<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a Party other than the Registrant /X/
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
FOREST OIL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
DANIEL L. McNAMARA
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/x/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
PRELIMINARY COPY
FOREST OIL CORPORATION
950 SEVENTEENTH STREET
1500 COLORADO NATIONAL BUILDING
DENVER, CO 80202
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JULY __, 1995
------------------------
To the Shareholders of
FOREST OIL CORPORATION:
____As a shareholder of Forest Oil Corporation, a New York corporation (the
"Company"), you are invited to be present in person or to be represented by
proxy at the Annual Meeting of Shareholders, to be held at the Petroleum Club of
Denver, 555 17th Street, Suite 3700, Denver, Colorado, on _______, July __,
1995, at 10:00 a.m., M.D.T., for the following purposes:
____1.__Elect two (2) Class I Directors;
____2.__Approve the transactions between the Company and The Anschutz
Corporation ("Anschutz") and Joint Energy Development Investments Limited
Partnership ("JEDI"), respectively, contemplated by agreements between
the Company and Anschutz and JEDI, respectively;
____3.__Consider and vote upon the ratification of the appointment of KPMG Peat
Marwick LLP as independent auditors for the Company for the fiscal year
ending December 31, 1995; and
____4.__Transact such other business as may be properly brought before the
meeting and any adjournments thereof.
____Shareholders of the Company of record at the close of business on June 7,
1995 are entitled to vote at the meeting and all adjournments thereof.
____A MAJORITY OF THE OUTSTANDING SHARES OF COMMON STOCK OF THE COMPANY MUST BE
REPRESENTED AT THE MEETING TO CONSTITUTE A QUORUM. THEREFORE, ALL SHAREHOLDERS
ARE URGED EITHER TO ATTEND THE MEETING OR TO BE REPRESENTED BY PROXY.
____IF YOU DO NOT EXPECT TO ATTEND THE MEETING IN PERSON, PLEASE COMPLETE, SIGN,
DATE AND RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED BUSINESS REPLY
ENVELOPE. If you later find that you can be present or for any other reason
desire to revoke your proxy, you may do so at any time before the voting.
By order of the Board of Directors
DANIEL L. McNAMARA
SECRETARY
June __, 1995
<PAGE>
PROXY STATEMENT
OF
FOREST OIL CORPORATION
950 SEVENTEENTH STREET
1500 COLORADO NATIONAL BUILDING
DENVER, COLORADO 80202
June , 1995
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors (the "Board of Directors") of Forest Oil Corporation (the
"Company") of proxies to be voted at the Annual Meeting of Shareholders (the
"Annual Meeting") to be held on ________, July __, 1995, at the Petroleum Club
of Denver, 555 17th Street, Suite 3700, Denver, Colorado, at 10:00 a.m., M.D.T.,
and at any adjournment thereof. Each holder of record at the close of business
on June 7, 1995 of shares of the Company's Common Stock, Par Value $.10 Per
Share (the "Common Stock"), will be entitled to one vote for each share so held.
As of March 31, 1995, there were 28,250,647 shares of Common Stock issued and
outstanding.
Shares represented by properly executed proxy cards received by the Company
at or prior to the Annual Meeting will be voted according to the instructions
indicated on the proxy card. Unless contrary instructions are given, the persons
named on the proxy card intend to vote the shares so represented for (i) the
election of the nominees for directors, (ii) the transactions between the
Company and The Anschutz Corporation ("Anschutz") and Joint Energy Development
Investments Limited Partnership ("JEDI"), respectively, contemplated by
agreements between the Company and Anschutz and JEDI, respectively
(collectively, the "Transactions"), and (iii) the ratification of the
appointment of KPMG Peat Marwick LLP as the Company's independent auditors for
the fiscal year ending December 31, 1995. As to any other business which may
properly come before the meeting, the persons named on the proxy card will vote
according to their judgment. The enclosed proxy may be revoked prior to the
meeting by written notice to the Secretary of the Company at 950 Seventeenth
Street, 1500 Colorado National Building, Denver, Colorado 80202, or by written
or oral notice to the Secretary at the Annual Meeting at any time prior to being
voted. This Proxy Statement and the Proxy Card enclosed herewith were first sent
to Shareholders of the Company on or about June __, 1995.
Under the law of New York, the Company's state of incorporation, "votes
cast" at a meeting of shareholders by the holders of shares entitled to vote are
determinative of the outcome of the matter subject to vote. Abstentions and
broker non-votes will not be considered "votes cast" based on the Company's
understanding of state law requirements. A "broker non-vote" occurs if a broker
or other nominee does not have discretionary authority and has not received
instructions with respect to a particular item. Shareholders may not cumulate
their votes.
UPON REQUEST OF ANY SHAREHOLDER, THE COMPANY'S ANNUAL REPORT FOR THE YEAR
ENDED DECEMBER 31, 1994 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE
"SEC") ON FORM 10-K, INCLUDING FINANCIAL STATEMENTS, THE SCHEDULES AND ANY
AMENDMENTS THERETO AND ANY DOCUMENTS INCORPORATED BY REFERENCE THEREIN, WILL BE
SENT TO THE SHAREHOLDER WITHOUT CHARGE BY FIRST CLASS MAIL WITHIN ONE BUSINESS
DAY OF RECEIPT OF SUCH REQUEST. ALL REQUESTS SHOULD BE ADDRESSED TO THE
SECRETARY OF THE COMPANY AT 950 SEVENTEENTH STREET, 1500 COLORADO NATIONAL
BUILDING, DENVER, COLORADO 80202 OR BY TELEPHONE TO (303) 592-2400.
1
<PAGE>
ELECTION OF DIRECTORS
The Company's By-laws currently provide that the Board of Directors shall be
divided into four classes as nearly equal in number as possible, with each class
having not less than three members, whose terms of office expire at different
times in annual succession. Currently the number of directors is fixed at 12. If
the transactions with Anschutz are approved by the shareholders at the Annual
Meeting, then _________, _________, _________, and ___________ will resign as
directors and the Board of Directors will appoint _____________ as a Class ___
director, _____________ as a Class ___
director and ______________ as a Class ___ director, respectively, pursuant to
the Shareholders' Agreement with Anschutz. If the transactions with Anschutz are
approved, the size of the Board will be reduced to 10 members. If the
transactions with Anschutz are not approved, such persons will not resign and
the size of the Board will be reduced to 11 members.
The Board of Directors, effective at the 1994 Annual Meeting, reapportioned
the number of Directors to three in each class. The Board of Directors,
effective at the 1995 Annual Meeting, will provide for the number of directors
to be divided as equally as possible into four classes. At the 1994 Annual
Meeting, Jack D. Riggs, previously a Class IV Director, was reclassified as a
Class I Director with a term expiring at the 1995 Annual Meeting. Mr. Riggs, a
Class I Director, is not standing for reelection. Each Class of directors is
elected for a term expiring at the annual meeting to be held four years after
the date of their election. The Class I Nominees were elected at the 1991 Annual
Meeting, the Class II Directors were elected at the 1992 Annual Meeting, the
Class III Directors were elected at the 1993 Annual Meeting and the Class IV
Directors were elected at the 1994 Annual Meeting.
A majority of the votes represented at the Annual Meeting by shares of
Common Stock entitled to vote is required to elect a director.
The persons named as proxies in the enclosed proxy, who have been so
designated by the Board of Directors, intend to vote for the election of the
Class I Nominees referred to below as directors unless otherwise instructed in
the proxy.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THESE NOMINEES. Certain
information concerning such nominees, as well as the other current directors, is
set forth below:
<TABLE>
<CAPTION>
AGE AND PRINCIPAL OCCUPATION, SERVED
YEARS OF POSITIONS WITH COMPANY AS A
SERVICE AND BUSINESS EXPERIENCE DIRECTOR
NAME WITH COMPANY DURING LAST FIVE YEARS SINCE
- ----------------------------- -------------- -------------------------------------------------------- -----------
<S> <C> <C> <C>
CLASS I NOMINEES -- TERMS EXPIRING AT THE ANNUAL SHAREHOLDERS' MEETING IN 1999
William L. Dorn 46 - 23 Chairman of the Board and Chairman of the Executive 1982
Committee since July 1991 and Chief Executive Officer
since February 1990. Member of the Executive Committee
since August 1988. President from February 1990 until
November 1993. Executive Vice President from August 1989
until February 1990. Member of the Royalty Bonus
Committee since August 1991 and Chairman since May 1994.
James H. Lee 46 - 4 Managing Partner, Lee, Hite & Wisda Ltd. Member of the 1991
Executive Committee since February 1994.
CLASS II DIRECTORS -- TERMS EXPIRING AT THE ANNUAL SHAREHOLDERS' MEETING IN 1996
Dale F. Dorn 52 - 28 Resigned as a Vice President in September 1989; 1977
currently engaged in private investments.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
AGE AND PRINCIPAL OCCUPATION, SERVED
YEARS OF POSITIONS WITH COMPANY AS A
SERVICE AND BUSINESS EXPERIENCE DIRECTOR
NAME WITH COMPANY DURING LAST FIVE YEARS SINCE
- ----------------------------- -------------- -------------------------------------------------------- -----------
<S> <C> <C> <C>
Harold D. Hammar 71 - 10 Member of the Audit Committee and Compensation 1985
Committee. Financial Consultant.
Robert S. Boswell 45 - 10 President since November 1993. Vice President from May 1985
1991 until November 1993. Chief Financial Officer since
May 1991. Financial Vice President from September 1989
until May 1991. Member of the Executive Committee since
July 1991 and the Royalty Bonus Committee since August
1991. Director of Franklin Supply Company Ltd.
CLASS III DIRECTORS -- TERMS EXPIRING AT THE ANNUAL SHAREHOLDERS' MEETING IN 1997
Jeffrey W. Miller 43 - 7 Independent Biologist. 1988
Michael B. Yanney 61 - 3 Chairman and Chief Executive Officer of the America 1992
First Companies, L.L.C. and a director of Burlington
Northern Inc., Lozier Corporation, MFS Communications
Company, Inc. and America First REITs Inc. Chairman of
the Compensation Committee.
Donald H. Anderson 46 - 2 President, Chief Executive Officer and Director of 1993
Associated Natural Gas Corporation, a wholly owned
subsidiary of Panhandle Eastern Corporation, since
September 1989 and January 1989, respectively and Chief
Operating Officer and Chairman of Associated Natural
Gas, Inc., a wholly owned subsidiary of Panhandle
Eastern Corporation, since December 1994. Member of the
the Audit Committee.
CLASS IV DIRECTORS -- TERMS EXPIRING AT THE ANNUAL SHAREHOLDERS' MEETING IN 1998
John C. Dorn 67 - 45 Retired as Regional Vice President in December 1990. 1956
Richard J. Callahan 53 - 2 Executive Vice President of U S WEST, Inc. since January 1993
1988 and President of U S WEST International and
Business Development Group since October 1991. Member of
the Compensation Committee.
Austin M. Beutner 35 - 2 President, Chief Executive Officer and Director of the 1993
U. S. Russia Investment Fund since March 1994. Prior
thereto General Partner of The Blackstone Group since
1991. Prior thereto a Vice President of Blackstone.
Member of the Compensation Committee.
</TABLE>
3
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows, as of March 31, 1995, the number of shares of the
Company's Common Stock beneficially owned by each director and nominee, each of
the executive officers named in the Summary Compensation Table set forth under
the caption "Executive Compensation" below, and all directors and executive
officers as a group. Unless otherwise indicated, each of the persons has sole
voting power and sole investment power with respect to the shares beneficially
owned by such person.
<TABLE>
<CAPTION>
COMMON STOCK (2)
---------------------------
NAME OF INDIVIDUAL OR NUMBER OF PERCENT
NUMBER IN GROUP (1) SHARES OF CLASS
- ---------------------------------------- ------------- ---------
<S> <C> <C>
Donald H. Anderson...................... 10,000 *
Bulent A. Berilgen...................... 121,081(3) *
Austin M. Beutner....................... -- --
Robert S. Boswell....................... 245,673(4) *
Richard J. Callahan..................... 2,000 *
Dale F. Dorn............................ 116,156(5) *
Forest D. Dorn.......................... 239,714(6) *
John C. Dorn............................ 250,485(7) *
William L. Dorn......................... 444,532(8) 1.57
Harold D. Hammar........................ 2,500 *
David H. Keyte.......................... 136,222(9) *
James H. Lee............................ 1,000 *
Jeffrey W. Miller....................... 331,220(10) 1.17
Jack D. Riggs........................... 6,635 *
Michael B. Yanney....................... 5,000 *
All directors and executive officers as
a group (19 persons, including the 15
named above)........................... 2,175,826(11) 7.70%
<FN>
- ------------------------
* The percentage of shares beneficially owned does not exceed one percent of
the outstanding shares of the class.
