature or kind (herein collectively called
"Encumbrances"), other than (A) Permitted Liens described in Section 9.06 of the
Credit Agreement, (B) the Liens in favor of the Trustee and the Secured Party
created or provided herein and (C) any other Liens or Encumbrances that would
not, either individually or in the aggregate, reduce the value or impair the
marketability of the Mortgaged Properties or interfere with the use or operation
of the Mortgaged Properties in the ordinary course of business of the Mortgagor.
(c) Except as set forth in Exhibit A, none of the existing
Encumbrances include "take or pay", "gas balancing" or other comparable
obligations in accordance with which Hydrocarbons have heretofore been or may
hereafter be produced and delivered from the Mortgaged Property without the
Mortgagor then or thereafter having the right to receive full payment therefor,
except as otherwise disclosed by any contractual or other arrangements whereby
payment for production from such Mortgaged Property is to be deferred for a
substantial period after the month in which such production is delivered (i.e.,
in the case of oil, not in excess of 60 days, and in the case of gas, not in
excess of 90 days), other than any suspension of payments that is customary in
the industry. No Mortgaged Property is subject to any contractual or other
arrangement for the sale of crude oil that (i) provides for the sale of crude
oil at a price that does not adjust from time to time at reasonable intervals to
reflect currently prevailing crude oil prices in the market in which crude oil
severed from such Mortgaged Property is sold and (ii) cannot be canceled upon 90
days (or less) notice. No Mortgaged Property is subject to a gas sales contract
that contains terms which are not customary in the industry, which terms either
individually or in the aggregate, reduce the value or impair the marketability
of the Mortgaged Properties or the gas produced therefrom. No Mortgaged Property
is subject to any contractual or other arrangement for the sale of oil or gas to
any affiliate of Mortgagor. No Mortgaged Property is subject at the present time
to any regulatory refund obligation and, to the best of the Mortgagor's
knowledge, no facts exist which might cause the same to be imposed.
(d) Except as set forth on Exhibit A, no Lien or Encumbrance on the
Mortgaged Properties would cause the Mortgagor's (i) share of production from
the wells or Leases and Lands described in Exhibit A to be less than the net
revenue interest ("NRI") (expressed as a fraction, percentage or decimal) set
forth in Exhibit A in connection with said wells or Leases and Lands or (ii)
share of expenses of development, production and operation with respect to said
well or Leases to be more than the working interest ("WI") (expressed as a
fraction, percentage or decimal) set forth in Exhibit A in connection with said
wells or Leases (unless there is also a proportionate increase in NRI).
Section 2.03 Power to Create Lien and Security Interest. The Mortgagor
has full power and lawful authority to grant, bargain, sell, assign, transfer,
mortgage, and convey a security interest in all of the Collateral in the manner
and form herein provided and without obtaining the authorization, approval,
consent or waiver of any lessor,
<PAGE>
sublessor, governmental or regulatory authority or agency or other party or
parties whomsoever.
Section 2.04 Defense of Title to Collateral. Subject to Section
2.02(b) hereof, the Mortgagor will warrant and defend the title to the
Collateral against the claims and demands of all other persons whomsoever and
will maintain and preserve the Lien created hereby so long as any of the
Obligations secured hereby remain unpaid. If the title, interest or Lien, as the
case may be, of the Mortgagor or the Secured Party to the Collateral (or the
Trustee to the DT Collateral) or any part thereof, or the security of this
Instrument, or the rights or powers of the Secured Party or the Trustee
hereunder, shall be attacked, either directly or indirectly, or if any legal
proceedings are commenced involving the Mortgagor or its properties, the
Mortgagor shall promptly give written notice thereof to the Secured Party (and
the Trustee, if the Collateral is DT Collateral) and at the Mortgagor's own
expense shall take all reasonable steps diligently to defend against any such
attack or proceedings, employing attorneys reasonably acceptable to the Secured
Party; and the Secured Party and the Trustee may take such independent action in
connection therewith as either of them may in their respective discretion deem
advisable, and all reasonable costs and expenses, including, without
limitation, reasonable attorneys' fees and legal expenses, incurred by the
Secured Party and by the Trustee in connection therewith shall be a part of the
Obligations described in Section 1.01.C. above. Such obligation shall be payable
on demand and shall bear interest from the date of demand therefor until paid at
a per annum rate of interest equal to the Post-Default Rate, but in no event to
exceed the maximum nonusurious rate allowed by applicable law.
Section 2.05 First Lien. Except for Liens permitted under Section 9.06
of the Credit Agreement this Instrument is, and the Mortgagor will ensure this
Instrument is kept as, a direct and first Lien and security interest upon the
Collateral and the Mortgagor will not create, incur, assume or suffer to be
created or permit to exist any other Lien upon the Collateral or any part
thereof or upon the rents, issues, revenues, profits and other income therefrom.
Section 2.06 Identify; Chief Office. The Mortgagor will not change its
employer identification number, the location of its chief executive office, its
principal place of business or the place where it keeps its books and records
concerning the Collateral (including, particularly, the proceeds from the sale
of Hydrocarbons) without notifying the Secured Party or the Trustee of such
change in writing at least 60 days prior to the effective date of such change.
Section 2.07 Further Assurances; Recordation. The Mortgagor shall
promptly and, insofar as not contrary to applicable law, at Mortgagor's own
expense, file and refile, or cause to be filed or refiled, in such offices, at
such times and as often as may be necessary, this Instrument and every other
instrument in addition or supplemental hereto, including, without limitation,
applicable financing statements, as may be necessary to create, perfect,
maintain and preserve the Lien intended to be created hereby and the rights and
remedies of the Secured Party and of the Trustee hereunder, and shall promptly
furnish to the Secured Party
<PAGE>
evidence satisfactory to the Secured Party of all such filings and refilings and
otherwise shall do or cause to be done all things necessary or expedient to be
done to effectively create, perfect, maintain and preserve the Lien intended to
be created hereby as a first Lien on the real property and (in each case, except
for Liens permitted under Section 9.06 of the Credit Agreement), as a first and
prior security interest in the personal property which constitute the Collateral
and to create, perfect, maintain and preserve the assignments made in paragraph
D of the granting clause of this Instrument. The Mortgagor shall execute,
acknowledge and deliver to the Secured Party such other and further instruments
and do such other acts as in the reasonable opinion of the Secured Party may be
necessary or desirable to more fully identify and subject to the Lien and
assignment created hereby, any property intended by the terms hereof to be
covered hereby, to assure the first priority thereof (except for Liens permitted
under Section 9.06 of the Credit Agreement), and otherwise to effect the intent
of this Instrument, promptly upon request of the Secured Party and at the
Mortgagor's expense.
Section 2.08 Maintenance and Operations. The Mortgagor will promptly
pay and discharge or cause to be paid and discharged all rentals, delay rentals,
royalties and indebtedness accruing under, and perform or cause to be performed
each and every act, matter or thing required by, each and all of the
assignments, deeds, subject leases, sub- leases, contracts and agreements
described or referred to herein or affecting the Mortgagor's interests in the
Collateral, and will do or cause to be done all other things necessary to keep
unimpaired the Mortgagor's rights with respect thereto and prevent any
intentional forfeiture thereof or default with respect thereof other than a
default which might occur as a result of cessation of production thereunder. The
Mortgaged Property (and properties unitized therewith) have been, to the extent
the same could adversely affect the ownership or operations of the Collateral
after the Effective Date, maintained, operated and developed in full repair,
working order and efficiency; specifically in this connection, (i) no Mortgaged
Property is subject to having allowable production after the Effective Date
reduced below the full and regular allowable (including, without limitation, the
maximum permissible tolerance) because of any over production (whether or not
the same was permissible at the time) prior to the Effective Date and (ii) none
of the wells located on the Mortgaged Property (or properties unitized
therewith) are deviated from the vertical more than the maximum permitted by
applicable laws, regulations, rules and orders, and such wells are, in fact,
bottomed under and are producing from, and the well bores are wholly within, the
Mortgaged Property (or, in the case of wells located on properties pooled or
unitized therewith, such pooled or unitized properties). The Mortgagor will
operate the Mortgaged Property in a careful and efficient manner in accordance
with the practices of the industry and in compliance with all applicable
contracts and agreements and in compliance with all applicable spacings
proration and conservation laws of the jurisdiction in which the Mortgaged
Property is situated, and all applicable laws, rules and regulations of every
other agency and authority from time to time constituted to regulate the
development and operation of the Mortgaged Property and the production and sale
of Hydrocarbons and other minerals produced therefrom. The Mortgagor will do or
cause to be done, or shall participate in, such development work as may be
reasonably necessary to
<PAGE>
the prudent and economical operation of the Mortgaged Property in accordance
with the approved practices of prudent operators in the industry, including,
without limitation, all to be done that may be appropriate to protect from
diminution the productive capacity of the Mortgaged Property and each producing
well thereon. Upon the request of either the Secured Party or the Trustee, the
Mortgagor will (a) permit the Secured Party or the Trustee, as the case may be,
and its respective designated representatives to enter upon any part of the
Mortgaged Property under the control of the Mortgagor, and (b) use its best
efforts to cause the operator of any part of the Mortgaged Property not under
the control of the Mortgagor to permit the Secured Party or Trustee, as the case
may be, and its designated representatives to enter upon the same (to the extent
and subject to the conditions under which the Mortgagor may so enter), for the
purposes of inspecting the condition and operation thereof.
Section 2.09 Abandonment; Sales or Dispositions.
(a) Notwithstanding anything contained herein to the contrary, the
Mortgagor shall not abandon or permit to be abandoned all or any portion of the
Mortgaged Properties, except to the extent that the production and sale of
Hydrocarbons therefrom, under then current market conditions and using
production techniques then customary in the oil and gas industry for wells of
such type, have ceased to be producing in paying quantities.
(b) The Mortgagor will not sell, lease, assign, transfer or otherwise
dispose of any part of the Mortgaged Property except as permitted by the Credit
Agreement or this Instrument. The Mortgagor will not sell, lease, assign,
transfer or otherwise dispose of, or create, incur, assume or suffer to exist
any Lien upon, the Mortgagor's interest in any Hydrocarbon transmission lines
and any gas processing plants not constituting Mortgaged Property used,
necessary or intended to be used in connection with the production or marketing
of any Hydrocarbons from the Mortgaged property or lands pooled or unitized
therewith, except Liens which would be Permitted Liens if such transmission
lines or gas processing plants were Mortgaged Property and dispositions or Liens
which do not impair the deliverability of an Hydrocarbons utilizing such
transmission lines or gas processing plants.
Section 2.10 Maintenance of Insurance. The Mortgagor shall purchase
and maintain in full force and effect policies of insurance in such form and
amounts covering such risks, and issued by such companies, in each case in the
manner and to the extent required pursuant to Section 9.04 of the Credit
Agreement. The Secured Party or the Trustee shall have the right to collect, and
the Mortgagor hereby assigns to the Secured Party or the Trustee, any and all
monies that may become payable under any such policies of insurance by reason of
damage, loss or destruction of any of the Mortgaged Property, and the Secured
Party or the Trustee may apply all or any part of the sums so collected, as the
Secured Party or the Trustee elects, toward payment of the Obligations, whether
or not such Obligation is then due and payable, in such manner as the Secured
Party or the Trustee may elect.
Section 2.11 Reporting. In addition to the
reporting requirements of Section 9.01 of the Credit
<PAGE>
Agreement, the Mortgagor will, upon request of either the Secured Party on
behalf of any Bank or the Trustee, furnish or cause to be furnished to the
Secured Party or the Trustee, as the case may be, reports prepared by or for the
Mortgagor concerning the expediency of any change in methods of treatment or
operation of all or any well included in the Mortgaged Property; any new
drilling or development; any abandonment or proposed abandonment of any well;
any plugging of any well or reopening of same at a different level and any
method of repressuring in the field or any other action with respect to the
Mortgaged Property.
Section 2.12 Expenses; Indemnification. The Mortgagor will promptly
upon demand by the Secured Party pay all reasonable costs and expenses
heretofore or hereafter incurred by the Secured Party for legal, engineering,
geological or accounting services rendered to the Banks in connection with the
enforcement of any of the rights hereunder. The Mortgagor will indemnify the
Secured Party and the Trustee and their respective directors, officers,
employees and agents from, and hold each of them harmless against, any and all
losses, liabilities, claims, damages or expenses (including, without
limitation, reasonable attorneys' fees and expenses) incurred by any of them
arising out of or by reason of any investigation or litigation or proceeding
(including any threatened investigation or litigation or other proceeding) on
account of or in connection with any bodily injury or death or property damage
occurring in or upon or in the vicinity of the Collateral through any cause
whatsoever or asserted against them on account of any act performed or omitted
to be performed hereunder or on account of any transaction arising out of or in
any way connected with the Collateral or with this Instrument (but excluding any
such losses, liabilities, claims, damages, or expenses incurred by reason of the
gross negligence or willful misconduct of the Person to be indemnified). Any
amount to be paid hereunder by the Mortgagor shall be a demand obligation owing
by the Mortgagor and shall bear interest from the date such obligation is due
until such obligation is paid, at a per annum rate of interest equal to the
Post-Default Rate.
Section 2.13 Non-Operated Interests. All or portions of the Collateral
may be comprised of interests in the Leases or Lands or lands pooled or unitized
therewith which are other than working interests or which may be operated by a
party or parties other than the Mortgagor and with respect to all such portions
of the Collateral, the Mortgagor's covenants as expressed in this Article II are
modified to require that the Mortgagor use its best efforts to obtain compliance
with such covenants by the working interest owners or the operator or operators
of such Leases, Lands or properties.
Section 2.14 Failure to Perform. The Mortgagor agrees that if the
Mortgagor fails to perform any act or to take any action which the Mortgagor is
required to perform or take hereunder or pay any money which the Mortgagor is
required to pay hereunder, each of the Secured Party and the Trustee in the
Mortgagor's name or its or their own name may, but shall not be obligated to,
perform or cause to perform such act or take such action or pay such money, and
any expenses so incurred by either of them and any money so paid by either of
them shall be a demand obligation owing by the Mortgagor to the Secured Party or
the Trustee, as the case may be, and each of the Secured Party and the Trustee,
<PAGE>
upon making such payment, shall be subrogated to all of the rights of the
person, corporation or body politic receiving such payment. Each amount due and
owing by Mortgagor to each of the Secured Party and the Trustee pursuant to this
Instrument shall bear interest from the date of such expenditure or payment or
other occurrence which gives rise to such amount being owed to such Person until
paid at the Post-Default Rate, and all such amounts together with such interest
thereon shall be a part of the Obligations described in Section 1.01.C. hereof.
