<PAGE>
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
Commission File Number 0-4597
FOREST OIL CORPORATION
(Exact name of registrant as specified in its charter)
New York 25-0484900
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Colorado National Building
950 - 17th Street
Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 592-2400
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Number of Shares
Outstanding
Title of Class of Common Stock July 31, 1995
------------------------------ ----------------
Common Stock, Par Value $.10 Per Share 47,395,384
--------------------------------------------------------------------------------
<PAGE>
PART I. FINANCIAL INFORMATION
FOREST OIL CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------------ ------------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,306 2,869
Equity subscription receivable 35,100 --
Accounts receivable 16,156 20,418
Other current assets 2,185 2,231
------------ ------------
Total current assets 56,747 25,518
Property and equipment, at cost:
Oil and gas properties - full cost accounting method 1,179,276 1,171,887
Buildings, transportation and other equipment 12,691 12,649
------------ ------------
1,191,967 1,184,536
Less accumulated depreciation, depletion and valuation allowance 931,507 907,927
------------ ------------
Net property and equipment 260,460 276,609
Investment in and advances to affiliate 11,119 11,652
Other assets 11,935 11,053
------------ ------------
$ 340,261 324,832
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 2,731 4,445
Current portion of long-term debt 1,031 1,636
Current portion of gas balancing liability 5,000 5,735
Accounts payable 15,030 26,557
Retirement benefits payable to executives and directors 630 630
Accrued expenses and other liabilities:
Interest 4,571 4,318
Other 4,124 4,297
------------ ------------
Total current liabilities 33,117 47,618
Long-term debt 220,256 207,054
Gas balancing liability 7,889 8,525
Retirement benefits payable to executives and directors 3,108 3,505
Other liabilities 19,899 16,136
Deferred revenue 23,578 35,908
Shareholders' equity:
Preferred stock 15,845 15,845
Common stock 2,858 2,829
Capital surplus 187,906 190,074
Equity subscription 35,100 --
Accumulated deficit (207,458) (199,499)
Foreign currency translation (1,837) (1,337)
Treasury stock, at cost -- (1,826)
------------ ------------
Total shareholders' equity 32,414 6,086
------------ ------------
$ 340,261 324,832
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-1-
<PAGE>
FOREST OIL CORPORATION
Condensed Consolidated Statements of Production and Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- -------------------------------
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
---------- ---------- ----------- ---------
(In Thousands Except Production and Per Share Amounts)
<S> <C> <C> <C> <C>
PRODUCTION
Gas (mmcf) 8,640 13,206 17,937 26,475
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Oil and condensate (thousands of barrels) 302 404 651 787
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenue:
Oil and gas sales:
Gas $ 15,267 25,373 32,002 52,449
Oil and condensate 5,024 6,537 10,528 10,995
Products and other 98 92 168 214
---------- ---------- ---------- ----------
20,389 32,002 42,698 63,658
Miscellaneous, net 161 975 213 1,862
---------- ---------- ---------- ----------
Total revenue 20,550 32,977 42,911 65,520
Expenses:
Oil and gas production 5,888 5,900 11,197 11,228
General and administrative 1,761 2,502 3,861 4,589
Interest 6,627 6,828 12,421 13,475
Depreciation and depletion 11,089 17,928 23,398 36,173
---------- ---------- ---------- ----------
Total expenses 25,365 33,158 50,877 65,465
---------- ---------- ---------- ----------
Income (loss) before income taxes and cumulative
effect of change in accounting principle (4,815) (181) (7,966) 55
Income tax expense (benefit):
Current -- 84 (7) 84
---------- ---------- ---------- ----------
Loss before cumulative effect of change in
accounting principle (4,815) (265) (7,959) (29)
Cumulative effect of change in accounting for
oil and gas sales -- -- -- (13,990)
---------- ---------- ---------- ----------
Net loss $ (4,815) (265) (7,959) (14,019)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average number of common shares
outstanding 28,470 28,071 28,352 28,039
---------- ---------- ---------- ---------
---------- ---------- ---------- ----------
Net loss attributable to common stock $ (5,355) (805) (9,039) (15,099)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Primary and fully diluted loss per common share:
Loss before cumulative effect of change in
accounting principle $(.19) (.03) (.32) (.04)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net loss $ (.19) (.03) (.32) (.54)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-2-
<PAGE>
FOREST OIL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------
June 30, June 30,
1995 1994
---------- -----------
(In Thousands)
<S> <C> <C>
Cash flows from operating activities:
Loss before cumulative effect of change in accounting principle $ (7,959) (29)
Adjustments to reconcile loss before cumulative effect of change in
accounting principle to net cash provided (used) by operating activities:
Depreciation and depletion 23,398 36,173
Other, net 1,192 1,728
Decrease in accounts receivable 4,262 41
Decrease in other current assets 46 46
Decrease in accounts payable (12,262) (10,686)
Increase in accrued expenses and other liabilities 80 553
Proceeds from volumetric production payments -- 4,353
Amortization of deferred revenue (12,330) (19,118)
--------- -----------
Net cash provided (used) by operating activities (3,573) 13,061
Cash flows from investing activities:
Capital expenditures for property and equipment (9,966) (16,120)
Proceeds from sales of property and equipment 2,750 6,860
(Increase) decrease in other assets, net (1,354) 2,996
---------- ----------
Net cash used by investing activities (8,570) (6,264)
Cash flows from financing activities:
Proceeds of convertible note 9,900 --
Proceeds of bank debt 40,200 9,000
Repayments of bank debt (35,600) (5,000)
Repayments of nonrecourse secured loan (1,143) --
Repayments of production payment (1,249) (1,770)
Redemptions and purchases of subordinated debentures -- (7,171)
Payment of preferred stock dividends (540) (1,080)
Deferred debt costs -- (419)
Decrease in cash overdraft (1,714) (917)
Increase (decrease) in other liabilities, net 2,729 (2,888)
---------- -----------
Net cash provided (used) by financing activities 12,583 (10,245)
Effect of exchange rate changes on cash (3) 14
---------- -----------
Net increase (decrease) in cash and cash equivalents 437 (3,434)
Cash and cash equivalents at beginning of period 2,869 6,949
---------- ----------
Cash and cash equivalents at end of period $ 3,306 3,515
--------- ----------
--------- ----------
Cash paid during the period for:
Interest $ 11,147 12,138
---------- ----------
---------- ----------
Income taxes $ -- 3
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-3-
<PAGE>
FOREST OIL CORPORATION
Notes to Condensed Consolidated Financial Statements
Six Months Ended June 30, 1995 and 1994
(Unaudited)
(1) Basis of Presentation
The condensed consolidated financial statements included herein are
unaudited. In the opinion of management, all adjustments, consisting of
normal recurring accruals, have been made which are necessary for a fair
presentation of the financial position of the Company at June 30, 1995 and
the results of operations for the six month periods ended June 30, 1995 and
1994. Quarterly results are not necessarily indicative of expected annual
results because of the impact of fluctuations in prices received for oil
and natural gas and other factors. For a more complete understanding of
the Company's operations and financial position, reference is made to the
consolidated financial statements of the Company, and related notes
thereto, filed with the Company's annual report on Form 10-K for the year
ended December 31, 1994, previously filed with the Securities and Exchange
Commission.
(2) Long-term Debt
The components of long-term debt are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
---------- ------------
(In Thousands)
<S> <C> <C>
Convertible note payable (A) $ 9,900 --
Bank debt 37,600 33,000
Nonrecourse secured loan 57,161 57,840
Production payment obligation 17,285 18,534
11-1/4% Subordinated debentures 99,341 99,316
---------- ----------
221,287 208,690
Less current portion (1,031) (1,636)
---------- ----------
Long-term debt $ 220,256 207,054
---------- ----------
---------- ----------
<FN>
(A) Represents amounts due to The Anschutz Corporation at June 30, 1995.
This note was converted into 5,500,000 shares of the Company's common
stock on July 27, 1995, as described in Note 5.
</TABLE>
At June 30, 1995 the Company did not satisfy certain tests imposed by
covenants of its bank debt; compliance with these covenants was waived by
the banks through September 29, 1995. On August 11, 1995 the Company and
the banks executed an amendment to the Company's credit facility pursuant
to which the ratios required by the tests were amended. As a result of the
amendment, the Company currently anticipates that it can satisfy the tests
imposed by the covenants of the credit facility such that further waivers
will not be necessary. Accordingly, the $37,600,000 balance outstanding
under the Company's credit facility at June 30, 1995 is included as a
component of long-term debt on the accompanying balance sheet.
(3) Earnings (Loss) Per Share
Primary earnings (loss) per share is computed by dividing net earnings
(loss) attributable to common stock by the weighted average number of
common shares and common share equivalents outstanding during each period,
excluding treasury shares. Net earnings (loss) attributable to common
stock represents net earnings (loss) less preferred stock dividend
requirements. Common share equivalents include, when applicable, dilutive
stock options using the treasury stock method and warrants using the if
converted method.
-4-
<PAGE>
Fully diluted earnings (loss) per share assumes, in addition to the above,
(i) that convertible debentures were converted at the beginning of each
period or date of issuance, if later, with earnings being increased for
interest expense, net of taxes, that would not have been incurred had
conversion taken place, (ii) that convertible preferred stock was converted
at the beginning of each period or date of issuance, if later, and
(iii) any additional dilutive effect of stock options and warrants. The
assumed exercises and conversions were antidilutive for the six month
periods ended June 30, 1995 and 1994.
(4) Changes in Accounting for Oil and Gas Sales
The Company changed its method of accounting for oil and gas sales from the
sales method to the entitlements method effective January 1, 1994. Under
the sales method previously used by the Company, all proceeds from
production credited to the Company were recorded as revenue until such time
as the Company had produced its share of the related reserves. Under the
entitlements method, revenue is recorded based upon the Company's share of
volumes sold, regardless of whether the Company has taken its proportionate
share of volumes produced.
Under the entitlements method, the Company records a receivable or payable
to the extent it receives less or more than its proportionate share of the
related revenue. The Company believes that the entitlements method is
preferable because it allows for recognition of revenue based on the
Company's actual share of jointly owned production and provides a better
matching of revenue and related expenses.
The cumulative effect of the change for the periods through December 31,
1993 was a charge of $13,990,000 recorded in the first quarter of 1994. As
the Company adopted this change in the fourth quarter of 1994, previously
reported 1994 information has been restated to reflect the change effective
January 1, 1994.
(5) Anschutz and JEDI Transactions
During the second and third quarters of 1995, following receipt of
shareholder approval, the Company consummated transactions with The
Anschutz Corporation (Anschutz) and with Joint Energy Development
Investments Limited Partnership (JEDI), a Delaware limited partnership the
general partner of which is an affiliate of Enron Corp., in each case as
described below.
ANSCHUTZ TRANSACTION:
Pursuant to the Anschutz agreements, Anschutz purchased 18,800,000 shares
of the Company's common stock and shares of a new series of preferred stock
that are convertible into 6,200,000 additional shares of common stock for a
total consideration of $45,000,000, or $1.80 per share. The preferred
stock has liquidation preference and receives dividends ratably with the
common stock. In addition, Anschutz received warrants to purchase
19,444,444 shares of the Company's common stock for $2.10 per share. The
$2.10 warrants are exercisable during the first 18 months after the second
closing, subject to extension in certain circumstances to 36 months.
The Anschutz investment was made in two closings. In the first closing,
which occurred on May 19, 1995, Anschutz loaned the Company $9,900,000.
The loan carried interest at 8% per annum. The loan was nonrecourse to the
Company and was secured by oil and gas properties owned by the Company, the
preferred stock of Archean Energy Ltd. and a cash collateral account with
an initial balance of $2,000,000. At the second closing, which occurred on
July 27, 1995, the loan was converted into 5,500,000 shares of Forest's
common stock. Also at the second closing, Anschutz purchased an additional
13,300,000 shares of common stock, the convertible preferred stock and the
$2.10 warrants described above for $35,100,000. At the second closing,
Anschutz also received from JEDI an option to purchase from JEDI up to
11,250,000 shares of common stock that JEDI may acquire from the Company
upon exercise of the $2.00 warrants referred to below. This option will
terminate 36 months after the second closing, or earlier upon the
conveyance by the Company of certain property to JEDI in satisfaction of
the restructured JEDI loan, as described below.
-5-
<PAGE>
Pursuant to the Anschutz agreements, Anschutz agreed to certain voting,
acquisition, and transfer limitations regarding 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) the number
of persons associated with Anschutz that may at any time be elected as
directors of the Company is limited to three, and (c) a limit on the
acquisition of additional shares of common stock by Anschutz (whether
pursuant to the conversion of the new preferred stock, the exercise of the
$2.10 warrants or the option received from JEDI, 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. While the foregoing limitations are in
effect, Anschutz will be entitled to a minority representation on the board
of directors.
JEDI TRANSACTION:
At the second closing, Forest and JEDI restructured JEDI's existing loan
which had a principal balance on July 27, 1995 of approximately $62,368,000
before unamortized discount of $4,984,000. JEDI relinquished the net
profits interest that it held in certain Forest properties and reduced the
interest rate relating to the loan. In consideration, JEDI received
warrants to purchase 11,250,000 shares of the Company's common stock for
$2.00 per share. The $2.00 warrants 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). Also at the second closing, JEDI granted 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 both the 90 day and 15 day periods immediately
preceding the termination is in excess of $2.50 per share.
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 $45,493,000 and a reduction of
annual interest expense of approximately $2,000,000. Subject to certain
conditions, the Company may satisfy the restructured JEDI loan by conveying
to JEDI the properties securing the loan during a 30-day period 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 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 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.