(1) William L. Dorn and Forest D. Dorn are brothers, and they and Dale F. Dorn
are nephews of John C. Dorn. See "Principal Holders of Securities".
(2) Amounts reported also include shares held for the benefit of certain
directors and executive officers by the trustee of the Company's Retirement
Savings Plan Trust as of December 31, 1994.
(3) Includes 120,000 Common shares that Bulent A. Berilgen has the vested right
to purchase pursuant to the terms of the 1992 Stock Option Plan.
(4) Includes 210,000 Common shares that Robert S. Boswell has the vested right
to purchase pursuant to the terms of the 1992 Stock Option Plan. Does not
include 225 Common shares held by Robert S. Boswell's wife or 830 shares
held by his children, of which shares Mr. Boswell disclaims beneficial
ownership.
(5) Includes 14,699 Common shares held of record by Dale F. Dorn as trustee of
a trust for the benefit of his immediate family. Dale F. Dorn has
disclaimed beneficial ownership of these shares. Also includes 12,250
Common shares that Dale F. Dorn has the right to acquire upon the
conversion of 3,500 shares of the Company's $.75 Convertible Preferred
Stock.
(6) Includes 120,000 Common shares that Forest D. Dorn has the vested right to
purchase pursuant to the terms of the 1992 Stock Option Plan. Also includes
25,800 Common shares held of record by Forest D. Dorn as co-trustee of a
trust for the benefit of his mother (see Footnote 8), of which shares Mr.
Dorn disclaims beneficial ownership. Does not include 8,628 Common shares
held by Forest D. Dorn's wife or 25,967 shares held by his children, of
which shares Mr. Dorn disclaims beneficial ownership.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
(7) Includes 43,685 Common shares held of record by John C. Dorn as trustee of
trusts for the benefit of related parties. Does not include (i) 265,676
Common shares held of record by The Glendorn Foundation of which John C.
Dorn is one of the seven trustees, or (ii) 72,547 Common shares held by
John C. Dorn's wife, of which shares Mr. Dorn disclaims beneficial
ownership.
(8) Includes 210,000 Common shares that William L. Dorn has the vested right to
purchase pursuant to the terms of the 1992 Stock Option Plan. Also includes
(i) 25,800 Common shares held of record by William L. Dorn as co-trustee of
a trust for the benefit of his mother (see Footnote 6), and (ii) 74,223
Common shares held of record by William L. Dorn as trustee of trusts for
the benefit of related parties, of which shares Mr. Dorn disclaims
beneficial ownership. Does not include 14,990 Common shares held by William
L. Dorn's wife or 35,997 shares held by his children, of which shares Mr.
Dorn disclaims beneficial ownership.
(9) Includes 120,000 Common shares that David H. Keyte has the vested right to
purchase pursuant to the terms of the 1992 Stock Option Plan. Also includes
7,000 Common shares that David H. Keyte has the right to acquire upon the
conversion of 2,000 shares of the Company's $.75 Convertible Preferred
Stock.
(10) Includes 99,825 Common shares held of record by Jeffrey W. Miller as
custodian for his minor children, of which shares Mr. Miller disclaims
beneficial ownership.
(11) Includes 1,035,000 Common shares held by various executive officers who
have the vested right to purchase such shares pursuant to the terms of the
1992 Stock Option Plan and 21,350 Common shares that a director and two
executive officers have the right to acquire upon the conversion of 6,100
shares of the Company's $.75 Convertible Preferred Stock.
</TABLE>
BOARD OF DIRECTORS AND COMMITTEES
During 1994, the Board of Directors met on six occasions. The Board of
Directors has appointed four committees, the Executive Committee, the Audit
Committee, the Compensation Committee and the Royalty Bonus Committee, which are
designed to permit action to be taken expeditiously. Only two members of each
committee are necessary to constitute a quorum. During 1994, the Executive
Committee met 15 times. William L. Dorn, Robert S. Boswell and James H. Lee are
the members of the Executive Committee. The members of the Royalty Bonus
Committee, which met once and acted by consent nine times during the year, were
William L. Dorn, Robert S. Boswell and Jack D. Riggs. Members of the Royalty
Bonus Committee are eligible to participate in royalty bonuses granted by the
Royalty Bonus Committee.
The Compensation Committee met six times during 1994. This committee makes
recommendations to the Board of Directors in the area of executive compensation,
including the selection of individual employees to be granted options from among
those eligible under the stock option plan and establishes the number of shares
issued under each option. Members of the Compensation Committee are not eligible
to participate in the Company's 1992 Stock Option Plan. The members of the
Compensation Committee are Austin M. Beutner, Richard J. Callahan, Harold D.
Hammar, Jack D. Riggs and Michael B. Yanney. A Report of the Compensation
Committee on Executive Compensation is set forth below.
The Audit Committee is appointed for the purpose of overseeing and
monitoring the Company's independent audit process and discharges its duties,
responsibilities and functions according to a plan designed to provide assurance
to the Board of Directors that the resources allocated to that process are
adequate and utilized effectively. It is also charged with the responsibility
for reviewing all related party transactions for potential conflicts of
interest. This committee met three times during the year, and its members were
Donald H. Anderson, Harold D. Hammar and Jack D. Riggs.
The Board of Directors does not currently have a standing nominating or
similar committee.
5
<PAGE>
During 1994, each incumbent director of the Company, except Austin M.
Beutner and Richard J. Callahan, attended at least 75% of the aggregate number
of meetings of the Board of Directors and the committees of the Board of
Directors on which he served.
If the transactions with Anschutz are approved by the shareholders at the
Annual Meeting, pursuant to the proposed Shareholders' Agreement with Anschutz,
____________will be appointed to the Executive Committee, _____________will
resign from the Audit Committee, ______________ will resign from the
Compensation Committee, and __________ will be appointed to such Committee.
______________ will be appointed to the Compensation Committee. The Board of
Directors will also appoint a Nominating Committee consisting of William L.
Dorn, _____________ and Michael B. Yanney. See "The Anschutz and JEDI
Transactions."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors consists of Messrs.
Beutner, Callahan, Hammar, Riggs and Yanney. Mr. Riggs retired as a Vice
President of the Company in 1987 and is not standing for reelection as a
director. The Executive Committee members are William L. Dorn, Robert S. Boswell
and James H. Lee. The members of the Royalty Bonus Committee are William L.
Dorn, Robert S. Boswell and Jack D. Riggs. William L. Dorn is Chairman of the
Board and Chief Executive Officer and Robert S. Boswell is President. During
1994 there were no compensation committee interlocks between the Company and any
other entity.
A real estate complex (the "Complex") owned by members of the Dorn and
Miller families, located near Bradford, Pennsylvania, had been historically used
by the Company for business purposes. In 1994, the Company notified the owners
of the Complex that it intended to terminate its annual usage after 1994.
In 1994, in connection with the Company's termination of usage, the Company
paid $662,000 on account of the business use of such property, and an additional
$300,000 as a partial reimbursement of deferred maintenance costs. Members of
the Dorn and Miller families who were directors and/or executive officers of the
Company (and their immediate families) who owned a direct or indirect interest
in such Complex during 1994 were Dale F. Dorn, his brother and his two sisters;
William L. Dorn and Forest D. Dorn and their father and two sisters; John C.
Dorn and his four children; and Jeffrey W. Miller, his father and two sisters.
For further information with respect to other transactions with management
and others see "Transactions with Management and Others".
DIRECTOR COMPENSATION
Each director who is not an employee of the Company is compensated for
services at the rate of $20,000 annually, and in addition, is paid a fee of
$2,500 for attendance in person at each meeting or series of meetings of the
Board of Directors. All directors, whether employees or not, are reimbursed for
all costs incurred by them in their capacities as directors, including the costs
of attending directors' meetings and committee meetings. The non-employee
directors and the amounts each was paid during 1994 as directors were: John C.
Dorn, Dale F. Dorn, Harold D. Hammar, Jeffrey W. Miller, Jack D. Riggs and
Michael B. Yanney -- $30,000; Donald H. Anderson -- $27,500; Austin M. Beutner
and Richard J. Callahan -- $25,000. James H. Lee received $30,000 for his
services as a director, $2,000 for attendance at meetings of the Audit and
Compensation Committees and $41,666.68 as payment for his service on the
Executive Committee, which began March 1, 1994. Messrs. Hammar and Riggs each
received an additional $8,000 for attending meetings of the Audit and
Compensation Committees. Mr. Yanney received an additional $3,000 for attending
meetings of the Compensation Committee,and Mr. Anderson was paid an additional
$4,000 for attending meetings of the Audit Committee.
No additional amounts are paid for committee participation or special
assignments, except that (i) each member of the Compensation Committee is paid
$1,000 per meeting which he attends up to a
6
<PAGE>
maximum of $4,000 per year for service on that committee, (ii) each member of
the Audit Committee is paid $1,000 per meeting which he attends up to a maximum
of $4,000 per year for service on that committee and (iii) Mr. Lee will be paid
$50,000 per year for service on the Executive Committee.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
earned during each of the Company's last three fiscal years by the Company's
Chief Executive Officer and each of the Company's four other most highly
compensated executive officers (collectively, the "Named Executive Officers"),
based on salary and bonus earned in 1994:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS (4)
------------------------------------------------ -------------
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND BONUS COMPENSATION UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) ($)(1)(2) ($)(3) OPTIONS (#) ($)(5)
- -------------------------------------------- --------- ----------- --------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
William L. Dorn, 1994 $ 300,012 -0- $ 2,795 -0- $ 22,942
Chairman of the Board 1993 250,008 100,159 665 175,000 32,640
and Chief Executive Officer 1992 250,008 75,618 624 175,000 10,618
Robert S. Boswell, 1994 284,004 -0- 2,515 -0- 21,559
President 1993 234,000 88,239 607 175,000 30,503
1992 234,000 94,017 567 175,000 10,445
Bulent A. Berilgen, 1994 166,512 -0- -0- -0- 11,507
Vice President of Operations 1993 137,850 53,336 -0- 100,000 16,458
1992 131,932 41,456 -0- 100,000 6,234
David H. Keyte, 1994 165,000 36,433 21,945 -0- 11,469
Vice President and 1993 139,494 -0- 18,192 100,000 16,517
Chief Accounting Officer 1992 131,618 58,419 -0- 100,000 6,234
Forest D. Dorn, 1994 163,800 22,013 18,335 -0- 12,910
Vice President and 1993 160,650 -0- 324 100,000 20,342
General Business Manager 1992 156,250 35,219 316 100,000 8,769
<FN>
- ------------------------
(1) The following amounts indicate the awards made with respect to the years
indicated, under the Forest Oil Corporation Incentive Plan (the "Incentive
Plan"):
</TABLE>
<TABLE>
<CAPTION>
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
William L. Dorn...................................................... $ 68,126 $ 30,500 -0-
Robert S. Boswell.................................................... 61,965 29,020 -0-
Bulent A. Berilgen................................................... 37,565 18,135 -0-
David H. Keyte....................................................... 34,542 16,185 -0-
Forest D. Dorn....................................................... 31,328 14,819 -0-
</TABLE>
Distributions of awards are made pursuant to the Incentive Plan in equal
installments over a three-year period. Pursuant to the Incentive Plan if a
participant's employment is terminated prior to the vesting of awards, the
remainder of such awards is reallocated to other participants. Amounts
reallocated in 1994 for the years 1992 and 1993 were as follows: William L.
Dorn -- $3,445; Robert S. Boswell -- $3,224; Bulent A. Berilgen -- $1,836;
David H. Keyte -- $1,838; and Forest D. Dorn -- $2,167. See "Report of the
Compensation Committee on Executive Compensation -- Incentive Plan Awards".
(2) During 1994, the Company assigned to certain of its executive officers and
other key personnel, as additional compensation, certain bonuses of
undivided interests in overriding royalty interests in
7
<PAGE>
the gross production from certain exploratory oil and gas prospects in which
the Company had an interest. The cost to the Company at the time of the
assignment of such royalty interests was $3,599 each for William L. Dorn,
Robert S. Boswell and Forest D. Dorn, $2,061 for Bulent A. Berilgen and
$2,041 for David H. Keyte. During 1994 interests in nine exploratory oil and
gas prospects were so awarded by the Royalty Bonus Committee.
(3) Does not include perquisites and other personal benefits because the value
of these items did not exceed the lesser of $50,000 or 10% of reported
salary and bonus of any of the Named Executive Officers, except for David H.
Keyte and Forest D. Dorn, each of whose 1994 total includes a cash auto
allowance of $15,000.
