<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 24, 1996
REGISTRATION STATEMENT NO. 33-64949
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2
TO
FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
FOREST OIL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
NEW YORK 25-0484900
(State or other jurisdiction (I.R.S. Employer
of
incorporation or Identification No.)
organization)
</TABLE>
1600 BROADWAY, SUITE 2200
DENVER, COLORADO 80202
(303) 812-1400
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
--------------------------
DANIEL L. MCNAMARA
CORPORATE COUNSEL AND SECRETARY
FOREST OIL CORPORATION
1600 BROADWAY, SUITE 2200
DENVER, COLORADO 80202
(303) 812-1400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
Alan P. Baden Jonathan I. Mark
Vinson & Elkins L.L.P. Cahill Gordon & Reindel
2300 First City Tower 80 Pine Street
1001 Fannin New York, New York 10005
Houston, Texas 77002
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION
JANUARY 24, 1996
PROSPECTUS
12,000,000 SHARES
[LOGO]
FOREST OIL CORPORATION
COMMON STOCK
($.10 PAR VALUE)
Of the 12,000,000 shares of Common Stock, $.10 par value per share (the "Common
Stock"), of Forest Oil Corporation (the "Company") being offered hereby,
10,940,000 are being issued and sold by the Company and 1,060,000 shares are
being sold by Saxon Petroleum Inc. (the "Selling Shareholder"), a Canadian
corporation in which the Company holds a 56% economic (49% voting) interest. See
"Principal and Selling Shareholders." The Company will not receive any of the
proceeds from the sale of the shares by the Selling Shareholder. Of the
12,000,000 shares of Common Stock offered hereby, 10,200,000 shares are being
offered in the United States and Canada (the "U.S. Offering") and 1,800,000
shares are being offered in a concurrent international offering outside the
United States and Canada (the "International Offering" and, collectively with
the U.S. Offering, the "Offerings"), subject to transfers between the U.S.
Underwriters and the International Underwriters (collectively, the
"Underwriters"). The Price to Public and Underwriting Discount per share will be
identical for each of the Offerings. The closing of the U.S. Offering and the
International Offering are conditioned upon each other. See "Underwriting."
The Common Stock is quoted on the Nasdaq National Market under the symbol
"FOIL." On January 25, 1996, the last reported sale price of the Common Stock
was $ per share. This price reflects a 5 to 1 reverse stock split effected on
January 8, 1996. See "Price Range of Common Stock" and "Description of Capital
Stock."
SEE "RISK FACTORS" ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT COMPANY(1) SHAREHOLDER(1)
Per Share........................ $ $ $ $
Total(2)......................... $ $ $ $
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Before deducting expenses, estimated at $1,000,000.
(2) The Company has granted the U.S. Underwriters and the International
Underwriters 30-day options to purchase up to an aggregate of 1,800,000
shares of Common Stock at the Price to Public, less Underwriting Discount,
solely to cover over-allotments, if any. If the Underwriters exercise such
options in full, the total Price to Public, Underwriting Discount and
Proceeds to Selling Shareholder will be $ , $ , and $ ,
respectively. See "Underwriting."
The Common Stock is offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the Common Stock will be made at the office of
Salomon Brothers Inc, Seven World Trade Center, New York, New York, or through
the facilities of The Depository Trust Company, on or about , 1996.
SALOMON BROTHERS INC
DILLON, READ & CO. INC.
MORGAN STANLEY & CO.
INCORPORATED
CHASE SECURITIES, INC.
The date of this Prospectus is January , 1996.
<PAGE>
MAP SHOWING THE LOCATION OF THE PROPERTIES
OF THE COMPANY, SAXON AND ATCOR
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THE OFFERINGS, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS
MAY ENGAGE IN PASSIVE MARKET TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
AND CONSOLIDATED FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING
ELSEWHERE IN THIS PROSPECTUS AND IN THE DOCUMENTS INCORPORATED HEREIN BY
REFERENCE. AS USED HEREIN, THE "COMPANY" OR "FOREST" MEANS FOREST OIL
CORPORATION AND ITS CONSOLIDATED SUBSIDIARIES UNLESS THE CONTEXT REQUIRES
OTHERWISE. UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS
ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTIONS WILL NOT BE EXERCISED. SEE
"CERTAIN DEFINITIONS" FOR DEFINITIONS OF CERTAIN OIL AND GAS INDUSTRY TERMS USED
IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL DOLLAR AMOUNTS ARE IN U.S.
DOLLARS. UNLESS OTHERWISE INDICATED, ALL SHARE AMOUNTS, SHARE PRICES AND PER
SHARE AMOUNTS HAVE BEEN ADJUSTED TO GIVE EFFECT TO A 5 TO 1 REVERSE STOCK SPLIT
THAT OCCURRED ON JANUARY 8, 1996.
THE COMPANY
GENERAL
Forest is an independent oil and natural gas company focused on the
exploration, exploitation, development and acquisition of oil and gas
properties. The Company, which is a successor to a company founded in 1916, has
extensive operating experience in most of the major producing regions of the
United States and Canada. The Company's reserves and producing properties are
located primarily in the Gulf of Mexico, Texas, Oklahoma and Canada. The Company
currently operates 43 offshore platforms in the Gulf of Mexico, and 1995
production from this area accounted for approximately 78% of the Company's
production on an Mcfe basis. At December 31, 1995, the Company's estimated
proved reserves of 301.4 Bcfe consisted of 238.1 Bcf of natural gas
(approximately 79% of total estimated proved reserves on an Mcfe basis) and 10.5
MMbbls of oil and condensate. Approximately 76% of total estimated proved
reserves were classified as proved developed reserves. The Company's pre-tax
discounted future net cash flows from its estimated proved reserves at December
31, 1995 were $274.4 million. These volumes and values include the reserves of
Saxon Petroleum Inc., ("Saxon"), a consolidated subsidiary of the Company in
which the Company purchased a 56% economic interest on December 20, 1995, as
well as amounts attributable to the Company's volumetric production payments.
In recent years, the Company has grown primarily through acquisitions of
producing properties. From January 1, 1991 through December 31, 1995, the
Company acquired 281.1 Bcfe of estimated proved oil and gas reserves, located
primarily in the Gulf of Mexico, Texas and western Canada. The Company's most
recent acquisition and a proposed acquisition together will establish a new core
area of operations in western Canada. On December 12, 1995, the Company entered
into an agreement (the "ATCOR Agreement") to acquire ATCOR Resources Ltd.
("ATCOR") for approximately $135 million. ATCOR is a Canadian corporation
engaged in oil and gas exploration and production in western Canada and the
marketing and processing of natural gas. The Company will use a substantial
portion of the net proceeds of the Offerings to pay the costs and expenses of
the ATCOR acquisition. The closing of the ATCOR acquisition is subject to
certain conditions, including the completion of the Offerings, and consummation
of the Offerings is conditioned upon the Company being able to close the ATCOR
acquisition. In addition, on December 20, 1995, the Company acquired a
controlling interest in Saxon, an Alberta, Canada corporation engaged primarily
in oil and gas exploration and production in western Canada, for $1.1 million in
cash and 1,060,000 shares of Company Common Stock. On a pro forma basis
including the ATCOR acquisition, the Company had estimated proved reserves of
454.9 Bcfe at December 31, 1995 (approximately 73% of which were natural gas
reserves) with pre-tax discounted future net cash flows from its estimated
proved reserves of $375.8 million. While the Company has had no significant
operations in Canada since 1992, it has operated in Canada for over 35 years.
See "-- Recent Developments -- Canadian Acquisitions" below.
In late 1994, the Company began pursuing various alternatives to reduce its
leverage and increase its liquidity. On July 27, 1995, The Anschutz Corporation
("Anschutz") purchased equity securities of the Company for $45 million and the
Company restructured $62.4 million of indebtedness to Joint Energy Development
Investments Limited Partnership ("JEDI"). On January 24, 1996, JEDI exchanged
3
<PAGE>
$22.4 million of the JEDI indebtedness and warrants to acquire Common Stock for
1,680,000 shares of Common Stock (the "JEDI Exchange"). As a result of these
transactions and before giving effect to the issuance of additional shares of
Common Stock in the Offerings, Anschutz and JEDI own approximately 30% and 14%,
respectively, of the outstanding Common Stock of the Company, approximately $40
million of JEDI indebtedness will remain outstanding, and the Company's
liquidity will have been significantly improved. Anschutz has entered into a
five year shareholders agreement with the Company, and, in connection with the
Offerings, has agreed to not transfer any of its shares of Common Stock, except
in limited circumstances, for a period of nine months following completion of
the Offerings. JEDI has entered into a shareholders agreement with the Company,
and has agreed to not transfer any of the shares of Common Stock that it
acquired pursuant to the JEDI Exchange until July 27, 1998, except in limited
circumstances. In addition, Anschutz has designated three members of the
Company's Board of Directors. See "-- Recent Developments -- Anschutz and JEDI
Transactions" below.
In recent years, the Company has not been able to exploit the full potential
of its prior acquisitions due to the financial constraints resulting from its
highly leveraged capital structure and low natural gas prices. As a result of
the Anschutz and JEDI transactions, the ATCOR acquisition and the Offerings, the
Company believes its improved financial flexibility will allow it to exploit its
expanded property base more effectively. This property base will include, on a
pro forma basis as of December 31, 1994 (including ATCOR), over 670,000 net
acres of undeveloped acreage. In addition, on a pro forma basis, the Company
currently has 2-D seismic surveys covering over 430,000 miles and 3-D seismic
surveys covering over 312,000 acres.
STRATEGY
The Company's objective is to increase value through sustained profitable
growth of its oil and gas reserves and production by pursuing a combined
strategy of focused exploration, exploitation, development and acquisitions,
while reducing operating and financial risk. The Company's strategy for
achieving this objective includes:
- INCREASED EXPLORATION SPENDING. The Company believes that its U.S.
properties, particularly those located offshore in the Gulf of Mexico,
have significant exploration potential. Due to past financial constraints,
the Company had sought to reduce its initial capital commitment with
respect to certain of these properties through farmouts. The Company
intends to accelerate the exploration and development of its inventory of
prospects and the acquisition of additional prospects identified by the
Company's exploration teams, while maintaining higher working interests in
those prospects deemed to have the highest potential. Consistent with this
strategy the Company recently announced a significant natural gas
discovery on West Cameron Block 615, offshore Louisiana, in which the
Company owns a 25% working interest. A sidetrack well was drilled to
confirm the discovery. The Company holds 50% working interests in two
adjoining blocks, West Cameron Blocks 616 and 617. In Canada, the Company
intends to focus its exploration effort in the near term on natural gas
prospects in proximity to Company-owned plant processing capacity, as well
as on oil prospects generally. The Company intends to accelerate the
evaluation of ATCOR's properties to confirm and generate prospects for
drilling in late 1996 and 1997.
- EXPLOITATION AND DEVELOPMENT OF EXISTING PROPERTIES. The Company pursues
workovers, recompletions, secondary recovery operations and other
production enhancement techniques on its properties to increase
production. In addition, the Company intends to increase exploitation and
development expenditures and activities in order to increase the reserves
and production potential that it believes are present in the properties
acquired in the ATCOR and Saxon acquisitions.
- ACQUISITIONS. The Company focuses on acquisitions of producing properties
that substantially meet its selection criteria, which include (a) location
in a core area of operations or establishment of a new core area through
the acquisition of a significant property base, (b) attractive potential
return on investment, (c) potential for increasing reserves and production
through reduced risk
4
<PAGE>
exploitation and development, and (d) opportunities for improved operating
efficiencies. In Canada, Forest has an additional criterion that natural
gas properties include sufficient plant processing capacity to provide
adequate access to markets.
- REDUCED FINANCIAL LEVERAGE. The Company's long-term debt (including $18.5
million and $35.9 million of deferred revenue related to volumetric
production payments at September 30, 1995 and December 31, 1994,
respectively) as a percentage of capitalization decreased to 82% at
September 30, 1995 from 98% at December 31, 1994 following the closings of
the Anschutz and JEDI transactions in July 1995. See "-- Recent
Developments -- Anschutz and JEDI Transactions". As a result of the ATCOR
acquisition, the Offerings and the JEDI Exchange, long-term debt as a
percentage of capitalization is expected to be reduced to approximately
47% on a pro forma basis, which is consistent with the Company's long-term
goal of reducing financial leverage.
- HEDGING. The Company utilizes short-term oil and natural gas price hedges
in order to facilitate financial planning and budgeting and long-term
hedges to protect desired levels of cash flow. As of December 31, 1995,
approximately 35 Bcfe of the Company's oil and gas reserves were hedged.
Of this total hedged volume, 15 Bcfe and 11 Bcfe are hedged for 1996 and
1997, respectively.
RECENT DEVELOPMENTS
CANADIAN ACQUISITIONS
The Company believes that due to the low natural gas price environment in
Canada, lack of competitive sources of capital in Canada, and the intense
competition for oil and gas properties in the United States, the Canadian market
currently provides a more attractive environment for acquisitions of oil and gas
reserves than the U.S. market and, accordingly, has identified two strategic
acquisitions.
ATCOR. On December 12, 1995, the Company agreed to acquire ATCOR, a
publicly held Canadian oil and gas company, for an aggregate cash consideration
of approximately $135 million. The closing of the acquisition is subject to
certain conditions, including the completion of the Offerings. The shareholders
of ATCOR approved the acquisition on January 16, 1996. The Company will use a
substantial portion of the net proceeds of the Offerings to pay the costs and
expenses of the ATCOR acquisition, the closing of which is expected to occur
immediately following the closing of the Offerings. See "Business and Properties
- -- ATCOR Acquisition."
ATCOR is engaged in oil and gas exploration and production and the marketing
and processing of natural gas. ATCOR's principal reserves and producing
properties are located in the Canadian provinces of Alberta and British
Columbia. At December 31, 1995, ATCOR's estimated proved oil and gas reserves
totaled 153.5 Bcfe, as prepared by McDaniel & Associates Consultants Ltd.,
independent petroleum consulting engineers ("McDaniel"). ATCOR also owns
interests in 18 natural gas processing and treatment facilities in western
Canada. ATCOR's wholly owned natural gas marketing company is one of the largest
in Canada. ATCOR marketed approximately 800 MMcf/d of natural gas in the three
months ended September 30, 1995. See "Business and Properties -- ATCOR
Acquisition."
SAXON. On December 20, 1995, the Company acquired a 56% economic (49%
voting) interest in Saxon, an oil and gas exploration and production company
headquartered in Calgary, Alberta, Canada. In the transaction, Forest acquired
common stock and warrants of Saxon in exchange for approximately $1.1 million
and 1,060,000 shares of Common Stock, all of which are being offered for sale
hereby.
Saxon is focused on exploitation and development drilling primarily in
Alberta. Principal reserves and producing properties are located in three
project areas in western and northwestern Alberta in the Pembina, Bigoray and
Kaybob South fields. At December 31, 1995, Saxon had estimated proved oil and
natural gas reserves of 42.2 Bcfe, as prepared by Fekete & Associates, Inc.,
independent oil and natural gas reservoir engineers ("Fekete").
5
<PAGE>
It is Forest's current intention that ATCOR and Saxon will initially operate
as separate entities under separate Canadian managements. Forest will operate
ATCOR as a wholly owned subsidiary. While Saxon will continue to be a public
company, Forest is entitled to appoint, and has appointed, a majority of the
Saxon Board of Directors.
ANSCHUTZ AND JEDI TRANSACTIONS
On July 27, 1995, Anschutz purchased securities of the Company for $45
million and the Company restructured $62.4 million of indebtedness to JEDI.
Anschutz purchased 3,760,000 shares of Common Stock and shares of the Company's
Second Series Convertible Preferred Stock (the "Second Series Preferred Stock")
that are convertible into 1,240,000 additional shares of Common Stock for a
total consideration of $45 million, or $9.00 per share. The Anschutz investment
was made in two closings. In the first closing, Anschutz loaned the Company $9.9
million. At the second closing, Anschutz converted the loan into 1,100,000
shares of Common Stock and purchased an additional 2,660,000 shares of Common
Stock, the Second Series Preferred Stock and the A Warrants described below for
a total of $35.1 million. At the second closing, Anschutz also received from
JEDI an option to purchase from JEDI up to 2,250,000 shares of Common Stock that
JEDI may acquire from the Company upon exercise of the B Warrants described
below (the "Anschutz Option"). As a result of these transactions, Anschutz
acquired approximately 40% of the then outstanding Common Stock.
In connection with the Anschutz transaction, Anschutz and the Company
entered into a shareholders agreement restricting the voting rights of the
Company's Common Stock acquired by Anschutz (the "Anschutz Shareholders
Agreement"). In addition, Anschutz agreed to limit its ownership of the
Company's Common Stock to 40% of the outstanding Common Stock for a five year
period. Subject to such 40% ownership limitation, and in any event after July
27, 2000, Anschutz could acquire an additional 1,240,000 shares of Common Stock
by converting the Second Series Preferred Stock. In addition, subject to the 40%
limitation, Anschutz has the right to acquire an additional 6,138,888 shares of
Common Stock, 3,888,888 shares by the exercise of warrants at a price of $10.50
per share (the "A Warrants") and 2,250,000 shares by exercise of the option from
JEDI at an initial exercise price of $10.00 per share. The A Warrants were
originally scheduled to expire on January 27, 1997. In accordance with the terms
of the A Warrants, such expiration will be extended to July 27, 1998 upon
completion of the Offerings in exchange for Anschutz's agreement to not sell the
shares of Company Common Stock that it owns for nine months after the Offerings,
except in limited circumstances. In the Anschutz Shareholders Agreement,
Anschutz also received the right to designate three members of the Company's
Board of Directors.
On July 27, 1995, the Company also restructured $62.4 million of
indebtedness held by JEDI. The JEDI loan was divided into two tranches: a $40
million tranche, which bears interest at the rate of 12.5% per annum and is due
on December 31, 2000; and an approximately $22.4 million tranche, which does not
bear interest and matures on December 31, 2002. JEDI also relinquished the net
profits interest that it held in certain properties of the Company and received
warrants to purchase 2,250,000 shares of the Common Stock with an exercise price
of $10.00 per share (the "B Warrants"). As a result of the loan restructuring
and the issuance of the B Warrants, the Company reduced the recorded amount of
the $62.4 million of indebtedness held by JEDI to approximately $45 million,
extended maturities of certain JEDI indebtedness and expects a reduction of
interest expense of approximately $2 million per year.
On January 24, 1996, JEDI exchanged the $22.4 million tranche and the B
Warrants for 1,680,000 shares of Common Stock. As a result of the JEDI Exchange,
the Company expects that non-cash interest expense will be reduced by an
additional $1.5 million per year. Pursuant to the JEDI Exchange, JEDI entered
into a shareholders agreement with the Company (the "JEDI Shareholders
Agreement") that limits JEDI's right to vote its shares of Common Stock and,
except in certain limited circumstances, to transfer its shares before July 27,
1998. The JEDI Shareholders Agreement also entitles JEDI to designate a member
of the Company's Board of Directors if the average price of the Common Stock
over a period of 30 trading days is less than or equal to $8.75 per share or if
there is a substantial downgrading in the rating of the Company's debt
securities. The JEDI Shareholders Agreement will terminate upon the
6
<PAGE>
termination of the Anschutz shareholders agreement or earlier if the shares
acquired by JEDI pursuant to the JEDI Exchange and still held by JEDI are less
than 3% of the shares of Common Stock then outstanding. See "The Anschutz and
JEDI Transactions."
Pursuant to the JEDI Exchange, the Company assumed JEDI's obligations under
the Anschutz Option. Under the Anschutz Option, the Company is obligated to
issue shares directly to Anschutz that previously would have been issued to JEDI
pursuant to the B Warrants. Upon the exercise of the Anschutz Option, instead of
the B Warrant price of $10.00 per share, the Company would receive an amount
equal to the lesser of (a) $10.00 plus 18% per annum from July 27, 1995 to the
date of exercise of the option, or (b) $15.50. The Company is permitted to use
proceeds from the exercise of the Anschutz Option for any corporate purpose. See
"The Anschutz and JEDI Transactions."
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock offered by:
The Company
U.S. Offering.................................. 9,299,000 shares (1)(2)
International Offering......................... 1,641,000 shares (1)(2)
Total........................................ 10,940,000 shares (1)(2)
Selling Shareholder
U.S. Offering.................................. 901,000 shares (2)
International Offering......................... 159,000 shares (2)
Total........................................ 1,060,000 shares (2)
Common Stock outstanding before the Offerings...... 12,337,992 shares (2)(3)
Common Stock outstanding after the Offerings....... 23,277,992 shares (1)(2)(3)
Use of proceeds.................................... The net proceeds will be used to pay
the costs and expenses of the ATCOR
acquisition (estimated to be
approximately $136 million), to repay
indebtedness and for general corporate
purposes including working capital.
The proceeds to be received by Saxon,
the Selling Shareholder, will be used
to repay its bank indebtedness. See
"Use of Proceeds."
Nasdaq National Market symbol for Common Stock..... FOIL
</TABLE>
- ------------------------
(1) Does not include up to 1,800,000 shares of Common Stock which may be sold by
the Company pursuant to the Underwriters' over-allotment options.
(2) Unless otherwise indicated, all share amounts have been adjusted to give
effect to a five-to-one reverse stock split that occurred on January 8,
1996.
(3) Based on the number of shares of Common Stock outstanding at December 21,
1995, after giving effect to the 5 to 1 reverse stock split and 1,680,000
shares issued to JEDI pursuant to the JEDI Exchange. See "The Anschutz and
JEDI Transactions." Does not include a total of 10,255,752 shares reserved
for issuance and represented by: 611,800 shares issuable upon exercise of
outstanding stock options, 248,943 shares issuable upon exercise of the
Company's Public Warrants (as defined herein), 3,888,888 shares issuable
upon the exercise of the A Warrants, 2,250,000 shares issuable upon the
exercise of the Anschutz Option, 2,016,121 shares issuable upon conversion
of the Company's $.75 Convertible Preferred Stock (as defined herein) and
1,240,000 shares issuable upon conversion of the Company's Second Series
Preferred Stock. See "Description of Capital Stock."
7
<PAGE>
SUMMARY PRO FORMA OIL AND GAS RESERVE INFORMATION
The following table sets forth summary pro forma information with respect to
estimates of proved oil and gas reserves of the Company, Saxon and ATCOR, the
pre-tax discounted future net cash flows for these reserves as of December 31,
1995 and certain production information through September 30, 1995. For
additional information relating to reserves, see "Risk Factors -- Ceiling
Limitation Writedowns," "-- Reliance on Reserve Estimates," "Business and
Properties -- Pro Forma Oil and Gas Reserves" and Note 16 of Notes to
Consolidated Financial Statements of the Company.
<TABLE>
<CAPTION>
COMBINED PRO FORMA
FOREST AND COMBINED
FOREST (1) SAXON (2) SAXON ATCOR FOREST
---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Proved reserves:
Natural gas (MMcf)........................................ 215,451 16,218 231,669 92,038 323,707
Liquids (Mbbls) (3)....................................... 6,129 4,338 10,467 10,247 20,714
---------- ---------- ----------- ---------- -----------
Total proved reserves (MMcfe) (4)........................... 252,225 42,246 294,471 153,520 447,991
Total proved reserves attributable to volumetric production
payments (MMcfe) (4)....................................... 6,903 -- 6,903 -- 6,903
---------- ---------- ----------- ---------- -----------
Total proved reserves including amounts attributable to
volumetric production payments (MMcfe) (4)................. 259,128 42,246 301,374 153,520 454,894
---------- ---------- ----------- ---------- -----------
---------- ---------- ----------- ---------- -----------
Pre-tax discounted future net cash flows relating to proved
oil and gas reserves (in thousands)........................ $ 236,911 28,891 265,802 101,386 367,188
---------- ---------- ----------- ---------- -----------
---------- ---------- ----------- ---------- -----------
Total pre-tax discounted future net cash flows relating to
proved oil and gas reserves, including amounts attributable
to volumetric production payments (in thousands)........... $ 245,487 28,891 274,378 101,386 375,764
---------- ---------- ----------- ---------- -----------
---------- ---------- ----------- ---------- -----------
Daily production (5)
Natural gas (Mcf)......................................... 94,300 8,689 102,989 49,048 152,037
Liquids (Bbls)(3)......................................... 3,392 1,473 4,865 4,454 9,319
---------- ---------- ----------- ---------- -----------
Total (Mcfe) (4)........................................ 114,652 17,527 132,179 75,773 207,952
---------- ---------- ----------- ---------- -----------
---------- ---------- ----------- ---------- -----------
</TABLE>
- --------------------------
(1) Includes certain Canadian reserves which are not significant.
(2) Represents 100% of the reserves owned by Saxon, a consolidated subsidiary in
which the Company holds a 56% economic interest.
(3) Includes crude oil, condensate and natural gas liquids.
(4) Computed on the basis that one barrel of liquids is equivalent to 6 Mcf of
natural gas.
(5) Represents average daily production during the nine months ended September
30, 1995.
The Company's United States reserves have been reviewed by Ryder Scott
Company ("Ryder Scott"). A report on Saxon's reserves has been prepared by
Fekete. A report on ATCOR's reserves has been prepared by McDaniel. Copies of
the review letter of Ryder Scott and the summary reserve reports of Fekete and
McDaniel are attached as Appendices A, B and C to this Prospectus.
8
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SUMMARY FINANCIAL AND OPERATING DATA
The summary financial and operating data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Condensed Pro Forma Combined Financial
Statements and the Consolidated Financial Statements of the Company (including
the Notes thereto).
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------------------- ------------------------------------------
PRO FORMA PRO FORMA
1995 (1) 1995 1994 1994 (1) 1994 1993 1992 (2)
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS,
PRICES AND VOLUMES)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenue (3).......................................... $ 210,513 60,528 93,727 261,681 115,947 105,148 113,186
Earnings (loss) before cumulative effects of changes
in accounting principles and extraordinary item
(4)................................................. $ (6,242) (14,533) (32,902) (55,354) (67,853) (9,355) 7,298
Net earnings (loss).................................. $ (6,242) (14,533) (46,892) (69,344) (81,843) (21,213) 7,298
EBITDA (5)........................................... $ 67,188 38,191 69,527 120,130 82,397 73,605 85,710
Weighted average number of common shares
outstanding......................................... 20,291 6,611 5,614 19,299 5,619 4,399 2,755
Net earnings (loss) attributable to common stock..... $ (7,862) (16,153) (48,513) (71,505) (84,004) (23,463) 4,950
Primary earnings (loss) per share (6):
Earnings (loss) before cumulative effects of
changes in accounting principles and extraordinary
item.............................................. $ (.39) (2.44) (6.15) (2.98) (12.46) (2.64) 1.80
Net earnings (loss)................................ $ (.39) (2.44) (8.64) (3.71) (14.95) (5.34) 1.80
BALANCE SHEET DATA (AT END OF PERIOD)
Total assets......................................... $ 528,993 304,743 351,724 324,832 426,755 378,532
Long-term obligations................................ 191,049 202,460 249,728 247,988 266,561 240,413
Shareholders' equity................................. 205,435 44,387 40,230 6,086 88,156 59,881
OPERATING DATA
Production (7):
Gas (MMcf)......................................... 41,506 25,744 38,432 66,652 48,048 41,114 29,174
Liquids (Mbbls).................................... 2,544 926 1,152 3,583 1,543 1,493 1,450
Average price received (7):
Gas (per Mcf)...................................... $ 1.44 1.75 1.93 1.70 1.90 1.88 1.70
Liquids (per Bbl).................................. 13.91 15.94 14.60 12.54 14.83 16.97 18.14
Production expense per Mcfe.......................... .51 .53 .37 .40 .39 .39 .38
General and administrative expense per Mcfe.......... .15 .18 .17 .17 .19 .24 .32
Capital expenditures................................. 37,281 20,274 26,552 85,562 42,544 170,821 106,627
</TABLE>
- ----------------------------------
(1) The pro forma statement of operations data, balance sheet data and operating
data include pro forma adjustments to (i) give effect to the sale of the
Common Stock in the Offerings and the use of a portion of the proceeds to
fund the acquisition of ATCOR, (ii) restate the historical financial
statements of ATCOR to conform to U.S. generally accepted accounting
principles, (iii) reflect the acquisition of ATCOR using the purchase method
of accounting, (iv) reflect the sale of certain assets to ATCOR's
controlling shareholders and the use of the proceeds therefrom to repay
long-term debt of ATCOR, (v) give effect to the acquisition of the interest
in Saxon and (vi) give effect to the JEDI Exchange.
(2) Statement of operations data and balance sheet data for the year ended
December 31, 1992 include the effects of the ONEOK settlement, which
increased revenue by $37,541,000 and net earnings by $24,043,000 or $8.73
per share. Operating data for the year ended December 31, 1992 excludes the
effects of the ONEOK settlement. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
(3) Pro forma revenue for the nine months ended September 30, 1995 and the year
ended December 31, 1994 includes gas marketing and processing revenue of
$113,620,000 and $97,828,000, respectively.
(4) The Company changed its method of accounting for oil and gas sales from the
sales method to the entitlements method effective January 1, 1994. The
Company adopted the provisions of Statements of Financial Accounting
Standards No. 106 and No. 109 effective January 1, 1993. These statements
required the Company to accrue the expected cost of postretirement benefits
and to adopt the liability method of accounting for income taxes,
respectively. In 1993, the Company realized a loss on extinguishment of debt
of $10,735,000 as a result of the redemption of its outstanding Senior
Secured Notes and long-term subordinated debentures. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Notes 1, 4, 6 and 10 of Notes to Consolidated Financial Statements of
the Company.
(5) EBITDA is generally defined as income before cumulative effect of accounting
change, provision for income taxes, interest, depreciation, depletion,
amortization and certain other non-cash charges. EBITDA is included as
supplemental disclosure because it may provide useful information regarding
a company's ability to service and incur debt. EBITDA, however, should not
be considered in isolation or as a substitute for net income, cash flow
provided by operating activities or other income or cash flow data prepared
in accordance with generally accepted accounting principles or as a measure
of a company's profitability or liquidity.
(6) Fully diluted earnings (loss) per share was the same as primary earnings
(loss) per share in all periods except the year ended December 31, 1992. In
1992, fully diluted earnings per share was $1.45.
(7) Includes amounts attributable to required deliveries under volumetric
production payments. See Notes 5 and 16 of Notes to Consolidated Financial
Statements of the Company.
9
<PAGE>
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE COMPANY'S COMMON STOCK SHOULD CAREFULLY
CONSIDER, TOGETHER WITH THE OTHER INFORMATION HEREIN, THE FOLLOWING FACTORS THAT
AFFECT THE COMPANY:
CONDITIONS IN OIL AND GAS INDUSTRY AFFECTING THE COMPANY
The Company's revenues, profitability and future rate of growth, if any, are
substantially dependent upon prevailing prices for oil and natural gas and the
ability of the Company to acquire proved reserves. Historically, the prices for
oil and natural gas have been quite volatile. The Company is impacted more by
natural gas prices than by oil prices, because the majority of its production
(expected to be approximately 82% in 1995 on an Mcfe basis) is natural gas. In
addition, at December 31, 1995, 79% of the Company's estimated proved reserves
were attributable to natural gas on an Mcfe basis. The Company has entered into
volumetric production payments and energy swap agreements with respect to a
portion of its current production which reduce the Company's exposure to
commodity price risk. However, a significant portion of the Company's oil and
gas production is subject to spot market prices, which have historically been
volatile. The volatility of the spot market for natural gas is due to factors
beyond the Company's control, including seasonality of demand. Prices are also
affected by actions of state and local agencies, the United States and foreign
governments, and international cartels. These external factors and the volatile
nature of the energy markets make it difficult to estimate future prices of oil
and natural gas. Any substantial or extended decline in the price of oil or
natural gas would have a material adverse effect on the Company's financial
condition and results of operations.
The marketability of the Company's production depends in part upon the
availability, proximity and capacity of gas gathering systems, pipelines and
processing facilities. U.S. federal and state regulation and Canadian regulation
of oil and gas production and transportation, general economic conditions, and
changes in supply and demand all could adversely affect the Company's ability to
produce and market its oil and natural gas. If market factors were to change
dramatically, the financial impact on the Company could be substantial. The
availability of markets is beyond the control of the Company and thus represents
a significant risk. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
FINANCIAL CONDITION OF THE COMPANY
Net cash provided by operating activities has varied dramatically in the
last three years. Net cash provided (used) by operating activities was
($4,253,000) and $25,843,000 for the nine months ended September 30, 1995 and
1994, respectively and was $42,546,000, $41,722,000 and $97,241,000 for the
years ended December 31, 1994, 1993 and 1992, respectively. In 1992, the ONEOK
settlement accounted for $51,250,000 of the net cash provided by operating
activities. Such cash flow also included proceeds from the Company's volumetric
production payments, net of amortization of deferred revenues, of ($17,407,000)
and ($23,437,000) for the nine months ended September 30, 1995 and 1994,
respectively and ($31,320,000), $162,000 and $26,867,000 for the years ended
1994, 1993 and 1992, respectively. See Note 5 of the Notes to Consolidated
Financial Statements of the Company. The majority of the increases and decreases
in net cash provided by operating activities is generally attributable to
increases and decreases in net oil and gas revenue. Revenue from operations has
varied dramatically each year depending upon factors such as natural gas
contract settlements and price fluctuations which are difficult to predict.
While the Anschutz and JEDI transactions reduced annual interest
requirements, the Company's capital structure continues to be highly leveraged.
The Company's highly leveraged capital structure has limited the Company's
ability to obtain outside capital or other financing. In addition, capital
restraints have led to reduced investment in exploration and development. In
1995, the Company experienced significant declines in production from levels in
previous years. Without substantial capital expenditures, the Company would
continue to experience such declines. Due to the uncertainty of the Company's
business, no assurance can be given that the Company will not continue to
experience liquidity problems in the future.
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<PAGE>
The Company financed its significant acquisitions and capital expenditures
in 1992 and 1993 primarily through volumetric and dollar-denominated nonrecourse
debt. The Company may finance future acquisitions and capital expenditures
through bank borrowings or the issuance of debt instruments, sale of production
payments or other non-recourse financing, the sale of Common Stock, preferred
stock or other equity securities of the Company, the issuance of net profits
interests, sales of non-strategic properties, prospects and technical
information, or joint venture financing. There can be no assurance that any of
such financing alternatives will be available at attractive terms or at all and
as a result, the Company may not have adequate long-term liquidity to replace or
increase its depleting asset base of oil and gas reserves or to fund its
long-term obligations including its existing debentures and notes. Assuming that
the Offerings and the ATCOR acquisition are completed, the Company expects that
its direct capital expenditures for exploration and development in the United
States and Canada will be approximately $35,000,000 and $21,000,000,
respectively, or $56,000,000 in the aggregate. Before fully implementing this
program, the Company believes that it must obtain $30,000,000 of additional
financing. A portion of this financing may be provided by proceeds raised from
the Offerings in excess of the amount needed to acquire ATCOR. The Company
expects to be able to meet its remaining 1996 capital expenditure financing
requirements by borrowings under existing lines of credit or financings based on
ATCOR's reserves. The Company expects to enter into an additional credit
facility based upon ATCOR's reserves upon completion of the ATCOR acquisition or
as soon thereafter as is practicable.
In addition, the Company reported net losses of $81,843,000 and $21,213,000
in the years ended December 31, 1994 and 1993, respectively, and a net loss of
$14,533,000 in the first nine months of 1995. While the Company reported net
earnings of $7,298,000 in the year ended December 31, 1992, the results included
$24,043,000 of net earnings associated with the ONEOK settlement. The net losses
in the nine months ended September 30, 1995 and the years ended December 31,
1994 and 1993 were primarily the result of lower gas prices and production and
the writedown of the Company's oil and gas properties in 1994. See "-- Ceiling
Limitation Writedowns" below. The Company's results of operations for 1992 were
also adversely affected by lower gas prices.
Many of the factors which affect the Company's future operating performance
and long-term liquidity are beyond the Company's control, including, but not
limited to, oil and gas prices, governmental actions and taxes, the availability
and attractiveness of properties for acquisition, the adequacy and
attractiveness of financing and operational difficulties. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
CURRENCY RISK
Following the acquisition of ATCOR, a substantial portion of the Company's
operations will be located in Canada. The expenses of such operations will be
payable in Canadian dollars and certain of the revenues derived from natural gas
and oil sales will be based upon U.S. dollar prices. The results of such
Canadian operations will therefore be subject to the risks of fluctuation in the
relative values of Canadian and U.S. dollars.
CEILING LIMITATION WRITEDOWNS
The Company reports its operations using the full cost method of accounting
for oil and gas properties. The Company capitalizes the cost to acquire, explore
for and develop oil and gas properties. Under full cost accounting rules, the
net capitalized costs of oil and gas properties may not exceed a "ceiling limit"
which is based upon the present value of estimated future net cash flows from
proved reserves, discounted at 10%, plus the lower of cost or fair market value
of unproved properties. See Note 1 of Notes to Consolidated Financial Statements
of the Company. If net capitalized costs of oil and gas properties exceed the
ceiling limit, the Company is subject to a ceiling limitation writedown to the
extent of such excess. A ceiling limitation writedown is a charge to earnings
which does not impact cash flow from operating activities. However, such
writedowns impact the amount of the Company's shareholders' equity. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Liquidity and Capital Resources." The risk that the Company will be
required to write down the carrying value of its oil and gas properties
increases when oil and gas prices are depressed or volatile. In
11
<PAGE>
addition, writedowns may occur if the Company has substantial downward revisions
in its estimated proved reserves or if purchasers or governmental action cause
an abrogation of, or the Company voluntarily cancels, long-term contracts for
its natural gas. Although the Company did not have a writedown in 1992 or 1993,
the Company had a writedown of $58,000,000 in 1994. No assurance can be given
that the Company will not experience additional writedowns in the future.
GENERAL RISKS OF OIL AND GAS OPERATIONS
The nature of the oil and gas business involves a variety of risks,
including, but not limited to, the risks of operating hazards such as fires,
explosions, cratering, blow-outs, adverse weather conditions, pollution and
environmental risks, encountering formations with abnormal pressures, and, in
horizontal wellbores, the increased risk of mechanical failure and collapsed
holes, the occurrence of any of which could result in substantial losses to the
Company. The Company conducts a substantial portion of its operations offshore
in the Gulf of Mexico. Such operations are subject to certain risks including,
but not limited to, collision, sinking and grounding of rigs and vessels. These
risks could result in substantial losses to the Company due to personal injury,
severe damage or destruction of property and equipment, environmental clean-up
costs and the suspension of operations. The Company maintains insurance against
some, but not all, of these risks in amounts that management believes to be
reasonable in accordance with customary oil and gas industry practices. The
occurrence of a significant event, however, that is not fully insured could have
a material adverse effect on the Company's financial condition and results of
operations.
DRILLING RISKS
Drilling involves numerous risks, including the risk that no commercially
productive oil or gas reservoirs will be encountered. The cost of drilling and
completing wells is often unpredictable, and drilling operations may be
curtailed, delayed or cancelled as a result of a variety of factors, including
unexpected driling conditions, pressure or irregularities in formations,
equipment failures or accidents, weather conditions and shortages or delays in
delivery of equipment. There can be no assurance as to the success of the
Company's future drilling activities. The Company's current inventory of 2-D and
3-D seismic surveys will not necessarily increase the likelihood that the
Company will drill or complete commercially productive wells or that the volumes
of reserves discounted, if any, would necessarily be greater than the Company
would have discovered without its current inventory of seismic surveys.
GAS MARKETING
The Company's operations will include gas marketing as a result of the ATCOR
acquisition. ATCOR's gas marketing operations consist of the marketing of its
own gas production, the purchase and direct sale of third parties' natural gas,
the handling of transportation and operations of such third party gas and spot
purchasing and selling of natural gas. The profitability of such natural gas
marketing operations will depend in large part on the ability of the Company to
assess and respond to changing market conditions, including credit risk, in
negotiating natural gas purchase and sale agreements. Profitability of such
natural gas marketing operations will also depend in large part on the ability
of the Company to maximize the volume of third party natural gas which the
Company purchases and resells and on the ability of the Company to obtain a
satisfactory margin between the purchase price and the sales price for such
volumes. The inability of the Company to respond appropriately to changing
market conditions in connection with ATCOR's gas marketing division could
materially adversely affect the Company's results of operations.
GAS PROCESSING
As a result of the ATCOR acquisition, the Company's operations will include
processing of natural gas to extract various natural gas liquids. ATCOR's gas
processing operations primarily consist of an interest in an ethane extraction
plant located in Edmonton, Canada. In order to obtain from natural gas suppliers
volumes of committed natural gas reserves to maintain natural gas throughput at
optimal levels, the plant must periodically contract to process additional
natural gas volumes provided from new or existing sources.
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<PAGE>
COMPETITION
The Company operates in a highly competitive environment. The Company
competes with major and independent oil and gas companies for the acquisition of
desirable oil and gas properties, as well as the equipment and labor required to
develop and operate such properties. The Company also competes with major and
independent oil and gas companies in the marketing and sale of oil and natural
gas to marketers and end-users. Many of these competitors have financial and
other resources substantially greater than those of the Company. See "Business
and Properties -- Competition."
REPLACEMENT OF RESERVES
In general, the volume of production from oil and gas properties declines as
reserves are depleted. The decline rates depend on reservoir characteristics and
vary from the steep decline rates characteristic of Gulf of Mexico reservoirs,
where the Company has a significant portion of its production, to the relatively
slow decline rates characteristic of long-lived fields in other regions. Except
to the extent the Company acquires properties containing proved reserves or
conducts successful development and exploration activities, or both, the proved
reserves of the Company will decline as reserves are produced. The Company's
future natural gas and oil production is, therefore, highly dependent upon its
level of success in finding or acquiring additional reserves. The business of
exploring for, developing or acquiring reserves is capital intensive. To the
extent cash flow from operations is reduced and external sources of capital
become limited or unavailable, the Company's ability to make the necessary
capital investment to maintain or expand its asset base of oil and gas reserves
would be impaired. In addition, there can be no assurance that the Company's
future development, acquisition and exploration activities will result in
additional proved reserves or that the Company will be able to drill productive
wells at acceptable costs.
ACQUISITION RISKS
The Company's growth has been primarily attributable to acquisitions of
producing properties. After the Offerings, the Company expects to continue to
evaluate and pursue acquisition opportunities on terms management considers
favorable to the Company. The successful acquisition of producing properties
requires an assessment of recoverable reserves, future oil and gas prices,
operating costs, potential environmental and other liabilities and other factors
beyond the Company's control. Such assessments are necessarily inexact and their
accuracy inherently uncertain. In connection with such an assessment, the
Company performs a review of the subject properties that it believes to be
generally consistent with industry practices. Such a review, however, will not
reveal all existing or potential problems nor will it permit a buyer to become
sufficiently familiar with the properties to fully assess their deficiencies and
capabilities. Inspections may not always be performed on every platform or well,
and structural and environmental problems are not necessarily observable even
when an inspection is undertaken. The Company is generally not entitled to
contractual indemnification for pre-closing liabilities, including environmental
liabilities, and generally acquires interests in the properties on an "as is"
basis with limited remedies for breaches of representations and warranties.
LIMITED KNOWLEDGE OF ATCOR AND SAXON BUSINESSES AND PROPERTIES
Forest must rely on information provided by ATCOR and Saxon regarding their
respective businesses and properties without being able to fully verify all such
information and without the benefit of knowing the history of operations of
their properties or businesses. Therefore, no assurances can be given as to the
accuracy or completeness of such information. The Company has conducted such due
diligence on ATCOR and Saxon as it believes is prudent and normal in
transactions of this nature. Forest will not, however, be able to fully
investigate all of their businesses and properties. Due diligence has been
conducted only on those properties the Company believes have the most
significant value. The Company will receive certain representations and
warranties from ATCOR and Saxon in connection with the acquisitions. The
representations and warranties received from ATCOR will not survive the closing,
however, and therefore the Company will have no recourse against any third party
for breaches of such representations and warranties, and, without any effective
remedy for such breaches, will only be able to rely on its due diligence with
respect to such matters.
13
<PAGE>
RELIANCE ON RESERVE ESTIMATES
Information relating to the Company's, Saxon's and ATCOR's estimates of
proved reserves of oil and natural gas is based upon engineering estimates. The
Company's reserve reports have been reviewed by Ryder Scott. A report on Saxon's
reserves has been prepared by Fekete. A report on ATCOR's reserves has been
prepared by McDaniel. Copies of the review report of Ryder Scott and the summary
reserve reports of Fekete and McDaniel are attached as Appendices A, B and C to
this Prospectus. For information relating to the pro forma estimated proved
reserves of the Company as of December 31, 1995, see "Business and Properties --
Pro Forma Oil and Gas Reserves." Petroleum engineering is not an exact science.
Estimates of commercially recoverable oil and gas reserves and of the future net
cash flows therefrom are based upon a number of variable factors and
assumptions, such as historical production from the subject properties,
comparison with other producing properties, the assumed effects of regulation by
governmental agencies and assumptions concerning future oil and gas prices and
future operating costs, severance and excise taxes, abandonment costs,
development costs and workover and remedial costs, all of which may in fact vary
considerably from actual results. All such estimates are to some degree
speculative, and various classifications of reserves are only attempts to define
the degree of speculation involved. For these reasons, estimates of the
commercially recoverable reserves of oil and natural gas attributable to any
particular property or group of properties, the classification, cost and risk of
recovering such reserves and estimates of the future net cash flows expected
therefrom, prepared by different engineers or by the same engineers at different
times, may vary substantially. The Company therefore emphasizes that the actual
production, revenues, severance and excise taxes, development expenditures,
workover and remedial expenditures, abandonment expenditures and operating
expenditures with respect to its reserves will likely vary from such estimates,
and such variances may be material.
In addition, actual future net cash flows will be affected by factors such
as price, actual production, supply and demand for oil and natural gas,
curtailments or increases in consumption by natural gas purchasers, changes in
governmental regulations or taxation and the impact of inflation on costs. The
timing of actual future net revenue from proved reserves, and thus their actual
present value, can be affected by the timing of the incurrence of expenditures
in connection with development of oil and gas properties. The 10% discount
factor, which is required by the Securities and Exchange Commission (the
"Commission") to be used to calculate present value for reporting purposes, is
not necessarily the most appropriate discount factor based on interest rates in
effect from time to time and risks associated with the oil and gas industry.
Discounted present value, no matter what discount rate is used, is materially
affected by assumptions as to the amount and timing of future production, which
may and often do prove to be inaccurate.