Section 2.15 Compliance with Environmental Laws. The Mortgagor will
not cause or permit the Collateral to be in violation of, or do anything or
permit anything to be done which will subject the Collateral to, any remedial
obligations under any Environmental Law. The Mortgagor will not use the
Collateral in a manner which will result in (i) the disposal or other release of
any solid waste or hazardous substance on or to the Collateral, (ii) a release
of a hazardous substance on or to the Collateral in a quantity equal to or
exceeding that quantity which requires reporting pursuant to Section 103 of
CERCLA, or (iii) the release of any hazardous substance on or to the Collateral
so as to pose an imminent and substantial endangerment to public health or
welfare or the environment and covenants and agrees to keep or cause the
Collateral to be kept free of any hazardous waste or contaminants and to remove
the same (or if removal is prohibited by law, to take whatever action is
permitted by law), promptly upon discovery and at its sole expense. In the event
the Mortgagor fails to do so, after notice to the Mortgagor, the Secured Party
upon the request of the Majority Banks may either declare an Event of Default
under this Instrument and exercise any and all remedies hereunder or cause the
Collateral to be freed from the hazardous waste or contaminants (or if removal
is prohibited by law, to take whatever action is permitted by law), and the cost
of the removal or such other action shall be a demand obligation owing by the
Mortgagor to the Secured Party (or the Trustee) pursuant to this Instrument and
shall bear interest at the Post-Default Rate. The Mortgagor grants to the
Secured Party and the Trustee and its agents and employees access to the
Collateral and the license to remove the hazardous waste or contaminants (or if
removal is prohibited by law, to take whatever action is required by law) and
agrees to indemnify and save the Secured Party and the Trustee harmless from all
costs and expense involved and from all claims (including, without
limitation, consequential damages) asserted or proven against the same by any
party in connection therewith. From time to time, but not more frequently than
once during any period of twelve calendar months unless at the time a Default
shall have occurred and be continuing, upon the reasonable request of the
Secured Party, the Mortgagor will provide at the Mortgagor's sole expense an
inspection or audit of the Collateral from an engineering or consulting firm
selected by the Mortgagor and approved by the Agent, which approval shall not be
unreasonably withheld, indicating the presence or absence of such substances on
the Collateral. If the Mortgagor fails to provide same after 10 days' notice,
the Secured Party may order same, and the Mortgagor grants to the Secured Party
and its employees and agents access to the Collateral and a license to undertake
the testing. The cost of such tests shall be a demand obligation owing by the
Mortgagor to the Secured Party pursuant to this Instrument and shall bear
interest at the Post-Default Rate.
<PAGE>
Section 2.16 Environmental Indemnity. The Mortgagor agrees to
indemnify the Secured Party and the Trustee and their respective shareholders,
directors, officers, employees and agents from, and hold each of them harmless
against, any and all losses, liabilities, claims, damages or expenses
(including, without limitation, attorneys' fees and court costs), asserted
against or incurred by any of the Secured Party and the Trustee at any time and
from time to time by reason of or arising out of (a) the breach of any
representation or warranty of the Mortgagor set forth in Section 8.13 of the
Credit Agreement, (b) the failure of the Mortgagor to perform any obligation
herein required to be performed by the Mortgagor regarding Environmental Laws,
(c) any violation on or before the Release Date (as hereinafter defined) of any
Environmental Law in effect on or before the Release Date, and (d) any act,
omission, event or circumstance existing or occurring on or prior to the Release
Date (including, without limitation, the presence on the Collateral or release
from the Collateral of hazardous substances or solid wastes disposed of or
otherwise released on or prior to the Release Date), resulting from or in
connection with the ownership, construction, occupancy, operation, use and/or
maintenance of the Collateral, regardless of whether the act, omission, event or
circumstance constituted a violation of any Environmental Law at the time of its
existence or occurrence. The foregoing indemnity shall not apply with respect to
matters solely caused by or arising out of the gross negligence or willful
misconduct of any of the Secured Parties and the Trustee. As used in this
paragraph, the terms "Secured Party" and "the Trustee" shall collectively mean
and include not only the Secured Party or the Trustee respectively described
herein but also any Bank, and any respective persons or entities owned or
controlled by or affiliated with the Secured Party or the Trustee. The "Release
Date" as used herein shall mean the earlier of: (i) the date on which the
Obligations secured hereby have been irrevocably paid and performed in full and
this Instrument has been released and (ii) the date on which the lien of this
Instrument is foreclosed or a deed in lieu of such foreclosure is fully
effective. The provisions of this paragraph shall survive the Release Date and
shall continue thereafter in full force and effect.
Section 2.17 Action during Event of Default. To the fullest extent that it
lawfully may, the Mortgagor hereby agrees that, during the continuance of an
Event of Default, the Secured Party or the Trustee shall be entitled at any time
or from time to time to exercise all of the rights, remedies, powers and
privileges vested in the Mortgagor under the leases, contracts and Properties
comprising the Collateral, and to give or withhold or make all consents,
directions, notices, approvals and waivers required or permitted therein which
the Mortgagor would otherwise be entitled to give or withhold.
ARTICLE III
Collection of Production and Proceeds
Section 3.01 Assignment of Hydrocarbons. Pursuant to the assignment
made by the Mortgagor in paragraph D of the granting clause of this Instrument,
the Secured Party is entitled to receive all of the Hydrocarbons (other than
such portion of the Hydrocarbons that are
<PAGE>
subject to Volumetric Production Payments permitted under the Credit Agreement)
in and under which may be produced and saved from or attributable to the
Mortgaged Properties, together with all of the proceeds thereof, effective as of
the date of this Instrument at 9:00 a.m., Mountain Time. The Mortgagor
acknowledges and agrees that said assignment is intended to be an absolute and
unconditional assignment and not merely a pledge of or creation of a security
interest therein or assignment as additional security. The Mortgagor hereby
authorizes and directs any owner, lessor or party to a lease or other contract
comprising or affecting the Collateral and their respective successors and
assigns (herein collectively called "Payors") to treat and regard the Secured
Party as the party entitled, in the Mortgagor's place and stead, to receive said
Hydrocarbons and proceeds and to exercise all rights of the Mortgagor with
respect thereto; and said parties shall be fully protected in so treating and
regarding the Secured Party and shall be under no obligation to see to the
application by the Secured Party of any such proceeds received by it. For its
convenience, the Secured Party may, with respect to any or all such Hydrocarbons
or proceeds, permit the Mortgagor to receive such Hydrocarbons or proceeds until
the occurrence of and during the continuance of any Event of Default. The
exercise of the rights granted to the Secured Party hereunder to permit the
Mortgagor to receive such Hydrocarbons prior to the occurrence and continuance
of an Event of Default shall not in any way waive the right of the Secured Party
to demand and receive such Hydrocarbons and proceeds thereafter attributable to
the Collateral and shall not in any way diminish the absolute and unconditional
right of the Secured Party to receive all of the said Hydrocarbons and proceeds
and cash proceeds not theretofore expended or distributed by the Mortgagor.
Notwithstanding the above, Agent hereby represents to Mortgagor that it will not
make any demand to receive any such Hydrocarbons or proceeds unless and until an
Event of Default has occurred. The Mortgagor hereby agrees that upon (i) written
notice from the Secured Party or (ii) the occurrence and during the continuance
of an Event of Default, whichever shall first occur all cash, proceeds,
instruments and other property, of whatever kind or character, received by the
Mortgagor on account of the Collateral, whether received by the Mortgagor in the
exercise of its collection rights hereunder or otherwise, shall be remitted to
the Secured Party or deposited to an account with the Secured Party in the form
received (properly assigned or endorsed to the order of the Secured Party or for
collection and in accordance with the Secured Party's instructions) not later
than the first banking business day following the day of receipt, to be applied
as provided in Section 3.02 hereof and, until so applied, may be held by the
Secured Party in a separate account under the dominion and control of the
Secured Party on which the Mortgagor may not draw. The Mortgagor agrees not to
commingle any such property, following the occurrence of any such Event of
Default, with any of its other funds or property and agrees to hold the same
upon an express trust for the Secured Party until remitted to the Secured Party.
Section 3.02 Application of Proceeds. All of the proceeds received by
the Secured Party pursuant to Section 3.01 hereof during a particular calendar
quarter shall be promptly applied by the Secured Party in satisfaction of
Obligations due during that calendar quarter, in such order of application as
the Secured Party shall determine in its
<PAGE>
sole and absolute discretion, on the later of the due date of such Obligations
or the date of receipt of such proceeds. Any proceeds received by the Secured
Party pursuant to Section 3.01 hereto shall, pending the application thereof in
satisfaction of the Obligations, be deposited in an interest bearing account and
any interest earned thereon shall likewise be applied by Secured Party in
satisfaction of the Obligations. If an Event of Default has occurred and is
continuing, any balance remaining after such application of such proceeds as set
forth in Section 5.11.A. and B. shall be applied first to the creation of such
reserves for the satisfaction of Obligations to become due within the next two
succeeding calendar quarters as the Secured Party reasonably determines to be
necessary to satisfy such Obligations as they become due (provided that to the
extent the proceeds are set aside for the satisfaction of Obligations which, at
the time such reserves are created, are not reasonably anticipated to be due
within the next succeeding calendar quarter, such proceeds shall be invested in
one or more certificates of deposit of one or more banks or financial
institutions having capital surplus or undivided profits of at least
$500,000,000, and shall be held to maturity, and all interest accruing thereon
shall be applied by the Secured Party to Obligations as they become due); and
the remainder, if any, shall be paid to the Mortgagor. If no Event of Default
has occurred and is continuing, any such balance shall be paid to the Mortgagor.
Section 3.03 Status of Hydrocarbons after Sale of Collateral. Upon any
sale of any of the Collateral by the Secured Party for the benefit of the Banks
pursuant to Article V, the Hydrocarbons thereafter produced from and attributed
to the part of the Collateral so sold, and the proceeds thereof, shall be
included in such sale and shall pass to the purchaser free and clear of the
provisions of this Article.
Section 3.04 No Liability of Agent and Trustee. The Secured Party and
the Trustee are hereby absolved from all liability for failure to enforce
collection of any such proceeds and from all other responsibility in connection
therewith, except the responsibility to account to the Mortgagor for proceeds
actually received.
Section 3.05 Indemnification of Agent and Trustee. The Mortgagor shall
indemnify the Secured Party and the Trustee and their respective shareholders,
directors, officers, employees and agents against all claims, actions,
liabilities, judgments, costs, attorneys' fees and other charges of whatsoever
kind or nature (herein called "Claims") made against or incurred by any of them
as a consequence of the assertion, either before or after the payment in full of
the Obligations, that the Secured Party and the Trustee received Hydrocarbons or
proceeds pursuant to this Article which were claimed by or due to third persons.
The Secured Party and the Trustee shall have the right to employ attorneys and
to defend against any Claims, and unless furnished with reasonable indemnity,
the Secured Party or the Trustee, in the case of claims asserted against the
Trustee, shall have the right to pay or compromise and adjust all Claims. The
Mortgagor shall indemnify and pay to the Secured Party and the Trustee all such
amounts as may be paid in respect thereof or as may be successfully adjudicated
against the Secured Party or the Trustee. The liabilities of the Mortgagor as
set forth in this Section shall survive the termination of this Instrument.
<PAGE>
Section 3.06 Right to Receive Payments. The Secured Party shall have
the immediate and continuing right pursuant to the assignment made in Section
3.01 above, to demand, collect, receive and receipt for all production, proceeds
and payments assigned hereunder, and the Secured Party is hereby irrevocably
appointed agent and attorney-in-fact of the Mortgagor for the purpose of
executing any release, receipt, division order, transfer order, relinquishment
or other instrument that the Secured Party deems necessary in order for the
Secured Party to collect and receive such production, proceeds and payments from
any of the Payors. In addition, the Mortgagor agrees that upon the Secured
Party's request made in accordance with the terms of this Article III it will
promptly execute and deliver to the Secured Party such transfer orders, payment
orders, division orders and other instruments as the Secured Party may deem
necessary, convenient or appropriate in connection with the payment and delivery
directly to the Secured Party pursuant to the rights of Secured Party granted in
the first sentence of this Section 3.06 of all proceeds, production, and
payments assigned hereunder. The Mortgagor hereby authorizes and directs that,
upon the request of the Secured Party, all of the Payors shall, until the
Secured Party directs otherwise, pay and deliver such proceeds, production or
amounts directly to the Secured Party for the account of the Banks at the
Secured Party's address set forth in the introduction to this Instrument, or in
such other manner as the Secured Party may direct such parties in writing, and
this authorization shall continue until this Instrument is released. The
Mortgagor agrees that all division orders, transfer orders, receipts and other
instruments that the Secured Party may from time to time execute and deliver for
the purpose of collecting and receipting for such proceeds, production or
payments may be relied upon in all respects, and that the same shall be binding
upon the Mortgagor and it successors and assigns. No Payor making payments to
the Secured Party at its request under the assignment contained herein shall
have any responsibility to see to the application of any of such funds, and any
party paying or delivering proceeds, production or amounts to the Secured Party
under such assignment shall be released thereby from any and all liability to
the Mortgagor to the full extent and amount of all payments, production or
proceeds so delivered. The Mortgagor agrees to indemnify and hold harmless any
and all parties making payments to the Secured Party, at the Secured Party's
request under the assignment contained herein, against any and all liabilities,
actions, claims, judgments, costs, charges and attorneys' fees resulting from
the delivery of such payments to the Secured Party. The indemnity agreement
contained in the previous sentence is made for the direct benefit of and shall
be enforceable by all such persons. Should the Secured Party bring suit against
any third party for collection of any amount or sums included within this
assignment (and the Secured Party shall have the right to bring any such suit),
it may sue either in its own name, in the names of the Banks or in the name of
the Mortgagor, or any of the foregoing. As used in this paragraph, the terms
"Secured Party" and "the Trustee" shall collectively mean and include not only
the Secured Party or the Trustee respectively described herein but also any
Bank, and any respective persons or entities owned or controlled by or
affiliated with the Secured Party or the Trustee.
Section 3.07 No Assumption of Mortgagor's Duties.
<PAGE>
Nothing in this Instrument shall be deemed or construed to create a delegation
to or assumption by the Secured Party or the Trustee, of the duties and
obligations of the Mortgagor under any agreement or contract relating to the
Collateral or any portion thereof, and all of the parties to any such contract
shall continue to look to the Mortgagor for performance of all covenants and
other obligations and the satisfaction of all representations and warranties of
the Mortgagor thereunder, notwithstanding the assignment of production and
proceeds herein made or the exercise by the Secured Party or by the Trustee,
prior to foreclosure, of any of its rights hereunder or under applicable law.
Section 3.08 No Limitation of Remedies. The assignment of production
and proceeds herein made shall not be construed to limit in any way the Secured
Party's other rights hereunder, including, without limitation, its right to
accelerate the indebtedness evidenced by the Obligations upon an Event of
Default. Monies received under the assignments herein made shall not be deemed
to have been applied in payments of Obligations unless and until such monies
actually are applied thereto by the Secured Party, but such monies shall be
applied by the Secured Party as required by and provided for in the Credit
Agreement. The assignment of production made pursuant to this Instrument is
limited to the rights, if any, of the Mortgagor, whether now owned or hereafter
acquired, in and to such production.
ARTICLE IV
Termination
If all of the Obligations of the Mortgagor shall be paid or performed
in full pursuant to the terms and conditions of this Instrument and the
instruments evidencing the Obligations and the Credit Agreement terminated, the
Secured Party shall, upon the request of the Mortgagor, execute, acknowledge and
deliver to the Mortgagor proper instruments evidencing the termination of this
Instrument. The Mortgagor shall pay all reasonable legal fees and other
reasonable expenses incurred by the Secured Party for preparing and reviewing
such instruments of termination and the execution and delivery thereof, and the
Secured Party may require payment of the same prior to delivery of such
instruments. Otherwise, this Instrument shall remain and continue in full force
and effect.