(4) No stock appreciation rights ("SARs") or restricted stock awards were
granted to any of the Named Executive Officers during any of the last three
fiscal years.
(5) The 1994 totals include (i) the fair market value of the Company's matching
contribution of Common Stock to the Retirement Savings Plan in the following
amounts: William L. Dorn -- $7,500; Robert S. Boswell -- $7,500; Bulent A.
Berilgen -- $7,500; David H. Keyte -- $7,500; and Forest D. Dorn -- $7,500;
(ii) the fair market value of the Company's profit sharing bonus
contribution of Common Stock to the Retirement Savings Plan in the following
amounts: William L. Dorn -- $5,448; Robert S. Boswell -- $5,400; Bulent A.
Berilgen -- $3,181; David H. Keyte -- $3,219; and Forest D. Dorn -- $3,707;
(iii) the Company's matching contribution pursuant to deferred compensation
agreements in the following amounts: William L. Dorn -- $7,501; Robert S.
Boswell -- $6,700; Bulent A. Berilgen -- $826; David H. Keyte -- $750; and
Forest D. Dorn -- $690; and (iv) the Company's profit sharing bonus
contribution of $322 pursuant to the deferred compensation agreement of
William L. Dorn. The 1994 totals also include the following amounts
attributable to the term life portion of premiums paid by the Company
pursuant to a split dollar insurance arrangement: William L. Dorn -- $2,171;
Robert S. Boswell -- $1,959; and Forest D. Dorn -- $1,013. The remainder of
the premium is not included and does not benefit the Named Executive
Officers because the Company has the right to the cash surrender value of
the policy.
YEAR END STOCK OPTION VALUES
No stock options were granted to the Named Executive Officers in 1994.
There were no stock option exercises by any Named Executive Officers during
1994. The following table shows the number of shares covered by both exercisable
and non-exercisable stock options as of December 31, 1994 and their values at
such date:
OUTSTANDING STOCK OPTION VALUES AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT FISCAL YEAR END ($)(1)
AT FISCAL YEAR END
-------------------------- ----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- --------------- -----------------
<S> <C> <C> <C> <C>
William L. Dorn........................................... 175,000 175,000 $ 0 $ 0
Robert S. Boswell......................................... 175,000 175,000 0 0
Bulent A. Berilgen........................................ 100,000 100,000 0 0
David H. Keyte............................................ 100,000 100,000 0 0
Forest D. Dorn............................................ 100,000 100,000 0 0
<FN>
- ------------------------
(1) On December 31, 1994, the last reported sales price of the Common Stock as
quoted on the NASDAQ/NMS was $2.25 per share. The option price for the
options granted in 1992 is $3.00 per share and the option price for the
options granted in 1993 is $5.00 per share. Since the last reported sales
price at December 31, 1994 was lower than the option price for the options
granted in 1992 and 1993, no value is ascribed to those options in the
above table.
</TABLE>
8
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the cumulative
total shareholder return on the Common Stock during the five years ended
December 31, 1994 with the cumulative return on the S & P 500 Index, the Dow
Jones Oil, Secondary Index and an index of peer companies. The graph assumes
that $100 was invested in each category on the last trading day of 1989 and that
dividends were reinvested. The companies in the peer index were selected based
on the following criteria: (i) total assets ranging from approximately $125
million to $1.1 billion, (ii) total revenue ranging from approximately $40
million to $300 million and (iii) oil and gas revenue comprising at least 54% of
total revenue. The companies included in the peer index were American
Exploration Co., DEKALB Energy Company, Devon Energy Corporation, Noble
Affiliates, Inc., Plains Petroleum Company, Pogo Producing Company, Presidio Oil
Company, Snyder Oil Corporation and The Wiser Oil Company.
The Company significantly changed the composition of its management as well
as its operating strategy during the five-year period. In December 1990 seven
executive officers and directors retired from the Company. In July 1991, William
L. Dorn was elected Chairman of the Board.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS:
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Forest Oil Corporation...................................... 100.0 39.2 11.3 24.1 33.0 17.0
Peer Index.................................................. 100.0 79.3 70.8 82.0 117.5 111.3
Dow Jones Oil Secondary..................................... 100.0 83.2 81.7 82.3 91.3 86.4
S&P 500..................................................... 100.0 96.9 126.4 136.1 149.8 151.8
</TABLE>
[GRAPH]
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee's duties include the annual review and approval
of the compensation of the Chairman and President, review and determination of
individual elements of compensation for the Company's executive officers, review
of the administration of the Company's Incentive Plan and other long-term
incentive plans for management and determining the terms and awards under the
Company's 1992 Stock Option Plan. During 1994, the Compensation Committee, with
the assistance of its compensation consultant, developed a compensation program
for annual cash incentive bonuses and stock option grants. Although the program
was not finalized until November 1994, it established the 1994 performance goals
based on senior management's recommendations. See "Cash Bonuses" below. In 1994,
the Compensation Committee held six meetings.
The Royalty Bonus Committee is responsible for granting bonuses of undivided
overriding royalty interests pursuant to the Company's royalty bonus program.
The Executive Committee is responsible for determining the salaries for all
officers except the Chairman and the President.
The Compensation Committee has studied the limitation on the deductibility
of compensation for federal income tax purposes pursuant to Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"). The Compensation
Committee does not currently intend to award levels of compensation that results
in such limitation. The Compensation Committee may authorize compensation in the
future that results in amounts above the limit if it determines that such
compensation is in the best interests of the Company. In addition, the
limitation may affect the future grant of stock options.
In March 1995, the Compensation Committee renewed the Executive Severance
Agreements and extended their term to December 1997. In addition, the definition
of "change of control" was modified. See "Transactions with Management and
Others -- Executive Severance Agreements."
9
<PAGE>
BASE SALARIES. The Company's compensation policy for base salaries is to
set compensation within a competitive range. The competitive range for base
salaries is determined by reviewing competitive pay practices of similarly
positioned energy companies, including those companies which are considered for
comparison purposes in the Company's Five-Year Cumulative Total Returns graph.
During 1994, adjustments were made to base salaries to reflect promotions and
changes of responsibilities of certain officers. The Chief Executive Officer and
President were each given an increase of $50,000 per year based on the
Committee's assessment of their performance in reducing the Company's debt, the
restructuring of the organization, and the fact that they had not had an
increase in base salary for several years. In addition, the Compensation
Committee concluded that the increased levels of their base salaries were
comparable to those of executive officers with companies in the Company's peer
group.
CASH BONUSES. During 1994, the Committee worked with its compensation
consultant to develop a new performance based annual cash incentive bonus
program. The program provides for cash bonuses to be paid to executive officers
based on the achievement of predetermined performance criteria. Each performance
criterion is selected for its strategic importance and weighted to reflect the
relative importance to the Company's annual initiatives. For the Chief Executive
Officer the threshold is zero, the target award level is 40% of base salary and
the maximum is 100% of base salary. The Committee worked with senior management
to identify the performance criteria to be used in the program for 1994 and
1995. The criteria are: 1) Profitability (which is (i) defined generally as net
income after taxes, extraordinary items and accounting changes and (ii) weighted
40% of the formula), 2) Value Added Index (which is (i) defined generally as
changes in oil and gas reserves divided by capital expenditures multiplied by
reserve replacement ratio and (ii) weighted 30% of the formula), 3) Return on
Invested Capital (which is (i) defined generally as interest expense and pretax
income divided by total assets less non-interest liabilities and (ii) weighted
10% of the formula), 4) Operating Efficiency Against Peer Companies (which is
(i) defined as the Company's performance in terms of oil and gas exploration and
production costs with respect to both revenue and production volume as compared
to its peer group of companies and (ii) weighted 10% of the formula), and 5)
Strategic Initiatives (which (i) include achieving a targeted debt to equity
ratio for the Company, the development of a strategic investment alternative,
and organization development and (ii) is weighted 10% of the formula). No
discretionary cash bonuses were paid to the executive officers for 1994.
The Company has traditionally granted year-end Christmas bonuses to all
employees, including executive officers. The 1994 year-end bonuses were an
amount equal to 3% of the first eleven months base salary for each individual
and were approved by the Executive Committee. William L. Dorn received such a
year-end bonus of $8,250.
STOCK OPTIONS. In 1994, the Compensation Committee granted stock options to
V. Bruce Thompson, Vice President and General Counsel for 100,000 shares of
Common Stock and to Joan C. Sonnen, Controller for 45,000 shares of Common
Stock, both at an exercise price of $5.00 per share. For 1995, as part of the
Company's newly-developed executive compensation program, guidelines were
established for granting stock options to executive officers based on the
achievement of predetermined performance goals, mentioned above under "Cash
Bonuses".
INCENTIVE PLAN AWARDS. The Incentive Plan, which became effective January
1, 1992, permits participating employees to earn awards payable in cash, in
whole shares of the Company's Common Stock, or in any combination of cash and
whole shares of Common Stock. The Executive Committee determines whether awards
are payable in cash or stock. The Incentive Plan operates through an incentive
pool for each fiscal year that is contingent upon the Company attaining certain
targeted levels of performance. Unless otherwise determined by the Executive
Committee, the incentive pool is funded based upon the average return on
invested capital achieved by the Company. The amount contributed to the
incentive pool is a scheduled percentage of base salary that starts at a minimum
return and increases based on average return on invested capital. The incentive
pool is divided in half. One half of the pool is awarded to all participants as
a performance distribution. A participant's
10
<PAGE>
percentage interest in the performance distribution is based upon the proportion
his base salary bears to the aggregate of the base salaries of all participants.
The other half of the incentive pool is divided among participants on an
individual basis at the discretion of the Compensation Committee.
The Incentive Plan is structured to consider the Company's performance over
a three-year period. Performance is currently measured under the Incentive Plan
based on average return on invested capital. The computations for return on
invested capital in 1992 and 1993 did not take into account a three-year period.
For 1992 and 1993, certain transitional rules applied to the computation of
return on invested capital.
In 1994, the Compensation Committee approved grants under the Company's
Incentive Plan with respect to amounts earned for 1993. Total awards of $364,729
were made pursuant to the Incentive Plan to be paid out over a three-year
period, including an award in 1994 of $30,500 to William L. Dorn. Awards were
made from the discretionary pool to individual plan participants (including
William L. Dorn) based upon the following factors (in order of importance):
level of responsibility, performance of the individual during the period, base
salary, and a comparison to Peer Group compensation of executives. The
Compensation Committee received recommendations with respect to discretionary
pool awards from the Executive Committee.
PROFIT SHARING CONTRIBUTIONS. The Company's Retirement Savings Plan and
deferred compensation agreements with certain executive officers, including
William L. Dorn, give the Company discretion to make profit sharing
contributions in cash or stock for the account of the Company's officers and
employees. In 1994, the Compensation Committee approved profit sharing
contributions of Common Stock with a fair market value of $5,448 to the
Company's Retirement Savings Plan and $322 pursuant to a deferred compensation
agreement for the account of William L. Dorn. The Compensation Committee
established the amount of the contribution for each person based on the same
percentage of base salary. The percentage was determined based on a schedule set
forth in the Incentive Plan, which is a sliding scale of targets based on
average return on invested capital.
ROYALTY BONUSES. During 1994, the Company assigned to certain of its
executive officers, other key personnel and certain retirees, as additional
compensation, certain bonuses of undivided interests in overriding royalty
interests equal to approximately 6% of the Company's net interest in all oil,
gas and other minerals produced, saved and sold from certain oil and gas
prospects in which the Company had an interest. The prospects, the size of the
interest and the participants in such bonuses are determined from time to time
by the Royalty Bonus Committee of the Board of Directors and such committee's
powers with respect thereto may be terminated at any time by the Board of
Directors. The interest of each officer and key employee in such bonuses varies
according to his salary. The interest of William L. Dorn was established based
upon his responsibilities as a director and officer, and on his salary. By the
terms of the issuing documents, such interests were to terminate, revert to and
revest in the Company on December 31, 1994 unless on such date certain
conditions with respect to production or drilling operations on the properties
subject to the royalties were fulfilled. Certain royalty interests awarded in
1993 (6 in number) terminated, reverted to and revested in the Company during
1994.
The Compensation Committee believes that the graph depicting Five Year
Cumulative Total Return, included under the caption "Stock Performance Graph",
should be considered with the following graph. The following graph has been
prepared on the same basis as the preceding graph, except that it shows stock
performance over the period from July 31, 1991 to December 31, 1994. In 1991,
William L. Dorn was elected Chairman of the Board. The Company believes that the
Dow Jones Oil, Secondary Index is meaningful because it is an independent,
objective view of the performance of other similarly sized energy companies.