GOVERNMENT REGULATION, ENVIRONMENTAL RISKS AND TAXES
Various aspects of the Company's oil and natural gas operations are
regulated by administrative agencies under statutory provisions of the states
and provinces where such operations are conducted, by certain agencies of the
Federal government for operations on Federal leases and by the Canadian
Government. In the past, the Federal government has regulated the prices at
which oil and natural gas could be sold. While sales by producers of natural
gas, and all sales of crude oil, condensate and natural gas liquids can
currently be made at uncontrolled market prices, Congress could reenact price
controls in the future. See "Business and Properties -- Foreign Operations."
Extensive U.S., state and local laws and Canadian laws govern oil and gas
operations regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment. Numerous governmental
departments issue rules and regulations to implement and enforce such laws which
are often difficult and costly to comply with and which carry substantial
penalties for failure to comply. These laws, rules and regulations may restrict
the rate of oil and gas production below the rate that would otherwise exist.
The regulatory burden on the oil and gas industry increases its cost of doing
business and consequently affects its profitability. These laws, rules and
regulations affect the operations of the Company. Compliance with environmental
requirements generally could have a material
14
<PAGE>
adverse effect upon the capital expenditures, earnings or competitive position
of Forest. Although Forest's experience has been to the contrary, there is no
assurance that this will continue to be the case. See "Business and Properties
- -- Regulation" and "-- Operating Hazards and Environmental Matters."
OWNERSHIP POSITION OF ANSCHUTZ
Anschutz has a substantial ownership position in the Company and may
designate three of the Company's directors. Therefore, Anschutz has the ability
to exert substantial influence with respect to matters considered by the Board
of Directors. Based on the number of shares outstanding on December 21, 1995 and
the issuance of 1,680,000 shares in the JEDI Exchange, Anschutz owned
approximately 30% of the outstanding Common Stock. Anschutz may acquire
additional shares up to a maximum 40% position, but its ability to exceed such
percentage is limited by a five-year shareholders agreement with the Company.
Under certain circumstances Anschutz could have a veto power over proposed
transactions between the Company and third parties such as a merger, which
requires the approval of the holders of two-thirds of the outstanding Common
Stock. It is unlikely that control of the Company could be transferred to a
third party without Anschutz's consent and agreement. It is also unlikely that a
third party would offer to pay a premium to acquire the Company without the
prior agreement of Anschutz, even if the Board of Directors should choose to
attempt to sell the Company in the future. It will also be unlikely that the
Company will be able to enter into a transaction accounted for as a pooling of
interests in the next two years. Finally, the 40% ownership limitation on
Anschutz's ownership terminates after five years and earlier under certain
circumstances. In the absence of these limitations, based on the number of
shares outstanding on December 21, 1995 and after giving effect to the JEDI
Exchange, Anschutz would be able to acquire up to an additional approximately
26% of the Common Stock by converting its Second Series Preferred Stock and
exercising the Anschutz Option and A Warrants during their respective terms.
After the Offerings (assuming that the Underwriters do not exercise their
over-allotment options), Anschutz would own approximately 16% of the Common
Stock then outstanding, and, if Anschutz were then to convert its Second Series
Preferred Stock and exercise the Anschutz Option and the A Warrants, Anschutz
would own approximately 36% of the Common Stock then outstanding. See "The
Anschutz and JEDI Transactions -- Shareholders Agreements."
DILUTION
The public offering price of the Common Stock will be substantially higher
than the net tangible book value per share of the Common Stock. The net tangible
book value per share as of September 30, 1995 was $.98 per share, and assuming a
public offering price of $13.75 per share, the pro forma net tangible book value
per share as of September 30, 1995 immediately following the Offerings (assuming
no exercise of the Underwriters' over-allotment options), the application of the
proceeds therefrom and after giving effect to the consummation of the ATCOR
acquisition and the JEDI Exchange, would be $7.33 per share. Such pro forma net
tangible book value per share represents an increase in net tangible book value
per share at September 30, 1995 of $6.35 per share attributable to the cash
payments made by the purchasers of the shares in the Offerings and an immediate
dilution of $6.42 per share from the public offering price that will be absorbed
by such purchasers.
The Company has reserved an aggregate of 10,255,752 shares for issuance upon
exercise of the following securities at the prices indicated: 2,016,121 shares
issuable upon conversion of the Company's $.75 Convertible Preferred Stock;
1,240,000 shares issuable upon conversion of the Company's Second Series
Preferred Stock; 611,800 shares issuable upon the exercise of various options at
prices ranging from $15.00 to $25.00 per share; 248,943 shares issuable upon
exercise of the Company's Public Warrants; 2,250,000 shares issuable upon the
exercise of the Anschutz Option; and 3,888,888 shares issuable upon the exercise
of the Company's A Warrants at an exercise price of $10.50 per share. In the
event a significant number of such securities are converted or exercised, the
ownership position of existing shareholders would be subject to substantial
dilution.
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ANTI-TAKEOVER PROVISIONS
Certain provisions in the Company's Restated Certificate of Incorporation,
By-laws, the shareholders' rights plan, and executive severance agreements may
make it more difficult to effect a change in control of the Company and replace
incumbent management. See "Description of Capital Stock -- Anti-Takeover
Provisions."
THE COMPANY
Forest is an independent oil and natural gas company focused on the
exploration, exploitation, development and acquisition of oil and gas
properties. The Company, which is a successor to a company formed in 1916, has
been a publicly held company since 1969 and has extensive operating experience
in most of the major producing regions of the United States and Canada. The
Company's reserves and producing properties are located primarily in the Gulf of
Mexico, Texas, Oklahoma and Canada. The Company operates from production offices
located in Lafayette, Louisiana and Denver, Colorado. The Company's principal
offices are located at 1600 Broadway, Suite 2200, Denver, Colorado 80202
(telephone: (303) 812-1400).
USE OF PROCEEDS
The net proceeds to the Company from the Offerings are estimated to be
$141.5 million ($165 million if the Underwriters' over-allotment options are
exercised in full), after deducting underwriting discounts and estimated
offering expenses payable by the Company. Net proceeds of approximately $136
million from the Offerings will be used to pay the cost of acquiring the capital
stock of ATCOR and to pay expenses of such acquisition. The remainder of the net
proceeds, if any, from the Offerings will be used to repay bank or other
indebtedness and for general corporate purposes, including working capital.
A portion of the net proceeds may be used to repay, in part, the Company's
secured credit facility with The Chase Manhattan Bank, N.A. ("Chase"), as agent
for a group of banks (the "Credit Facility"). The Credit Facility, the maturity
date of which is July 1, 1998, provides for maximum borrowings of $40 million,
which may be used for working capital and general corporate purposes. The Credit
Facility had an outstanding balance of $19.8 million as of September 30, 1995
and currently bears interest at a weighted average rate of 7.64% per annum. A
portion of the proceeds may also be used to repay, in part or in whole, the JEDI
indebtedness which, after the completion of the JEDI Exchange, has a principal
amount of approximately $40 million. The portion of the JEDI indebtedness to be
outstanding after completion of the JEDI Exchange is nonrecourse, bears interest
at the current rate of 12.5% per annum, is secured by certain oil and gas
properties and matures on December 31, 2000.
It is anticipated that the Company will spend approximately $56 million on
direct capital expenditures in the United States and Canada in 1996 assuming the
completion of the Offerings and the ATCOR acquisition. Such expenditures will be
funded primarily by working capital, additional borrowings under the Credit
Facility and other sources of financing. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "-- Capital Expenditures."
The net proceeds to Saxon from the Offerings are estimated to be $13.8
million, after deducting underwriting discounts payable by Saxon. These proceeds
will be used to repay a loan owed by Saxon to The Chase Manhattan Bank of Canada
("Chase Canada") with an outstanding balance of $7.5 million Cdn, which is
secured by Common Stock owned by Saxon and currently bears interest at a rate of
9% per annum. Excess proceeds will be used to repay Saxon's secured production
loan facility. Payments of principal under such production loan facility are not
otherwise required provided that borrowings are not in excess of the borrowing
base and that other existing covenants are complied with. The production loan
facility provides for maximum borrowings of $22 million Cdn, has an outstanding
balance of approximately $14.8 million Cdn as of December 29, 1995 and currently
bears interest at the weighted average rate of 8.75% per annum. The Company will
not receive any of the proceeds from the sale by Saxon of Common Stock in the
Offerings.
16
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
as of September 30, 1995, and (ii) the pro forma, as adjusted, capitalization of
the Company at September 30, 1995 after giving effect to the Saxon and ATCOR
acquisitions, the JEDI Exchange, the issuance and sale of the shares of the
Common Stock in the Offerings and the application of the remaining net proceeds
of the Offerings to repay indebtedness. See "Use of Proceeds" and "Prospectus
Summary -- Recent Developments." All share amounts have been adjusted to give
effect to the 5 to 1 reverse stock split that occurred on January 8, 1996.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
----------------------------
PRO FORMA
ACTUAL AS ADJUSTED(1)
----------- ---------------
<S> <C> <C>
(IN THOUSANDS)
Short-term debt (2)................................................................. $ 1,828 7,923
----------- ---------------
----------- ---------------
Long-term obligations:
Bank debt......................................................................... 19,800 14,100
Nonrecourse secured loan (3)...................................................... 47,149 41,438
Production payment obligation (4)................................................. 15,657 15,657
11 1/4% Subordinated Debentures................................................... 99,353 99,353
Note payable...................................................................... 2,000 2,000
Deferred revenue (5).............................................................. 18,501 18,501
----------- ---------------
Total long-term obligations....................................................... 202,460 191,049
Minority interest (6)............................................................... -- 8,528
Shareholders' equity:
$.75 Convertible Preferred Stock, 2,880,973 shares issued and outstanding......... 15,838 15,838
Second Series Preferred Stock, 620,000 shares issued and outstanding.............. 8,518 8,518
Common Stock, par value $.10 per share, 9,549,621 shares issued and outstanding,
23,199,621 shares pro forma as adjusted (7)...................................... 955 2,323
Capital surplus................................................................... 234,576 394,256
Accumulated deficit............................................................... (214,032) (214,032)
Foreign currency translation...................................................... (1,468) (1,468)
----------- ---------------
Total shareholders' equity...................................................... 44,387 205,435
----------- ---------------
Total capitalization................................................................ $ 246,847 405,012
----------- ---------------
----------- ---------------
</TABLE>
- --------------------------
(1) Assumes no exercise of the Underwriters' over-allotment options to purchase
up to 1,800,000 shares of Common Stock.
(2) Short-term obligations include cash overdraft and the current portions of
the dollar-denominated production payment obligation, the nonrecourse
secured loan and bank debt.
(3) Represents the nonrecourse secured loan payable to JEDI entered into in
connection with the acquisition of properties in 1993. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Note 4 of Notes to Consolidated Financial Statements of the Company.
(4) Represents a dollar-denominated production payment obligation sold in 1992.
The dollar denominated production payment obligation had an original
principal amount of $37,550,000 and was recorded as a liability of
$28,805,000 after a discount to reflect a market rate of interest of 15.5%.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note 4 of Notes to Consolidated Financial Statements of
the Company.
(5) Represents amounts received from the sale of volumetric production payments,
net of repayments. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 5 of Notes to Consolidated
Financial Statements of the Company.
(6) Represents the minority interest in Saxon.
(7) Based on the number of shares of Common Stock outstanding at September 30,
1995. Does not include a total of 10,255,752 shares reserved for issuance
and represented by: 611,800 shares issuable upon exercise of outstanding
stock options, 248,943 shares issuable upon exercise of the Public Warrants,
3,888,888 shares issuable upon exercise of the A Warrants, 2,250,000 shares
issuable upon exercise of the Anschutz Option, 2,016,121 shares issuable
upon conversion of the $.75 Convertible Preferred Stock and 1,240,000 shares
issuable upon conversion of the Second Series Preferred Stock. See
"Description of Capital Stock".
17
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq National Market, and high and low
quotations listed below are actual sales prices as quoted in the Nasdaq National
Market under the symbol "FOIL". All of the following quotations have been
adjusted to reflect the 5 to 1 reverse stock split of the Common Stock that
occurred on January 8, 1996. The last reported sale price of the Common Stock on
January 25, 1996 was $ .
<TABLE>
<CAPTION>
1993 High Low
- ---------------------------------------- --------- --------
<S> <C> <C>
First Quarter........................... $22 1/2 $14 3/8
Second Quarter.......................... 29 1/16 20
Third Quarter........................... 29 1/16 21 1/4
Fourth Quarter.......................... 27 3/16 16 9/16
<CAPTION>
1994
- ----------------------------------------
<S> <C> <C>
First Quarter........................... $23 3/4 $17 3/16
Second Quarter.......................... 22 13/16 17 3/16
Third Quarter........................... 22 3/16 16 9/16
Fourth Quarter.......................... 17 3/16 10 5/8
<CAPTION>
1995
- ----------------------------------------
<S> <C> <C>
First Quarter........................... $11 7/8 $ 7 1/2
Second Quarter.......................... 11 7/8 7 1/2
Third Quarter........................... 14 11/16 8 1/8
Fourth Quarter.......................... 16 1/4 11 1/4
<CAPTION>
1996
- ----------------------------------------
<S> <C> <C>
First Quarter (through January 25,
1996).................................. $16 $
</TABLE>
DIVIDEND POLICY
Holders of Common Stock are entitled to cash dividends, when, as and if
declared by the Board of Directors. The Company does not intend to pay dividends
on the Common Stock for the foreseeable future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" for a description of certain limitations on the payment of
dividends on the Common Stock.
18
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The following table sets forth selected financial and operating data
regarding the Company as of and for each of the nine month periods ended
September 30, 1995 and 1994 and for each of the years in the five year period
ended December 31, 1994. This data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Condensed Pro Forma Combined Financial Statements and the
Consolidated Financial Statements and Notes thereto of Forest and ATCOR.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------------------------ -------------------------------------------------------
PRO FORMA PRO FORMA
1995 (1) 1995 1994 1994 (1) 1994 1993 1992 (2) 1991
----------- ------------ --------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS AND VOLUMES)
STATEMENT OF OPERATIONS DATA
Revenue:
Oil and gas sales and other...... $ 96,893 60,528 93,727 163,853 115,947 105,148 113,186 69,897
Gas marketing and processing
(3)............................. 113,620 -- -- 97,828 -- -- -- --
----------- ------------ --------- ----------- --------- --------- --------- ---------
Total revenue.................. 210,513 60,528 93,727 261,681 115,947 105,148 113,186 69,897
Expenses:
Oil and gas production........... 29,031 16,576 16,647 34,969 22,384 19,540 15,865 12,548
Cost of gas sold and processed... 105,595 -- -- 91,535 -- -- -- --
General and administrative....... 8,699 5,761 7,553 15,047 11,166 12,003 11,611 14,076
Interest......................... 18,498 19,100 20,077 26,432 26,773 23,729 27,800 23,306
Depreciation and depletion....... 49,439 33,631 52,323 82,292 65,468 60,581 46,624 38,229
Provision for impairment of oil
and gas properties.............. -- -- 30,000 58,000 58,000 -- -- 34,000
Minority interest in earnings of
Saxon Petroleum, Inc............ 77 -- -- 426 -- -- -- --
----------- ------------ --------- ----------- --------- --------- --------- ---------
Total expenses................. 211,339 75,068 126,600 308,701 183,791 115,853 101,900 122,159
----------- ------------ --------- ----------- --------- --------- --------- ---------
Earnings (loss) before income
taxes, cumulative effects of
changes in accounting principles
and extraordinary item............ (826) (14,540) (32,873) (47,020) (67,844) (10,705) 11,286 (52,262)
Income tax expense (benefit)....... 5,416 (7) 29 8,334 9 (1,350) 3,988 (17,412)
----------- ------------ --------- ----------- --------- --------- --------- ---------
Earnings (loss) before cumulative
effects of changes in accounting
principles and extraordinary
item.............................. (6,242) (14,533) (32,902) (55,354) (67,853) (9,355) 7,298 (34,850)
Cumulative effects of changes in
accounting principles for oil and
gas sales, postretirement benefits
and income taxes (4).............. -- -- (13,990) (13,990) (13,990) (1,123) -- --
Extraordinary item-extinguishment
of debt (4)....................... -- -- -- -- (10,735) -- 9,502
----------- ------------ --------- ----------- --------- --------- --------- ---------
Net earnings (loss)................ $ (6,242) (14,533) (46,892) (69,344) (81,843) (21,213) 7,298 (25,348)
----------- ------------ --------- ----------- --------- --------- --------- ---------
----------- ------------ --------- ----------- --------- --------- --------- ---------
Weighted average number of common
shares outstanding................ 20,291 6,611 5,614 19,299 5,619 4,399 2,755 2,499
----------- ------------ --------- ----------- --------- --------- --------- ---------
----------- ------------ --------- ----------- --------- --------- --------- ---------
Net earnings (loss) attributable to
common stock...................... $ (7,862) (16,153) (48,513) (71,505) (84,004) (23,463) 4,950 (30,557)
----------- ------------ --------- ----------- --------- --------- --------- ---------
----------- ------------ --------- ----------- --------- --------- --------- ---------
Primary earnings (loss) per share
(5):
Earnings (loss) before cumulative
effects of changes in accounting
principles and extraordinary
item............................ $ (.39 ) (2.44 ) (6.15) (2.98 ) (12.46) (2.64) 1.80 (16.03)
----------- ------------ --------- ----------- --------- --------- --------- ---------
----------- ------------ --------- ----------- --------- --------- --------- ---------
Net earnings (loss).............. $ (.39 ) (2.44 ) (8.64) (3.71 ) (14.95) (5.34) 1.80 (12.23)
----------- ------------ --------- ----------- --------- --------- --------- ---------
----------- ------------ --------- ----------- --------- --------- --------- ---------
Other financial data:
EBITDA (6)....................... $ 67,188 38,191 69,527 120,130 82,397 73,605 85,710 47,808
----------- ------------ --------- ----------- --------- --------- --------- ---------
----------- ------------ --------- ----------- --------- --------- --------- ---------
<CAPTION>
1990
---------
<S> <C>
STATEMENT OF OPERATIONS DATA
Revenue:
Oil and gas sales and other...... 84,824
Gas marketing and processing
(3)............................. --
---------
Total revenue.................. 84,824
Expenses:
Oil and gas production........... 13,606
Cost of gas sold and processed... --
General and administrative....... 23,774
Interest......................... 27,730
Depreciation and depletion....... 48,124
Provision for impairment of oil
and gas properties.............. 85,237
Minority interest in earnings of
Saxon Petroleum, Inc............ --
---------
Total expenses................. 198,471
---------
Earnings (loss) before income
taxes, cumulative effects of
changes in accounting principles
and extraordinary item............ (113,647)
Income tax expense (benefit)....... (38,098)
---------
Earnings (loss) before cumulative
effects of changes in accounting
principles and extraordinary
item.............................. (75,549)
Cumulative effects of changes in
accounting principles for oil and
gas sales, postretirement benefits
and income taxes (4).............. --
Extraordinary item-extinguishment
of debt (4)....................... --
---------
Net earnings (loss)................ (75,549)
---------
---------
Weighted average number of common
shares outstanding................ 2,461
---------
---------
Net earnings (loss) attributable to
common stock...................... (85,395)
---------
---------
Primary earnings (loss) per share
(5):
Earnings (loss) before cumulative
effects of changes in accounting
principles and extraordinary
item............................ (34.70)
---------
---------
Net earnings (loss).............. (34.70)
---------
---------
Other financial data:
EBITDA (6)....................... 57,588
---------
---------
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------------------- -------------------------------------------------------
PRO FORMA PRO FORMA
1995 (1) 1995 1994 1994 (1) 1994 1993 1992 (2) 1991
----------- --------- --------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS AND VOLUMES)
BALANCE SHEET DATA (AT END OF PERIOD)
Total assets.......................... $ 528,993 304,743 351,724 324,832 426,755 378,532 296,189
----------- --------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- --------- ---------
Long term obligations:
Bank debt........................... $ 14,100 19,800 27,000 33,000 25,000 -- --
Nonrecourse secured loan (7)........ 41,438 47,149 58,236 57,316 52,118 -- --
Production payment obligation (8)... 15,657 15,657 16,370 17,422 17,917 22,823 --
Senior secured notes................ -- -- -- -- -- 56,323 59,262
Subordinated debentures............. 99,353 99,353 99,305 99,316 99,272 89,175 90,387
Note payable (9).................... 2,000 2,000 5,026 5,026 5,026 5,026 3,026
Deferred revenue (10)............... 18,501 18,501 43,791 35,908 67,228 67,066 40,199
Redeemable preferred stock.......... -- -- -- -- -- -- --
----------- --------- --------- --------- --------- --------- ---------
Total long-term obligations....... $ 191,049 202,460 249,728 247,988 266,561 240,413 192,874
----------- --------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- --------- ---------
Shareholders' equity.................. $ 205,435 44,387 40,230 6,086 88,156 59,881 54,840
----------- --------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- --------- ---------
OPERATING DATA
Production (11):
Gas (MMcf).......................... 41,506 25,744 38,432 66,652 48,048 41,114 29,174 23,877
Oil (Mbbls)......................... 2,544 926 1,152 3,583 1,543 1,493 1,450 847
Average price received (11):
Gas (per Mcf)....................... $ 1.44 1.75 1.93 1.70 1.90 1.88 1.70 1.84
Oil (per Bbl)....................... 13.91 15.94 14.60 12.54 14.83 16.97 18.14 25.31
Production expense per Mcfe........... .51 .53 .37 .40 .39 .39 .38 .43
General and administrative expense per
Mcfe (12)............................ .15 .18 .17 .17 .19 .24 .32 .33
Capital expenditures:
Property acquisitions............... $ 7,319 391 8,835 24,216 9,762 144,916 88,772 13,560
Exploration......................... 13,983 8,082 5,915 22,892 15,693 5,433 2,297 9,723
Development......................... 15,979 11,801 11,802 38,454 17,089 20,472 15,558 12,381
----------- --------- --------- ----------- --------- --------- --------- ---------
Total capital expenditures........ $ 37,281 20,274 26,552 85,562 42,544 170,821 106,627 35,664
----------- --------- --------- ----------- --------- --------- --------- ---------
----------- --------- --------- ----------- --------- --------- --------- ---------
Proved Reserves (11):
Gas (MMcf).......................... 246,996 273,382 194,655 193,471
Oil (Mbbls)......................... 7,532 8,198 7,560 5,315
Standardized measure of discounted
future net cash flows relating to
proved oil and gas reserves (13)..... 207,463 258,917 187,761 157,921
Total discounted future net cash flows
relating to proved oil and gas
reserves, including amounts
attributable to volumetric production
payments (13)........................ 230,149 299,053 227,009 188,069
Average spot price received at end of
year:
Gas (per Mcf)....................... $ 1.77 2.48 2.38 2.01
Oil (per Bbl)....................... $ 15.50 12.00 18.00 17.75
<CAPTION>
1990
---------
<S> <C>
BALANCE SHEET DATA (AT END OF PERIOD)
Total assets.......................... 339,676
---------
---------
Long term obligations:
Bank debt........................... 10,640
Nonrecourse secured loan (7)........ --
Production payment obligation (8)... --
Senior secured notes................ --
Subordinated debentures............. 152,975
Note payable (9).................... 3,026
Deferred revenue (10)............... --
Redeemable preferred stock.......... 35,000
---------
Total long-term obligations....... 201,641
---------
---------
Shareholders' equity.................. 58,457
---------
---------
OPERATING DATA
Production (11):
Gas (MMcf).......................... 31,415
Oil (Mbbls)......................... 912
Average price received (11):
Gas (per Mcf)....................... 2.06
Oil (per Bbl)....................... 23.19
Production expense per Mcfe........... .37
General and administrative expense per
Mcfe (12)............................ .37
Capital expenditures:
Property acquisitions............... 5,401
Exploration......................... 33,067
Development......................... 26,998
---------
Total capital expenditures........ 65,466
---------
---------
Proved Reserves (11):
Gas (MMcf).......................... 205,013
Oil (Mbbls)......................... 6,559
Standardized measure of discounted
future net cash flows relating to
proved oil and gas reserves (13)..... 241,303
Total discounted future net cash flows
relating to proved oil and gas
reserves, including amounts
attributable to volumetric production
payments (13)........................ 241,303
Average spot price received at end of
year:
Gas (per Mcf)....................... 2.32
Oil (per Bbl)....................... 27.60
</TABLE>
20
<PAGE>
- ------------------------
(1) The pro forma statement of operations data, balance sheet data and operating
data include pro forma adjustments to (i) give effect to the sale of the
Common Stock in the Offerings and the use of a portion of the proceeds to
fund the acquisition of ATCOR, (ii) restate the historical financial
statements of ATCOR to conform to U.S. generally accepted accounting
principles, (iii) reflect the acquisition of ATCOR using the purchase method
of accounting, (iv) reflect the sale of certain assets to ATCOR's
controlling shareholders and the use of the proceeds therefrom to repay
long-term debt of ATCOR, (v) give effect to the acquisition of the interest
in Saxon, and (vi) give effect to the JEDI Exchange.
(2) Statement of operations data and balance sheet data for the year ended
December 31, 1992 include the effects of the ONEOK settlement, which
increased total revenue by $37,541,000 and net earnings by $24,043,000 or
$8.73 per share. Operating data for the year ended December 31, 1992
excludes the effects of the ONEOK settlement. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(3) Represents amounts attributable to the gas marketing and processing
operations of ATCOR.
(4) The Company changed its method of accounting for oil and gas sales from the
sales method to the entitlements method effective January 1, 1994. The
Company adopted the provisions of Statements of Financial Accounting
Standards No. 106 and No. 109 effective January 1, 1993. These statements
required the Company to accrue the expected cost of postretirement benefits
and to adopt the liability method of accounting for income taxes,
respectively. In 1993, the Company realized a loss on extinguishment of debt
of $10,735,000 as a result of the redemption of its outstanding Senior
Secured Notes and long-term subordinated debentures. In 1991, the Company
realized an extraordinary gain on the retirement of debt of $9,502,000, net
of income taxes of $4,895,000, in connection with a recapitalization of its
debt and equity securities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Notes 1, 4, 6 and 10 of
Notes to Consolidated Financial Statements of the Company.
(5) Fully diluted earnings (loss) per share was the same as primary earnings
(loss) per share in all periods except the year ended December 31, 1992. In
1992, fully diluted earnings per share was $1.45.
(6) EBITDA is generally defined as income before cumulative effect of accounting
change, provision for income taxes, interest, depreciation, depletion,
amortization and certain other non-cash charges. EBITDA is included as
supplemental disclosure because it may provide useful information regarding
a company's ability to service and incur debt. EBITDA, however, should not
be considered in isolation or as a substitute for net income, cash flow
provided by operating activities or other income or cash flow data prepared
in accordance with generally accepted accounting principles or as a measure
of a company's profitability or liquidity.
(7) Represents the nonrecourse secured loan payable to JEDI entered into in
connection with the acquisition of properties in 1993. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Note 4 of Notes to Consolidated Financial Statements of the Company.
(8) Represents a dollar-denominated production payment obligation sold in 1992.
The dollar denominated production payment obligation had an original
principal amount of $37,550,000 and was recorded as a liability of
$28,805,000 after a discount to reflect a market rate of interest of 15.5%
per annum. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 4 of Notes to Consolidated Financial
Statements of the Company.
(9) Includes balances under minor loan agreements; does not include liabilities
for employee benefit plans or other long-term operating liabilities not
considered part of the capitalization of the Company.
(10) Represents amounts received from the sale of volumetric production
payments, net of repayments. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 5 of Notes to
Consolidated Financial Statements of the Company.
(11) Includes amounts attributable to required deliveries under volumetric
production payments. See Notes 5 and 16 of Notes to Consolidated Financial
Statements of the Company.
(12) Excludes non-recurring general and administrative charges of $4,535,000 and
$10,144,000 in 1991 and 1990, respectively.
(13) Amounts are presented net of related income taxes.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of the Company's financial
condition and results of operations and should be read in conjunction with the
Company's Consolidated Financial Statements and the Notes thereto.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
NET LOSS
The net loss for the first nine months of 1995 was $14,533,000 or $2.44 per
common share compared to a net loss of $46,892,000 or $8.64 per common share in
the first nine months of 1994. The 1994 loss included a $30,000,000 writedown of
the book value of the Company's oil and gas properties due to a ceiling test
limitation and 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." 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 34% to $60,154,000 in
the first nine months of 1995 from $91,428,000 in the same period of 1994.
Production volumes for natural gas and oil in the first nine months of 1995
decreased 33% and 20%, 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 nine months of 1995 was $1.75 per Mcf, a decrease of $.18 per Mcf or 9%
compared to the average sales price in the first nine months of the previous
year. The average sales price for oil in the first nine months of 1995 of $15.94
per barrel represented an increase of $1.34 per barrel or 9% 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>
NINE MONTHS ENDED
--------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
--------------- ---------------
<S> <C> <C>
Natural Gas
Production under long-term fixed price contracts (MMcf)(1)........... 8,001 13,057
Average contract sales price (per Mcf) (1)........................... $ 1.77 1.78
Production sold on the spot market (MMcf)............................ 17,743 25,375
Spot sales price received (per Mcf).................................. $ 1.54 1.99
Effects of energy swaps (per Mcf) (2)................................ .21 .02
------- -------
Average spot sales price (per Mcf)................................... $ 1.75 2.01
Total production (MMcf).............................................. 25,744 38,432
Average sales price (per Mcf)........................................ $ 1.75 1.93
Oil and condensate (3)
Total production (Mbbls)............................................. 926 1,152
Average sales price (per Bbl)........................................ $ 15.94 14.60
</TABLE>
- ------------------------
(1) Production under long-term fixed price contracts includes scheduled
deliveries under volumetric production payments, net of royalties. See "--
Liquidity and Capital Resources -- Volumetric Production Payments" below.
(2) Energy swaps were entered into to hedge the price of spot market volumes
against price fluctuation. Hedged volumes were 7,562 MMcf and 8,840 MMcf for
the nine months ended September 30, 1995 and 1994, respectively.
22
<PAGE>
(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.
Miscellaneous net revenue decreased to $374,000 in the first nine months of
1995 from $2,299,000 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.
EXPENSES
Oil and gas production expense decreased slightly to $16,576,000 in the
first nine months of 1995 from $16,647,000 in the comparable period of 1994. On
an Mcfe basis, production expense increased 43% in the first nine months of 1995
to $.53 per Mcfe from $.37 per Mcfe in the first nine months 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 $5,761,000 in the first nine months
of 1995, a decrease of 24% from $7,553,000 in the comparable period of 1994.
Total overhead costs (capitalized and expensed general and administrative costs)
of $10,130,000 in the first nine months of 1995 decreased 23% from $13,076,000
in the comparable period of 1994. The Company's salaried workforce was 116 at
September 30, 1995 and 142 at September 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>
NINE MONTHS ENDED
-------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
-------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Overhead costs capitalized............................................. $ 4,369 5,523
General and administrative costs expensed.............................. 5,761 7,553
-------------- -------
Total overhead costs............................................. $ 10,130 13,076
-------------- -------
-------------- -------
</TABLE>
Interest expense of $19,100,000 in the first nine months of 1995 decreased
5% from $20,077,000 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 36% to $33,631,000 in the first
nine months of 1995 from $52,323,000 in the first nine months 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 nine
months of 1995 from $1.14 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 September 30, 1995, the Company had undeveloped properties
with a cost basis of approximately $31,981,000 which were excluded from
depletion, compared to $41,824,000 at September 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 nine months of 1995. However, the
Company was required to record a $30,000,000 writedown of the carrying value of
its oil and gas properties in the first nine months of 1994. Writedowns of the
full cost pool may be required in the future if oil or natural gas 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
nine months of 1995 or 1994.
23
<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 nine months
ended September 30, 1994 was an increase in earnings from operations of
$3,840,000 and an increase in production volumes of 1,804,000 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.
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1994
NET EARNINGS (LOSS). The Company's net loss was $81,843,000 in 1994
compared to a net loss of $21,213,000 in 1993 and net earnings of $7,298,000 in
1992. There would have been a net loss of $16,745,000 in 1992 excluding the
effects of the settlement of gas contract litigation with ONEOK Inc. (the ONEOK
settlement). Earnings from operations (consisting of total revenue less oil and
gas production expense and expensed general and administrative costs) increased
in 1994 compared to 1993 as a result of increased natural gas production from
acquisitions made throughout 1993; however, this increase was more than offset
by a $58,000,000 writedown of the book value of the Company's oil and gas
properties due to a ceiling test limitation and a charge of $13,990,000 to
reflect the cumulative effects of a change in the Company's method of accounting
for oil and gas sales from the sales ("takes") method to the entitlements
method. Earnings from operations increased in 1993 compared to the 1992 results
(excluding the effects of the ONEOK settlement) as a result of the acquisition
of properties; however, this increase was more than offset by higher
depreciation and depletion expense, an extraordinary loss of $10,735,000 (net of
tax benefit of $4,652,000) recorded as a result of the redemption or purchase of
all of the Company's 12 3/4% Senior Secured Notes and long-term subordinated
debt and a charge of $1,123,000 to reflect the cumulative effects of changes in
accounting principles related to post-retirement benefits and income taxes.
The Company changed its method of accounting for oil and gas sales from the
sales method to the entitlements method effective January 1, 1994. As a result,
earnings from operations for 1994 increased by $3,584,000. Earnings from
operations for 1993 and 1992, on a pro forma basis, would have been higher by
$5,393,000 and $8,868,000, respectively, as a result of this change in
accounting method. The 1993 and 1992 amounts presented herein are not required
to be restated to show the effects of this change.
24
<PAGE>
The ONEOK settlement in 1992 had a significant impact on the Company's
reported revenue, expense and net earnings. A summary of the Company's income
and expenses for 1992, before and after the amounts recorded as a result of the
ONEOK settlement, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
EFFECTS OF DECEMBER 31, 1992
YEAR ENDED ONEOK EXCLUDING ONEOK
DECEMBER 31, 1992 SETTLEMENT SETTLEMENT
----------------- -------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUE:
Oil and gas sales............................... $ 99,239 22,392 76,847
Miscellaneous, net.............................. 13,947 15,149 (1,202)
----------------- ------- --------
Total revenue................................. 113,186 37,541 75,645
EXPENSES:
Oil and gas production.......................... 15,865 1,589 14,276
General and administrative...................... 11,611 (477) 12,088
Interest........................................ 27,800 -- 27,800
Depreciation and depletion...................... 46,624 -- 46,624
----------------- ------- --------
Total expenses................................ 101,900 1,112 100,788
----------------- ------- --------
Earnings (loss) before income taxes............... 11,286 36,429 (25,143)
Income tax expense
Current......................................... 435 -- 435
Deferred expense (benefit)...................... 3,553 12,386 (8,833)
----------------- ------- --------
3,988 12,386 (8,398)
----------------- ------- --------
Net earnings.................................... $ 7,298 24,043 (16,745)
----------------- ------- --------
----------------- ------- --------
</TABLE>
The inclusion of the effects of the ONEOK settlement in a discussion of the
Company's results of operations distorts the trends which would otherwise be
reported. In the discussion which follows, results for 1992 exclude the effects
of the ONEOK settlement in order to more meaningfully compare and discuss the
Company's results of operations for 1994, 1993 and 1992.
REVENUE. Total revenue increased 10% to $115,947,000 in 1994 from
$105,148,000 in 1993, and increased 39% in 1993 from $75,645,000 in 1992.
Oil and gas sales increased to $114,541,000 from $102,883,000, or by
approximately 11%, in 1994 compared to 1993 due primarily to increased natural
gas production from properties acquired throughout 1993 and the effects of the
change in method of accounting for oil and gas sales, partially offset by normal
production declines. In 1994, natural gas production volumes were up 17%
compared to 1993 while oil production volumes were 3% higher. The increase in
revenue attributable to increased production was partially offset by a 13%
decrease in the average sales price for oil. The average sales price for natural
gas in 1994 did not differ significantly from the 1993 price.
Oil and gas sales increased to $102,883,000 from $76,847,000, or by
approximately 34%, in 1993 compared to 1992 due primarily to increased
production from newly-acquired properties and an 11% increase in the average
sales price for natural gas. In 1993, oil production volumes were up 3% and
natural gas production volumes were up 41% compared to 1992. The increase in
revenue attributable to the increased production was partially offset by a 6%
decrease in the average sales price for oil.
25
<PAGE>
The production volumes and average sales prices for the years ended December
31, 1994, 1993 and 1992 for the Company and its wholly owned subsidiaries were
as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
NATURAL GAS
- -----------------------------------------------------------------------------------
Production under long-term fixed price contracts (MMcf)(1)......................... 16,656 19,065 9,689
Average contract sales price (per Mcf)............................................. $ 1.78 1.65 1.67
Production sold on the spot marked (MMcf).......................................... 31,392 22,049 19,485
Spot sales price received (per Mcf)(2)............................................. $ 1.90 2.21 1.78
Effects of energy swaps (per Mcf)(3)............................................... .06 (.13) (.07)
--------- --------- ---------
Average spot sales price (per Mcf)(2).............................................. $ 1.96 2.08 1.71
Total production (MMcf)............................................................ 48,048 41,114 29,174
Average sales price (per Mcf)...................................................... $ 1.90 1.88 1.70
OIL AND CONDENSATE(1)(4)
Total production (Mbbls)........................................................... 1,543 1,493 1,450
Average sales price (per Bbl)...................................................... $ 14.83 16.97 18.14
</TABLE>
- ------------------------
(1) Production under long-term fixed price contracts includes scheduled
deliveries under volumetric production payments, net of royalties. For
further information concerning volumes and prices recorded under volumetric
production payments, see "-- Liquidity and Capital Resources -- Volumetric
Production Payments" below and Notes 5 and 16 of Notes to Consolidated
Financial Statements of the Company.
(2) The 1992 amounts exclude $1.15 per Mcf attributable to the ONEOK settlement.
Including such amount, the spot sales price received and the average spot
sales price for natural gas were $2.93 and $2.86 per Mcf, respectively.
(3) Energy swaps were entered into to hedge the price of spot market volumes
against price fluctuation. Hedged volumes were 12,184 MMcf, 8,057 MMcf and
4,691 MMcf for the years ended December 31, 1994, 1993 and 1992,
respectively.
(4) 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.
Natural gas delivered pursuant to volumetric production payment agreements
and other long-term fixed price contracts represented approximately 35% of total
production in 1994 versus 46% in 1993 and 33% in 1992. In recent years, the
industry trend has been for more natural gas to be sold on the spot market as
long-term contracts expire. The overall increase experienced by Forest in
natural gas sold under long-term fixed price contracts over the three year
period presented herein was the result of the Company entering into volumetric
production payments.
Miscellaneous net revenue of $1,406,000 in 1994 included income from the
sale of miscellaneous pipeline systems and equipment and the reversal of an
accounts receivable reserve, partially offset by a reserve for settlement of a
royalty dispute and a payment of deferred maintenance costs of a real estate
complex used for general business purposes. Miscellaneous net revenue of
$2,265,000 in 1993 included $1,380,000 of interest income on short-term
investments and an adjustment to reduce accrued severance taxes based on
discussions with the applicable state taxing authorities. The net expense of
$1,202,000 in 1992 was primarily attributable to a $926,000 provision for future
rent payments on vacated office space.
OIL AND GAS PRODUCTION EXPENSE. Oil and gas production expense increased
15% to $22,384,000 in 1994 compared to $19,540,000 in 1993 due primarily to
increased natural gas production as a result of property acquisitions throughout
1993, partially offset by a decrease in workover expenses and a
26
<PAGE>
general decrease in expenses due to the sale of properties. Oil and gas
production expense increased 37% to $19,540,000 in 1993 compared to $14,276,000
in 1992, due primarily to increased production from newly acquired properties
and increased workover expense. In 1994 and 1993, production expense was
approximately $.39 on an Mcfe basis compared to $.38 in 1992.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
decreased 7% to $11,166,000 in 1994 compared to $12,003,000 in 1993. Decreases
in salaries, wages and burden from the termination of executives and middle
level managers and increases in production operation credits were partially
offset by increases in insurance and office and storage rental expenses. General
and administrative expense for 1993 was $12,003,000 compared to $12,088,000 in
1992. Increases attributable to severance and employee relocation costs and the
effects of the postretirement medical benefit accrual in 1993 were more than
offset by lower office and storage rentals and lower professional services
expense. The capitalization rate remained relatively constant from 1992 to 1994.
Total overhead costs, including amounts related to exploration and
development activities, were $18,719,000 in 1994, $19,561,000 in 1993 and
$19,237,000 in 1992. Excluding the severance and employee relocation costs in
1993 described below, total overhead costs were approximately 8% higher in 1994
than in 1993. This increase is primarily due to an increase in storage rentals
and higher insurance expense attributable to a larger asset base, partially
offset by a decrease in salaries, wages and burden from the termination of
executives and middle level managers as described below. The increase in 1993
from 1992 was only 2% despite charges amounting to $2,300,000 for severance and
employee relocation costs and $480,000 for postretirement medical benefits;
without these charges, total overhead costs would have decreased by
approximately 13% in 1993 compared to 1992. Severance and employee relocation
costs of approximately $2,300,000 in 1993 resulted from the termination of 10
executives and middle level managers and a loss incurred on an employee's former
residence in accordance with the Company's relocation policy. The following
table summarizes the total overhead costs incurred during the periods:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Overhead costs capitalized................................................. $ 7,553 7,558 7,149
General and administrative costs expensed.................................. 11,166 12,003 12,088
------- ------ ------
Total overhead costs................................................... $18,719(1) 19,561(2) 19,237
------- ------ ------
------- ------ ------
</TABLE>
- ------------------------
(1) Includes $510,000 for post-retirement medical benefits.
(2) Includes approximately $2.3 million of severance and employee relocation
costs and $483,000 for postretirement medical benefits.
RETIREMENT BENEFITS FOR EXECUTIVES AND DIRECTORS. In December 1990, the
Company entered into retirement agreements with seven executives and directors
("Retirees") pursuant to which the Retirees will receive supplemental retirement
payments totaling approximately $1,127,700 per year through 1996, $1,087,400 in
1997, $938,400 in 1998 and approximately $740,400 per year in 1999 and 2000. The
liability to the Retirees was recorded in 1990 and 1991.
INTEREST EXPENSE. Interest expense of $26,773,000 increased $3,044,000 or
13% compared to 1993 due to higher loan balances as a result of capital
spending. Interest expense of $23,729,000 in 1993 decreased $4,071,000 or 15%
compared to 1992, primarily due to redemptions or purchases of certain of the
Company's subordinated debentures and 12 3/4% Senior Secured Notes in 1993,
partially offset by the interest expense incurred in connection with the
Company's new 11 1/4% Senior Subordinated Notes.
27
<PAGE>
DEPRECIATION AND DEPLETION EXPENSE. Depreciation and depletion expense
increased 8% to $65,468,000 in 1994 from $60,581,000 in 1993 due to increased
production in the 1994 period as a result of property acquisitions. Depreciation
and depletion expense increased 30% to $60,581,000 in 1993 from $46,624,000 in
1992 due to increased production in the 1993 period as a result of property
acquisitions and workovers. The depletion rate was $1.13 per Mcfe for U.S.
production in 1994 compared to corresponding rates of $1.19 for U.S. production
in 1993 and $1.21 for U.S. production and $1.19 for Canadian production in 1992.
IMPAIRMENT OF OIL AND GAS PROPERTIES. The Company recorded a writedown of
its oil and gas properties of $58,000,000 in 1994 due primarily to a decrease in
spot market prices for natural gas. The Company could have chosen to lessen or
completely eliminate the need for a writedown by entering into financial
derivatives (swaps) and locking in future natural gas prices. The Company would
have had to contract a significant portion of its natural gas reserve base to
avoid the entire writedown. Company management decided not to enter into such
contracts because it believed the natural gas market was at a cyclical low, and
such arrangements would ultimately be detrimental to the Company's shareholders.
In addition, the Company considered but chose not to adopt successful efforts
accounting. It is management's belief that full cost accounting remains the most
appropriate method of accounting for the Company's current mix of operations,
despite the quarterly ceiling test requirement.
Additional writedowns of the full cost pool may be required if oil and
natural gas prices decrease, undeveloped property values 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.
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 1994 was an
increase in earnings from operations of $3,584,000 and an increase in production
volumes of 1,555,000 Mcf. There were no related income tax effects in 1994. As
the Company adopted this change in the fourth quarter of 1994, previously
reported 1994 quarterly information has been restated to reflect the change
effective January 1, 1994. See Note 15 for restated selected quarterly financial
data.
Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions," (SFAS No. 106) required the
Company to accrue expected costs of providing postretirement benefits to
employees and the employees' beneficiaries and covered dependents. The Company
adopted the provisions of SFAS No. 106 in the first quarter of 1993. The
estimated accumulated postretirement benefit obligation as of January 1, 1993
was approximately $4,822,000. This amount, reduced by applicable income tax
benefits, was charged to operations in the first quarter of 1993 as the
cumulative effect of a change in accounting principle. The annual net
postretirement benefit cost (included in total overhead costs) was approximately
$510,000 for 1994 and $483,000 for 1993.
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," (SFAS No. 109), required the Company to adopt the liability method of
accounting for income taxes. The Company adopted such method on a prospective
basis as of January 1, 1993 and, as such, prior
28
<PAGE>
periods have not been restated. The cumulative effect of adopting SFAS No. 109
as of January 1, 1993 resulted in a reduction of the net amount of deferred
income taxes recorded as of December 31, 1992 of approximately $2,060,000. This
amount was credited to operations in the first quarter of 1993 as the cumulative
effect of a change in accounting principle.
LIQUIDITY AND CAPITAL RESOURCES
ANSCHUTZ AND JEDI TRANSACTIONS
During the second and third quarters of 1995, following receipt of
shareholder approval, the Company consummated transactions with Anschutz and
with JEDI, a Delaware limited partnership the general partner of which is an
affiliate of Enron Corp., in each case as described below.
Pursuant to the Anschutz Agreement, Anschutz purchased 3,760,000 shares of
the Company's Common Stock and shares of a new series of preferred stock that
are convertible into 1,240,000 additional shares of common stock for a total
consideration of $45,000,000, or $9.00 per share. The preferred stock has
liquidation preference and receives dividends ratably with the Common Stock. In
addition, Anschutz received the A Warrants, which entitle it to purchase
3,888,888 shares of the Company's common stock for $10.50 per share. The A
Warrants were originally scheduled to expire on January 27, 1997. Such
expiration will be extended to July 27, 1998 upon completion of the Offerings in
consideration of Anschutz's agreement to not sell its shares of Common Stock for
nine months, except in limited circumstances.