As the Anschutz transaction was completed prior to the issuance of the
Company's June 30, 1995 financial statements, the $35,100,000 received at
the second closing has been recorded as an equity subscription receivable
at that date. In addition, the $9,900,000 loan from Anschutz was
reclassified from current to long-term liabilities on the Company's June
30, 1995 balance sheet to reflect the subsequent conversion of the loan to
common stock.
-6-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto.
RESULTS OF OPERATIONS FOR THE SECOND QUARTER OF 1995
NET LOSS
The net loss for the second quarter of 1995 was $4,815,000 or $.19 per
common share compared to a net loss of $265,000 or $.03 per common share in the
second quarter of 1994. The 1995 loss was due primarily to decreased oil and
natural gas volumes and lower natural gas prices.
REVENUE
The Company's oil and gas sales revenue decreased by 36% to $20,389,000 in
the second quarter of 1995 from $32,002,000 in the second quarter of 1994.
Production volumes for natural gas and oil in the second quarter of 1995
decreased 35% and 25%, respectively, from the comparable 1994 period due
primarily to normal, anticipated production declines as well as decreased well
performance in certain fields. The average sales price for natural gas in the
second quarter of 1995 was $1.77 per thousand cubic feet of natural gas (MCF), a
decrease of $.15 per MCF or 8% compared to the average sales price in the second
quarter of the previous year. The average sales price for oil in the second
quarter of 1995 of $16.63 per barrel represented an increase of $.45 per barrel
or 3% compared to the average sales price in the same period of 1994.
Miscellaneous net revenue decreased to $161,000 in the second quarter of
1995 from $975,000 in the comparable 1994 quarter. The 1994 amount includes
income from the sale of miscellaneous pipeline systems and equipment.
EXPENSES
Oil and gas production expense decreased slightly to $5,888,000 in the
second quarter of 1995 from $5,900,000 in the comparable period of 1994.
Although there were decreases in variable components of oil and gas production
expense as a result of lower production volumes, such decreases were largely
offset by an increase in workover expense. On an MCFE basis (MCFE means
thousands of cubic feet of natural gas equivalents, using a conversion ratio of
one barrel of oil to six MCF of natural gas), production expense increased 47%
in the second quarter of 1995 to $.56 per MCFE from $.38 per MCFE in the second
quarter of 1994. The increased cost per MCFE is directly attributable to fixed
components of oil and gas production expense being allocated over a smaller
production base.
General and administrative expense was $1,761,000 in the second quarter of
1995, a decrease of 30% from $2,502,000 in the comparable period of 1994. Total
overhead costs (capitalized and expensed general and administrative costs) of
$3,317,000 in the second quarter of 1995 decreased 19% from $4,092,000 in the
comparable period of 1994. The decreases were due primarily to a reduction in
the size of the Company's workforce effective March 1, 1995.
Interest expense of $6,627,000 in the second quarter of 1995 decreased 3%
from $6,828,000 in 1994 due primarily to lower effective interest rates related
to the nonrecourse secured loan and the dollar denominated production payment.
Depreciation and depletion expense decreased 38% to $11,089,000 in the
second quarter of 1995 from $17,928,000 in the second quarter of 1994 due to the
decrease in production, as well as a decrease in the depletion rate per unit of
production. The depletion rate decreased to $1.05 per MCFE in the second
quarter of 1995 from $1.10 per MCFE in the comparable 1994 period due to
writedowns of the Company's oil and gas properties taken in the third and fourth
quarters of 1994.
-7-
<PAGE>
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1995
NET LOSS
The net loss for the first six months of 1995 was $7,959,000 or $.32 per
common share compared to a net loss of $14,019,000 or $.54 per common share in
the first six months of 1994. The 1994 loss includes a charge of $13,990,000
relating to the change in the method of accounting for oil and gas sales from
the sales method to the entitlements method. See "Changes in Accounting."
Excluding the cumulative effect of the change in accounting principle, the
Company recorded a net loss of $29,000 for the first six months of 1994. The
1995 loss was primarily due to decreased oil and natural gas volumes and lower
natural gas prices.
REVENUE
The Company's oil and gas sales revenue decreased by 33% to $42,698,000 in
the first half of 1995 from $63,658,000 in the first half of 1994. Production
volumes for natural gas and oil in the first half of 1995 decreased 32% and 17%,
respectively, from the comparable 1994 period due primarily to normal,
anticipated production declines as well as decreased well performance in certain
fields. The average sales price for natural gas in the first half of 1995 was
$1.78 per thousand cubic feet of natural gas (MCF), a decrease of $.20 per MCF
or 10% compared to the average sales price in the first half of the previous
year. The average sales price for oil in the first half of 1995 of $16.18 per
barrel represented an increase of $2.21 per barrel or 16% compared to the
average sales price in the same period of 1994.
Production volumes and weighted average sales prices during the periods
were as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
----------------------------- ------------------------------
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Natural Gas
Production under long-term fixed price
contracts (MMCF) (1) 2,602 4,244 5,695 9,010
Average contract sales price (per MCF) (1) $ 1.72 1.81 1.76 1.79
Production sold on the spot market (MMCF) 6,038 8,962 12,242 17,465
Spot sales price received (per MCF) $ 1.64 1.96 1.58 2.11
Effects of energy swaps (per MCF) (2) .15 .01 .22 (.03)
---------- ---------- ---------- ----------
Average spot sales price (per MCF) $ 1.79 1.97 1.80 2.08
Total production (MMCF) 8,640 13,206 17,937 26,475
Average sales price (per MCF) $ 1.77 1.92 1.78 1.98
Oil and condensate (3)
Total production (MBBLs) 302 404 651 787
Average sales price (per BBL) $ 16.63 16.18 16.18 13.97
<FN>
(1) Production under long-term fixed price contracts includes scheduled
deliveries under volumetric production payments, net of royalties. See
"Volumetric Production Payments" below.
(2) Energy swaps were entered into to hedge the price of spot market volumes
against price fluctuation. Hedged volumes were 2,480 MMCF and 2,839 MMCF
for the three months ended June 30, 1995 and 1994, respectively, and 5,492
MMCF and 5,385 MMCF for the six months ended June 30, 1995 and 1994,
respectively.
(3) Oil and condensate production is sold primarily on the spot market. An
immaterial amount of production is covered by long-term fixed price
contracts, including scheduled deliveries under volumetric production
payments.
</TABLE>
Miscellaneous net revenue decreased to $213,000 in the first half of 1995
from $1,862,000 in the comparable 1994 period. The 1994 amount includes income
from the sale of miscellaneous pipeline systems and equipment and the reversal
of an accounts receivable reserve.
-8-
<PAGE>
EXPENSES
Oil and gas production expense decreased slightly to $11,197,000 in the
first half of 1995 from $11,228,000 in the comparable period of 1994. Although
there were decreases in variable components of oil and gas production expense as
a result of lower production volumes, such decreases were largely offset by an
increase in workover expense. On an MCFE basis, production expense increased
42% in the first half of 1995 to $.51 per MCFE from $.36 per MCFE in the first
half of 1994. The increased cost per MCFE is directly attributable to fixed
components of oil and gas production expense being allocated over a smaller
production base.
General and administrative expense was $3,861,000 in the first half of
1995, a decrease of 16% from $4,589,000 in the comparable period of 1994. Total
overhead costs (capitalized and expensed general and administrative costs) of
$7,060,000 in the first half of 1995 decreased 14% from $8,165,000 in the
comparable period of 1994. The Company's salaried workforce was 114 at June 30,
1995 and 139 at June 30, 1994. The decreases in total overhead costs and
personnel were due primarily to a reduction in the size of the Company's
workforce effective March 1, 1995.
The following table summarizes the total overhead costs incurred during the
periods:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ ------------------------------
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
---------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Overhead costs capitalized $ 1,556 1,590 3,199 3,576
General and administrative costs
expensed 1,761 2,502 3,861 4,589
---------- ---------- ---------- ----------
Total overhead costs $ 3,317 4,092 7,060 8,165
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
Interest expense of $12,421,000 in the first half of 1995 decreased 8% from
$13,475,000 in 1994 due primarily to lower effective interest rates related to
the nonrecourse secured loan and the dollar denominated production payment.
Depreciation and depletion expense decreased 35% to $23,398,000 in the
first half of 1995 from $36,173,000 in the first half of 1994 due to the
decrease in production, as well as a decrease in the depletion rate per unit of
production. The depletion rate decreased to $1.06 per MCFE in the first half of
1995 from $1.13 per MCFE in the comparable 1994 period due to writedowns of the
Company's oil and gas properties taken in the third and fourth quarters of 1994.
At June 30, 1995, the Company had undeveloped properties with a cost basis of
approximately $26,752,000 which were excluded from depletion, compared to
$41,824,000 at June 30, 1994. The decrease is attributable to exploration and
development work, as well as lease expirations and property sales.
The Company was not required to record a writedown of the carrying value of
its oil and gas properties in the first six months of 1995 or 1994. Writedowns
of the full cost pool may be required, however, if prices decrease, estimated
proved reserve volumes are revised downward or costs incurred in exploration,
development, or acquisition activities exceed the discounted future net cash
flows from the additional reserves, if any.
As of December 31, 1993, there were no remaining deferred tax liabilities.
No tax benefits for operating loss carryforwards have been recorded in the first
six months of 1995 or 1994.
-9-
<PAGE>
CHANGES IN ACCOUNTING
The Company changed its method of accounting for oil and gas sales from the
sales method to the entitlements method effective January 1, 1994. Under the
sales method previously used by the Company, all proceeds from production
credited to the Company were recorded as revenue until such time as the Company
had produced its share of related reserves. Under the entitlements method,
revenue is recorded based upon the Company's share of volumes sold, regardless
of whether the Company has taken its proportionate share of volumes produced.
Under the entitlements method, the Company records a receivable or payable
to the extent it receives less or more than its proportionate share of the
related revenue. The Company believes that the entitlements method is
preferable because it allows for recognition of revenue based on the Company's
actual share of jointly owned production and provides a better matching of
revenue and related expenses.
The cumulative effect of the change for the periods through December 31,
1993, was a charge of $13,990,000. The effect of this change on the second
quarter of 1994 was an increase in earnings from operations of $1,220,000 and an
increase in production volumes of 585,000 MCF of natural gas. The effect of
this change on the six months ended June 30, 1994 was an increase in earnings
from operations of $2,693,000 and an increase in production volumes of 1,218,000
MCF of natural gas. There were no related income tax effects in 1994. As the
Company adopted this change in the fourth quarter of 1994, previously reported
1994 information has been restated to reflect the change effective January 1,
1994.
LIQUIDITY AND CAPITAL RESOURCES
RECENT DEVELOPMENTS
During the second and third quarters of 1995, following receipt of
shareholder approval, the Company consummated transactions with The Anschutz
Corporation (Anschutz) and with Joint Energy Development Investments Limited
Partnership (JEDI), a Delaware limited partnership the general partner of which
is an affiliate of Enron Corp., in each case as described below.
ANSCHUTZ TRANSACTION:
Pursuant to the Anschutz agreements, Anschutz purchased 18,800,000 shares
of the Company's common stock and shares of a new series of preferred stock that
are convertible into 6,200,000 additional shares of common stock for a total
consideration of $45,000,000, or $1.80 per share. The preferred stock has
liquidation preference and receives dividends ratably with the common stock. In
addition, Anschutz received warrants to purchase 19,444,444 shares of the
Company's common stock for $2.10 per share. The $2.10 warrants are exercisable
during the first 18 months after the second closing, subject to extension in
certain circumstances to 36 months.
The Anschutz investment was made in two closings. In the first closing,
which occurred on May 19, 1995, Anschutz loaned the Company $9,900,000. The
loan carried interest at 8% per annum. The loan was nonrecourse to the Company
and was secured by oil and gas properties owned by the Company, the preferred
stock of Archean Energy Ltd. and a cash collateral account with an initial
balance of $2,000,000. At the second closing, which occurred on July 27, 1995,
the loan was converted into 5,500,000 shares of Forest's common stock. Also at
the second closing, Anschutz purchased an additional 13,300,000 shares of common
stock, the convertible preferred stock and the $2.10 warrants described above
for $35,100,000. At the second closing, Anschutz also received from JEDI an
option to purchase from JEDI up to 11,250,000 shares of common stock that JEDI
may acquire from the Company upon exercise of the $2.00 warrants referred to
below. This option will terminate 36 months after the second closing, or
earlier upon the conveyance by the Company of certain property to JEDI in
satisfaction of the restructured JEDI loan, as described below.
Pursuant to the Anschutz agreements, Anschutz agreed to certain voting,
acquisition, and transfer limitations regarding 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
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<PAGE>
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) the number of persons associated
with Anschutz that may at any time be elected as directors of the Company is
limited to three, and (c) a limit on the acquisition of additional shares of
common stock by Anschutz (whether pursuant to the conversion of the new
preferred stock, the exercise of the $2.10 warrants or the option received from
JEDI, 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. While the foregoing
limitations are in effect, Anschutz will be entitled to a minority
representation on the board of directors.
JEDI TRANSACTION:
At the second closing, Forest and JEDI restructured JEDI's existing loan
which had a principal balance on July 27, 1995 of approximately $62,368,000
before unamortized discount of $4,984,000. JEDI relinquished the net profits
interest that it held in certain Forest properties and reduced the interest rate
relating to the loan. In consideration, JEDI received warrants to purchase
11,250,000 shares of the Company's common stock for $2.00 per share. The $2.00
warrants 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). Also at the second closing, JEDI granted 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 both the 90 day and 15 day periods immediately preceding the termination is
in excess of $2.50 per share.