ARTICLE V
Default
Section 5.01 Nature of Events. Any of the following events shall
constitute an "Event of Default" under this Mortgage (individually, an "Event of
Default," and collectively, "Events of Default") (whether such event be
voluntary or involuntary or occur or be effected by operation of law or
otherwise):
A. A default under Sections 2.03 through 2.16 inclusive shall occur
and shall continue unremedied for a period of ten days; or
B. Any Event of Default (as such term is defined in the Credit
Agreement), other than an event described
<PAGE>
in paragraph A of this Section 5.01, shall occur.
Section 5.02 Fixtures. Upon the occurrence and during the continuance
of an Event of Default, the Secured Party or the Trustee may, to the extent
permitted under applicable law, elect to treat the fixtures included in the
Collateral either as real property or as personal property, or both, and proceed
to exercise such rights as apply thereto. With respect to any sale of real
property included in the Collateral made under the powers of sale herein granted
and conferred, the Secured Party or the Trustee may, to the extent permitted by
applicable law, include in such sale any personal property and fixtures included
in the Collateral and relating to such real property.
Section 5.03 Rights and Powers of Trustee and Secured Party Generally.
(a) Upon the occurrence and during the continuance of an Event of
Default, in addition to all other rights and remedies herein conferred, the
Secured Party shall have all of the rights and remedies of a mortgagee (the
power of sale permitted and provided by applicable statute being hereby
expressly granted by the Mortgagor to the Secured Party) as to all of the
Collateral other than the DT Collateral granted, conferred or permitted by
applicable law, and the Trustee shall have all of the rights and remedies of a
mortgagee and trustee under a deed of trust as to the DT Collateral granted,
conferred or permitted by applicable law, and the Secured Party shall have all
of the rights of a beneficiary thereunder. The Secured Party (and the Trustee,
with respect to the DT Collateral) shall, to the extent permitted by applicable
law, have the right and power, but not the obligation, to enter upon and take
immediate possession of the real property included in the Collateral or any part
thereof, to exclude the Mortgagor therefrom, to hold, use, operate, manage and
control such real property, to make all such repairs, replacements,
alterations, additions and improvements to the same as the Secured Party may
deem proper, and to demand, collect and retain the proceeds of production of
several Hydrocarbons as provided in Article III hereof.
(b) Upon the occurrence and during the continuance of an Event of
Default, in addition to all other powers, rights and remedies herein granted or
by law or equity conferred, the Secured Party shall have all of the rights and
remedies of an assignee and secured party granted by applicable law, including
the Uniform Commercial Code, and shall, to the extent permitted by applicable
law, have the right and power, but not the obligation, to take possession of the
personal property included in the Collateral, and for that purpose the Secured
Party may enter upon any premises on which any or all of such personal property
is located and take possession of and operate such personal property or remove
the same therefrom. The Secured Party may require the Mortgagor to assemble such
personal property and make it available to the Secured Party at a place to be
designated by the Secured Party which is reasonably convenient to both parties.
The following presumptions shall exist and shall be deemed conclusive with
regard to the exercise by the Secured Party of any of its remedies with respect
to personal property:
<PAGE>
(i) If notice is required by applicable law, five days' prior written
notice (unless applicable otherwise specifies) of the time and place of any
public sale or of the time after which any private sale or any other
intended disposition thereof is to be made shall be reasonable notice to
the Mortgagor. No such notice is necessary if such property is perishable,
threatens to decline speedily in value or is of a type customarily sold on
a recognized market.
(ii) Without in any way limiting the right and authority of the
Secured Party to sell or otherwise dispose of Collateral in a commercially
reasonable manner, the following, or any of them, shall be considered
commercially reasonable: (A) the Secured Party may hold a public sale of
the Collateral at such place or places and otherwise in such manner as the
Trustee may elect, after having provided the Mortgagor with five days'
notice of such sale; (B) the Collateral may be sold for cash; and (C) the
Secured Party, any Bank or any other person owning, directly or indirectly,
any interest in any of the Obligations may be a purchaser at such sale.
(iii) If the Secured Party in good faith believes that the Securities
Act of 1933 or any other state or Federal law prohibits or restricts the
customary manner of sale or distribution of any of such property, the
Secured Party may sell such property privately or in any other manner
deemed advisable by the Secured Party at such price or prices as the
Secured Party determines in the reasonable discretion of the Secured
Party. The Mortgagor recognizes that such prohibition or restriction may
cause such property to have less value than it otherwise would have and
that, consequently, such sale or disposition by the Secured Party may
result in a lower sales price than if the sale were otherwise held.
Section 5.04 Election of Remedies. Upon the occurrence of any of the
Events of Default, or at any time thereafter, the Secured Party (and the Trustee
with respect to the DT Collateral), in lieu of or in addition to exercising any
other power, right or remedy herein granted or by law or equity conferred
(including, without limitation, as provided by law for the foreclosure of
mortgage on real property), may, without notice, demand or declaration of
default, which are hereby waived by the Mortgagor, (A) enter, take possession of
and operate the Mortgaged Property in accordance with Section 5.03(a) hereof or
(B) proceed by an action or actions in equity or at law (i) for the seizure and
sale of the real property included in the Collateral or any part thereof, (ii)
for the specific performance of any covenant or agreement herein contained or in
aid of the execution of any power, right or remedy herein granted or by law or
equity conferred, (iii) for the foreclosure or sale of such real property or any
part thereof under the judgment or decree of any court of competent
jurisdiction, (iv) for the appointment of a receiver pending any foreclosure
hereunder or the sale of such real property or any part thereof or (v) for the
enforcement of any other appropriate equitable or legal remedy.
Section 5.05 Sale of Collateral. Upon the occurrence of any of the
Events of Default, or at any time
<PAGE>
thereafter, the Secured Party may, with respect to all or any portion of the
Collateral other than the DT Collateral and the Trustee shall, with respect to
all or any part of the DT Collateral, in response to the Secured Party's or any
Bank's requests (which the Mortgagor agrees shall be presumed to have been
made), subject to any mandatory requirements of applicable law, sell or have
sold the Collateral or any part thereof at one or more sales, as an entirety or
in parcels, at such place or places and otherwise in such manner and upon such
notice as /may be required by law or by this Instrument, or, in the absence of
any such requirement, as the Secured Party (or the Trustee, as regards the DT
Collateral) may reasonably deem appropriate. The Secured Party (or the Trustee,
as regards the DT Collateral) shall make a conveyance to the purchaser or
purchasers thereof, and the Mortgagor shall warrant title thereto to such
purchaser or purchasers. The Secured Party (or the Trustee, as regards the DT
Collateral) may postpone the sale of such Collateral or any part thereof by
public announcement at the time and place of such sale, and from time to time
thereafter may further postpone such sale by public announcement made at the
time of sale fixed by the preceding postponement. Sale of a part of such
Collateral or any defective or irregular sale hereunder will not exhaust the
power of sale, and sales may be made from time to time until all such Collateral
is sold without defect or irregularity or the Obligations are paid in full. The
Secured Party (or the Trustee) shall have the right to appoint one or more
substitute Trustee or attorneys-in-fact to act in conducting the foreclosure
sale and executing a deed to the purchaser. It shall not be necessary for any of
the Collateral at any such sale to be physically present or constructively in
the possession of the Secured Party (or the Trustee, as regards the DT
Collateral) and the Mortgagor shall deliver all of the Collateral to the
purchaser at such sale on the date of sale, and if it should be impossible or
impracticable to take actual delivery of the Collateral, then the title and
right of possession to the Collateral shall pass to the purchaser at such sale
as completely as if the same had been actually present and delivered.
Section 5.06 Secured Party and Banks as Purchasers. The Secured Party
and any Bank (or any other person owning, directly or indirectly, any interest
in any of the Obligations) shall have the right to become the purchaser at any
sale made pursuant to the provisions of this Article V and shall have the right
to credit upon the amount of the bid made therefor the amount payable to it out
of the net proceeds of such sale. Recitals contained in any conveyance to any
purchaser at any sale made hereunder will conclusively establish the truth and
accuracy of the matters therein stated, including, without limitation,
non-payment of the Obligations and advertisement and conduct of such sale in
manner provided herein or provided by law. The Mortgagor does hereby ratify and
confirm all legal acts that the Secured Party and the Trustee may do in carrying
out the provisions of this Instrument.
Section 5.07 Mortgagor's Cooperation Required. Any sale of the Collateral or
any part thereof pursuant to the provisions of this Article V will operate to
divest all right, title, interest, claim and demand of the Mortgagor in and to
the property sold and will be a perpetual bar against the Mortgagor.
Nevertheless, if requested by the Secured Party so to do, the Mortgagor shall
join in the execution, acknowledgement and delivery of all proper conveyances,
<PAGE>
assignments and transfers of the property so sold. Any purchaser at a
foreclosure sale will receive immediate possession of the property purchased,
and the Mortgagor agrees that if the Mortgagor retains possession of the
property or any part thereof subsequent to such sale, the Mortgagor will be
considered a tenant at sufferance of the purchaser, and will, if the Mortgagor
remains in possession after demand to remove, be guilty of forcible detainer and
will be subject to eviction and removal, forcible or otherwise, with or without
process of law, and all damages to the Mortgagor by reason thereof are hereby
expressly waived by the Mortgagor.
Section 5.08 Mortgagor's Waiver of Rights. The Mortgagor acknowledges
that it is aware of and has had the advice of counsel of its choice with respect
to its rights, under applicable law, with respect to this Instrument, the
Obligations and the Collateral. Nevertheless, the Mortgagor hereby waives and
relinquishes, to the maximum extent permitted by law, and subject to any
mandatory requirements of applicable law, and the Mortgagor hereby agrees that
the Mortgagor shall not at any time hereafter have or assert, any right under
any law pertaining to: marshalling, whether of assets or liens, the sale of
property in the inverse order of alienation, the exemption of homesteads, the
administration of estates of decedents, appraisement, valuation, stay,
extension, redemption, the maturing or declaring due of the whole or any part of
the Obligations, notice (whether of defaults, advances, the creation, existence,
extension or renewal of Obligations, or otherwise), subrogation, or abatement,
suspension, deferment, diminution or reduction of any of the Obligations
(including, without limitation, setoff), now or hereafter in force. The
Mortgagor hereby waives appraisement, or does not waive appraisement, at the
option of the Secured Party, to be exercised at any time prior to or at entry of
judgment in any action to foreclose this Instrument. The Mortgagor expressly
agrees that the Trustee may offer the Collateral as a whole or in such parcels
or lots as the Secured Party, in its sole discretion elects, regardless of the
manner in which the Collateral may be described.
Section 5.09 Additional Remedies. Upon the occurrence of an Event of
Default, the Secured Party may exercise its rights of enforcement with respect
to the Collateral under the Uniform Commercial Code in force in any state (to
the extent the same is applicable law) and in conjunction with, in addition to
or in substitution for those rights and remedies:
A. the Secured Party may enter upon the Mortgagor's premises to
take possession of, assemble and collect the Collateral or to render
it unusable;
B. the Secured Party may require the Mortgagor to assemble the
Collateral and make it available at a place the Secured Party designates
which is mutually convenient to allow the Secured Party to take
possession or dispose of the Collateral;
C. any sale made pursuant to the provisions of this section shall be
deemed to have been a public sale conducted in a commercially reasonable
manner if held contemporaneously with and upon the same notice as
required for the sale of the Mortgaged Properties under power of sale as
provided for in this Instrument;
<PAGE>
D. in the event of a foreclosure sale, whether made by the Trustee
under the terms hereof, or under judgment of a court, the Collateral and
the Mortgaged Properties may, at the option of the Secured Party, be
sold as a whole;
E. prior to application of proceeds of disposition of the Collateral
to the secured indebtedness, such proceeds shall be applied to the
reasonable fees and expenses of retaking, holding, preparing for sale or
lease, selling, leasing and the like and the reasonable attorneys' fees
and legal expenses incurred by the Secured Party;
F. any and all statements of fact or other recitals made in any bill
of sale or assignment or other instrument evidencing any foreclosure
sale hereunder as to nonpayment of the secured indebtedness or as to the
occurrence of any default, or as to the Secured Party having declared
all of such indebtedness to be due and payable, or as to notice of time,
place and terms of sale and of the properties to be sold having been
duly given, or as to any other act or thing having been duly done by the
Secured Party, shall be taken as prima facie evidence of the truth of
the facts so stated and recited; and
G. the Secured Party may appoint or delegate any one or more persons
as agent to perform any act or acts necessary or incident to any sale
held by the Trustee, including the sending of notices and the conduct of
the sale, but in the name and on behalf of the Trustee.
Section 5.10 Costs and Expenses. All reasonable costs and expenses
(including, without limitation, reasonable attorneys' fees, legal expenses,
filing fees, and mortgage, transfer, stamp and other excise taxes) incurred by
the Secured Party and by the Trustee in perfecting, protecting and enforcing its
rights hereunder, whether or not an Event of Default shall have occurred, shall
be a part of the Obligations described in Section 1.01.C. hereof.
Section 5.11 Proceeds of Sale of Collateral. The proceeds of any sale
of the Collateral or any part thereof made pursuant to this Article V shall be
applied as follows:
A. First, to the payment of all costs and expenses of such
collection, sale or other realization, including reasonable
out-of-pocket costs and expenses of the Secured Party and the Trustee
and the fees and expenses of their respective agents and counsel, and
all expenses incurred and advances made by the Secured Party and the
Trustee in connection therewith; and
B. Next, to the payment in full of the Obligations, equally and
ratably in accordance with the amounts thereof due and owing or as the
Banks holding the same may otherwise agree, and/or prepayment of the
Obligations, in such order as the Secured Party shall elect; and
C. Finally, to the payment to the Mortgagor or its successors or
assigns any surplus then remaining.
As used in this Article 5, "proceeds" of Collateral shall
<PAGE>
mean cash, securities and other property realized in respect of, and
distributions in kind of, Collateral, including any thereof received under any
reorganization, liquidation or adjustment of any debt of the Mortgagor or any
issuer of or obligor on any of the Collateral.
Section 5.12 Protection of Purchasers. Upon any sale made under the
powers of sale herein granted and conferred, the receipt of the Trustee will be
sufficient discharge to the purchaser or purchasers at any sale for the purchase
money, and such purchaser or purchasers and the heirs, devisees, personal
representatives, successors and assigns thereof will not, after paying such
purchase money and receiving such receipt of the Trustee be obligated to see to
the application thereof or be in any way answerable for any loss, misapplication
or non-application thereof.
Section 5.13 Foreclosure Rights. The Secured Party shall, to the extent
permitted by applicable law, have the option to proceed with foreclosure or the
exercise by the Trustee of the power of sale in satisfaction of any part of the
Obligations without declaring the whole of the Obligations as immediately
mature, and such foreclosure or sale may be made subject to the unmatured part
of the Obligations, and it is agreed that such foreclosure, if so made, shall
not in any manner affect the unmatured part of the Obligations, but as to such
unmatured part of the Notes, this Instrument and the Credit Agreement shall
remain in full force and effect just as though no foreclosure or sale had been
made. Several foreclosures or sales may be made without exhausting the right of
foreclosure or the power of sale for any unmatured part of the Obligations, it
being the purpose to provide for a foreclosure and sale of the security for any
matured portion of the Obligations without exhausting the power of foreclosure
and the power to sell the Collateral for any other part of the Obligations.