11
<PAGE>
COMPARISON OF SEMI-ANNUAL CUMULATIVE TOTAL RETURN:
<TABLE>
<CAPTION>
7/31/91 12/31/91 6/30/92 12/31/92 6/30/93 12/31/93 6/30/94 12/31/94
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Forest Oil 100 95 79 201 363 276 268 142
Peer Index 100 91 92 106 157 151 171 143
DJ, Oil Secondary 100 90 86 91 107 101 105 96
S&P 500 100 109 108 117 123 129 125 131
</TABLE>
Date: June __, 1995
COMPENSATION COMMITTEE
Michael B. Yanney, Chairman
Austin M. Beutner
Richard J. Callahan
Harold D. Hammar
Jack D. Riggs
EXECUTIVE COMMITTEE
William L. Dorn, Chairman
Robert S. Boswell
James H. Lee
ROYALTY BONUS COMMITTEE
William L. Dorn, Chairman
Robert S. Boswell
Jack D. Riggs
PENSION PLAN
The Company's Pension Plan is a qualified, non-contributory defined benefit
plan. On May 8, 1991, the Board of Directors suspended benefit accruals under
the Pension Plan effective as of May 31, 1991.
The following table shows the estimated maximum annual benefits payable upon
retirement at age 65 as a straight life annuity to participants in the Pension
Plan for the indicated levels of average annual compensation and various periods
of service, assuming no future changes in such plan:
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM ANNUAL
PENSION BENEFITS (2)
-------------------------------
YEARS OF SERVICE
-------------------------------
REMUNERATION (1) 10 20 30
- ---------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
$100,000.............................................................. 36,846 48,060 53,400
200,000.............................................................. 73,692 96,120 106,800
300,000.............................................................. 79,282 103,412 114,902
400,000.............................................................. 79,282 103,412 114,902
<FN>
- ------------------------
(1) For each Named Executive Officer, the level of compensation used to
determine benefits payable under the Pension Plan is such officer's base
salary for 1991.
(2) Normal retirement benefits attributable to the Company's contributions are
limited under certain provisions of the Code to $120,000 in 1995, as
increased annually thereafter for cost of living adjustments.
</TABLE>
The amount of the Company's contribution, payment or accrual in respect to
any specified person in the Pension Plan is not and cannot readily be separately
or individually calculated by the Pension Plan actuaries. Annual benefits at
normal retirement are approximately 24% of average annual earnings (excluding
bonuses) for any consecutive 60-month period, which produces the highest amount,
in the last 15 years prior to retirement, up to May 31, 1991, when benefit
accruals ceased plus 21% of such earnings prorated over 20 years of credited
service, and 1/2 of 1% of such earnings for each year of credited service in
excess of 20, subject to certain adjustments for lack of plan participation.
There is no Social Security offset. Such benefits are payable for life with a 10
year certain period, or the actuarial equivalent of such benefit.
12
<PAGE>
As a result of the suspension of benefit accruals under the Pension Plan and
the substitution of profit sharing contributions to the Retirement Savings Plan,
the following amounts are the estimated increases (decreases) in the annual
combined benefit payments to the Named Executive Officers under the Pension Plan
and the Retirement Savings Plan (whether combined benefits increased or
decreased is a function of the combination of length of service and salary
levels):
<TABLE>
<CAPTION>
ESTIMATED
INCREASE
(DECREASE)
IN ANNUAL
PAYMENTS
------------------
<S> <C>
William L. Dorn..................................................................... $ (33,928)
Robert S. Boswell................................................................... (127,141)
Bulent A. Berilgen.................................................................. (35,472)
Forest D. Dorn...................................................................... 21,104
David H. Keyte...................................................................... (34,661)
</TABLE>
Because benefit accruals under the Pension Plan were suspended effective May
31, 1991, the years of credited service for the Named Executive Officers are as
follows: William L. Dorn -- 20; Robert S. Boswell -- 2; Bulent A. Berilgen -- 9;
Forest D. Dorn -- 14 and David H. Keyte -- 4. The estimated annual accrued
benefit payable, based on a life annuity benefit, upon normal retirement for
each of such persons is: William L. Dorn -- $45,994; Robert S. Boswell --
$4,436; Bulent A. Berilgen -- $11,832; David H. Keyte -- $5,401; and Forest D.
Dorn -- $18,886. Neither Robert S. Boswell nor David H. Keyte is vested in such
benefit pursuant to the provisions of the Pension Plan.
Certain participants in the Pension Plan have been prevented by the limits
of the Code from receiving the full amount of pension benefits to which they
would otherwise have been entitled. Such persons have had benefits credited to
them under a Supplemental Retirement Plan, which together with the benefits
payable under the Pension Plan, equaled the benefit to which they would have
been entitled under the Pension Plan but for such Code limits. The Supplemental
Retirement Plans for each participant were unfunded, non-qualified,
non-contributory benefit plans. Benefits payable vest to the same extent as the
Pension Plan benefits and are unsecured general obligations of the Company.
Benefit accruals under these plans were suspended effective May 31, 1991 in
conjunction with the suspension of benefit accruals under the Pension Plan.
PRINCIPAL HOLDERS OF SECURITIES
The Company currently has one class of voting securities outstanding. On
March 31, 1995, there were 28,250,647 shares of Common Stock outstanding, with
each such share being entitled to one vote. On March 31, 1995 members of the
Dorn and Miller families, descendants of the founders of the Company, owned
3,425,820 shares of Common Stock, constituting approximately 12.13% of the
voting power of the Company. If the Company's shareholders approve the
transactions contemplated by Anschutz described under "The Anschutz and JEDI
Transactions", based on the number of outstanding shares of Common Stock as of
March 31, 1995, Anschutz would own approximately 39.9% of the voting power of
the Company, subject to the 19.9% voting restriction contemplated by the
proposed Shareholders Agreement between Anschutz and the Company. In addition,
subject to the 40% ownership restriction contemplated by the proposed
Shareholders Agreement with Anschutz, Anschutz would have the right to acquire
an additional 36,894,444 shares of Common Stock through the exercise of warrants
and an option and the conversion of preferred stock it would acquire in such
transactions. See "The Anschutz and JEDI Transactions".
13
<PAGE>
As of March 31, 1995, to the knowledge of the Board of Directors the only
shareholders who owned beneficially more than 5% of the outstanding shares of
Common Stock were:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ---------------------- ---------------------------------- -------------------- -----------
<S> <C> <C> <C>
Common Stock (1) R.B. Haave Associates, Inc. 3,134,050(2) 10.68%
270 Madison Avenue
New York, NY 10016
Metropolitan Life 1,855,000(3) 6.57%
Insurance Company
One Madison Avenue
New York, NY 10010
Smith Barney Inc. 2,270,277(4)(5) 8.04%
1345 Avenue of the Americas
New York, NY 10115
<FN>
- ------------------------
(1) Based on Schedules 13D and 13G and amendments thereto filed with the SEC
and the Company by the reporting person through April 1, 1995 and the
amount of Common Stock outstanding on March 31, 1995.
(2) Includes 1,101,450 shares of Common Stock that the reporting person has the
right to acquire upon the conversion of 314,700 shares of the Company's
$.75 Convertible Preferred Stock.
(3) These shares are beneficially owned by State Street Research and Management
Company, a subsidiary of Metropolitan Life Insurance Company, which
disclaims beneficial ownership of these securities.
(4) Smith Barney Holdings Inc. is the sole common stockholder of Smith Barney
Inc., and The Travelers Inc. is the sole stockholder of Smith Barney
Holdings Inc. Smith Barney Holdings Inc. and The Travelers Inc. disclaim
beneficial ownership of these securities.
(5) Includes 1,750 and 45 shares of Common Stock that the reporting person has
the right to acquire upon the conversion of 500 shares of the Company's
$.75 Convertible Preferred Stock and the exercise of Warrants to purchase
shares of Common Stock, respectively.
</TABLE>
TRANSACTIONS WITH MANAGEMENT AND OTHERS
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 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, 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 1995 and
1996 at approximately $190,000 per year with the balance ($149,000) payable in
May 1997. The retirement agreements for the other
14
<PAGE>
six Retirees, one of whom received in 1991 the payments scheduled to be made in
1999 and 2000, provide for supplemental retirement payments totaling
approximately $938,400 per year through 1998 and approximately $740,400 per year
in 1999 and 2000.
EXECUTIVE SEVERANCE AGREEMENTS. The Company has entered into executive
severance agreements (the "Executive Severance Agreements") with certain
executive officers, including the Named Executive Officers. The Executive
Severance Agreements provide for severance benefits for termination without
cause and for termination following a "change of control" of the Company. The
Executive Severance Agreements provide that if an executive's employment is
terminated either (a) by the Company for reasons other than cause or other than
as a consequence of death, disability, or retirement, or (b) by the executive
for reasons of diminution of responsibilities, compensation, or benefits or, in
the case of change of control, a significant change in the executive's principal
place of employment, the executive will receive certain payments and benefits.
In March 1995, the Compensation Committee renewed the Executive Severance
Agreements and extended their term to December 1997. In addition, the definition
of "change of control" was modified.
In the case of termination of an executive's employment which does not occur
within two years of a change of control, these severance benefits include (a)
payment of the executive's base salary for a term of months equal to the whole
number of times that the executive's base salary can be divided by $10,000,
limited to 30 months (such amounts payable will be reduced by 50% if the
executive obtains new employment during the term of payment) and (b) continued
coverage of the executive and any of his or her dependents under the Company's
medical and dental benefit plans throughout the payment term without any cost to
the executive.
If an executive's employment by the Company is terminated under the
circumstances described above within two years after the date upon which a
change of control occurs, the Company would be obligated to take the following
actions after the last day of the executive's employment:
(a) the Company will pay to the executive an amount equal to 2.5 times the
executive's base salary;
(b) the Company will permit the executive and those of his dependents who
are covered under the Company's medical and dental benefit plans to be
covered by such plans without any cost to the executive for a two-year
period of time;
(c) the Company will cause any and all outstanding options to purchase stock
of the Company held by the executive to become immediately exercisable in
full and cause the executive's accrued benefits under any non-qualified
deferred compensation plans to become immediately non-forfeitable; and
(d) if any payment or distribution to the executive, whether or not pursuant
to such agreement, is subject to the federal excise tax on "excess
parachute payments", the Company will be obligated to pay to the
executive such additional amount as may be necessary so that the
executive realizes, after the payment of any income or excise tax on such
additional amount, an amount sufficient to pay all such excise taxes.
The Executive Severance Agreements also provide that the Company will pay
legal fees and expenses incurred by an executive to enforce rights or benefits
under such agreements. Under the Executive Severance Agreements, a "change of
control" of the Company would be deemed to occur if, as modified in March, 1995,
(i) the Company is not 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 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 limitation,
power to vote) of more than 40% of the
15
<PAGE>
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 cease to
constitute a majority of the Board of Directors.
The executive officers who have entered into Executive Severance Agreements
will be required, as a condition to the closings of the transactions
contemplated by the Purchase Agreement, to waive the obligations of the Company
pursuant to such agreements with respect to a "change of control". See "The
Anschutz and JEDI Transactions."
OTHER TRANSACTIONS. For a description of other transactions with management
and others see "Compensation Committee Interlocks and Insider Participation".
In 1994, the Company engaged The Blackstone Group to perform certain
investment banking services. Austin M. Beutner, a director of the Company, was,
until March 1994, a General Partner of The Blackstone Group, which is also
providing investment banking services in 1995.
TRANSACTIONS WITH FORMER EXECUTIVE OFFICERS. John F. Dorn resigned as an
executive officer and director of the Company in 1993. John F. Dorn is the
brother of Dale F. Dorn, a director of the Company. Kenneth W. Smith resigned as
an executive officer in March 1994. The Company had previously entered into
severance agreements with the former executive officers and the Company's other
executive officers as described above under "Executive Severance Agreements". In
lieu of the severance payments due under their severance agreements, the Company
agreed to pay John F. Dorn and Kenneth W. Smith for 30 months and 24 months,
respectively, their salaries at the time of the termination of their employment.
In addition, the Company has agreed with the former executive officers with
respect to the following matters: (a) their stock options are fully vested and
are not subject to early termination; (b) they received payments from the
Company equivalent to amounts they would have received as deferred payments
under the Incentive Plan with respect to 1992 and 1993; (c) John F. Dorn
received full vesting with respect to split dollar life insurance at the
Company's expense; (d) they continued to participate in the Company's Executive
Overriding Royalty Bonus Plan until April 1, 1994; (e) they were given their
Company automobiles and office furnishings and the Company paid for the cost of
relocating their offices; (f) the Company will provide John F. Dorn with certain
accounting, financial and estate planning services for a limited period of time;
and (g) until March 31, 1996, if John F. Dorn decides to relocate from Colorado,
the Company will pay his moving expenses and purchase his home, in accordance
with the Company's employee relocation policy.