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 $45,493,000 and a reduction of annual
interest expense of approximately $2,000,000. Subject to certain conditions,
the Company may satisfy the restructured JEDI loan by conveying to JEDI the
properties securing the loan during a 30-day period 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 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 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 Company's short-term and long-term liquidity have been significantly
improved by the conclusion of the transactions described above.
SHORT-TERM LIQUIDITY
During 1994 and the first six months 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. The prices the Company receives for its
future oil and natural gas production will significantly impact future operating
cash flows. No prediction can be made as to the prices the Company will receive
for its future oil and gas production.
The Company has a secured credit facility (the Credit Facility) with The
Chase Manhattan Bank, NA. (Chase) as agent for a group of banks. Under the
Credit Facility, the Company may borrow up to $17,500,000 for acquisition or
development of proved oil and gas reserves and up to $32,500,000 for working
capital and general corporate purposes, subject to semi-annual redetermination
at the banks'
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<PAGE>
discretion. The total borrowing capacity of the Company under the Credit
Facility is $50,000,000. The amount of the maximum borrowings under the Credit
Facility is at the discretion of the banks and is subject to change at any time.
The Credit Facility is secured by a lien on, and a security interest in, a
majority of the Company's proved oil and gas properties and related assets
(subject to prior security interests granted to holders of volumetric production
payment agreements), a pledge of accounts receivable, material contracts and the
stock of material subsidiaries, and a negative pledge on remaining assets. The
maturity date of the Credit Facility is December 31, 1996. Under the terms of
the Credit Facility, the Company is subject to certain covenants and financial
tests (which may from time to time restrict the Company's activities), including
restrictions or requirements with respect to working capital, net cash flow,
additional debt, asset sales, mergers, cash dividends on capital stock and
reporting responsibilities. At June 30, 1995 the outstanding balance under this
facility was $37,600,000. The Company has used the facility for a $1,500,000
letter of credit, leaving an available borrowing capacity of $10,900,000. At
June 30, 1995 the Company did not satisfy certain tests imposed by covenants of
its bank debt; compliance with these covenants was waived by the banks through
September 29, 1995. On August 11, 1995 the Company and the banks executed an
amendment to the Company's credit facility pursuant to which the ratios required
by the tests were amended. As a result of the amendment, the Company currently
anticipates that it can satisfy the tests imposed by the covenants of the credit
facility such that further waivers will not be necessary. Accordingly, the
$37,600,000 balance outstanding under the Company's credit facility at June 30,
1995 is included as a component of long-term debt on the accompanying balance
sheet. As of August 11, 1995 the outstanding balance under this facility was
$3,300,000 following the application of the proceeds received from the Anschutz
transaction.
Since December 31, 1994, the Company has taken steps and committed to
certain actions to address its short-term liquidity needs, including the
Anschutz and JEDI transactions described above. In addition to the Anschutz and
JEDI transactions, the Company has taken or committed to other key short-term
actions as set forth below.
The Company has reduced its budgeted general and administrative
expenditures for 1995 principally through a workforce reduction effective March
1, 1995. As a result, total overhead for 1995 is expected to decrease by
approximately $4,000,000 compared to 1994 or by approximately 20%.
In response to current market conditions, the Company reduced its budgeted
capital expenditures during the first six months of 1995 to those required to
maintain its producing oil and gas properties as well as certain essential
development, drilling and other activities. Due to the Anschutz investment,
however, the Company's capital expenditure budget has been increased for the
second half of the year. The Company's 1995 budgeted expenditures for
exploration and development for the remainder of 1995 are approximately
$2,691,000 and $14,212,000, respectively, including capitalized overhead of
$255,000 and $2,944,000, respectively. The planned levels of capital
expenditures could be reduced if the Company experiences lower than anticipated
net cash provided by operations or other liquidity needs or could be increased
if the Company experiences increased cash flow.
On April 13, 1995 Forest sold to a bank a participation interest in
Forest's claim evidenced by that certain proof of claim dated March 16, 1992
filed by Forest on March 17, 1992 against Columbia Gas Transmission Corp.
(Transmission), a subsidiary of Columbia Gas System (CGS). The Company had two
natural gas sales contracts with Transmission. On July 31, 1991, CGS and
Transmission filed Chapter 11 bankruptcy petitions with the United States
Bankruptcy Court for the District of Delaware. Consideration received from the
bank consisted of a $4,000,000 nonrecourse loan, in exchange for which the bank
will receive, solely from the proceeds of the bankruptcy claim, an amount equal
to the loan principal plus accrued interest at 16.5% per annum plus 25% of the
excess, if any, of the proceeds over the loan principal and interest. The
Company may, under certain conditions, limit the overall cost of financing to
23.5% per annum by exercising its option to repurchase the bank's interest in
the bankruptcy claim prior to receipt of any proceeds of the claim. Proceeds
from this financing transaction were used for working capital needs. The
Company currently intends to repay this loan in the fourth quarter of 1995.
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<PAGE>
Based on the Company's actions taken to date and its plans, including the
recent developments described above, management believes the Company will have
adequate sources of short-term liquidity to meet its working capital needs, fund
capital expenditures at the levels described above, and meet its current debt
service obligations.
CASH FLOW
Historically, one of the Company's primary sources of capital has been
funds provided by operations, which has varied dramatically in prior periods,
depending upon factors such as natural gas contract settlements and price
fluctuations which are difficult to predict.
The following summary table reflects comparative cash flows for the Company
for the periods ended June 30, 1995 and 1994:
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------
June 30, June 30,
1995 1994
---------- ----------
(In Thousands)
<S> <C> <C>
Funds provided by operations (A) $ 16,631 37,872
Net cash provided (used) by operating activities (3,573) 13,061
Net cash used by investing activities (8,570) (6,264)
Net cash provided (used) by financing activities 12,583 (10,245)
<FN>
(A) Funds provided by operations consists of net cash provided (used) by
operating activities exclusive of adjustments for working capital
items, proceeds from volumetric production payments and amortization
of deferred revenue. This information is being presented in accordance
with industry practice and is not intended to be a substitute for cash
provided by operating activities, a measure of performance prepared
in accordance with generally accepted accounting principles, and should
not be relied upon as such.
</TABLE>
As discussed previously under "Results of Operations," the Company's
production volumes decreased significantly in the first half of 1995 compared to
the prior year. Lower production volumes coupled with decreased prices for
natural gas resulted in a 56% decrease in funds provided by operations to
$16,631,000 in the first half of 1995 from $37,872,000 in the first half of
1994. The Company experienced a net use of cash for operating activities of
$3,573,000 in the first half of 1995 compared to $13,061,000 of net cash
provided by operating activities in the corresponding prior year period; this
decrease is attributable to lower production volumes and decreased prices
discussed above. The Company used $8,570,000 for investing activities in the
1995 period compared to $6,264,000 in the prior year period due to higher direct
expenditures and lower proceeds from property sales. The increase in cash due
to financing activities of $12,583,000 in the 1995 period was the result of
drawdowns on the Company's Credit Facility to fund operating and investing
activities, the proceeds from the sale of the participation interest in the
bankruptcy claim, and the proceeds from the short-term convertible note payable
to Anschutz. In the first half of 1994, the Company had a net use of cash for
financing activities of $10,245,000.
LONG-TERM LIQUIDITY
The Company has historically addressed its long-term liquidity needs
through the use of nonrecourse production-based financing and through issuance
of debt and common stock when market conditions permit.
On December 30, 1993, the Company entered into a nonrecourse secured loan
agreement with JEDI (the JEDI loan). The terms of the JEDI loan have been
restructured based on the terms of certain agreements described in "Recent
Developments." For a further discussion of the JEDI loan, see "Nonrecourse
Secured Loan and Dollar-Denominated Production Payment" below. This financing
provided acquisition capital, and capital to execute Forest's exploitation
strategy.
Many of the factors which may affect the Company's future operating
performance and long-term liquidity are beyond the Company's control, including,
but not limited to, oil and natural gas prices, governmental actions and taxes,
the availability and attractiveness of properties for acquisition, the adequacy
and attractiveness of financing and operational results. The Company continues
to examine
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<PAGE>
alternative sources of long-term liquidity, including public and private
issuances of equity, refinancing debt with equity and sales of non-strategic
assets.
VOLUMETRIC PRODUCTION PAYMENTS
As of June 30, 1995, deferred revenue relating to production payments was
$23,578,000 and the annual amortization of deferred revenue and the
corresponding delivery and net sales volumes were as set forth below:
<TABLE>
<CAPTION>
Net sales volumes
Volumes required to be attributable to production
delivered to Enron payment deliveries (1)
---------------------- --------------------------
Natural Natural
Annual amortization Oil Gas Oil Gas
of deferred revenue (MBBLS) (MMCF) (MBBLS) (MMCF)
-------------------- ------ ------ ----- -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Remainder of 1995 $ 8,441 83 4,357 69 3,622
1996 7,546 87 3,721 73 3,093
1997 2,439 -- 1,410 -- 1,172
1998 1,592 -- 892 -- 741
Thereafter 3,560 -- 1,994 -- 1,658
---------- ---------- ---------- ----------- ----------
$ 23,578 170 12,374 142 10,286
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------
<FN>
(1) Represents volumes required to be delivered to Enron net of estimated
royalty volumes.
</TABLE>
NONRECOURSE SECURED LOAN AND DOLLAR-DENOMINATED PRODUCTION PAYMENT
Under the terms of the JEDI loan and the dollar-denominated production
payment, the Company is required to make payments based on the net proceeds, as
defined, from certain subject properties. The terms of the JEDI loan have been
restructured based on the terms of certain agreements described in "Recent
Developments."
The JEDI loan was initially recorded at a discounted amount to reflect the
conveyance to the lender of a 20% interest in the net profits, as defined, of
properties located in south Texas. Before restructuring, the JEDI loan bore
annual interest at the rate of 12.5%. At June 30, 1995, the principal amount of
the loan was $61,772,000 and the recorded liability was $57,161,000. Under the
terms of the JEDI loan, additional funds may be advanced to fund a portion of
the development projects which will be undertaken by the Company on the
properties pledged as security for the loan. Payments of principal and interest
under the JEDI loan are due monthly and are equal to 90% of total net operating
income from the secured properties, reduced by 80% of allowable capital
expenditures, as defined.
Pursuant to the restructuring of the JEDI loan described above in "Recent
Developments," the net profits interest has been eliminated and the required
interest payments reduced. Under the restructured loan, the Company is required
to pay interest at 12.5% per annum on $40,000,000 of the loan balance. All
principal payments will be applied to reduce this balance, as will the proceeds,
if any, from the exercise of the $2.10 warrants. The remaining loan balance,
which was $22,368,000 as of the restructuring date, is non-interest bearing and
will be reduced by principal payments made after full repayment of the
$40,000,000 balance as well as by the proceeds, if any, from the exercise of the
$2.00 warrants. The recorded amount of the liability was $45,493,000 as of the
date of the restructuring. The Company's current estimate under the
restructured agreement, based on expected production and prices, budgeted
capital expenditure levels and expected discount amortization, is that the
recorded liability will increase by approximately $1,332,000 during the
remainder of 1995. The increase in the liability is due to projected cash flows
that do not cover projected interest requirements as a result of declining
production on the existing wells. New drilling and recompletions should reverse
this trend in the beginning of 1996.
The dollar-denominated production payment was entered into in 1992 to
finance property acquisitions. The original amount of the dollar-denominated
production payment was $37,550,000, which was recorded as a liability of
$28,805,000 after a discount to reflect a market rate of interest. At June 30,
1995 the remaining principal amount was $21,782,000 and the recorded liability
was $17,285,000. Under
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<PAGE>
the terms of this production payment, the Company must make a monthly cash
payment which is the greater of a base amount or 85% of the net proceeds from
the subject properties, as defined, except that the amount required to be paid
in any given month shall not exceed 100% of the net proceeds from the subject
properties. Forest retains a management fee equal to 10% of sales from the
properties, which is deducted in the calculation of net proceeds. The Company's
current estimate, based on expected production and prices, budgeted capital
expenditure levels and expected discount amortization, is that the remaining
1995 payments will reduce the recorded liability by approximately $641,000.
HEDGING PROGRAM
In addition to the volumes of natural gas and oil dedicated to volumetric
production payments, the Company has also used energy swaps and other financial
agreements to hedge against the effects of fluctuations in the sales prices for
oil and natural gas. In a typical swap agreement, the Company receives the
difference between a fixed price per unit of production and a price based on an
agreed upon third-party index if the index price is lower. If the index price
is higher, the Company pays the difference. The Company's current swaps are
settled on a monthly basis. At June 30, 1995, the Company had natural gas swaps
and collars for an aggregate of approximately 23.2 BBTU (billion British Thermal
Units) per day of natural gas during the remainder of 1995 at fixed prices and
floors (NYMEX basis) ranging from $1.90 to $2.41 per MMBTU (million British
Thermal Units) and an aggregate of approximately 16.7 BBTU per day of natural
gas during 1996 at fixed prices and floors ranging from $2.00 to $2.48 per
MMBTU. At June 30, 1995, the Company had oil swaps for an aggregate of
approximately 1,400 barrels per day of oil during the remainder of 1995 at fixed
prices ranging from $16.70 to $18.90 (NYMEX basis) and an aggregate of
approximately 600 barrels per day of oil during 1996 at fixed prices ranging
from $16.70 to $17.75 per barrel.
SUMMARY OF CASH FLOW CONSIDERATIONS AND EXPOSURE TO PRICE AND RESERVE RISK
Pursuant to certain of the Company's financing arrangements, significant
amounts of production are contractually dedicated to production payments and the
repayment of nonrecourse debt over the next five years (dedicated volumes). The
dedicated volumes decrease over the next five years and also decrease as a
percentage of the Company's total production during this period. The production
volumes not contractually dedicated to repayment of nonrecourse debt
(undedicated volumes) are relatively stable but increase as a percentage of the
Company's total production over the next five years. This relative stability of
undedicated volumes is due to the fact that the decrease in dedicated volumes
corresponds generally to the Company's estimates of the decrease in its total
production. In the Company's opinion, the relative stability of undedicated
volumes should provide a more constant level of cash flow available for
corporate purposes other than debt repayment.