The Anschutz investment was made in two closings. At 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 in July 1995, Anschutz
converted the loan into 1,100,000 shares of Common Stock and purchased an
additional 2,660,000 shares of common stock, the convertible preferred stock and
the A warrants for $35,100,000. At the second closing, Anschutz also received
from JEDI an option to purchase from JEDI up to 2,250,000 shares of common stock
that JEDI may acquire from the Company upon exercise of the B Warrants referred
to below (the "Anschutz Option"). The Anschutz 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 Agreement, 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 A 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 designate three of the Company's directors.
29
<PAGE>
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. As a part of the restructuring, the
existing JEDI loan balance was divided into two tranches: a $40,000,000 tranche,
which bears interest at the rate of 12.5% per annum and is due and payable in
full on December 31, 2000; and an approximately $22,400,000 tranche, which does
not bear interest and is due and payable in full on December 31, 2002. JEDI also
relinquished the net profits interest that it held in certain properties of the
Company. In consideration, JEDI received the B Warrants, which entitle it to
purchase 2,250,000 shares of the Company's common stock for $10.00 per share.
The B 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 the Anschutz Option to Anschutz, pursuant to which Anschutz is entitled
to purchase from JEDI up to 2,250,000 shares at a purchase price per share equal
to the lesser of (a) $10.00 plus 18% per annum from the second closing date to
the date of exercise of the option, or (b) $15.50. JEDI will satisfy its
obligations under the Anschutz Option by exercising the B Warrants. Provided the
Conveyance Option has not been exercised, the Company may terminate the B
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 $12.50 per share.
As a result of the loan restructuring and the issuance of the B Warrants,
the Company reduced the recorded amount of the related liability to
approximately $45,493,000 and annual interest expense by approximately
$2,000,000. Subject to certain conditions, the Company also received the right
to 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 A 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
Anschutz Option has not then been exercised or terminated. Prior to the exercise
or termination of the JEDI option, JEDI agreed that it will not assign all or
any portion of the JEDI loan or the B Warrants to an unaffiliated person without
the approval of the Company. The Company agreed to not give such approval
without the consent of Anschutz.
The Company agreed to use the proceeds from the exercise of the A Warrants
to pay principal and interest on the $40,000,000 tranche of the JEDI loan and to
use proceeds from the exercise of the B Warrants to repay the remaining tranche
of the JEDI loan.
JEDI EXCHANGE
On January 24, 1996, JEDI exchanged the $22.4 million tranche and the B
Warrants for 1,680,000 shares of Common Stock (the "JEDI Exchange"). As a result
of the JEDI Exchange, the Company expects that non-cash interest expense will be
reduced by an additional $1,500,000 per year. The JEDI Exchange also eliminated
the Conveyance Option described above and provides for other changes to the JEDI
loan agreement that will have the effect of increasing the Company's flexibility
with respect to the development of the properties securing the JEDI
indebtedness. Pursuant to the JEDI Exchange, JEDI entered into a shareholders
agreement with the Company (the "JEDI Shareholders Agreement") that limits
JEDI's right to vote its shares of Common Stock and, except in certain
circumstances, to transfer its shares before July 27, 1998. The JEDI
Shareholders Agreement also entitles JEDI to designate a member of the Company's
Board of Directors if the average price of the Common Stock over a period of 30
trading days is less than or equal to $8.75 per share or if there is a
substantial downgrading in the rating of the Company's debt securities. The JEDI
Shareholders Agreement will terminate upon the termination of the Anschutz
Shareholders Agreement or earlier if the shares acquired by JEDI pursuant to the
JEDI Exchange and still held by JEDI are less than 3% of the outstanding shares
of Common Stock.
Pursuant to the JEDI Exchange, the Company assumed JEDI's obligations under
the Anschutz Option. Under the Anschutz Option, the Company is obligated to
issue shares directly to Anschutz that previously would have been issued to JEDI
pursuant to the B Warrants. Upon the exercise of the
30
<PAGE>
Anschutz Option, instead of the B Warrant price of $10.00 per share, the Company
would receive an amount equal to the lesser of (a) $10.00 plus 18% per annum
from July 27, 1995 to the date of exercise of the option, or (b) $15.50. The
Company is permitted to use proceeds from the exercise of the Anschutz Option
for any corporate purpose. See "The Anschutz and JEDI Transactions."
SHORT-TERM LIQUIDITY
During 1994 and the first nine 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 and a significant decline in production. 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, N.A. ("Chase") as agent for a group of banks. Under the
Credit Facility as amended, the Company may borrow up to $40,000,000 for working
capital and/or general corporate purposes, subject to semi-annual
redetermination at the banks' discretion.
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. The maturity date of the Credit Facility is July
1, 1998. 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. As of September 30,
1995 the outstanding balance under the Credit Facility was $19,800,000, which
reflects the application of proceeds received from the Anschutz transaction
offsetting additional borrowings to fund capital expenditures and working
capital. The Company has also used the facility for a $1,500,000 letter of
credit, leaving an available borrowing capacity of $18,700,000. At September 30,
1995, the Company was in compliance with the covenants of its bank debt.
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 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
$4,700,000 compared to 1994 or by approximately 25%.
In response to 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. Using the capital provided by the Anschutz
investment, however, the Company's capital expenditures in the last six months
of 1995 are expected to be greater in the aggregate than capital expenditures in
the first six months of the year. The Company's 1995 budgeted expenditures for
exploration and development for the fourth quarter of 1995, exclusive of the
Saxon acquisition, were approximately $5,348,000 and $3,246,000, respectively,
including capitalized overhead of $1,224,000 and $194,000, respectively.
Assuming completion of the Offerings and the ATCOR acquisition, the Company's
1996 budgeted direct capital expenditures for exploration and development in the
United States and Canada are approximately $35,000,000 and $21,000,000,
respectively. There can be no assurance that the Company will have access to
sufficient capital to meet its capital requirements. 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.
31
<PAGE>
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. The
Company believes that the Offerings and the ATCOR acquisition will give the
Company flexibility to implement its 1996 capital expenditure program in the
United States and Canada, for which the Company has budgeted direct expenditures
of approximately $56,000,000, assuming completion of the Offerings and the ATCOR
acquisition. Before fully implementing this program, the Company believes it
must obtain approximately $30,000,000 of additional financing. A portion of this
financing may be provided by proceeds raised from the Offerings in excess of the
amount needed to acquire ATCOR. The Company expects to be able to meet its
remaining 1996 capital expenditure financing requirements by borrowings under
existing lines of credit or financings based on ATCOR's reserves. The Company
expects to enter into an additional credit facility based upon ATCOR's reserves
upon completion of the ATCOR acquisition or as soon thereafter as is
practicable.
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 and also due to changes in
production volumes.
The following summary table reflects comparative cash flows for the Company
for the periods ended September 30, 1995 and 1994:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Funds provided by operations (1)............................. $ 21,694 52,651
Net cash provided (used) by operating activities............. (4,253) 25,843
Net cash used by investing activities........................ (17,235) (15,398)
Net cash provided (used) by financing activities............. 22,037 (15,531)
</TABLE>
- ------------------------
(1) 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.
As discussed previously under "-- Results of Operations for the Nine Months
Ended September 30, 1995 and 1994," the Company's production volumes decreased
significantly in the first nine months of 1995 compared to the prior year. Lower
production volumes coupled with decreased prices for natural gas resulted in a
59% decrease in funds provided by operations to $21,694,000 in the first nine
months of 1995 from $52,651,000 in the first nine months of 1994. The Company
experienced a net use of cash for operating activities of $4,253,000 in the
first nine months of 1995 compared to $25,843,000 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 $17,235,000 for investing activities in the 1995 period
compared to $15,398,000 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 $22,037,000 in the 1995 period was the result of the net
proceeds from the issuance of stock and warrants to Anschutz and the proceeds
from the sale of the participation interest in the bankruptcy claim which were
partially offset by repayments of the Company's Credit Facility. In the first
nine months of 1994, the Company had a net use of cash for financing activities
of $15,531,000, primarily consisting of the redemption of subordinated
debentures and a decrease in other liabilities.
32
<PAGE>
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. The Offerings will improve the
Company's liquidity.
On December 30, 1993, the Company entered into a nonrecourse secured loan
agreement with JEDI. 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 "-- Non-recourse Secured Loan and
Dollar-Denominated Production Payment" below.
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 alternative sources of long-term liquidity, including bank borrowings
or the issuance of debt instruments, the sale of production payments or other
nonrecourse financing, the sale of Common Stock, preferred stock or other equity
securities of the Company, the issuance of net profits interests, sales of non-
strategic properties, prospects and technical information, or joint venture
financing.
VOLUMETRIC PRODUCTION PAYMENTS
As of September 30, 1995, deferred revenue relating to production payments
was $18,501,000 and the annual amortization of deferred revenue and the
corresponding delivery and net sales volumes were as set forth below:
<TABLE>
<CAPTION>
VOLUMES REQUIRED TO BE NET SALES VOLUMES
ATTRIBUTABLE TO PRODUCTION
DELIVERED TO ENRON CORP. PAYMENT DELIVERIES (1)
-------------------------- --------------------------
OIL NATURAL GAS OIL NATURAL GAS
(MBLS) (MMCF) (MBLS) (MMCF)
ANNUAL AMORTIZATION ----------- ------------- ----------- -------------
OF DEFERRED REVENUE
-------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Remainder of 1995................... $ 3,365 41 1,653 34 1,375
1996................................ 7,545 87 3,721 73 3,095
1997................................ 2,439 -- 1,410 -- 1,173
1998................................ 1,592 -- 892 -- 742
Thereafter.......................... 3,560 -- 1,994 -- 1,658
-------- --- ----- --- -----
$ 18,501 128 9,670 107 8,043
-------- --- ----- --- -----
-------- --- ----- --- -----
</TABLE>
- ------------------------
(1) Represents volumes required to be delivered to Enron Corp. net of estimated
royalty volumes.
NON-RECOURSE 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 and are proposed to be further restructured based on the terms of
certain agreements described in "-- JEDI Exchange" and "The Anschutz and JEDI
Transactions" above.
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 September 30, 1995, the principal
amount of the loan was $62,684,000 and the recorded liability was $46,069,000.
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.
33
<PAGE>
Pursuant to the restructuring of the JEDI loan in July 1995, as described
above, 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 $40,316,000 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 A Warrants. The remaining loan balance, which had an
undiscounted value of $22,368,000 as of September 30, 1995, is non-interest
bearing and will be reduced by principal payments made after full repayment of
the $40,316,000 balance as well as by the proceeds, if any, from the exercise of
the B Warrants. The recorded amount of the JEDI loan, net of discount to reflect
the issuance of the B Warrants, was $45,493,000 as of July 27, 1995, the date of
the restructuring. Based on production and prices, capital expenditures and
discount amortization, the recorded liability increased by approximately
$902,000 as of the end of 1995. New drilling and recompletions should reverse
this trend in 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 September
30, 1995 the remaining principal amount was $21,155,000 and the recorded
liability was $16,826,000. Under 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. Based on production and prices, capital expenditures and discount
amortization, the recorded liability was reduced by approximately $406,000
during the fourth quarter of 1995.
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 energy 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 September 30, 1995, the Company had natural gas
swaps and collars for an aggregate of approximately 29.2 Bbtu 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 and an aggregate of approximately 17.5
Bbtu per day of natural gas during 1996 at fixed prices and floors ranging from
$1.90 to $2.48 per MMbtu. At September 30, 1995, the Company had oil swaps for
an aggregate of approximately 1,300 Bbls per day of oil during the remainder of
1995 at fixed prices ranging from $16.70 to $17.75 (NYMEX basis) and an
aggregate of approximately 600 Bbls per day of oil during 1996 at fixed prices
ranging from $16.70 to $17.75 per barrel.
In the third quarter of 1995, the Company sold a call at $2.00 per MMbtu on
10,000 MMbtu per day to Enron Corp. for the period from January 1, 1996 to
December 31, 1997 for a price of $.086 per MMbtu. Enron Corp. will pay the $.086
per MMbtu price every month. The Company will pay Enron Corp. only in the event
that the average of the last three days NYMEX price exceeds $2.00 per MMbtu for
any month.
As a result of volumetric production payments, energy swaps, and fixed price
contracts, the Company currently estimates that approximately 57% of its natural
gas production and 58% of its oil production will not be subject to price
fluctuations from October 1995 through December 1995. It is estimated that
existing volumetric production payments, energy swaps, fixed price contracts and
other hedging instruments currently cover approximately 56% 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.
34
<PAGE>
EFFECTS OF ATCOR ACQUISITION
The completion of the acquisition of ATCOR is anticipated to provide several
benefits to the Company including:
REDUCING FINANCIAL LEVERAGE. The acquisition of ATCOR, together with the
JEDI Exchange and the Offerings, is expected to reduce debt as a percent of
total book capitalization from 82% as of September 30, 1995 to 47% on a pro
forma basis, which is consistent with the Company's long-term goal of reducing
financial leverage.
GROWTH OF ASSET BASE. The addition of 153.5 Bcfe of proved reserves
represents a 51% increase in the Company's estimated proved reserves on a pro
forma basis as of December 31, 1995. Including other assets acquired in the
transaction, the Company's total assets will increase by approximately 60% on a
pro forma basis as of September 30, 1995.
PRODUCTION. For the first nine months of 1995, the Company's production
would increase by 57% from 36.1 Bcfe to 56.8 Bcfe on a pro forma basis.
LIQUIDITY. The Company believes the Offerings and the ATCOR acquisition
will give the Company flexibility to implement its 1996 capital expenditure
program in the United States and Canada for which the Company has budgeted
approximately $56,000,000. Before fully implementing this program, the Company
believes it must obtain approximately $30,000,000 of additional financing. A
portion of this financing may be provided by proceeds raised from the Offerings
in excess of the amount needed to acquire ATCOR. The Company expects to be able
to meet its remaining 1996 capital expenditure financing requirements by
borrowings or financings based on ATCOR's reserves.
CAPITAL EXPENDITURES
The Company's expenditures for property acquisition, exploration and
development for the first nine months of 1995 and 1994, including overhead
related to these activities which was capitalized, were as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Property acquisition costs:
Proved properties........................................... $ 199 8,835
Undeveloped properties...................................... 192 --
--------- ---------
391 8,835
Exploration costs:
Direct costs................................................ 7,482 5,501
Overhead capitalized........................................ 600 414
--------- ---------
8,082 5,915
Development costs:
Direct costs................................................ 8,032 6,693
Overhead capitalized........................................ 3,769 5,109
--------- ---------
11,801 11,802
--------- ---------
$ 20,274 26,552
--------- ---------
--------- ---------
</TABLE>
In response to 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. Using the capital provided by the Anschutz
investment, however, the Company's capital expenditures in the last six months
of 1995 are expected to be greater in the aggregate than capital expenditures in
the first six months of the year. The Company's 1995 budgeted expenditures for
exploration and development for the fourth quarter of 1995, exclusive of the
Saxon acquisition, are approximately $5,348,000 and $3,246,000, respectively,
including capitalized
35
<PAGE>
overhead of $1,224,000 and $194,000, respectively. The Company's 1996 budgeted
direct capital expenditures for exploration and development in the United States
and Canada, respectively are approximately $35,000,000 and $21,000,000, assuming
completion of the Offerings and the ATCOR acquisition. There can be no assurance
that the Company will have access to sufficient capital to meet its capital
requirements. 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.
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: bank borrowings or the issuance of debt instruments, sale of production
payments or other nonrecourse financing, the sale of Common Stock, preferred
stock or other equity securities of the Company, 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 financing are not available to the Company,
the amount invested in exploration, development and reserve acquisitions will be
required to be reduced significantly.
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 .0189386 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 .022409 shares of Common
Stock was paid on each share of its outstanding $.75 Convertible Preferred Stock
to holders of record on July 10, 1995. On November 1, 1995 a stock dividend of
.0149796 shares of Common Stock was paid on each share of its outstanding $.75
Convertible Preferred Stock to holders of record on October 10, 1995. Effective
as of March 31, 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.
On November 15, 1995, the Board of Directors declared a dividend payable in
shares of Common Stock on February 1, 1996 to holders of record of the $.75
Convertible Preferred Stock on January 10, 1996. The number of shares of Common
Stock to be issued per share of the $.75 Convertible Preferred Stock will be
.068026, determined in accordance with the formula for determining dividends
payable.
OTHER MATTERS
GAS BALANCING
It is customary in the industry for various working interest partners to
produce more or less than their entitlement share of natural gas from time to
time. The Company's net overproduced position decreased in the first nine months
of 1995 to approximately 6.7 Bcf from approximately 8.4 Bcf at December 31,
1994. At September 30, 1995 the undiscounted value of this imbalance is
approximately $10,926,000, of which $5,000,000 is reflected on the balance sheet
as a short-term liability and the remaining $5,926,000 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.
UNFUNDED PENSION LIABILITIES
In 1994, in response to market conditions, the Company increased from 7.5%
to 9% the discount rate used in determining the actuarial present value of the
projected benefit obligations under its qualified defined benefit trusteed
pension plan and its supplemental executive retirement plan. As a
36
<PAGE>
result of the change in the discount rate, the Company reduced the liability
representing the unfunded liabilities of these plans by approximately $1,570,000
with a corresponding increase in capital surplus. The Company does not expect
the change in discount rate to have a significant impact on future expense due
to a pension plan curtailment effected May 31, 1991. The Company currently is
not required to make a contribution to the pension plan under the minimum
funding requirements of ERISA, but may choose to do so or may be required to do
so in the future.
NATURAL GAS SALES CONTRACTS
The Company had two natural gas sales contracts with Columbia Gas
Transmission Corp. ("Transmission"), a subsidiary of Columbia Gas System
("CGS"), which were rejected when CGS and Transmission filed Chapter 11
bankruptcy petitions. The Company sold a participation interest in its claim
against CGS to a bank. Consideration received from the bank consisted of a
$4,000,000 nonrecourse loan, in exchange for which the bank was to receive,
solely from the proceeds of the bankruptcy claim, an amount equal to the loan
principal plus accrued interest at 23.5% per annum. In November 1995, CGS's
proposed plan of reorganization was approved by the bankruptcy court and the
Company received net proceeds of approximately $2,270,000 for its claim against
CGS, after repayments of the loan and other expenses.
NET OPERATING LOSS AND TAX CREDIT CARRYFORWARDS
At December 31, 1994, the Company has consolidated net operating loss
carryforwards of $62,789,000, depletion carryforwards of approximately
$19,879,000 and investment tax credit carryforwards of approximately $3,674,000
for United States federal income tax purposes. The availability of these tax
attributes to reduce current and future taxable income of the Company is subject
to various limitations under the Internal Revenue Code. In particular, the
Company's ability to utilize such tax attributes is restricted due to the
occurrence of an "ownership change" within the meaning of Section 382 of the
Internal Revenue Code resulting from the Company's transaction with Anschutz in
1995.
Even though the Company is limited in its ability to use net operating loss
carryforwards under the general provisions of Section 382, it may be entitled to
use its net operating loss carryforwards to offset (a) gains recognized in the
five years following the ownership change on the disposition of certain assets,
to the extent that the value of the assets disposed of exceeds its tax basis on
the date of the ownership change or (b) any item of income which is properly
taken into account in the five years following the ownership change but which is
attributable to periods before the ownership change ("built-in gains"). The
ability of the Company to use net operating loss carryforwards to offset
built-in gains first requires that the Company have total built-in gains at the
time of the ownership change which are greater than a threshold amount. In
addition, the use of the net operating loss carryforwards to offset built-in
gains cannot exceed the amount of the total built-in gains.
The Company has not finalized its calculation of the amount of built-in
gains at the date of the ownership change, but estimates that its ability to
fully utilize its net operating loss carryforwards may be limited by the
provisions of Section 382. Under these provisions, the Company's net operating
loss carryforwards will be subject to an annual limitation as to their use of
approximately $5,700,000, exclusive of gains recognized or taken into account in
the five year period following the ownership change. Due to limitations in the
Internal Revenue Code other than the Section 382 limitations discussed above,
the Company believes it is unlikely that it will use a significant portion of
its investment tax credit carryforwards.
37
<PAGE>
BUSINESS AND PROPERTIES
GENERAL
Forest is an independent oil and natural gas company focused on the
exploration, exploitation, development and acquisition of oil and gas
properties. The Company, which is a successor to a company founded in 1916, has
extensive operating experience in most of the major producing regions of the
United States and Canada. The Company's reserves and producing properties are
located primarily in the Gulf of Mexico, Texas, Oklahoma and Canada. The Company
currently operates 43 offshore platforms in the Gulf of Mexico, and 1995
production from this area accounted for approximately 78% of the Company's
production on a Mcfe basis. At December 31, 1995, the Company's estimated proved
reserves of 301.4 Bcfe consisted of 238.1 Bcf of natural gas (approximately 79%
of total estimated proved reserves on an Mcfe basis) and 10.5 MMbbls of oil and
condensate. Approximately 76% of total estimated proved reserves were classified
as proved developed reserves. The Company's pre-tax discounted future net cash
flows from its estimated proved reserves at December 31, 1995 were $274.4
million. These volumes and values include the reserves of Saxon, a consolidated
subsidiary of the Company in which the Company purchased a 56% economic interest
on December 20, 1995, as well as amounts attributable to the Company's
volumetric production payments.
In recent years, the Company has grown primarily through acquisitions of
producing properties. From January 1, 1991 through December 31, 1995, the
Company acquired an estimated 281.1 Bcfe of proved oil and gas reserves, located
primarily in the Gulf of Mexico, Texas and western Canada. The Company's most
recent acquisition and a proposed acquisition together will establish a new core
area of operations in western Canada. On December 12, 1995, the Company entered
into the ATCOR Agreement to acquire ATCOR for approximately $135 million. ATCOR
is a Canadian corporation engaged in oil and gas exploration and production in
western Canada and the marketing and processing of natural gas. The Company will
use a substantial portion of the net proceeds of the Offerings to pay the costs
and expenses of the ATCOR acquisition. The closing of the ATCOR acquisition is
subject to certain conditions, including the completion of the Offerings, and
consummation of the Offerings is conditioned upon the Company's ability to close
the ATCOR acquisition. In addition, on December 20, 1995, the Company acquired a
controlling interest in Saxon, an Alberta, Canada corporation engaged primarily
in oil and gas exploration and production in western Canada, for $1.1 million in
cash and 1,060,000 shares of Company Common Stock. On a pro forma basis
including the ATCOR acquisition, the Company had estimated proved reserves of
454.9 Bcfe at December 31, 1995 (approximately 73% of which were natural gas
reserves) with pre-tax discounted future net cash flows from its estimated
proved reserves of $375.8 million. See "-- ATCOR Acquisition" and "-- Saxon
Acquisition" below. While the Company has had no significant operations in
Canada since 1992, it has operated in Canada for over 35 years.
In late 1994, the Company began pursuing various alternatives to reduce its
leverage and increase its liquidity. On July 27, 1995, Anschutz purchased equity
securities of the Company for $45 million and the Company restructured $62.4
million of indebtedness to JEDI. On January 24, 1996, JEDI exchanged $22.4
million of the JEDI indebtedness and the B Warrants for 1,680,000 shares of
Common Stock. As a result of these transactions and before giving effect to the
issuance of additional shares of Common Stock in the Offerings, Anschutz and
JEDI will own approximately 30% and 14%, respectively, of the outstanding Common
Stock of the Company, approximately $40 million of JEDI indebtedness will remain
outstanding, and the Company's liquidity will have been significantly improved.
Anschutz has entered into the five year Anschutz Shareholders Agreement with the
Company, and, in connection with the Offerings, has agreed to not transfer any
of its shares of Common Stock, except in limited circumstances, for a period of
nine months following completion of the Offerings. JEDI has entered into the
JEDI Shareholders Agreement and has agreed to not transfer any of its shares of
Common Stock that it acquired pursuant to the JEDI Exchange until July 27, 1998,
except in limited circumstances. In addition, Anschutz has designated three
members of the Company's Board of Directors. See " The Anschutz and JEDI
Transactions."
38
<PAGE>
In recent years, the Company has not been able to exploit the full potential
of its acquisitions due to the financial constraints resulting from its highly
leveraged capital structure and low natural gas market prices. As a result of
the Anschutz and JEDI transactions, the ATCOR acquisition and the Offerings, the
Company believes its improved financial flexibility will allow it to exploit its
expanded property base more effectively. This property base will include, on a
pro forma basis as of December 31, 1994 (including ATCOR), over 670,000 net
acres of undeveloped acreage. In addition, on a pro forma basis, the Company
currently has 2-D seismic surveys covering over 430,000 miles and 3-D seismic
surveys covering over 312,000 acres.
STRATEGY
The Company's objective is to increase value through sustained profitable
growth of its oil and gas reserves and production by pursuing a combined
strategy of focused exploration, exploitation, development and acquisitions,
while reducing operating and financial risk. The Company's strategy for
achieving this objective includes:
- INCREASED EXPLORATION SPENDING. The Company believes that its U.S.
properties, particularly those located offshore in the Gulf of Mexico,
have significant exploration potential. Due to past financial
constraints, the Company had sought to reduce its initial capital
commitment with respect to certain of these properties through farm outs.
The Company intends to accelerate the exploration and development of its
inventory of prospects and the acquisition of additional prospects
identified by the Company's exploration teams, while maintaining higher
working interests in those prospects deemed to have the highest
potential. Consistent with this strategy, the Company recently announced
a significant natural gas discovery on West Cameron Block 615, offshore
Louisiana, in which the Company owns a 25% working interest. A sidetrack
well was drilled to confirm the discovery. The Company holds 50% working
interests in two adjoining blocks, West Cameron Blocks 616 and 617. In
Canada, the Company intends to focus exploration in the near term on
natural gas prospects in proximity to Company-owned plant processing
capacity, as well as oil prospects generally. The Company intends to
accelerate the evaluation of ATCOR's properties to confirm and generate
prospects for drilling in late 1996 and 1997.
- EXPLOITATION AND DEVELOPMENT OF EXISTING PROPERTIES. The Company pursues
workovers, recompletions, secondary recovery operations and other
production enhancement techniques on its properties to increase
production. In addition, the Company intends to increase exploitation and
development expenditures and activities in order to increase the reserves
and production potential that it believes are present in the ATCOR and
Saxon acquisitions.
- ACQUISITIONS. The Company focuses on acquisitions of producing
properties that substantially meet its selection criteria, which include
(a) location in a core area of operations or establishment of a new core
area through the acquisition of a significant property base, (b)
attractive potential return on investment, (c) potential for increasing
reserves and production through reduced risk exploitation and
development, and (d) opportunities for improved operating efficiencies.
In Canada, Forest has an additional criterion that natural gas properties
include sufficient plant processing capacity to provide adequate access
to markets.
- REDUCED FINANCIAL LEVERAGE. The Company's long-term debt (including
$18.5 million and $35.9 million of deferred revenue related to volumetric
production payments at September 30, 1995 and December 31, 1994,
respectively) as a percentage of capitalization decreased to 82% at
September 30, 1995 from 98% at December 31, 1994 following the closings
of the Anschutz and JEDI transactions in July 1995. See " The Anschutz
and JEDI Transactions." As a result of the ATCOR acquisition, the
Offerings and the JEDI Exchange, long-term debt as a percentage of
capitalization is expected to be reduced to approximately 47% on a pro
forma basis, which is consistent with the Company's long-term goal of
reducing financial leverage.
39
<PAGE>
- HEDGING. The Company utilizes short-term oil and natural gas price
hedges in order to facilitate financial planning and budgeting and
long-term hedges to protect desired levels of cash flow. As of December
31, 1995, approximately 35 Bcfe of the Company's oil and gas reserves
were hedged. Of this total hedged volume, 15 Bcfe and 11 Bcfe are hedged
for 1996 and 1997, respectively.
PRO FORMA OIL AND GAS RESERVES
The following table sets forth summary pro forma information with respect to
estimates of proved oil and gas reserves of the Company, Saxon and ATCOR and the
pre-tax discounted future net cash flows for these reserves as of December 31,
1995. For additional information relating to reserves, see "Risk Factors --
Ceiling Limitation Writedowns," "-- Reliance on Reserve Estimates," and Note 16
of Notes to Consolidated Financial Statements of the Company.
<TABLE>
<CAPTION>
COMBINED PRO FORMA
FOREST AND COMBINED
FOREST (1) SAXON (2) SAXON ATCOR FOREST
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Proved Developed
Natural Gas (MMcf)............................ 156,250 14,184 170,434 92,038 262,472
Liquids (Mbbls) (3)........................... 5,678 3,188 8,866 10,247 19,113
----------- ----------- ----------- ----------- -----------
Total (MMcfe) (4)........................... 190,318 33,312 223,630 153,520 377,150
Proved Undeveloped
Natural Gas (MMcf)............................ 59,201 2,034 61,235 -- 61,235
Liquids (Mbbls) (3)........................... 451 1,150 1,601 -- 1,601
----------- ----------- ----------- ----------- -----------
Total (MMcfe) (4)........................... 61,907 8,934 70,841 -- 70,841
----------- ----------- ----------- ----------- -----------
Total Proved (MMcfe) (4)........................ 252,225 42,246 294,471 153,520 447,991
Proved reserves attributable to volumetric
production payments, all of which are proved
developed:
Natural gas (MMcf)............................ 6,459 -- 6,459 -- 6,459
Liquids (Mbbls) (3)........................... 74 -- 74 -- 74
----------- ----------- ----------- ----------- -----------
Total proved reserves attributable to volumetric
production payments (MMcfe) (4)................ 6,903 -- 6,903 -- 6,903
----------- ----------- ----------- ----------- -----------
Total proved reserves including amounts
attributable to volumetric production payments
(MMcfe) (4).................................... 259,128 42,246 301,374 153,520 454,894
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Pre-tax discounted future net cash flows
relating to proved oil and gas reserves (in
thousands)..................................... $ 236,911 28,891 265,802 101,386 367,188
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Total pre-tax discounted future net cash flows
relating to proved oil and gas reserves,
including amounts attributable to volumetric
production payments (in thousands)............. $ 245,487 28,891 274,378 101,386 375,764
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
- ------------------------
(1) Includes certain Canadian reserves which are not significant.
(2) Represents 100% of the reserves owned by Saxon, a consolidated subsidiary in
which the Company holds a 56% economic interest.
(3) Includes crude oil, condensate and natural gas liquids.
(4) Computed on the basis that one barrel of liquids is equivalent to 6 Mcf of
natural gas.
40
<PAGE>
The Company's United States reserves have been reviewed by Ryder Scott. A
report on Saxon's reserves has been prepared by Fekete. A report on ATCOR's
reserves has been prepared by McDaniel. Copies of the review letter of Ryder
Scott and the summary reserve reports of Fekete and McDaniel are attached as
Appendices A, B and C to this Prospectus.
RESERVES DERIVED FROM ACQUISITIONS
The following table summarizes the proved reserves at acquisition date
associated with the Company's acquisitions from 1991 to 1995.
<TABLE>
<CAPTION>
ESTIMATED PROVED ACQUISITION
NUMBER OF MAJOR RESERVES ACQUIRED COST ACQUISITION COST
ACQUISITIONS BCFE (MILLIONS) PER MCFE
----------------- ------------------- ----------- -----------------
<S> <C> <C> <C> <C>
1991............................................ 1 25.8 $ 13.5 $ .52
1992............................................ 4 98.1 88.8 .90
1993............................................ 4 104.9 144.9 1.38
1994............................................ 1 8.3 9.8 1.17
1995 (1)........................................ 1 44.0 26.7 .61
--
----- ----------- -----
Total....................................... 11 281.1 $ 283.7 $ 1.01
--
--
----- ----------- -----
----- ----------- -----
</TABLE>
- ------------------------
(1) Includes 100% of the reserves and property basis of Saxon, a consolidated
subsidiary in which the Company purchased a 56% economic interest in
December 1995.
ATCOR ACQUISITION
On December 12, 1995, the Company entered into an agreement (the "ATCOR
Agreement") with ATCOR Resources Ltd., a Canadian corporation ("ATCOR"), and
three of the controlling stockholders of ATCOR, who own collectively 45% of the
common stock of ATCOR and who have agreed to vote their shares in favor of the
acquisition. Pursuant to the ATCOR Agreement, the Company has agreed to acquire
all of the outstanding capital stock of ATCOR for an aggregate cash
consideration of $186 million Cdn (or approximately $135 million assuming an
exchange rate of $1.38 Cdn to $1.00). The closing of the acquisition is subject
to certain conditions, including the completion of the Offerings. The
shareholders of ATCOR approved the acquisition on January 16, 1996. The Company
will use substantially all of the net proceeds of the Offerings to pay the costs
and expenses of the ATCOR acquisition. The closing of the acquisition is
expected to occur immediately following the closing of the Offerings.
The information included in this Prospectus regarding ATCOR has been
provided by ATCOR. No assurance can be given by the Company as to the accuracy
or completeness of such information. Due diligence has been conducted by the
Company only on those properties and other assets of ATCOR that the Company
believes have the most significant value. The Company will receive certain
representations and warranties from ATCOR in connection with the acquisition.
These representations and warranties will not survive the closing of the
transaction, however, and therefore the Company will have no recourse against
any third party for breaches of such representations and warranties and will
only be able to rely on its due diligence with respect to such matters. See
"Risk Factors -- Limited Knowledge of ATCOR Business and Properties."
As part of the acquisition, Forest has agreed to sell certain assets of
ATCOR to ATCOR's controlling shareholders for an aggregate consideration of
approximately $21.5 million Cdn (or approximately $15.6 million). These assets
include one-half of ATCOR's interests in certain frontier lands (see "Frontier
Exploration" below), an 18% interest in an ethane extraction plant in Edmonton,
Alberta in which ATCOR will retain a 15 1/3% interest and certain marketable
securities held by ATCOR.
ATCOR is engaged in oil and gas exploration and production and the marketing
and processing of natural gas. ATCOR's principal reserves and producing
properties are located in the Canadian provinces of Alberta and British
Columbia. At December 31, 1995, ATCOR's estimated proved oil and gas reserves
totaled 153.5 Bcfe, as estimated by McDaniel. ATCOR held a total of 265,774 net
acres of undeveloped oil and natural gas rights at December 31, 1994. ATCOR owns
interests in processing and gathering
41
<PAGE>
facilities in substantially all of its major fields. ATCOR has invested more
than $70 million Cdn in these facilities. Additionally, ATCOR is one of the
largest marketers of natural gas in Canada and the Company believes that ATCOR's
marketing capabilities provide ATCOR with access to markets that afford it a
competitive advantage compared to Canadian companies having only exploration and
production operations. The average wellhead price received by ATCOR during the
nine months ended September 30, 1995 was $1.45 Cdn per Mcf versus $1.14 Cdn per
MMbtu as the average spot market price quoted at AECO C Hub near Calgary,
Alberta. ATCOR's voting and non-voting common stock are listed on The Toronto
Stock Exchange under the symbols "AKR.A" and "AKR.B".
SIGNIFICANT PROPERTIES. The following is a description of ATCOR's principal
oil and gas properties. All stated production data is net to ATCOR's working
interest.
<TABLE>
<CAPTION>
NET PRODUCTION (1)
-----------------------------------
OPERATED/ PRODUCING GAS LIQUIDS
FIELD LOCATION NON-OPERATED WELLS MCF/D BBLS/D MCFE/D (2)
- ------------------- ------------------------------- -------------- ------------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Caroline West Central Alberta Non-Operated 16 2,300 1,286 10,016
Surmont/Newby Northeast Alberta Non-Operated 26 6,100 -- 6,100
Rigel/Doig Northeast British Columbia Operated 18 5,500 60 5,860
Thornbury/Winefred Northeast Alberta Non-Operated 42 4,300 -- 4,300
Herronton Southern Alberta Operated 11 2,200 244 3,664
Bittern Lake Central Alberta Operated 4 2,500 17 2,602
Maple Glen Central Alberta Non-Operated 40 2,000 -- 2,000
Chauvin East Central Alberta Operated 14 -- 190 1,140
Drumheller Central Alberta Operated 8 -- 155 930
Utikuma North Central Alberta Non-Operated 2 -- 150 900
----- --------- ----- -----------
Sub-Total 181 24,900 2,102 37,512
All Others 236 17,200 1,720 27,520
----- --------- ----- -----------
Total ATCOR.................................... 417 42,100 3,822 65,032
----- --------- ----- -----------
----- --------- ----- -----------
</TABLE>
- ------------------------------
(1) January - September 1995 average on a net revenue interest basis.
(2) Bbls converted to Mcfe on a 6:1 basis.
FRONTIER EXPLORATION. ATCOR owns varying interests in 22 significant
discovery areas on which wells have been drilled and oil and/or gas have been
discovered. Twenty-one of these discovery areas are located within the Beaufort
Sea - Mackenzie Delta area of northern Canada. The remaining discovery area is
situated off the coast of Nova Scotia near Sable Island. None of the recoverable
reserves underlying these discoveries is included in the published reserve
information under "-- Pro Forma Oil and Gas Reserves" above. In connection with
the acquisition of ATCOR by Forest, ATCOR will sell one-half of its interests in
these frontier lands to the controlling shareholders of ATCOR for $8 million
Cdn.
Virtually all of ATCOR's interests in these discovery areas are retained by
Significant Discovery Licenses. ATCOR has estimated that it, its Canadian
partners and the Canadian government have expended a total of approximately $200
million Cdn in the exploration and delineation of oil and gas reservoirs in the
Amauligak area. Financial requirements to retain these interests in good
standing are not significant and are part of ATCOR's annual capital budget.
Development through to production will be a significant investment and may
require separate financing.
The operators of the Sable Island gas field announced in October 1995, that
they plan to file a development plan application that will target placing Sable
Island production on-line by January 1, 2000. The operators indicated that a
final decision on whether to proceed with the project is expected by mid-1997.
NATURAL GAS MARKETING. ATCOR has been involved in natural gas marketing
since 1981. Activities consist of the marketing of ATCOR's own gas production,
the purchase and direct sale of other parties' natural gas, the handling of
transportation and operations of customers' gas, the operation of the ATCOR
Netback Pool and the spot purchasing and selling of natural gas. During the nine
months ended September 30, 1995, ATCOR marketed, on behalf of itself and others,
183 Bcf or approximately 671 MMcf/d.
42
<PAGE>
ATCOR operates the ATCOR Netback Pool that matches major end users with
providers of gas supply through arranged transportation channels and uses a
netback pricing mechanism to establish the wellhead price paid to producers.
Sales of natural gas to petrochemical, fertilizer and cement plants, electrical
cogeneration facilities, refineries, straddle plants and utilities are made
within Canada and the United States. ATCOR serves customers on short term and
long term contracts in Alberta, Saskatchewan, Ontario, Quebec and the United
States and participates in the daily trading of gas. Gas supplied to these
markets is partially supplied from ATCOR wells, and the remainder is obtained
from other producing and marketing companies. In 1994, ATCOR marketed, on behalf
of itself and others, 125 Bcf or approximately 342 MMcf/d.
Sales in the northeastern United States to Alberta Northeast Gas Limited, a
consortium of 16 gas and electric utilities located in New York, New Jersey,
Connecticut, Massachusetts, New Hampshire and Rhode Island (the ANE Project)
were at full contract volumes of 37.3 million cubic feet per day during 1995.
This contract, which expires in 2006, has a variable pricing formula not tied to
any single index or factor.
ATCOR commenced sales of approximately 18 MMcf/d to the Selkirk II
Cogeneration Project in New York State on November 1, 1994 through the Netback
Pool. This cogeneration plant generates approximately 270 megawatts of
electricity for sale to the Consolidated Edison Company of New York and sells
steam under a long term contract to a plastics facility owned by General
Electric. This project, which has a contract term of 15 years, also utilizes the
Iroquois Gas Transmission System pipeline for gas transportation. ATCOR sells
approximately 30 MMcf/day of shrinkage replacement gas through the ATCOR Netback
Pool to the ethane extraction plant in Edmonton, Alberta described below. This
contract expires on December 31, 1998. After such date, it is expected that the
amount of shrinkage gas sold by the pool may be significantly reduced.
The average price paid to producers in the ATCOR Netback Pool, which
includes the above mentioned contracts, was $1.36 Cdn per Mcf for the nine
months ended September 30, 1995.
NATURAL GAS LIQUIDS AND SULPHUR MARKETING. ATCOR owns interests in two
plants which are producing natural gas liquids. ATCOR owns an interest in a
processing plant in the Caroline gas field. ATCOR currently markets its natural
gas liquids from the Caroline field to a major oil and gas producer for use in a
miscible flood, under a short-term arrangement. The Caroline plant also produces
sulphur, and ATCOR's share of the sulphur production was 75 long tons per day
during 1994. ATCOR's share of the sulphur production is marketed to offshore
markets through the Prism Marketing Consortium.
ATCOR also owns a one-third interest in an ethane extraction plant in
Edmonton, Alberta. The present plant configuration has a maximum design capacity
to remove 12,000-14,000 Bbls/d of ethane and 8,500 Bbls/d of natural gas liquids
from an inlet natural gas volume of 315 MMcf/d. The plant extracts ethane and
natural gas liquids from gas streams flowing into south Edmonton. The ethane is
sold to an Alberta ethylene producer under a long-term contract at an
above-market price that expires in 1998. The natural gas liquids produced at the
Edmonton plant are sold under a long-term contract at Sarnia, Ontario. In
connection with the acquisition by Forest, an 18% interest in the Edmonton plant
will be sold to the controlling shareholders of ATCOR for $10 million Cdn.
In addition to liquids extracted, the Edmonton plant processes natural gas
for a large resource company under a long-term toll processing contract. For the
nine months ended September 30, 1995, the plant processed an average of 36
MMcf/d under the contract. The gas processed under the contract in 1996 and
future years will be substantially less as this supply becomes depleted and the
remaining reserves are limited. The plant owners will continue to negotiate
alternate contracts for third party processing as well as determining methods to
increase the portion of the Edmonton gas supply requirement which can be
processed at the Plant prior to consumption in the City.
CANADIAN REGULATION. For a description of certain Canadian regulatory
matters, see "-- Foreign Operations" below.
43
<PAGE>
EMPLOYEES At September 30, 1995, ATCOR had 76 full-time employees including
eight field employees. None of ATCOR's employees are represented by a labor
union or collective bargaining agreement. Management believes that its relations
with its employees are good.
SAXON ACQUISITION
On December 20, 1995, the Company acquired a 56% economic (49% voting)
interest in Saxon, an oil and gas exploration and production company
headquartered in Calgary, Alberta, Canada. In the transaction, Forest acquired
common stock and warrants of Saxon in exchange for approximately $1,100,000 and
1,060,000 shares of Common Stock, all of which are being offered for sale
hereby.
Saxon is focused on exploitation and development drilling primarily in
Alberta. Principal reserves and producing properties are located in three
project areas in western and northwestern Alberta in the Pembina, Bigoray and
Kaybob South fields. At December 31, 1995, Saxon had estimated proved oil and
natural gas reserves of 42.2 Bcfe as estimated by Fekete.
SIGNIFICANT PROPERTIES
Set forth below are brief descriptions of the Company's 15 most significant
offshore and onshore properties, including certain fields recently acquired from
Saxon. All stated production data is net to the Company's or Saxon's interest.
<TABLE>
<CAPTION>
NET PRODUCTION (1)
-----------------------------------
OPERATED/ PRODUCING GAS LIQUIDS
FIELD LOCATION NON-OPERATED WELLS MCF/D BBLS/D MCFE/D (2)
- ------------------------------- ------------------- -------------- ------------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Eugene Island 325 Offshore-Louisiana Operated 10 12,704 157 13,646
South Pelto 6 Offshore-Louisiana Non-Operated 1 8,788 145 9,660
Eugene Island 273 Offshore-Louisiana Operated 10 8,472 -- 8,472
Eugene Island 292 & 309 Offshore-Louisiana Operated 8 6,631 158 7,579
Katy Gulf Coast Non-Operated 90 5,415 150 6,317
East Cam 109/Verm. 101 & 102 Offshore-Louisiana Operated 5 5,268 39 5,503
Eugene Island 255 Offshore-Louisiana Operated 3 391 744 4,855
Loma Vieja South Texas Non-Operated 6 4,445 -- 4,445
Ship Shoal 277 Offshore-Louisiana Operated 7 1,882 404 4,306
Bigoray West Central Both 21 2,710 246 4,186
Alberta
Eugene Island 190 Offshore-Louisiana Operated 2 3,309 5 3,337
Pembina Central Alberta Operated 68 286 507 3,328
Matagorda 682 Offshore-Texas Operated 2 3,106 10 3,164
Eugene Island 53 Offshore-Louisiana Operated 20 2,807 26 2,963
Elk City Oklahoma Both 44 2,882 9 2,936
All Others - Forest 258 28,201 1,546 37,474
All Others - Saxon 432 4,080 433 6,678
----- --------- ----- -----------
Total 987 101,377 4,579 128,849
----- --------- ----- -----------
----- --------- ----- -----------
</TABLE>
- ------------------------------
(1) January - September 1995 average on a net revenue interest basis.
(2) Computed on the basis that one barrel of liquids is equivalent to 6 Mcf of
natural gas.
44
<PAGE>
PRODUCTION
The following table shows net oil and natural gas production for the Company
on a historical basis for each of the three years in the period ended December
31, 1994 and on a pro forma combined basis including the ATCOR and Saxon
acquisitions for the nine months ended September 30, 1995 and the year ended
December 31, 1994:
<TABLE>
<CAPTION>
NET LIQUIDS AND
NATURAL GAS PRODUCTION
-----------------------------------------------------------------------------------
PRO FORMA
NINE MONTHS YEAR ENDED DECEMBER 31,
ENDED NINE MONTHS -------------------------------------------------
SEPTEMBER 30, ENDED SEPTEMBER PRO FORMA
1995 30, 1995 1994 1994 1993 1992
--------------- --------------- ---------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
United States:
Natural Gas (MMcf)... 25,744 25,744 48,048 48,048 41,114 27,814
Liquids (Mbbls)...... 926 926 1,543 1,543 1,493 1,308
Canada:
Natural Gas (MMcf)... 15,762 -- 18,604 -- -- 1,360
Liquids (Mbbls)...... 1,618 -- 2,040 -- -- 142
------- ------- ------- --------- --------- ---------
Total (MMcfe)(1)....... 56,770 31,300 88,150 57,306 50,072 37,874
------- ------- ------- --------- --------- ---------
------- ------- ------- --------- --------- ---------
</TABLE>
(1) Computed on the basis that one barrel of liquids is equivalent to 6 Mcf of
natual gas.