Section 5.14 Resignation of Operator. In addition to all rights and
remedies under the Basic Documents, at law and in equity, if any Event of
Default shall occur and the Trustee or the Agent shall exercise any remedies
under the Security Documents with respect to any portion of the Collateral (or
the Mortgagor shall transfer any Collateral "in lieu of" foreclosure), the Agent
or the Trustee shall have the right to request that any operator of any
Mortgaged Property which is either the Mortgagor or any Affiliate of the
Mortgagor resign as operator under the joint operating agreement applicable
thereto, and no later than 60 days receipt by the Mortgagor of any such request,
the Mortgagor shall resign (or cause such other party to resign) as operator of
such Mortgaged Property.
ARTICLE VI
Definitions
Section 6.01 Certain Definitions. Terms defined in the Credit Agreement
are used herein as defined therein, unless otherwise defined herein.
Section 6.02 Additional Definitions. As used herein, the following terms
shall have the following meanings (all terms defined in this Section 6.02 or in
other provisions of this Instrument in the singular to have the same meanings
when used in the plural and vice versa):
<PAGE>
"Agent" shall have the meaning given to such term in the second
paragraph on page 1 hereof.
"Banks" shall mean those banks listed on the signature pages of the
Credit Agreement and all assignees thereof as provided in Section 12.06 of the
Credit Agreement.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986, and as further amended from time to time.
"Chase" shall mean The Chase Manhattan Bank (National Association).
"Collateral" shall have the meaning give to such term in Recital 3
hereof.
"Credit Agreement" shall have the meaning given to such term in
Recital 1 hereof.
"DT Collateral" shall have the meaning given to such term in the
second paragraph on page 1 hereof.
"Effective Date" shall have the meaning given to such term in the
first paragraph on page 1 hereof.
"Encumbrances" shall have the meaning given to such term in Section
2.02.
"Event of Default" shall have the meaning given to such term in
Section 5.01 hereof.
"Hydrocarbons" shall mean, collectively, oil, gas, casinghead gas,
condensate, natural gas liquids, finished and unfinished petroleum products and
other liquid or gaseous hydrocarbons (including, without limitation, all
liquefiable hydrocarbons and other products that may be extracted from gas and
gas condensate by processing thereof in a gas processing plant).
"Instrument" shall have the meaning given to such term in the first
paragraph on page 1 hereof.
"Leases" shall have the meaning given to such term in Recital 3
hereof.
"Mortgage" shall mean this Instrument.
"Mortgaged Property" shall have the meaning given to such term in
Recital 3 hereof.
"Mortgagor" shall have the meaning given to such term in the first
paragraph on page 1 hereof.
"Obligations" shall have the meaning given to such term in Section
1.01 hereof.
"Payors" shall have the meaning given to such term in Section 3.01
hereof.
"Secured Party" shall mean the party so designated in the second
paragraph on page 1 hereof.
<PAGE>
"Trustee" shall mean the party so designated in the second paragraph
on page 1 hereof.
"Volumetric Production Payments" shall mean production payment
obligations of the Mortgagor which are payable from a specified share of
production from specific Mortgaged Properties, together with all undertakings
and obligations in connection therewith.
ARTICLE VII
Trustee
Section 7.01 Resignation or Removal of the Trustee. The Trustee may
resign in writing addressed to the Secured Party or be removed at any time with
or without cause by an instrument in writing duly executed by the Secured Party.
In case of the death, resignation or removal of the Trustee, a successor Trustee
may be appointed by the Secured Party without formality other than an
appointment and designation in writing, unless otherwise required by applicable
law. Such appointment and designation will be full evidence of the right and
authority to make the same and of all facts therein recited, and upon the making
of any such appointment and designation, this Instrument will vest in the named
successor trustee all the right, title and interest of the Trustee in all of the
DT Collateral, and said successor will thereupon succeed to all the rights,
powers, privileges, immunities and duties hereby conferred upon the Trustee;
provided that the Secured Party may at its option, appoint and designate several
successor trustees, and in such manner, appoint and designate a different
successor trustee for each state wherein a portion of the DT Collateral is
located, as described in such written appointment and designation, and upon the
making of any such appointment and designation, this Instrument will vest in
each such named successor trustee all of the right, title and interest of the
Trustee in that portion of the DT Collateral ascribed to such named successor
trustee, and each such named successor trustee will thereupon succeed to all the
rights, powers, privileges, immunities and duties hereby conferred upon the
Trustee in that portion of the DT Collateral ascribed to such named successor
trustee. All references herein to the Trustee will be deemed to refer to the
trustee or trustees from time to time acting hereunder.
Section 7.02 The Trustee's Powers. At any time, or from time to time
without liability therefor and without notice, upon written request of the
Secured Party and presentation of this Instrument and the Notes secured hereby
for endorsement, and without affecting the personal liability of any person for
payment of the Obligations secured hereby or the effect of this Instrument upon
the remainder of the Collateral, the Trustee may (a) reconvey any part of the DT
Collateral, (b) consent in writing to the making of any map or plat thereof, (c)
join in granting any easement thereon, or (d) join in any extension agreement or
any agreement subordinating the lien or charge hereof.
Section 7.03 Collateral Other Than DT Collateral. The signature of
the Trustee shall not be necessary on any instrument affecting Collateral other
than the DT Collateral, including any instrument evidencing the partial or full
release or reconveyance of the lien of this Instrument on Collateral other than
DT Collateral and the Trustee's signature shall be necessary on any instruments
<PAGE>
affecting the DT Collateral, including any instrument evidencing the partial or
full release or reconveyance of the lien of this Instrument on the DT
Collateral, only to the extent required by applicable law.
Section 7.04 Indemnification of the Trustee. The Secured Party shall
indemnify the Trustee and its shareholders, directors, officers, employees and
agents against all claims, actions, liabilities, judgments, costs, attorneys
fees or other charges of whatsoever kind or nature made against or incurred by
any of them, and arising out of the performance by the Trustee of the duties of
the Trustee hereunder.
ARTICLE VIII
Miscellaneous Provisions
Section 8.01 Lien on Remaining Collateral. No failure on the part of
the Secured Party or the Trustee to exercise and no delay in exercising, and no
course of dealing with respect to, any right, power or privilege under this
Instrument shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege under this Instrument preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The remedies provided herein are cumulative and not exclusive of any
remedies provided by law.
Section 8.02 Cumulative Rights; Waivers; Modifications. Each and
every right, power and remedy hereby granted to the Secured Party (or to the
Trustee) shall be cumulative (but not duplicative) and not exclusive, and each
and every right, power and remedy whether specifically hereby granted or
otherwise existing may be exercised from time to time and as often and in such
order as may be deemed expedient by the Secured Party (or by the Trustee, as the
case may be), and the exercise of any such right, power or remedy will not be
deemed a waiver of the right to exercise, at the same time or thereafter, any
other right, power or remedy. No delay or omission by the Secured Party (or by
the Trustee, as the case may be) in the exercise of any right, power or remedy
will impair any such right, power or remedy or operate as a waiver thereof or of
any other right, power or remedy then or thereafter existing. Any and all
covenants of the Mortgagor in this Instrument may from time to time, by
instrument in writing signed by the Secured Party, be waived to such extent and
in such manner as the Secured Party may desire, but no such waiver will ever
affect or impair the rights of the Secured Party (or the Trustee) hereunder,
except to the extent specifically stated in such written instrument. All changes
to and modifications of this Instrument must be in writing and signed by the
Mortgagor and the Secured Party.
Section 8.03 Severability of Provisions. If any provision hereof or
of any of the other documents constituting, evidencing or creating all or any
part of the Obligations is invalid or unenforceable in any jurisdiction, the
other provisions hereof or of said documents shall remain in full force and
effect in such jurisdiction and the remaining provisions hereof will be
liberally construed in favor of the Secured Party and the Trustee in order to
carry out the provisions hereof and of such other documents. The
<PAGE>
invalidity of any provision of this Instrument in any jurisdiction will not
affect the validity or enforceability of any such provision in any other
jurisdiction. Any reference herein contained to a statute or law of a state in
which no part of the Collateral is situated will be deemed inapplicable to, and
not used in, the interpretation hereof. If any lien, encumbrance or security
interest evidenced or created by this Instrument is invalid or unenforceable, in
whole or in part, as to any part of the Obligations or Collateral, such portion,
if any, of the Obligations as is not secured by the Collateral hereunder shall
be paid prior to the payment of the secured portion of the Obligations, and all
payments made on the Obligations (including, without limitation, cash and/or
property received in connection with sales of Collateral pursuant to Article V
hereof) shall, unless prohibited by applicable law or unless the Secured Party,
in its sole and absolute discretion, otherwise elects, be deemed and considered
to have been first paid on and applied to payment in full of the unsecured or
partially secured portion of the Obligations, and the remainder to the secured
portion of the Obligations.
Section 8.04 Substitution and Subrogation. This Instrument is made
with full substitution and subrogation of the Secured Party and of the Trustee
in and to all covenants and warranties by others heretofore given or made in
respect of the Collateral or any part thereof. To the extent that proceeds of
any Note are owed to pay any outstanding lien, charge or encumbrance against the
Collateral, such proceeds have been or will be advanced by the Secured Party at
the Mortgagor's request and the Secured Party shall be subrogated to any and all
rights and liens held by any owner or holder of such outstanding liens, charges
and prior encumbrances, irrespective of whether said liens, charges or
encumbrances are released.
Section 8.05 Nature of Instrument. This Instrument will be deemed to
be and may be enforced from time to time as an assignment, chattel mortgage,
contract, deed of trust, financing statement, real estate mortgage, or security
agreement, and from time to time as any one or more thereof, as is appropriate
under applicable state law. A carbon, photographic or other reproduction of this
Instrument or any financing statement in connection herewith shall be sufficient
as a financing statement for any and all purposes.
Section 8.06 Financing Statement; Fixture Filing. This Instrument
shall be effective as a financing statement filed as a fixture filing with
respect to all fixtures included within the Collateral and is to be filed for
record in the real estate records of each county where any part of the
Collateral (including said fixtures) are situated. This Instrument shall also be
effective as a financing statement covering minerals or the like (including oil
and gas and all other substances of value which may be extracted from the
ground) and accounts financed at the wellhead or minehead of wells or mines
located on the properties subject to the Uniform Commercial Code as enacted in
any other state where the Collateral is situated and is to be filed for record
in the real estate records of each county where any part of the Collateral is
situated. In addition, the Mortgagor shall execute and deliver to the Secured
Party, upon the Secured Party's request, any financing statements or amendments
thereof or continuation statements thereto that the Secured Party may require to
perfect a security interest in said
<PAGE>
items or types of property. The Mortgagor shall pay all costs of filing such
instruments. In that regard, the following information is provided:
Name of Debtor: FOREST OIL CORPORATION, a New York state
corporation
Address of Debtor: See introductory paragraph of this Instrument
County of Residence/
Principal Place of
Business of Debtor: 1500 Colorado National Building
950 17th Street
Denver, Colorado 80202
Tax I.D. Number of
Debtor: 25-0484900
Name of Secured
Party: THE CHASE MANHATTAN BANK (NATIONAL
ASSOCIATION)
Address of
Secured Party: See introductory paragraph of this
Instrument
Tax I.D. Number of
Secured Party: 13-2633613
Owner of Record
of Real Property: FOREST OIL CORPORATION, a New York state
corporation
Address of Owner
of Record of
Real Property: See introductory paragraph of this
Instrument
Description of
Real Property: See Exhibit A of this Instrument
Section 8.07 Interest. All interest required hereunder and under the
Obligations shall be calculated as provided in the Credit Agreement and governed
by the laws of the State of New York (excluding choice of law and conflict of
law rules). Notwithstanding anything to the contrary contained herein, no rate
of interest required hereunder or under the Obligations shall exceed the maximum
legal rate under applicable law, and, in the event any such rate is found to
exceed such maximum legal rate, the Mortgagor shall be required to pay only such
maximum legal rate and any such excess shall be refunded to the Mortgagor. All
agreements between the Mortgagor and the Secured Party are hereby expressly
limited so that in no contingency or event whatsoever shall the amount paid, or
agreed to be paid, to the Mortgagor for the use, forbearance, or detention of
the money due under the Note secured hereby exceed the maximum amount
permissible under applicable law. If, due to any circumstances whatsoever,
fulfillment of any provision shall be due, shall involve transcending the limit
of validity prescribed by law, then the obligation to be fulfilled shall be
reduced to the limit of such validity.
<PAGE>
SECTION 8.08 GOVERNING LAW. INSOFAR AS PERMITTED BY OTHERWISE
APPLICABLE LAW, THIS INSTRUMENT AND THE OBLIGATIONS SHALL BE CONSTRUED UNDER AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (EXCLUDING CHOICE OF LAW AND
CONFLICT OF LAW RULES); PROVIDED, HOWEVER, THAT, WITH RESPECT TO ANY PORTION OF
THE COLLATERAL LOCATED OUTSIDE OF THE STATE OF NEW YORK, THE LAWS OF THE PLACE
IN WHICH SUCH PROPERTY IS LOCATED IN, OR OFFSHORE ADJACENT TO (AND STATE LAW
MADE APPLICABLE AS A MATTER OF FEDERAL LAW), SHALL APPLY TO THE EXTENT OF
PROCEDURAL AND SUBSTANTIVE MATTERS RELATING ONLY TO THE CREATION, PERFECTION,
FORECLOSURE OF LIENS AND ENFORCEMENT OF RIGHTS AND REMEDIES AGAINST THE
COLLATERAL. THE MORTGAGOR HEREBY IRREVOCABLY SUBMITS ITSELF TO THE NONEXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE STATE OF NEW YORK AND EACH
OTHER STATE WHERE THE COLLATERAL IS LOCATED AND AGREES AND CONSENTS THAT SERVICE
OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING RELATING TO THIS
INSTRUMENT, THE BASIC DOCUMENTS OR THE OBLIGATIONS IN THE CASE OF A PROCEEDING
IN ANY OF SUCH STATES, BY SERVING THE SECRETARY OF STATE OF SUCH STATE IN
ACCORDANCE WITH ANY APPLICABLE PROVISIONS OF SUCH STATE'S LAW GOVERNING SERVICE
OF PROCESS UPON FOREIGN CORPORATIONS OR ENTITIES.
Section 8.09 Counterparts. This Instrument may be executed in several
original counterparts. To facilitate filing and recording, there may be omitted
from certain counterparts parts of Exhibit A containing specific descriptions
which relate to land under the jurisdiction of offices or located in counties
other than the office or county in which the particular counterpart is to be
filed or recorded; provided that the description of all lands located in, or
offshore adjacent to, the State of Louisiana shall be filed in the Parish of
Iberia. As to counterparts to be filed in certain states, the signatures and
acknowledgments by the Agent, the Secured Party or the Trustee may be omitted if
not required by applicable law. Each counterpart shall be deemed to be an
original for all purposes, and all counterparts shall together constitute but
one and the same instrument.