As a result of volumetric production payments, energy swaps, and fixed
contracts, the Company currently estimates that approximately 55% of its natural
gas production and 59% of its oil production will not be subject to price
fluctuations from July 1995 through December 1995. It is estimated that
existing volumetric production payments, energy swaps, fixed contracts and other
hedging instruments currently cover approximately 46% of the Company's natural
gas production and 23% of its oil production for the year ending December 31,
1996. Currently, it is the Company's intention to commit no more than 75% of
its anticipated total production and no more than 85% of its anticipated
undedicated production to such arrangements at any point in time. See "Hedging
Program" above.
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<PAGE>
CAPITAL EXPENDITURES
The Company's expenditures for property acquisition, exploration and
development for the first six months of 1995 and 1994, including overhead
related to these activities which was capitalized, were as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------
1995 1994
--------- ---------
(In Thousands)
<S> <C> <C>
Property acquisition costs:
Proved properties $ 84 6,603
Undeveloped properties -- --
--------- ---------
84 6,603
Exploration costs:
Direct costs 3,089 881
Overhead capitalized 255 359
--------- ---------
3,344 1,240
Development costs:
Direct costs 3,550 4,960
Overhead capitalized 2,944 3,217
--------- ---------
6,494 8,177
--------- ---------
$ 9,922 16,020
--------- ---------
--------- ---------
</TABLE>
In response to current market conditions, the Company reduced its budgeted
capital expenditures for the first six months of 1995 to those required to
maintain its producing oil and gas properties as well as certain essential
development, drilling and other activities. Due to the liquidity provided by
the Anschutz investment, however, the Company's capital expenditure budget has
been increased for the second half of the year. The Company's 1995 budgeted
expenditures for exploration and development for the remainder of 1995 are
approximately $2,691,000 and $14,212,000, respectively, including capitalized
overhead of $255,000 and $2,944,000, respectively. The planned levels of
capital expenditures could be further reduced if the Company experiences lower
than anticipated net cash provided by operations or other liquidity needs or
could be increased if the Company experiences increased cash flow.
During 1995, the Company intends to continue its strategy of acquiring
reserves that meet its investment criteria; however, no assurance can be given
that the Company can locate or finance any property acquisitions. In order to
finance future acquisitions, the Company is exploring many options including,
but not limited to: a variety of debt instruments; sale of production payments
or other nonrecourse financing; the sale of equity; the issuance of net profits
interests; sales of non-strategic properties, prospects and technical
information; or joint venture financing. Availability of these sources of
capital and, therefore, the Company's ability to execute its operating strategy
will depend upon a number of factors, some of which are beyond the control of
the Company. If adequate sources of liquidity are not available to the Company
in 1995, the amount invested in exploration, development and reserve
acquisitions may be reduced due principally to the desire of the Company to
protect its capital in the event of inadequate liquidity.
DIVIDENDS
On February 1, 1995, a cash dividend of $.1875 on its $.75 Convertible
Preferred Stock was paid to holders of record on January 10, 1995. On May 1,
1995 a stock dividend of 0.094693 shares of Common Stock was paid on each share
of its outstanding $.75 Convertible Preferred Stock to holders of record on
April 10, 1995. On August 1, 1995 a stock dividend of 0.112045 shares of Common
Stock was paid on each share of its outstanding $.75 Convertible Preferred Stock
to holders of record on July 10, 1995. As of June 30, 1995 the Company was
prohibited from paying cash dividends on its $.75 Convertible Preferred Stock
due to restrictions contained in the Credit Agreement with its lending banks.
The Indenture executed in connection with the 11 1/4% Senior Subordinated Notes
due 2003 and the Credit Facility contain restrictive provisions governing
dividend payments.
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<PAGE>
GAS BALANCING
It is customary in the industry for various working interest partners to
produce more or less than their entitlement share of natural gas from time to
time. The Company's net overproduced position decreased in the first six months
of 1995 to approximately 8.3 BCF from approximately 8.4 BCF at December 31,
1994. At June 30, 1995 the undiscounted value of this imbalance is
approximately $12,889,000, of which $5,000,000 is reflected on the balance sheet
as a short-term liability and the remaining $7,889,000 is reflected on the
balance sheet as a long-term liability. In the absence of a gas balancing
agreement, the Company is unable to determine when its partners may choose to
make up their share of production. If and when the Company's partners do make
up their share of production, the Company's deliverable natural gas volumes
could decrease, adversely affecting cash flow.
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<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3(i) Restated Certificate of Incorporation of Forest Oil Corporation
dated October 14, 1993, incorporated herein by reference to Exhibit 3(i) to Form
10-Q for Forest Oil Corporation for the quarter ended September 30, 1993 (File
No. 0-4597).
*Exhibit 3(i)(a) Certificate of Amendment of the Restated Certificate of
Incorporation dated as of July 20, 1995.
*Exhibit 3(i)(b) Certificate of Amendment of the Certificate of Incorporation
dated as of July 26, 1995.
Exhibit 3(ii) Restated By-Laws of Forest Oil Corporation as of May 9, 1990,
Amendment No. 1 to By-Laws dated as of April 2, 1991, Amendment No. 2 to By-Laws
dated as of May 8, 1991, Amendment No. 3 to By-Laws dated as of July 30, 1991,
Amendment No. 4 to By-Laws dated as of January 17, 1992, Amendment No. 5 to By-
Laws dated as of March 18, 1993 and Amendment No. 6 to By-Laws dated as of
September 14, 1993, incorporated herein by reference to Exhibit 3(ii) to Form
10-Q for Forest Oil Corporation for the quarter ended September 30, 1993 (File
No. 0-4597).
Exhibit 3(ii)(a) Amendment No. 7 to By-Laws dated as of December 3, 1993,
incorporated herein by reference to Exhibit 3(ii)(a) to Form 10-K for Forest Oil
Corporation for the year ended December 31, 1993 (File No. 0-4597).
Exhibit 3(ii)(b) Amendment No. 8 to By-Laws dated as of February 24, 1994,
incorporated herein by reference to Exhibit 3(ii)(b) to Form 10-K for Forest Oil
Corporation for the year ended December 31, 1993 (File No. 0-4597).
*Exhibit 3(ii)(c) Amendment No. 9 to By-Laws dated as of May 15, 1995.
*Exhibit 3(ii)(d) Amendment No. 10 to By-Laws dated as of July 27, 1995.
*Exhibit 4.1 Amendment No. 5 dated as of May 15, 1995 to the Credit Agreement
dated as of December 1, 1993 between Forest Oil Corporation and The Chase
Manhattan Bank (National Association), as agent.
Exhibit 10.1 Description of Employee Overriding Royalty Bonuses, incorporated
herein by reference to Exhibit 10.1 to Form 10-K for Forest Oil Corporation for
the year ended December 31, 1990 (File No. 0-4597).
Exhibit 10.2 Description of Executive Life Insurance Plan, incorporated herein
by reference to Exhibit 10.2 to Form 10-K for Forest Oil Corporation for the
year ended December 31, 1991 (File No. 0-4597).
Exhibit 10.3 Form of non-qualified Executive Deferred Compensation Plan (File
No. 0-4597), incorporated herein by reference to Exhibit 10.3 to Form 10-Q for
Forest Oil Corporation for the quarter ended June 30, 1994 (File No. 0-4597).
Exhibit 10.4 Form of non-qualified Supplemental Executive Retirement Plan,
incorporated herein by reference to Exhibit 10.4 to Form 10-K for Forest Oil
Corporation for the year ended December 31, 1990 (File No. 0-4597).
Exhibit 10.5 Form of Executive Retirement Agreement, incorporated herein by
reference to Exhibit 10.5 to Form 10-K for Forest Oil Corporation for the year
ended December 31, 1990 (File No. 0-4597).
-18-
<PAGE>
Exhibit 10.6 Forest Oil Corporation 1992 Stock Option Plan and Option
Agreement, incorporated herein by reference to Exhibit 10.7 to Form 10-K for
Forest Oil Corporation for the year ended December 31, 1991 (File No. 0-4597).
Exhibit 10.7 Letter Agreement with Richard B. Dorn relating to a revision to
Exhibit 10.5 hereof, incorporated herein by reference to Exhibit 10.11 to Form
10-K for Forest Oil Corporation for the year ended December 31, 1991 (File No.
0-4597).
Exhibit 10.8 Forest Oil Corporation Annual Incentive Plan effective as of
January 1, 1992, incorporated herein by reference to Exhibit 10.8 to Form 10-K
for Forest Oil Corporation for the year ended December 31, 1992 (File No. 0-
4597).
Exhibit 10.9 Form of Executive Severance Agreement, incorporated herein by
reference to Exhibit 10.9 to Form 10-K for Forest Oil Corporation for the year
ended December 31, 1993 (File No. 0-4597).
Exhibit 10.10 Form of Settlement Agreement and General Release between John F.
Dorn and Forest Oil Corporation dated March 7, 1994, incorporated herein by
reference to Exhibit 10.10 to Form 10-K for Forest Oil Corporation for the year
ended December 31, 1993 (File No. 0-4597).
*Exhibit 11 Forest Oil Corporation and Subsidiaries - Calculation of Earnings
per Share of Common Stock.
*Exhibit 27 Financial Data Schedule.
* Filed with this report.
(b) Reports on Form 8-K
The following report on Form 8-K was filed by the Company during the second
quarter of 1995:
Date of Report Item Reported Financial Statements Filed
------------- ------------- --------------------------
May 17, 1995 Item 5 None
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FOREST OIL CORPORATION
(Registrant)
Date: August 14, 1995 /s/ Daniel L. McNamara
--------------------------------------
Daniel L. McNamara
Corporate Counsel and Secretary
(Signed on behalf of the
registrant)
/s/ David H. Keyte
--------------------------------------
David H. Keyte
Vice President and Chief
Accounting Officer
(Principal Accounting Officer)
<PAGE>
Exhibit 3(i)(a)
CERTIFICATE OF AMENDMENT OF THE RESTATED CERTIFICATE
OF INCORPORATION OF FOREST OIL CORPORATION
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
The undersigned, being the President and the Secretary of Forest Oil
Corporation, do hereby certify and set forth:
1. The name of the Corporation is Forest Oil Corporation.
2. The Certificate of Incorporation of said Corporation was filed by
the Department of State on the 13th day of March, 1924, and restated
Certificates of Incorporation were filed by the Department of State on the
12th day of May, 1978, the 19th day of May, 1992, and the 21st day of October
1993.
3. The Certificate of Incorporation is hereby amended by the addition of
a new subparagraph F to Paragraph 3.II containing the following provisions
fixing the number, designation, relative rights, preferences, and limitations
of the Second Series Convertible Preferred Stock, par value $.01 per share, as
fixed by the Board pursuant to authority vested in it by the Certificate of
Incorporation:
F. Second Series Convertible Preferred Stock. The Corporation shall
have authority to issue up to 620,000 shares of Senior Preferred Stock to
be designated as "the Second Series Convertible Preferred Stock," which
series shall have the following designations, relative rights, preferences
and limitations, in addition to those set forth in Paragraph 3 of the
Certificate of Incorporation of the Corporation (the shares of the Second
Series Senior Convertible Preferred Stock being hereinafter called the
"Second Series"):
(1) Dividends. As and when dividends are declared or paid on
the Common Stock, whether in cash, property or securities of the
Corporation (other than Common Stock or a right or Warrant referred to in
Section 5(b) or (c) below), the holders of the
<PAGE>
Second Series will be entitled to share in such dividends in an amount
equal to ten times the amount of the dividend declared or paid on a share
of Common Stock for each share of the Second Series. The rights of the
holders to receive dividends in the Second Series are junior and
subordinate to the rights of the holders of $.75 Convertible Preferred
Stock to receive dividends to the same extent that the rights of the
holders of Common Stock are subordinate in right to receive dividends to
the rights of the holders of $.75 Convertible Preferred Stock to receive
dividends.
(2) Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the holders of shares of the Second Series shall
be entitled, before any distribution is made to any Common Stock or other
junior stock, to be paid the sum of $18.00 per share plus an amount equal
to any declared but unpaid dividends. The Second Series shall rank pari
passu with the $.75 Convertible Preferred Stock of the Corporation with
respect to distribution of assets upon any liquidation, dissolution or
winding up of the Corporation. In case the net assets of the Corporation
are insufficient to pay the holders of all outstanding shares of the Second
Series and any outstanding shares of parity stock the amount to which they
are respectively entitled, then the entire net assets of the Corporation
shall be distributed ratably among the holders of all outstanding shares of
the Second Series and any outstanding shares of parity stock in proportion
to the respective amounts that would be payable per share if such assets
were sufficient to permit payment of the amount to which they were entitled
in full. Following the completion of the distribution of the stated
liquidation preference to be paid to the holders of the Second Series and
any outstanding shares of parity stock, the holders of the Second Series
shall, after there shall have been paid $1.80 (as such amount per share may
be adjusted pursuant to Section 5(g), the "Common Share Equalizer Amount")
in respect of each share of Common Stock, rank on a parity with the holders
of the Common Stock with respect to distributions on liquidation,
dissolution or winding up the Corporation and shall be entitled to receive
with respect to each share of the Second Series ten times the amount
received by each share of Common Stock of any and all assets remaining to
be paid or distributed.