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 Kenneth W. Smith. The
properties included in this transaction contained interests in approximately 70
wells. All of the properties were non-operated working interests or overriding
royalty interests. The Company established the sales price based upon an opinion
from an independent third party. The purchaser financed 100% of the purchase
price with a loan. The loan bears interest at the rate of prime plus 1% and is
secured by a mortgage on the properties and John F. Dorn's and Kenneth W.
Smith's personal guarantees. 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.
John F. Dorn and Kenneth W. Smith have separately agreed with the Company that
their stock options will be canceled to the extent that the Company's
participation in the loan is not repaid in full. The number of stock options
canceled will be based upon a Black-Scholes valuation. Collectively, they 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. In 1994, the Company paid
approximately $234,500 to the entity that purchased the properties to settle
title disputes.
SECTION 16 REPORTING
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity
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<PAGE>
securities, to file reports of ownership and changes in ownership with the SEC
and the National Association of Security Dealers, Inc. Officers, directors and
greater than 10% shareholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on its review of copies of such forms received by it and
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, during the period from
January 1, 1994 to March 31, 1995, its officers, directors, and greater than 10%
beneficial owners complied with all applicable filing requirements, except that
Dale F. Dorn, John C. Dorn and Michael B. Yanney each failed to file a monthly
report of one transaction, but such transactions were reported in their year-end
reports on Form 5, which were timely filed.
THE ANSCHUTZ AND JEDI TRANSACTIONS
BACKGROUND.__The Company was first approached concerning a possible
investment by Anschutz in February 1995 by Batchelder Partners, Inc.
("Batchelder"), an investment banking firm that has on different occasions
represented both the Company and Anschutz in certain matters. At the time the
Company was approached by Anschutz it was faced with short term liquidity needs.
During 1994 and the first quarter of 1995, the Company's operating cash flows
and working capital were adversely affected by a severe industry-wide decline in
the price of natural gas. These factors made it unlikely that the Company would
be able to raise equity capital in the public markets. The Company had nearly
exhausted its bank line of credit and had also considered the liquidation of
certain non-strategic assets to meet its liquidity needs.
The Board of Directors instructed management to focus its attention on the
possible Anschutz investment as opposed to other capital raising activities. The
Company's Board of Directors requested that Dillon, Read & Co. Inc. ("Dillon,
Read") be engaged to consider the reasonableness of the proposed Anschutz and
JEDI transactions. See "Financial Advisor" below. Batchelder acted as an
intermediary between the parties and the Company agreed to compensate Batchelder
and pay all of its expenses.
A condition to the Anschutz investment was a restructuring of the JEDI loan.
The Company and JEDI discussed several alternatives for restructuring the JEDI
loan in combination with the Anschutz investment, including exchanging equity
for part of the loan. The Company also discussed with Anschutz restrictions on
the ownership and voting rights of Anschutz as part of the Anschutz investment.
The Company signed letters of intent with both Anschutz and JEDI on April 17,
1995. The JEDI letter of intent was amended on April 27, 1995.
THE TRANSACTIONS.__On May __, 1995, the Company entered into definitive
agreements with Anschutz and with JEDI, a Delaware limited partnership, whose
general partner is Enron Capital Corp., an affiliate of Enron Corp., with
respect to the transactions summarized below. The Purchase Agreement between the
Company and Anschutz dated May __, 1995 (the "Anschutz Agreement") and the
Restructure Agreement between the Company and JEDI dated May __, 1995 (the "JEDI
Agreement") are included as exhibits to the Company's Form 8-K which was filed
with the Commission on May __, 1995 and is incorporated herein by reference. See
"General and Other Matters -- Incorporation by Reference".
Pursuant to the Anschutz Agreement, for a total consideration of $45,000,000
Anschutz will purchase an aggregate of 18,800,000 shares of Common Stock and
620,000 shares of Second Series Preferred Stock ("New Convertible Preferred
Stock") that are convertible into an aggregate of 6,200,000 additional shares of
Common Stock. The New Convertible Preferred Stock will have a liquidation
preference and will receive dividends ratably with the Common Stock. The
Anschutz investment will be made in two closings. In the first closing, which
occurred on May __, 1995, Anschutz loaned the Company $9,900,000 for a term of
nine months. The loan bears interest at 8% per annum for 16 weeks and at 12.5%
per annum thereafter. The loan is nonrecourse to the Company and secured by oil
and gas properties owned by the Company, the preferred stock of Archean Energy
Ltd.
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<PAGE>
(a private Canadian exploration and production company) owned by the Company,
and $2,000,000 of cash. The loan may be accelerated by Anschutz in certain
events, including default on other indebtedness in the aggregate of amount of
$500,000, judgments against the Company (not adequately covered by insurance) in
excess of $1,000,000, and a "change of control" within the meaning of the
Company's Indenture (the "Note Indenture") with respect to its 11 1/4% Senior
Subordinated Notes due 2003 (the "11 1/4% Notes"). The loan may be converted
into 5,500,000 shares of Common Stock at Anschutz's election, but the loan must
be so converted, if not previously repaid, at the second closing. At the second
closing, expected to occur following receipt of approval by the Company's
shareholders of the transactions contemplated by the Anschutz Agreement and the
JEDI Agreement, Anschutz will separately purchase from the Company 13,300,000
shares of Common Stock and the New Convertible Preferred Stock and Anschutz will
acquire warrants to purchase 19,444,444 shares of Common Stock with an exercise
price of $2.10 per share (the "$2.10 Warrants") and will acquire from JEDI an
option to acquire up to an additional 11,250,000 shares of Common Stock, subject
to certain restrictions. The $2.10 Warrants are exercisable during the first 18
months after the second closing, subject to extension in certain circumstances
to 36 months after the second closing. See "Descriptions of Securities to be
Issued" below.
At the second closing Anschutz will agree pursuant to a Shareholders
Agreement with the Company (the "Shareholders Agreement") to certain voting,
acquisition and transfer limitations regarding all its shares of Common Stock
for five years after the second closing, including (a) a limit on voting,
subject to certain exceptions, that would require Anschutz to vote all equity
securities of the Company owned by Anschutz having voting power in excess of an
amount equal to 19.99% of the aggregate voting power of the equity securities of
the Company then outstanding in the same proportion as all other equity
securities of the Company voted with respect to the matter (other than equity
securities owned by Anschutz) are voted, (b) a limit on the number of persons
associated with Anschutz that may at any time be elected as directors of the
Company and (c) a limit on the acquisition of additional shares of Common Stock
by Anschutz (whether pursuant to the conversion of the New Convertible Preferred
Stock, the exercise of the warrants or the option received from JEDI, each as
described below, or otherwise), subject to certain exceptions, that would
prohibit any acquisition by Anschutz that would result in Anschutz beneficially
owning 40% or more of the shares of Common Stock then issued and outstanding.
While the foregoing limitations are in effect, Anschutz will have a minority
representation on the Board of Directors. See "Shareholders Agreement" below.
At the first closing the Company and Anschutz also entered into a
Registration Rights Agreement (the "Anschutz Registration Rights Agreement")
pursuant to which the Company has agreed to register pursuant to the Securities
Act of 1933, as amended (the "Securities Act"), any Common Stock acquired by
Anschutz in connection with the Anschutz Agreement. Anschutz has the right to
demand such registration on four separate occasions and will have certain
"piggy-back" registration rights with respect to Company registrations. The
Company will bear the cost of any registration pursuant to the Anschutz
Registration Rights Agreement. At the second closing the Company will also enter
into a registration rights agreement with JEDI on terms substantially similar to
the Anschutz Registration Rights Agreement, including two demand registration
rights.
The JEDI Agreement contemplates that, at the second closing referred to
above, Forest and JEDI will restructure JEDI's existing loan which had a
principal balance of approximately $62,100,000 at May __, 1995. JEDI will
relinquish the net profits interest that it holds in certain Forest properties
and will reduce the interest rate relating to the loan. As a result of the loan
restructuring and the issuance of the warrants described below, the Company
anticipates a reduction of the recorded amount of the related liability to
approximately $45,000,000 and a reduction of interest expense of approximately
$2,000,000 per annum. See "Pro Forma Capitalization" below. Subject to certain
conditions, the Company may satisfy the JEDI loan by conveying to JEDI the
properties securing the loan during a 30-day period beginning beginning 18
months after the second closing or, if the $2.10 Warrants have been extended,
during a 30-day period beginning 36 months after the second closing. Any such
conveyance during the first 36 months after the second closing must be approved
by
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<PAGE>
Anschutz, if the option from JEDI has not then been exercised or terminated.
Prior to the exercise or termination of the JEDI option, JEDI has agreed that it
will not assign all or any portion of the JEDI loan or the $2.00 Warrants to an
unaffiliated person without the approval of the Company. The Company has agreed
to not give such approval without the consent of Anschutz.
The JEDI Agreement also contemplates that, at the second closing, JEDI will
receive warrants to purchase 11,250,000 shares of the Common Stock with an
exercise price of $2.00 per share (the "$2.00 Warrants"). For up to the first 36
months after the second closing, the $2.00 Warrants may be exercised only on the
dates and in the respective numbers of shares required to be delivered by JEDI
to Anschutz pursuant to the exercise of the option granted by JEDI to Anschutz,
as described below. The Anschutz Agreement also provides that, at the second
closing, JEDI will grant to Anschutz an option to purchase up to 11,250,000
shares of Common Stock during the first 36 months after the second closing. The
Company has agreed to use the proceeds from the exercise of the $2.00 Warrants
and the $2.10 Warrants to repay principal and interest on the JEDI loan.
The Anschutz Agreement and the JEDI Agreement require the Company to pay
Anschutz and JEDI certain fees and expenses in connection with the transactions
contemplated thereby in certain circumstances. The Anschutz Agreement requires
the Company to pay to Anschutz a fee of a minimum of $1,000,000 up to a maximum
of $2,500,000 upon the occurrence of certain events prior to the second closing
(or, if the second closing does not occur, by July __, 1996), such as a merger,
consolidation or other business combination between the Company and a person
other than Anschutz. The Company is also obligated in certain circumstances to
pay up to $500,000 of expenses incurred by Anschutz if the first or second
closing does not occur. In the Anschutz Agreement, the Company has agreed not to
solicit proposals for transactions that would require the Company to pay such
fee and to keep Anschutz generally informed regarding the receipt and
disposition by the Company of proposals regarding such transactions made by
other persons.
The Anschutz Agreement contains representations and warranties regarding
corporate existence and power, authorization, approvals and consents, binding
effect, financial information, financial condition, absence of defaults under
outstanding debt instruments, absence of certain changes or events, taxes,
litigation, compliance with laws, licenses, employee matters, labor disputes,
subsidiaries, property, oil and gas interests, equipment, leases, proprietary
rights, insurance, debt, capitalization, environmental matters, books and
records, material contracts, documents filed with the Securities and Exchange
Commission, required votes of shareholders, Section 912 of the New York Business
Corporation Law, absence of merger agreements, and fees for brokers and finders.
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<PAGE>
The Anschutz Agreement also contains covenants by the Company, including, a
covenant not to solicit transaction proposals from other parties, additional
affirmative covenants requiring the maintenance of records, maintenance of
properties, conduct of business, maintenance of insurance, compliance with laws,
payment of taxes, reporting of specified information to Anschutz, reservation of
shares of Common Stock to be issued pursuant to the Anschutz Agreement,
qualification of such shares for inclusion in the National Association of
Securities Dealers Automated Quotations/National Market System ( NASDAQ/NMS ),
maintenance of existence, compliance with laws, coordination of publicity
regarding the transactions, maintenance of confidentiality of information and
further assurances, and negative covenants with respect to amendment of charter
documents, issuance of securities, creation of liens and encumbrances,
incurrence of debt, restricted payments, investments, merger agreements or
agreements with respect to other business combinations, leases, dispositions of
assets, transactions with affiliates, accounting changes, dispositions of
capital stock of a subsidiary, compensation of executive officers, modifying or
withdrawing the Board of Directors recommendations that holders of shares of
Common Stock approve the transactions, union contracts, settling or compromising
tax liabilities, settling litigation, delisting securities of the Company from
NASDAQ/NMS, amending any of the transaction documents without the prior approval
of Anschutz and imposing limitations on the rights of Anschutz as a shareholder.