Section 8.10 Recording References. Unless otherwise specified in
Exhibit A, all recording references in Exhibit A are to the official real
property records of the county or parish in which the affected land is located
or is adjacent thereto. The reference in Exhibit A to liens, encumbrances and
other burdens shall not be deemed to recognize or create any rights in third
parties.
Section 8.11 Notices. All notices, demands, consents, requests or
other communications (collectively, "notices") permitted or required to be given
by any party to any other hereunder shall be in writing and given in the manner
specified in Section 12.02 of the Credit Agreement; provided that notices to the
Trustee shall be addressed to the Trustee at its office set forth on page 1
hereof.
Section 8.12 Successors and Assigns. This Instrument applies to,
inures to the benefit of and binds the parties hereto and their respective
successors and assigns and shall run with the Properties.
Section 8.13 Financing of Extracted Minerals. The above described
minerals or other substances of value which may be extracted from the earth
(including, without limitation, oil and gas), and the accounts relating thereto
<PAGE>
will be financed at the wellhead of the wells or wells located on the Mortgaged
Property or on lands pooled or unitized therewith. This Instrument is to be
filed for record in, among other places, the real estate records of each county
in which the Mortgaged Property is located; to wit, all of those listed in
Exhibit A.
Section 8.14 Enforcement by the Agent. The Secured Party shall be
entitled to enforce payment of any indebtedness and performance of any other of
the Obligations secured hereby and to exercise all rights and powers under this
Instrument or under any other Basic Documents or any laws now or hereafter in
force, notwithstanding the fact that some or all of said indebtedness and other
Obligations secured hereby may now or hereafter be otherwise secured, whether by
mortgage, deed of trust, pledge, lien, assignment or otherwise. Neither the
acceptance of this Instrument nor its enforcement, whether by court action or
pursuant to the power of sale or other powers herein contained shall prejudice
or in any manner affect the Secured Party's right to realize upon or enforce any
other security now or hereafter held by the Secured Party, it being agreed that
the Secured Party shall be entitled to enforce this Instrument and any other
security now or hereafter held by the Secured Party in such order and manner as
it may in its absolute discretion determine.
Section 8.15 Agent as Attorney-in-Fact. Upon the occurrence and
during the continuance of an Event of Default hereunder, the Mortgagor hereby
irrevocably designates the Secured Party as its attorney-in-fact and grants to
the Secured Party appropriate powers of attorney to act for and on behalf of the
Mortgagor with the Department of Interior and all other agencies, departments
and subdivisions of the United States of America and of all states, in all
transactions relating to the Collateral or any part thereof. The Mortgagor
hereby authorizes and directs all such agencies, departments and subdivisions to
rely upon any writing from the Secured Party asserting that an Event of Default
hereunder has occurred, without inquiry into whether or not such Event of
Default actually occurred, and the Mortgagor agrees that the exercising by the
Secured Party of such powers of attorney may be relied upon in all respects and,
as between the Mortgagor and such agency, department or subdivision, shall be
binding upon the Mortgagor.
Section 8.16 Request of Notice of Sale. The Mortgagor hereby requests
that a copy of any notice of sale hereunder be mailed to it at the address of
the Mortgagor set forth in the Credit Agreement with a second copy mailed to it
at 78 Main Street, Bradford, PA. 16701, Attention: Daniel McNamara, Esq. and
telecopied to it (telecopier number 814-362-5142).
Section 8.17 Captions. The captions or headings at the beginning of
Articles and Sections hereof are for the convenience of the parties and are not
a part of this Instrument.
Section 8.18 Attorneys' Fees. If any Event of Default occurs and is
continuing, the Mortgagor promises to pay all reasonable costs of enforcement
and collection, including, but not limited to, attorneys' fees, whether or not
such enforcement and collection includes the filing of a lawsuit.
<PAGE>
Section 8.19 Interpretation. In this Instrument the singular shall
include the plural and the masculine shall include the feminine and neuter and
vice versa, if the context so requires.
Section 8.20 Purpose of the Loans. The loans evidenced by the Notes
secured by this Instrument have been or will be obtained for business or
commercial purposes, and the proceeds thereof will not be used for personal,
family, leasehold or agricultural purposes.
Section 8.21 Relationship of Parties. The relationship between the
Mortgagor and the Secured Party is that of debtor and creditor only and neither
the Mortgagor nor the Secured Party is, nor shall it hold itself out to be, the
agent, employee, joint venturer or partner of the other.
Section 8.22 The Secured Party's Powers. Without affecting the
liability of any other person liable for the payment of any obligation herein
mentioned, and without affecting the lien or charge of this Instrument upon any
portion of the Premises not then or theretofore released as secured for the full
amount of all unpaid Obligations, the Secured Party may, from time to time and
without notice, (a) release any persons liable, (b) extend the maturity or alter
any of the terms of any such obligation, (c) grant other indulgences, (d)
release or reconvey, or cause to be released or reconveyed at any time at the
Secured Party's option any parcel, portion or all of the Collateral, (e) take or
release any other or additional security for any obligation herein mentioned, or
(f) make compositions or other arrangements with debtors in relation thereto.
Section 8.23 Rule Against Perpetuities. Notwithstanding any other
provision contained herein, if any property interest granted by this Instrument
does not vest on the execution and delivery of this Instrument, it shall vest,
if at all, no later than 20 years and 364 days after the death of the last
surviving descendant of George Herbert Walker Bush (41st President of the United
States) who is alive on the execution and delivery of this Instrument.
Section 8.24 Limitation on Collateral. To the extent any of the
Collateral in which a lien, pledge, security interest or other encumbrance is
purported to be granted hereby consists of leases from the United States of
America (the "Federal Leases") or any Indian tribal leases ("Tribal Leases"),
the grant of any such purported lien, pledge, security interest or other
encumbrance in such Federal Leases or Tribal Leases pursuant to the terms hereof
shall be effective to the extent permissible under the Mineral Leasing Act of
1920 Section 30 U.S.C. 181, et seq., all rules and regulations promulgated
thereunder, 43 C.F.R. 3000, et seq., the Outer Continental Shelf Lands Act, 43
U.S.C., 1331 et seq., all rules and regulations promulgated thereunder, 30
C.F.R. Part 250, et seq., or other applicable law.
ARTICLE IX
Special Louisiana Provisions
9.01 Collateral. Insofar as any portion of the Collateral situated in
or offshore the State of Louisiana is
<PAGE>
concerned, or as to which the laws of the State of Louisiana would be
applicable, (i) the general language of conveyance and hypothecation to the
Secured Party in this Instrument is intended and shall be construed as words of
mortgage and hypothecation and the granting of a security interest in favor of
the Secured Party; and (ii) the maximum amount of the Obligations that may be
outstanding at any time and from time to time that this Instrument secures is
fixed at $100,000,000.00.
9.02 Keeper. The Secured Party shall have the right to appoint a
keeper of the Collateral pursuant to the terms and provisions of La. R.S. 9:5131
et seq. and 9:5136 et seq.
9.03 Confession of Judgment. For purposes of executory process the
Mortgagor acknowledges the Obligations secured hereby, whether now existing or
to arise hereafter, and confesses judgment thereon if not paid when due. Upon
the occurrence of an Event of Default and any time thereafter so long as the
same shall be continuing, and in addition to all other rights and remedies
granted the Secured Party hereunder, it shall be lawful for and the Mortgagor
hereby authorizes the Secured Party without making a demand or putting the
Mortgagor in default, a putting in default being expressly waived, to cause all
and singular the Collateral to be seized and sold after due process of law, the
Mortgagor waiving the benefit of any and all laws or parts of laws relative to
appraisement of Collateral seized and sold under executory process or other
legal process, and consenting that the Collateral be sold without appraisement,
either in its entirety or in lots or parcels, as the Secured Party may
determine, to the highest bidder for cash or on such other terms as the
plaintiff in such proceedings may direct. The Secured Party shall be granted all
rights and remedies granted it hereunder as well as all rights and remedies
granted a secured party under Louisiana law including the Uniform Commercial
Code then in effect in Louisiana.
9.04 Waivers. The Mortgagor hereby waives:
(a) The benefit of appraisement provided for in articles 2332,
2336, 2723 and 2724 of the Louisiana Code of Civil Procedure
and all other laws conferring the same;
(b) The demand and three (3) days notice of demand as provided
in articles 2629 and 2721 of the Louisiana Code of Civil
Procedure;
(c) The notice of seizure provided by articles 2293 and 2721 of
the Louisiana Code of Civil Procedure; and
(d) The three (3) days delay provided for in articles 2331 and
2722 of the Louisiana Code of Civil Procedure.
IN WITNESS WHEREOF, the Mortgagor, has, on the date set forth in the
acknowledgment hereto, effective as of the date and time first above written
caused this Instrument to be duly executed before me, the undersigned Notary
Public
<PAGE>
in and for the County of Denver, State of Colorado, in the presence of competent
witnesses, after due reading of the whole.
MORTGAGOR:
FOREST OIL CORPORATION, a
New York corporation
ATTEST:
By:_________________________
____________________
Secretary Name:_______________________
Title:______________________
WITNESSES:
_________________________
_________________________
__________________________
Notary Public
My Commission Expires:
_________________________
ACKNOWLEDGMENT
STATE OF ____________
COUNTY OF ___________
BE IT REMEMBERED that I, the undersigned Notary Public duly
qualified, commissioned, sworn and acting in and for the county and state
aforesaid, hereby certify that, on December __, 1993 there personally appeared
before me, the following person, being the designated officer of the corporation
set opposite his name, and such corporation being a party to the foregoing
Instrument:
_________________________, the _______________ of
Forest Oil Corporation,
<PAGE>
This instrument was acknowledged before me on this ________ day of
December, 1993 by _______________, _________ of Forest Oil Corporation, a New
York corporation, on behalf of said corporation.
Louisiana
Who being by me duly sworn, deposed and said that he is the
designated officer of said corporation described in and which executed the
foregoing Instrument, that he signed his name thereto by order of the Board of
Directors of said corporation, and acknowledged to me that he executed the same
for the purposes and consideration therein expressed, in the capacity therein
stated, and as the free act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and official notarial
seal, in the County of _______________, State of _________________________, this
____ day of December, 1993.
______________________________
Notary Public, State of ______
Notary's Printed Name:________
______________________________
My commission Expires: ______
<PAGE>
SEVERANCE AGREEMENT
AGREEMENT between FOREST OIL CORPORATION, a New York corporation
(the"Company"), and ___________________("Executive"),
W I T N E S S E T H :
WHEREAS, the Company desires to attract and retain cer tain key employee
personnel and, accordingly, the Board of Directors of the Company (the "Board")
has approved the Company entering into a severance agreement with Executive in
order to encourage his continued service to the Company; and
WHEREAS, Executive is prepared to commit such services in return for
specific arrangements with respect to severance compensation and other benefits;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the Company and Executive agree as follows:
1. Definitions.
(a) "Annual Compensation" shall mean an amount equal to the greater
of:
(i) Executive's annual base salary at the annual rate in
effect at the date of his Involuntary Termination;
(ii) Executive's annual base salary at the annual rate in
effect sixty days prior to the date of his Involuntary
Termination; or
(iii) Executive's annual base salary at the annual rate in
effect immediately prior to a Change of Control if Executive's
employment shall be subject to an Involuntary Termination within
two years after such Change of Control.
(b) "Change in Duties" shall mean:
(i) The occurrence, prior to a Change of Control or after
the date which is two years after a Change of Control occurs, of
any one or more of the following:
(1) A significant change in the nature or scope of
Executive's authorities or duties from those previously
applicable to him;
(2) A reduction in Executive's base salary from that
provided to him immediately prior to the effective date of
this Agreement (or the effective date of any extension of
this Agreement pursuant to Paragraph 7(a)); or
(3) A diminution in employee benefits (including but not
limited to medical, dental, life insurance and long-term
disability plans) and perquisites applicable to Executive
from those substantially similar to the employee benefits
and perquisites provided by the Company (including its
<PAGE>
subsidiaries) to executives with comparable duties; or
(ii) The occurrence, within two years after the date upon
which a Change of Control occurs, of any one or more of the
following:
(1) A significant change in the nature or scope of
Executive's authorities or duties from those applicable to
him immediately prior to the date on which a Change of
Control occurs;
(2) A reduction in Executive's base salary from that
provided to him immediately prior to the date on which a
Change of Control occurs;
(3) A diminution in Executive's eligibility to
participate in bonus, stock option, incentive award and
other compensation plans which provide opportunities to
receive compensation which are the greater of (A) the
opportunities pro vided by the Company (including its
subsidiaries) for executives with comparable duties or (B)
the opportunities under any such plans under which he was
participating immediately prior to the date on which a
Change of Control occurs;
(4) A diminution in employee benefits (including but not
limited to medical, dental, life insurance and long-term
disability plans) and perquisites applicable to Executive
from the greater of (A) the employee benefits and
perquisites provided by the Company (including its
subsidiaries) to executives with comparable duties or (B)
the employee benefits and perquisites to which he was
entitled immediately prior to the date on which a Change of
Control occurs; or
(5) A change in the location of Executive's principal
place of employment by the Company (including its
subsidiaries) by more than 50 miles from the location where
he was principally employed immediately prior to the date on
which a Change of Control occurs.
(c) "Change of Control" means the occurrence of any one or more
of the following events:
(i) The Company shall not be the surviving entity in any
merger, consolidation or other reorganization (or survives only
as a subsidiary of an entity other than a previously
wholly-owned subsidiary of the Company);
(ii) The Company sells, leases or exchanges all or
substantially all of its assets to any other person or entity
(other than a wholly-owned subsidiary of the Company);
(iii) The Company is to be dissolved and liquidated;
(iv) Any person or entity, including a "group" as
contemplated by Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended, acquires or gains ownership or control
(including, without
<PAGE>
limitation, power to vote) of more than 30% of the outstanding
shares of the Company's voting stock (based upon voting power);
or
(v) As a result of or in connection with a contested
election of directors, the persons who were directors of the
Company before such election shall cease to constitute a majority
of the Board.
Notwithstanding the foregoing, the term "Change of Control" shall not include
any reorganization, merger or consolidation involving solely the Company and one
or more previously wholly-owned subsidiaries of the Company.
(d) "Compensation Committee" shall mean the Compensation
Committee of the Board.
(e) "Disability" shall mean that, as a result of Executive's
incapacity due to physical or mental illness, he shall have been absent from the
full-time performance of his duties for six-consecutive months and he shall not
have returned to full-time performance of his duties within thirty days after
written notice of termination is given to Executive by the Company (provided,
however, that such notice may not be given prior to thirty days before the
expiration of such six-month period).
(f) "Involuntary Termination" shall mean any termination of
Executive's employment with the Company which:
(i) does not result from a resignation by Executive (other
than a resignation pursuant to clause (ii) of this subparagraph
(f)); or
(ii) results from a resignation by Executive on or before
the date which is sixty days after the date upon which Executive
receives notice of a Change in Duties;
provided, however, the term "Involuntary Termination" shall not include a
Termination for Cause or any termination as a result of death, Disability, or
Retirement.