Neither the merger or consolidation of the Corporation into or
with another corporation nor the merger of any other corporation into the
Corporation shall be
<PAGE>
deemed to be a liquidation, dissolution or winding up of the Corporation
within the meaning of this provision, but the sale, lease or conveyance of
all or substantially all of the Corporation's assets will be deemed a
liquidation, dissolution or winding up of the Corporation within the
meaning of this provision.
(1) Voting Rights. Except as otherwise provided by law, the
holders of the Second Series shall not be entitled to vote on any matter.
(2) Amendment of Certificate of Incorporation. So long as any
shares of the Second Series are outstanding, the Corporation shall not
amend, alter or repeal any of the provisions of the Certificate of
Incorporation (which term includes each and all amendments for the purpose
of creating other series of Preferred Stock) so as to affect adversely the
rights, powers or preferences of the shares of the Second Series or of the
holders thereof, without the consent of the holders of at least a majority
of the total number of outstanding shares of the Second Series, given in
person, by proxy or by vote at a meeting called for that purpose. An
amendment which increases the number of authorized shares of Preferred
Stock, or which creates another series of Preferred Stock, or which
authorizes the issuance of additional shares of the Second Series, in each
case ranking pari passu with the Second Series as to dividends and the
distribution of assets, or the issuance of such shares shall not require
the approval of the holders of the Second Series. However, in the
application of these provisions, any amendment which would authorize or
create any shares of stock ranking prior to the Second Series as to
dividends or as to distribution of assets upon liquidation, dissolution or
winding up of the Corporation shall be considered as affecting adversely
the rights of all outstanding shares of the Second Series.
(3) Conversion. The shares of the Second Series shall be
convertible, (x) at the option of the holders thereof (an "Optional
Conversion"), at any time before the fifth anniversary of the first
issuance of the Second Series (the "Conversion Date") at the offices of
such duly appointed transfer agent for the shares of the Second Series, and
(y) automatically, without further action by the holder of the shares of
the Second Series as otherwise required by the next paragraph of this
Section 5, on the Conversion Date (the "Mandatory Conversion"), in each
case into fully paid and nonassessable shares (calculated to the nearest
1/1,000 of a share) of Common Stock of the Corporation,
<PAGE>
at the rate of ten shares of Common Stock for each share of the Second
Series. The rate at which shares of Common Stock shall be deliverable in
exchange for shares of the Second Series upon conversion thereof is
hereinafter referred to as the "Conversion Rate" for shares of the Second
Series. The Conversion Rate shall be subject to further adjustment from
time to time in certain instances as hereinafter provided. In no event,
however, shall the Conversion Rate be adjusted such that Common Stock would
be issued at a Conversion Rate such that for the liquidation preference,
plus accumulated and unpaid dividends, of a converted share of the Second
Series would be less than $.10 per share of Common Stock (the par value
thereof). Upon conversion, the Corporation shall make no payment or
adjustment on account of dividends accrued but unpaid on the shares of the
Second Series surrendered for conversion; however a holder of shares of the
Second Series who converts such shares after the record date for a dividend
and on or before the dividend payment date will receive the dividend
payable on such shares of the Second Series on such dividend payment date.
As used herein, the term "business day" shall mean any Monday, Tuesday,
Wednesday, Thursday or Friday on which banks in The City of New York are
not authorized to close.
Before any holder of shares of the Second Series shall be entitled to
convert the same into Common Stock in connection with an Optional
Conversion, such holder shall surrender the certificate or certificates for
such shares of the Second Series at the office of the transfer agent which
certificate or certificates, if the Corporation shall so request, shall be
duly endorsed to the Corporation or in blank, and shall give written notice
to the Corporation at said office that such holder elects so to convert
said shares of the Second Series and shall state in writing therein the
name or names and respective amounts in which such holder wishes the
certificate or certificates for Common Stock to be issued.
As of and after the Conversion Date, the shares of the Second Series
shall be deemed to have been converted into shares of Common Stock as
provided herein on the transfer books of the Common Stock of the
Corporation.
The Corporation will, as soon as practicable after (x) the surrender
of certificates for shares of the Second Series in connection with an
Optional Conversion, accompanied by the written notice and the statement
above
<PAGE>
prescribed, and (y) the surrender of certificates for shares of the Second
Series after the Conversion Date, issue and deliver at the office of the
transfer agent, to the person for whose account such shares were so
surrendered, or to his nominee or nominees, certificates for the number of
full shares of Common Stock to which he shall be entitled as aforesaid,
together with a cash adjustment for any fraction of a share as hereinafter
stated, if not evenly convertible. Subject to the following provisions of
this paragraph with respect to an Optional Conversion, such conversion
shall be deemed to have been made as of the date of such surrender of the
shares of the Second Series to be converted; and the person or persons
entitled to receive the Common Stock issuable upon an Optional Conversion
of such shares of the Second Series shall be treated for all purposes as
the record holder or holders of such Common Stock on such date. The
Corporation shall not be required to convert, and no surrender of shares of
the Second Series shall be effective for that purpose with respect to an
Optional Conversion, while the stock transfer books of the Corporation are
closed for any purpose; but the surrender of shares of the Second Series
for conversion with respect to an Optional Conversion, during any period
while such books are closed shall become effective for conversion
immediately upon the reopening of such books, as if the conversion had been
made on the date such shares were surrendered, and at the Conversion Rate
in effect at the date of such surrender.
The Conversion Rate for shares of the Second Series and the Common
Share Equalizer Amount shall be subject to further adjustment from time to
time as follows:
(a) If the Corporation shall at any time pay a dividend on
its Common Stock (including, if applicable, shares of such stock held
by the Corporation in treasury) in shares of its Common Stock,
subdivide its outstanding shares of Common Stock into a larger number
of shares or combine its outstanding shares of Common Stock into a
smaller number of shares, the Conversion Rate in effect immediately
prior thereto shall be adjusted so that each share of the Second
Series shall thereafter be convertible into the number of shares of
Common Stock which the holder of a share of the Second Series would
have been entitled to receive after the happening of any of the events
described above had such share been converted immediately prior to the
happening of such event. An adjustment made pursuant to this paragraph
(a) shall become effective retroactively to the record
<PAGE>
date in the case of a dividend and shall become effective on the
effective date in the case of a subdivision or combination.
(b) If the Corporation shall issue rights or warrants to
all holders of shares of Common Stock for the purpose of entitling
them (for a period not exceeding forty-five (45) days from the date of
issuance) to subscribe for or purchase shares of Common Stock at a
price per share (taking into account any consideration received by the
Corporation for such rights or warrants the value of such
consideration, if other than cash, to be determined in good faith by
the Board of Directors) less than the average market price per share
(determined as provided below) of the Common Stock on the declaration
date for such issuance, then in each such case the number of shares of
Common Stock into which each share of the Second Series shall after
such record date be convertible shall be determined by multiplying the
number of shares of Common Stock into which each share of the Second
Series was convertible on the date immediately preceding such
declaration date by a fraction the numerator of which shall be the sum
of the number of shares of Common Stock outstanding on such
declaration date and the number of additional shares of Common Stock
so offered for subscription or purchase in connection with such rights
or warrants, and the denominator of which shall be the sum of the
number of shares of Common Stock outstanding on such declaration date
and the number of shares of Common Stock which the aggregate offering
price of the total number of shares so offered would purchase at such
average market price; provided, however, if all the shares of Common
Stock offered for subscription or purchase are not delivered upon the
exercise of such rights or warrants, upon the exercise of such rights
or warrants the number of shares of Common Stock into which each share
of the Second Series shall thereafter be convertible shall be
readjusted to the number of shares which would have been in effect had
the numerator and the denominator of the foregoing fraction and the
resulting adjustment been made based upon the number of shares of
Common Stock actually delivered upon the exercise of such rights or
warrants rather than upon the number of shares of Common Stock offered
for subscription or purchase. Such adjustment shall be made whenever
any such rights or warrants are issued, and shall become effective on
the date of issuance retroactive to the record date for determination
of shareholders entitled to receive such rights or warrants. For the
purposes of this paragraph (b), the number of shares of Common Stock
at any time outstanding shall not include shares held in the treasury
of the Corporation.
<PAGE>
(c) If the Corporation shall distribute to all the holders
of Common Stock (i) any rights or warrants to subscribe for or
purchase any security of the Corporation (other than those referred to
in paragraph (b) above) or any evidence of indebtedness or other
securities of the Corporation (other than Common Stock), or (ii)
assets (other than cash) having a fair market value (as determined in
a resolution adopted by the Board of Directors of the Corporation,
which shall be conclusive evidence of such fair market value) in an
amount during any 12-month period equal to more than 10% of the market
capitalization (as defined below) of the Corporation, then in each
such case the number of shares of Common Stock into which each share
of the Second Series shall be convertible after the record date for
determination of the shareholders entitled to receive such
distribution shall be determined by multiplying the number of shares
of Common Stock into which each share of the Second Series was
theretofore convertible on the day immediately preceding the date of
declaration or authorization by the Board of Directors of the
Corporation of such distribution by a fraction the numerator of which
shall be the average market price per share (determined as provided in
paragraph (b) above) of the Common Stock on such declaration date and
the denominator of which shall be such average market price per share
less the then fair market value (as determined by the Board of
Directors of the Corporation as provided above) of the portion of the
assets, rights, warrants, evidences of indebtedness or other
securities so distributed applicable to one (1) share of Common Stock.
Such adjustment shall become effective retroactively immediately after
the declaration date. The term "market capitalization" shall mean an
amount determined by multiplying the number of shares of Common Stock
outstanding on such declaration date by the average market price per
share (determined as provided in paragraph (e) below) of the Common
Stock on such declaration date.
(d) In case of any capital reorganization or any
reclassification (other than a change in par value) of the capital
stock of the Corporation or of any conversion of the Common Stock into
securities of another corporation or in case of the consolidation or
merger of the Corporation with or into any other person (other than a
merger which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock) or in
case of any sale or conveyance of all or substantially all of the
assets of the Corporation, the person formed by such consolidation or
resulting from such capital reorganization, reclassification or merger
or which acquires such assets, as the case may be, shall make
<PAGE>
provision in the articles or certificate of incorporation of such
person such that each share of the Second Series then outstanding
shall thereafter be convertible into the kind and amount of shares of
stock, other securities, cash and other property receivable upon such
capital reorganization, reclassification of capital stock,
consolidation, merger, sale or conveyance, as the case may be, by a
holder of the number of shares of Common Stock into which such share
of the Second Series was convertible immediately prior to the
effective date of such capital reorganization, reclassification of
capital stock, consolidation, merger, sale or conveyance, assuming (i)
such holder of Common Stock of the Corporation is not a person with
which the Corporation consolidated or into which the Corporation
merged or which merged into the Corporation or to which such sale or
transfer was made as the case may be ("constituent entity"), or an
affiliate of a constituent entity, and (ii) such person failed to
exercise his rights of election, if any, as to the kind or amount of
securities, cash and other property receivable upon such capital
reorganization, reclassification of capital stock, consolidation,
merger, sale or conveyance and, in any case appropriate adjustment (as
determined by the Board of Directors) shall be made in the application
of the provisions herein set forth with respect to rights and
interests thereafter of the holder of the shares of the Second Series,
to the end that the provisions set forth herein (including the
specified changes in and other adjustments of the Conversion Rate)
shall thereafter be applicable, as near as reasonably may be, in
relation to any shares of stock or other securities or other property
thereafter deliverable upon the conversion of the shares of the Second
Series.
(e) For the purpose of any computation under this Section
5, the average market price per share of Common Stock on any date
shall be the average of the daily closing prices for the fifteen (15)
consecutive trading days commencing twenty (20) trading days before
the date of declaration or authorization by the Board of Directors of
the Corporation of such issuance or distribution. The closing price
for each day shall be the last reported sales price regular way or, in
case no such sale takes place on such day, the average of the closing
bid and asked prices regular way, in either case on the principal
national securities exchange on which the Common Stock is listed or
admitted to trading, or, if not listed or admitted to trading on any
national securities exchange, on NASDAQ National Market System or, if
the Common Stock is not listed or admitted to trading on any national
securities exchange or quoted on NASDAQ
<PAGE>
National Market System, the average of the closing bid and asked
prices as furnished by any New York Stock Exchange member firm
selected from time to time by the Board of Directors of the
Corporation for such purpose or if no such prices are available, the
fair market value of the Common Stock as determined by good faith
action of the Board of Directors of the Corporation.
(f) All calculations under this Section 5 shall be made to
the nearest one-thousandth of a share of Common Stock.
(g) Whenever the Conversion Rate is adjusted as herein
provided, the Common Share Equalizer Amount shall be adjusted by
multiplying the Common Share Equalizer Amount immediately prior to
such adjustment by a fraction, the numerator of which shall be the
number of shares of Common Stock into which each share of the Second
Series is so convertible immediately prior to such adjustment, and the
denominator of which shall be the number of shares of Common Stock
into which each share of the Second Series is so convertible
immediately thereafter.
(h) For the purpose of this Section 5, the term "shares of
Common Stock" shall mean (i) the class of stock designated as the
Common Stock of the Corporation at the date of this Certificate of
Amendment or (ii) any other class of stock resulting from successive
changes or reclassification of such shares consisting solely of
changes in par value, or from par value to no par value, or from no
par value to par value. In the event that at any time, as a result of
an adjustment made pursuant to paragraph (a) through (d) above, the
holder of the shares of the Second Series shall become entitled to
receive any shares of the Corporation other than shares of Common
Stock, thereafter the number of such other shares so receivable upon
conversion of any share of Second Series and the Common Share
Equalizer Amount shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the
provisions with respect to shares of Common Stock contained in
paragraphs (a) through (g), inclusive, above, with respect to the
shares of Common Stock.