The Anschutz Agreement also contains a covenant by the Company that it will
amend the Rights Agreement dated as of October 14, 1993 between the Company and
Mellon Securities Trust Company, as Rights Agent, (the "Rights Agreement") with
respect to the transactions contemplated by the Anschutz Agreement and the JEDI
Agreement. The amendment of the Rights Agreement will exempt from the provisions
of the Rights Agreement shares of Common Stock acquired by Anschutz and JEDI
pursuant to the Anschutz Agreement (including shares later acquired pursuant to
the conversion of the New Convertible Preferred Stock or the exercise of the
$2.10 Warrants or the option received from JEDI) and JEDI Agreement,
respectively. The amendment to Rights Agreement will not exempt other shares of
Common Stock acquired by Anschutz or JEDI from the provisions of the Rights
Agreement. In the Anschutz Agreement, the Company has agreed to waive the
provisions of the Rights Agreement with respect to Anschutz if, and to the same
extent, it waives such provisions with respect to any other person.
The consent of a majority of the holders of the 11 1/4% has been obtained to
the waiver of the "change of control" covenant in the Note Indenture with
respect to the transactions contemplated by the Anschutz Agreement and the JEDI
Agreement and any future acquisition of equity securities of the Company by
Anschutz (whether pursuant to the Purchase Agreement or otherwise). The purchase
by Anschutz of Common Stock at the second closing and the other transactions
contemplated by the Anschutz Agreement are also subject to, among other things,
the prior approval of Forest's shareholders, Hart-Scott-Rodino clearance and
waiver of the provisions of the Company's Rights Agreement and the closing of
the transactions contemplated by the JEDI Agreement.
The Company has received the opinion, from a financial point of view, of
Dillon, Read & Co. Inc. ("Dillon Read") with respect to the transactions. A copy
of the Dillon Read opinion is included in this Proxy Statement as Annex A. See
"Financial Advisor" below. The Board of Directors believes that the transactions
contemplated by the Anschutz Agreement and the JEDI Agreement will improve the
Company's liquidity and will position the Company to execute on its business
plan.
A majority of the votes represented at the Annual Meeting by shares of
Common Stock entitled to vote is required for approval of the transactions
contemplated by the Anschutz and JEDI Agreements as described in this Proxy
Statement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
TRANSACTIONS CONTEMPLATED BY THE ANSCHUTZ AND JEDI AGREEMENTS AS DESCRIBED IN
THIS PROXY STATEMENT.
The persons named in the enclosed proxy, who have been so designated by the
Board of Directors, intend to vote for the proposal described above unless
otherwise instructed in the proxy. The Company
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<PAGE>
believes that the members of the Board of Directors and the senior management of
the Company intend to vote or direct the vote of all shares of Common Stock of
which they have beneficial ownership in favor of this proposal.
DESCRIPTION OF SECURITIES TO BE ISSUED
Subject to the approval of the shareholders of the Company, at the second
closing Anschutz will acquire 5,500,000 shares of Common Stock pursuant to the
conversion of the Company's $9,900,000 loan from Anschutz (unless previously
repaid), 13,300,000 shares of Common Stock, 620,000 shares of New Convertible
Preferred Stock, the $2.10 Warrants to purchase 19,444,444 shares of Common
Stock and an option from JEDI to acquire 11,250,000 shares of Common Stock
acquired by JEDI pursuant to the exercise of the $2.00 Warrants to be granted to
JEDI pursuant to the JEDI Agreement.
The New Convertible Preferred Stock will be issued in a series designated as
"Second Series Convertible Preferred Stock". Each share of New Convertible
Preferred Stock (1) will have the right to receive dividends on the dates and in
the form that dividends shall be payable on the Common Stock, in each case in an
amount equal to the amount of such dividend payable on the number of shares of
Common Stock into which such share of New Convertible Preferred Stock shall be
convertible immediately preceding the record date for the determination of the
shareholders entitled to receive such dividend, (2) will have no right to vote,
(3) will have the right, upon any liquidation, dissolution or winding up of the
Company, before any distribution is made on any shares of Common Stock, to be
paid the amount of $18.00 and, after there shall have been paid to each share of
Common Stock the amount of $1.80, will have the right to receive distributions
on the dates and in the form that distributions shall be payable on the Common
Stock, in each case in an amount equal to the amount of such distributions
payable on the number of shares of Common Stock into which such share of New
Convertible Preferred Stock is convertible (assuming for such purpose that such
conversion were possible) immediately preceding the record date for the
determination of the shareholders entitled to receive such distribution and (4)
will be convertible into 10 shares of Common Stock, which conversion may be made
from time to time on or before the date that is the fifth anniversary of the
second closing, but which in any event shall be made on such fifth anniversary.
The rights of the holders of the New Convertible Preferred Stock to receive
dividends are junior and subordinate to the rights of the holders of the
Company's $.75 Convertible Preferred Stock to the same extent that the rights of
the holders of the Common Stock are subordinate in right to receive dividends to
the rights of the holders of $.75 Convertible Preferred Stock to receive
dividends, and the rights of the holders of the New Convertible Preferred Stock
will rank pari passu with the Company's $.75 Convertible Preferred Stock as to
liquidation preference.
The $2.10 Warrants will be issued to Anschutz. The $2.10 Warrants will
expire 18 months after the second closing (or, if the Shareholders Agreement
would limit such exercise or the Company shall have previously sold in excess of
$60,000,000 of equity securities in a transaction in which Anschutz has agreed
not to sell shares for a period of nine months, 36 months after the second
closing).
The $2.00 Warrants will be issued to JEDI and will expire on the earlier of
December 31, 2002 or 36 months following exercise of the Company's option to
convey properties in satisfaction of the JEDI loan (the "Conveyance Option"). At
the second closing JEDI will grant a 36 month option to Anschutz to purchase
from JEDI up to 11,250,000 shares at a purchase price per share of $2.00 plus an
amount equal to the lesser of (a) 18% per annum from the second closing date to
the date of exercise of the option, or (b) $3.10. JEDI will satisfy its
obligations under the option to Anschutz by exercising the $2.00 Warrants.
Provided the Conveyance Option has not been exercised, the Company may terminate
the $2.00 Warrants at any time beginning 36 months after the second closing if
the average closing price of the common stock for the 90 days and 15 days
preceding the termination is in excess of $2.50 per share.
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<PAGE>
PRO FORMA CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of March 31, 1995 and the pro forma capitalization adjusted to give effect, at
the First Closing, to a $9,900,000 nonrecourse loan to the Company by Anschutz
and to give effect, at the Second Closing, to (i) the issuance of 13,300,000
shares of Common Stock, 620,000 shares of New Convertible Preferred Stock and
the $2.10 Warrants to purchase 19,444,444 shares of Common Stock to Anschutz for
a total consideration of $35,100,000, (ii) conversion of the Anschutz loan of
$9,900,000 into 5,500,000 shares of Common Stock, (iii) the restructuring of
JEDI's loan and the issuance of the $2.00 Warrants to purchase 11,250,000 shares
of Common Stock in connection therewith and (iv) related costs associated with
the foregoing transactions.
<TABLE>
<CAPTION>
MARCH 31, PRO FORMA PRO FORMA
1995 FIRST CLOSING SECOND CLOSING
----------- ------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Debt, including current portion:
Short-term convertible note payable to Anschutz.................... $
Bank debt..........................................................
Non-recourse secured loan..........................................
Production payment obligation......................................
11 1/4% subordinated debentures....................................
----------- ------------- --------------
Total debt, including current portion............................
Retirement benefits payable to executives and directors,
including current portion........................................... 4,034 4,034 4,034
Other liabilities.................................................... 16,008 16,008 16,008
Deferred revenue..................................................... 29,289 29,289 29,289
Shareholders' equity:
New Convertible Preferred Stock, shares
outstanding on a proforma basis after the
Second Closing.................................................... -- -- 11,160
$.75 Convertible Preferred Stock, shares
issued and outstanding............................................ 15,845 15,845 15,845
Common Stock, par value $.10 per share, shares
issued and outstanding at March 31, 1995 and after
the First Closing and shares outstanding
on a pro forma basis after the Second Closing (1)................. 2,829 2,829 4,709
Capital surplus.................................................... 188,593 188,593 228,413
Accumulated deficit................................................ (202,643) (202,643) (202,775)
Foreign currency translation....................................... (1,312) (1,312) (1,312)
Treasury stock, at cost, shares.................................... (770) (770) (770)
----------- ------------- --------------
Total shareholders' equity....................................... 2,542 2,542 55,275
----------- ------------- --------------
Total capitalization........................................... $ 271,746 273,746 267,064
----------- ------------- --------------
----------- ------------- --------------
</TABLE>
(1) Does not include, as of March 31, 1995, _______ shares issuable upon
exercise of outstanding share options, _______ shares issuable upon exercise
of the Company's existing warrants, or _______ shares issuable upon
conversion of the Company's $.75 Convertible Preferred Stock.
SHAREHOLDERS AGREEMENT
In connection with the proposed issuance to Anschutz, Anschutz will enter
into the Shareholders Agreement with the Company (as defined above) providing
for certain voting and other limitations regarding its shares of Common Stock
for the lesser of (i) five years after the second closing and (ii) the first day
on which the sum of the number of shares of Common Stock owned by Anschutz and
its
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<PAGE>
affiliates and any shares of Common Stock subject to acquisition by Anschutz and
its affiliates (regardless of any conditions or restrictions on such rights) is
less than 20% of the total of all shares of Common Stock issued and outstanding
and subject to issuance (regardless of any conditions or restrictions on such
rights). The Shareholders Agreement requires the Company to, among other things,
except as otherwise approved by the Board of Directors, including a majority of
the Independent Directors (as defined below), or by vote of the holders of
two-thirds of the shares of Common Stock then issued and outstanding (in which
Anschutz Excess Securities (as defined below) are voted in accordance with the
restrictions contained in the Shareholders Agreement) (a) fix the number of
directors of the Company at ten, who are to be three persons selected by
Anschutz (the "Anschutz Designees"), two persons who are officers of the Company
and five persons unaffiliated with Anschutz who are not and have not been at any
time during the preceding two years an officer or employee of the Company or a
director, officer or employee of a beneficial owner of 5% or more of the shares
of Common Stock then issued and outstanding or an affiliate of such beneficial
owner ("Independent Directors"), (b) appoint an Anschutz Designee chosen by
Anschutz to each of the Executive Committee, the Compensation Committee and the
Audit Committee (or committees having similar functions) of the Board of
Directors, (c) appoint a Nominating Committee composed of three directors, one
of whom shall be an Anschutz Designee, one of whom shall be an officer of the
Company and one of whom shall be an Independent Director, (d) requires that
nominees to the Board of Directors other than the Anschutz Designees shall be
selected by a vote of at least two members of the Nominating Committee, of whom
one shall be an Independent Director, (e) if any Anschutz Designee shall cease
to be a director for any reason, fill the vacancy resulting thereby with an
Anschutz Designee and (f) call meetings of the Board of Directors and committees
thereof upon the written request of any Anschutz Designee who is a director.
The Shareholders Agreement also contains a limit on voting that would
require Anschutz to vote all equity securities of the Company having voting
power in excess of an amount equal to 19.99% of the aggregate voting power of
the equity securities of the Company then outstanding (the "Anschutz Excess
Securities") in the same proportion as all other equity securities of the
Company voted with respect to the matter (other than equity securities held by
Anschutz) are voted, except that Anschutz may vote the Anschutz Excess
Securities without restriction (a) for the election of the permitted number of
Anschutz Designees, (b) with respect to all matters with respect to which
Anschutz may have liability under Section 16(b) of the Exchange Act (unless the
Company has obtained a final judgment to the effect that Anschutz will have no
such liability) and (c) with respect to other matters as approved by the Board
of Directors, including a majority of Independent Directors.
The exception with respect to Section 16(b) of the Exchange Act could have
the effect of permitting Anschutz to vote the Anschutz Excess Securities without
restriction in connection with a proposed merger of the Company with a third
party, which merger had been approved by the Board of Directors (regardless of
how the directors appointed by Anschutz might vote on such merger). Depending
upon its percentage ownership, if permitted to vote the Anschutz Excess
Securities, Anschutz could have a veto power over certain transactions between
the Company and third parties such as a merger which requires the approval of
the holders of two-thirds of the outstanding Common Stock.