(g) "Monthly Severance Amount" shall mean an amount equal to
one-twelfth of Executive's Annual Compensation.
(h) "Retirement" shall mean Executive's resignation on or after
the date he reaches age sixty-five.
(i) "Severance Amount" shall mean an amount equal to 2.5 times
Executive's Annual Compensation.
(j) "Severance Period" shall mean:
(i) in the case of an Involuntary Termination which occurs
prior to a Change of Control or after the date which is two years
after a Change of Control occurs, a period commencing on the date
of such Involuntary Termination and continuing for a number of
months (not in excess of thirty months) equal to the whole number
of times that Executive's Annual Compensation can be divided by
$10,000; or
(ii) in the case of an Involuntary
<PAGE>
Termination which occurs within two years after the date
upon which a Change of Control occurs, a period commencing
on the date of such Involuntary Termination and continuing
for twenty-four months.
(k) "Termination for Cause" shall mean termination of Executive's
employment by the Company (or its subsidiaries) by reason of Executive's (i)
gross negligence in the performance of his duties, (ii) willful and continued
failure to perform his duties, (iii) willful engagement in conduct which is
materially injurious to the Company or its subsidiaries (monetarily or
otherwise) or (iv) conviction of a felony or a misdemeanor involving moral
turpitude.
2. Services. Executive agrees that he will render services to the
Company (as well as any subsidiary thereof or successor thereto) during the
period of his employment to the best of his ability and in a prudent and
businesslike manner and that he will devote substantially the same time, efforts
and dedication to his duties as heretofore devoted.
3. Termination Other Than Within Two Years After a Change of Control.
Subject to the provisions of Paragraph 7(i) hereof, if Executive's employment by
the Company or any subsidiary thereof or successor thereto shall be subject to
an Involuntary Termination which occurs prior to a Change of Control or after
the date which is two years after a Change of Control occurs, then the Company
will, as additional compensation for services rendered to the Company (including
its subsidiaries), pay to Executive the following amounts (subject to any
applicable payroll or other taxes required to be withheld and any employee
benefit premiums) and take the following actions after the last day of
Executive's employment with the Company:
(a) Pay Executive the Monthly Severance Amount on the first day
of each month throughout the Severance Period; provided, however, that in the
event Executive obtains new employment during the Severance Period, each such
monthly payment shall be reduced by 50% beginning with the payment next due
after the date Executive obtains such new employment. Executive shall promptly
report any such new employment to the Company. For purposes of this Paragraph
3(a), the term "employment" shall include (i) any employment as an employee or
(ii) the conduct of any trade or business (whether as a sole proprietor,
independent contractor or otherwise) by Executive in which he is expected to
render personal services for more than 40 hours in any given month during the
Severance Period.
(b) Cause Executive and those of his dependents (including his
spouse) who were covered under the Company's medical and dental benefit plans on
the day prior to Executive's Involuntary Termination to continue to be covered
under such plans throughout the Severance Period, without any cost to Executive;
provided, however, that (i) such coverage shall terminate if and to the extent
Executive becomes eligible to receive medical and dental coverage from a
subsequent employer (and any such eligibility shall be promptly reported to the
Company by Executive) and (ii) if Executive (and/or his spouse) would have been
entitled to retiree medical and/or dental coverage under the Company's plans had
he voluntarily retired on the date of such Involuntary Termination, then such
coverages shall be continued as provided under such plans.
<PAGE>
4. Termination Within Two Years After a Change of Control. If
Executive's employment by the Company or any subsidiary thereof or successor
thereto shall be subject to an Involuntary Termination which occurs within two
years after the date upon which a Change of Control occurs, then the Company
will, as additional compensation for services rendered to the Company (including
its subsidiaries), pay to Executive the following amounts (subject to any
applicable payroll or other taxes required to be withheld and any employee
benefit premiums) and take the following actions after the last day of
Executive's employment with the Company:
(a) Pay Executive a lump sum cash payment in an amount equal to
the Severance Amount on or before the fifth day after the last day of
Executive's employment with the Company.
(b) Cause Executive and those of his dependents (including his
spouse) who were covered under the Company's medical and dental benefit plans on
the day prior to Executive's Involuntary Termination to continue to be covered
under such plans throughout the Severance Period, without any cost to Executive;
provided, however, that (i) such coverage shall terminate if and to the extent
Executive becomes eligible to receive medical and dental coverage from a
subsequent employer (and any such eligibility shall be promptly reported to the
Company by Executive) and (ii) if Executive (and/or his spouse) would have been
entitled to retiree medical and/or dental coverage under the Company's plans had
he voluntarily retired on the date of such Involuntary Termination, then such
coverages shall be continued as provided under such plans.
(c) Cause any and all outstanding options to purchase common
stock of the Company held by Executive to become immediately exercisable in full
and cause Executive's accrued benefits under any and all nonqualified deferred
compensation plans sponsored by the Company to become immediately
nonforfeitable.
5. Interest on Late Payments. If any payment provided for in
Paragraph 3(a) or Paragraph 4(a) hereof is not made when due, the Company shall
pay to Executive interest on the amount payable from the date that such payment
should have been made under such paragraph until such payment is made, which
interest shall be calculated at 10% plus the prime or base rate of interest
announced by The Chase Manhattan Bank, N.A. (or any successor thereto) at its
principal office in New York, and shall change when and as any such change in
such prime or base rate shall be announced by such bank.
6. Certain Additional Payments by the Company. Notwithstanding
anything to the contrary in this Agreement, in the event that any payment or
distribution by the Company to or for the benefit of Executive, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise (a "Payment"), would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended, or any interest
or penalties with respect to such excise tax (such excise tax, together with any
such interest or penalties, are hereinafter collectively referred to as the
"Excise Tax"), the Company shall pay to Executive an additional payment (a
"Gross-up Payment") in an amount such that after payment by
<PAGE>
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including any Excise Tax imposed on any Gross-up Payment,
Executive retains an amount of the Gross-up Payment equal to the Excise Tax
imposed upon the Payments. The Company and Executive shall make an initial
determination as to whether a Gross-up Payment is required and the amount of any
such Gross-up Payment. Executive shall notify the Company immediately in writing
of any claim by the Internal Revenue Service which, if successful, would require
the Company to make a Gross-up Payment (or a Gross-up Payment in excess of that,
if any, initially determined by the Company and Executive) within five days of
the receipt of such claim. The Company shall notify Executive in writing at
least five days prior to the due date of any response required with respect to
such claim if it plans to contest the claim. If the Company decides to contest
such claim, Executive shall cooperate fully with the Company in such action;
provided, however, the Company shall bear and pay directly or indirectly all
costs and expenses (including additional interest and penalties) incurred in
connection with such action and shall indemnify and hold Executive harmless, on
an after-tax basis, for any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of the Company's action. If,
as a result of the Company's action with respect to a claim, Executive receives
a refund of any amount paid by the Company with respect to such claim, Executive
shall promptly pay such refund to the Company. If the Company fails to timely
notify Executive whether it will contest such claim or the Company determines
not to contest such claim, then the Company shall immediately pay to Executive
the portion of such claim, if any, which it has not previously paid to
Executive.
7. General.
(a) Term. The effective date of this Agreement is June 15, 1993.
Within sixty days from and after the expi ration of two years after said
effective date and within sixty days after each successive two-year period of
time thereafter that this Agreement is in effect, the Company shall have the
right to review this Agreement, and in its sole discretion either continue and
extend this Agreement, terminate this Agreement, and/or offer Executive a
different agreement. The Compensation Committee (excluding any member of the
Compensation Committee who is covered by this Agreement or by a similar
agreement with the Company) will vote on whether to so extend, terminate, and/or
offer Executive a different agreement and will notify Executive of such action
within said sixty-day time period mentioned above. This Agreement shall remain
in effect until so termi nated and/or modified by the Company. Failure of the
Compensation Committee to take any action within said sixty days shall be
considered as an extension of this Agreement for an additional two-year period
of time. Notwithstanding anything to the contrary contained in this "sunset
provision," it is agreed that if a Change of Control occurs while this Agreement
is in effect, then this Agreement shall not be subject to termination or
modification under this "sunset provision," and shall remain in force for a
period of two years after such Change of Control, and if within said two years
the contingency factors occur which would entitle Executive to the benefits as
provided herein, this Agreement shall remain in effect in accordance with its
terms. If, within such two years after a Change of Control, the contingency
factors that would entitle Executive to said
<PAGE>
benefits do not occur, thereupon this two-year "sunset provision" shall again be
applicable with the sixty-day time period for Compensation Committee action to
thereafter commence at the expiration of said two years after such Change of
Control and on each two-year anniversary date thereafter.
(b) Indemnification. If Executive shall obtain any money judgment
or otherwise prevail with respect to any litigation brought by Executive or the
Company to enforce or interpret any provision contained herein, the Company, to
the fullest extent permitted by applicable law, hereby indemnifies Executive for
his reasonable attorneys' fees and disbursements incurred in such litigation and
hereby agrees (i) to pay in full all such fees and disbursements and (ii) to pay
prejudgment interest on any money judgment obtained by Executive from the
earliest date that payment to him should have been made under this Agreement
until such judgment shall have been paid in full, which interest shall be
calculated at 10% plus the prime or base rate of interest announced by The Chase
Manhattan Bank, N.A. (or any successor thereto) at its principal office in New
York, and shall change when and as any such change in such prime or base rate
shall be announced by such bank.
(c) Payment Obligations Absolute. The Company's obligation to pay
(or cause one of its subsidiaries to pay) Executive the amounts and to make the
arrangements provided herein shall be absolute and unconditional and shall not
be affected by any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the Company (including
its subsidiaries) may have against him or anyone else. All amounts payable by
the Company (including its subsidiaries hereunder) shall be paid without notice
or demand. Executive shall not be obligated to seek other employment in
mitigation of the amounts payable or arrangements made under any provision of
this Agreement, and, except as provided in Paragraphs 3(a), 3(b) and 4(b)
hereof, the obtaining of any such other employment shall in no event effect any
reduction of the Company's obligations to make (or cause to be made) the
payments and arrangements required to be made under this Agreement.
(d) Successors. This Agreement shall be binding upon and inure to
the benefit of the Company and any suc cessor of the Company, by merger or
otherwise. This Agreement shall also be binding upon and inure to the benefit of
Executive and his estate. If Executive shall die prior to full payment of
amounts due pursuant to this Agreement, such amounts shall be payable pursuant
to the terms of this Agreement to his estate.
(e) Severability. Any provision in this Agreement which is
prohibited or unenforceable in any juris diction by reason of applicable law
shall, as to such jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating or affecting the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
(f) Non-Alienation. Executive shall not have any right to pledge,
hypothecate, anticipate or assign this Agreement or the rights hereunder, except
by will or the
<PAGE>
laws of descent and distribution.
(g) Notices. Any notices or other communications provided for in
this Agreement shall be sufficient if in writing. In the case of Executive, such
notices or communications shall be effectively delivered if hand delivered to
Executive at his principal place of employment or if sent by registered or
certified mail to Executive at the last address he has filed with the Company.
In the case of the Company, such notices or communications shall be effectively
delivered if sent by registered or certified mail to the Company at its
principal executive offices.
(h) Controlling Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Colorado.
(i) Release. As a condition to the receipt of any benefit under
Paragraph 3 hereof, Executive shall first execute a release, in the form
established by the Company, releasing the Company, its shareholders, partners,
officers, directors, employees and agents from any and all claims and from any
and all causes of action of any kind or character, including but not limited to
all claims or causes of action arising out of Executive's employment with the
Company or the termination of such employment.
(j) Full Settlement. If Executive is entitled to and receives the
benefits provided hereunder, performance of the obligations of the Company
hereunder will constitute full settlement of all claims that Executive might
otherwise assert against the Company on account of his termination of
employment.
(k) Unfunded Obligation. The obligation to pay amounts under this
Agreement is an unfunded obligation of the Company (including its subsidiaries),
and no such obligation shall create a trust or be deemed to be secured by any
pledge or encumbrance on any property of the Company (including its
subsidiaries).
(l) Not a Contract of Employment. This Agreement shall not be
deemed to constitute a contract of employment, nor shall any provision hereof
affect (a) the right of the Company (or its subsidiaries) to discharge Executive
at will or (b) the terms and conditions of any other agreement between the
Company and Executive except as provided herein.
(m) Number and Gender. Wherever appropriate herein, words used in
the singular shall include the plural and the plural shall include the singular.
The masculine gender where appearing herein shall be deemed to include the
feminine gender.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the ______ day of __________________, 1993.
"EXECUTIVE"
_____________________________________
<PAGE>
"COMPANY"
FOREST OIL CORPORATION
By: _______________________________
Name: ________________________
Title: ________________________
<PAGE>
SETTLEMENT AGREEMENT AND GENERAL RELEASE
I. PARTIES
The Parties to this Agreement are:
A. John F. Dorn, referred to as "Dorn"; and
B. Forest Oil Corporation, referred to as "FOC".
II. RECITALS
A. Dorn was employed by FOC from September 1, 1973 to
March 31, 1994. Dorn resigned as a Director, Vice President and
Chief Operating Officer.
B. Disagreements have arisen between the parties relating
to Dorn's employment and separation of employment.
C. The parties hereto desire to settle all claims and
controversies between them under the terms and conditions of this
Agreement. The parties, by entering into this Agreement, do not
admit to any liability for any wrongdoing whatsoever.
III. COVENANTS
In consideration of the mutual covenants set forth below and
for other good and valuable consideration, receipt of which is
hereby acknowledged, the parties agree as follows:
A. Dorn, for himself, and assigns, of his own free will,
does hereby voluntarily release and forever discharge FOC and all
related entities, affiliated companies, parents, subsidiaries,
divisions, insurers, successors, predecessors, past and present
directors, officers and employees, assigns, agents, attorneys and
representatives, both individually and in their official
capacities, from any and all claims, actions or causes of action,
suits, charges, complaints, contracts, agreements and promises,
judgments, damages, losses, claims, liabilities and demands
(including any claims or demands for attorneys fees), whatsoever,
in law or equity, which he or his assigns may now have or
hereafter can, shall or may have for any reason or cause
whatsoever, including but not limited to any and all matters
arising from or related to or attributable to his employment and
separation from employment by FOC, and any acts or omissions of
the persons listed above on or prior to the date of this
Agreement, including but not limited to the following:
1. Age discrimination brought pursuant to the Age
Discrimination in Employment Act, 29 U.S.C. (section) 621, et seq., or
other similar or related state or federal statute;
<PAGE>
2. Sex, race, national origin, or religion
discrimination brought pursuant to Title VII of the Civil Rights
Act of 1964, 42 U.S.C. (section) 2000(e), et seq., or any other similar
or related state or federal statute;
3. Any claim brought pursuant to the Employee
Retirement and Income Security Act (ERISA), 29 U.S.C. (section) 1101, et
seq., or any other similar or related state or federal statute;
4. Any claim brought pursuant to the Americans with
Disabilities Act of 1990, or any other similar or related state
or federal statute;
5. Any civil rights, anti-discrimination,
constitutional, statutory or state claim based upon
discrimination, or any contract or tort claim based upon known or
unknown facts arising out of his employment or termination of
employment with FOC;
6. Any other alleged violation of any local, state or
federal law, regulation or ordinance, and/or public policy,
contract (including, but not limited to, employment contracts) or
tort law (including, but not limited to wrongful termination or
defamation) against FOC, their affiliated companies, parents,
subsidiaries, successors, predecessors, assigns, etc., their
officers, employees and agents, both individually and in their
official capacities.