PRODUCTIVE WELLS
The following summarizes the Company's total gross and net productive wells
at December 31, 1994 on a historical basis and on a pro forma combined basis
including the ATCOR and Saxon acquisitions:
<TABLE>
<CAPTION>
PRODUCTIVE WELLS (1)
------------------------
Historical GROSS (2) NET (3)
- ------------------------------------------------------------------ ----------- -----------
<S> <C> <C>
Oil.............................................................. 200 133.8
Natural Gas..................................................... 416 137.9
----- -----
Totals...................................................... 616 271.7
----- -----
----- -----
<CAPTION>
Pro Forma Combined
- ------------------------------------------------------------------
<S> <C> <C>
Oil............................................................. 876 317.3
Natural Gas..................................................... 758 245.6
----- -----
Totals...................................................... 1,634 562.9
----- -----
----- -----
</TABLE>
- ------------------------
(1) Productive wells are producing wells and wells capable of production,
including wells that are shut-in.
(2) A gross well is a well in which a working interest is owned. The number of
gross wells is the total number of wells in which a working interest is
owned.
(3) A net well is deemed to exist when the sum of fractional ownership working
interests in gross wells equals one. The number of net wells is the sum of
the fractional working interests owned in gross wells expressed as whole
numbers and fractions thereof.
45
<PAGE>
DEVELOPED AND UNDEVELOPED ACREAGE
The following table sets forth the Company's acreage at December 31, 1994 on
a historical basis and on a pro forma combined basis including the ATCOR and
Saxon acquisitions. A majority of the developed acreage is subject to a mortgage
lien securing either the Company's bank indebtedness or its nonrecourse secured
debt. A portion of the developed acreage is also subject to production payments.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Notes 4 and 5 of Notes to Consolidated Financial Statements of
the Company.
<TABLE>
<CAPTION>
UNDEVELOPED ACREAGE
DEVELOPED ACREAGE (1) (2)
---------------------- ----------------------
Historical GROSS (3) NET (4) GROSS (3) NET (4)
- ---------------------------------------------------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Louisiana Offshore...................................... 180,108 72,689 108,174 69,028
Oklahoma................................................ 63,779 22,891 5,976 1,321
Texas Onshore........................................... 126,330 59,502 26,991 19,210
Texas Offshore.......................................... 51,142 31,175 47,298 42,078
Wyoming................................................. 12,803 8,797 24,676 20,334
Other................................................... 30,883 9,017 6,615 3,592
----------- --------- ----------- ---------
Total Acreage at December 31, 1994...................... 465,045 204,071 219,730 155,563
----------- --------- ----------- ---------
----------- --------- ----------- ---------
Pro Forma Combined Acreage at December 31, 1994........... 830,328 330,747 1,478,443 677,800
----------- --------- ----------- ---------
----------- --------- ----------- ---------
</TABLE>
- ------------------------
(1) Developed acres are those acres which are spaced or assigned to productive
wells.
(2) Undeveloped acres are considered to be those acres on which wells have not
been drilled or completed to a point that would permit the production of
commercial quantities of oil or natural gas, regardless of whether such
acreage contains proved reserves. It should not be confused with undrilled
acreage held by production under the terms of a lease.
(3) A gross acre is an acre in which a working interest is owned. The number of
gross acres is the total number of acres in which a working interest is
owned.
(4) A net acre is deemed to exist when the sum of the fractional ownership
working interests in gross acres equals one. The number of net acres is the
sum of the fractional working interests owned in gross acres expressed as
whole numbers and fractions thereof.
During 1994, the Company's gross developed acreage increased approximately
9% and net developed acreage increased 13%, primarily as a result of producing
property acquisitions. The Company's gross and net undeveloped acreage decreased
35% and 33% respectively, primarily due to reductions in acreage as a result of
reclassifications to developed acreage, lease expirations and the Company's
decision not to renew certain leases which were located primarily offshore
Louisiana and in Texas.
Approximately 49% of the Company's total net undeveloped acreage is under
leases that have terms expiring in 1995, if not held by production, and another
approximately 9% of net undeveloped acreage will expire in 1996 if not also held
by production.
COMPETITION
The oil and natural gas industry is intensely competitive. Competition is
particularly intense in the acquisition of prospective oil and natural gas
properties and oil and gas reserves. Forest's competitive position depends on
its geological, geophysical and engineering expertise, on its financial
resources, its ability to develop its properties and its ability to select,
acquire and develop proved reserves. Forest competes with a substantial number
of other companies having larger technical staffs and greater financial and
operational resources. Many such companies not only engage in the acquisition,
exploration, development and production of oil and natural gas reserves, but
also carry on refining operations,
46
<PAGE>
generate electricity and market refined products. The Company also competes with
major and independent oil and gas companies in the marketing and sale of oil and
gas to transporters, distributors and end users. There is also competition
between the oil and natural gas industry and other industries supplying energy
and fuel to industrial, commercial and individual consumers. Forest also
competes with other oil and natural gas companies in attempting to secure
drilling rigs and other equipment necessary for drilling and completion of
wells. Such equipment may be in short supply from time to time, although there
is no current shortage of such equipment. Finally, companies not previously
investing in oil and natural gas may choose to acquire reserves to establish a
firm supply or simply as an investment. Such companies will also provide
competition for Forest. Forest's business is affected not only by such
competition, but also by general economic developments, governmental regulations
and other factors that affect its ability to market its oil and natural gas
production. The prices of oil and natural gas realized by Forest are both highly
volatile and generally dependent on world supply and demand. Declines in crude
oil prices or natural gas prices adversely impact Forest's activities. The
Company's financial position and resources may also adversely affect the
Company's competitive position. Lack of available funds or financing
alternatives will prevent the Company from executing its operating strategy and
from deriving the expected benefits therefrom. For further information
concerning the Company's financial position, see Management's Discussion and
Analysis of Financial Condition and Results of Operations.
ATCOR's gas marketing business also faces significant competition from other
gas marketers, some of whom are significantly larger in size and have access to
greater financial resources than ATCOR will have as a subsidiary of the Company.
REGULATION
Various aspects of the Company's oil and natural gas operations are
regulated by administrative agencies under statutory provisions of the states
where such operations are conducted and by certain agencies of the Federal
government for operations on Federal leases. The Federal Energy Regulatory
Commission ("FERC") regulates the transportation and sale for resale of natural
gas in interstate commerce pursuant to the Natural Gas Act of 1938 ("NGA") and
the Natural Gas Policy Act of 1978 ("NGPA"). In the past, the Federal government
has regulated the prices at which oil and gas could be sold. While sales by
producers of natural gas, and all sales of crude oil, condensate and natural gas
liquids can currently be made at uncontrolled market prices, Congress could
reenact price controls in the future. Deregulation of wellhead sales in the
natural gas industry began with the enactment of the NGPA in 1978. In 1989,
Congress enacted the Natural Gas Wellhead Decontrol Act ("the Decontrol Act").
The Decontrol Act removed all NGA and NGPA price and nonprice controls affecting
wellhead sales of natural gas effective January 1, 1993.
Commencing in April 1992, the FERC issued Order Nos. 636, 636-A, and 636-B
("Order No. 636"), which require interstate pipelines to provide transportation
separate, or "unbundled", from the pipelines' sales of gas. Also, Order No. 636
requires pipelines to provide open-access transportation on a basis that is
equal for all gas supplies. Although Order No. 636 does not directly regulate
the Company's activities, the FERC has stated that it intends for Order No. 636
to foster increased competition within all phases of the natural gas industry.
It is unclear what impact, if any, increased competition within the natural gas
industry under Order No. 636 will have on the Company's activities. Although
Order No. 636, assuming it is upheld in its entirety, could provide the Company
with additional market access and more fairly applied transportation service
rates, Order No. 636 could also subject the Company to more restrictive pipeline
imbalance tolerances and greater penalties for violation of those tolerances.
Numerous parties have filed petitions for review of Order No. 636, as well as
orders in individual pipeline restructuring proceedings. Upon such judicial
review, these orders may be remanded or reversed in whole or in part. With Order
No. 636 subject to court review, it is difficult to predict with precision its
ultimate effects.
The FERC has announced its intention to re-examine certain of its
transportation-related policies, including the appropriate manner in which
interstate pipelines release transportation capacity under Order No. 636, and
the use of market-based rates for interstate gas transmission. While any
resulting
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FERC action would affect the Company only indirectly, the FERC's current rules
and policy statements may have the effect of enhancing competition in natural
gas markets by, among other things, encouraging non-producer natural gas
marketers to engage in certain purchase and sale transactions. The Company
cannot predict what action the FERC will take on these matters, nor can it
accurately predict whether the FERC's actions will achieve the goal of
increasing competition in markets in which the Company's natural gas is sold.
However, the Company does not believe that it will be treated materially
differently than other natural gas producers and marketers with which it
competes.
Recently, the FERC issued a policy statement on how interstate natural gas
pipelines can recover the costs of new pipeline facilities. While this policy
statement affects the Company only indirectly, in its present form, the new
policy should enhance competition in natural gas markets and facilitate
construction of gas supply laterals. However, requests for rehearing of this
policy statement are currently pending. The Company cannot predict what action
the FERC will take on these requests.
Commencing in October 1993, the FERC issued a series of rules (Order Nos.
561 and 561-A) establishing an indexing system under which oil pipelines will be
able to change their transportation rates, subject to prescribed ceiling levels.
The indexing system, which allows or may require pipelines to make rate changes
to track changes in the Producer Price Index for Finished Goods, minus one
percent, became effective January 1, 1995. The FERC's decision in this matter is
currently the subject of various petitions for judicial review. The Company is
not able at this time to predict the effects of Order Nos. 561 and 561-A, if
any, on the transportation costs associated with oil production from the
Company's oil producing operations.
The Outer Continental Shelf Lands Act ("OCSLA") requires that all pipelines
operating on or across the Outer Continental Shelf (the "OCS") provide
open-access, non-discriminatory service. Although the FERC has opted not to
impose the regulations of Order No. 509, in which the FERC implemented the
OCSLA, on gatherers and other non-jurisdictional entities, the FERC has retained
the authority to exercise jurisdiction over those entities if necessary to
permit non-discriminatory access to service on the OCS. In this regard, the FERC
recently initiated a Notice of Inquiry ("NOI") into its policy regarding the
application of its jurisdiction under the NGA and the OCSLA over natural gas
facilities and services on the OCS. The FERC intends to use the NOI proceeding
to gather information to assist it in examining the structure and operation of
natural gas gathering and transmission on the OCS and the effects of the FERC's
current policy regarding those services. The Company is not able to predict what
action, if any, the FERC might take as a result of the NOI proceeding, or the
effects, if any, of such proceeding on its OCS operations. If the FERC were to
determine that it was no longer necessary to regulate the rates and services of
OCS transmission facilities under the NGA, the Company could experience an
increase in transportation costs associated with its OCS natural gas production
and, possibly, reduced access to OCS transmission capacity.
Certain operations the Company conducts are on federal oil and gas leases,
which the Minerals Management Service "MMS" administers. The MMS issues such
leases through competitive bidding. These leases contain relatively standardized
terms and require compliance with detailed MMS regulations and orders pursuant
to the OCSLA (which are subject to change by the MMS). For offshore operations,
lessees must obtain MMS approval for exploration plans and development and
production plans prior to the commencement of such operations. In addition to
permits required from other agencies (such as the Coast Guard, the Army Corps of
Engineers and the Environmental Protection Agency), lessees must obtain a permit
from the MMS prior to the commencement of drilling. The MMS has promulgated
regulations requiring offshore production facilities located on the OCS to meet
stringent engineering and construction specifications. The MMS proposed
additional safety-related regulations concerning the design and operating
procedures for OCS production platforms and pipelines. These proposed
regulations were withdrawn pending further discussions among interested federal
agencies. The MMS also has regulations restricting the flaring or venting of
natural gas, and has recently proposed to amend such regulations to prohibit the
flaring of liquid hydrocarbons and oil without prior authorization. Similarly,
the MMS has promulgated other regulations governing the plugging and abandonment
of wells located offshore and the removal of all production facilities. To cover
the various
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obligations of lessees on the OCS, the MMS generally requires that lessees post
substantial bonds or other acceptable assurances that such obligations will be
met. The cost of such bonds or other surety can be substantial and there is no
assurance that the Company can continue to obtain bonds or other surety in all
cases.
In addition, the MMS is conducting an inquiry into certain contract
agreements from which producers on MMS leases have received settlement proceeds
that are royalty bearing and the extent to which producers have paid the
appropriate royalties on those proceeds. The Company believes that this inquiry
will not have a material impact on its financial condition, liquidity or results
of operations.
The MMS has recently issued a notice of proposed rulemaking in which it
proposes to amend its regulations governing the calculation of royalties and the
valuation of natural gas produced from federal leases. The principal feature in
the amendments, as proposed, would establish an alternative market-index based
method to calculate royalties on certain natural gas production sold to
affiliates or pursuant to non-arm's-length sales contracts. The MMS has proposed
this rulemaking to facilitate royalty valuation in light of changes in the gas
marketing environment. The Company cannot predict what action the MMS will take
on these matters, nor can it predict at this stage of the rulemaking proceeding
how the Company might be affected by amendments to the regulations.
Additional proposals and proceedings that might affect the oil and gas
industry are pending before the FERC and the courts. The Company cannot predict
when or whether any such proposals may become effective. In the past, the
natural gas industry has been heavily regulated. There is no assurance that the
regulatory approach currently pursued by the FERC will continue indefinitely.
Notwithstanding the foregoing, the Company does not anticipate that compliance
with existing federal, state and local laws, rules and regulations will have a
material or significantly adverse effect upon the capital expenditures, earnings
or competitive position of the Company or its subsidiaries. No material portion
of Forest's business is subject to renegotiation of profits or termination of
contracts or subcontracts at the election of the Federal government.
OIL SPILL FINANCIAL RESPONSIBILITY REQUIREMENTS
In August 1993, the MMS published an advance notice of its intention to
adopt a rule under the Oil Pollution Act of 1990 ("OPA 90") that would require
owners and operators of oil and gas facilities located on or adjacent to waters
of the United States to establish $150 million in financial responsibility to
cover oil spill related liabilities. Compliance with the proposed rule could be
financially burdensome for many small oil and gas companies, and in June 1995,
The U.S. House of Representatives approved a bill that would amend OPA 90 to
reduce the level of financial responsibility to $35 million. The Clinton
Administration has expressed its support for the pending legislation, but the
U.S. Senate has not yet taken any action on the bill approved by the House of
Representatives. The Company cannot predict whether Congress will reduce the
level of financial responsibility required under OPA 90 nor can it predict the
final form of any financial responsibility rule that might be adopted, but any
such action has the potential to result in the imposition of substantial
additional annual costs on the Company or otherwise materially adversely affect
the Company. The impact of the rule should not be any more adverse to the
Company than it will be to other similarly situated or less capitalized owners
or operators in the Gulf of Mexico and other affected regions. The MMS has
indicated that it will not move forward with the adoption of the rule until the
United States Congress has had an opportunity to act on the pending amendments
to OPA 90.
OPERATING HAZARDS AND ENVIRONMENTAL MATTERS
The oil and gas business involves a variety of operating risks, including
the risk of fire, explosions, blow-outs, pipe failure, casing collapse,
abnormally pressured formations and environmental hazards such as oil spills,
gas leaks, ruptures and discharges of toxic gases, the occurrence of any of
which could result in substantial losses to the Company due to injury or loss of
life, severe damage to or destruction of property, natural resources and
equipment, pollution or other environmental damage,
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clean-up responsibilities, regulatory investigation and penalties and suspension
of operations. In addition, the Company currently operates offshore and is
subject to the additional hazards of marine operations, such as capsizing,
collision and adverse weather and sea conditions. Such hazards may hinder or
delay drilling, development and on-line production operations.
Extensive federal, state and local laws govern oil and natural gas
operations regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment. Numerous governmental
departments issue rules and regulations to implement and enforce such laws which
are often difficult and costly to comply with and which carry substantial
penalties for failure to comply. Some laws, rules and regulations relating to
protection of the environment may, in certain circumstances, impose "strict
liability" for environmental contamination, rendering a person liable for
environmental damages and cleanup costs without regard to negligence or fault on
the part of such person. Other laws, rules and regulations may restrict the rate
of oil and natural gas production below the rate that would otherwise exist. The
regulatory burden on the oil and natural gas industry increases its cost of
doing business and consequently affects its profitability. These laws, rules and
regulations affect the operations of the Company. Compliance with environmental
requirements generally could have a material adverse effect upon the capital
expenditures, earnings or competitive position of Forest and its subsidiaries.
The Company believes that it is in substantial compliance with current
applicable environmental laws and regulations and that continued compliance with
existing requirements will not have a material adverse impact on the Company.
Nevertheless, changes in environmental law have the potential to adversely
affect the Company's operations. For instance, at least two separate courts have
recently ruled that certain wastes associated with the production of crude oil
may be classified as hazardous substances under the Comprehensive Environmental
Response, Compensation, and Liability Act (commonly called "Superfund") and thus
the Company could become subject to the burdensome cleanup and liability
standards established under the federal Superfund program if significant
concentrations of such wastes were determined to be present at the Company's
properties or to have been produced as a result of the Company's operations.
Alternately, pending amendments to Superfund presently under consideration by
the U.S. Congress could relax many of the burdensome cleanup and liability
standards established under the statute.
Although the Company maintains insurance against some, but not all, of the
risks described above, including insuring the costs of clean-up operations,
public liability and physical damage, there is no assurance that such insurance
will be adequate to cover all such costs or that such insurance will continue to
be available in the future or that such insurance will be available at premium
levels that justify its purchase. The occurrence of a significant event not
fully insured or indemnified against could have a material adverse effect on the
Company's financial condition and operations.
The Company has established guidelines to be followed to comply with
environmental laws, rules and regulations. The Company has designated a
compliance officer whose responsibility is to monitor regulatory requirements
and their impacts on the Company and to implement appropriate compliance
procedures. The Company also employs an environmental manager whose
responsibilities include causing Forest's operations to be carried out in
accordance with applicable environmental guidelines and implementing adequate
safety precautions. Although the Company maintains pollution insurance against
the costs of clean-up operations, public liability and physical damage, there is
no assurance that such insurance will be adequate to cover all such costs or
that such insurance will continue to be available in the future.
FOREIGN OPERATIONS
Forest has entered into an agreement to acquire ATCOR and has acquired a
controlling interest in Saxon. See "-- ATCOR Acquisition" and "-- Saxon
Acquisition." In 1992, the Company sold substantially all of its Canadian
operations to CanEagle Resources Corporation ("CanEagle"). In June 1994,
CanEagle sold a significant portion of its oil and gas properties in Canada to a
third party. In conjunction
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with this transaction, the Company exchanged its investment in CanEagle for
preferred shares of a newly formed entity, Archean Energy, Ltd. ("Archean"). In
connection with the Saxon transaction, the Company exchanged its Archean
preferred stock for Saxon preferred stock.
In Canada, the petroleum industry operates under federal, provincial and
municipal legislation and regulations governing taxes, land tenure, royalties,
production rates, pricing, environmental protection, exports and other matters.
Prices of oil and natural gas in Canada have been deregulated and are determined
by market conditions and negotiations between buyers and sellers.
Various matters relating to the transportation and distribution of natural
gas are the subject of hearings before various regulatory tribunals. In
addition, although the price of natural gas exported from Canada is subject to
negotiation between buyers and sellers, the National Energy Board, which
regulates exports of natural gas, requires that natural gas export contracts
meet certain criteria as a condition of approving such exports. These criteria,
including price and reserve considerations, are designed to demonstrate that the
export is in the Canadian public interest.
Several provincial governments have introduced a number of programs to
encourage and assist the oil and natural gas industry, including incentive
payments, royalty holidays and royalty tax credits.
Canadian governmental regulations may have a material effect on the economic
parameters for engaging in oil and gas activities in Canada and may have a
material effect on the advisability of investments in Canadian oil and gas
drilling activities.
Forest considers, from time to time, certain oil and gas opportunities in
other foreign countries. Foreign oil and natural gas operations are subject to
certain risks, such as nationalization, confiscation, terrorism, renegotiation
of existing contracts and currency fluctuations. Forest monitors the political,
regulatory and economic developments in any foreign countries in which it
operates.
LEGAL PROCEEDINGS
Royalty owners have filed two separate class action lawsuits against the
Company in the State District Court of Caddo County, Oklahoma. In each case the
plaintiff has alleged unjust enrichment, breach of fiduciary duty, constructive
fraud and breach of contract. The claims in both suits are based on the
allegation that the Company underpaid royalties on the consideration received
pursuant to settlement agreements with ONEOK, Inc. in 1990 and 1992.
In MODRALL V. FOREST OIL CORPORATION, Case No. CJ-95-67, filed on March 24,
1995, the Court, on September 13, 1995, certified a class comprised of the
royalty and overriding royalty owners in the three wells involved in the 1992
ONEOK, Inc. settlement. No class has been certified as yet in MERCO OF OKLAHOMA,
INC. V. FOREST OIL CORPORATION, Case No. CJ-95-230, which suit was filed on
September 27, 1995. This suit involves the 1990 ONEOK, Inc. settlement. The
plaintiffs in both suits seek actual damages in excess of $10,000, punitive
damages in excess of $10,000, an accounting, interest and costs. There has been
no specific determination of the amount in controversy in either case.
The plaintiffs allege in both cases that they are entitled to share in all
value received by the Company under the aforesaid settlements, including
proceeds not attributable to actual gas production. The Company believes that it
was not required to pay a royalty on such proceeds, and therefore intends to
vigorously resist these claims.
The Company, in the ordinary course of business, is a party to various legal
actions. In the opinion of management, none of these actions, including those
discussed above, either individually or in the aggregate, will have a material
adverse effect on the Company's financial condition, liquidity or results of
operations.
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THE ANSCHUTZ AND JEDI TRANSACTIONS
ORIGINAL TRANSACTIONS
On July 27, 1995, the Company consummated the transactions contemplated by
the Purchase Agreement between the Company and Anschutz dated May 17, 1995 (the
"Anschutz Agreement") and the Restructure Agreement between the Company and JEDI
(a Delaware limited partnership, whose general partner is Enron Capital Corp.,
an affiliate of Enron Corp.) dated May 17, 1995 (the "JEDI Agreement").
Pursuant to the Anschutz Agreement, for a total consideration of $45 million
Anschutz purchased an aggregate of 3,760,000 shares of Common Stock and 620,000
shares of Second Series Preferred Stock that are convertible into an aggregate
of 1,240,000 additional shares of Common Stock. 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. At the second closing, which occurred on July 27,
1995, Anschutz converted the loan into 1,100,000 shares of Common Stock and
purchased from the Company, for an additional payment of $35,100,000, 2,660,000
shares of Common Stock, the Second Series Preferred Stock and the A Warrants to
purchase 3,888,888 shares of Common Stock and acquired from JEDI an option to
acquire up to an additional 2,250,000 shares of Common Stock, subject to certain
restrictions (the "Anschutz Option"). The A Warrants were originally scheduled
to expire on January 27, 1997. Such expiration will be extended to July 27, 1998
upon completion of the Offerings in consideration of Anschutz's agreement to not
sell its shares of Common Stock for nine months thereafter, except in limited
circumstances. See "Description of Capital Stock -- Warrants."
At the second closing, Anschutz agreed pursuant to a shareholders agreement
with the Company (the "Anschutz Shareholders Agreement") to certain voting,
acquisition, transfer and certain other limitations regarding all its shares of
Common Stock for five years after the second closing, including (a) a limit on
voting, subject to certain exceptions, that required 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) limiting to three the number of
persons associated with Anschutz that may at any time be elected as directors of
the Company and limit the total number of directors to 10 and (c) a limit on the
acquisition of additional shares of Common Stock by Anschutz (whether pursuant
to the conversion of the Second Series Preferred Stock, the exercise of the
warrants or the option received from JEDI, each as described below, or
otherwise), subject to certain exceptions, that prohibits any acquisition by
Anschutz that would result in Anschutz beneficially owning 40% or more of the
shares of Common Stock then issued and outstanding. While the foregoing
limitations are in effect, Anschutz will have the right to designate three
members of the Company's Board of Directors. See "-- Shareholders Agreements"
below.
At the second closing, the Company and JEDI restructured JEDI's existing
loan which had a principal balance of approximately $62,400,000 at July 27,
1995. As a part of the restructuring, the existing JEDI loan balance was divided
into two tranches: a $40,000,000 tranche, which bears interest at the rate of
12.5% per annum and is due and payable in full on December 31, 2000; and an
approximately $22,400,000 tranche, which does not bear interest and is due and
payable in full on December 31, 2002. JEDI also relinquished the net profits
interest that it held in certain properties of the Company. In consideration,
JEDI received the B Warrants, which entitle it to purchase 2,250,000 shares of
Common Stock for $10.00 per share. The B Warrants would have expired on the
earlier of December 31, 2002 or 36 months following exercise of the Company's
option to convey properties in satisfaction of JEDI indebtedness ("the
Conveyance Option"). Also at the second closing, JEDI granted the Anschutz
Option to Anschutz, pursuant to which Anschutz is entitled to purchase from JEDI
up to 2,250,000 shares of Common Stock at a purchase price per share equal to
the lesser of (a) $10.00 plus 18% per annum from the second closing date to the
date of exercise of the option, or (b) $15.50. JEDI would have satisfied its
obligations under the Anshutz Option by exercising the B Warrants.
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The Company has agreed to use the proceeds from the exercise of the A
Warrants to pay principal and interest on the $40,000,000 tranche of the JEDI
loan.
JEDI EXCHANGE
On January 24, 1996, JEDI exchanged the $22,400,000 tranche and the B
Warrants for 1,680,000 shares of Common Stock. The JEDI Exchange also eliminated
the Conveyance Option described above and provided for other changes to the JEDI
loan agreement that will have the effect of increasing the Company's flexibility
with respect to the development of the properties securing the JEDI
indebtedness. Pursuant to the JEDI Exchange, JEDI entered into a shareholders
agreement with the Company (the "JEDI Shareholders Agreement") that limits
JEDI's right to vote its shares of Common Stock and, except in certain
circumstances, to transfer its shares before July 27, 1998. The JEDI
Shareholders Agreement also entitles JEDI to designate a member of the Company's
Board of Directors if the average price of the Common Stock over a period of 30
trading days is less than or equal to $8.75 per share or if there is a
substantial downgrading in the rating of the Company's debt securities. The JEDI
Shareholders Agreement will terminate upon the termination of the Anschutz
Shareholders Agreement or earlier if the shares acquired by JEDI pursuant to the
JEDI Exchange and still held by JEDI are less than 3% of the outstanding shares
of Common Stock. See "--Shareholders Agreements" below.
Pursuant to the JEDI Exchange, the Company assumed JEDI's obligations under
the Anschutz Option. Under the Anschutz Option, the Company is obligated to
issue shares directly to Anschutz that previously would have been issued to JEDI
pursuant to the B Warrants. Upon the exercise of the Anschutz Option, instead of
the B Warrant price of $10.00 per share, the Company will receive an amount
equal to the lesser of (a) $10.00 plus 18% per annum from July 27, 1995 to the
date of exercise of the option, or (b) $15.50. The Company is permitted to use
proceeds from the exercise of the Anschutz Option for any corporate purpose.
SHAREHOLDERS AGREEMENTS
At the second closing under the Anschutz Agreement, Anschutz entered into
the Anschutz Shareholders Agreement providing for certain voting and other
limitations regarding its shares of Common Stock for the lesser of (i) five
years after the second closing and (ii) the first day on which the sum of the
number of shares of Common Stock owned by Anschutz and its affiliates and any
shares of Common Stock subject to acquisition by Anschutz and its affiliates
(regardless of any conditions or restrictions on such rights) is less than 20%
of the total of all shares of Common Stock issued and outstanding and subject to
issuance (regardless of any conditions or restrictions on such rights). The
Anschutz Shareholders Agreement requires the Company to, among other things,
except as otherwise approved by the Board of Directors, including a majority of
the Independent Directors (as defined below), or by vote of the holders of
two-thirds of the shares of Common Stock then issued and outstanding (in which
Anschutz Excess Securities (as defined below) are voted in accordance with the
restrictions contained in the Anschutz Shareholders Agreement) (a) fix the
number of directors of the Company at ten, who are to be three persons selected
by Anschutz (the "Anschutz Designees"), two persons who are officers of the
Company and five persons unaffiliated with Anschutz who are not and have not
been at any time during the preceding two years an officer or employee of the
Company or a director, officer or employee of a beneficial owner of 5% or more
of the shares of Common Stock then issued and outstanding or an affiliate of
such beneficial owner ("Independent Directors"), (b) appoint an Anschutz
Designee chosen by Anschutz to each of the Executive Committee, the Compensation
Committee and the Audit Committee (or committees having similar functions) of
the Board of Directors, (c) appoint a Nominating Committee composed of three
directors, one of whom shall be an Anschutz Designee, one of whom shall be an
officer of the Company and one of whom shall be an Independent Director, (d)
require that nominees to the Board of Directors other than the Anschutz
Designees be selected by a vote of at least two members of the Nominating
Committee, of whom one shall be an Independent Director, (e) if any Anschutz
Designee shall cease to be a director for any reason, fill the vacancy resulting
thereby with an Anschutz Designee and (f) call meetings of the Board of
Directors and committees thereof upon the written request of any Anschutz
Designee who is a director.
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The Anschutz Shareholders Agreement also contains a limit on voting that
would require Anschutz to vote all equity securities of the Company having
voting power in excess of an amount equal to 19.99% of the aggregate voting
power of the equity securities of the Company then outstanding (the "Anschutz
Excess Securities") in the same proportion as all other equity securities of the
Company voted with respect to the matter (other than equity securities held by
Anschutz or JEDI) are voted, except that Anschutz may vote the Anschutz Excess
Securities without restriction (a) for the election of the permitted number of
Anschutz Designees, (b) with respect to all matters with respect to which
Anschutz may have liability under Section 16(b) of the Exchange Act (unless the
Company has obtained a final judgment to the effect that Anschutz will have no
such liability) and (c) with respect to other matters as approved by the Board
of Directors, including a majority of Independent Directors.
The exception with respect to Section 16(b) of the Exchange Act could have
the effect of permitting Anschutz to vote the Anschutz Excess Securities without
restriction in connection with a proposed merger of the Company with a third
party, which merger had been approved by the Board of Directors (regardless of
how the directors appointed by Anschutz might vote on such merger). Depending
upon its percentage ownership, if permitted to vote the Anschutz Excess
Securities, Anschutz could have a veto power over certain transactions between
the Company and third parties such as a merger, which requires the approval of
the holders of two-thirds of the outstanding Common Stock.
The Anschutz Shareholders Agreement also contains an agreement on the part
of Anschutz not to transfer the beneficial ownership of any of its shares of
Common Stock and Preferred Stock (including shares later acquired pursuant to
the conversion of the Second Series Preferred Stock or the exercise of the A
Warrants or the option received from JEDI), except (a) in a public offering of
Common Stock pursuant to a registration statement effective under the Securities
Act, (b) to a person or Group (as defined in Section 13(d)(3) of the Exchange
Act) who represents that it will then beneficially own 9.9% or less of the total
number of shares of Common Stock then issued and outstanding and those subject
to issuance (even if then subject to conditions or restrictions), (c) to a
person or Group who will then beneficially own more than 9.9% but less than 20%
of the total number of shares of Common Stock issued and outstanding and those
subject to issuance (even if then subject to conditions or restrictions) if such
person or Group assumes by written instrument satisfactory to both Anschutz and
the Company the transfer restrictions previously applicable to Anschutz, (d) any
transfer approved by the Board of Directors, including a majority of the
Independent Directors, which approval shall not be unreasonably withheld with
respect to a transfer to any person or Group who represents that it will then
beneficially own more than 9.9% and less than 20% of the total number of shares
of Common Stock issued and outstanding and those subject to issuance (even if
then subject to conditions or restrictions), (e) a transfer in connection with
certain business combination transactions or tender or exchange offers, upon the
liquidation or dissolution of the Company or as effected by operation of law and
(f) the pledge or grant of a security interest in certain cases.
The Anschutz Shareholders Agreement also provides that Anschutz will neither
alone, nor through or with its affiliates, acquire shares of Common Stock which,
when combined with shares of Common Stock then owned by Anschutz and its
affiliates, would result in Anschutz beneficially owning 40% or more of the
shares of Common Stock then issued and outstanding (provided that shares of
Common Stock which may be acquired pursuant to the conversion of the Second
Series Preferred Stock or the exercise of the A Warrants or the option received
from JEDI that have not been issued shall not be included in such
determination), except that such restriction shall not apply to (i) acquisitions
following a business combination transaction that (A) has been approved by the
Board of Directors (including a majority of the Independent Directors) or by the
holders of two-thirds of the shares of Common Stock voted with respect to such
transaction in which Anschutz Excess Securities are voted in accordance with the
Shareholders Agreement) and (B) results in the beneficial ownership by any
person or Group of 20% or more of the shares of Common Stock then issued and
outstanding (or if all or any part of the shares of Common Stock are changed
into or exchanged for shares of capital stock of any other person, 20% of such
issued and outstanding shares), (ii) acquisitions following the commencement of
a tender or exchange offer made by any person or Group (other than and not
including Anschutz or an affiliate of, or
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any person acting in concert with, Anschutz) to acquire beneficial ownership of
40% or more of the shares of Common Stock then issued and outstanding, (iii)
acquisitions after any person or Group (other than and not including an
affiliate of Anschutz) shall own beneficially shares of Common Stock which
exceed the sum of the number of shares of Common Stock then owned by Anschutz
and its affiliates plus the number then subject to acquisition upon the
conversion, exercise or exchange by Anschutz and its affiliates of equity
securities of the Company or other rights then owned (whether or not subject to
restrictions or conditions) and (iv) acquisitions approved by the Board of
Directors, including a majority of Independent Directors. If Anschutz's
percentage ownership were diluted by future increases in the outstanding Common
Stock, the 40% restriction on Anschutz's ownership would not preclude Anschutz
from acquiring shares of Common Stock in the open market up to the 40% level,
regardless of Anschutz's ability to exercise warrants or options or to convert
the Second Series Preferred Stock.
The Anschutz Shareholders Agreement also provides that the Company will not
take or recommend to its shareholders any action which would impose on Anschutz
or its affiliates any limitations on their legal rights, other than those
imposed by the express terms of the Shareholders Agreement, and that the Company
will not take any action that will or may, directly or indirectly, result in
Anschutz or any affiliate having liability under Section 16(b) of the Exchange
Act with respect to securities acquired pursuant to the Anschutz Agreement
(including shares acquired upon the conversion of the Second Series Preferred
Stock or the exercise of the A Warrants or the option received from JEDI). The
Company has the right to seek a declaratory judgment as to whether any action
described in the preceding sentence or the provisions with respect to the
limitations on the voting of the Anschutz Excess Securities on a matter shall be
effective and in doing so whether Anschutz will have Section 16(b) liability
with respect to such matters. The Anschutz Shareholders Agreement also provides
that the voting restrictions on the Anschutz Excess Securities, and the transfer
restrictions and the cap on purchases of Common Stock by Anschutz in excess of
40%, shall no longer apply if any of the Anschutz Designees are not elected to
the Board of Directors (and Anschutz and its affiliates voted all the shares of
Common Stock owned by them in favor of such election) or one or more directors
who are Anschutz Designees are not appointed to the Committees as provided in
the Anschutz Shareholders' Agreement (and the directors who are Anschutz
Designees voted in favor of such appointment).
In connection with the JEDI Exchange, JEDI also entered into the JEDI
Shareholders Agreement. The JEDI Shareholders Agreement entitles JEDI to
designate a member of the Company's Board of Directors if the average price of
the Common Stock over a period of 30 trading days is less than or equal to $8.75
per share or if there is a substantial downgrading in the rating of the
Company's debt securities. At any time during which a JEDI designee is not
serving as a director of the Company, JEDI will have the right to have an
observer at meetings of the Board of Directors at which significant transactions
are considered. The JEDI Shareholders Agreement will terminate upon the
termination of the Anschutz Shareholders Agreement or earlier if the shares
acquired by JEDI pursuant to the JEDI Exchange and still held by JEDI are less
than 3% of the shares of Common Stock then outstanding.
The JEDI Shareholders Agreement voting restriction would require JEDI to
vote all shares of Common Stock owned by JEDI in excess of a base amount (the
"JEDI Excess Securities") in the same proportion as all equity securities of the
Company voted with respect to the matter (other than securities held by Anschutz
and JEDI) are voted, except that JEDI may vote the JEDI Excess Securities
without restriction (a) for the election of a director designated by JEDI
pursuant to the JEDI Shareholders Agreement, (b) with respect to all matters
with respect to which JEDI may have liability under Section 16(b) of the
Exchange Act (unless the Company has obtained a final judgment to the effect
that JEDI will have no such liability) and (c) with respect to other matters as
approved by the Board of Directors, including a majority of Independent
Directors. The number of JEDI Excess Shares is calculated on a proportionate
basis with reference to the number of shares that are not Anschutz Excess Shares
(including for the purpose of such calculation the shares of Common Stock
issuable upon conversion of the Second Series Preferred Stock, even though such
shares may not vote on the matter in question).
The JEDI Shareholders Agreement also contains an agreement on the part of
JEDI not to transfer the beneficial ownership of any of its shares of Common
Stock until July 27, 1998, except (a) any transfer
55
<PAGE>
approved by the Board of Directors, including a majority of the Independent
Directors, (b) a transfer in connection with certain business combination
transactions or tender or exchange offers, upon the liquidation or dissolution
of the Company or as effected by operation of law and (c) the pledge or grant of
a security interest in certain cases.
The JEDI Shareholders Agreement also provides that the Company will not take
or recommend to its shareholders any action which would impose on JEDI or its
affiliates any limitations on their legal rights, other than those imposed by
the express terms of the JEDI Shareholders Agreement, and that the Company will
not take any action for six months after the date thereof that will or may,
directly or indirectly, result in Anschutz or any affiliate having liability
under Section 16(b) of the Exchange Act with respect to securities acquired
pursuant to the JEDI Exchange. The Company has the right to seek a declaratory
judgment as to whether JEDI will have Section 16(b) liability with respect to
such matters.
REGISTRATION RIGHTS AGREEMENTS
At the first closing under the Anschutz Agreement, the Company and Anschutz
also entered into a registration rights agreement (the "Anschutz Registration
Rights Agreement") pursuant to which the Company agreed to register pursuant to
the Securities Act of 1933, as amended (the "Securities Act"), any Common Stock
acquired by Anschutz in connection with the Anschutz Agreement. Anschutz has the
right to demand such registration on four separate occasions and will have
certain "piggy-back" registration rights with respect to Company registrations.
The Company will bear the cost of any registration pursuant to the Anschutz
Registration Rights Agreement. At the second closing, the Company and JEDI also
entered into a registration rights agreement (the "JEDI Registration Rights
Agreement") on terms substantially similar to the Anschutz Registration Rights
Agreement, including two demand registration rights. Pursuant to the JEDI
Exchange, the JEDI Registration Rights Agreement was amended to reflect the
transfer of the B Warrants to the Company and the acquisition by JEDI of shares
of Common Stock pursuant to the JEDI Exchange.
RIGHTS AGREEMENT
The Anschutz Agreement required the Company to amend the Rights Agreement
dated as of October 14, 1993 between the Company and Mellon Securities Trust
Company, as Rights Agent, (the "Rights Agreement") with respect to the
transactions contemplated by the Anschutz Agreement. The amendment to the Rights
Agreement exempted from the provisions of the Rights Agreement shares of Common
Stock acquired by Anschutz pursuant to the Anschutz Agreement (including shares
later acquired pursuant to the conversion of the Second Series Preferred Stock
or the exercise of the A Warrants or the option received from JEDI). The
amendment to the Rights Agreement did not exempt other shares of Common Stock
acquired by Anschutz from the provisions of the Rights Agreement. In the
Anschutz Agreement, the Company agreed to waive the provisions of the Rights
Agreement with respect to Anschutz if, and to the same extent, it waives such
provisions with respect to any other person. See "Description of Capital Stock
- -- Anti-Takeover Provisions."
56
<PAGE>
MANAGEMENT
The executive officers and directors of the Company and their respective
positions and ages are set forth below.
<TABLE>
<CAPTION>
AGE AND YEARS OF PRINCIPAL OCCUPATION,
SERVICE POSITIONS WITH COMPANY AND BUSINESS EXPERIENCE
NAME WITH COMPANY DURING LAST FIVE YEARS
- ------------------------------- ----------------- --------------------------------------------------------------
<S> <C> <C>
William L. Dorn................ 47-24 Chairman of the Board and Chairman of the Executive Committee
since July 1991 and Chief Executive Officer from February
1990 until December 1995. Chairman of the Nominating
Committee since July 1995. Director since 1982. Member of
the Executive Committee since August 1988. President from
February 1990 until November 1993. Executive Vice President
from August 1989 until February 1990.
Robert S. Boswell.............. 46-10 President since November 1993 and Chief Executive Officer
since December 1995. Director since 1985. Vice President
from May 1991 until November 1993. Chief Financial Officer
since May 1991. Financial Vice President from September 1989
until May 1991. Member of the Executive Committee since July
1991. Director of Franklin Supply Company Ltd. and Saxon
Petroleum Inc.
David H. Keyte................. 39-8 Vice President and Chief Financial Officer since December
1995. Vice President and Chief Accounting Officer from
December 1993 until December 1995. Prior thereto Corporate
Controller since January 1989. Chairman of the Company's
Employee Benefits Committee, which assumed the duties of the
Trustees of the Pension Trust and of the Administrative
Committee of the Retirement Savings Plan in August 1994.
Director of Saxon Petroleum Inc.
V. Bruce Thompson.............. 48-1 Vice President and General Counsel since August 1994. Vice
President -- Legal of Mid-America Dairymen, Inc. from
November 1993 to August 1994. Chief of Staff for Oklahoma
Congressman James M. Inhofe from February 1990 to November
1993.
Bulent A. Berilgen............. 47-11 Vice President of Operations since December 1993. Prior
thereto Vice President -- Engineering and Development since
January 1992. Prior thereto Regional Reservoir Engineer.
Director of Saxon Petroleum Inc.
Kenton M. Scroggs.............. 43-12 Vice President since December 1993 and Treasurer since May
1988. Member of the Company's Employee Benefits Committee,
which assumed the duties of the Trustees of the Pension
Trust and of the Administrative Committee of the Retirement
Savings Plan in August 1994.
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
AGE AND YEARS OF PRINCIPAL OCCUPATION,
SERVICE POSITIONS WITH COMPANY AND BUSINESS EXPERIENCE
NAME WITH COMPANY DURING LAST FIVE YEARS
- ------------------------------- ----------------- --------------------------------------------------------------
<S> <C> <C>
Forest D. Dorn................. 41-18 Vice President since February 1991 and General Business
Manager since December 1993. Prior thereto General Manager
-- Operations since January 1992. Prior thereto Assistant
Division Manager of the Southern Division.
Daniel L. McNamara............. 50-24 Secretary and Corporate Counsel since January 1991. Prior
thereto Assistant Secretary and Associate Corporate Counsel.
Member of the Company's Employee Benefits Committee, which
assumed the duties of the Trustees of the Pension Trust and
of the Administrative Committee of the Retirement Savings
Plan in August 1994.
Joan C. Sonnen................. 42-6 Controller since December 1993. Prior thereto Director of
Financial Accounting and Reporting since April 1991 and
Manager of Financial Systems and Reports since July 1989.
Philip F. Anschutz............. 56-0 Director since 1995. Director, Chairman of the Board and
President of Anschutz for more than the past five years, and
a Director, Chairman of the Board and President of Anschutz
Company, the corporate parent of Anschutz, since the
formation of Anschutz Company in August 1991. Director of
Southern Pacific Rail Corporation ("SPRC") since June 1988
and Chairman of SPRC since October 1988. Served as President
and Chief Executive Officer of SPRC from October 1988 until
July 1993. Member of the Nominating Committee since July
1995.
Richard J. Callahan............ 54-2 Director since 1993. Executive Vice President of U S WEST,
Inc. since January 1988 and President of U S WEST
International and Business Development Group since October
1991. Member of the Compensation Committee.
Dale F. Dorn................... 53-29 Director since 1977. Resigned as a Vice President in September
1989; currently engaged in private investments.
James H. Lee................... 47-4 Director since 1991. Managing Partner, Lee, Hite & Wisda Ltd.
Member of the Executive Committee since February 1994.
Member of the Royalty Bonus Committee and Audit Committee
since July 1995.
Craig D. Slater................ 38-0 Director since 1995. Vice President of Anschutz since 1995.
Director of Finance of Anschutz from 1992 to 1995 and
Corporate Secretary of Anschutz since 1991. Held other
positions with Anschutz from 1988 to 1992. Member of the
Executive Committee and Audit Committee since July 1995.
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
AGE AND YEARS OF PRINCIPAL OCCUPATION,
SERVICE POSITIONS WITH COMPANY AND BUSINESS EXPERIENCE
NAME WITH COMPANY DURING LAST FIVE YEARS
- ------------------------------- ----------------- --------------------------------------------------------------
<S> <C> <C>
Drake S. Tempest............... 42-0 Director since 1995. Partner in the law firm of O'Melveny &
Myers since February 1991 and was Special Counsel to such
firm from 1988 to February 1991. Member of the Compensation
Committee since July 1995.
Michael B. Yanney.............. 62-3 Director since 1992. Chairman and Chief Executive Officer of
the American First Companies, L.L.C. and a director of
Burlington Northern Inc., Lozier Corporation, MFS
Communications Company, Inc. and America First REITs Inc.
Chairman of the Compensation Committee. Member of the
Nominating Committee since July 1995.
</TABLE>
William L. Dorn, Philip F. Anschutz and James H. Lee are Class I directors
whose terms expire at the Annual Shareholders' Meeting in 1999. Dale F. Dorn,
Drake S. Tempest and Robert S. Boswell are Class II directors whose terms expire
at the Annual Shareholders' Meeting in 1996. Michael B. Yanney is a Class III
director whose term expires at the Annual Shareholders' Meeting in 1997. Richard
J. Callahan and Craig D. Slater are Class IV directors whose terms expire at the
Annual Shareholders' Meeting in 1998.
The Board of Directors is divided into four classes as nearly equal in
number as possible, with each class having not less than two members, whose
terms expire at different times in annual succession. There is one vacancy on
the Board of Directors.
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<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table describes certain information as of December 21, 1995
with respect to the ownership of the Company's Common Stock by (i) each person
known by the Company to own beneficially more than five percent of its Common
Stock (including any "group" as that term is used in Section 13(d)(3) of the
1934 Act), (ii) each director of the Company, (iii) the chief executive officer
and four other executive officers of the Company, (iv) all executive officers
and directors as a group and (v) the Selling Shareholders. Unless otherwise
indicated, to the Company's knowledge, all such shares are owned beneficially
and of record by the person indicated and each such person has sole voting and
investment power with respect to such shares. The following table gives effect
to the issuance to, and acquisition by, JEDI of 1,680,000 shares of Common Stock
on January 24, 1996 pursuant to the JEDI Exchange.