The Shareholders Agreement also contains an agreement on the part of
Anschutz not to transfer the beneficial ownership of any of its shares of Common
Stock and Preferred Stock (including shares later acquired pursuant to the
conversion of the New Convertible Preferred Stock or the exercise of the $2.10
Warrants or the option received from JEDI), except (a) in a public offering of
Common Stock pursuant to a registration statement effective under the Securities
Act, (b) to a person or Group (as defined in Section 13(d)(3) of the Exchange
Act) who represents that it will then beneficially own 9.9% or less of the total
number of shares of Common Stock then issued and outstanding and those subject
to issuance (even if then subject to conditions or restrictions), (c) to a
person or Group who will then beneficially own more than 9.9% but less than 20%
of the total number of shares of Common Stock issued and outstanding and those
subject to issuance (even if then subject to conditions or restrictions) if such
person or Group assumes by written instrument satisfactory to both Anschutz and
the
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Company the transfer restrictions previously applicable to Anschutz, (d) any
transfer approved by the Board of Directors, including a majority of the
Independent Directors, which approval shall not be unreasonably withheld with
respect to a transfer to any person or Group who represents that it will then
beneficially own more than 9.9% and less than 20% of the total number of shares
of Common Stock issued and outstanding and those subject to issuance (even if
then subject to conditions or restrictions), (e) a transfer in connection with
certain business combination transactions or tender or exchange offers, upon the
liquidation or dissolution of the Company or as effected by operation of law and
(f) the pledge or grant of a security interest in certain cases.
The Shareholders Agreement also provides that Anschutz will neither alone,
nor through or with its affiliates, acquire shares of Common Stock which, when
combined with shares of Common Stock then owned by Anschutz and its affiliates,
would result in Anschutz beneficially owning 40% or more of the shares of Common
Stock then issued and outstanding (provided that shares of Common Stock which
may be acquired pursuant to the conversion of the New Convertible Preferred
Stock or the exercise of the $2.10 Warrants or the option received from JEDI
that have not been issued shall not be included in such determination), except
that such restriction shall not apply to (i) acquisitions following a business
combination transaction that (A) has been approved by the Board of Directors
(including a majority of the Independent Directors) or by the holders of
two-thirds of the shares of Common Stock voted with respect to such transaction
in which Anschutz Excess Securities are voted in accordance with the
Shareholders Agreement) and (B) results in the beneficial ownership by any
person or Group of 20% or more of the shares of Common Stock then issued and
outstanding (or if all or any part of the shares of Common Stock are changed
into or exchanged for shares of capital stock of any other person, 20% of such
issued and outstanding shares), (ii) acquisitions following the commencement of
a tender or exchange offer made by any person or Group (other than and not
including Anschutz or an affiliate of, or any person acting in concert with,
Anschutz) to acquire beneficial ownership of 40% or more of the shares of Common
Stock then issued and outstanding, (iii) acquisitions after any person or Group
(other than and not including an affiliate of Anschutz) shall own beneficially
shares of Common Stock which exceed the sum of the number of shares of Common
Stock then owned by Anschutz and its affiliates plus the number then subject to
acquisition upon the conversion, exercise or exchange by Anschutz and its
affiliates of equity securities of the Company or other rights then owned
(whether or not subject to restrictions or conditions) and (iv) acquisitions
approved by the Board of Directors, including a majority of Independent
Directors. If Anschutz's percentage ownership were diluted by future increases
in the outstanding Common Stock, the 40% restriction on Anschutz's ownership
would not preclude Anschutz from acquiring shares of Common Stock in the open
market up to the 40% level, regardless of Anschutz's ability to exercise
warrants or options or to convert the New Convertible Preferred Stock.
The Shareholders Agreement also provides that the Company will not take or
recommend to its shareholders any action which would impose on Anschutz or its
affiliates any limitations on their legal rights, other than those imposed by
the express terms of the Shareholders Agreement, and that the Company will not
take any action that will or may, directly or indirectly, result in Anschutz or
any affiliate having liability under Section 16(b) of the Exchange Act with
respect to securities acquired pursuant to the Anschutz Agreement (including
shares acquired upon the conversion of the New Convertible Preferred Stock or
the exercise of the $2.10 Warrants or the option received from JEDI). The
Company has the right to seek a declaratory judgment as to whether any action
described in the preceding sentence or the provisions with respect to the
limitations on the voting of the Anschutz Excess Securities on a matter shall be
effective and in doing so whether Anschutz will have Section 16(b) liability
with respect to such matters. The Shareholders Agreement also provides that the
voting restrictions on the Anschutz Excess Securities, and the transfer
restrictions and the cap on purchases of Common Stock by Anschutz in excess of
40%, shall no longer apply if any of the Anschutz Designees are not elected to
the Board of Directors (and Anschutz and its affiliates voted all the shares of
Common Stock owned by them in favor of such election) or one or more directors
who are Anschutz Designees are not appointed to the Committees as provided in
the Shareholders' Agreement (and the directors who are Anschutz Designees voted
in favor of such appointment).
24
<PAGE>
FINANCIAL ADVISOR
The Company retained Dillon Read to act as its financial adviser. On May 15,
1995, Dillon Read delivered an opinion to the Board of Directors indicating that
the transactions, taken as a whole, including the consideration to be received
by the Company, represent a reasonable means under the circumstances of raising
capital for the Company and that it was reasonable to conclude that the
consideration to be received by the Company in the transactions is fair to the
Company and to the Common Stockholders of the Company from a financial point of
view. In reaching this opinion, Dillon Read relied upon the accuracy and
completeness of all financial and other information provided to it by the
Company, as well as all publicly available information, and did not
independently verify such information. A copy of Dillon Read's written opinion
is attached as Annex A hereto.
In arriving at its opinion, Dillon Read reviewed the Anschutz Agreement and
the JEDI Agreement, and certain business and financial information relating to
the Company, including certain financial information, third party oil and gas
reserve estimates and other analyses and estimates provided to Dillon Read by
the Company, and reviewed and discussed the business and prospects of the
Company with representatives of the Company's management. Dillon Read also
considered certain financial data of the Company and compared that information
to similar data for publicly held companies in businesses Dillon Read believed
to be generally comparable to that of the Company. Dillon Read also considered
the financial terms of certain other transactions, including minority
investments, which have recently been effected and considered such other
information, financial studies and analyses, and financial, economic and market
criteria as Dillon Read deemed relevant. Dillon Read also reviewed market prices
for the Company's common stock for dates prior to the date of the announcement
of the transactions on April 18, 1995.
Dillon Read did not make an independent evaluation or appraisal of any of
the assets or liabilities (contingent or otherwise) of the Company, nor was
Dillon Read furnished with any such evaluations or appraisal. With respect to
the financial projections, estimates and analyses which the Company furnished to
Dillon Read, Dillon Read utilized such information and, with the Board's
consent, relied thereon. Further, Dillon Read assumed that such information was
prepared in good faith by the Company's management and was reasonably based upon
the Company's historical financial performance and certain estimates and
assumptions which were reasonable at the time made. Dillon Read's opinion was
based on economic, monetary and market conditions existing on April 17, 1995.
In rendering its opinion, Dillon Read took into consideration that without
effecting the transactions, the Company believed that it was facing near-term
liquidity issues necessitating the sale of certain assets to raise cash at a
discount of approximately $3 - $5 million to the value that the Company believed
could be realized without timing constraints, as well as a highly leveraged
balance sheet which limited the Company's ability to maintain, much less
increase, its asset base. Dillon Read also considered the recent depressed state
of the natural gas market and the resulting impact on the valuations of
publicly-traded domestic natural gas producers. Additionally, Dillon Read
considered a number of benefits to the Company which result from the
transactions including a significant improvement in the liquidity of the
Company, the availability of cash to make budgeted capital expenditures and a
material reduction in financial leverage, as well as over $2 million in annual
interest expense savings.
Dillon Read is an internationally recognized investment banking firm which,
as a part of its investment banking business, is continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. Dillon Read was selected by
the Company and its Board of Directors as financial advisor based on such
qualifications.
In connection with Dillon Read's engagement by the Company, the Company paid
Dillon Read $100,000 upon its being retained to act as the Company's financial
advisor on March 7, 1995 and has agreed to pay Dillon Read $100,000 for each
90-day period of Dillon Read's engagement, payable on
25
<PAGE>
June 30, 1995 and September 30, 1995. The Company also agreed to pay Dillon Read
certain fees for acting as financial advisor to the Company depending upon the
type and size of the transactions entered into by the Company. If all of the
transactions summarized in this Proxy Statement are consummated, Dillon Read
shall be entitled to receive an aggregate additional fee of $991,250 pursuant to
such fee arrangements. The Company also agreed to indemnify Dillon Read pursuant
to customary indemnification provisions and to reimburse certain of Dillon
Read's expenses. In the ordinary course of its business, Dillon Read may trade
the securities of the Company and may at any time hold a long or short position
in such securities for its own account or for the accounts of its customers.
APPOINTMENT OF INDEPENDENT AUDITORS
Subject to ratification by the shareholders of the Company, the Board has
designated the firm of KPMG Peat Marwick LLP, Suite 2300, 707 Seventeenth
Street, Denver, Colorado 80202 as independent auditors to examine and audit the
Company's financial statements for the year 1995. This firm has audited the
Company's financial statements for approximately 45 years and is considered to
be well qualified. The designation of such firm as auditors is being submitted
for ratification or rejection at the Annual Meeting. Action by shareholders is
not required under the law for the appointment of independent auditors, but the
ratification of their appointment is submitted by the Board in order to give the
shareholders of the Company the final choice in the designation of auditors. The
Board will be governed by the decision of a majority of the votes entitled to be
cast. A majority of the vote represented at the Annual Meeting by shares of
Common Stock entitled to vote is required to ratify the appointment of KPMG Peat
Marwick LLP.
A representative of KPMG Peat Marwick LLP will be present at the Annual
Meeting with the opportunity to make a statement if he desires to do so and will
also be available to respond to appropriate questions. A representative of the
firm was present at the last Annual Meeting for the same purpose.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
SHAREHOLDER PROPOSALS
Any shareholder proposals to be included in the Board of Directors'
solicitation of proxies for the 1996 Annual Meeting of Shareholders must be
received by Daniel L. McNamara, Secretary, at 1500 Colorado National Building,
950 - 17th Street, Denver, CO 80202, no later than December 2, 1995.
GENERAL AND OTHER MATTERS
The Board of Directors knows of no matter, other than those referred to in
this Proxy Statement, which will be presented at the Annual Meeting. However, if
any other matters are properly brought before the meeting or any of its
adjournments, the person or persons voting the proxies will vote them in
accordance with their judgment on such matters. Should any nominee for director
be unwilling or unable to serve at the time of the Annual Meeting, or any
adjournment thereof, the persons named in the proxy will vote it for the
election of such other person for such directorship as the Board of Directors
may recommend unless, prior to the Annual Meeting, the Board of Directors has
eliminated that directorship by reducing the size of the Board of Directors. The
Board of Directors is not aware that any nominee named herein will be unwilling
or unable to serve as a director.
On May 24, 1994, the Company renewed Directors and Officers Liability
Coverages designed to indemnify the directors and officers of the Company and
its subsidiaries against certain liabilities incurred by them in the performance
of their duties and also providing for reimbursement in certain cases to the
Company and its subsidiaries for sums paid by them to directors and officers as
indemnification for similar liability. This type of coverage was originally
purchased by the Company on May 24, 1978. The 1994 renewal was for a one-year
period. Primary insurance of $10,000,000 was renewed with National Union Fire
Insurance Company and the excess insurance coverage of $10,000,000 was
26
<PAGE>
renewed with Reliance Insurance Company and National Union Fire Insurance
Company for a total coverage of $20,000,000. Aggregate premiums for the 12-month
period ending May 24, 1995 are $510,122. No claims have been filed and no
payments have been made to the Company or its subsidiaries or to any of their
directors or officers under this coverage.
The Restated Certificate of Incorporation of the Company limits the personal
liability of the Company's directors to the fullest extent permitted by the New
York Business Corporation Law ("BCL"), as currently formulated or as it might be
revised in the future. The Restated Certificate of Incorporation provides that a
director will not be liable for damages for any breach of duty unless it is
finally established that (a) the director's acts or omissions were in bad faith
or involved intentional misconduct or a knowing violation of law; or (b) the
director personally gained a financial profit or other advantages to which he
was not legally entitled; or (c) the director's acts violated Section 719 of the
BCL which provides that directors who vote for, or concur in, certain types of
corporate action proscribed by the BCL will be jointly and severally liable for
any injury resulting from such action.
The cost of preparing, assembling, and mailing this Proxy Statement, the
enclosed proxy card and the Notice of Annual Meeting will be paid by the
Company. Additional solicitation by mail, telephone, telegraph or personal
solicitation may be done by directors, officers, and regular employees of the
Company. Such persons will receive no additional compensation for such services.
Brokerage houses, banks and other nominees, fiduciaries and custodians nominally
holding shares of Common Stock of record will be requested to forward proxy
soliciting material to the beneficial owners of such shares, and will be
reimbursed by the Company for their reasonable expenses. The Company has
retained Morrow & Co., Inc. to assist in such solicitation and has agreed to pay
reasonable and customary fees for its services and to reimburse it for
reasonable out-of-pocket expenses in connection therewith.