7. None of the provisions of this Settlement
Agreement and General Release are intended in any way to affect
the vesting and/or payment of Dorn's 401(k) or pension rights, or
any rights vested in that certain Executive Severance Agreement
dated _____________________________________, by and between John
F. Dorn and FOC, except as otherwise provided herein.
B. FOC, for itself and all related entities, affiliated
companies, parents, subsidiaries, divisions, insurers,
successors, predecessors, and to the extent FOC has the authority
to do so, past and present directors, officers and employees,
assigns, agents, attorneys and representatives, in their official
capacities, of its own free will, does hereby voluntarily release
and forever discharge Dorn from any and all claims, actions or
causes of action, suits, charges, complaints, contracts,
agreements and promises, judgments, damages, losses, claims,
liabilities and demands (including any claims or demands for
attorneys fees), whatsoever, in law or equity, which it may now
have or hereafter can, shall or may have for any reason or cause
whatsoever, including but not limited to any and all matters
arising from or related to or attributable to Dorn's employment
and separation from employment with FOC.
C. Dorn represents that he has not filed any complaints,
claims, or actions against FOC, its officers, agents, directors,
supervisors, employees, or representatives with any state,
federal or local agency or court and that he will not do so at
any time hereafter and that if any agency or court assumes
jurisdiction of any complaint, claim, or action against FOC or
its affiliated companies or any of its officers, agents,
directors, supervisors, employees, or representatives on behalf
of Dorn, he will direct that agency or court to withdraw from or
dismiss with prejudice the matter or any and all matters arising
from or related to or attributable
-2-
<PAGE>
to his employment and separation from employment with FOC, and
acts or omissions by the persons listed above on or prior to the
date of this Agreement.
D. Dorn covenants not to commence any action,
administrative or otherwise, against FOC or any other person
released under this Agreement for damages or losses for any
reason or theory whatsoever, based upon acts or omissions of FOC,
its agents, or past or present employees occurring on or prior to
the date of this Agreement, or upon any act or omission in
connection with his employment and separation of employment from
FOC.
E. Dorn hereby expressly represents (except as provided
for herein) that he has tendered back to FOC everything of
material value belonging to FOC including policy handbooks,
procedure manuals, and any written materials belonging to FOC in
addition to his means of access to the building to FOC.
F. Dorn and FOC understand and agree that this Agreement
extends to all claims of every kind and nature, past or present,
arising from or attributable to any act or omission of Dorn, FOC
or any person listed in Paragraphs III.A. or B. above.
G. Dorn and FOC understand and expressly agree that this
Agreement shall bind and benefit the personal representatives,
successors and assigns of each of the parties.
H. In further consideration of Dorn's execution of this
Settlement Agreement and General Release, FOC, through the
undersigned authorized agent, acting for itself, its successors,
and assigns, does hereby agree to indemnify, defend and hold Dorn
harmless from any claims, demands, actions and causes of action
of whatsoever nature and character which have or may hereafter be
asserted by any person, firm, corporation or agency claiming
damages or any other relief as a result of any action Dorn may
have taken or failed to have taken while acting within the scope
of Dorn's employment at FOC; provided however, that this
provision expressly does not apply to any act or failure to act
of Dorn based upon his alleged intentional or willful violation
of any law, rule or regulation, federal or state, or of any FOC
policy or procedure, nor does it apply to any alleged acts of
material misconduct or gross negligence.
I. In consideration for the foregoing, FOC agrees as
follows:
1. Dorn shall receive as severance the payment of
$500,010.00 (payable in 30 equal monthly installments, less
applicable taxes) in lieu of any payments under paragraph 3 under
the Executive Severance Agreement.
2. Immediate full vesting in all stock options shall
be granted to Dorn with a ten-year limit on exercise from date of
grant.
3. Full vesting and immediate payment in 1994 shall
be made to Dorn of the balance of the 1992 Incentive Bonus Plan
payment awarded in 1993.
-3-
<PAGE>
4. Full vesting and immediate payment shall be made
to Dorn of any 1993 Incentive Bonus Plan payment awarded in 1994.
5. Dorn shall continue participation in the Executive
Overriding Royalty Bonus Program until April 1, 1994, and any
extensions or renewals of assignments made pursuant to said
program.
6. Full and immediate vesting to Dorn in the
Executive Life Insurance Plan "Split Dollar Policy" dated
December 27, 1991, and any payments due thereunder shall be made
by FOC at no cost to Dorn.
7. FOC shall transfer to Dorn (at no cost to Dorn)
ownership of the Company Vehicle #3104, 1993 Chevy Suburban
(taxable value to be determined).
8. Dorn shall receive the free use of Barry Emeson's
accounting services for a period of one year ending April 1,
1995.
9. Dorn shall receive (at no cost to Dorn) financial
planning and estate planning which have been commenced prior to
April 1, 1994.
10. FOC shall transfer to Dorn (at no cost to Dorn)
the personal computer and office furniture located in his office
(taxable value of $1,200.00). FOC will provide to Dorn
sufficient time and secretarial support to implement the move of
these items to a new office location. FOC will pay the cost of
the moving expenses to the new office.
11. If within two years of April 1, 1994, Dorn decides
to relocate from Colorado and sell his home, FOC will purchase
the home and will pay the cost of moving expenses all within the
policy of FOC.
12. Dorn will receive medical and dental benefit plans
for Dorn and those of his dependents (including his spouse) at no
cost for the period of 30 months as provided in the Executive
Severance Agreement.
J. FOC agrees to permit Dorn to be credited with 2582.893
shares of FOC stock at no cost to Dorn.
K. Dorn represents that he has made no assignment of any
rights asserted against FOC.
L. The parties agree that this Agreement, and the terms
and conditions of the settlement, as well as the negotiations
leading to the settlement, shall remain confidential, and shall
not be voluntarily disclosed to any person other than necessary
taxing authorities, Dorn's attorneys or accountants or other
professional advisors, and to the extent necessary for the
reasonable internal purposes of FOC and applicable securities
laws. Further, disclosures
-4-
<PAGE>
required by subpoena or other mandatory court or governmental
agency will not violate this provision.
M. The parties hereto represent and acknowledge that in
executing this Agreement they do not rely and have not relied
upon any representation or statement made by any of the parties
or by any of the parties' agents or representatives with regard
to the subject matter, basis, or effect of this Agreement or
otherwise, other than those specifically stated in this written
Agreement.
N. Should any provision of this Agreement be declared or
be determined by any court of competent jurisdiction to be
illegal, invalid, or unenforceable, the legality, validity, and
enforceability of the remaining parts, terms, or provisions shall
not be affected thereby, and said illegal, unenforceable, or
invalid part, term, or provision shall be deemed not to be a part
of this Agreement.
O. This Agreement sets forth the agreement between the
parties hereto and fully supersedes any and all prior agreements
or understandings, written or oral, between the parties hereto
pertaining to the subject matter hereof. This Agreement shall
not be deemed to alter or affect the agreement of the parties as
to that certain Purchase and Sale Agreement of even date
herewith.
P. Dorn represents and agrees that he has reviewed all
aspects of this Agreement with his attorney, that he has
carefully read and fully understands all the provisions of this
Agreement, and that he is voluntarily entering into this
Agreement.
-5-
<PAGE>
Date:_______________________ ________________________________
John F. Dorn
COUNTY OF_______________ )
) ss.
STATE OF________________ )
Subscribed and sworn to before me this ___________ day of
________________, 1994, by John F. Dorn.
__________________________
Notary Public
Address:__________________
__________________________
My commission expires: ________________.
FOREST OIL CORPORATION
Date: ____________________ _____________________________
By:
COUNTY OF _____________ )
) ss.
STATE OF ______________ )
Subscribed and sworn to before me this __________ day of
________________, 1994, by __________________________________,
as agent for Forest Oil Corporation.
__________________________
Notary Public
Address: _________________
__________________________
My commission expires: ________________.
-6-
<PAGE>
READ AND APPROVED AS TO FORM: READ AND APPROVED AS TO FORM:
MILLER & STEIERT, P.C.
_____________________________ ____________________________
Kathryn E. Miller, Esq.
Attorney for John F. Dorn Attorney for FOC
-7-
<PAGE>
AGE DISCRIMINATION WAIVER
I, John F. Dorn, with the advice of my attorney,
____________________, and as part of my settlement of all claims
against Forest Oil Corporation, FOREVER WAIVE ANY AND ALL CLAIMS
under the Federal Age Discrimination in Employment Act, as
amended.
I understand that I am not waiving or releasing any rights
or claims that might arise after the date of this Waiver.
This Waiver, and the Settlement Agreement and General
Release to which this Waiver is attached, were given to me for my
review on _____________________, 1994, and were understood by me
in their entirety. I am waiving any and all rights under the Age
Discrimination in Employment Act.
I acknowledge that I have 21 days to consider this Waiver
and the Settlement Agreement and General Release, and that if I
sign them, I will have seven days to reconsider and revoke them
if I wish. I will receive the consideration from Forest Oil
Corporation on the eighth day following the date that I sign this
document. I am receiving value under the Waiver and Settlement
Agreement and General Release beyond what I am entitled to under
the policies of Forest Oil Corporation.
I also acknowledge that this is a legal document, and that I
have consulted with an attorney before signing this. My attorney
is __________________________________. I am signing this Waiver
knowingly and voluntarily, without any coercion or duress.
Date:____________________ __________________________
John F. Dorn
COUNTY OF ______________ )
) ss.
STATE OF _______________ )
Subscribed and sworn to before me this _________ day of
________________, 1994, by John F. Dorn.
_____________________________
Notary Public
Address: ____________________
_____________________________
My commission expires:_________________.
<PAGE>
ACKNOWLEDGEMENT OF JOHN F. DORN
I, John F. Dorn, have read the foregoing Settlement
Agreement and General Release, and all exhibits thereto, and have
reviewed this with my counsel. All of my questions concerning
this Agreement have been answered by my counsel. I execute this
Agreement freely, without coercion or duress, and with a full and
complete understanding of its meaning.
Date: __________________ _______________________________
John F. Dorn
COUNTY OF ______________ )
) ss.
STATE OF _______________ )
Subscribed and sworn to before me this __________ day of
________________, 1994, by John F. Dorn.
_______________________________
Notary Public
Address: ______________________
_______________________________
My commission expires: ________________.
<PAGE>
Exhibit 11
FOREST OIL CORPORATION AND CONSOLIDATED SUBSIDIARIES
CALCULATION OF EARNINGS (LOSS) PER SHARE OF COMMON STOCK
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1993 1992 1991
---- ---- ----
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C>
Primary earnings (loss) per share:
Net earnings (loss) $(21,213) 7,298 (25,348)
Less dividend requirements on:
$.75 Convertible Preferred Stock (2,250) (2,348) -
$15.75 Redeemable Preferred Stock - - (5,209)
-------- ------- --------
Net earnings (loss) attributable
to common stock for primary
earnings (loss) per share
calculation $(23,463) 4,950 (30,557)
-------- ------ -------
-------- ------ -------
Weighted average number of
common shares outstanding 21,997 13,774 12,494
-------- ------ -------
-------- ------ -------
Primary earnings (loss) per
share of common stock $(1.07) .36 (2.45)
-------- ------ -------
-------- ------ -------
Fully diluted earnings (loss)
per share:
Net earnings (loss) attributable
to common stock, as above $(23,463) 4,950 (30,557)
Add:
Dividend requirements on:
$.75 Convertible Preferred Stock 2,250 2,348 -
Interest expense on 5-1/2%
Convertible Subordinated
Debentures 409 470 507
Expenses related to the 5-1/2%
Convertible Subordinated
Debentures 6 15 12
Less:
Additional Federal income taxes (141) (165) (176)
Net earnings (loss) attributable
to common stock for fully diluted
earnings (loss) per share
calculation $(20,939) 7,618 (30,214)
-------- ------ -------
-------- ------ -------
Common shares applicable to
fully diluted calculation:
Weighted average number
of common shares
outstanding, as above 21,997 13,774 12,494
Add weighted average
number of shares:
Issuable upon assumed
conversion of:
$.75 Convertible Preferred Stock 10,492 12,209 -
$2.125 Convertible
Preferred Stock - - 5,216
Issuable upon assumed
conversion of 5-1/2%
Convertible Subordinated
Debentures 612 532 526
Issuable upon assumed exercise
of Warrants, net
of assumed repurchases - - 92
-------- ------ -------
Common shares applicable to
fully diluted calculation 33,101 26,515 18,328
-------- ------ -------
-------- ------ -------
Fully diluted earnings (loss)
per share of common stock $ (.63)* .29 (1.65)*
-------- ------ -------
-------- ------ -------
<FN>
* The fully diluted loss per share for 1993 and 1991 is not presented in
the Company's financial statements because the effects of assumed
exercises and conversions were anti-dilutive.
</TABLE>
<PAGE>
Exhibit 24
CONSENT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
FOREST OIL CORPORATION:
We consent to the incorporation by reference in (i) the Registration
Statements (Nos. 2-74151, 2-76946, 33-2748 and 33-59504) on Form S-8
of Forest Oil Corporation -- Retirement Savings Plan of Forest
Oil Corporation, (ii) the Registration Statement (No. 33-48440) on
Form S-8 and S-3 of Forest Oil Corporation -- 1992 Stock Option Plan
of Forest Oil Corporation, (iii) the Registration Statement (No.
33-43292) on Form S-3 of Forest Oil Corporation -- Common Stock
issuable upon exercise of the Warrants of Forest Oil Corporation
and (iv) the Registration Statement (Nos. 33-47477 and 33-47478) on
Forms S-2 and S-3 of Forest Oil Corporation -- Common Stock issuable
to Richard Dorn and resales thereof, of our reports dated February
22, 1994, relating to the consolidated balance sheets of Forest Oil
Corporation and subsidiaries as of December 31, 1993 and 1992, and
the related consolidated statements of operations, shareholders'
equity, and cash flows and related financial statement schedules
for each of the years in the three-year period ended December 31, 1993,
which reports appear in the December 31, 1993 annual report on
Form 10-K of Forest Oil Corporation.
Our report on the consolidated financial statements refers to
changes in the method of accounting for postretirement benefits
and income taxes.
/s/_____________________________
KPMG Peat Marwick
Denver, Colorado
March 28, 1994
Exhibit 25
POWER OF ATTORNEY
_________________
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Linda M.