<TABLE>
<CAPTION>
SHARES OWNED SHARES SHARES TO BE OWNED
BEFORE OFFERINGS(1)(2) TO BE SOLD AFTER OFFERINGS(1)(2)
--------------------------------- IN -----------------------
NAME AND ADDRESS NUMBER PERCENT OFFERINGS NUMBER PERCENT
- ---------------------------------------------- ----------------------- ------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C>
The Anschutz Corporation...................... 11,138,888(3)(5) 56.5% -- 11,138,888 36.3%
2400 Anaconda Tower
555 17th Street
Denver, Colorado 80202
R. B. Haave Associates, Inc................... 740,330(4)(5) 5.9 -- 740,330(2) 3.1
270 Madison Avenue
New York, NY 10016
Joint Energy Development Investments Limited
Partnership................................... 1,680,000 13.6 -- 1,680,000 7.2
1400 Smith Street
Houston, TX 77002
Saxon Petroleum Inc........................... 1,060,000 8.6 1,060,000 -- --
1700, 736 6th Avenue SW
Calgary, Alberta T2P 3T7
Canada
Philip F. Anschutz............................ 11,138,888(3)(5)(6) 56.5 -- 11,138,888 36.3
Bulent A. Berilgen............................ 28,754(7) * -- 28,754 *
Robert S. Boswell............................. 57,435(7)(12) * -- 57,435 *
Richard J. Callahan........................... 400 * -- 400 *
Dale F. Dorn.................................. 18,401(8) * -- 18,401 *
Forest D. Dorn................................ 50,473(7)(9) * -- 50,473 *
William L. Dorn............................... 97,363(7)(10) * -- 97,363 *
David H. Keyte................................ 31,891(7)(11) * -- 31,891 *
James H. Lee.................................. 200 * -- 200 *
Craig D. Slater............................... -- -- -- -- --
Drake S. Tempest.............................. -- -- -- -- --
Michael B. Yanney............................. 3,000 * -- 3,000 *
All Officers and Directors.................... 11,494,034 57.6 -- 11,494,034 37.2
</TABLE>
- ------------------------
* The percentage of shares beneficially owned does not exceed one percent of
the outstanding shares of the class.
(1) Assumes that the Underwriters' over-allotment options covering 1,800,000
additional shares will not be exercised and that the respective beneficial
owners listed in the table will not purchase any shares in the Offerings.
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<PAGE>
(2) Amounts reported also include shares held for the benefit of certain
directors and executive officers by the trustee of the Company's Retirement
Savings Plan Trust as of September 30, 1995.
(3) The shares indicated as beneficially owned by Anschutz and Philip F.
Anschutz include (a) 1,240,000 shares issuable upon conversion of 620,000
shares of the Company's Second Series Preferred Stock and (b) 6,138,888
shares issuable pursuant to the Anschutz Option or warrants exercisable
within 60 days. Anschutz has also agreed to not transfer any of its shares
of Common Stock, except in limited circumstances, for a period of nine
months following completion of the Offerings.
(4) The shares indicated as beneficially owned by R.B. Haave Associates, Inc.
include 230,090 shares issuable upon conversion of 328,700 shares of the
Company's Convertible Preferred Stock.
(5) Based on Schedules 13D and 13G and amendments thereto filed with the SEC
and the Company by the reporting person through January 15, 1996 and the
amount of Common Stock outstanding on December 21, 1995.
(6) The shares indicated as owned by Philip F. Anschutz are owned of record by
The Anschutz Corporation, of which Mr. Anshutz is the Chairman of the Board,
President and a director. Mr. Anshutz may be deemed to beneficially own such
shares based on his affiliation with The Anschutz Corporation.
(7) The shares indicated as owned by Messrs. Berilgen, Boswell, Forest D. Dorn,
William L. Dorn and Keyte include 28,000, 49,000, 28,000, 49,000 and 28,000
shares, respectively, which such party has the right to acquire within 60
days upon the exercise of stock options.
(8) Of the 18,401 shares indicated as owned by Mr. Dale F. Dorn, 687 shares are
held by Mr. Dorn as trustee of a trust for the benefit of his immediate
family, and of which shares Mr. Dorn has disclaimed beneficial ownership,
and 2,450 shares are shares, which Mr. Dorn as trustee, has the right to
acquire upon conversion of 3,500 shares of the Company's $.75 Convertible
Preferred Stock.
(9) Of the 50,473 shares indicated as owned by Mr. Forest D. Dorn, 5,160 shares
are shares held of record by Mr. Dorn as co-trustee of a trust for the
benefit of his mother and of which shares Mr. Dorn disclaims beneficial
ownership. This amount excludes 1,725 shares held by Forest D. Dorn's wife
and 5,193 shares held by his children, of which shares Mr. Dorn disclaims
beneficial ownership.
(10) Of the 97,363 shares indicated as beneficially owned by William L. Dorn,
5,160 shares are held of record by William L. Dorn, as co-trustee of a trust
for the benefit of his mother and 14,844 shares are held of record by
William L. Dorn as trustee of trusts for the benefit of related parties, of
which shares Mr. Dorn disclaims beneficial ownership. Amount does not
include 2,998 shares held by William L. Dorn's wife or 7,199 shares held by
his children, of which shares Mr. Dorn disclaims beneficial ownership.
(11) Of the 31,891 shares indicated as owned by David H. Keyte, 1,400 shares are
issuable upon conversion of 2,000 shares of the Company's $.75 Convertible
Preferred Stock.
(12) Such amount excludes 45 shares held by Mr. Boswell's wife and 166 shares
held by Mr. Boswell's children of which Mr. Boswell disclaims beneficial
ownership.
The shares of Common Stock offered by Saxon hereby are being registered by
the Company pursuant to the "piggyback" registration rights contained in a
Registration Rights Agreement between the Company and Saxon, dated October 25,
1995 (the "Registration Rights Agreement"). Pursuant to the Registration Rights
Agreement, the Company is required to bear the expenses of the registration of
the shares of Common Stock offered by Saxon hereby, other than underwriting
discounts and commissions, the fees and expenses of counsel to Saxon and all
other out-of-pocket expenses of Saxon. The expenses to be paid by the Company
for the registration of the shares of Common Stock offered hereby are estimated
at $1,000,000. The Company has agreed to indemnify Saxon against certain
liabilities, including liabilities under the Securities Act.
61
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The following statements are brief summaries of certain provisions relating
to the capital stock of the Company and are qualified in their entirety by the
provisions of the Company's Restated Certificate of Incorporation, as amended,
and By-Laws and the subsequent Certificates of Amendment to the Restated
Certificate of Incorporation adopted by the Board of Directors of the Company,
which are included as exhibits to the Registration Statement of which this
Prospectus is a part.
The Company is authorized to issue 210,000,000 shares of capital stock,
consisting of 200,000,000 shares of Common Stock, par value $.10 per share, and
10 million shares of preferred stock, par value $.01 per share. Unless otherwise
indicated, all share amounts have been adjusted to give effect to a 5-to-1
reverse stock split that occurred on January 8, 1996. As of December 21, 1995,
10,657,992 shares of Common Stock were held by 1,990 recordholders, 248,943
Public Warrants to purchase 248,943 shares of Common Stock were held by 78
recordholders, A Warrants to purchase 3,888,888 shares of Common Stock were held
by one recordholder, B Warrants to purchase 2,250,000 shares of Common Stock
were held by one recordholder, and 2,880,173 shares of $.75 Convertible
Preferred Stock were held by 80 recordholders. On December 21, 1995, 2,016,121
shares of Common Stock were reserved for issuance upon conversion of the $.75
Convertible Preferred Stock, 1,240,000 shares of Common Stock were reserved for
issuance upon conversion of the Second Series Preferred Stock and 611,800 shares
of Common Stock were reserved for issuance upon the exercise of stock options.
Holders of the Common Stock, the $.75 Convertible Preferred Stock and the Second
Series Preferred Stock are not entitled to any preemptive rights with respect to
issuances of capital stock of the Company.
On January 24, 1996, JEDI exchanged the $22,400,000 tranche of the JEDI
indebtedness and the B Warrants for 1,680,000 shares of Common Stock. See "The
Anschutz and JEDI Transactions -- JEDI Exchange."
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of the common shareholders of the Company. In
addition, such holders are entitled to receive ratably such dividends, if any,
as may be declared from time to time by the Board of Directors out of funds
legally available therefor, subject to the payment of preferential dividends
with respect to (i) the $.75 Convertible Preferred Stock as set forth below and
(ii) any other preferred stock of the Company that from time to time may be
outstanding. The Company does not intend to pay dividends on the Common Stock
for the foreseeable future. See "Dividend Policy" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Capital
Resources and Liquidity" for a description of certain limitations on the payment
of dividends on the Common Stock.
In the event of dissolution, liquidation or winding-up of the Company, the
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of all liabilities of the Company and subject to the prior
distribution rights of the holders of (i) the $.75 Convertible Preferred Stock
and the Second Series Preferred Stock as set forth below and (ii) any other
preferred stock of the Company that may be outstanding at that time. The holders
of Common Stock do not have cumulative voting rights or preemptive or other
rights to acquire or subscribe for additional, unissued or treasury shares. All
outstanding shares of Common Stock are, and when issued, the shares of Common
Stock offered hereby will be, fully paid and nonassessable.
The transfer agent and registrar for the Common Stock is Chemical Mellon
Shareholder Services.
See "Price Range of Common Stock" for the high and low sales prices of the
Common Stock for each quarter of 1993, 1994, 1995 and 1996.
PREFERRED STOCK
The Board of Directors is authorized to provide for the issuance from time
to time of one or more series of preferred stock. Shares of preferred stock
could have rights that are superior to the Common
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<PAGE>
Stock with respect to voting, dividends and liquidation or that could adversely
affect the holders of Common Stock or discourage or make more difficult an
attempt to effect a change in control of the Company. The Company has two
classes of preferred stock outstanding, the $.75 Convertible Preferred Stock and
the Second Series Preferred Stock.
$.75 CONVERTIBLE PREFERRED STOCK. Each share of the $.75 Convertible
Preferred Stock is convertible into .7 shares of Common Stock, subject to
adjustment upon certain events. Holders of shares of $.75 Convertible Preferred
Stock are entitled to cumulative preferential cash dividends at the annual rate
of $.75 per share prior to the payment of any dividends (except for dividends
paid in shares of Common Stock) or other distributions on (or certain
repurchases of) Common Stock and on liquidation, dissolution or winding up of
the Company to preferential payment of $10 per share plus accumulated and unpaid
dividends before any distribution is made with respect to Common Stock.
Dividends on the $.75 Convertible Preferred Stock may be paid in cash or, at the
Company's election, in shares of Common Stock or in a combination of cash and
Common Stock. Common Stock is valued for dividend payment purposes at between
75% and 90%, based upon trading volume, of the average last reported sales price
of the Common Stock for the 10 consecutive trading days ending on the tenth
calendar day prior to the date for determining record holders entitled to the
dividend payment.
Whenever dividends on the $.75 Convertible Preferred Stock have not been
paid, the amount of the deficiency, plus an amount equal to the accumulated
dividend for the then current quarterly dividend period, must be fully paid, or
declared and set apart for payment, before any dividend may be declared and paid
or set apart for payment upon the Common Stock, except for dividends paid in
shares of Common Stock.
Whenever $.75 Convertible Preferred Stock dividends are in arrears in an
amount equivalent to six full quarterly dividends, the holders of the $.75
Convertible Preferred Stock, voting separately as a class and with one vote per
share, will have the right to elect two directors. If two consecutive dividend
payments are in arrears, the holder of each share of $.75 Convertible Preferred
Stock will be entitled to a penalty conversion right enabling such holder to
convert each such share, plus accumulated dividends, into a share of Common
Stock during a two-day period 30 days after the second dividend payment date at
a conversion price of 75% of the average of the last reported sales prices of
the Common Stock during the period from such second dividend payment date to
five trading days prior to the conversion date. The $.75 Convertible Preferred
Stock is redeemable, in whole or in part, at the option of the Company, at any
time after the earlier of (i) July 1, 1996 or (ii) the date on which the last
reported sales price of the Common Stock will have been $37.50 or higher for at
least 20 of the prior 30 trading days, at a redemption price of $14.44 per share
before July 1, 1996 and $14.29 per share thereafter, including accumulated and
unpaid dividends.
SECOND SERIES PREFERRED STOCK. Each share of Second Series Preferred Stock
(1) has the right to receive dividends on the dates and in the form that
dividends shall be payable on the Common Stock, in each case in an amount equal
to the amount of such dividend payable on the number of shares of Common Stock
into which such share of Second Series Preferred Stock shall be convertible
immediately preceding the record date for the determination of the shareholders
entitled to receive such dividend, (2) has no right to vote, (3) has the right,
upon any liquidation, dissolution or winding up of the Company, before any
distribution is made on any shares of Common Stock, to be paid the amount of
$18.00 and, after there shall have been paid to each share of Common Stock the
amount of $9.00, has the right to receive distributions on the dates and in the
form that distributions shall be payable on the Common Stock, in each case in an
amount equal to the amount of such distributions payable on the number of shares
of Common Stock into which such share of Second Series Preferred Stock is
convertible (assuming for such purpose that such conversion were possible)
immediately preceding the record date for the determination of the shareholders
entitled to receive such distribution and (4) is convertible into 2 shares of
Common Stock, which conversion may be made from time to time on or before the
July 27, 2000, but which in any event shall be made on July 27, 2000. The rights
of the holders of the Second Series Preferred Stock to receive dividends are
junior and subordinate to the rights of the holders of the Company's $.75
Convertible Preferred Stock to the same extent that the rights of the
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<PAGE>
holders of the Common Stock are subordinate in right to receive dividends to the
rights of the holders of $.75 Convertible Preferred Stock to receive dividends,
and the rights of the holders of the Second Series Preferred Stock will rank
pari passu with the Company's $.75 Convertible Preferred Stock as to liquidation
preference.
WARRANTS
The Company has outstanding Public Warrants to purchase shares of its Common
Stock. Each Public Warrant (the "Public Warrants") entitles the holder to
purchase one share of Common Stock at a price of $15.00, is non-callable and
expires on October 1, 1996.
The Company has A Warrants outstanding that are held by Anschutz. Each
warrant entitles the holder to purchase one share of Common Stock at a price of
$10.50. The A Warrants were originally scheduled to expire on January 27, 1997.
Such expiration will be extended to July 27, 1998 upon completion of the
Offerings in consideration of Anschutz's agreement to not sell its shares of
Common Stock for nine months, except in limited circumstances.
Pursuant to the JEDI Exchange, the Company assumes JEDI's obligations under
the Anschutz Option. Under the Anschutz Option, the Company is obligated to
issue shares directly to Anschutz that previously would have been issued to JEDI
pursuant to the B Warrants. Upon the exercise of the Anschutz Option, instead of
the B Warrant price of $10.00 per share, the Company will receive an amount
equal to the lesser of (a) $10.00 plus 18% per annum from July 27, 1995 to the
date of exercise of the option, or (b) $15.50.
ANTI-TAKEOVER PROVISIONS
Certain provisions in the Company's Restated Certificate of Incorporation
and By-laws, the Company's shareholders' rights plan, executive severance
agreements and the ownership position of Anschutz may have the effect of
encouraging persons considering unsolicited tender offers or other unilateral
takeover proposals to negotiate with the Board of Directors rather than pursue
nonnegotiated takeover attempts.
CLASSIFIED BOARD OF DIRECTORS. The Company's By-laws provide that the Board
of Directors is divided into four classes as nearly equal in number as possible,
with each class having not less than three members, whose four year terms of
office expire at different times in annual succession. Presently the number of
directors is fixed at 10. A staggered board makes it more difficult for
shareholders to change the majority of the directors and instead promotes a
continuity of existing management.
BLANK CHECK PREFERRED STOCK. The Company's Restated Certificate of
Incorporation authorizes the issuance of blank check preferred stock. The Board
of Directors can set the voting rights, redemption rights, conversion rights and
other rights relating to such preferred stock and could issue such stock in
either private or public transactions. In some circumstances, the blank check
preferred stock could be issued and have the effect of preventing a merger,
tender offer or other takeover attempt which the Board of Directors opposes.
SHAREHOLDERS' RIGHTS PLAN. In October 1993, the Board of Directors adopted
a shareholders' rights plan (the "Plan") and entered into the Rights Agreement.
The Company issued a dividend of a preferred stock purchase right (the "Rights")
on each outstanding share of Common Stock of the Company, which, after the
Rights become exercisable, entitles the holder to purchase 1/100th of a share of
a newly issued series of the Company's preferred stock at a purchase price of
$30 per 1/100th of a preferred share, subject to adjustment. The Rights expire
on October 29, 2003 unless extended or redeemed earlier. The Rights will become
exercisable (unless previously redeemed or the expiration date of the rights has
occurred) following a public announcement that a person or group (an "Acquiring
Person") has acquired 20% or more of the Common Stock or has commenced (or
announced an intention to make) a tender offer or exchange offer for 20% or more
of the Common Stock. In certain circumstances each holder of Rights (other than
an Acquiring Person) would have the right to receive, upon exercise (i) shares
of Common Stock having a value significantly in excess of the exercise price of
the Rights, or (ii) shares of Common Stock of an acquiring company having a
value significantly in excess of the
64
<PAGE>
exercise price of the Rights. In connection with the Anschutz transaction, the
Company amended the Rights Agreement to exempt from the provisions of the Rights
Agreement shares of Common Stock acquired by Anschutz and JEDI in the Anschutz
and JEDI transactions (including shares later acquired pursuant to the
conversion of the Second Series Preferred Stock or the exercise of the A
Warrants or the option received by Anschutz from JEDI). The amendment to Rights
Agreement did not exempt other shares of Common Stock acquired by Anschutz or
JEDI from the provisions of the Rights Agreement. In the Anschutz transaction,
the Company agreed to waive the provisions of the Rights Agreement with respect
to Anschutz if, and to the same extent, it waives such provisions with respect
to any other person.
EXECUTIVE SEVERANCE AGREEMENTS. The Company has entered into executive
severance agreements (the "Executive Severance Agreements") with certain
executive officers, including the persons listed under "Management." The
Executive Severance Agreements provide for severance benefits for termination
without cause and for termination following a "change of control" of the
Company. In March 1995, the Compensation Committee renewed the Executive
Severance Agreements and extended their term to December 1997. In addition, the
definition of "change of control" was modified. Under the Executive Severance
Agreements, a "change of control" of the Company would be deemed to occur if, as
modified in March 1995, (i) the Company is not the surviving entity in any
merger, consolidation or other reorganization (or survives only as a subsidiary
of an entity other than a previously wholly-owned subsidiary of the Company);
(ii) the Company sells, leases or exchanges all or substantially all of its
assets to any other person or entity (other than a wholly-owned subsidiary of
the Company); (iii) the Company is dissolved and liquidated; (iv) any person or
entity, including a "group" as contemplated by Section 13(d)(3) of the
Securities Exchange Act of more than 40% of the outstanding shares of the
Company's voting stock (based upon voting power); or (v) as a result of or in
connection with a contested election of directors, the persons who were
directors of the Company before such election cease to constitute a majority of
the Board of Directors.
The executive officers who had entered into Executive Severance Agreements
were required, as a condition to the closings of the Anschutz and JEDI
transactions, to waive the obligations of the Company pursuant to such
agreements with respect to a "change of control." See "The Anschutz and JEDI
Transactions."
OWNERSHIP POSITION OF ANSCHUTZ. Anschutz has a substantial ownership
position in the Company and may designate three of the Company's ten directors.
Therefore, Anschutz has the ability to exert substantial influence with respect
to matters considered by the Board of Directors. Based on the number of shares
outstanding on December 21, 1995 and the issuance of 1,680,000 shares in the
JEDI Exchange, Anschutz owned approximately 30% of the outstanding Common Stock.
Anschutz may acquire additional shares to maintain its position, but its ability
to exceed such percentage is limited by a five-year Shareholders Agreement with
the Company. Under certain circumstances, Anschutz could have veto power over
proposed transactions between the Company and third parties such as a merger,
which requires the approval of the holders of two-thirds of the outstanding
Common Stock. It is unlikely that control of the Company could be transferred to
a third party without Anschutz's consent and agreement. It is also unlikely that
a third party would offer to pay a premium to acquire the Company without the
prior agreement of Anschutz, even if the Board of Directors should choose to
attempt to sell the Company in the future. It will also be unlikely that the
Company will be able to enter into a transaction accounted for as a pooling of
interests in the next two years. Finally, the 40% ownership limitation on
Anschutz's ownership terminates after five years and earlier under certain
circumstances. In the absence of these limitations, based on the number of
shares outstanding on December 21, 1995 and after giving effect to the JEDI
Exchange, Anschutz would be able to acquire up to an additional approximately
26% of the Common Stock by converting its Second Series Preferred Stock and
exercising the Anschutz Option and A Warrants during their respective terms.
After the Offerings (assuming that the Underwriters do not exercise their
over-allotment option), Anschutz would own approximately 16% of the Common Stock
then outstanding, and, if Anschutz were then to convert its Second Series
Preferred Stock and exercise the Anschutz Option and the A Warrants, Anschutz
would own approximately 36% of the Common Stock then outstanding. See "The
Anschutz and JEDI Transactions -- Shareholders Agreements."
65
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the U.S. Underwriting
Agreement among the Company, the Selling Shareholder and Salomon Brothers Inc,
Dillon, Read & Co. Inc., Morgan Stanley & Co. Incorporated and Chase Securities,
Inc. (together, the "U.S. Underwriters"), the Company and the Selling
Shareholder have agreed to sell to the U.S. Underwriters, and each of the U.S.
Underwriters has severally agreed to purchase from the Company and the Selling
Shareholder, the aggregate number of shares of Common Stock set forth opposite
its name below.
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITERS OF SHARES
- --------------------------------------------------------------------- -------------
<S> <C>
Salomon Brothers Inc.................................................
Dillon, Read & Co. Inc...............................................
Morgan Stanley & Co. Incorporated....................................
Chase Securities, Inc................................................
-------------
Total.......................................................... 10,200,000
-------------
-------------
</TABLE>
The U.S. Underwriting Agreement provides that the several U.S. Underwriters
will be obligated to purchase all the shares of Common Stock being offered
(other than the shares covered by the over-allotment option described below), if
any are purchased. The U.S. Managing Underwriters are Salomon Brothers Inc,
Dillon, Read & Co. Inc., Morgan Stanley & Co. Incorporated, and Chase
Securities, Inc.
The U.S. Underwriters have advised the Company that they propose initially
to offer the Common Stock directly to the public at the public offering price
set forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of $ per share. The U.S. Underwriters
may allow, and such dealers may reallow, a concession not in excess of $ per
share on sales to certain other dealers. After the initial offering, the price
to public, and concessions to dealers may be changed.
The Company and the Selling Shareholder have entered into an International
Underwriting Agreement with the International Underwriters named therein, for
whom Salomon Brothers International Limited, Dillon, Read & Co. Inc. and Morgan
Stanley & Co. International Limited are acting as representatives (the
"International Managing Underwriters"), providing for the concurrent offer and
sale of 1,800,000 shares of Common Stock outside of the United States and
Canada.
The initial public offering price and underwriting discounts per share for
the U.S. Offering and the International Offering will be identical. The closing
of the U.S. Offering is conditioned upon the closing of the International
Offering, and the closing of the International Offering is conditioned upon the
closing of the U.S. Offering.
Each U.S. Underwriter has severally agreed that, as part of the distribution
of the U.S. Offering, (i) it is not purchasing any shares of Common Stock for
the account of anyone other than a United States or Canadian Person and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly, any
shares of Common Stock or distribute this Prospectus to any person outside the
United States or Canada or to anyone other than a United States or Canadian
Person. Each International Underwriter has severally agreed that, as part of the
distribution of the International Offering, (i) it is not purchasing any shares
of Common Stock for the account of any United States or Canadian Person, and
(ii) it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares of Common Stock or distribute any Prospectus related to
the International Offering to any person within the United States or Canada or
66
<PAGE>
to any United States or Canadian Person. The foregoing limitations do not apply
to stabilization transactions or to certain other transactions specified in the
Agreement Between U.S. Underwriters and International Underwriters. "United
States or Canadian Person" means any person who is a national citizen or
resident of the United States or Canada, any corporation, partnership or other
entity created or organized in or under the laws of the United States or Canada,
or any political subdivision thereof, any estate or trust the income of which is
subject to United States or Canadian federal income taxation, regardless of the
source of its income (other than a foreign branch of any United States or
Canadian Person), and includes any United States or Canadian branch of a person
other than a United States or Canadian Person.
Each U.S. Underwriter that will offer or sell shares of Common Stock in
Canada as part of the distribution has severally agreed that such offers and
sales will be made only pursuant to an exemption from the prospectus
requirements in each jurisdiction in Canada in which such offers and sales are
made.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, sales may be made between the U.S. Underwriters and the
International Underwriters of such number of shares of Common Stock as may be
mutually agreed. The price of any shares of Common Stock so sold shall be the
initial public offering price, less an amount not greater than the concession to
securities dealers. To the extent that there are sales between the U.S.
Underwriters and the International Underwriters pursuant to the Agreement
Between U.S. Underwriters and International Underwriters, the number of shares
initially available for sale by the U.S. Underwriters or by the International
Underwriters may be more or less than the amount appearing on the cover page of
this Prospectus.
The Company has granted to the U.S. Underwriters and the International
Underwriters options to purchase up to an additional 1,530,000 and 270,000
shares of Common Stock, respectively, at the initial offering price less the
aggregate underwriting discounts and commissions, solely to cover
over-allotments. Either or both options may be exercised at any time up to 30
days after the date of this Prospectus. To the extent that the U.S. Underwriters
and International Underwriters exercise such options, each of the U.S.
Underwriters or International Underwriters, as the case may be, will be
committed, subject to certain conditions, to purchase a number of option shares
proportionate to such U.S. Underwriter's or International Underwriter's initial
commitment.
For a period of 120 days after the date of this Prospectus, the Company, the
Selling Shareholder, and each director and executive officer of the Company have
agreed not to offer, sell, contract to sell or otherwise dispose of any shares
of Common Stock, any other capital stock of the Company or any security
convertible into or exercisable or exchangeable for Common Stock or any such
other capital stock without the prior written consent of Salomon Brothers Inc,
and Salomon Brothers International Limited except (a) the Company may register
the Common Stock and the Company and the Selling Shareholder may sell the shares
of Common Stock offered in the Offerings and (b) the Company may issue
securities pursuant to the Company's stock option or other benefit or incentive
plans maintained for its officers, directors or employees.
No action has been taken or will be taken in any jursidiction by the Company
or the U.S. Underwriters that would permit a public offering of the shares
offered hereby in any jurisdiction where action for that purpose is required,
other than the United States. Persons who come into possession of this
Prospectus are required by the Company and the U.S. Underwriters to inform
themselves about and to observe any restrictions as to the offering of the
shares offered hereby and the distribution of this Prospectus.
Dillon, Read & Co. Inc. has performed various investment banking services
for the Company in the past 12 months, for which it has received customary fees.
Chase, an affiliate of Chase Securities, Inc., acts as a lender and the agent
for a group of banks pursuant to the Company's Credit Facility. Proceeds
received by the Company may be used to repay the Credit Facility with Chase.
Proceeds received by the Selling Shareholder will be used to repay a loan owed
by the Selling Shareholder to Chase Canada, also an affiliate of Chase
Securities, Inc. The Offerings are being made pursuant to Section 44(c)(8) of
the
67
<PAGE>
NASD Rules of Fair Practice. See "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Short-Term Liquidity."
The Company and the Selling Shareholder have agreed to indemnify the U.S.
Underwriters against certain civil liabilities, including certain liabilities
under the Securities Act of 1933, as amended (the "Securities Act"), or
contribute to payments the U.S. Underwriters may be required to make in respect
thereof.
In connection with the U.S. Offering, certain U.S. Underwriters and selling
group members who are qualifying registered market makers on the Nasdaq National
Market may engage in passive market making transactions in the Common Stock on
the Nasdaq National Market in accordance with Rule 10b-6A under the Securities
Exchange Act of 1934, during the two business day period before commencement of
offers or sales of the Common Stock offered hereby. Passive market making
transactions must comply with certain volume and price limitations and be
identified as such. In general, a passive market maker may display its bid at a
price not in excess of the highest independent bid for the security, and if all
independent bids are lowered below the passive market maker's bid, then such bid
must be lowered when certain purchase limits are exceeded.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for the
Company by Vinson & Elkins L.L.P., Houston, Texas, and certain legal matters
will be passed upon for the Underwriters by Cahill Gordon & Reindel, a
partnership including a professional corporation, New York, New York.
EXPERTS
The consolidated financial statements of Forest Oil Corporation as of
December 31, 1994 and 1993 and for each of the years in the three-year period
ended December 31, 1994 have been incorporated by reference and included herein
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, incorporated by reference and appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of ATCOR Resources, Ltd. as at
December 31, 1994 and 1993 and for each of the years in the three-year period
ended December 31, 1994 have been included herein in reliance upon the report of
Price Waterhouse, independent auditors, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing. Price Waterhouse
is a Canadian partnership, resident in Canada.
The Company's U.S. reserve estimates set forth in this Prospectus have been
reviewed by Ryder Scott Company and are included herein in reliance upon the
authority of said firm as experts in petroleum engineering.
The reserve estimates of ATCOR set forth in this Prospectus have been
prepared by McDaniel & Associates Ltd. and are included herein in reliance upon
the authority of said firm as experts in petroleum engineering.
The reserve estimates of Saxon set forth in this Prospectus have been
prepared by Fekete & Associates, Inc. and are included herein in reliance upon
the authority of said firm as experts in petroleum engineering.
CERTAIN DEFINITIONS
Unless otherwise indicated in this Prospectus, natural gas volumes are
stated at the legal pressure base of the state or area in which the reserves are
located at 60 Fahrenheit. Natural gas equivalents are determined using the ratio
of six Mcf of natural gas to one barrel of crude oil, condensate or natural gas
liquids so that one barrel of oil is referred to as six Mcf of natural gas
equivalent or "Mcfe".
68
<PAGE>
As used in this Prospectus, the following terms have the following specific
meanings: "Mcf" means thousand cubic feet, "MMcf" means million cubic feet,
"Bcf" means billion cubic feet, "Mcfe" means thousand cubic feet equivalent,
"MMcfe" means million cubic feet equivalent, "Bcfe" means billion cubic feet
equivalent, "MMbtu" means million British thermal units and "Bbtu" means billion
British Thermal Units. "Mcf/d" means thousand cubic feet per day, "MMcf/d" means
million cubic feet per day and "MMcfe/d" means million cubic feet equivalent per
day.
"Bbls" means barrels, "Mbbls" means thousand barrels and "MMbbls" means
million barrels. "Bbls/d" means barrels per day.
The term "spot market" as used herein refers to natural gas sold under
contracts with a term of six months or less or contracts which call for a
redetermination of sales prices every six months or earlier.
With respect to information concerning the Company's working interests in
wells or drilling locations, "gross" oil and gas wells or "gross" acres is the
number of wells or acres in which the Company has an interest, and "net" oil and
gas wells or "net" acres are determined by multiplying "gross" wells or acres by
the Company's working interest in those wells or acres. A working interest in an
oil and gas lease is an interest that gives the owner the right to drill,
produce, and conduct operating activities on the property and to receive a share
of production of any hydrocarbons covered by the lease. A working interest in an
oil and gas lease also entitles its owner to a proportionate interest in any
well located on the lands covered by the lease, subject to all royalties,
overriding royalties and other burdens, to all costs and expenses of
exploration, development and operation of any well located on the lease, and to
all risks in connection therewith.
"Capital expenditures" means costs associated with exploratory and
development drilling (including exploratory dry holes); leasehold acquisitions;
seismic data acquisitions; geological, geophysical and land related overhead
expenditures; delay rentals; controlling interests in other independent oil and
natural gas companies; producing property acquisitions; and other miscellaneous
capital expenditures.
A "development well" is a well drilled as an additional well to the same
horizon or horizons as other producing wells on a prospect, or a well drilled on
a spacing unit adjacent to a spacing unit with an existing well capable of
commercial production and which is intended to extend the proven limits of a
prospect. An "exploratory well" is a well drilled to find commercially
productive hydrocarbons in a unproved area, or to extend significantly a known
prospect.
A "farmout" is an assignment to another party of an interest in a drilling
location and related acreage conditional upon performing future exploratory
efforts including the drilling of a well on that location.
"Reserves" means natural gas and crude oil, condensate and natural gas
liquids on a net revenue interest basis, found to be commercially recoverable.
"Proved developed reserves" includes proved developed producing reserves.
"Proved developed producing reserves" includes only those reserves expected to
be recovered from existing completion intervals in existing wells. "Proved
undeveloped reserves" includes those reserves expected to be recovered from new
wells on proved undrilled acreage or from existing wells where a relatively
major expenditure is required for recompletion.
69
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
S-2 (the "Registration Statement", which term encompasses all amendments,
exhibits, annexes and schedules thereto) under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all the information set forth in the Registration Statement, to
which reference is hereby made. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement and the exhibits
thereto, reference is hereby made to the exhibit for a more complete description
of the matter involved, and each statement made herein shall be deemed qualified
in its entirety by such reference.
The Company is subject to the informational and reporting requirements of
the Securities Exchange Act of 1934, as amended (the "1934 Act"), and in
accordance therewith files periodic reports, proxy and information statements
and other information with the Commission. The Registration Statement filed by
the Company with the Commission, as well as such reports, proxy and information
statements and other information filed by the Company with the Commission, may
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at 7 World
Trade Center, New York, New York 10048, and the Chicago Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material, when filed, may also be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Common Stock is quoted on the
Nasdaq National Market and such reports, proxy and information statements and
other information concerning the Company are available at the offices of the
Nasdaq National Market located at 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated by reference in this Prospectus is (i) the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994, (ii) the
Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995,
June 30, 1995 and September 30, 1995 (iii) the Company's Current Reports on Form
8-K dated October 11, 1995 (as amended December 27, 1995), December 12, 1995 (as
amended January 3, 1996), December 20, 1995 and December 29, 1995 all filed
previously with the SEC pursuant to Section 13 of the 1934 Act. Any statement
contained in a document incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein modifies or supersedes such statement. Any statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner of Common Stock, to whom a copy of this Prospectus has been
delivered, on the written or oral request of such person, a copy of any or all
of the foregoing documents incorporated by reference in this Prospectus, other
than exhibits to such documents unless such exhibits are specifically
incorporated by reference into the information that this Prospectus
incorporates. Written or oral requests for such copies should be directed to
Daniel L. McNamara, Corporate Counsel and Secretary, Forest Oil Corporation,
1600 Broadway, Suite 2200, Denver, Colorado 80202 (telephone: (303) 812-1400).
70
<PAGE>
FOREST OIL CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Condensed Pro Forma Combined Financial Statements of Forest Oil Corporation
Condensed Pro Forma Combined Balance Sheet, September 30, 1995 (Unaudited)................................ F-3
Condensed Pro Forma Combined Statement of Operations, Nine Months ended September 30, 1995 (Unaudited).... F-4
Condensed Pro Forma Combined Statement of Operations, Year ended December 31, 1994 (Unaudited)............ F-5
Notes to Condensed Pro Forma Combined Financial Statements (Unaudited).................................... F-6
Condensed Consolidated Financial Statements of Forest Oil Corporation
Independent Accountants' Review Report.................................................................... F-9
Condensed Consolidated Balance Sheets, September 30, 1995 and December 31, 1994 (Unaudited)............... F-10
Condensed Consolidated Statements of Production and Operations, Nine Months ended September 30, 1995 and
1994 (Unaudited)......................................................................................... F-11
Condensed Consolidated Statements of Cash Flows, Nine Months ended September 30, 1995 and 1994
(Unaudited).............................................................................................. F-12
Notes to Condensed Consolidated Financial Statements (Unaudited).......................................... F-13
Consolidated Financial Statements of Forest Oil Corporation
Independent Auditors' Report.............................................................................. F-17
Consolidated Balance Sheets, December 31, 1994 and 1993................................................... F-18
Consolidated Statements of Operations, Years ended December 31, 1994, 1993 and 1992....................... F-19
Consolidated Statements of Shareholders' Equity, Years ended December 31, 1994, 1993 and 1992............. F-21
Consolidated Statements of Cash Flows, Years ended December 31, 1994, 1993 and 1992....................... F-22
Notes to Consolidated Financial Statements, December 31, 1994, 1993 and 1992.............................. F-23
Consolidated Financial Statements of ATCOR Resources Ltd.
Auditors' Report.......................................................................................... F-51
Consolidated Balance Sheet, September 30, 1995 and 1994 (Unaudited), December 31, 1994 and 1993........... F-52
Consolidated Statement of Earnings and Retained Earnings, Nine Months ended September 30, 1995 and 1994
(Unaudited), Years ended December 31, 1994, 1993 and 1992................................................ F-53
Consolidated Statement of Changes in Financial Position, Nine Months ended September 30, 1995 and 1994
(Unaudited), Years ended December 31, 1994, 1993 and 1992................................................ F-54
Notes to Consolidated Financial Statements (Unaudited).................................................... F-55
</TABLE>
F-1
<PAGE>
FOREST OIL CORPORATION
CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
On October 11, 1995, Forest Oil Corporation ("Forest") and Saxon Petroleum
Inc. ("Saxon"), a Canadian Corporation, entered into an agreement pursuant to
which Forest agreed to contribute capital in exchange for a majority interest in
Saxon. Saxon's shareholders approved the transaction by majority vote on
December 18, 1995. As a result of this transaction, Forest currently owns
approximately 56% of the outstanding common shares of Saxon, including 49% of
the voting shares.
On December 12, 1995, Forest entered into an agreement with ATCOR Resources,
Ltd., a Canadian corporation ("ATCOR"), and three of the controlling
stockholders of ATCOR, pursuant to which the Company has agreed to acquire all
of the outstanding Capital stock of ATCOR for an aggregate cash consideration of
$186 million Cdn (or approximately $135 million assuming a current exchange rate
of $1.38 Cdn to $1.00). The closing of the acquisition is subject to certain
conditions, including obtaining certain U.S. and Canadian regulatory approvals
and the completion of a United States offering and an international offering of
Forest's common stock (the "Offerings"). The Company will use a portion of the
net proceeds of the Offerings to fund the ATCOR acquisition and related
expenses. The closing of the acquisition is expected to occur immediately
following the closing of the Offerings.
On January 24, 1996 Joint Energy Developments Limited Partnership ("JEDI")
exchanged 1,680,000 shares of Forest Common Stock for approximately $22,400,000
principal amount of debt and warrants to purchase 2,250,000 shares of Common
Stock (the "JEDI Exchange").
The following unaudited condensed pro forma combined balance sheet assumes
that the acquisition of the Saxon interest, the acquisition of ATCOR and the
JEDI transaction occurred on September 30, 1995 and reflects the September 30,
1995 historical consolidated balance sheet of Forest giving pro forma effect to
the Saxon, ATCOR and JEDI transactions. The unaudited condensed pro forma
combined balance sheet should be read in conjunction with the historical
statements and related notes of Forest and ATCOR.
The following unaudited condensed pro forma combined statements of
operations for the nine months ended September 30, 1995 and for the year ended
December 31, 1994 assume that the Saxon, ATCOR and JEDI transactions occurred as
of January 1, 1994. The pro forma results of operations are not necessarily
indicative of the results of operations that would actually have been attained
if the transactions had occurred as of January 1, 1994. These statements should
be read in conjunction with the historical statements and related notes of
Forest and ATCOR.
The historical financial statements of Saxon and ATCOR have been translated
assuming an historical exchange rate of approximately $1.35 Cdn to $1.00.
F-2
<PAGE>
FOREST OIL CORPORATION
CONDENSED PRO FORMA COMBINED BALANCE SHEET (NOTE A)
SEPTEMBER 30, 1995
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
SAXON COMBINED
FOREST SAXON ADJUSTMENTS FOREST
HISTORICAL HISTORICAL (NOTE B) AND SAXON
---------- ---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents....................... $ 3,417 223 3,640
Accounts receivable............................. 15,299 2,583 17,882
Other current assets............................ 3,499 428 3,927
---------- ---------- ----------- ---------
Total current assets.......................... 22,215 3,234 25,449
Property and equipment, at cost:
Oil and gas properties -- full cost accounting
method......................................... 1,189,665 33,533 (7,798)(1) 1,215,400
Buildings, transportation and other equipment... 12,782 -- 12,782
---------- ---------- ----------- ---------
1,202,447 33,533 (7,798) 1,228,182
Less accumulated depreciation, depletion and
valuation allowance............................ 941,701 7,545 (7,545)(1) 941,701
---------- ---------- ----------- ---------
Net property and equipment.................... 260,746 25,988 (253) 286,481
Investment in and advances to affiliates.......... 11,452 -- 11,452
Other assets...................................... 10,330 414 10,744
---------- ---------- ----------- ---------
$ 304,743 29,636 (253) 334,126
---------- ---------- ----------- ---------
---------- ---------- ----------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft.................................. $ 1,739 -- 1,739
Current portion of long-term debt............... 89 5,314 (1,533)(2) 3,870
Current portion of gas balancing liability...... 5,000 -- 5,000
Accounts payable................................ 20,396 2,344 22,740
Retirement benefits payable to executives and
directors...................................... 672 -- 672
Accrued expenses and other liabilities.......... 3,078 -- 3,078
---------- ---------- ----------- ---------
Total current liabilities..................... 30,974 7,658 (1,533) 37,099
Long-term debt.................................... 181,959 12,277 (12,277)(2) 181,959
Gas balancing liabilities......................... 5,926 -- 5,926
Retirement benefits payable to executives and
directors........................................ 2,951 -- 2,951
Other liabilities................................. 20,045 181 20,226
Deferred revenue.................................. 18,501 -- 18,501
Deferred taxes.................................... -- 739 739
Minority interest in Saxon Petroleum, Inc......... -- -- 8,528(1) 8,528
Shareholders' equity:
Preferred stock................................. 24,356 -- 24,356
Common stock.................................... 955 7,677 (7,677)(1) 1,061
106(2)
Capital surplus................................. 234,576 -- 9,540(1) 248,280
4,164(2)
Retained earnings (deficit)..................... (214,032) 1,104 (1,104)(1) (214,032)
Foreign currency translation.................... (1,468) -- (1,468)
Treasury stock.................................. -- -- (9,540)(1)
9,540(2)
---------- ---------- ----------- ---------
Total shareholders' equity.................... 44,387 8,781 5,029 58,197
---------- ---------- ----------- ---------
$ 304,743 29,636 (253) 334,126
---------- ---------- ----------- ---------
---------- ---------- ----------- ---------
<CAPTION>
ATCOR COMBINED JEDI PRO FORMA
ATCOR ADJUSTMENTS FOREST EXCHANGE COMBINED
HISTORICAL (NOTE C) AND ATCOR (NOTE D) FOREST
---------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents....................... -- 141,528(1) 3,709 3,709
(135,759)(3)
(5,700)(4)
Accounts receivable............................. 20,715 (622)(3) 37,975 37,975
Other current assets............................ 2,618 6,545 6,545
---------- ----------- --------- ----------- ---------
Total current assets.......................... 23,333 (553) 48,229 48,229
Property and equipment, at cost:
Oil and gas properties -- full cost accounting
method......................................... 332,699 (193,511)(3) 1,348,791 1,348,971
(5,797)(5)
Buildings, transportation and other equipment... 22,039 (1,212)(3) 26,362 26,362
(7,247)(5)
---------- ----------- --------- ----------- ---------
354,738 (207,767) 1,375,153 1,375,153
Less accumulated depreciation, depletion and
valuation allowance............................ 172,943 38,160(2) 941,701 941,701
(211,103)(3)
---------- ----------- --------- ----------- ---------
Net property and equipment.................... 181,795 (34,824) 433,452 433,452
Investment in and advances to affiliates.......... -- 11,452 11,452
Other assets...................................... 3,689 (1,990)(2) 35,860 35,860
25,953(3)
(2,536)(5)
---------- ----------- --------- ----------- ---------
208,817 (13,950) 528,993 528,993
---------- ----------- --------- ----------- ---------
---------- ----------- --------- ----------- ---------
LIABILITIES AND SH
Current liabilities:
Cash overdraft.................................. -- 1,739 1,739
Current portion of long-term debt............... 3,700 (1,386)(5) 6,184 6,184
Current portion of gas balancing liability...... -- 5,000 5,000
Accounts payable................................ 19,814 1,850(3) 46,032 46,032
1,628(5)
Retirement benefits payable to executives and
directors...................................... -- 672 672
Accrued expenses and other liabilities.......... -- 3,078 3,078
---------- ----------- --------- ----------- ---------
Total current liabilities..................... 23,514 2,092 62,705 62,705
Long-term debt.................................... 14,194 (5,700)(4) 176,259 (5,711)(1) 170,548
(14,194)(5)
Gas balancing liabilities......................... -- 5,926 5,926
Retirement benefits payable to executives and
directors........................................ -- 2,951 2,951
Other liabilities................................. 2,584 (1,963)(3) 20,847 20,847
Deferred revenue.................................. -- 18,501 18,501
Deferred taxes.................................... 38,297 152(2) 33,552 33,552
(4,008)(3)
(1,628)(5)
Minority interest in Saxon Petroleum, Inc......... -- 8,528 8,528
Shareholders' equity:
Preferred stock................................. -- 24,356 24,356
Common stock.................................... 100,482 1,094(1) 2,155 168(1) 2,323
(100,482)(3)
Capital surplus................................. -- 140,433(1) 388,713 394,256
2,725(2) 5,543(1)
(2,725)(3)
Retained earnings (deficit)..................... 29,746 (43,027)(2) (214,032 ) (214,032 )
13,281(3)
Foreign currency translation.................... -- (1,468 ) (1,468 )
Treasury stock.................................. -- -- --
---------- ----------- --------- ----------- ---------
Total shareholders' equity.................... 130,228 11,299 199,724 5,711 205,435
---------- ----------- --------- ----------- ---------
208,817 (13,950) 528,993 528,993
---------- ----------- --------- ----------- ---------
---------- ----------- --------- ----------- ---------
</TABLE>
See accompanying notes to condensed pro forma combined financial statements.