(i) Upon the expiration of any rights, options, warrants
or conversion or exchange privileges, if any thereof shall not have
been exercised, the number of shares of Common Stock into which each
share of Second Series shall thereafter be convertible and the Common
Share Equalizer Amount shall, upon such expiration, be readjusted and
shall thereafter be such as it would have been had it been originally
adjusted (or had the
<PAGE>
original adjustment not been required, as the case may be) as if (1)
the only shares of Common Stock so issued were the shares of Common
Stock, if any, actually issued or sold upon the exercise of such
rights, options, warrants, exchange privileges or conversion rights
and (2) such shares of Common Stock, if any, were issued or sold for
the consideration actually received by the Corporation upon such
exercise plus the consideration, if any, actually received by the
Corporation for the issuance, sale or grant of all of such rights,
options, warrants or conversion rights whether or not exercised;
provided that no such readjustment shall have the effect of decreasing
the number of shares of Common Stock issuable upon the conversion of
shares of the Second Series or the Common Share Equalizer Amount by an
amount in excess of the amount of the adjustment initially made in
respect to the issuance, sale or grant of such rights, options,
warrants or conversion rights.
Whenever the Conversion Rate is adjusted as provided in this paragraph
5, the Corporation shall forthwith file with the transfer agent for the shares
of the Second Series a certificate signed by the President or one of the Vice
Presidents of the Corporation and by its Treasurer or an Assistant Treasurer,
stating the adjusted Conversion Rate and the adjusted Common Share Equalizer
Amount determined as provided in this paragraph 5. Such certificate shall show
in detail the facts requiring such adjustment. Whenever the Conversion Rate or
the Common Share Equalizer Amount is adjusted, the Corporation will forthwith
cause a notice stating the adjustment and the Conversion Rate to be mailed to
the respective holders of record of the shares of the Second Series. The
transfer agent shall be under no duty to make any inquiry or investigation as to
the statements contained in any such certificate or as to the manner in which
any computation was made, but may accept such certificate as conclusive evidence
of the statements therein contained, and each transfer agent shall be fully
protected with respect to any and all acts done or action taken or suffered by
it in reliance thereon. The transfer agent in its capacity as transfer agent
shall not be deemed to have any knowledge with respect to any change of capital
structure of the Corporation unless and until it receives a notice thereof
pursuant to the provisions of this paragraph and in the absence of any such
notice each transfer agent may conclusively assume that there has been no such
change.
<PAGE>
The Corporation shall at all times reserve and keep available, out of
its authorized and unissued Common Stock, solely for the purpose of effecting
the conversion of the shares of the Second Series, such number of shares as
shall from time to time be sufficient to effect the conversion of all shares of
the Second Series from time to time outstanding. The Corporation shall from time
to time in accordance with the laws of New York, increase the authorized amount
of its Common Stock if at any time the number of shares of Common Stock
remaining unissued shall not be sufficient to permit the conversion of all the
then outstanding shares of the Second Series.
No fractions of shares of Common Stock are to be issued upon
conversion, but in lieu thereof the Corporation will pay therefor in cash based
on the closing price (determined as provided in the last sentence of paragraph
(e) above) of the Common Stock on the business day immediately preceding the
day of conversion. If more than one certificate representing shares of the
Second Series shall be surrendered for conversion at one time by the same
holder, the number of full shares issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of the Second Series so
surrendered.
The Corporation will pay any and all issue and other taxes that may be
payable in respect of any issue or delivery of shares of Common Stock on
conversion of shares of the Second Series pursuant hereto. The Corporation shall
not, however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of Common Stock in a name other than
in which the shares of the Second Series so converted was registered, and no
such issue or delivery shall be made unless and until the person requesting such
issue has paid to the Corporation the amount of any such tax, or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
In the event (i) that the Corporation shall pay any dividend or make
any distribution to the holders of shares of Common Stock otherwise than in cash
charged against capital surplus, consolidated net earnings or retained earnings
of the Corporation and its Consolidated Subsidiaries; or (ii) that the
Corporation shall offer for subscription or purchase, pro rata, to the holders
of shares
<PAGE>
of Common Stock any additional shares of stock of any class or any securities
convertible into or exchangeable for stock of any class; or (iii) of any
reclassification or change of outstanding shares of the class of Common Stock
issuable upon the conversion of the shares of the Second Series (other than a
change in par value, or from par value to no par value, or from no par value to
par value, or as a result of a subdivision or combination), or of any merger or
consolidation of the Corporation with, or merger of the Corporation into,
another corporation (other than a merger or consolidation in which the
Corporation is the continuing corporation and which does not result in any
reclassification or change of outstanding shares of Common Stock issuable upon
conversion of the shares of the Second Series) or of any sale or conveyance to
another corporation of the property of the Corporation as an entirety or
substantially as an entirety, or (iv) of any dissolution, liquidation or winding
up of the Corporation, then in any such event the Corporation shall cause to be
filed with the transfer agent for the Second Series, and shall cause to be
mailed to the holders of record of the Second Series, at their last address as
they shall appear upon the stock transfer books of the Corporation, at least 15
days prior to any applicable record date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of any of the
events specified in clauses (i) and (ii) of this paragraph, or (y) the effective
dates of any of the events specified in clauses (iii) and (iv) of this
paragraph. No failure to give such notice or any defect therein or in the
mailing thereof shall affect the validity of the corporate action required to be
specified in such notice.
Upon conversion of the Second Series the stated capital of the Common
Stock issued upon such conversion shall be the aggregate par value thereof, and
the stated capital and capital surplus (capital in excess of par value) of the
Corporation shall be correspondingly increased or reduced to reflect the
difference between the stated capital of the Second Series so converted and the
par or stated value of the Common Stock issued upon conversion.
1. The foregoing amendment to the Certificate of Incorporation of Forest Oil
Corporation was authorized by the majority vote of the Board of the Corporation
at a meeting of the Board of Directors on the 15th day of May, 1995 in
accordance
<PAGE>
with Section 805 of the Business Corporation Law.
2.
IN WITNESS WHEREOF, this certificate has been executed on behalf of the
Corporation by its Chairman of the Board and its Secretary on this 20th day of
July, 1995 and the undersigned hereby affirm the truth of the statements
contained herein under the penalties of perjury.
/s/William L. Dorn
----------------------------------------
William L. Dorn
Chairman of the Board
/s/Daniel L. McNamara
----------------------------------------
Daniel L. McNamara
Secretary
<PAGE>
Exhibit 3(i)(b)
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION
OF FOREST OIL CORPORATION
Pursuant to Section 805 of the New York Business Corporation Law
WE, THE UNDERSIGNED, William L. Dorn and Daniel L. McNamara being,
respectively, the Chairman of the Board and Secretary of Forest Oil Corporation,
do hereby certify:
1. The name of the Corporation is Forest Oil Corporation.
2. The certificate of incorporation of said Corporation was filed by the
Department of State, State of New York, on the 13th day of March, 1924, and its
previous restated certificates of incorporation were filed by the Department of
State on the 12th day of May, 1978, the 19th day of May 1992 and the 21st day of
October 1993.
3. The text of the Certificate of Incorporation of said Corporation as
heretofore amended and restated is hereby further amended to effect the
following change authorized by the Business Corporation Law:
The first sentence of paragraph 3 of the Restated Certificate of
Incorporation is hereby amended to add an additional 88,000,000 shares of Common
Stock, Par Value $.10 Per Share to the existing 112,000,000 shares of Common
Stock, Par Value $.10 Per Share.
The first sentence of paragraph 3 of the Restated Certificate of
Incorporation of the Corporation is hereby amended to increase the number of
authorized shares of capital stock of the Corporation and shall read as follows:
3. The aggregate number of shares of capital stock which the Corporation
shall have authority to issue is Two Hundred and Ten Million (210,000,000),
consisting of Two Hundred Million (200,000,000) shares of Common Stock, Par
Value $.10 Per Share, and Ten Million (10,000,000) shares of Preferred
Stock, Par Value $.01 Per Share, which shares of Preferred Stock shall be
classified into two classes, Senior Preferred Stock and Junior Preferred
Stock as described in Paragraph
<PAGE>
3.II, each class of which shall be issuable in one or more series.
At a meeting of the Executive Committee of the Board of Directors held
on June 28, 1995, the foregoing amendment was adopted by at least a
majority of the Executive Committee of the Board of Directors, and at a
meeting of the shareholders held on July 26, 1995, the foregoing amendment
was approved by more than a majority of the votes cast by the holders of
the outstanding shares of Common Stock entitled to vote thereon, all in
accordance with Section 614 of the New York Business Corporation Law.
IN WITNESS WHEREOF, this certificate has been signed and the truth of
the statements therein affirmed under penalty of perjury, on this 26th day
of July, 1995.
______________________________
William L. Dorn
Chairman of the Board
______________________________
Daniel L. McNamara
Secretary
<PAGE>
Exhibit 3(ii)(c)
IX. AMENDMENT ADOPTED MAY 15, 1995
RESOLVED, that, effective immediately, the by-laws of this corporation
adopted on May 9, 1990 (the "By-laws") be and the same hereby are amended as
follows:
1. Section 1 of Article I shall be deleted in its entirety and the
following shall be substituted therefor:
"Section 1. Annual meetings of shareholders shall be held on the
second Wednesday in May of each year if not a legal holiday, and if a
legal holiday, then on the next business day following, at 10 a.m., or at
such other date and time as may be fixed from time to time by the board
of directors at such place within or without the State of New York as
may be fixed from time to time by the board of directors and all as stated
in the notice of the meeting, at which meeting the shareholders
shall elect by a plurality of the votes cast at such meeting a board of
directors and transact such other business as may be properly brought
before the meeting."
2. Section 2 of Article I of the By-laws shall be amended by deleting
from the fifth line the words "Forest Oil Building, 78 Main Street, Bradford,
Pennsylvania" and substituting in place thereof the words "Denver, Colorado."
<PAGE>
Exhibit 3(ii)(d)
X. AMENDMENT ADOPTED JULY 27, 1995
RESOLVED, That the by-laws of this corporation adopted on May 9, 1990 (the
"By-laws") be and the same hereby shall be amended as follows:
1. Section 1 of Article III of the By-laws shall be deleted in its
entirety and that the
following shall be substituted therefor:
"Section 1. The business of the corporation shall be
conducted and managed by a board of directors consisting of ten (10)
directors, unless otherwise determined from time to time by resolution
of the board of directors, which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by
statute or by the certificate of incorporation or by these by-laws
directed or required to be exercised by the shareholders."
2. Section 3 of Article III of the By-laws shall be deleted in its
entirety and that the following shall be substituted therefor:
"Section 3. The directors shall be classified with respect to their
terms of office by dividing them into four (4) classes. All classes shall
be as nearly equal in number as possible. Subject to such limitations, the
size of each class may be fixed by action of the shareholders or of the
board of directors.
The directors are currently classified as follows: one (1) class whose
terms expire at the Annual Meeting of Shareholders to be held in 1995 and
three (3) classes whose terms expire at the Annual Meetings of Shareholders
to be held in 1996, 1997 and 1998, respectively, and in every case the
director so elected shall serve until the end of his term or until his
successor is duly elected and qualified. At each Annual Meeting of
Shareholders, directors to replace those whose terms expire at such Annual
Meeting shall
<PAGE>
be elected to hold office until the fourth succeeding Annual Meeting.
Any director may resign at any time. The board of directors may, by
majority vote of all directors then in office, remove a director for cause.
A director may be removed without cause by the affirmative vote of the
holders of two-thirds of the votes represented by all the outstanding
shares entitled to vote thereon at a meeting of shareholders called for
that purpose."
<PAGE>
Exhibit 4.1
AMENDMENT NO. 5
Amendment No. 5 dated as of May 15, 1995, between FOREST OIL
CORPORATION, a corporation duly and validly existing under the laws of the
State of New York (the "Company"); each of the lenders that is a signatory
hereto (individually, a "Bank" and, collectively, the "Banks"); and THE
CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), a national banking association,
as agent for the Banks (in such capacity, together with its successors in
such capacity, the "Agent").
The Company, the Banks and the Agent are parties to a Credit
Agreement dated as of December 1, 1993, as amended by Amendment No. 1 dated
as of December 28, 1993, Amendment No. 2 dated as of January 27, 1994,
Amendment No. 3 dated as of June 3, 1994 and Amendment No. 4 dated as of April
13, 1995 (as amended, the "Credit Agreement"), providing, subject to the
terms and conditions thereof, for loans to be made by said Banks to the
Company in an aggregate principal amount not exceeding $50,000,000.
The Company, the Banks and the Agent wish to amend the Credit Agreement to
provide that the Company may incur Non-Recourse Indebtedness pursuant to the
Anschutz Note (as defined in Section 2 hereof) and to amend the Credit
Agreement in certain other respects, and accordingly, the parties hereto hereby
agree as follows:
Section 1. Definitions. Except as otherwise defined in this
Amendment No. 5, terms defined in the Credit Agreement and are used herein as
defined therein.