INCORPORATION BY REFERENCE. The Company hereby incorporates by reference
into this Proxy Statement the following information from its Annual Report on
Form 10-K which is being delivered herewith: Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations and Item 8. Financial
Statements and Supplementary Data. Also incorporated by reference herein is the
Form 8-K dated as of May __, 1995.
You are urged to complete, sign, date and return your proxy promptly. You
may revoke your proxy at any time before it is voted. If you attend the Annual
Meeting, as we hope you will, you may vote your shares in person.
By order of the Board of Directors
DANIEL L. McNAMARA
SECRETARY
June __, 1995
27
<PAGE>
ANNEX A
[LETTERHEAD - DILLON, READ & CO. INC.]
May 15, 1995
Board of Directors
Forest Oil Corporation
1500 Colorado National Building
950 Seventeenth Street
Denver, Colorado 80202
Dear Directors:
You have requested our opinion, from a financial point of view, with
respect to the transactions (the "Transactions") summarized in the Letter of
Intent dated as of April 17, 1995, between Forest Oil Corporation ("Forest" or
the "Company") and The Anschutz Corporation ("Anschutz"), the Letter of
Understanding of the same date and the revised Letter of Understanding dated as
of April 27, 1995, between the Company and Joint Energy Development Investments
Limited Partnership ("JEDI"), an affiliate of Enron Corporation (the
"Purchasers") as well as the draft agreements (the "Preliminary Drafts") dated
as of May 5, 1995, between the Company and Anschutz, dated as of May 5, 1995
between JEDI and the Company and dated as of May 10, 1995, between the Company
and JEDI (together, the "Preliminary Agreements").
We have assumed that the business terms of the Transactions are as set
forth in the Preliminary Agreements mentioned above between the Purchasers and
the Company. Forest will sell to Anschutz 18,800,000 shares of common stock and
620,000 shares of preferred stock of Forest that are convertible into 6,200,000
additional shares of common stock for a total consideration of $45 million or
$1.80 per share of common stock. The preferred stock will have a liquidation
preference and will receive dividends ratably with the common stock. In
addition, Anschutz will receive warrants and an option to purchase common stock
as described below. The investment will be made in two closings. In the first
closing, expected to occur in May 1995, Anschutz will loan the Company $9.9
million for a term of nine months. The loan will bear interest at 8% per annum
for 16 weeks and at 12.5% per annum thereafter. The loan will be secured by
various assets of Forest. The loan may be converted into 5,500,000 shares of
Forest's common stock at Anschutz's election, but the loan must be so converted
at the second closing. At the second closing, expected to occur in July 1995
following receipt of shareholder approval of the Transactions, Anschutz will
purchase the remaining 13,300,000 shares of common stock and the convertible
preferred stock. In connection with this purchase, Anschutz will agree to
certain voting, acquisition, and transfer limitations regarding shares of common
stock for five years after the second closing, including (i) a limitation on
voting, subject to
<PAGE>
May 15, 1995
Page 2
certain exceptions, that would require Anschutz to vote all shares of common
stock owned by Anschutz in excess of an amount equal to 19.99% of the shares of
common stock then outstanding in the same proportion as all other shares of
common stock are voted, (ii) a limit on the number of Anschutz designated
directors to three in addition to five independent directors and two officer
directors and (iii) a limit on the acquisition of additional shares of common
stock by Anschutz (whether pursuant to the exercise of the $2.10 warrants or the
option received from JEDI, as described below, or otherwise), subject to certain
exceptions, that would prohibit any acquisition by Anschutz that would result in
Anschutz owning 40% or more of the shares of common stock then issued and
outstanding.
At the second closing, Forest and JEDI will restructure JEDI's existing
loan currently having a principal balance of approximately $62.1 million. In
exchange for certain warrants referred to below, JEDI will relinquish the net
profits interest that it holds in certain Forest properties and will reduce the
interest rate relating to the loan from 12 1/2% per annum to an initial blended
rate of 8% per annum. As a result of the loan restructuring and the issuance of
the warrants, the Company anticipates a reduction of the recorded amount of the
related liability to approximately $45 million and a reduction of interest
expense on the JEDI loan of approximately $2 million per annum. In addition, on
a one-time basis 18 months after the second closing, the Company may put its
interest in the underlying properties back to JEDI in full satisfaction of the
loan.
At the second closing, JEDI will receive warrants to purchase 11,250,000
shares of the Company's common stock for $2.00 per share and Anschutz will
receive warrants to purchase 19,444,444 shares of common stock at $2.10 per
share. The $2.00 warrants expire on the scheduled maturity of the JEDI loan,
except that the Company may terminate the warrants at any time beginning 36
months after the second closing, if the average closing price of the common
stock for the 90 days and 15 days preceding the date on which notice of
termination is given is in excess of $2.50 per share. For the first 36 months
after the second closing, the $2.00 warrants may be exercised only on the dates
and in the respective numbers of shares required to be delivered by JEDI to
Anschutz pursuant to the exercise of the option granted by JEDI to Anschutz, as
described below. The $2.10 warrants are exercisable during the first 18 months
after the second closing, subject to extension in certain circumstances to 36
months after the second closing. If the $2.10 warrants are extended, the
Company's right to put its interest in the underlying properties back to JEDI
will also be extended to a date 36 months after the second closing. At the
second closing, JEDI will grant to Anschutz an option to purchase up to
11,250,000 shares of common stock during the first 36 months after the second
closing at a share price which results in an 18% per annum return to JEDI, with
the exception of a $3.10 per share maximum price. It is a condition to the
restructuring of the JEDI loan that the Company covenant to use the proceeds
from the exercise of the warrants to repay the JEDI loan.
<PAGE>
May 15, 1995
Page 3
The Company is required to pay to Anschutz a fee of up to $2.5 million upon
the occurrence on or before the first anniversary date of the definitive
agreement between the Company and Anschutz (and prior to the second closing) of
certain events, such as a merger, consolidation or other business combination
between the Company and a person other than Anschutz if the second closing does
not occur. The Company has agreed not to solicit proposals for transactions
that would require the Company to pay such a fee, subject to the duty of the
Board of Directors to act in a manner which is consistent with its fiduciary
obligations.
The Transactions are subject to the preparation and execution of definitive
agreements and to the approval of Forest's board of directors and certain of its
creditors. We have assumed, with your consent, that the Preliminary Drafts
mentioned above set forth the final business terms of the Transactions and are
substantially in the form in which they are to be executed. The purchase by
Anschutz of common stock at the second closing and the transactions between
Anschutz and JEDI described above are also subject to, among other things, the
prior approval of Forest's shareholders.
Dillon, Read & Co. Inc. ("Dillon Read") has acted as financial advisor to
the Company in connection with the Transactions. In the course of our
engagement, we have participated in negotiations with respect to the
Transactions and are familiar with the financial terms of the Transactions.
In arriving at our opinion we have reviewed the Preliminary Agreements with
Anschutz and JEDI, respectively, and certain business and financial information
relating to Forest, including certain financial information, third party oil and
gas reserve estimates and other analyses and estimates provided to us by the
Company, and have reviewed and discussed the business and prospects of Forest
with representatives of the Company's management. We have considered certain
financial data of Forest and have compared that information to similar data for
publicly held companies in businesses we believe to be generally comparable to
that of Forest. We have also considered the financial terms of certain other
transactions, including minority investments, which have recently been effected
and have considered such other information, financial studies and analyses, and
financial, economic and market criteria as we deemed relevant. We have also
reviewed market prices for the Company's common stock for dates prior to the
date of the announcement of the Transactions on April 18, 1995.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have, with your
consent, relied on its being complete and accurate in all material respects. We
have not made an independent evaluation or appraisal of any of the assets or
liabilities (contingent or otherwise) of Forest, nor have we been furnished with
any such evaluation or appraisals. Furthermore, in rendering our opinion we, at
your direction, did not seek alternatives to the Transactions. With respect to
the financial projections, estimates and analyses which you have furnished to
us, we have utilized such
<PAGE>
May 15, 1995
Page 4
information and have, with your consent, relied thereon. Further, we have
assumed that such information was prepared in good faith by the Company's
management and was reasonably based upon the Company's historical financial
performance and certain estimates and assumptions which were reasonable at the
time made. Our opinion is based on economic, monetary and market conditions
existing on the date thereof.
In the ordinary course of business, we may trade the debt and equity
securities of the Company for our own account and for the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities.
In rendering our opinion we took into consideration, at your direction,
that without effecting the Transactions, the Company believes that it is facing
near-term liquidity issues necessitating the sale of certain assets to raise
cash at a discount of approximately $3 million to the value that the Company
believes could be realized without timing constraints, as well as a highly
leveraged balance sheet which limits the Company's ability to maintain, much
less increase, its asset base. We also considered the recent depressed state of
the natural gas market and the resulting impact on the valuations of publicly
traded domestic natural gas producers. Additionally, we considered a number of
benefits to the Company which result from the Transactions including a
significant improvement in the liquidity of the Company, the availability of
cash to make budgeted capital expenditures and a material reduction in financial
leverage as well as over $2 million in annual interest expense savings on the
JEDI loan.
Based upon and subject to the foregoing and after reviewing other factors
including current market, economic and business considerations; such other
factors we deem relevant; and, in particular, the factors enumerated in the
preceding paragraph including the recent depressed state of the natural gas
market, it is our opinion that the Transactions, taken as a whole, including the
consideration to be received by the Company, represent a reasonable means under
the circumstances of raising capital for the Company and that it is reasonable
to conclude that the consideration to be received by the Company in the
Transactions is fair to the Company and to the common stockholders of the
Company from a financial point of view.
Very truly yours,
Dillon, Read & Co. Inc.
<PAGE>
FOREST OIL CORPORATION
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS
The undersigned shareholder of Forest Oil Corporation, a New York
corporation (the Company), hereby appoints William L. Dorn, Daniel L. McNamara
and Linda M. Trulick, or any one of them, attorneys, agents and proxies of the
undersigned, with full power of substitution to each of them, to vote all the
shares of Common Stock, Par Value $.10 Per Share, of the Company which are
entitled to one vote per share and which the undersigned may be entitled to vote
at the Annual Meeting of Shareholders of the Company to be held at the Petroleum
Club of Denver, 555 17th Street, Suite 3700, Denver, Colorado, on ,
July , 1995, at 10:00 A.M., M.D.T., and at any adjournment of such meeting,
with all powers which the undersigned would possess if personally present:
1. Elect two (2) Class I Directors;
2. Approve the transactions with The Anachutz Corporation and Joint Energy
Development Investments Limited Partnership;
3. Consider and vote upon the ratification of the appointment of KPMG Peat
Marwick LLP as independent auditors for the Company for the fiscal year
ended December 31, 1995;
4. Vote upon such other matters as may be properly brought before the meeting
or any adjournment thereof hereby revoking all previous proxies and
ratifying all that any of said proxies, their substitutes, or any of them,
may lawfully do by virtue hereof.
If no directions are given, the individuals designated above will vote for
the above proposals and, at their discretion, on any other matter that may come
before the meeting.
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement of the Company.
(CONTINUED AND TO BE VOTED, DATED AND SIGNED ON REVERSE SIDE)
<PAGE>
FOREST OIL CORPORATION
COMMON STOCK PROXY ONE (1) VOTE PER SHARE
PLEASE MARK VOTES / / OR /X/
SPECIAL NOTES
I PLAN TO ATTEND THE MEETING / /
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS:
<TABLE>
<S> <C> <C> <C>
No. 1. Election of Directors. No. 2. Approve the transactions with The
Nominees are William L. Dorn and Anachutz Corporation and Joint
James H. Lee. Energy Development Investments
(To withhold authority to vote for Limited Partnership.
all nominees check the block marked
"Withheld". To withhold authority
to vote for any individual
nominee write that nominee's
name on the space provided
below.)
-------------------------------
FOR / / WITHHELD / / FOR / / AGAINST / / ABSTAIN / /
No. 3. Ratification of the Appointment of Independent Auditors.
FOR / / AGAINST / / ABSTAIN / /
</TABLE>
(Signature(s) should agree with names on
Stock Certificates as shown herein.
Attorneys, executors, administrators,
trustees, guardians or custodians should
give full title as such.) Please
complete, date and sign this proxy and
return it promptly in the enclosed
envelope whether or not you plan to
attend the meeting. No postage is
required.
Dated: ____________________________, 1995
_________________________________________
_________________________________________
Signature of Shareholder(s)
THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS
- ------------------------------------------------------------
IF YOU PLAN TO ATTEND THE ANNUAL MEETING OF SHAREHOLDERS, PLEASE MARK THE
APPROPRIATE BOX IN THE SPECIAL NOTES SECTION OF THE PROXY CARD ABOVE.