F-3
<PAGE>
FOREST OIL CORPORATION
CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS (NOTE A)
NINE MONTHS ENDED SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
SAXON COMBINED ATCOR
FOREST SAXON ADJUSTMENTS FOREST AND ATCOR ADJUSTMENTS
HISTORICAL HISTORICAL (NOTE B) SAXON HISTORICAL (NOTE C)
---------- ---------- ----------- ---------- ---------- -----------
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Oil and gas sales..................... $ 60,154 6,700 66,854 28,697
Gas marketing and processing.......... -- -- -- 113,620
Miscellaneous, net.................... 374 1,050 1,424 90 (172)(7)
---------- ----- --- ---------- ---------- -----------
Total revenue..................... 60,528 7,750 68,278 142,407 (172)
Expenses:
Oil and gas production................ 16,576 3,313 19,889 9,142
Cost of gas sold and processed........ -- -- -- 105,595
General and administrative............ 5,761 615 6,376 2,656 (333)(8)
Interest.............................. 19,100 370 (249)(3) 19,221 1,923 (346)(6)
(1,100)(9)
Depreciation and depletion............ 33,631 3,081 36,712 19,095 (4,514)(2)
(1,854)(10)
Provision for impairment of oil and
gas properties....................... -- -- -- -- 10,777(2)
(10,777)(11)
Minority interest in earnings of Saxon
Petroleum, Inc....................... -- -- 77(4) 77 --
---------- ----- --- ---------- ---------- -----------
Total expenses.................... 75,068 7,379 (172) 82,275 138,411 (8,147)
---------- ----- --- ---------- ---------- -----------
Earnings (loss) before income taxes..... (14,540) 371 172 (13,997) 3,996 7,975
Income tax expense (benefit)............ (7) 335 110(5) 438 2,577 (3,832)(2)
4,779(11)
1,454(12)
---------- ----- --- ---------- ---------- -----------
Net earnings (loss)..................... $(14,533) 36 62 (14,435) 1,419 5,574
---------- ----- --- ---------- ---------- -----------
---------- ----- --- ---------- ---------- -----------
Weighted average number of common shares
outstanding............................ 6,611
----------
----------
Net loss attributable to common stock... $(16,153)
----------
----------
Primary and fully diluted earnings loss
per share.............................. $ (2.44)
----------
----------
<CAPTION>
COMBINED
FOREST JEDI PRO FORMA
AND EXCHANGE COMBINED
ATCOR (NOTE D) FOREST
-------- ----------- ---------
<S> <C> <C> <C>
Revenue:
Oil and gas sales..................... 95,551 95,551
Gas marketing and processing.......... 113,620 113,620
Miscellaneous, net.................... 1,342 1,342
-------- ----------- ---------
Total revenue..................... 210,513 210,513
Expenses:
Oil and gas production................ 29,031 29,031
Cost of gas sold and processed........ 105,595 105,595
General and administrative............ 8,699 8,699
Interest.............................. 19,698 (1,200)(2) 18,498
Depreciation and depletion............ 49,439 49,439
Provision for impairment of oil and
gas properties....................... --
Minority interest in earnings of Saxon
Petroleum, Inc....................... 77 77
-------- ----------- ---------
Total expenses.................... 212,539 (1,200) 211,339
-------- ----------- ---------
Earnings (loss) before income taxes..... (2,026) 1,200 (826)
Income tax expense (benefit)............ 5,416 5,416
-------- ----------- ---------
Net earnings (loss)..................... (7,442) 1,200 (6,242)
-------- ----------- ---------
-------- ----------- ---------
Weighted average number of common shares
outstanding............................ 20,291
---------
---------
Net loss attributable to common stock... $(7,862)
---------
---------
Primary and fully diluted earnings loss
per share.............................. $ (.39)
---------
---------
</TABLE>
See accompanying notes to condensed pro forma combined financial statements.
F-4
<PAGE>
FOREST OIL CORPORATION
CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS (NOTE A)
YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
SAXON AD- COMBINED
FOREST SAXON JUSTMENTS FOREST AND ATCOR
HISTORICAL HISTORICAL (NOTE B) SAXON HISTORICAL
---------- ---------- ----------- ---------- ----------
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue:
Oil and gas sales..................... $114,541 8,028 122,569 37,228
Gas marketing and processing.......... -- -- -- 97,828
Miscellaneous, net.................... 1,406 -- 1,406 2,725
---------- ----- --- ---------- ----------
Total revenue..................... 115,947 8,028 123,975 137,781
Expenses:
Oil and gas production................ 22,384 3,067 25,451 9,518
Cost of gas sold and processed........ -- -- -- 91,535
General and administrative............ 11,166 815 11,981 3,510
Interest.............................. 26,773 359 (239)(3) 26,893 2,967
Depreciation and depletion............ 65,468 2,839 68,307 20,821
Provision for impairment of oil and
gas properties....................... 58,000 -- 58,000 --
Minority interest in earnings of Saxon
Petroleum, Inc....................... -- -- 426(4) 426 --
---------- ----- --- ---------- ----------
Total expenses.................... 183,791 7,080 187 191,058 128,351
---------- ----- --- ---------- ----------
Earnings (loss) before income taxes and
cumulative effects of change in
accounting principle................... (67,844) 948 (187) (67,083) 9,430
Income tax expense (benefit)............ 9 112 105(5) 226 5,170
---------- ----- --- ---------- ----------
Earnings (loss) before cumulative
effects of change in accounting
principle.............................. (67,853) 836 (292) (67,309) 4,260
Cumulative effects of change in
accounting principle for oil and gas
sales.................................. (13,990) -- (13,990) --
---------- ----- --- ---------- ----------
Net earnings (loss)..................... $(81,843) 836 (292) (81,299) 4,260
---------- ----- --- ---------- ----------
---------- ----- --- ---------- ----------
Weighted average number of common shares
outstanding............................ 5,619
----------
----------
Net loss attributable to common stock... $(84,004)
----------
----------
Primary and fully diluted loss per
share.................................. $ (14.95)
----------
----------
<CAPTION>
ATCOR AD- COMBINED JEDI PRO FORMA
JUSTMENTS FOREST AND EXCHANGE COMBINED
(NOTE C) ATCOR (NOTE D) FOREST
----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue:
Oil and gas sales..................... 159,797 159,797
Gas marketing and processing.......... 97,828 97,828
Miscellaneous, net.................... (75)(7) 4,056 4,056
----------- ---------- ----------- ---------
Total revenue..................... (75) 261,681 261,681
Expenses:
Oil and gas production................ 34,969 34,969
Cost of gas sold and processed........ 91,535 91,535
General and administrative............ (444)(8) 15,047 15,047
Interest.............................. (461)(6) 27,932 (1,500)(2) 26,432
(1,467)(9)
Depreciation and depletion............ (3,221)(2) 82,292 82,292
(3,615)(10)
Provision for impairment of oil and
gas properties....................... 19,726(2) 58,000 58,000
(19,726)(11)
Minority interest in earnings of Saxon
Petroleum, Inc....................... 426 426
----------- ---------- ----------- ---------
Total expenses.................... (9,208) 310,201 (1,500) 308,701
----------- ---------- ----------- ---------
Earnings (loss) before income taxes and
cumulative effects of change in
accounting principle................... 9,133 48,520 1,500 (47,020)
Income tax expense (benefit)............ (8,253)(2) 8,334 8,334
8,746(11)
2,445(12)
----------- ---------- ----------- ---------
Earnings (loss) before cumulative
effects of change in accounting
principle.............................. 6,195 (56,854) 1,500 (55,354)
Cumulative effects of change in
accounting principle for oil and gas
sales.................................. (13,990) (13,990)
----------- ---------- ----------- ---------
Net earnings (loss)..................... 6,195 (70,844) 1,500 (69,344)
----------- ---------- ----------- ---------
----------- ---------- ----------- ---------
Weighted average number of common shares
outstanding............................ 19,299
---------
---------
Net loss attributable to common stock... $(71,505)
---------
---------
Primary and fully diluted loss per
share.................................. $ (3.71)
---------
---------
</TABLE>
See accompanying notes to condensed pro forma combined financial statements.
F-5
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
A. BASIS OF PRESENTATION
On December 20, 1995, Forest acquired a majority interest in Saxon Petroleum
Inc. (Saxon), an oil and gas exploration and production company headquartered in
Calgary, Alberta, Canada.
Forest received from Saxon, in two closings, an aggregate of 53,100,000
common shares, warrants to purchase 5,300,000 common shares, and $15,500,000 Cdn
of convertible preferred shares due November 15, 1998. Saxon received $1,500,000
Cdn in cash, 1,060,000 common shares of Forest and all of the preferred shares
owned by Forest in Archean Energy, Ltd., a privately held oil and gas company
based in Calgary.
As a result of the transaction, Forest owns approximately 56% of the
outstanding common shares of Saxon, including slightly less than 50% of the
voting shares, and holds warrants and conversion rights for shares which, if
fully exercised, constitute approximately 63% of Saxon's outstanding common
stock. Pursuant to the terms of the agreement with Saxon, Forest has appointed
four of seven directors to a newly-constituted board. In addition, Forest has
the right to participate in any future equity issues undertaken by Saxon.
The accompanying condensed pro forma combined balance sheet includes pro
forma adjustments to give effect to the acquisition of the interest in Saxon as
of September 30, 1995. The condensed pro forma combined statements of operations
include the results of operations of Saxon for the respective periods presented
and adjustments for the pro forma effects of the Saxon transaction.
On December 12, 1995, the Company entered into an agreement with ATCOR
Resources, Ltd, a Canadian corporation, and three of the controlling
stockholders of ATCOR, pursuant to which the Company has agreed to acquire all
of the outstanding capital stock of ATCOR for an aggregate cash consideration of
approximately $186 million Cdn (or approximately $135 million, assuming an
exchange rate of $1.38 Cdn to $1.00). The closing of the acquisition is subject
to certain conditions, including obtaining certain U.S. and Canadian regulatory
approvals and the completion of an offering of Forest's common stock. Forest
will use a portion of the net proceeds of the Offerings to pay the costs of the
ATCOR acquisition and related expenses. The closing of the acquisition is
expected to occur immediately following the closing of the Offerings.
ATCOR is engaged in oil and gas exploration and production and the marketing
and processing of natural gas. ATCOR's principal reserves and producing
properties are located in the Canadian provinces of Alberta, British Columbia
and Saskatchewan.
As part of the acquisition, Forest has agreed to sell certain assets of
ATCOR to its controlling shareholders for an aggregate consideration of $21.5
million Cdn (or approximately $15.6 million, assuming an exchange rate of $1.38
Cdn to $1.00) These assets include one-half of ATCOR's interest in certain
frontier lands, a portion of ATCOR's interest in an ethane extraction plant in
Edmonton, Alberta, and certain marketable securities held by ATCOR in Trilon
Financial Corporation.
The accompanying condensed pro forma combined balance sheet includes pro
forma adjustments to give effect to the sale of the common stock offered hereby
and the use of a portion of the proceeds to fund the acquisition of ATCOR. The
accompanying condensed pro forma combined financial statements also include pro
forma adjustments to give effect to (i) the restatement of the historical
financial statements of ATCOR to conform to U.S. generally accepted accounting
principles, (ii) the acquisition of ATCOR, and (iii) the sale of certain assets
to ATCOR's controlling shareholders and the use of the proceeds therefrom to
repay long-term debt of ATCOR.
F-6
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
A. BASIS OF PRESENTATION (CONTINUED)
On January 24, 1996, JEDI exchanged 1,680,000 shares of Common Stock of
Forest for approximately $22,400,000 principal amount of debt and warrants for
2,250,000 shares of common stock held currently by JEDI (the "B Warrants").
Pursuant to the JEDI Exchange, JEDI agreed to certain voting and transfer
limitations regarding shares of Common Stock. In addition, JEDI would receive
the right to elect a director if there has been a material adverse change in the
price of the Common Stock or the rating of the Company's debt securities.
Pursuant to the JEDI Exchange, the Company assumed JEDI's obligations under
an option granted by JEDI (the "Anschutz Option"). Under the Anschutz Option,
the Company is obligated to issue shares directly to Anschutz that previously
would have been issued to JEDI pursuant to the B Warrants. Upon the exercise of
the Anschutz Option, instead of the original B Warrant price of $10.00 per
share, the Company would receive an amount equal to the lesser of (a) $10.00
plus 18% per annum from July 27, 1995 to the date of exercise of the option, or
(b) $15.50. The Company is permitted to use proceeds from the exercise of the
Anschutz Option for any corporate purpose.
The accompanying condensed pro forma combined financial statements include
pro forma adjustments to give effect to the JEDI Exchange.
B. PRO FORMA ADJUSTMENTS FOR THE ACQUISITION OF THE SAXON INTEREST
The following pro forma adjustments have been made to the historical balance
sheet of Forest at September 30, 1995 and to the historical statements of
operations for the nine months ended September 30, 1995 and the year ended
December 31, 1994:
1. To record the transactions related to the purchase of the interest
in Saxon by Forest.
2. To reflect the sale of 1,060,000 shares of common stock of Forest
owned by Saxon at an assumed offering price of $13.75 per share, less
underwriting discounts and commissions of $765,000, and the use of the net
proceeds therefrom to repay long-term debt of Saxon.
3. To adjust interest expense of Saxon to reflect the payment of
outstanding long-term debt using proceeds of the sale of the Forest shares
owned by Saxon.
4. To recognize the minority interest in the earnings of Saxon.
5. To record the income tax effects of the pro forma adjustments for
the Saxon transaction.
C. PRO FORMA ADJUSTMENTS FOR THE ATCOR ACQUISITION
The following pro forma adjustments have been made to the historical balance
sheet of Forest at September 30, 1995 and to the historical statements of
operations for the nine months ended September 30, 1995 and the year ended
December 31, 1994:
1. To record the issuance of 10,940,000 shares of common stock by
Forest at an assumed offering price of $13.75 per share, less estimated
underwriting discounts and commissions and expenses of $8,897,000.
2. To record the adjustments necessary to restate the historical
financial statements of ATCOR to conform to U.S. generally accepted
accounting principles, including recording provisions for impairment of oil
and gas properties under the U.S. ceiling test and providing for income
taxes under the liability method.
3. To record the purchase of ATCOR by Forest.
F-7
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
C. PRO FORMA ADJUSTMENTS FOR THE ATCOR ACQUISITION (CONTINUED)
4. To record the repayment of long term debt of Forest using a portion
of the proceeds of the Offerings.
5. To record the sale of certain assets to the controlling shareholders
of ATCOR for $21,500,000 Cdn and the use of the proceeds therefrom to repay
long-term debt of ATCOR. No gain or loss was recognized on the sale.
6. To adjust interest expense of Forest to reflect the repayment of
outstanding long-term debt using a portion of the proceeds of the Offerings.
7. To eliminate dividend income on the investment in Trilon Financial
Corporation to be sold to the controlling shareholders of ATCOR.
8. To adjust general and administrative expense of ATCOR to reflect the
elimination of administration and financial management fees charged by a
controlling shareholder of ATCOR.
9. To adjust interest expense of ATCOR to reflect the payment of
outstanding long-term debt using proceeds of the sale of certain assets to
the controlling shareholders of ATCOR.
10. To adjust depletion and depreciation expense of ATCOR to reflect
Forest's basis in the properties acquired.
11. To reverse the provision for impairment of ATCOR's oil and gas
properties recorded under U.S. generally accepted accounting principles,
since Forest's basis in the properties is less than the ceiling limit.
12. To record the income tax effects of the pro forma adjustments for
the ATCOR acquisition.
D. PRO FORMA ADJUSTMENTS FOR THE JEDI EXCHANGE
The following pro forma adjustments have been made to the historical balance
sheet of Forest at September 30, 1995 and to the historical statements of
operations for the nine months ended September 30, 1995 and the year ended
December 31, 1994:
1. To reflect the exchange of 1,680,000 shares of Common Stock of
Forest for certain debt and warrants currently held by JEDI.
2. To adjust interest expense of Forest to reflect the reduction of the
JEDI debt.
F-8
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors and Shareholders
Forest Oil Corporation
We have reviewed the accompanying condensed consolidated balance sheet of
Forest Oil Corporation and subsidiaries as of September 30, 1995, and the
related condensed consolidated statements of production and operations and cash
flows for the nine months ended September 30, 1995. These consolidated financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principals.
We have previously audited in accordance with generally accepted auditing
standards, the accompanying consolidated balance sheet of Forest Oil Corporation
and subsidiaries as of December 31, 1994, and the related consolidated
statements of operations, shareholders' equity and cash flows for the year then
ended (not presented herein); and in our report dated March 30, 1995, except as
to Note 17 which is as of April 17, 1995 and the reverse stock split referred to
in Note 1, which is as of January 8, 1996, we expressed an unqualified opinion
on those consolidated financial statements. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of December
31, 1994, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it was derived.
KPMG PEAT MARWICK LLP
Denver, Colorado
December 29, 1995 (except as to the
reverse stock split referred to in Note 1,
which is as of January 8, 1996)
F-9
<PAGE>
FOREST OIL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................................... $ 3,417 2,869
Accounts receivable............................................................ 15,299 20,418
Other current assets........................................................... 3,499 2,231
-------------- --------------
Total current assets......................................................... 22,215 25,518
Property and equipment, at cost:
Oil and gas properties -- full cost accounting method.......................... 1,189,665 1,171,887
Buildings, transportation and other equipment.................................. 12,782 12,649
-------------- --------------
1,202,447 1,184,536
Less accumulated depreciation, depletion and valuation allowance............... 941,701 907,927
-------------- --------------
Net property and equipment................................................... 260,746 276,609
Investment in and advances to affiliate.......................................... 11,452 11,652
Other assets..................................................................... 10,330 11,053
-------------- --------------
$ 304,743 324,832
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft................................................................. $ 1,739 4,445
Current portion of long-term debt.............................................. 89 1,636
Current portion of gas balancing liability..................................... 5,000 5,735
Accounts payable............................................................... 20,396 26,557
Retirement benefits payable to executives and directors........................ 672 630
Accrued expenses and other liabilities:
Interest..................................................................... 1,970 4,318
Other........................................................................ 1,108 4,297
-------------- --------------
Total current liabilities.................................................... 30,974 47,618
Long-term debt................................................................... 181,959 207,054
Gas balancing liability.......................................................... 5,926 8,525
Retirement benefits payable to executives and directors.......................... 2,951 3,505
Other liabilities................................................................ 20,045 16,136
Deferred revenue................................................................. 18,501 35,908
Shareholders' equity:
Preferred stock................................................................ 24,356 15,845
Common stock................................................................... 955 566
Capital surplus................................................................ 234,576 192,337
Accumulated deficit............................................................ (214,032) (199,499)
Foreign currency translation................................................... (1,468) (1,337)
Treasury stock, at cost........................................................ -- (1,826)
-------------- --------------
Total shareholders' equity................................................... 44,387 6,086
-------------- --------------
$ 304,743 324,832
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-10
<PAGE>
FOREST OIL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF PRODUCTION AND OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------ ------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
-------------- -------------- -------------- --------------
(IN THOUSANDS EXCEPT PRODUCTION AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
PRODUCTION
Gas (MMCF)................................... 7,807 11,957 25,744 38,432
-------------- ------- ------- --------------
-------------- ------- ------- --------------
Oil and condensate (thousand barrels)........ 275 365 926 1,152
-------------- ------- ------- --------------
-------------- ------- ------- --------------
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenue:
Oil and gas sales:
Gas........................................ $ 13,139 21,874 45,141 74,323
Oil and condensate......................... 4,236 5,830 14,764 16,825
Products and other......................... 81 66 249 280
-------------- ------- ------- --------------
17,456 27,770 60,154 91,428
Miscellaneous, net........................... 161 437 374 2,299
-------------- ------- ------- --------------
Total revenue............................ 17,617 28,207 60,528 93,727
Expenses:
Oil and gas production....................... 5,379 5,419 16,576 16,647
General and administrative................... 1,900 2,964 5,761 7,553
Interest..................................... 6,679 6,602 19,100 20,077
Depreciation and depletion................... 10,233 16,150 33,631 52,323
Provision for impairment of oil and gas
properties.................................. -- 30,000 -- 30,000
-------------- ------- ------- --------------
Total expenses........................... 24,191 61,135 75,068 126,600
-------------- ------- ------- --------------
Loss before income taxes and cumulative effect
of change in accounting principle............. (6,574) (32,928) (14,540) (32,873)
Income tax expense (benefit):
Current...................................... -- (55) (7) 29
-------------- ------- ------- --------------
Loss before cumulative effect of change in
accounting principle.......................... (6,574) (32,873) (14,533) (32,902)
Cumulative effect of change in method of
accounting for oil and gas sales.............. -- -- -- (13,990)
-------------- ------- ------- --------------
Net loss....................................... $ (6,574) (32,873) (14,533) (46,892)
-------------- ------- ------- --------------
-------------- ------- ------- --------------
Weighted average number of common shares
outstanding................................... 8,462 5,627 6,611 5,614
-------------- ------- ------- --------------
-------------- ------- ------- --------------
Net loss attributable to common stock.......... $ (7,114) (33,414) (16,153) (48,513)
-------------- ------- ------- --------------
-------------- ------- ------- --------------
Primary and fully diluted loss per share:
Loss before cumulative effect of change in
accounting principle........................ $ (.84 ) (5.94 ) (2.44 ) (6.15 )
-------------- ------- ------- --------------
-------------- ------- ------- --------------
Net loss..................................... $ (.84 ) (5.94 ) (2.44 ) (8.64 )
-------------- ------- ------- --------------
-------------- ------- ------- --------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-11
<PAGE>
FOREST OIL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Loss before cumulative effect of change in accounting principle................ $ (14,533) (32,902)
Adjustments to reconcile loss before cumulative effect of change in accounting
principle to net cash provided (used) by operating activities:
Depreciation and depletion................................................... 33,631 52,323
Provision for impairment of oil and gas properties........................... -- 30,000
Other, net................................................................... 2,596 3,230
Decrease in accounts receivable.............................................. 5,119 2,339
Decrease (increase) in other current assets.................................. (1,268) 653
Decrease in accounts payable................................................. (6,854) (6,788)
Increase (decrease) in accrued expenses and other liabilities................ (5,537) 425
Proceeds from volumetric production payments................................. -- 4,353
Amortization of deferred revenue............................................. (17,407) (27,790)
-------------- -------
Net cash provided (used) by operating activities........................... (4,253) 25,843
Cash flows from investing activities:
Capital expenditures for property and equipment................................ (20,405) (26,706)
Proceeds from sales of property and equipment.................................. 2,706 13,203
Decrease (increase) in other assets, net....................................... 464 (1,895)
-------------- -------
Net cash used by investing activities...................................... (17,235) (15,398)
Cash flows from financing activities:
Proceeds of bank debt.......................................................... 61,200 12,500
Repayments of bank debt........................................................ (74,400) (10,500)
Proceeds of stock and warrants issued, net of costs............................ 41,060 --
Proceeds of nonrecourse secured loan........................................... -- 1,400
Repayments of nonrecourse secured loan......................................... (1,143) --
Repayments of production payment............................................... (1,708) (2,394)
Redemptions and purchases of subordinated debentures........................... -- (7,171)
Payment of preferred stock dividends........................................... (540) (1,621)
Deferred debt costs............................................................ (482) (702)
Decrease in cash overdraft..................................................... (2,706) (430)
Increase (decrease) in other liabilities, net.................................. 756 (6,613)
-------------- -------
Net cash provided (used) by financing activities........................... 22,037 (15,531)
Effect of exchange rate changes on cash.......................................... (1) 164
-------------- -------
Net increase (decrease) in cash and cash equivalents............................. 548 (4,922)
Cash and cash equivalents at beginning of period................................. 2,869 6,949
-------------- -------
Cash and cash equivalents at end of period....................................... $ 3,417 2,027
-------------- -------
-------------- -------
Cash paid during the period for:
Interest....................................................................... $ 19,002 20,543
-------------- -------
-------------- -------
Income taxes................................................................... $ -- 6
-------------- -------
-------------- -------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-12
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 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 September 30, 1995 and the results
of operations for the nine month periods ended September 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.
Unless otherwise indicated, all share amounts, share prices and per share
amounts have been adjusted to give effect to a 5 to 1 reverse stock split that
occurred on January 8, 1996.
(2) LONG-TERM DEBT:
The components of long-term debt are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Bank debt.................................................... $ 19,800 33,000
Nonrecourse secured loan..................................... 46,069 57,840
Production payment obligation................................ 16,826 18,534
11 1/4% Subordinated debentures.............................. 99,353 99,316
-------------- --------------
182,048 208,690
Less current portion......................................... (89) (1,636)
-------------- --------------
Long-term debt............................................... $ 181,959 207,054
-------------- --------------
-------------- --------------
</TABLE>
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. At September 30, 1995 the Company was in compliance with the
covenants of its bank debt.
(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.
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 nine month periods ended September 30, 1995 and 1994.
F-13
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
(4) CHANGE 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 agreement, Anschutz purchased 3,760,000 shares of
the Company's common stock and shares of a new series of preferred stock that
are convertible into 1,240,000 additional shares of common stock for a total
consideration of $45,000,000, or $9.00 per share. The preferred stock has
liquidation preference and receives dividends ratably with the common stock. In
addition, Anschutz received warrants to purchase 3,888,888 shares of the
Company's common stock for $10.50 per share (the "A" Warrants). The A Warrants
were originally 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. At 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 1,100,000 shares of Forest's common stock. Also at the second
closing, Anschutz purchased an additional 2,660,000 shares of common stock, the
convertible preferred stock and the A warrants for $35,100,000. At the second
closing, Anschutz also received from JEDI an option to purchase from JEDI up to
2,250,000 shares of common stock that JEDI may acquire from the Company upon
exercise of the B warrants referred to below (the "Anschutz Option"). The
Anschutz 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 agreement, 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
F-14
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
(5) ANSCHUTZ AND JEDI TRANSACTIONS: (CONTINUED)
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 A 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 designate three of the
Company's 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. As a part of the restructuring, the
existing JEDI loan balance was divided into two tranches: a $40,000,000 tranche,
which bears interest at the rate of 12.5% per annum and is due on December 31,
2000; and an approximately $22,400,000 tranche, which does not bear interest and
matures on December 31, 2002. JEDI also 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 2,250,000
shares of the Company's common stock for $10.00 per share (the "B" Warrants).
The B 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 the Anschutz Option to Anschutz, pursuant to which Anschutz is entitled
to purchase from JEDI up to 2,250,000 shares at a purchase price per share equal
to the lesser of (a) $10.00 plus 18% per annum from the second closing date to
the date of exercise of the option, or (b) $15.50. JEDI will satisfy its
obligations under the Anschutz Option by exercising the B Warrants. Provided the
Conveyance Option has not been exercised, the Company may terminate the B
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 $12.50 per share.
As a result of the loan restructuring and the issuance of the B Warrants,
the Company reduced the recorded amount of the related liability to
approximately $45,493,000 and annual interest expense by approximately
$2,000,000. Subject to certain conditions, the Company also received the right
to 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 A 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
Anschutz Option 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 B Warrants to an unaffiliated person
without the approval of the Company. The Company agreed to not give such
approval without the consent of Anschutz.
The Company agreed to use the proceeds from the exercise of the A Warrants
to pay principal and interest on the $40 million tranche of the JEDI loan and to
use proceeds from the exercise of the B Warrants to repay the remaining tranche
of the JEDI loan.
F-15
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
(5) ANSCHUTZ AND JEDI TRANSACTIONS: (CONTINUED)
JEDI EXCHANGE:
On January 24, 1996, JEDI exchanged the $22,400,000 tranche and the B
Warrants for 1,680,000 shares of Common Stock (the "JEDI Exchange"). As a result
of the JEDI Exchange, the Company expects that noncash interest expense will be
reduced by an additional $1.5 million per year. The JEDI Exchange eliminated the
Conveyance Option described above and provides for other changes to the JEDI
loan agreement that would have the effect of increasing the Company's
flexibility with respect to the development of the properties securing the JEDI
indebtedness. Pursuant to the JEDI Exchange, JEDI entered into a shareholders
agreement with the Company (the "JEDI Shareholders Agreement") that limits
JEDI's right to vote its shares of Common Stock and, except in certain
circumstances, to transfer its shares before July 27, 1998. The JEDI
Shareholders Agreement also entitles JEDI to designate a member of the Company's
Board of Directors if the average price of the Common Stock over a period of 30
trading days is less than or equal to $8.75 per share or if there is a
substantial downgrading in the rating of the Company's debt securities. The JEDI
Shareholders Agreement will terminate upon the termination of the Anschutz
shareholders agreement or earlier if the shares acquired by JEDI pursuant to the
JEDI Exchange and still held by JEDI are less than 3% of the outstanding shares
of Common Stock.
Pursuant to the JEDI Exchange, the Company assumed JEDI's obligations under
the Anschutz Option. Under the Anschutz Option, the Company is obligated to
issue shares directly to Anschutz that previously would have been issued to JEDI
pursuant to the B Warrants. Upon the exercise of the Anschutz Option, instead of
the B Warrant price of $10.00 per share, the Company will receive an amount
equal to the lesser of (a) $10.00 plus 18% per annum from July 27, 1995 to the
date of exercise of the option, or (b) $15.50. The Company is permitted to use
proceeds from the exercise of the Anschutz Option for any corporate purpose.
(6) SAXON PETROLEUM ACQUISITION:
On December 20, 1995 Forest acquired a majority interest in Saxon Petroleum
Inc. (Saxon), an oil and gas exploration and production company headquartered in
Calgary, Alberta Canada.
Forest received from Saxon, in two closings, an aggregate of 53,100,000
common shares, warrants to purchase 5,300,000 common shares, and $15,500,000 Cdn
of convertible preferred shares due November 15, 1998. Saxon received $1,500,000
Cdn in cash, 1,060,000 common shares of Forest and all of the preferred shares
owned by Forest in Archean Energy, Ltd., a privately held oil and gas company
based in Calgary.
At the completion of the transaction, Forest owns approximately 56% of the
outstanding common shares of Saxon, including slightly less than 50% of the
voting shares, and holds warrants and conversion rights for shares which, if
fully exercised, constitute approximately 63% of Saxon's outstanding common
stock. Pursuant to the terms of the agreement with Saxon, Forest has appointed
four of seven directors to a newly-constituted board. In addition, Forest has
the right to participate in any future equity issues undertaken by Saxon.
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Forest Oil Corporation:
We have audited the accompanying consolidated balance sheets of Forest Oil
Corporation and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Forest Oil
Corporation and subsidiaries as of December 31, 1994 and 1993, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1994 in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for oil and gas sales from the sales method to
the entitlements method effective January 1, 1994.
As discussed in Notes 6 and 10 of Notes to Consolidated Financial
Statements, the Company adopted the provisions of Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" and Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" in 1993.
KPMG PEAT MARWICK LLP
Denver, Colorado
March 30, 1995, except as to Note 17
which is as of April 17, 1995 and the
reverse stock split referred to in Note 1,
which is as of January 8, 1996
F-17
<PAGE>
FOREST OIL CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1993
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................................... $ 2,869 6,949
Accounts receivable............................................................... 20,418 25,257
Other current assets.............................................................. 2,231 3,309
Total current assets.......................................................... 25,518 35,515
Property and equipment, at cost:
Oil and gas properties -- full cost accounting method (Note 2).................... 1,171,887 1,140,656
Buildings, transportation and other equipment..................................... 12,649 12,420
------------- -------------
1,184,536 1,153,076
Less accumulated depreciation, depletion and valuation allowance.................. 907,927 787,380
Net property and equipment...................................................... 276,609 365,696
Investment in and advances to affiliate (Note 3).................................... 11,652 16,451
Other assets........................................................................ 11,053 9,093
------------- -------------
$ 324,832 426,755
------------- -------------
------------- -------------
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current liabilities:
Cash overdraft................................................... $ 4,445 3,894
Current portion of long-term debt (Notes 4 and 17)............... 1,636 11,542
Current portion of gas balancing liability....................... 5,735 --
Accounts payable................................................. 26,557 28,348
Retirement benefits payable to executives and directors (Note
10)............................................................. 630 553
Accrued expenses and other liabilities:
Interest....................................................... 4,318 3,817
Other.......................................................... 4,297 1,857
---------- ----------
Total current liabilities.................................... 47,618 50,011
Commitments and contingencies (Notes 10 and 12)
Long-term debt (Notes 4 and 17).................................... 207,054 194,307
Retirement benefits payable to executives and directors (Note
10)............................................................... 3,505 4,135
Gas balancing liability............................................ 8,525 --
Other liabilities.................................................. 16,136 22,918
Deferred revenue (Note 5).......................................... 35,908 67,228
Shareholders' equity (Notes 4, 7, 8 and 17):
Preferred stock.................................................. 15,845 15,845
Common stock..................................................... 566 565
Capital surplus.................................................. 192,337 195,977
Accumulated deficit.............................................. (199,499) (117,656)
Foreign currency translation..................................... (1,337) (785)
Treasury stock, at cost.......................................... (1,826) (5,790)
---------- ----------
Total shareholders' equity................................... 6,086 88,156
---------- ----------
$ 324,832 426,755
---------- ----------
---------- ----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-18
<PAGE>
FOREST OIL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1994 1993 1992
----------- ----------- -----------
(IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenue:
Oil and gas sales:
Gas.................................................................... $ 91,309 77,249 72,011
Oil and condensate..................................................... 22,874 25,341 26,299
Products and other..................................................... 358 293 929
----------- ----------- -----------
114,541 102,883 99,239
Miscellaneous, net....................................................... 1,406 2,265 13,947
----------- ----------- -----------
Total revenue.......................................................... 115,947 105,148 113,186
Expenses:
Oil and gas production................................................... 22,384 19,540 15,865
General and administrative............................................... 11,166 12,003 11,611
Interest................................................................. 26,773 23,729 27,800
Depreciation and depletion............................................... 65,468 60,581 46,624
Provision for impairment of oil and gas properties....................... 58,000 -- --
----------- ----------- -----------
Total expenses......................................................... 183,791 115,853 101,900
----------- ----------- -----------
Earnings (loss) before income taxes, cumulative effects of changes in
accounting principles and extraordinary item.............................. (67,844) (10,705) 11,286
Income tax expense (benefit) (Note 6):
Current.................................................................. 9 254 435
Deferred................................................................. -- (1,604) 3,553
----------- ----------- -----------
9 (1,350) 3,988
----------- ----------- -----------
Earnings (loss) before cumulative effects of changes in accounting
principles and extraordinary item......................................... (67,853) (9,355) 7,298
Cumulative effects of changes in accounting principles:
Oil and gas sales (Note 1)............................................... (13,990) -- --
Postretirement benefits, net of income tax benefit of $1,639,000 (Note
10)..................................................................... -- (3,183) --
Income taxes (Note 6).................................................... -- 2,060 --
----------- ----------- -----------
(13,990) (1,123) --
Earnings (loss) before extraordinary item.................................. (81,843) (10,478) 7,298
Extraordinary item -- extinguishment of debt, net of income tax benefit of
$4,652,000 in 1993 (Note 4)............................................... -- (10,735) --
----------- ----------- -----------
Net earnings (loss)........................................................ $ (81,843) (21,213) 7,298
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of common shares outstanding....................... 5,619 4,399 2,755
----------- ----------- -----------
----------- ----------- -----------
Net earnings (loss) attributable to common stock........................... $ (84,004) (23,463) 4,950
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-19
<PAGE>
FOREST OIL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1994 1993 1992
----------- ----------- -----------
(IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Pro forma amounts assuming the change in accounting for oil and gas sales
is applied retroactively:
Earnings (loss) before cumulative effects of changes in accounting
principles and extraordinary item....................................... $ (3,962) 13,151
----------- -----------
----------- -----------
Net earnings (loss)...................................................... (15,820) 13,151
----------- -----------
----------- -----------
Primary earnings (loss) per common share (1):
Earnings (loss) before cumulative effects of changes in accounting
principles and extraordinary item....................................... $ (12.46) (2.64) 1.80
Cumulative effects of changes in accounting principles................... (2.49) (.26) --
----------- ----------- -----------
Earnings (loss) before extraordinary item................................ (14.95) (2.90) 1.80
Extraordinary item -- extinguishment of debt............................. -- (2.44) --
----------- ----------- -----------
Net earnings (loss) attributable to common stock......................... $ (14.95) (5.34) 1.80
----------- ----------- -----------
----------- ----------- -----------
Pro forma amounts assuming the change in accounting for oil and gas sales
is applied retroactively:
Primary earnings (loss) per common share:
Earnings (loss) before cumulative effects of changes in accounting
principles and extraordinary item..................................... (1.41) 3.92
----------- -----------
----------- -----------
Net earnings (loss) attributable to common stock....................... (4.11) 3.92
----------- -----------
----------- -----------
Fully diluted earnings (loss) per common share:
Earnings (loss) before cumulative effects of changes in accounting
principles and extraordinary item..................................... (1.41) 2.55
----------- -----------
----------- -----------
Net earnings (loss) attributable to common stock....................... (4.11) 2.55
----------- -----------
----------- -----------
</TABLE>
- ------------------------
(1) Fully diluted earnings (loss) per share was the same as primary earnings
(loss) per share in all years except 1992. In 1992, fully diluted earnings
per share was $1.45.
See accompanying Notes to Consolidated Financial Statements.
F-20
<PAGE>
FOREST OIL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
$.75
CONVERTIBLE FOREIGN
PREFERRED COMMON CLASS B CAPITAL ACCUMULATED CURRENCY TREASURY
STOCK STOCK STOCK SURPLUS DEFICIT TRANSLATION STOCK
----------- ----------- ----------- --------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Balance December 31, 1991....... $ 17,280 190 75 150,130 (103,741) 2,476 (11,570)
Net earnings.................. -- -- -- -- 7,298 -- --
$.75 Convertible Preferred
Stock dividends paid in
Common Stock (Note 7)........ -- 31 -- (31) -- -- --
Conversions of $.75
Convertible Preferred Stock
to Common Stock.............. (66) 1 -- 65 -- -- --
Issuance of Common Stock in
payment of executive
retirement liability (Note
10).......................... -- 3 -- 186 -- -- --
Treasury stock contributed to
the Retirement Savings Plan
and other.................... -- 2 (2) (3,758) -- -- 4,215
Foreign currency
translation.................. -- -- -- -- -- (2,903) --
----------- ----------- --- --------- ------------- ----------- -----------
Balance December 31, 1992....... 17,214 227 73 146,592 (96,443) (427) (7,355)
Net loss...................... -- -- -- -- (21,213) --
Common Stock issued, net of
offering costs (Note 8)...... -- 222 -- 51,284 -- -- --
$.75 Convertible Preferred
Stock dividends paid in
Common Stock (Note 7)........ -- 13 -- (13) -- -- --
Conversions of $.75
Convertible Preferred Stock
to Common Stock.............. (1,369) 17 -- 1,352 -- -- --
Reclassification of Class B to
Common Stock (Note 8)........ -- 79 (72) (7) -- -- --
Exercise of employee stock
options (Note 8)............. -- 3 -- 393 -- -- --
Stock issued to the Retirement
Savings Plan for profit
sharing contributions (Note
10).......................... -- 3 -- 612 -- -- --
Unfunded pension liability
(Note 10).................... -- -- -- (3,038) --
Treasury stock contributed to
the Retirement Savings Plan
and other.................... -- 1 (1) (1,198) -- -- 1,565
Foreign currency
translation.................. -- -- -- -- -- (358) --
----------- ----------- --- --------- ------------- ----------- -----------
Balance December 31, 1993....... 15,845 565 -- 195,977 (117,656) (785) (5,790)
Net loss...................... -- -- -- -- (81,843) -- --
Exercise of employee stock
options (Note 8)............. -- 1 -- 104 -- -- --
$.75 Convertible Preferred
Stock dividends paid in cash
(Note 7)..................... -- -- -- (2,161) -- -- --
Treasury stock issued to the
Retirement Savings Plan for
profit sharing contributions
(Note 10).................... -- -- -- (824) -- -- 1,035
Treasury stock contributed to
the Retirement Savings Plan
and other.................... -- -- -- (759) -- -- 2,929
Foreign currency
translation.................. -- -- -- -- -- (552) --
----------- ----------- --- --------- ------------- ----------- -----------
Balance December 31, 1994....... $ 15,845 566 -- 192,337 (199,499) (1,337) (1,826)
----------- ----------- --- --------- ------------- ----------- -----------
----------- ----------- --- --------- ------------- ----------- -----------
</TABLE>
F-21
<PAGE>
FOREST OIL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1994 1993 1992
--------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Earnings (loss) before cumulative effects of changes in accounting
principles and extraordinary item.......................................... $ (67,853) (9,355) 7,298
Adjustments to reconcile earnings (loss) before cumulative effects of
changes in accounting principles and extraordinary item to net cash
provided by operating activities:
Depreciation and depletion................................................ 65,468 60,581 46,624
Provision for impairment of oil and gas properties........................ 58,000 -- --
Deferred Federal income tax expense (benefit)............................. -- (1,604) 3,553
Other, net................................................................ 5,372 3,045 3,387
--------- ----------- ---------
60,987 52,667 60,862
Net changes in other operating assets and liabilities:
(Increase) decrease in accounts receivable.............................. 4,839 2,264 (3,447)
(Increase) decrease in other current assets............................. 1,078 375 (1,903)
Increase (decrease) in accounts payable................................. 4,021 (12,668) 13,090
Increase (decrease) in accrued expenses and other liabilities........... 2,941 (1,078) 1,772
Proceeds from volumetric production payments............................ 4,353 40,468 45,057
Amortization of deferred revenue........................................ (35,673) (40,306) (18,190)
--------- ----------- ---------
Net cash provided by operating activities............................. 42,546 41,722 97,241
Cash flows from investing activities:
Capital expenditures for property and equipment............................. (42,780) (171,166) (107,425)
Proceeds of sales of property and equipment, net............................ 12,941 2,997 25,730
Increase in other assets, net............................................... (2,468) (1,965) (1,659)
--------- ----------- ---------
Net cash used by investing activities................................. (32,307) (170,134) (83,354)
Cash flows from financing activities:
Proceeds of long-term bank debt............................................. 31,500 25,000 9,623
Repayments of long-term bank debt........................................... (23,500) -- (9,623)
Proceeds of nonrecourse secured loan........................................ 1,400 57,400 --
Proceeds of production payment.............................................. -- -- 28,805
Repayments of production payment............................................ (2,771) (5,980) (1,520)
Proceeds of common stock offering, net of offering costs.................... -- 51,506 --
Issuance of senior subordinated notes, net of offering costs................ -- 95,827 --
Redemptions and repurchases of subordinated debentures and secured notes.... (7,171) (148,918) (1,115)
Payment of preferred stock dividends........................................ (2,161) -- --
Deferred debt and exchange offer costs...................................... (772) (1,336) (285)
Increase (decrease) in cash overdraft....................................... 551 (1,347) 2,963
Increase (decrease) in other liabilities, net............................... (11,307) (266) 1,998
--------- ----------- ---------
Net cash provided (used) by financing activities...................... (14,231) 71,886 30,846
Effect of exchange rate changes on cash....................................... (88) (12) (110)
--------- ----------- ---------
Net increase (decrease) in cash and cash equivalents.......................... (4,080) (56,538) 44,623
Cash and cash equivalents at beginning of year................................ 6,949 63,487 18,864
--------- ----------- ---------
Cash and cash equivalents at end of year...................................... $ 2,869 6,949 63,487
--------- ----------- ---------
--------- ----------- ---------
Cash paid during the year for:
Interest...................................................................... $ 23,989 23,123 26,079
--------- ----------- ---------
--------- ----------- ---------
Income taxes.................................................................. $ 9 452 177
--------- ----------- ---------
--------- ----------- ---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-22
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION -- Unless otherwise indicated, all share amounts,
share prices and per share amounts have been adjusted to give effect to a 5 to 1
reverse stock split that occurred on January 8, 1996.
BASIS OF CONSOLIDATION -- The consolidated financial statements include the
accounts of Forest Oil Corporation (the Company) and its wholly-owned
subsidiaries. Significant intercompany balances and transactions are eliminated.
CASH EQUIVALENTS -- For purposes of the statements of cash flows, the
Company considers all debt instruments with original maturities of three months
or less to be cash equivalents.
PROPERTY AND EQUIPMENT -- The Company uses the full cost method of
accounting for oil and gas properties. Presently, the Company's operations are
conducted in the United States. All costs incurred in the acquisition,
exploration and development of properties (including costs of surrendered and
abandoned leaseholds, delay lease rentals, dry holes and overhead related to
exploration and development activities) are capitalized. Capitalized costs are
depleted using the units of production method. A reserve is provided for
estimated future costs of site restoration, dismantlement and abandonment
activities as a component of depletion. Unusually significant investments in
unproved properties, including related capitalized interest costs, are not
depleted pending the determination of the existence of proved reserves. As of
December 31, 1994, 1993 and 1992, there were undeveloped property costs of
$30,441,000, $41,216,000 and $18,306,000, respectively, in the United States
which were not being depleted.
Depletion per unit of production was determined based on conversion to
common units of measure using one barrel of oil as an equivalent to six MCF of
natural gas. Depletion per unit of production (MCFE) for each of the Company's
cost centers was as follows:
<TABLE>
<CAPTION>
UNITED STATES CANADA
--------------- -----------
<S> <C> <C>
1994............................................ $ 1.13 $ --
1993............................................ 1.19 --
1992............................................ 1.21 1.19
</TABLE>
Capitalized costs less related accumulated depletion and deferred income
taxes may not exceed the sum of (1) the present value of future net revenue from
estimated production of proved oil and gas reserves; plus (2) the cost of
properties not being amortized, if any; plus (3) the lower of cost or estimated
fair value of unproved properties included in the costs being amortized, if any;
less (4) income tax effects related to differences in the book and tax basis of
oil and gas properties. As a result of this limitation on capitalized costs, the
accompanying financial statements include a provision for impairment of oil and
gas property costs of $58,000,000 in 1994. There was no impairment of oil and
gas property costs in 1993 or 1992.
Gain or loss is recognized only on the sale of oil and gas properties
involving significant reserves.
Buildings, transportation and other equipment are depreciated on the
straight-line method based upon estimated useful lives of the assets ranging
from five to forty-five years.
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
F-23
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 1994 was an
increase in earnings from operations of $3,584,000 and an increase in production
volumes of 1,555,000 MCF. There were no related income tax effects in 1994. As
the Company adopted this change in the fourth quarter of 1994, previously
reported 1994 quarterly information has been restated to reflect the change
effective January 1, 1994. See Note 15 for restated selected quarterly financial
data. The pro forma amounts shown on the consolidated statements of operations
have been adjusted for the effect of the retroactive application of the change
and related income taxes.
As of December 31, 1994 the Company had produced approximately 8.4 BCF more
than its entitled share of production. The estimated value of this imbalance is
approximately $14,260,000, which is reflected on the accompanying balance sheet
as a short-term liability of $5,735,000 and a long-term liability of $8,525,000.