Section 2. Amendments. Subject to the satisfaction of the
conditions precedent specified in Section 4 below, but effective as of
the date hereof, the Credit Agreement shall be amended as follows:
A. The definition of "Non-Recourse Debt" in Section 1.01 of the
Credit Agreement shall be amended by deleting the number "$500,000" therein
and inserting the number "$1,000,000" in its place. Such definition is
further amended by inserting the following at the end of such definition:
"Notwithstanding the foregoing, the Obligations
<PAGE>
(as defined in the Purchase Agreement on the date of Amendment
No. 5) of the Company, Forest Oil of Canada Ltd. or 604228
Alberta, Ltd. pursuant to the Company/Purchaser Transaction
Documents (as defined in the Purchase Agreement on the date of
Amendment No. 5), including, without limitation, the
Anschutz Indebtedness, shall be considered Non-Recourse Debt,
provided that if (a) any claim or claims in the aggregate
in excess of $1,000,000 is made against the Company by or
through Anschutz with respect to the payment of the
Obligations or the costs and expenses incurred by or on behalf
of Anschutz in collecting the same seeking any recourse
against the Company other than with respect to the
Company's, Forest Oil of Canada Ltd.'s or 604228 Alberta
Ltd.'s interest in the Anschutz Collateral or (b) the Purchase
Agreement, the Anschutz Note or any of the other
Transactions Documents (as defined in the Purchase Agreement)
is amended, modified or supplemented to expand the
circumstances in which Anschutz may assert any claim
thereunder with respect to the payment of the Obligations
or the costs and expenses incurred by or on behalf of Anschutz in
collecting the same with recourse to the Company (other than
with respect to the Company's, Forest Oil of Canada
Ltd.'s or 604228 Alberta Ltd.'s interest in the Anschutz
Collateral), the Obligations incurred pursuant to the
Purchase Agreement, the Anschutz Note or any of such other
Transaction Documents shall cease to be Non-Recourse Debt.
Upon (i) the payment in full by the Company of the Anschutz
Note or the conversion of the entire principal amount of the
Anschutz Note into common stock of the Company in accordance
with the terms of the Anschutz Note and (ii) the release of
any Anschutz Collateral (following the payment or conversion of
the Anschutz Note as set forth in clause (i) above), the
immediately preceding sentence shall be of no further force or
effect and be without implication as to the status of the
remaining Obligations (as defined in the Purchase Agreement)."
B. The definition of "JEDI Collateral" in Section 1.01 of the
Credit Agreement shall be amended by inserting the following at the end of such
definition:
"; provided, further, however, that the term
<PAGE>
"Mortgaged Properties", as defined in the JEDI Agreement,
shall include the oil and gas leases, oil, gas and mineral
leases, and other mineral leases that cover lands or interests
previously covered by an expired lease that, prior to
such expiration, constituted JEDI Collateral and is
described on Schedule I to Amendment No. 5."
C. The following definitions shall be added in alphabetical
order in Section 1.01 of the Credit Agreement:
"Amendment No. 5" shall mean Amendment No. 5 to this Agreement
dated as of May 15, 1995.
"Anschutz Collateral" shall mean the "Collateral" as defined
in the Purchase Agreement on the date of Amendment No. 5.
"Anschutz" shall mean The Anschutz Corporation, a Kansas
corporation.
"Anschutz Indebtedness" shall mean the Indebtedness of
the Company consisting of or evidenced by the Anschutz Note, in the
principal amount at any time outstanding not in excess of $9,900,000,
and the guaranty thereof by each of Forest Oil of Canada Ltd. and
604228 Alberta Ltd.
"Anschutz Note" shall mean the Nonrecourse Secured Convertible
Promissory Note dated May 15, 1995 of the Company payable to the
order of Anschutz.
"Purchase Agreement" shall mean the Purchase Agreement
dated as of May 15, 1995 between Anschutz and the Company, as the same
shall be amended, modified and supplemented and in effect from time to
time.
D. Section 9.08 of the Credit Agreement is hereby amended by
adding the following at the end of such Section:
"Notwithstanding any provision of this Section 9.08 to the
contrary, the Company will not, and will not permit any of its
Restricted Subsidiaries to make or permit to remain
outstanding any Investment in Forest Oil of Canada Ltd. or
604228 Alberta Ltd. other than Investments that were made prior
to January 1,
<PAGE>
1995."
E. The Credit Agreement is amended by adding a new Section 9.24
therein to read as follows:
"9.24 Amendments to Transaction Documents. The Company will
not, and will not permit any Subsidiary to change, agree or consent
to any amendment, modification or supplement to any of the
Transaction Documents (as defined in the Purchase Agreement)
without the prior written consent of the Majority Banks;
provided, however, that the Company may, and may permit any
Subsidiary, to change, agree or consent to any such amendment,
modification or supplement without the prior written consent of the
Agent or the Banks if such amendment, modification or supplement
(i) does not materially change the benefits to be derived by
the Company from the consummation of the transactions
contemplated by the Transaction Documents as in effect on the date
of Amendment No. 5, (ii) does not expand in any material respect
the circumstances under which Anschutz may assert any claim under
the Transaction Documents with recourse to the Company (other than
with respect to the Company's, Forest Oil of Canada Ltd.'s or
604228 Alberta Ltd.'s interest in the Anschutz Collateral and
(iii) could not reasonably be expected to have an adverse effect on
the Banks or the Agent."
F. Section 10(b) of the Credit Agreement shall be amended by
deleting the proviso at the end of such Section and replacing it as follows:
";provided that (i) a default under the JEDI Agreement
shall not be an Event of Default under this Section 10(b) unless
such a default has occurred and a claim is made against the
Company by or through the JEDI Lender seeking any recourse
against the Company other than with respect to the Company's
interest in the JEDI Collateral, (ii) a default under
the Participation Agreement shall not be an Event of
Default under this Section 10(b) unless such a default has
occurred and a claim is made against the Company by or through
First Chicago seeking recourse against the Company other than
with respect to the Company's interest in the First Chicago
Collateral and (iii) a default under Anschutz Note shall not
be an Event of
<PAGE>
Default under this Section 10(b) unless such a default has
occurred and a claim is made against the Company by or through
Anschutz seeking recourse against the Company other than with
respect to the Company's or its Subsidiaries' interest in the
Anschutz Collateral."
Section 3. Representations and Warranties. The Company
represents and warrants to the Agent and the Banks that the
representations and warranties set forth in Section 8 of the Credit
Agreement are true and complete on the date hereof as if made on and
as of the date hereof and as if each reference in said Section 8 to
"this Agreement" included reference to this Amendment No. 5.
Section 4. Conditions Precedent. As provided in Section 2
above, the amendments to the Credit Agreement set forth in said Section 2
shall become effective, as of the date hereof, upon the satisfaction of the
following conditions precedent:
A. Execution by All Parties. This Amendment No. 5 shall have
been executed and delivered by each of the parties hereto.
B. Documents. The Agent shall have received the following
documents, each of which shall be satisfactory to the Agent in form and
substance:
(1) Corporate Documents. The following documents, each certified
as indicated below:
(a) a certificate of the Secretary or an Assistant
Secretary of the Company, dated as of a recent date and
certifying (i) that, except as noted therein and approved by
the Agent, the by-laws of the Company have not been amended
since the date of the certification thereto delivered
pursuant to Section 7.01 of the Credit Agreement, (ii) that
except as noted therein and approved by the Agent, the charter
of the Company has not been amended since the date of the
certification thereto furnished pursuant to Section 7.01
of the Credit Agreement, (iii) that attached thereto is
a true and complete copy of resolutions duly adopted by the
board of directors of the Company authorizing the execution,
delivery and performance of this Amendment No. 5 and the
Credit Agreement as amended hereby and that such resolutions
<PAGE>
have not been modified, rescinded or amended and are in full
force and effect and (iv) as to the incumbency and specimen
signature of the officer of the Company executing this
Amendment; and
(b) a certificate of another officer of the Company as to
the incumbency and specimen signature of the Secretary or
such Assistant Secretary of the Company, and a
corresponding certificate of another officer of the Company as
to its signing officers.
(2) Opinion of Counsel to the Company. An opinion of Daniel
McNamara, Counsel of each of the Obligors, dated the date of this
Amendment No. 5, confirming the opinions set forth in Exhibit C of
the Credit Agreement, except that references to the Credit Agreement
shall be to the Credit Agreement as amended by this Amendment No.
5 (and each Obligor hereby instructs such counsel to deliver
such opinion to the Banks and the Agent).
(3) Transaction Documents. Copies of each document delivered
by, on behalf of, or at the request of the Company, Anschutz or
the JEDI Lender in connection with the Transactions (as defined in
the Purchase Agreement).
(4) Other Documents. Such other documents as the Agent or any
Bank or special counsel to the Agent may reasonably request.
(5) Opinions Pursuant to Transaction Documents. A letter from
each counsel to the Company or any of its Subsidiaries that
delivered an opinion pursuant to any of the Transaction Documents
(as defined in the Purchase Agreement), other than the Security
Documents (as defined in the Purchase Agreement), dated the date of
this Amendment No. 5 and stating that the Agent and the Banks may
rely on each such opinion delivered pursuant to the Transaction
Documents (and the Company hereby instructs and shall cause each
such Subsidiary to instruct such counsel to deliver such letters to
the Banks and the Agent).
Section 5. Consent. Each of the Banks hereby consents to the
following and agrees that the occurrence of any of the following shall
not constitute an Event of Default under the Credit Agreement: (i) the
release by the Agent of the Anschutz Collateral from the Lien of the
Security Agreement (to the extent
<PAGE>
any of such Collateral is subject to any such Lien); provided the amount
of Cash Collateral (as defined in the Collateral Account Agreement
referenced in the Purchase Agreement) shall not exceed $2,000,000, (ii)
the amendment to the JEDI Agreement as provided in the Form of JEDI
Restructure Agreement attached as Exhibit J to the Purchase
Agreement, which includes, among other provisions, the elimination of
the right of the Company to place a subordinated lien on the JEDI
Collateral in favor of the Banks without being in violation of the JEDI
Agreement, (iii) the conversion of the Anschutz Note into shares of
common stock of the Company as provided in the Anschutz Note,
(iv) the consummation of the transactions contemplated by (x) the
JEDI Restructure Agreement as in effect on the date of Amendment No. 5 and
(y) Sections 1.1(a), 1.1(b)(1) and 1.2 of the Purchase Agreement as
in effect on the date of Amendment No. 5 and (v) the repayment of
Indebtedness outstanding under the JEDI Agreement with the proceeds
received by the Company from the exercise of the Tranche A Warrants
and/or the Tranche B Warrants (as such terms are defined in the Purchase
Agreement).
Section 6. Miscellaneous. Except as herein provided, the Credit
Agreement shall remain unchanged and in full force and effect. This
Amendment No. 5 may be executed in any number of counterparts, all of
which taken together shall constitute one and the same amendatory
instrument and any of the parties hereto may execute this Amendment No. 5
by signing any such counterpart. This Amendment No. 5 shall be governed
by, and construed inaccordance with, the law of the State of New York.
Section 7. Release of Anschutz Collateral and Certain JEDI
Mortgaged Property. Each Bank hereby authorizes the Agent, and the Agent
hereby agrees that, from time to time, at the expense of the Company, the
Agent shall execute such releases of (x) the Anschutz Collateral and (y) the
JEDI Collateral described on Schedule I hereto from the Lien of the
Security Agreement as the Company may reasonably request in order to
fully effect the purposes of this Amendment No. 5.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No.
5 to be duly executed and delivered as of the day and year first above
written.
FOREST OIL CORPORATION
<PAGE>
By
--------------------------
Title:
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
By
--------------------------
Title:
CHRISTIANA BANK
(NEW YORK BRANCH)
By:
-------------------------
Name:
Title:
THE FIRST NATIONAL BANK
OF BOSTON
By:
--------------------------
Name:
Title:
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION), as Agent
By
--------------------------
Title:
<PAGE>
Exhibit 4.1
SHEDULE I
<TABLE>
<CAPTION>
FOC
LEASE NO. LESSOR LESSEE DATE BOOK PAGE COUNTY DESCRIPTION
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
TX-193025-000010-U William K. Morgan and Forest Oil 4/10/95 148 216 Jim Hogg 666.50 acres, being all of the F. C. Guerra
wife, Alma Morgan Corporation 518 220 Zapata Survey (sometimes referred to as the
B. S. & F. Survey No. 86), A-142 in Jim Hogg
County, Texas and A-436 in Zapata County,
Texas
TX-193025-000010-V William K. Morgan and Forest Oil 4/10/95 148 221 Jim Hogg 666.50 acres, being all of the F. C. Guerra
wife, Alma Morgan, et al Corporation 518 225 Zapata Survey (sometimes referred to as the
B. S. & F. Survey No. 86), A-142 in Jim Hogg
County, Texas and A-436 in Zapata County,
Texas
TX-193025-000010-W Belinda S. Canales, Forest Oil 2/3/95 148 62 Jim Hogg 666.50 acres, being all of the F. C. Guerra
dealing herein in her Corporation 514 356 Zapata Survey (sometimes referred to as the
separate property B. S. & F. Survey No. 86), A-142 in Jim Hogg
County, Texas and A-436 in Zapata County,
Texas
TX-193025-000010-X Olinda S. Guerra, Forest Oil 2/3/95 148 66 Jim Hogg 666.50 acres, being all of the F. C. Guerra
dealing herein in her Corporation 514 361 Zapata Survey (sometimes referred to as the
separate property B. S. & F. Survey No. 86), A-142 in Jim Hogg
County, Texas and A-436 in Zapata County,
Texas
TX-193025-000010-Y Leticia S. Gonzales, Forest Oil 2/3/95 148 70 Jim Hogg 666.50 acres, being all of the F. C. Guerra
dealing herein in her Corporation 514 366 Zapata Survey (sometimes referred to as the
separate property B. S. & F. Survey No. 86), A-142 in Jim Hogg
County, Texas and A-436 in Zapata County,
Texas
TX-193025-000010-Z Felipe F. Suarez and Forest Oil 2/3/95 148 74 Jim Hogg 666.50 acres, being all of the F. C. Guerra
wife, Sarina S. Suarez Corporation 514 371 Zapata Survey (sometimes referred to as the
B. S. & F. Survey No. 86), A-142 in Jim Hogg
County, Texas and A-436 in Zapata County,
Texas
Page 1
<PAGE>
SCHEDULE I
<CAPTION>
FOC
LEASE NO. LESSOR LESSEE DATE BOOK PAGE COUNTY DESCRIPTION
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Eulalia Vela, et al Forest Oil Jim Hogg A tract of land comprised of 249.475 acres,
Corporation Zapata being the Northeast portion at a 2100.725
acre tract as described in Partition Deed
dated September 11, 1951 to Hector Vela
recorded in Volume 32, Pages 463-65, Deed
Records of Jim Hogg County, Texas and being
the south 9.835 acres out of Survey 581,
E. P. Ashley, Jim Hogg County, Abstract
No. 5, Patent No. 598 dated December 18,
1885 save and except for that portion of
said 735.28 acre tract which is located
within the exterior boundary of the
Inexco-Vela No. 1 Gas Unit, described in
Unit Declaration dated October 28, 1981 and
recorded in Volume 89, Page 363 Oil and Gas
Lease Records at Jim Hogg County, Texas
Eulalia Vela, et al Forest Oil Jim Hogg A tract of land covering lands outside 320
Corporation Zapata acres of land surrounding and being the unit
for the Energy Development Corporation -
Loma Vieja Well No. 1 and being a part of
the Energy Development Corporation 1347.25
acre lease as described in a MEMORANDUM OF
OIL AND GAS LEASE and recorded in Volume
124, Pages 279 et seq., of the Oil & Gas
Records of Jim Hogg County, Texas. Said 320
acre unit being approximately 141.66 acres
in Zapata County, Texas and approximately
178.34 acres in Jim Hogg County, Texas, and
also being within the T. & N. O. R.R. Co.