Trulick his true and lawful attorneys and agents (each with authority to act
alone), to do any and all acts and things and to execute any and all instruments
which said attorneys and agents deem necessary or advisable to enable the
Company to comply with the Securities Exchange Act of l934, as amended, and any
rules, regulations, and requirements of the Securities and Exchange Commission
in respect thereof, in connection with the preparation and filing of the Form
10-K--Annual Report for the year ended December 31, 1993 pursuant to Section 13
of the Securities Exchange Act of l934, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer or
director, or both, of the Company to a Form l0-K--Annual Report for the year
ended December 31, 1993 pursuant to Section 13 of the Securities Exchange Act of
l934 or to any amendment thereto filed with the Securities and Exchange
Commission and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Form l0-K--Annual Report or amendment; and the
undersigned does hereby ratify and confirm as his own act and deed all that said
attorneys and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents
this ______________ day of _________________________________________________
____________________________________________________________________ , 1994.
/s/ Donald H. Anderson
_______________________
Donald H. Anderson
==============================================================================
POWER OF ATTORNEY
_________________
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Linda M.
Trulick his true and lawful attorneys and agents (each with authority to act
alone), to do any and all acts and things and to execute any and all instruments
which said attorneys and agents deem necessary or advisable to enable the
Company to comply with the Securities Exchange Act of l934, as amended, and any
rules, regulations, and requirements of the Securities and Exchange Commission
in respect thereof, in connection with the preparation and filing of the Form
10-K--Annual Report for the year ended December 31, 1993 pursuant to Section 13
of the Securities Exchange Act of l934, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the
<PAGE>
name of the undersigned as officer or director, or both, of the Company to a
Form l0-K--Annual Report for the year ended December 31, 1993 pursuant to
Section 13 of the Securities Exchange Act of l934 or to any amendment thereto
filed with the Securities and Exchange Commission and to any instrument or
document filed as a part of, as an exhibit to or in connection with said Form
l0-K--Annual Report or amendment; and the undersigned does hereby ratify and
confirm as his own act and deed all that said attorneys and agents shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents
this ______________ day of _________________________________________________
____________________________________________________________________ , 1994.
/s/ Austin M. Beutner
_______________________
Austin M. Beutner
===============================================================================
POWER OF ATTORNEY
_________________
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Linda M.
Trulick his true and lawful attorneys and agents (each with authority to act
alone), to do any and all acts and things and to execute any and all instruments
which said attorneys and agents deem necessary or advisable to enable the
Company to comply with the Securities Exchange Act of l934, as amended, and any
rules, regulations, and requirements of the Securities and Exchange Commission
in respect thereof, in connection with the preparation and filing of the Form
10-K--Annual Report for the year ended December 31, 1993 pursuant to Section 13
of the Securities Exchange Act of l934, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer or
director, or both, of the Company to a Form l0-K--Annual Report for the year
ended December 31, 1993 pursuant to Section 13 of the Securities Exchange Act of
l934 or to any amendment thereto filed with the Securities and Exchange
Commission and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Form l0-K--Annual Report or amendment; and the
undersigned does hereby ratify and confirm as his own act and deed all that said
attorneys and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents
this ______________ day of __________________________________________________
_____________________________________________________________________ , 1994.
/s/ Robert S. Boswell
_______________________
Robert S. Boswell
<PAGE>
===============================================================================
POWER OF ATTORNEY
_________________
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Linda M.
Trulick his true and lawful attorneys and agents (each with authority to act
alone), to do any and all acts and things and to execute any and all instruments
which said attorneys and agents deem necessary or advisable to enable the
Company to comply with the Securities Exchange Act of l934, as amended, and any
rules, regulations, and requirements of the Securities and Exchange Commission
in respect thereof, in connection with the preparation and filing of the Form
10-K--Annual Report for the year ended December 31, 1993 pursuant to Section 13
of the Securities Exchange Act of l934, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer or
director, or both, of the Company to a Form l0-K--Annual Report for the year
ended December 31, 1993 pursuant to Section 13 of the Securities Exchange Act of
l934 or to any amendment thereto filed with the Securities and Exchange
Commission and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Form l0-K--Annual Report or amendment; and the
undersigned does hereby ratify and confirm as his own act and deed all that said
attorneys and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents
this ______________ day of __________________________________________________
_____________________________________________________________________ , 1994.
/s/ Richard J. Callahan
________________________
Richard J. Callahan
===============================================================================
POWER OF ATTORNEY
_________________
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Linda M.
Trulick his true and lawful attorneys and agents (each with authority to act
alone), to do any and all acts and things and to execute any and all instruments
which said attorneys and agents deem necessary or advisable to enable the
Company to comply with the Securities Exchange Act of l934, as amended, and any
rules, regulations, and requirements of the Securities and Exchange Commission
in respect thereof, in connection with the preparation and filing of the Form
10-K--Annual Report for the year ended December 31, 1993 pursuant to Section 13
of the Securities Exchange Act of l934, including specifically, but without
limiting the generality of the foregoing, the power and
<PAGE>
authority to sign for and on behalf of the undersigned the name of the
undersigned as officer or director, or both, of the Company to a Form
l0-K--Annual Report for the year ended December 31, 1993 pursuant to Section 13
of the Securities Exchange Act of l934 or to any amendment thereto filed with
the Securities and Exchange Commission and to any instrument or document filed
as a part of, as an exhibit to or in connection with said Form l0-K--Annual
Report or amendment; and the undersigned does hereby ratify and confirm as his
own act and deed all that said attorneys and agents shall do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents
this ______________ day of ___________________________________________________
______________________________________________________________________ , 1994.
/s/ Dale F. Dorn
____________________
Dale F. Dorn
===============================================================================
POWER OF ATTORNEY
_________________
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Linda M.
Trulick his true and lawful attorneys and agents (each with authority to act
alone), to do any and all acts and things and to execute any and all instruments
which said attorneys and agents deem necessary or advisable to enable the
Company to comply with the Securities Exchange Act of l934, as amended, and any
rules, regulations, and requirements of the Securities and Exchange Commission
in respect thereof, in connection with the preparation and filing of the Form
10-K--Annual Report for the year ended December 31, 1993 pursuant to Section 13
of the Securities Exchange Act of l934, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer or
director, or both, of the Company to a Form l0-K--Annual Report for the year
ended December 31, 1993 pursuant to Section 13 of the Securities Exchange Act of
l934 or to any amendment thereto filed with the Securities and Exchange
Commission and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Form l0-K--Annual Report or amendment; and the
undersigned does hereby ratify and confirm as his own act and deed all that said
attorneys and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents
this ______________ day of _________________________________________________
____________________________________________________________________ , 1994.
/s/ John C. Dorn
____________________
John C. Dorn
<PAGE>
===============================================================================
POWER OF ATTORNEY
_________________
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Linda M.
Trulick his true and lawful attorneys and agents (each with authority to act
alone), to do any and all acts and things and to execute any and all instruments
which said attorneys and agents deem necessary or advisable to enable the
Company to comply with the Securities Exchange Act of l934, as amended, and any
rules, regulations, and requirements of the Securities and Exchange Commission
in respect thereof, in connection with the preparation and filing of the Form
10-K--Annual Report for the year ended December 31, 1993 pursuant to Section 13
of the Securities Exchange Act of l934, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer or
director, or both, of the Company to a Form l0-K--Annual Report for the year
ended December 31, 1993 pursuant to Section 13 of the Securities Exchange Act of
l934 or to any amendment thereto filed with the Securities and Exchange
Commission and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Form l0-K--Annual Report or amendment; and the
undersigned does hereby ratify and confirm as his own act and deed all that said
attorneys and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents
this ______________ day of ____________________________________________________
_______________________________________________________________________ , 1994.
/s/ William L. Dorn
______________________
William L. Dorn
===============================================================================
POWER OF ATTORNEY
_________________
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or
both, of FOREST OIL CORPORATION, a New York corporation (the "Company"), does
hereby constitute and appoint Daniel L. McNamara and Linda M. Trulick his true
and lawful attorneys and agents (each with authority to act alone), to do any
and all acts and things and to execute any and all instruments which said
attorneys and agents deem necessary or advisable to enable the Company to comply
with the Securities Exchange Act of l934, as amended, and any rules,
regulations, and requirements of the Securities and Exchange Commission in
respect thereof, in connection with the preparation and filing of the Form
10-K--Annual Report for the year ended
<PAGE>
December 31, 1993 pursuant to Section 13 of the Securities Exchange Act of l934,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign for and on behalf of the undersigned the name of
the undersigned as officer or director, or both, of the Company to a Form
l0-K--Annual Report for the year ended December 31, 1993 pursuant to Section 13
of the Securities Exchange Act of l934 or to any amendment thereto filed with
the Securities and Exchange Commission and to any instrument or document filed
as a part of, as an exhibit to or in connection with said Form l0-K--Annual
Report or amendment; and the undersigned does hereby ratify and confirm as his
own act and deed all that said attorneys and agents shall do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents
this ______________ day of ____________________________________________________
_______________________________________________________________________ , 1994.
/s/ Harold D. Hammar
______________________
Harold D. Hammar
===============================================================================
POWER OF ATTORNEY
_________________
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Linda M.
Trulick his true and lawful attorneys and agents (each with authority to act
alone), to do any and all acts and things and to execute any and all instruments
which said attorneys and agents deem necessary or advisable to enable the
Company to comply with the Securities Exchange Act of l934, as amended, and any
rules, regulations, and requirements of the Securities and Exchange Commission
in respect thereof, in connection with the preparation and filing of the Form
10-K--Annual Report for the year ended December 31, 1993 pursuant to Section 13
of the Securities Exchange Act of l934, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer or
director, or both, of the Company to a Form l0-K--Annual Report for the year
ended December 31, 1993 pursuant to Section 13 of the Securities Exchange Act of
l934 or to any amendment thereto filed with the Securities and Exchange
Commission and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Form l0-K--Annual Report or amendment; and the
undersigned does hereby ratify and confirm as his own act and deed all that said
attorneys and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents
this ______________ day of ____________________________________________________
_______________________________________________________________________ , 1994.
<PAGE>
/s/ David H. Keyte
_____________________
David H. Keyte
===============================================================================
POWER OF ATTORNEY
_________________
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Linda M.
Trulick his true and lawful attorneys and agents (each with authority to act
alone), to do any and all acts and things and to execute any and all instruments
which said attorneys and agents deem necessary or advisable to enable the
Company to comply with the Securities Exchange Act of l934, as amended, and any
rules, regulations, and requirements of the Securities and Exchange Commission
in respect thereof, in connection with the preparation and filing of the Form
10-K--Annual Report for the year ended December 31, 1993 pursuant to Section 13
of the Securities Exchange Act of l934, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer or
director, or both, of the Company to a Form l0-K--Annual Report for the year
ended December 31, 1993 pursuant to Section 13 of the Securities Exchange Act of
l934 or to any amendment thereto filed with the Securities and Exchange
Commission and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Form l0-K--Annual Report or amendment; and the
undersigned does hereby ratify and confirm as his own act and deed all that said
attorneys and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents
this ______________ day of ____________________________________________________
_______________________________________________________________________ , 1994.
/s/ James H. Lee
____________________
James H. Lee
===============================================================================
POWER OF ATTORNEY
_________________
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Linda M.
Trulick his true and lawful attorneys and agents (each with authority to act
alone), to do any and all acts and things and to execute any and all instruments
which said attorneys and agents deem necessary or advisable to enable the
Company to comply with the Securities Exchange Act of l934, as amended, and any
rules, regulations, and
<PAGE>
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the preparation and filing of the Form 10-K--Annual Report for
the year ended December 31, 1993 pursuant to Section 13 of the Securities
Exchange Act of l934, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign for and on behalf
of the undersigned the name of the undersigned as officer or director, or both,
of the Company to a Form l0-K--Annual Report for the year ended December 31,
1993 pursuant to Section 13 of the Securities Exchange Act of l934 or to any
amendment thereto filed with the Securities and Exchange Commission and to any
instrument or document filed as a part of, as an exhibit to or in connection
with said Form l0-K--Annual Report or amendment; and the undersigned does hereby
ratify and confirm as his own act and deed all that said attorneys and agents
shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents
this ______________ day of ____________________________________________________
_______________________________________________________________________ , 1994.
/s/ Jeffrey W. Miller
_______________________
Jeffrey W. Miller
===============================================================================
POWER OF ATTORNEY
_________________
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Linda M.
Trulick his true and lawful attorneys and agents (each with authority to act
alone), to do any and all acts and things and to execute any and all instruments
which said attorneys and agents deem necessary or advisable to enable the
Company to comply with the Securities Exchange Act of l934, as amended, and any
rules, regulations, and requirements of the Securities and Exchange Commission
in respect thereof, in connection with the preparation and filing of the Form
10-K--Annual Report for the year ended December 31, 1993 pursuant to Section 13
of the Securities Exchange Act of l934, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer or
director, or both, of the Company to a Form l0-K--Annual Report for the year
ended December 31, 1993 pursuant to Section 13 of the Securities Exchange Act of
l934 or to any amendment thereto filed with the Securities and Exchange
Commission and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Form l0-K--Annual Report or amendment; and the
undersigned does hereby ratify and confirm as his own act and deed all that said
attorneys and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents
this ______________ day of ____________________________________________________
_______________________________________________________________________ , 1994.
<PAGE>
/s/ Jack D. Riggs
_____________________
Jack D. Riggs
===============================================================================
POWER OF ATTORNEY
_________________
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Linda M.
Trulick his true and lawful attorneys and agents (each with authority to act
alone), to do any and all acts and things and to execute any and all instruments
which said attorneys and agents deem necessary or advisable to enable the
Company to comply with the Securities Exchange Act of l934, as amended, and any
rules, regulations, and requirements of the Securities and Exchange Commission
in respect thereof, in connection with the preparation and filing of the Form
10-K--Annual Report for the year ended December 31, 1993 pursuant to Section 13
of the Securities Exchange Act of l934, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer or
director, or both, of the Company to a Form l0-K--Annual Report for the year
ended December 31, 1993 pursuant to Section 13 of the Securities Exchange Act of
l934 or to any amendment thereto filed with the Securities and Exchange
Commission and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Form l0-K--Annual Report or amendment; and the
undersigned does hereby ratify and confirm as his own act and deed all that said
attorneys and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents
this ______________ day of ____________________________________________________
_______________________________________________________________________ , 1994.
/s/ Michael B. Yanney
_______________________
Michael B. Yanney
===============================================================================
POWER OF ATTORNEY
_________________
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Linda M. Trulick his true and
lawful attorney and agent to do any and all acts and things and to execute any
and all instruments which said attorney and agent deems necessary or advisable
to enable the Company
<PAGE>
to comply with the Securities Exchange Act of l934, as amended, and any rules,
regulations, and requirements of the Securities and Exchange Commission in
respect thereof, in connection with the preparation and filing of the Form 10-K-
- -Annual Report for the year ended December 31, 1993 pursuant to Section 13 of
the Securities Exchange Act of l934, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer or
director, or both, of the Company to a Form l0-K- -Annual Report for the year
ended December 31, 1993 pursuant to Section 13 of the Securities Exchange Act of
l934 or to any amendment thereto filed with the Securities and Exchange
Commission and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Form l0-K-- Annual Report or amendment; and the
undersigned does hereby ratify and confirm as his own act and deed all that said
attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents
this ______________ day of ____________________________________________________
_______________________________________________________________________ , 1994.
/s/ Daniel L. McNamara
_______________________
Daniel L. McNamara
===============================================================================