HEDGING TRANSACTIONS -- In order to minimize exposure to fluctuations in oil
and natural gas prices, the Company hedges the price of future oil and natural
gas production by entering into certain contracts and financial arrangements.
Gains and losses related to these hedging transactions are recognized as
adjustments to revenue recorded for the related production. Costs associated
with the purchase of certain hedge instruments are deferred and amortized
against revenue related to hedged production.
INCOME TAXES -- The adoption of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" (SFAS No. 109), effective January 1, 1993
changed the Company's method of accounting for income taxes from the deferred
method to an asset and liability method. Previously, the Company deferred the
tax effects of timing differences between financial reporting and taxable
income. The asset and liability method requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between financial accounting bases and tax bases of assets and
liabilities.
FOREIGN CURRENCY TRANSLATION -- Assets and liabilities related to Canadian
investments are generally translated at current exchange rates, and related
translation adjustments are reported as a component of shareholders' equity.
Income statement accounts are translated at the average rates during the period.
EARNINGS (LOSS) PER SHARE -- Primary earnings (loss) per share is computed
by dividing net earnings (loss) attributable to common stock by the weighted
average number of common shares and common share equivalents outstanding during
each period, excluding treasury shares. Net earnings (loss) attributable to
common stock represents net earnings (loss) less preferred stock dividend
requirements of $2,161,000 in 1994, $2,250,000 in 1993 and $2,348,000 in 1992.
Common share equivalents include, when applicable, dilutive stock options using
the treasury stock method and warrants using the if converted method.
F-24
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Fully diluted earnings per share is computed assuming, 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 effects of these assumptions were
anti-dilutive in 1994 and 1993. The weighted average number of shares
outstanding on a fully-diluted basis was 5,303,000 for the year ended December
31, 1992.
RECLASSIFICATIONS -- Certain amounts in the 1993 and 1992 financial
statements have been reclassified to conform to the 1994 financial statement
presentation.
(2) ACQUISITIONS:
During 1994, the Company completed acquisitions totaling $9,762,000,
including additional interests in properties acquired in 1993. In order to
finance one of the acquisitions, the Company sold a volumetric production
payment for approximately $4,353,000 (net of fees).
In May and December, 1993, the Company purchased interests in properties
from Atlantic Richfield Company (ARCO) for approximately $60,862,000. In
conjunction with the ARCO acquisitions, the Company sold volumetric production
payments from certain of the ARCO properties for approximately $40,468,000 (net
of fees). In December 1993, the Company purchased interests in offshore
properties for approximately $24,050,000 and interests in properties in south
Texas for approximately $59,458,000. In conjunction with these acquisitions, the
Company entered into a nonrecourse secured loan agreement for $51,600,000.
In February 1992, Forest I Development Company, a wholly-owned subsidiary of
the Company, purchased substantially all of the assets of Harbert Energy
Corporation and its associated entities in an acquisition accounted for as a
purchase. The purchase price of $40,400,000 was funded primarily through the
sale of a dollar-denominated production payment which was recorded at its
present value of $28,805,000. In July 1992, the Company purchased Transco
Exploration and Production Company (TEPCO) for approximately $45,000,000. In
conjunction with the acquisition, the Company sold a volumetric production
payment from certain of the TEPCO properties for approximately $38,500,000 (net
of fees).
The Company's results of operations for the year ended December 31, 1993
include the effects of the first ARCO acquisition since May 1, 1993 and the
offshore properties and the second ARCO acquisition since December 1, 1993. The
Company's results of operations for the year ended December 31, 1992 include the
effects of the Harbert and TEPCO acquisitions since February 1, 1992 and August
1, 1992, respectively.
(3) INVESTMENT IN AND ADVANCES TO AFFILIATE:
In May 1992, the Company transferred substantially all of its Canadian oil
and gas properties to a wholly-owned Canadian subsidiary, Forest Canada I
Development Ltd. (FCID). In September 1992, FCID sold its Canadian assets and
related operations to CanEagle Resources Corporation (CanEagle) for
approximately $51,250,000 in Canadian funds ($41,000,000 U.S.). CanEagle was
formed for the purpose of acquiring the assets and related operations of FCID.
In the transaction, FCID received cash of approximately $28,000,000 CDN
($22,400,000 U.S.), net of expenses, and provided financing in the aggregate
principal amount of $22,000,000 CDN ($17,600,000 U.S.). On June 24, 1994,
CanEagle sold a significant portion of its oil and gas properties in Canada to a
third party. In conjunction with this
F-25
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(3) INVESTMENT IN AND ADVANCES TO AFFILIATE: (CONTINUED)
transaction, the Company received payment of $6,124,000 CDN ($4,400,000 U.S.)
representing principal and unpaid interest on a CanEagle subordinated debenture
held by the Company. In addition, the Company exchanged its remaining investment
in CanEagle for preferred shares of a newly formed entity, Archean Energy, Ltd.
(Archean).
The Company has accounted for the proceeds from the aforementioned
transactions as reductions in the carrying value of its investment in and
advances to its Canadian affiliates. The Company accounts for its investment in
Canadian affiliates in a manner analagous to equity accounting. Losses will be
recognized to the extent that the Canadian affiliates' losses are attributable
to the Company's interest. Earnings will be recognized only if realization is
assured. No earnings or losses attributable to the investment in Canadian
affiliates have been recognized in 1994, 1993 or 1992.
(4) LONG-TERM DEBT:
Long-term debt at December 31, 1994 and 1993 consists of the following:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Bank debt..................................................................... $ 33,000 $ 25,000
Nonrecourse secured loan...................................................... 57,840 53,101
Production payment obligation................................................. 18,534 21,305
11 1/4% Subordinated debentures............................................... 99,316 99,272
5 1/2% Subordinated debentures................................................ -- 7,171
----------- -----------
208,690 205,849
Less current portion.......................................................... (1,636) (11,542)
----------- -----------
Long-term debt................................................................ $ 207,054 $ 194,307
----------- -----------
----------- -----------
</TABLE>
BANK DEBT:
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 redemption at the
banks' discretion. The total borrowing capacity of the Company under the Credit
Facility is $50,000,000. In March, 1995, the banks completed their most recent
semi-annual redetermination of the Credit Facility and advised the Company that
the maximum borrowing capacity would be maintained at $50,000,000. However, 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 December 31, 1994 the outstanding balance under
the Credit Facility was $33,000,000 at interest rates ranging from 7.255% to
8.875% and the Company was in compliance with the covenants of the Credit
Facility. The
F-26
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(4) LONG-TERM DEBT: (CONTINUED)
Company currently anticipates that it may not meet the working capital and/or
interest coverage ratio tests during 1995. Management believes, however, that
any instances of noncompliance can be cured within the period of time permitted
or that waivers can be obtained from the banks.
NONRECOURSE SECURED LOAN:
On December 30, 1993, the Company entered into a nonrecourse secured loan
agreement arranged by Enron Finance Corp., an affiliate of Enron Gas Services
(the Enron loan). Advances under the loan agreement bear annual interest at the
rate of 12.5%. Approximately $51,600,000 was advanced on December 30, 1993 to
provide financing for acquisitions. Another $5,800,000 of the available balance
was advanced on December 30, 1993 to fund a portion of the development projects
which will be undertaken by the Company on the properties pledged as security
for the loan. Under the terms of the Enron loan, additional funds may be
advanced to fund additional development projects which will be undertaken by the
Company on the properties pledged as security for the loan.
The loan was recorded at a discount to reflect conveyance to the lender of a
20% interest in the net profits, as defined, of properties located in south
Texas. This discount of $4,299,000 is being amortized over the life of the loan
using the effective interest method. At December 31, 1994 the principal amount
of the loan was $61,717,000 and the recorded liability was $57,840,000.
Payments of principal and interest under the Enron loan are due monthly and
are equal to 90% of total net operating income from the secured properties,
reduced by 80% of allowable capital expenditures, as defined. The Company's
current estimate, based on expected production and prices, budgeted capital
expenditure levels and expected discount amortization, is that 1995 payments
will reduce the recorded liability by approximately $524,000. This amount is
included in current liabilities. Estimated liability reductions, including
required principal payments, for 1996 through 1999, under the same production,
pricing, capital expenditure and discount scenario, are approximately
$11,280,000, $18,741,000, $15,119,000 and $9,113,000, respectively. Payments, if
any, under the net profits conveyance will commence upon repayment of the
principal amount of the Enron loan and will cease when the lender has received
an internal rate of return, as defined, of 18% (15.25% through December 31,
1995). The Company has signed a letter of intent to restructure the loan as
described in Note 17.
PRODUCTION PAYMENT OBLIGATION:
The original principal amount of the dollar-denominated production payment
was $37,550,000, which was recorded as a liability of $28,805,000 after a
discount to reflect a market rate of interest of 15.5%. At December 31, 1994 the
remaining principal amount was $23,373,000 and the recorded liability was
$18,534,000. Under 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 net
proceeds from the subject properties, as defined, except that the amount
required to be paid in any given month shall not exceed 100% of the net proceeds
from the subject properties. The Company 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 1995 payments will reduce the recorded liability by approximately
$1,112,000; this amount is included in current liabilities. Estimated liability
reductions for 1996 through 1999, under the same production, pricing, capital
expenditure and discount scenario, are $811,000, $1,177,000, $2,988,000 and
$4,220,000, respectively.
F-27
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(4) LONG-TERM DEBT: (CONTINUED)
11 1/4% SUBORDINATED DEBENTURES:
On September 8, 1993 the Company completed a public offering of $100,000,000
aggregate principal amount of 11 1/4% Senior Subordinated Notes due September 1,
2003. The Senior Subordinated Notes were issued at a price of 99.259% yielding
11.375% to the holders. The Company used the net proceeds from the sale of the
Senior Subordinated Notes of approximately $95,827,000, together with
approximately $19,400,000 of available cash, to redeem all of its outstanding
Senior Secured Notes and long-term subordinated debentures. The redemptions
resulted in a net loss of $15,387,000 which was recorded as an extraordinary
loss of $10,735,000 (net of income tax benefit of $4,652,000).
The Senior Subordinated Notes are redeemable at the option of the Company,
in whole or in part, at any time on or after September 1, 1998 initially at a
redemption price of 105.688%, plus accrued interest to the date of redemption,
declining at the rate of 1.896% per year to September 9, 2000 and at 100%
thereafter. In addition, the Company may, at its option, redeem prior to
September 1, 1996 up to 30% of the initially outstanding principal amount of the
Notes at 110% of the principal amount thereof, plus accrued interest to the date
of redemption, with the net proceeds of any future public offering of its Common
Stock.
Under the terms of the Senior Subordinated Notes, the Company must meet
certain tests before it is able to pay cash dividends (other than dividends on
the Company's $.75 Convertible Preferred Stock) or make other restricted
payments, incur additional indebtedness, engage in transactions with its
affiliates, incur liens and engage in certain sale and leaseback arrangements.
The terms of the Senior Secured Notes also limit the Company's ability to
undertake a consolidation, merger or transfer of all or substantially all of its
assets. In addition, the Company is, subject to certain conditions, obligated to
offer to repurchase Senior Subordinated Notes at par value plus accrued and
unpaid interest to the date of repurchase, with the net cash proceeds of certain
sales or dispositions of assets. Upon a change of control, as defined, the
Company will be required to make an offer to purchase the Senior Subordinated
Notes at 101% of the principal amount thereof, plus accrued interest to the date
of purchase.
5 1/2% SUBORDINATED DEBENTURES:
At December 31, 1993 the 5 1/2% Convertible Subordinated Debentures had a
remaining balance of $7,171,000 which was paid in full on the February 1, 1994
due date.
(5) DEFERRED REVENUE:
From April 1991 through May 1993, the Company entered into four volumetric
production payments with entities associated with Enron Corp. (Enron) for net
proceeds of $121,498,000. Under the terms of these production payments, the
Company was required to deliver 70.1 BCF of natural gas and 770,000 barrels of
oil over periods ranging from three to six years.
Effective November 1, 1993, the four separate volumetric payment financings
described above between the Company and Enron were consolidated into one
production payment. The delivery schedules from the previously separate
production payments were not adjusted; however, delivery shortfalls on any
property can now be made up from excess production from any other property which
is dedicated to the production payment obligation. The consolidation also
provided that certain acreage previously committed to the production payments
was released and can be developed by the Company unburdened by the delivery
obligations of the production payment.
In connection with the purchase of interests in properties from ARCO in
December 1993, a volumetric production payment from certain of the ARCO
properties was sold to Enron for net proceeds of $13,207,000. This production
payment covered approximately 7.3 BCF of natural gas to be delivered over 8
years.
F-28
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(5) DEFERRED REVENUE: (CONTINUED)
In July 1994, the Company purchased additional interests in the properties
acquired from ARCO in December 1993. In connection with this transaction, a
volumetric production payment was sold to Enron for net proceeds of $4,353,000.
This production payment covered approximately 2.7 BCF of natural gas to be
delivered over 8 years.
The Company is required to deliver the scheduled volumes from the subject
properties or to make a cash payment for volumes produced but not delivered, in
combination not to exceed a specified percentage of monthly production. If
production levels are not sufficient to meet scheduled delivery commitments, the
Company must account for and make up such shortages, at market-based prices,
from future production.
The Company is responsible for royalties and for production costs associated
with operating the properties subject to the production payment agreements. The
Company may grant liens on properties subject to the production payment
agreements, but it must notify prospective lienholders that their rights are
subject to the prior rights of the production payment owner.
Amounts received were recorded as deferred revenue. Volumes associated with
amortization of deferred revenue for the years ended December 31, 1994, 1993 and
1992 were as follows:
<TABLE>
<CAPTION>
NET SALES VOLUME
VOLUMES DELIVERED (1) ATTRIBUTABLE TO PRODUCTION
PAYMENT DELIVERIES (2)
-------------------------- --------------------------
NATURAL GAS NATURAL GAS
OIL (MBBLS) (MMCF) OIL (MBBLS) (MMCF)
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
1994........................................................ 218 19,985 182 16,005
1993........................................................ 221 23,392 185 18,731
1992........................................................ 70 11,689 59 9,117
<FN>
- ------------------------
(1) Amounts settled in cash in lieu of volumes were $1,611,381, $3,138,628 and
$7,965,945, for the years ended December 31, 1994, 1993 and 1992,
respectively.
(2) Represents volumes required to be delivered to Enron net of estimated
royalty volumes.
</TABLE>
Future amortization of deferred revenue, based on the scheduled deliveries
under the production payment agreements, is as follows:
<TABLE>
<CAPTION>
NET SALES VOLUMES
ATTRIBUTABLE TO
VOLUMES REQUIRED TO PRODUCTION PAYMENT
BE DELIVERED TO ENRON DELIVERIES (1)
--------------------- ---------------------
ANNUAL NATURAL GAS OIL NATURAL GAS OIL
AMORTIZATION (MMCF) (MBBLS) (MMCF) (MBBLS)
-------------- ----------- ------- ----------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1995........................................................ $20,770 11,045 174 8,899 145
1996........................................................ 7,546 3,721 87 2,998 74
1997........................................................ 2,439 1,410 -- 1,136 --
1998........................................................ 1,593 892 -- 719 --
Thereafter.................................................. 3,560 1,994 -- 1,606 --
-------------- ----------- ------- ----------- -------
$35,908 19,062 261 15,358 219
-------------- ----------- ------- ----------- -------
-------------- ----------- ------- ----------- -------
<FN>
- ------------------------
(1) Represents volumes required to be delivered to Enron net of estimated
royalty volumes.
</TABLE>
F-29
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992
(6) INCOME TAXES:
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," (SFAS No. 109) on a prospective basis effective
January 1, 1993. The cumulative effect of this change in accounting for income
taxes of $2,060,000 was determined as of January 1, 1993 and was reported
separately in the Consolidated Statement of Operations for the year ended
December 31, 1993.
The income tax expense (benefit) is different from amounts computed by
applying the statutory Federal income tax rate for the following reasons:
<TABLE>
<CAPTION>
1994 1993 1992
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax expense (benefit) at 35% (34% for 1992) of earnings (loss) before
income taxes, cumulative effects of changes in accounting principles
and extraordinary item............................................... $ (23,749) (3,747) 3,837
Change in the balance of the valuation allowance for deferred tax
assets attributable to loss before income taxes, cumulative effects
of changes in accounting principles and extraordinary item........... 23,220 2,034 --
Expiration of tax carryforwards....................................... 455 318 --
Other................................................................. 83 45 151
---------- --------- ---------
Total income tax expense (benefit)................................ $ 9 (1,350) 3,988
---------- --------- ---------
---------- --------- ---------
</TABLE>
The Omnibus Budget Reconciliation Act of 1993 increased the Federal
corporate tax rate from 34% to 35% retroactively to January 1, 1993. As a result
of this tax increase, the tax benefits at December 31, 1994 and December 31,
1993, respectively, on the losses from continuing operations were approximately
$677,000 and $167,000 less than such amounts would have been without such
increase in the tax rate. However, due to limitations on the recognition of
deferred tax assets, the total tax benefit at December 31, 1994 and December 31,
1993, including the tax benefit on the cumulative effect of the change in
accounting method in 1994 and on the extraordinary loss on extinguishment of
debt in 1993, is unaffected by the tax rate increase. The impact of the tax rate
increase will be recognized when future taxable income allows the unrecognized
deferred tax asset to be realized.
Deferred income taxes generally result from recognizing income and expenses
at different times for financial and tax reporting. These differences result
from recording proceeds from the sale of properties in the full cost pool,
capitalization of certain development, exploration and other costs under the
full cost method of accounting and the provision for impairment of oil and gas
properties for financial accounting purposes.
F-30
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(6) INCOME TAXES: (CONTINUED)
The components of the net deferred tax liability, computed in accordance
with SFAS No. 109 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1994 1994
-------------- -----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts.............. $ 289 468
Current and long term liabilities due to accrual for retirement
benefits................................................................ 1,475 1,641
Current and long term liabilities due to accrual for medical benefits.... 2,040 1,857
Current and long term liabilities due to accrual for sales recorded on
the entitlements method................................................. 3,642 --
Net operating loss carryforward.......................................... 19,965 13,990
Depletion carryforward................................................... 6,958 6,958
Contribution carryforward................................................ 106 348
Investment tax credit carryforward....................................... 3,674 3,885
Alternative minimum tax credit carryforward.............................. 2,206 2,206
Other.................................................................... 94 96
-------------- -----------
Total gross deferred tax assets........................................ 40,449 31,449
Less valuation allowance............................................... (36,258) (8,142)
-------------- -----------
Net deferred tax assets................................................ 4,191 23,307
Deferred tax liabilities:
Full cost pool, due principally to capitalized expenditures.............. (4,191) (23,307)
-------------- -----------
Net deferred tax liability............................................. $ -- --
-------------- -----------
-------------- -----------
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1994 was
$8,142,000. The net change in the total valuation allowance for the tax year
ended December 31, 1994 was an increase of $28,116,000. The total increase in
the valuation allowance includes $4,896,000 resulting from the cumulative effect
of the change in accounting for oil and gas sales from the sales method to the
entitlements method.
The Alternative Minimum Tax (AMT) credit carryforward available to reduce
future Federal regular taxes aggregated $2,206,000 at December 31, 1994. This
amount may be carried forward indefinitely. Regular and AMT net operating loss
carryforwards at December 31, 1994 were $57,044,000 and $55,387,000,
respectively, and will expire in the years indicated below:
<TABLE>
<CAPTION>
REGULAR AMT
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
2000............................................................................. $ 2,665 4,143
2005............................................................................. 8,307 --
2008............................................................................. 28,999 31,800
2009............................................................................. 17,073 19,444
--------- ---------
$ 57,044 55,387
--------- ---------
--------- ---------
</TABLE>
AMT net operating loss carryforwards can be used to offset 90% of AMT income
in future years.
F-31
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(6) INCOME TAXES: (CONTINUED)
Investment tax credit carryforwards available to reduce future Federal
income taxes aggregated $3,674,000 at December 31, 1994 and expire at various
dates through the year 2001. Percentage depletion carryforwards available to
reduce future Federal taxable income aggregated $19,879,000 at December 31,
1994. This amount may be carried forward indefinitely. The net operating loss
and investment tax credit carryforwards have been recognized as a deferred tax
asset, subject to a valuation allowance.
The availability of some of these tax attributes to reduce current and
future taxable income of the Company is subject to various limitations under the
Internal Revenue Code. In particular, the Company's ability to utilize such tax
attributes could be severely restricted due to the occurrence of an "ownership
change" within the meaning of Section 382 of the Internal Revenue Code resulting
from the Company's 1991 recapitalization. At December 31, 1994, the Company
estimated that net operating loss and investment tax credit carryforwards would
be limited to offset current taxable income to the extent described below.
The net operating loss carryforwards which expire in 2008 and 2009 are not
subject to the provisions of Section 382 as they were generated subsequent to
the ownership change. Even though the Company is limited in its ability to use
the remaining net operating loss carryovers under the general provisions of
Section 382, it may be entitled to use these net operating loss carryovers to
offset (a) gains recognized in the five years following the ownership change on
the disposition of certain assets, to the extent that the value of the assets
disposed of exceeds its tax basis on the date of the ownership change or (b) any
item of income which is properly taken into account in the five years following
the ownership change but which is attributable to periods before the ownership
change ("built-in gain"). The ability of the Company to use these net operating
loss carryovers to offset built-in gain first requires that the Company have
total built-in gains at the time of the ownership change which are greater than
a threshold amount. In addition, the use of these net operating loss
carryforwards to offset built-in gain cannot exceed the amount of the total
built-in gain.
The Company believes that due to the amount of built-in gain as of the date
of ownership change, and the recognition of such gain through December 31, 1994,
there is no significant limitation on the Company's ability to use these net
operating loss carryforwards or investment tax credit carryforwards.
(7) PREFERRED STOCK:
The Company has 10,000,000 shares of $.75 Convertible Preferred Stock
authorized, par value $.01 per share, of which there were 2,880,973 shares
outstanding at December 31, 1994 and 1993, with an aggregate liquidation
preference of $28,809,730 at December 31, 1994 and 1993. This stock is
convertible at any time, at the option of the holder, at the rate of .7 shares
of Common Stock for each share of $.75 Convertible Preferred Stock, subject to
adjustment upon occurrence of certain events. During 1994, no shares of $.75
Convertible Preferred Stock were converted into shares of Common Stock. The $.75
Convertible Preferred Stock is redeemable, in whole or in part, at the option of
the Company, at any time after the earlier of (i) July 1, 1996 or (ii) the date
on which the last reported sales price of the Common Stock will have been $37.50
or higher for at least 20 of the prior 30 trading days, at a redemption price of
$51.65 per share during the twelve-month period which began July 1, 1994 and
declining ratably to $50.00 per share at July 1, 1996 and thereafter, including
accumulated and unpaid dividends. Cumulative annual dividends of $.75 per share
are payable quarterly, in arrears, on the first day of February, May, August and
November, when and as declared. Until December 31, 1993, the Company paid such
dividends in shares of Common Stock. After such date, dividends may be paid in
cash or, at the Company's election, in shares of Common Stock or in a
combination of cash and Common Stock. However, the Company is prohibited from
paying cash dividends on its $.75 Convertible Preferred Stock
F-32
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(7) PREFERRED STOCK: (CONTINUED)
after the February 1, 1995 dividend due to restrictions contained in the Credit
Agreement with its lending banks. Common Stock delivered in payment of dividend
will be valued for dividend payment purposes at between 75% and 90%, based on
trading volume, of the average last reported sales price of the Common Stock
during a specified period prior to the record date for the dividend payment.
During any period in which dividends on preferred stock are in arrears, no
dividends or distributions, except for dividends paid in shares of Common Stock,
may be paid or declared on the Common Stock, nor may any shares of Common Stock
be acquired by the Company.
(8) COMMON STOCK:
The Company has 112,000,000 shares of Common Stock authorized, par value
$.10 per share, of which there were 5,659,042 and 5,650,089 shares issued at
December 31, 1994 and 1993, respectively, with 21,188 and 67,163 shares held by
the Company at December 31, 1994 and 1993, respectively. The Common Stock is
entitled to one vote per share. Prior to May 1993 the Company also had Class B
stock which had superior voting rights to the Company's Common Stock, had
limited transferability and was not traded in any public market but was
convertible at any time into shares of Common Stock on a share-for-share basis.
At the Company's Annual Meeting of Shareholders on May 12, 1993, the
shareholders adopted amendments to the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of Common Stock to
112,000,000 and to reclassify each share of Class B Stock into .22 shares of
Common Stock.
On June 15, 1993, the Company issued 2,216,000 shares of Common Stock for
$25.00 per share in a public offering. The net proceeds from the issuance of the
shares totalled approximately $51,506,000 after deducting issuance costs and
underwriting fees.
On October 29, 1993 the Company paid a dividend distribution of one
Preferred Share Purchase Right on each outstanding share of the Company's Common
Stock. The Rights are exercisable only if a person or group acquires 20% or more
of the Company's Common Stock or announces a tender offer which would result in
ownership by a person or group of 20% or more of the Common Stock. Each Right
initially entitles each shareholder to buy 1/100th of a share of a new series of
Preferred Stock at an exercise price of $30.00, subject to adjustment upon
certain occurrences. Each 1/100th of a share of such new Preferred Stock that
can be purchased upon exercise of a Right has economic terms designed to
approximate the value of one share of Common Stock. The Rights will expire on
October 29, 2003, unless extended or terminated earlier.
The Company has Warrants outstanding which permit holders thereof to
purchase 248,943 shares of Common Stock at an exercise price of $15.00 per
share. The Warrants are noncallable by the Company and expire on October 1,
1996. The exercise price is payable in cash.
In March 1992, the Company adopted the 1992 Stock Option Plan under which
non-qualified stock options may be granted to key employees and non-employee
directors. The aggregate number of shares of Common Stock which the Company may
issue under options granted pursuant to this plan may not exceed 10% of the
total number of shares outstanding or issuable at the date of grant pursuant to
outstanding rights, warrants, convertible or exchangeable securities or other
options. The exercise price of an option may not be less than 85% of the fair
market value of one share of the Company's Common Stock on the date of grant.
The options vest 20% on the date of grant and an additional 20% on
F-33
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(8) COMMON STOCK: (CONTINUED)
each grant anniversary date thereafter. The Company may, in its discretion,
grant each optionee a cash bonus upon the exercise of each granted option. A
summary of stock option activity related to the Plan is as follows:
<TABLE>
<CAPTION>
OPTION PRICE
SHARES PER SHARE
----------- ---------------
<S> <C> <C>
Options granted during 1992 and outstanding at December 31, 1992.......... 348,000 $ 15.00
Granted................................................................. 305,000 25.00
Exercised............................................................... (26,400) 15.00
Cancelled or surrendered................................................ (15,800) 15.00
----------- ---------------
Options outstanding at December 31, 1993.................................. 610,800 15.00-25.00
Granted................................................................. 62,000 25.00
Exercised............................................................... (7,000) 15.00
Cancelled or surrendered................................................ (7,000) 25.00
----------- ---------------
Options outstanding at December 31, 1994.................................. 658,800 $ 15.00-25.00
----------- ---------------
----------- ---------------
Options exercisable at December 31, 1994.................................. 372,080 $ 15.00-25.00
----------- ---------------
----------- ---------------
</TABLE>
(9) GAS PURCHASE CONTRACT SETTLEMENT:
On December 17, 1992, the Company and ONEOK, Inc. (ONEOK) agreed to settle
the case styled Forest Oil Corporation v. ONEOK, Inc. (Number 71,582) and its
companion case styled Forest Oil Corporation v. ONEOK, Inc. (Case No. C-89-53).
The cases involved take-or-pay damages relating to a natural gas purchase
contract between the Company and ONEOK. The settlement encompassed all disputed
contracts, claims and future claims. The cash proceeds of $51,250,000 were
received by the Company on December 24, 1992. Proceeds after deducting related
royalties and production taxes were approximately $36,429,000. The ONEOK
settlement increased the Company's net earnings for 1992 by approximately
$24,043,000 or $8.73 per share.
(10) EMPLOYEE BENEFITS:
PENSION PLANS:
The Company has a qualified defined benefit pension plan (Pension Plan). The
Company has effected a curtailment of the Pension Plan pursuant to which all
benefit accruals were suspended effective May 31, 1991.
The benefits under the Pension Plan are based on years of service and the
employee's average compensation during the highest consecutive sixty-month
period in the fifteen years prior to retirement.
F-34
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(10) EMPLOYEE BENEFITS: (CONTINUED)
No contribution was made in 1994, 1993 or 1992. The following table sets forth
the Pension Plan's funded status and amounts recognized in the Company's
consolidated financial statements at December 31:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of $23,953,000 in
1994 and $28,484,000 in 1993................................................ $ (23,953) (28,484)
---------- ----------
---------- ----------
Projected benefit obligation for service rendered to date...................... $ (23,953) (28,484)
Plan assets at fair market value, consisting primarily of listed stocks, bonds
and other fixed income obligations............................................ 23,443 25,576
---------- ----------
Plan assets in excess of projected benefit obligation (unfunded pension
liability).................................................................... (510) (2,908)
Unrecognized net loss from past experience different from that assumed and
effects of changes in assumptions............................................. 1,468 3,642
---------- ----------
Pension asset recognized in the balance sheet.................................. $ 958 734
---------- ----------
---------- ----------
</TABLE>
For 1994 the discount rate used in determining the actuarial present value
of the projected benefit obligation was 9% and the expected long-term rate of
return on assets was 9%. For 1993, the discount rate used in determining the
actuarial present value of the projected benefit obligation was 7.5% and the
expected long-term rate of return on assets was 9%. For 1992, the discount rate
used in determining the actuarial present value of the projected benefit
obligation was 9% and the expected long-term rate of return on assets was 9%.
The components of net pension expense (benefit) for the years ended December
31, 1994, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net pension expense (benefit) included the following components:
Interest cost on projected benefit obligation....................... $ 1,976 2,039 2,074
Actual return on plan assets........................................ (245) (3,534) (1,890)
Net amortization and deferral....................................... (1,955) 1,441 (240)
--------- --------- ---------
Net pension expense (benefit)......................................... $ (224) (54) (56)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company has a non-qualified unfunded supplementary retirement plan that
provides certain officers with defined retirement benefits in excess of
qualified plan limits imposed by Federal tax law. Benefit accruals under this
plan were suspended effective May 31, 1991 in connection with suspension of
benefit accruals under the Company's Pension Plan. At December 31, 1994 the
projected benefit obligation under this plan totaled $480,000, which is included
in other liabilities in the accompanying balance sheet. The projected benefit
obligation is determined using the same discount rate as is used for
calculations for the Pension Plan.
In 1993 as a result of the change in the discount rate for the Pension Plan
and the supplementary retirement plan, the Company recorded a liability of
$3,038,000 representing the unfunded pension liability and a corresponding
decrease in capital surplus. As a result of the increase in the discount rate
F-35
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(10) EMPLOYEE BENEFITS: (CONTINUED)
for the Pension Plan and the supplementary retirement plan in 1994, the Company
reduced the liability representing the unfunded pension liability by
approximately $1,570,000 with a corresponding increase in capital surplus.
RETIREMENT SAVINGS PLAN:
The Company sponsors a qualified tax deferred savings plan in accordance
with the provisions of Section 401(k) of the Internal Revenue Code. Employees
may defer up to 10% of their compensation, subject to certain limitations. The
Company matches the employee contributions up to 5% of employee compensation. In
1994, 1993 and 1992, Company contributions were made using treasury stock. The
expense associated with the Company's contribution was $516,000 in 1994,
$367,000 in 1993 and $454,000 in 1992.
Effective January 1, 1992 the plan was amended to include profit-sharing
contributions by the Company. In 1994, the Company did not make any profit
sharing contributions. The Company's profit-sharing contributions were made
using Company stock valued at $276,000 and $465,000 for 1993 and 1992,
respectively.
ANNUAL INCENTIVE PLAN:
The Forest Oil Corporation Annual Incentive Plan (the Incentive Plan), which
became effective January 1, 1992, permits participating employees to earn annual
bonus awards payable in cash or in shares of the Company's Common Stock,
generally based in part upon the Company attaining certain levels of
performance. In 1994, no bonuses were awarded. In 1993 and 1992, the Company
accrued bonuses of $426,000 and $930,000, respectively, under the Incentive
Plan. Amounts awarded will be disbursed in equal annual installments over the
succeeding three-year period.
EXECUTIVE RETIREMENT AGREEMENTS:
The Company entered into Agreements in December 1990 (the Agreements) with
certain executives and directors (the Retirees) whereby each executive retired
from the employ of the Company as of December 28, 1990. Pursuant to the terms of
the Agreements, the Retirees are entitled to receive supplemental retirement
payments from the Company in addition to the amounts to which they are entitled
under the Company's retirement plan. In addition, the Retirees and their spouses
are entitled to lifetime coverage under the Company's group medical and dental
plans, tax and other financial services, and payments by the Company in
connection with certain club membership dues. The Retirees will also continue to
participate in the Company's royalty bonus program until December 31, 1995. The
Company has also agreed to maintain certain life insurance policies in effect at
December 1990, for the benefit of each of the Retirees.
Six of the Retirees have subsequently resigned as directors. One of the
Retirees continues to serve as a director and will be paid the customary
non-employee director's fee. Pursuant to the terms of the retirement agreements,
the former directors and any other Retiree who ceases to be a director (or his
spouse) will be paid $2,500 a month until December 2000.
The Company's obligation to one retiree under a revised retirement agreement
is payable in Common Stock or cash, at the Company's option, in May of each year
from 1993 through 1996 at approximately $190,000 per year with the balance of
$149,000 payable in May 1997. The retirement agreements for the other six
Retirees, one of whom received in 1991 the payments scheduled to be made in 1999
and 2000, provide for supplemental retirement payments totalling approximately
$938,400 per year through 1998 and approximately $740,400 per year in 1999 and
2000.
F-36
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(10) EMPLOYEE BENEFITS: (CONTINUED)
The present value of the amounts due under the agreements, discounted at
13%, has been recorded as retirement benefits payable to executives and
directors.
LIFE INSURANCE:
The Company provides life insurance benefits for certain key employees and
retirees under split dollar life insurance plans. The premiums paid for the life
insurance policies were $916,000, $861,000, and $995,000 in 1994, 1993 and 1992,
respectively, including $831,000, $766,000 and $765,000 paid for policies for
retired executives. Under the life insurance plans, the Company is assigned a
portion of the benefits which is designed to recover the premiums paid.
HEALTH AND DENTAL INSURANCE:
The Company provides health and dental insurance to all of its employees,
eligible retirees and eligible dependents. The Company provides these benefits
at nominal cost to employees and retirees who are required to contribute an
estimated 50% of the cost of dependent coverage. In 1994, 1993 and 1992 the
costs of providing these benefits for both active and retired employees totalled
$1,714,000, $1,350,000 and $1,359,000, respectively. The 1994 cost includes
$1,384,000 related to 191 participating active employees and 4 employees on
long-term disability and $330,000 related to 115 eligible retirees. The 1993
cost includes $993,000 related to 184 participating active employees and 4
employees on long-term disability and $357,000 related to 125 eligible retirees.
The 1992 cost includes $1,011,000 related to 183 participating active employees
and $348,000 related to 119 eligible retirees.
POSTRETIREMENT BENEFITS:
The Company accrues expected costs of providing postretirement benefits to
employees, their beneficiaries and covered dependents in accordance with
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," (SFAS No. 106). The Company
adopted the provisions of SFAS No. 106 in the first quarter of 1993. The
estimated accumulated postretirement benefit obligation as of January 1, 1993
was approximately $4,822,000. This amount, reduced by applicable income tax
benefits, was charged to operations in the first quarter of 1993 as the
cumulative effect of a change in accounting principle. The annual net
postretirement benefit cost was approximately $510,000 for 1994 and $483,000 in
1993.
At December 31, 1994, December 31, 1993 and January 1, 1993 the discount
rates used in determining the actuarial present value of the accumulated
postretirement benefit obligation were 9%, 7.5% and 8.5%, respectively.
(11) RELATED PARTY TRANSACTIONS:
During 1994, the Company used a real estate complex (the Complex) owned
directly or indirectly by certain stockholders and members of the Board of
Directors for Company-sponsored seminars, the accommodation of business guests,
the housing of personnel attending corporate meetings and for other general
business purposes. In 1994, in connection with the Company's termination of
usage, the Company paid $662,000 on account of the business use of such
property, and an additional $300,000 as a partial reimbursement of deferred
maintenance costs. The Company incurred expenses for its use of the Complex of
$635,000 in 1993 and $611,000 in 1992.
John F. Dorn resigned as an executive officer and director of the Company in
1993. The Company agreed to pay John F. Dorn his salary at time of resignation
through September 30, 1996. In addition, the Company provided certain other
benefits and services to Mr. Dorn. The present value of the severance package
was estimated at $500,000, which amount was recorded as an expense and a
liability at December 31, 1993.
F-37
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(11) RELATED PARTY TRANSACTIONS: (CONTINUED)
In March 1994, the Company sold certain non-strategic oil and gas properties
to an entity controlled by John F. Dorn and another former executive officer of
the Company for net proceeds, after costs of sale and purchase price
adjustments, of $3,661,000. The Company established the sales price based upon
an opinion from an independent third party. The purchasers financed 100% of the
purchase price with a loan bearing interest at the rate of prime plus 1%. The
loan was secured by a mortgage on the properties and personal guarantees of the
purchasers. The Company participated as a lender in the loan in the amount of
approximately $800,000. In addition, the Company agreed to subordinate to the
other lender its right of payment of principal on default. The purchasers have
separately agreed with the Company that certain options to purchase company
stock will be cancelled to the extent that the Company's participation in the
loan is not repaid in full. Collectively, the purchasers have options to
purchase 55,000 shares of the Company's Common Stock at $15.00 per share and
55,000 shares at $25.00 per share.
(12) COMMITMENTS AND CONTINGENCIES:
Future rental payments for office facilities and equipment under the
remaining terms of noncancelable leases are $1,619,000, $1,138,000, $961,000,
$969,000 and $1,002,000 for the years ending December 31, 1995 through 1999,
respectively.
Net rental payments applicable to exploration and development activities and
capitalized in the oil and gas property accounts aggregated $851,000 in 1994,
$688,000 in 1993 and $874,000 in 1992. Net rental payments charged to expense
amounted to $3,512,000 in 1994, $3,098,000 in 1993 and $3,112,000 in 1992.
Rental payments include the short-term lease of vehicles. None of the leases are
accounted for as capital leases.
The Company, in the ordinary course of business, is a party to various legal
actions. In the opinion of management, none of these actions, either
individually or in the aggregate, will have a material adverse effect on the
Company's financial condition, liquidity or results of operations.
(13) FINANCIAL INSTRUMENTS:
The Company is exposed to off-balance-sheet risks associated with energy
swap agreements arising from movements in the prices of oil and natural gas and
from the unlikely event of non-performance by the counterparty to the swap
agreements.
In order to hedge against the effects of declines in oil and natural gas
prices, the Company enters into energy swap agreements with third parties and
accounts for the agreements as hedges based on analogy to the criteria set forth
in Statement of Financial Accounting Standards No. 80, "Accounting for Futures
Contracts". In a typical swap agreement, the Company receives the difference
between a fixed price per unit of production and a price based on an agreed-upon
third party index if the index price is lower. If the index price is higher, the
Company pays the difference. The Company's current swaps are settled on a
monthly basis. For the years ended December 31, 1994, 1993 and 1992, the Company
incurred swap gains (losses) of $1,810,000, $(2,050,000) and $(1,642,000),
respectively.
F-38
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(13) FINANCIAL INSTRUMENTS: (CONTINUED)
The following table indicates outstanding energy swaps of the Company which
were in place at December 31, 1994:
<TABLE>
<CAPTION>
PRODUCT VOLUME FIXED PRICE DURATION
- -------------- ------------------------------------- --------------- ------------
<S> <C> <C> <C>
Natural Gas 5,000 MMBTU/day $1.90-$2.38 1/95-12/95
Natural Gas 194 to 16,275 MMBTU/day $2.06-$2.535 1/95-12/99
Natural Gas 10,000 MMBTU/day $2.00-$2.37 1/95-12/97
Natural Gas 10 to 350 MMBTU/day $2.12-$3.003 1/95-12/02
Natural Gas 5,000 MMBTU/day $2.25 1/95-2/95
Natural Gas 850 to 1,377 MMBTU/day $2.255 1/95-9/95
Oil 657 BBLS/day $16.70 1/95-4/96
Oil 657 BBLS/day $17.75 1/95-6/96
</TABLE>
OPTION AGREEMENT. -- In 1993, under another agreement (the Option
Agreement), the Company paid a premium of $516,000 in conjunction with the
closing of the Enron loan agreement. The payment of this premium gave Forest the
right to set a floor price of $1.70 per MMBTU on a total of 18,400 BBTU of
natural gas over a five year period commencing January 1, 1995. In order to
exercise this right to set a floor, the Company must pay an additional premium
of 10 per MMBTU, effectively setting the floor at $1.60 per MMBTU. The option
agreement is broken into five calendar year periods with the option for each
calendar year expiring four trading days prior to the last trading day for the
January NYMEX contract for that year. The premium of $516,000 related to the
Option Agreement was recorded as a long-term asset and will be amortized as a
reduction to oil and gas income beginning in 1995 based on the volumes involved.
Set forth below is the estimated fair value of certain on and off-balance
sheet financial instruments, along with the methods and assumptions used to
estimate such fair values as of December 31, 1994:
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLES AND ACCOUNTS PAYABLE:
The carrying amount of these instruments approximates fair value due to
their short maturity.
NONRECOURSE SECURED LOAN:
The fair value of the Company's nonrecourse secured loan has been estimated
as approximately $58,684,000 by discounting the projected future cash payments
required under the agreement by 14.45%.
PRODUCTION PAYMENT OBLIGATION:
The fair value of the Company's production payment obligation has been
estimated as approximately $17,405,000 by discounting the projected future cash
payments required under the agreement by 12.5%.
SENIOR SUBORDINATED NOTES:
The fair value of the Company's 11 1/4% Subordinated Notes was approximately
$91,000,000, based upon quoted market prices for the same or similar issues.
ENERGY SWAP AGREEMENTS:
The fair value of the Company's energy swap agreements was approximately
$7,673,000, based upon the estimated net amount the Company would receive to
terminate the agreements.
F-39
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992
(14) MAJOR CUSTOMERS:
The Company's sales of oil and natural gas to individual customers which
exceeded 10% of the Company's total sales (exclusive of the effects of energy
swaps and hedges) were:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Enron Affiliates (A)................................................. $ 58,805 63,075 12,646
Chevron USA Production Company....................................... 12,829 -- --
ONEOK Exploration Company (B)........................................ -- -- 22,392
</TABLE>
- ------------------------
(A) The amount shown for Enron Affiliates includes oil and natural gas sales to
Enron Gas Marketing Inc., Enron Oil & Gas Company, EOTT Energy Corporation,
Cactus Funding Corporation, Cactus Hydrocarbon III Limited Partnership,
Enron Gas Services Corporation and Enron Reserve Acquisition. Approximately
$29,046,000, $32,702,000 and $14,081,000 represent sales recorded for
deliveries under volumetric production payments in the years ended December
31, 1994, 1993 and 1992, respectively.
(B) The amount shown for ONEOK Exploration Company represents the amount
recorded as a result of the gas purchase contract settlement described in
Note 9.
(15) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- --------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1994 (A)
Revenue......................................................... $ 32,543 32,977 28,207 22,220
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Earnings from operations........................................ $ 24,241 23,600 19,387 13,763
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Income (loss) before cumulative effects of changes in accounting
principles and extraordinary item.............................. $ 236 (265) (32,873) (34,951)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Net loss........................................................ $ (13,754) (265) (32,873) (34,951)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Net loss attributable to common stock........................... $ (14,294) (805) (33,414) (35,491)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Primary and fully diluted loss per share before cumulative
effects of changes in accounting principles and extraordinary
item........................................................... $ (.05) (.14) (5.94) (6.30)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Primary and fully diluted loss per share........................ $ (2.55) (.14) (5.94) (6.30)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
</TABLE>
F-40
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(15) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED): (CONTINUED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- --------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1993
<S> <C> <C> <C> <C>
Revenue......................................................... $ 25,126 27,975 26,214 25,833
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Earnings from operations........................................ $ 16,949 21,029 18,275 15,087
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Loss before cumulative effects of changes in changes in
accounting principles and extraordinary item................... $ (1,266) (938) (2,353) (4,798)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Net loss........................................................ $ (2,389) (938) (13,102) (4,784)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Net loss attributable to common stock........................... $ (2,976) (1,508) (13,653) (5,326)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Primary and fully diluted loss per share before cumulative
effects of changes in accounting principles and extraordinary
item........................................................... $ (0.60) (0.43) (0.53) (0.95)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Primary and fully diluted loss per share........................ $ (1.00) (0.43) (2.48) (0.95)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
</TABLE>
- ------------------------
(A) Amounts have been restated to give retroactive effect to the change in
accounting for oil and gas sales as discussed in Note 1. Restated amounts
for the first quarter reflect increases of $1,473,000 in Revenue and in
Earnings from operations and $1,131,000 in Income (loss) before cumulative
effects of changes in accounting principles and extraordinary item; an
increase of $12,859,000 in Net loss and in Net loss attributable to common
stock; a decrease of $.20 in Primary and fully diluted loss per share before
cumulative effects of changes in accounting principles and extraordinary
item; and an increase of $2.30 in Primary and fully diluted loss per share.
Restated amounts for the second quarter reflect increases of $1,220,000 in
Revenue and in Earnings from operations; decreases of $993,000 in Loss
before cumulative effects of changes in accounting principles and
extraordinary item, Net loss and Net loss attributable to common stock; and
decreases of $.15 in the per share losses presented. Restated amounts for
the third quarter reflect increases of $1,147,000 in Revenue and in Earnings
from operations; decreases of $866,000 in Loss before cumulative effects of
changes in accounting principles and extraordinary item, Net loss and Net
loss attributable to common stock; and decreases of $.15 in the per share
losses presented.
(16) SUPPLEMENTAL FINANCIAL DATA -- OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED):
The following information is presented in accordance with Statement of
Financial Accounting Standards No. 69, "Disclosure about Oil and Gas
Producing Activities," (SFAS No. 69), except as noted.