Survey No. 5, A-100 in Zapata County and
A-318 in Jim Hogg County.
The said 320 acre unit being more
particularly described by metes and bounds
as follows:
Page 2
<PAGE>
SCHEDULE I
<CAPTION>
FOC
LEASE NO. LESSOR LESSEE DATE BOOK PAGE COUNTY DESCRIPTION
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BEGINNING at the Southwest corner of the
said T. & N. O. R.R. Survey No. 5; the same
being the Southwest corner of the said
1347.25 acre lease.
THENCE: NORTH, along the West boundary of
the said T. & N. O. R. R. Co. Survey No. 5,
a distance of 3399.8' to a point for the
Northwest corner of this 320 acre unit.
THENCE: EAST or parallel to the South
boundary of said Survey No. 5, a distance
of 4100' to the Northeast corner of this 320
acre unit.
THENCE: SOUTH or parallel to the West
boundary of said Survey No. 5, a distance of
3399.8' to a point in the South boundary of
said Survey No. 5, for the Southeast corner
of this 320 acre unit.
THENCE: WEST, along the South boundary of
said Survey No. 5, a distance of 4100' to the
point of BEGINNING and CONTAINING 320 acres
of land.
A tract of land covering lands outside 320
acres of land surrounding and being the unit
for the Energy Development Corporation -
Loma Vieja Well No. 4 and being a part of the
Energy Development Corporation 1347.25 acre
lease as described in a MEMORANDUM OF OIL AND
GAS LEASE and recorded in Volume 124, Pages
279 et seq., of the Oil & Gas Records of Jim
Hogg County, Texas. Said 320 acre unit being
approximately 220 acres
Page 3
<PAGE>
SCHEDULE 1
<CAPTION>
FOC
LEASE NO. LESSOR LESSEE DATE BOOK PAGE COUNTY DESCRIPTION
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
in Zapata County, Texas and approximately 100
acres in Jim Hogg County, Texas, and also
being partly within the T. & N. O. R.R. Co.
Survey No. 5, A-100 in Zapata County and
A-318 in Jim Hogg County, and also being
partly within the H. & G.R.R. Co. Survey
No. 3, A-51 in Zapata County and A-183 in
Jim Hogg County.
The said 320 acre unit being more
particularly described by metes and bounds
as follows:
BEGINNING at the Northwest corner of the
Energy Development Corporation 320 acre
unit, Loma Vieja Well No. 1, for the
Southwest corner of this 320 acre unit in
the West boundary of said Survey No. 5, and
being NORTH-3399.8' from the Southwest
corner of said Survey No. 5; the same being
the Southwest corner of the said 1347.25
acre lease.
THENCE: NORTH, along the West boundary of
said Survey No. 5 and of said Survey No. 3,
a distance of 5280' to a point inthe West
boundary of said Survey No. 3, for the
Northwest corner of this 320 acre unit.
THENCE: EAST or parallel to the South
Boundary of said Survey No. 5, a distance of
2640' to the Northeast corner of this 320
acre unit.
THENCE: SOUTH or parallel to the West
boundary
Page 4
<PAGE>
<CAPTION>
FOC
LEASE NO. LESSOR LESSEE DATE BOOK PAGE COUNTY DESCRIPTION
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
of said Surveys Nos. 3 & 5, a distance of
5280' to a point in the North boundary of
the said Energy Development Corporation 320
acre unit, Loma Vieja Well No. 1, for the
Southeast corner of this 320 acre unit.
THENCE: WEST or parallel to the South
boundary of said Survey No. 5, a distance of
2640' to the point of BEGINNING and
CONTAINING 320 acres of land.
A tract of land covering lands outside 160
acres of land surrounding and being the unit
for the Energy Development Corporation -
Loma Vieja Well No. 2 and being a part of
the Energy Development Corporation 1347.25
acre lease as described in a MEMORANDUM OF
OIL AND GAS LEASE and recorded in Volume
124, Pages 279 et seq., of the Oil & Gas
Records of Jim Hogg County, Texas. Said 160
acre unit being in Jim Hogg County, Texas
and being within the T. & N. O. R.R. Co.
Survey No. 5, A-100 in Zapata County and
A-318 in Jim Hogg County, and also being
within the H. & G. N. R.R. Co. Survey No. 3,
A-51 in Zapata County and A-183 in Jim Hogg
County.
The said 160 acre unit being more
particularly described by metes and bounds
as follows:
BEGINNING at a point in the South boundary
of the Energy Development Corporation 160
acre unit, Loma Vieja Well no. 3, for the
Northwest corner of
Page 5
<PAGE>
<CAPTION>
FOC
LEASE NO. LESSOR LESSEE DATE BOOK PAGE COUNTY DESCRIPTION
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
this 160 acre unit, and being NORTH-8679.8',
EAST-1725.72', SOUTH-914.28' and
EAST-219.63' from the Southwest corner of
the said 1347.25 acre lease and of the said
T. & N. O. R.R. Co. Survey No. 5.
THENCE: EAST, parallel to the South
boundary of said Survey No. 5, at 694.65'
cross the East boundary of the Energy
Development Corporation 320 acre unit,
Loma Vieja Well No. 4, at 2420.37' pass the
Southeast corner of the Energy Development
Corporation 160 acre unit, Loma Vieja Well
No. 3, in all 2640' to the Northeast corner
of this 160 acre unit.
THENCE: SOUTH, parallel to the West
boundary of said Surveys Nos. 3 & 5, a
distance of 2640' to the Southeast corner
of this 160 acre unit.
THENCE: WEST, parallel to the South boundary
of said Survey No. 5, at 1945.35' cross the
East boundary of the Energy Development
Corporation 320 acre unit, Loma Vieja Well
No. 4, in all 2640' to the Southwest corner
of this 160 acre unit.
THENCE: NORTH, parallel to the West boundary
of said Surveys Nos. 5 & 3, a distance of
2640' to the point of BEGINNING and
CONTAINING 160 acres of land.
A tract of land covering lands outside 160
acres of land surrounding and being the unit
for the Energy Development Corporation - Loma
Vieja Well No. 2
Page 6
<PAGE>
<CAPTION>
FOC
LEASE NO. LESSOR LESSEE DATE BOOK PAGE COUNTY DESCRIPTION
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
and being a part of the Energy Development
Corporation 1347.25 acre lease as described
in a MEMORANDUM OF OIL AND GAS LEASE and
recorded in Volume 124, Pages 279 et seq.,
of the Oil & Gas Records of Jim Hogg County,
Texas. Said 160 acre unit being
approximately 5.4 acres in Zapata County,
Texas and approximately 154.6 acres in
Jim Hogg County, Texas, and also being
within the H. & G. N. R.R. Co., Survey
No. 3, A-51 in Zapata County and A-183 in
Jim Hogg County.
The said 160 acre unit being more
particularly described by metes and
bounds as follows:
BEGINNING at a point in the North boundary of
the Energy Development Corporation 320 acre
unit, Loma Vieja Well No. 4, and said point
being NORTH-8679.8' and EAST-1725.72' from
the Southwest corner of the said 1347.25 acre
lease and of the T. & N. O. R.R. Co. Survey
No. 5, A-100 in Zapata County and A-318 in
Jim Hogg County.
THENCE: NORTH, parallel to the West boundary
of the H. & G. N. R. R. Co. Survey No. 3, a
distance of 1725.72' to the Northwest corner
of this 160 acre unit.
THENCE: EAST, parallel to the South boundary
of said Survey No. 5, a distance of 2640' to
the Northeast corner of this 160 acre unit.
Page 7
<PAGE>
<CAPTION>
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LEASE NO. LESSOR LESSEE DATE BOOK PAGE COUNTY DESCRIPTION
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
THENCE: SOUTH, parallel to the West
boundary of said Survey No. 3, a distance of
2640' to the Southeast corner of this 160
acre unit.
THENCE: WEST, parallel to the South boundary
of said Survey No. 5, at 1725.72' cross the
East boundary of the said Energy Development
Corporation 320 acre unit, Loma Vieja Well
No. 4, in all 2640' to the Southwest corner
of this 160 acre unit.
THENCE: NORTH, parallel to the West boundary
of said Survey No. 3, a distance of 914.28'
to the point of BEGINNING and CONTAINING 160
acres of land.
ALL OF THE ABOVE covered lands, also covering
the following depths:
Depths below fourteen thousand six hundred
seventy eight feet (14,678') being 100 feet
below the stratigraphic equivalent of the
deepest producing horizon in the Loma Vieja
#1 well, as to the 320 acres held by the
Loma Vieja #1 Well; and
Depths below fourteen thousand six hundred
sixty four feet (14,664') being 100 feet
below the stratigraphic equivalent of the
deepest producing horizon in the Loma Vieja
#4 well, as to 320 acres held by the Loma
Vieja #4 well; and Depths below ten
thousand three hundred forty feet
Page 8
<PAGE>
<CAPTION>
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<S> <C> <C> <C> <C> <C> <C> <C>
(10,340') being 100 feet below the
stratigraphic equivalent of the deepest
producing horizon in the Loma Vieja #2 well,
as to 117.9 acres held by the Loma Vieja #2
well which lies outside the boundaries of the
acreage held by the Loma Vieja #4 well; and
Depths below ten thousand three hundred four
feet (10,304') being 100 feet below the
stratigraphic equivalent of the deepest
producing horizon in the Loma Vieja #3 well,
as to 140.81 acres held by the Loma Vieja #3
well which lies outside the boundaries of the
acreage held by the Loma Vieja #4 well.
</TABLE>
Page 9
<PAGE>
Exhibit 11
FOREST OIL CORPORATION
Calculation of Loss Per Share of Common Stock
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- ------------------------------
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
----------- ---------- ---------- ----------
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C> <C>
PRIMARY LOSS PER SHARE:
Net loss $(4,815) (265) (7,959) (14,019)
Less dividends payable on:
$.75 Convertible Preferred Stock (540) (540) (1,080) (1,080)
---------- ---------- ---------- ----------
Net loss attributable to common stock
for primary loss per share calculation $ (5,355) (805) (9,039) (15,099)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average number of common
shares outstanding 28,470 28,071 28,352 28,039
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Primary loss per share of common stock $ (.19) (.03) (.32) (.54)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
FULLY DILUTED LOSS PER SHARE:
Net loss attributable to common stock, as above $(5,355) (805) (9,039) (15,099)
Add:
Dividend requirements on:
$.75 Convertible Preferred Stock 540 540 1,080 1,080
---------- ---------- ---------- ----------
Loss applicable to fully diluted calculation $ (4,815) (265) (7,959) (14,019)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Common shares applicable to fully diluted calculation:
Weighted average number of common shares
outstanding, as above 28,470 28,071 28,352 28,039
Add:
Weighted average number of shares issuable
upon assumed conversion of Convertible
Preferred Stock 10,083 10,083 10,083 10,083
---------- ---------- ---------- ----------
Common shares applicable to fully diluted calculation 38,553 38,154 38,435 38,122
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Fully diluted loss per share* $(.12) (.01) (.21) (.37)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
<FN>
*The fully diluted loss per share is not presented in the Company's
financial statements because the effects of assumed exercises and
conversions were anti-dilutive.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheets and condensed consolidated statements of
income on pages 1 and 2 of the Company's Form 10-Q for the quarterly period
ending June 30, 1995 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 3,306
<SECURITIES> 0
<RECEIVABLES> 16,156
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 56,747
<PP&E> 1,191,967
<DEPRECIATION> 931,507
<TOTAL-ASSETS> 340,261
<CURRENT-LIABILITIES> 33,117
<BONDS> 220,256
<COMMON> 2,858
0
15,845
<OTHER-SE> 13,711
<TOTAL-LIABILITY-AND-EQUITY> 340,261
<SALES> 42,698
<TOTAL-REVENUES> 42,911
<CGS> 11,197
<TOTAL-COSTS> 15,058
<OTHER-EXPENSES> 23,398
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,421
<INCOME-PRETAX> (7,966)
<INCOME-TAX> (7)
<INCOME-CONTINUING> (7,959)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,959)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> (.32)
</TABLE>