F-41
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(16) SUPPLEMENTAL FINANCIAL DATA -- OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED): (CONTINUED)
(A) COSTS INCURRED IN OIL AND GAS EXPLORATION AND DEVELOPMENT
ACTIVITIES -- The following costs were incurred in oil and gas exploration and
development activities during the years ended December 31, 1994, 1993 and 1992:
<TABLE>
<CAPTION>
UNITED
STATES CANADA TOTAL
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
1994
Property acquisition costs (undeveloped leases and proved
properties)...................................................... $ 9,762 -- 9,762
Exploration costs................................................. 15,693 -- 15,693
Development costs................................................. 17,089 -- 17,089
----------- ----- -----------
Total........................................................... $ 42,544 -- 42,544
----------- ----- -----------
----------- ----- -----------
1993
Property acquisition costs (undeveloped leases and proved
properties)...................................................... $ 144,916 -- 144,916
Exploration costs................................................. 5,433 -- 5,433
Development costs................................................. 20,472 -- 20,472
----------- ----- -----------
Total........................................................... $ 170,821 -- 170,821
----------- ----- -----------
----------- ----- -----------
1992
Property acquisition costs (undeveloped leases and proved
properties)...................................................... $ 88,770 2 88,772
Exploration costs................................................. 2,171 126 2,297
Development costs................................................. 14,828 730 15,558
----------- ----- -----------
Total........................................................... $ 105,769 858 106,627
----------- ----- -----------
----------- ----- -----------
</TABLE>
(B) AGGREGATE CAPITALIZED COSTS -- The aggregate capitalized costs relating
to oil and gas activities were incurred as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1994 1993 1992
------------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Costs related to proved properties........................... $ 1,109,158 1,079,164 928,890
Costs related to unproved properties:
Costs subject to depletion (including wells in progress)... 32,288 20,276 24,785
Costs not subject to depletion............................... 30,441 41,216 18,306
------------- ------------- -----------
1,171,887 1,140,656 971,981
------------- ------------- -----------
Less accumulated depletion and valuation allowance........... 895,335 778,226 717,444
------------- ------------- -----------
$ 276,552 362,430 254,537
------------- ------------- -----------
------------- ------------- -----------
</TABLE>
F-42
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(16) SUPPLEMENTAL FINANCIAL DATA -- OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED): (CONTINUED)
(C) RESULTS OF OPERATIONS FROM PRODUCING ACTIVITIES -- Results of operations
from producing activities for 1994, 1993 and 1992 are presented below. Income
taxes are different from income taxes shown in the Consolidated Statements of
Operations because this table excludes general and administrative and interest
expense.
<TABLE>
<CAPTION>
UNITED STATES CANADA TOTAL
-------------- --------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
1994
Oil and gas sales................................................... $ 114,541 -- 114,541
Production expense.................................................. 22,384 -- 22,384
Depletion expense................................................... 64,883 -- 64,883
Provision for impairment of oil and gas properties.................. 58,000 -- 58,000
Income tax benefit (A).............................................. -- -- --
-------------- --------- --------------
145,267 -- 145,267
-------------- --------- --------------
Results of operations from producing activities................... $ (30,726) -- (30,726)
-------------- --------- --------------
-------------- --------- --------------
1993
Oil and gas sales................................................... $ 102,883 -- 102,883
Production expense.................................................. 19,540 -- 19,540
Depletion expense................................................... 59,759 -- 59,759
Income tax expense (B).............................................. -- -- --
-------------- --------- --------------
79,299 -- 79,299
-------------- --------- --------------
Results of operations from producing activities................... $ 23,584 -- 23,584
-------------- --------- --------------
-------------- --------- --------------
1992
Oil and gas sales................................................... $ 94,289(C) 4,950 99,239(C)
Production expense.................................................. 14,516(D) 1,349 15,865(D)
Depletion expense................................................... 43,052 2,625 45,677
Income tax expense.................................................. 12,615 332 12,947
-------------- --------- --------------
70,183 4,306 74,489
-------------- --------- --------------
Results of operations from producing activities................... $ 24,106 644 24,750
-------------- --------- --------------
-------------- --------- --------------
</TABLE>
- ------------------------
(A) No income tax benefit has been recognized as it has not been realized by the
Company.
(B) No income tax expense was reflected in results of operations from producing
activities in 1993 because of the availability of tax loss, percentage
depletion and credit carryforwards.
(C) Includes $22,392,000 attributable to the ONEOK settlement.
(D) Includes $1,589,000 attributable to the ONEOK settlement.
(D) ESTIMATED PROVED OIL AND GAS RESERVES -- The Company's estimate of its
proved and proved developed future net recoverable oil and gas reserves and
changes for 1992, 1993 and 1994 follows. Such estimates are inherently imprecise
and may be subject to substantial revisions.
Proved oil and gas reserves are the estimated quantities of crude oil,
natural gas and natural gas liquids which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions; i.e., prices
and
F-43
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(16) SUPPLEMENTAL FINANCIAL DATA -- OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED): (CONTINUED)
costs as of the date the estimate is made. Prices include consideration of
changes in existing prices provided only by contractual arrangement, including
energy swap agreements (see Note 13), but not on escalations based on future
conditions.
Proved developed oil and gas reserves are reserves that can be expected to
be recovered through existing wells with existing equipment and operating
methods. Additional oil and gas expected to be obtained through the application
of fluid injection or other improved mechanisms of primary recovery are included
as "proved developed reserves" only after testing by a pilot project or after
the operation of an installed program has confirmed through production response
that increased recovery will be achieved.
The Company's presentation of estimated proved oil and gas reserves has been
restated to exclude, for each of the years presented, those quantities
attributable to future deliveries required under volumetric production payments.
In order to calculate such amounts, the Company has assumed that deliveries
under volumetric production payments are made as scheduled at expected BTU
factors, and that delivery commitments are satisfied through delivery of actual
volumes as opposed to cash settlements. This restatement was made following
discussion with the Staff of the Securities and Exchange Commission.
The Company has also presented, as additional information, proved oil and
gas reserves including quantities attributable to future deliveries required
under volumetric production payments. The Company believes that this information
is informative to readers of its financial statements as the related oil and gas
property costs and deferred revenue are included on the Company's balance sheets
for each of
F-44
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(16) SUPPLEMENTAL FINANCIAL DATA -- OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED): (CONTINUED)
the years presented. This additional information is not presented in accordance
with SFAS No. 69; however, the Company believes this additional information is
useful in assessing its reserve acquisitions and financial position on a
comprehensive basis.
<TABLE>
<CAPTION>
OIL AND CONDENSATE
---------------------------------
GAS
(MBBLS) -------------------------------
--------------------------------- (MMCF)
UNITED UNITED --------------------
STATES CANADA TOTAL STATES CANADA TOTAL
--------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991..................... 3,131 2,184 5,315 148,758 23,752 172,510
Revisions of previous estimates................ (139) 33 (106) (9,837) (219) (10,056)
Extensions and discoveries..................... 9 -- 9 1,127 -- 1,127
Production..................................... (1,249) (142) (1,391) (18,697) (1,360) (20,057)
Sales of reserves in place..................... (646) (2,075) (2,721) (20,273) (22,173) (42,446)
Purchases of reserves in place................. 5,867 -- 5,867 63,343 -- 63,343
--------- ----------- --------- --------- --------- ---------
Balance at December 31, 1992..................... 6,973 -- 6,973 164,421 -- 164,421
Additional disclosures:
Volumes attributable to volumetric production
payments...................................... 587 -- 587 30,234 -- 30,234
--------- ----------- --------- --------- --------- ---------
Balance at December 31, 1992, including volumes
attributable to volumetric production
payments...................................... 7,560 -- 7,560 194,655 -- 194,655
--------- ----------- --------- --------- --------- ---------
--------- ----------- --------- --------- --------- ---------
Balance at December 31, 1992..................... 6,973 -- 6,973 164,421 -- 164,421
Revisions of previous estimates................ 507 -- 507 17,874 -- 17,874
Extensions and discoveries..................... 201 -- 201 8,395 -- 8,395
Production..................................... (1,308) -- (1,308) (22,383) -- (22,383)
Sales of reserves in place..................... (280) -- (280) (18,941) -- (18,941)
Purchases of reserves in place................. 1,704 -- 1,704 94,730 -- 94,730
--------- ----------- --------- --------- --------- ---------
Balance at December 31, 1993..................... 7,797 -- 7,797 244,096 -- 244,096
Additional disclosures:
Volumes attributable to volumetric production
payments...................................... 401 -- 401 29,286 -- 29,286
--------- ----------- --------- --------- --------- ---------
Balance at December 31, 1993, including volumes
attributable to volumetric production
payments...................................... 8,198 -- 8,198 273,382 -- 273,382
--------- ----------- --------- --------- --------- ---------
--------- ----------- --------- --------- --------- ---------
Balance at December 31, 1993..................... 7,797 -- 7,797 244,096 -- 244,096
Revisions of previous estimates................ 989 -- 989 7,848 -- 7,848
Extensions and discoveries..................... 41 -- 41 9,894 -- 9,894
Production..................................... (1,361) -- (1,361) (32,043) -- (32,043)
Sales of reserves in place..................... (170) -- (170) (6,377) -- (6,377)
Purchases of reserves in place................. 17 -- 17 8,220 -- 8,220
--------- ----------- --------- --------- --------- ---------
Balance at December 31, 1994..................... 7,313 -- 7,313 231,638 -- 231,638
Additional disclosures:
Volumes attributable to volumetric production
payments...................................... 219 -- 219 15,358 -- 15,358
--------- ----------- --------- --------- --------- ---------
Balance at December 31, 1994, including volumes
attributable to volumetric production
payments...................................... 7,532 -- 7,532 246,996 -- 246,996
--------- ----------- --------- --------- --------- ---------
--------- ----------- --------- --------- --------- ---------
</TABLE>
F-45
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(16) SUPPLEMENTAL FINANCIAL DATA -- OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED): (CONTINUED)
Purchases of reserves in place represent volumes recorded on the closing
dates of the acquisitions for financial accounting purposes. The revisions of
previous estimates for natural gas in 1994 include 5,833 MMCF for an adjustment
related to the change in accounting for oil and gas sales from the sales method
to the entitlements method.
<TABLE>
<CAPTION>
OIL AND CONDENSATE GAS
--------------------------------- -------------------------------
(MBBLS) (MMCF)
--------------------------------- -------------------------------
UNITED UNITED
STATES CANADA TOTAL STATES CANADA TOTAL
--------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Proved developed reserves at:
December 31, 1991................................ 2,903 1,824 4,727 132,434 20,807 153,241
December 31, 1992................................ 5,831 -- 5,831 146,048 -- 146,048
December 31, 1993................................ 6,377 -- 6,377 187,534 -- 187,534
December 31, 1994................................ 6,775 -- 6,775 179,574 -- 179,574
</TABLE>
The Company's proved developed reserves, including amounts attributable to
volumetric production payments, are shown below. This disclosure is presented as
additional information and is not intended to represent required disclosure
pursuant to SFAS No. 69.
<TABLE>
<CAPTION>
OIL AND CONDENSATE GAS
--------------------------------- -------------------------------
(MBBLS) (MMCF)
--------------------------------- -------------------------------
UNITED UNITED
STATES CANADA TOTAL STATES CANADA TOTAL
--------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Proved developed reserves, including amounts
attributable to volumetric production payments at:
December 31, 1991................................ 2,903 1,824 4,727 153,395 20,807 174,202
December 31, 1992................................ 6,418 -- 6,418 176,282 -- 176,282
December 31, 1993................................ 6,778 -- 6,778 216,820 -- 216,820
December 31, 1994................................ 6,994 -- 6,994 194,932 -- 194,932
</TABLE>
(E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS -- Future oil
and gas sales and production and development costs have been estimated using
prices and costs in effect at the end of the years indicated, except in those
instances where the sale of oil and natural gas is covered by contracts, energy
swap agreements or volumetric production payments. In the case of contracts, the
applicable contract prices, including fixed and determinable escalations, were
used for the duration of the contract. Thereafter, the current spot price was
used. Prior to December 31, 1993 the contracts included natural gas sales
contracts with a company which is involved in Chapter 11 bankruptcy proceedings.
Subsequent to December 31, 1993 the volumes applicable to this contract were
priced at spot prices. Future oil and gas sales include the estimated effects of
existing energy swap agreements as discussed in Note 13.
Future income tax expenses are estimated using the statutory tax rate of
35%. Estimates for future general and administrative and interest expenses have
not been considered.
Changes in the demand for oil and natural gas, inflation and other factors
make such estimates inherently imprecise and subject to substantial revision.
This table should not be construed to be an estimate of the current market value
of the Company's proved reserves. Management does not rely upon the information
that follows in making investment decisions.
F-46
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(16) SUPPLEMENTAL FINANCIAL DATA -- OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED): (CONTINUED)
The Company's presentation of the standardized measure of discounted future
net cash flows and changes therein has been restated to exclude, for each of the
years presented, amounts attributable to future deliveries required under
volumetric production payments. In order to calculate such amounts, the Company
has assumed that deliveries under volumetric production payments are made as
scheduled, that production costs corresponding to the volumes delivered are
incurred by the Company at average rates for the properties subject to the
production payments, and that delivery commitments are satisfied through
delivery of actual volumes as opposed to cash settlements. This restatement was
made following discussions with the Staff of the Securities and Exchange
Commission.
The Company has also presented, as additional information, the standardized
measure of discounted future net cash flows and changes therein including
amounts attributable to future deliveries required under volumetric production
payments. The Company believes that this information is informative to readers
of its financial statements because the related oil and gas property costs and
deferred revenue are shown on the Company's balance sheets for each of the years
presented. This additional information is not required to be presented in
accordance with SFAS No. 69; however, the Company believes this additional
information is useful in assessing its reserve acquisitions and financial
position on a comprehensive basis.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1994 1993 1992
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Future oil and gas sales................................................ $ 502,186 662,265 497,567
Future production and development costs................................. (193,376) (240,145) (187,604)
------------ ------------ ------------
Future net revenue...................................................... 308,810 422,120 309,963
10% annual discount for estimated timing of cash flows.................. (100,480) (138,917) (103,636)
------------ ------------ ------------
Present value of future net cash flows before income taxes.............. 208,330 283,203 206,327
Present value of future income tax expense.............................. (867) (24,286) (18,566)
------------ ------------ ------------
Standardized measure of discounted future net cash flows................ $ 207,463 258,917 187,761
Additional disclosures:
Amounts attributable to volumetric production payments................ 22,686 40,136 39,248
------------ ------------ ------------
Total discounted future net cash flows, including amounts attributable
to volumetric production payments.................................... $ 230,149 299,053 227,009
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Undiscounted future income tax expense was $1,348,000 at December 31, 1994,
$35,028,000 at December 31, 1993 and $32,718,000 at December 31, 1992.
F-47
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(16) SUPPLEMENTAL FINANCIAL DATA -- OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED): (CONTINUED)
CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES -- An analysis of the changes in the
standardized measure of discounted future net cash flows during each of the last
three years is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Standardized measure of discounted future net cash flows relating to proved
oil and gas reserves, at beginning of year................................ $ 258,917 187,761 164,651
Changes resulting from:
Sales of oil and gas, net of production costs............................ (69,607) (59,572) (52,090)
Net changes in prices and future production costs........................ (80,526) (22,010) 14,287
Net changes in future development costs.................................. 7,432 (18,724) (2,444)
Extensions, discoveries and improved recovery............................ 10,817 15,322 2,122
Previously estimated development costs incurred during the period........ 10,000 13,424 9,315
Revisions of previous quantity estimates................................. 16,840 25,262 (11,450)
Sales of reserves in place............................................... (10,630) (28,802) (67,877)
Purchases of reserves in place........................................... 8,467 127,418 113,567
Accretion of discount on reserves at beginning of year before income
taxes................................................................... 32,334 24,558 20,392
Net change in income taxes............................................... 23,419 (5,720) (2,712)
----------- ----------- -----------
Standardized measure of discounted future net cash flows relating to proved
oil and gas reserves, at end of year...................................... $ 207,463 258,917 187,761
Additional disclosures:
Amounts attributable to volumetric production payments................... 22,686 40,136 39,248
----------- ----------- -----------
Total discounted future net cash flows relating to proved oil and gas
reserves, including amounts attributable to volumetric production
payments, at end of year................................................ $ 230,149 299,053 227,009
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
As of April 1, 1995 the Company was receiving an average price of $1.59 per
MCF and $17.25 per barrel. Based on these prices the standardized measure of
discounted future net cash flows, exclusive of amounts attributable to
volumetric production payments, would have been approximately $193,600,000 at
December 31, 1994.
(17) SUBSEQUENT EVENTS:
On April 13, 1995 the Company sold to a bank a participation interest in the
Company's claim in a bankruptcy proceeding. Consideration received 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.
On April 17, 1995, the Company signed letters of intent with The Anschutz
Corporation (Anschutz) and with Joint Energy Development Investments Limited
Partnership (JEDI), an affiliate of Enron Corp., in each case as described
below.
F-48
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(17) SUBSEQUENT EVENTS: (CONTINUED)
The Anschutz letter of intent contemplates that Anschutz will purchase
3,760,000 shares of the Company's common stock and shares of newly-issued
preferred stock that are convertible into 1,240,000 additional shares of common
stock for a total consideration of $45,000,000, or $9.00 per share. The
preferred stock will have a liquidation preference and will receive dividends
ratably with the common stock. The investment will be made in two closings. In
the first closing, expected to occur in early May 1995, Anschutz will loan the
Company $9,900,000 for a term of 9 months. The loan will bear interest at 8% per
annum for 16 weeks and at 12.5% per annum thereafter. The loan will be secured
by oil and gas properties owned by the Company, the preferred stock of Archean
Energy Ltd. and certain other assets acceptable to Anschutz. The loan may be
converted into 1,100,000 shares of Forest's common stock at Anschutz's election,
but the loan must be so converted at the second closing. At the second closing,
expected to occur by July 1995 following receipt of shareholder approval of the
transactions contemplated by the letter of intent, Anschutz will purchase
2,660,000 shares of common stock and the convertible preferred stock. In
connection with this purchase, Anschutz will agree to certain voting,
acquisition, and transfer limitations regarding shares of common stock for five
years after the second closing, including (a) a limit on voting, subject to
certain exceptions, that would require Anschutz to vote all shares of common
stock acquired by Anschutz in the transaction in excess of an amount equal to
19.99% of the shares of common stock then outstanding in the same proportion as
all other shares of common stock are voted, (b) a limit on the number of persons
associated with Anschutz that may at any time be elected as directors of the
Company and (c) a limit on the acquisition of additional shares of common stock
by Anschutz (whether pursuant to the exercise of the $10.50 warrants or the
option received from JEDI, each as described below, or otherwise), subject to
certain exceptions, that would prohibit any acquisition by Anschutz that would
result in Anschutz owning 40% or more of the shares of common stock then issued
and outstanding. While the foregoing limitations are in effect, Anschutz will
have a minority representation on the board of directors.
The JEDI letter of intent contemplates that, at the second closing referred
to above, Forest and JEDI will restructure JEDI's existing loan currently having
a principal balance of approximately $62,100,000. In exchange for certain
warrants referred to below, JEDI will relinquish the net profits interest that
it holds in certain Forest properties and will reduce the interest rate relating
to the loan. As a result of the loan restructuring and the issuance of the
warrants, the Company anticipates a reduction of the recorded amount of the
related liability to approximately $45,000,000 and a reduction of interest
expense of approximately $2,100,000 per annum. In addition, beginning 18 months
after the second closing, the Company may prepay the loan at any time and may
tender its interest in the underlying properties in full satisfaction of the
loan.
The JEDI letter of intent also contemplates that, at the second closing,
JEDI will receive warrants to purchase 2,250,000 shares of the Company's common
stock for $10.00 per share and warrants to purchase 3,888,888 shares of common
stock at $10.50 per share. The $10.00 warrants expire on December 31, 2002,
except that, in certain circumstances, the Company may terminate the warrants at
any time beginning 36 months after the second closing if the average closing
price of the common stock for both the 90 day and 15 day periods immediately
preceding the termination is in excess of $12.50 per share. For the first 36
months after the second closing, the $10.00 warrants may be exercised only on
the dates and in the respective numbers of shares required to be delivered by
JEDI to Anschutz pursuant to the exercise of the option granted by JEDI to
Anschutz, as described below. The $10.50 warrants are exercisable during the
first 18 months after the second closing, subject to extension in certain
circumstances to 36 months after the second closing. The letters of intent also
contemplate that, at the second closing, JEDI will assign to Anschutz the $10.50
warrants and will grant to Anschutz an option to purchase up to 2,250,000 shares
of common stock during the first 36 months after the second closing.
F-49
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(17) SUBSEQUENT EVENTS: (CONTINUED)
The letters of intent require the Company to pay Anschutz and JEDI certain
fees and expenses in connection with the letters of intent and the transactions
contemplated thereby in certain circumstances. The Anschutz letter of intent
requires the Company to pay to Anschutz a fee (called a subsequent event fee) of
up to $2,500,000 upon the occurrence of certain events prior to the second
closing (or, if the second closing does not occur, April 17, 1996), such as a
merger, consolidation or other business combination between the Company and a
person other than Anschutz. In the Anschutz letter of intent, the Company has
agreed not to solicit proposals for transactions that would require the Company
to pay a subsequent event fee and to keep Anschutz generally informed regarding
the receipt and disposition by the Company of proposals regarding such
transactions made by other persons.
The transactions contemplated by the letters of intent are subject to, among
other things, the preparation and execution of definitive documentation
satisfactory to the parties and to the approval of Forest's board of directors
and certain of its creditors. The purchase by Anschutz of common stock at the
second closing, the restructure of JEDI's existing loan and the transactions
between Anschutz and JEDI described above are also subject to, among other
things, the prior approval of Forest's shareholders and Hart-Scott-Rodino
clearance. The Company believes that short-term and long-term liquidity would be
significantly improved by the conclusion of the transactions described above.
Although the Company believes that the conditions to the closing of the
transactions can be satisfied, there can be no assurance that the transactions
will close on the terms and on the dates referred to above, or at all.
F-50
<PAGE>
AUDITORS' REPORT
FEBRUARY 1, 1995
To the Directors of
ATCOR Resources Ltd.
We have audited the consolidated balance sheets of ATCOR Resources Ltd. as
at December 31, 1994 and 1993, and the consolidated statements of earnings and
retained earnings and changes in financial position for each of the years in the
three year period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1994 and 1993
and the results of its operations and the changes in its financial position for
each of the years in the three year period ended December 31, 1994 in accordance
with Canadian generally accepted accounting principles.
Accounting principles generally accepted in Canada vary in certain
significant respects from accounting principles generally accepted in the United
States. In our opinion, the application of the latter would have affected the
determination of consolidated net earnings income and changes in consolidated
financial position expressed in Canadian dollars for each of the three years in
the period ended December 31, 1994 and the determination of consolidated deficit
also expressed in Canadian dollars at December 31, 1994 and 1993 to the extent
summarized in Note 16 to the consolidated financial statements.
/s/ PRICE WATERHOUSE
Chartered Accountants
Calgary, Alberta
F-51
<PAGE>
ATCOR RESOURCES LTD.
CONSOLIDATED BALANCE SHEET
(STATED IN 000'S OF CANADIAN DOLLARS)
ASSETS
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
------------------------ ------------------------
1995 1994 1994 1993
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current Assets
Accounts receivable........................................ $ 27,993 $ 23,548 $ 31,142 $ 28,747
Inventories................................................ 2,600 1,845 1,502 864
Prepaid expenses........................................... 938 1,099 1,786 2,076
Amount receivable relating to sale of asset................ -- -- -- 10,350
----------- ----------- ----------- -----------
31,531 26,492 34,430 42,037
Investment in Securities (Note 8)............................ 4,985 4,985 4,985 4,985
Property, Plant and Equipment (Note 9)....................... 245,669 257,837 258,014 259,180
----------- ----------- ----------- -----------
$ 282,185 $ 289,314 $ 297,429 $ 306,202
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Due to bank (Note 10)...................................... $ 5,000 $ 5,000 $ 5,000 $ 15,250
Accounts payable and accrued liabilities................... 26,776 24,013 30,855 25,955
----------- ----------- ----------- -----------
31,776 29,013 35,855 41,205
Other Liabilities............................................ 3,492 3,009 3,084 2,679
Due to Bank (Note 10)........................................ 19,181 37,616 34,005 46,251
Deferred Income Taxes........................................ 51,753 48,893 50,421 47,759
Shareholders' Equity
Class A and Class B shares (Note 11)....................... 135,787 135,787 135,787 135,787
Retained earnings.......................................... 40,196 34,996 38,277 32,521
----------- ----------- ----------- -----------
175,983 170,783 174,064 168,308
Commitments and Contingencies (Note 15)
----------- ----------- ----------- -----------
$ 282,185 $ 289,314 $ 297,429 $ 306,202
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
F-52
<PAGE>
ATCOR RESOURCES LTD.
CONSOLIDATED STATEMENT OF EARNINGS AND RETAINED EARNINGS
(STATED IN 000'S OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31
------------------------ -------------------------------------
1995 1994 1994 1993 1992
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues
Sales......................................... $ 197,389 $ 129,340 $ 191,007 $ 124,344 $ 104,110
Investment and other income................... 122 377 504 258 506
Settlement fee (Note 4)....................... -- -- 3,178 -- --
----------- ----------- ----------- ----------- -----------
197,511 129,717 194,689 124,602 104,616
Expenses
Cost of gas................................... 133,738 65,940 105,732 41,695 40,074
Operating and gas transportation.............. 21,311 22,825 30,827 31,953 27,483
Royalties..................................... 6,171 7,870 10,119 8,972 5,869
Alberta Royalty Tax Credit.................... (1,102) (1,215) (1,621) (1,580) (1,530)
General and administrative (Note 9(c))........ 3,590 3,506 4,743 4,385 4,269
Depletion and depreciation (Note 9(a) and
(b))......................................... 25,804 20,724 28,137 22,990 14,927
Gain on sale of interest in ethane extraction
plant (Note 3(a))............................ -- -- -- (7,326) --
Interest (Note 9(d)).......................... 2,598 3,058 4,009 2,767 144
Recovery of loss in value of securities....... -- -- -- (83) --
----------- ----------- ----------- ----------- -----------
192,110 122,708 181,946 103,773 91,236
Earnings before income taxes.................... 5,401 7,009 12,743 20,829 13,380
Income taxes (Note 6)
Current....................................... 2,150 3,400 4,325 1,969 1,859
Deferred...................................... 1,332 1,134 2,662 8,622 4,048
----------- ----------- ----------- ----------- -----------
3,482 4,534 6,987 10,591 5,907
Net earnings.................................... 1,919 2,475 5,756 10,238 7,473
Dividends on Preferred shares................... -- -- -- 591 747
----------- ----------- ----------- ----------- -----------
Net earnings attributable to Class A and Class B
shares (Note 7)................................ 1,919 2,475 5,756 9,647 6,726
Retained earnings, beginning of year............ 38,277 32,521 32,521 22,874 16,148
----------- ----------- ----------- ----------- -----------
Retained earnings, end of year.................. $ 40,196 $ 34,996 $ 38,277 $ 32,521 $ 22,874
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
F-53
<PAGE>
ATCOR RESOURCES LTD.
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
(STATED IN 000'S OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31
--------------------- --------------------------------
1995 1994 1994 1993 1992
---------- --------- --------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash provided from (used in) operating activities
Net earnings....................................... $ 1,919 $ 2,475 $ 5,756 $ 10,238 $ 7,473
Depletion and depreciation......................... 25,804 20,724 28,137 22,990 14,927
Deferred income taxes.............................. 1,332 1,134 2,662 8,622 4,048
Gain on sale of asset.............................. -- -- -- (7,326) --
Recovery of loss in value of securities............ -- -- -- (83) --
---------- --------- --------- ---------- ---------
Cash flow from operating activities.................. 29,055 24,333 36,555 34,441 26,448
(Increase) decrease in working capital other than
cash.............................................. (1,182) 13,604 12,507 (16,739) 1,202
Other.............................................. -- -- (409) (56) (695)
---------- --------- --------- ---------- ---------
27,873 37,937 48,653 17,646 26,955
Cash provided from (used in) financing activities
Long-term borrowing/(repaid)....................... (14,824) (8,635) (12,246) (5,446) 15,676
Issue of shares to acquire Altex Resources Ltd..... -- -- -- 22,202 --
Issue of shares net of costs....................... -- -- -- 9,623 --
Proceeds from sale of investments.................. -- -- -- 618 --
Dividends on preferred shares...................... -- -- -- (591) (747)
Redemption of preferred shares..................... -- -- -- (12,000) (2,000)
(Decrease) in other liabilities.................... (283) (272) -- -- --
---------- --------- --------- ---------- ---------
Cash available for investing activities............ 12,766 29,030 36,407 32,052 39,884
Investment
Acquisition of Altex Resources Ltd., net of working
capital deficiency of $4,822...................... -- -- -- 27,387 --
Capital expenditures, net of oil and gas
dispositions...................................... 12,807 18,787 26,164 24,023 40,192
Net proceeds from sale of non-oil and gas fixed
assets............................................ (41) (7) (7) (10,255) --
---------- --------- --------- ---------- ---------
12,766 18,780 26,157 41,155 40,192
---------- --------- --------- ---------- ---------
Increase (decrease) in cash*......................... $ -- $ 10,250 $ 10,250 $ (9,103) $ (308)
---------- --------- --------- ---------- ---------
---------- --------- --------- ---------- ---------
</TABLE>
* For the purposes of this statement, cash represents the current portion of
the amount due to the bank.
F-54
<PAGE>
ATCOR RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED
DECEMBER 31, 1994 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTH PERIODS IS UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE INDICATED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements have been prepared by management in
accordance with Canadian generally accepted accounting principles. Certain
amounts have been reclassified to conform to the current presentation.
PROPERTY, PLANT AND EQUIPMENT
(A) PETROLEUM AND NATURAL GAS PROPERTIES
The Company follows the full cost method of accounting, as prescribed by
the guideline issued by The Canadian Institute of Chartered Accountants,
whereby all costs related to the exploration for and development of
petroleum and natural gas are capitalized. Such costs, including tangible
equipment and directly related general and administrative expenses, are
accumulated in one cost centre for each country. Interest costs are
capitalized on major development projects.
Costs of petroleum and natural gas properties (except for those relating
to significant unproved properties and major development projects) are
depleted by the unit of production method based on gross (before royalties)
proved reserves and production. Oil and natural gas liquids reserves and
production are converted to natural gas equivalents using the relative
energy content of 6.5 thousand cubic feet of gas equalling one barrel of
oil. Sulphur reserves and production are converted to natural gas
equivalents at one long ton to 15 thousand cubic feet of gas.
The net book value, less related deferred income taxes and accrued
future removal and site restoration costs, is limited to a ceiling amount
which represents the aggregate of (a) proved reserves at current prices and
costs and (b) the cost less impairment of significant unproved properties
and major development projects, less (c) future estimated general and
administrative expenses, financing costs and income taxes.
Proceeds of disposals are credited to cost and no gains or losses are
recognized unless such treatment alters the depletion rate by more than 20
percent.
Substantially all of the Company's exploration and production activities
are conducted jointly with others and the consolidated financial statements
reflect only the Company's proportionate interest in such activities.
(B) ETHANE EXTRACTION PLANT
The Company has a working interest in a joint venture which owns and
operates a plant to extract ethane and other natural gas liquids from
natural gas. The consolidated financial statements reflect the Company's
proportionate interest in this joint venture.
The Company's investment in this plant is depreciated on a straight-line
basis over the estimated useful life of the plant.
(C) FUTURE REMOVAL AND SITE RESTORATION COSTS
Provision for estimated future removal and site restoration costs is
made by the unit of production method. The related charge is included with
depletion and depreciation and is reflected in other liabilities.
F-55
<PAGE>
ATCOR RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED
DECEMBER 31, 1994 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTH PERIODS IS UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE INDICATED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INVENTORIES
Inventories, consisting of natural gas and equipment, are valued at the
lower of cost or net realizable value.
INVESTMENT IN SECURITIES
Investment in securities is carried at cost less any permanent impairment in
value.
INCOME TAXES
The Company provides for deferred income taxes, which principally arise from
the excess of capital cost allowance and exploration and development costs
claimed for tax purposes over related depletion and depreciation.
PER SHARE INFORMATION
Earnings per share are calculated using the weighted average number of Class
A and Class B shares outstanding.
PENSIONS
The Company's employees are members of a non-contributory defined benefit
plan. The cost of pension benefits is determined using the accrued benefit
actuarial cost method and reflects managements's best estimates of investment
returns, wage and salary increases, mortality rates, terminations and age at
retirement. Adjustments resulting from plan enhancements, experience gains and
losses and changes in assumptions are amortized over the estimated average
remaining service life of employees.
(2) ACQUISITION OF ALTEX RESOURCES LTD.:
On January 1, 1993, the Company acquired all of the Common Shares of Altex
Resources Ltd. ("Altex"), an oil and gas exploration and development company. As
consideration, the Company issued 6,343,400 Class A Non-Voting shares.
The acquisition was recorded January 1, 1993 at $3.50 per share, using the
purchase method, and the allocation of the purchase price and related costs of
$363,000 was as follows:
<TABLE>
<S> <C>
ASSETS
Current......................................................... $ 2,400
Property, plant and equipment................................... 29,941
---------
32,341
---------
LIABILITIES
Due to bank..................................................... $ 4,070
Other current................................................... 3,151
Other liabilities............................................... 204
Deferred income taxes........................................... 2,351
---------
9,776
---------
$ 22,565
---------
---------
</TABLE>
F-56
<PAGE>
ATCOR RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED
DECEMBER 31, 1994 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTH PERIODS IS UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE INDICATED)
(3) SALE OF INTEREST IN ETHANE EXTRACTION PLANT:
(a) Effective December 1, 1993 (the transaction closed on January 17, 1994),
the Company sold a 16.67 percent working interest (leaving the Company with a
remaining interest of 33.33 percent) in the plant to CU Gas Limited, a
subsidiary of Canadian Utilities Limited. Proceeds of the sale, after related
costs, were $10,250,000 and a before tax gain of $7,326,000 was recorded. The
estimated after tax gain was $3,683,000. The effect of the gain was to increase
earnings by $0.10 per share.
(b) Effective December 1, 1993, the estimated useful life of the plant was
extended from 1998 to 2013. The impact of this change together with the sale of
one-third of the Corporation's interest in the plant is estimated to reduce
depreciation expense by $1,872,000 in 1994 and increase earnings attributable to
Class A Non-Voting and Class B Common Shares by $1,123,000.
(4) SETTLEMENT FEE:
During the year ended December 31, 1994, a company which had contracted to
purchase gas from the Company and other suppliers paid these companies to
suspend deliveries under the contracts until 2001. In the interim period, the
Company is selling the related gas into other markets.
(5) HEDGING:
The Company enters into contracts from time to time to lock in prices for
future oil production. Gains or losses from these contracts are included in
income when the related production is sold.
During the period, the Company made hedging gains and losses as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
-------------------- ---------------------------------------
SEPTEMBER 30 DECEMBER 31
1995 1994 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Gains/(losses)................................................... $ 296 $ (110) $ (110) $ 507 $ 32
</TABLE>
The Company enters into forward exchange contracts from time to time to fix
the exchange rate of the Canadian dollar against the U.S. dollar.
At September 30, 1995, December 31, 1994, December 31, 1993, and December
31, 1991, no such contracts were outstanding. At December 31, 1992, the Company
had sold forward 60,000 barrels of 1993 production at approximately U.S. $21.70
per barrel.
F-57
<PAGE>
ATCOR RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED
DECEMBER 31, 1994 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTH PERIODS IS UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE INDICATED)
(6) INCOME TAXES:
The actual income tax provision differs from that which would be expected as
follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31
------------------------ -------------------------------
1995 1994 1994 1993 1992
----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Earnings before income taxes................... $ 5,401 $ 7,009 $ 12,743 $ 20,829 $ 13,380
----------- ----------- --------- --------- ---------
Income taxes at the statutory rates............ 2,408 3,108 5,650 9,236 5,933
Crown payments (net of Alberta Royalty Tax
Credit)....................................... 1,767 2,296 2,885 2,479 1,600
Resource allowance............................. (2,316) (2,501) (3,182) (2,909) (1,841)
Depletion of assets with no tax value.......... 1,704 1,506 2,045 1,393 204
Large corporation tax.......................... 375 285 539 530 412
Manufacturing and processing credit............ (440) (588) (1,006) (1,110) (366)
Dividend income................................ (107) (67) (102) (122) (212)
Amortization of deferred tax benefits.......... 236 236 315 1,316 --
Other.......................................... (145) 259 (157) (222) 177
----------- ----------- --------- --------- ---------
$ 3,482 $ 4,534 $ 6,987 $ 10,591 $ 5,907
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
</TABLE>
Deferred tax benefits relating to certain earnings under a cost of service
contract were previously recognized. The related benefits of $1,258,000 at
December 31, 1994 (1993 -- $1,573,000; 1992 -- $2,889,000) are being amortized
over the life of a related contract.
Assets with a net book value of $39,212,000 (1993 -- $43,387,000; 1992 --
$46,011,000) have no tax base and related depletion results in an increased tax
rate. Of these assets $40,766,000 were not depleted during 1992.
(7) EARNINGS PER SHARE:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED
SEPTEMBER 30 DECEMBER 31
-------------------- -------------------------------
1995 1994 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Earnings per share.............................................. $ 0.05 $ 0.06 $ 0.15 $ 0.26 $ 0.23
</TABLE>
The average number of shares used in the above calculations were 38,107,952;
38,107,952; 38,107,952; 36,774,618; 29,764,552 for the nine months ended
September 30, 1995 and 1994 and for the years ended December 31, 1994, 1993 and
1992, respectively. The above per share amounts, in 1993 and 1992, are
calculated after deducting dividends on the Floating Rate Cumulative Redeemable
Preferred Shares, Series A.
(8) INVESTMENT IN SECURITIES:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
-------------------- -------------------------------
1995 1994 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Book value............................................... $ 4,985 $ 4,985 $ 4,985 $ 4,985 $ 5,520
Quoted value............................................. 3,425 2,700 2,700 2,500 2,831
Face value............................................... 5,000 5,000 5,000 5,000 9,000
</TABLE>
F-58
<PAGE>
ATCOR RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED
DECEMBER 31, 1994 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTH PERIODS IS UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE INDICATED)
(8) INVESTMENT IN SECURITIES: (CONTINUED)
The investment consists of 200,000 Class I, Series A, preferred shares of
Trilon Corporation. In the opinion of management, the excess of book over quoted
value does not represent a permanent impairment.
(9) PROPERTY PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
------------------------ -------------------------------------
1995 1994 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cost
Petroleum and natural gas properties..... $ 449,592 $ 429,965 $ 437,215 $ 412,464 $ 359,229
Ethane extraction plant and other related
processing equipment.................... 23,366 23,324 23,324 23,186 33,925
Administrative assets.................... 6,417 6,006 6,133 4,882 4,040
----------- ----------- ----------- ----------- -----------
$ 479,375 $ 459,295 $ 466,672 $ 440,532 $ 397,194
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Accumulated depletion and depreciation
Petroleum and natural gas properties..... $ 211,362 $ 180,031 $ 186,955 $ 160,609 $ 140,757
Ethane extraction plant and other related
processing equipment.................... 17,889 17,590 17,666 17,366 23,126
Administrative assets.................... 4,455 3,837 4,037 3,377 2,955
----------- ----------- ----------- ----------- -----------
233,706 201,458 208,658 181,352 166,838
----------- ----------- ----------- ----------- -----------
Net property plant and equipment......... $ 245,669 $ 257,837 $ 258,014 $ 259,180 $ 230,356
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
(a) As explained in Note 1, the Company applies a ceiling test to the net book
value of its petroleum and natural gas assets. In applying this ceiling
test, the Company used the following approximate product prices:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED
SEPTEMBER 30 DECEMBER 31
-------------------- -------------------------------
1995 1994 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Oil (per barrel)......................................... $ 21.06 $ 19.00 $ 19.40 $ 13.17 $ 19.00
Natural gas (per Mcf).................................... 1.44 1.82 1.60 2.35 1.76
</TABLE>
No write-down was required as a result of this ceiling test (see Note
15(c)).
(b) Significant volumes of recoverable oil and gas reserves have been
established in the Beaufort-Mackenzie Delta area, but they have not been
categorized as proved reserves at this time due to current economic
conditions. Effective October 1, 1993 the cost of these properties of
$36,032,000 (at December 31, 1992 -- $35,963,000) commenced being depleted.
This was a result of a planned well being deferred indefinitely. The effect
of this change was to increase depletion expense in 1993 by $795,000 and by
an estimated $3,727,000 in 1994. This reduced earnings attributable to Class
A
F-59
<PAGE>
ATCOR RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED
DECEMBER 31, 1994 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTH PERIODS IS UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE INDICATED)
(9) PROPERTY PLANT AND EQUIPMENT: (CONTINUED)
Non-Voting and Class B Common Shares by approximately $450,000 in 1993
(estimated $2,100,000 in 1994). Costs of $77,222,000 relating to a major
development project (Caroline) were not depleted in 1992; the Corporation
commenced depletion of these costs effective April 1993. Costs of $4,000,000
relating to other unproved properties were not subject to depletion in any
of the periods presented.
(c) General and administrative ("G&A") details are described in the following
table:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED
SEPTEMBER 30 DECEMBER 31
-------------------- -------------------------------
1995 1994 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
G&A net of recoveries................................ $ 6,285 $ 6,126 $ 8,278 $ 8,411 $ 7,964
Less:
Allocated as marketing-processing operating
expense........................................... (1,873) (1,809) (2,434) (2,927) (2,620)
Capitalized........................................ (822) (811) (1,101) (1,099) (1,075)
--------- --------- --------- --------- ---------
Net G&A.............................................. $ 3,590 $ 3,506 $ 4,743 $ 4,385 $ 4,269
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
(d) Interest expense is described in the following table:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED
SEPTEMBER 30 DECEMBER 31
-------------------- -------------------------------
1995 1994 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Interest expensed........................................ $ 2,598 $ 3,058 $ 4,009 $ 2,767 $ 144
Interest capitalized..................................... -- -- -- 1,825 4,928
--------- --------- --------- --------- ---------
Total interest expense................................. $ 2,598 $ 3,058 $ 4,009 $ 4,592 $ 5,072
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
(10) DUE TO BANK:
Amounts due to bank at December 31, 1994 represent amounts outstanding under
the Revolving Credit Facility ($15,255,000) and the Caroline Term Loan
($23,750,000). These amounts were $4,181,000 and $20,000,000, respectively, at
September 30, 1995. The Company has fixed the interest rate at approximately
10.3 percent on $30 million of debt by entering into three interest rate swap
agreements of $10 million each to 1998. The remaining amounts bear interest at
approximately the prime rate.
Management has the option to June 30, 1995 (to June 30, 1996 as of September
30, 1995), which can be extended subject to an annual review by the bank, to
convert the indebtedness under the Revolving Credit Facility (maximum facility
$30,000,000 -- $25,000,000 at September 30, 1995) to a term loan repayable in
equal annual instalments over five years. Management's intention in 1995 is to
make no principal repayments of this facility, and accordingly, all of this
indebtedness has been classified as long term.
The Caroline Term Loan is repayable in equal quarterly instalments amounting
to $5 million per year.
F-60
<PAGE>
ATCOR RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED
DECEMBER 31, 1994 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTH PERIODS IS UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE INDICATED)
(10) DUE TO BANK: (CONTINUED)
A first floating charge debenture of $90,000,000 (removed in June 1995) over
the assets of the Company and a general security agreement has been granted to
the bank. As further security, the Company's interest in the Caroline property,
its other hydrocarbon properties, and its interest in the Ethane Extraction Plan
will be pledged at the request of the bank.
(11) CLASS A AND CLASS B SHARES:
<TABLE>
<S> <C>
Authorized
An unlimited number of Class A Non-Voting Shares
An unlimited number of Class B Common Shares
Issued:
</TABLE>
<TABLE>
<CAPTION>
CLASS A NON-VOTING SHARES
CLASS B COMMON SHARES
TOTAL -------------------------- --------------------------
AMOUNT NUMBER AMOUNT NUMBER AMOUNT
----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1991................ $ 103,752 17,886,390 $ 62,348 11,878,162 $ 41,404
Conversions................................. -- 293,222 1,022 (293,222) (1,022)
----------- ------------- ----------- ------------- -----------
Balance at December 31, 1992................ 103,752 18,179,612 63,370 11,584,940 40,382
Acquisition of Altex Resources Ltd. (Note
2)......................................... 22,202 6,343,400 22,202 -- --
Issue (net of costs and related tax
benefit)................................... 9,833 2,000,000 9,833 -- --
Conversions................................. -- 497,162 1,778 (497,162) (1,778)
----------- ------------- ----------- ------------- -----------
Balance at December 31, 1993................ 135,787 27,020,174 97,183 11,087,778 38,604
Conversions................................. -- 23,150 83 (23,150) (83)
----------- ------------- ----------- ------------- -----------
Balance at December 31, 1994................ $ 135,787 27,043,324 $ 97,266 11,064,628 $ 38,521
----------- ------------- ----------- ------------- -----------
----------- ------------- ----------- ------------- -----------
</TABLE>
SHAREHOLDER RIGHTS
The holders of the Class A Non-Voting Shares are entitled to share equally,
on a share for share basis, with the holders of the Class B Common Shares, in
all dividends declared by the Company on Common Shares as well as in the
remaining property of the Company upon dissolution. The holders of the Class B
Common Shares are entitled to vote and to exchange each Class B Common Share
held for one Class A Non-Voting Share.
If a take-over bid is made for the Class B Common Shares, holders of Class A
Non-Voting Shares are entitled in certain circumstances, for the duration of the
bid, to exchange each Class A Non-Voting Share for one Class B Common Share, and
to tender such Class B Common Shares pursuant to the terms of the take-over bid.
Such right of exchange is conditional upon the completion of the take-over bid
giving rise to the right of exchange, and if the take-over bid is not completed,
then the right of exchange shall be deemed to never to have existed.
DIVIDENDS
The Company currently has no intention of paying dividends on either the
Class A Non-voting Shares or the Class B Common Shares in the near future.
F-61
<PAGE>
ATCOR RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED
DECEMBER 31, 1994 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTH PERIODS IS UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE INDICATED)
(11) CLASS A AND CLASS B SHARES: (CONTINUED)
STOCK OPTION PLAN
On November 19, 1990, a resolution to establish a stock option plan
(relating to the Class A Non-Voting Shares) was approved on such terms and
conditions as the Directors may determine. As at December 31, 1994 and September
30, 1995 no options have been granted.
(12) RELATED PARTY TRANSACTIONS:
The following transactions were carried out between the Company and
corporations (including Canadian Utilities Limited) controlled by the same
shareholder who controls the Company.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31
-------------------- -------------------------------
1995 1994 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cost of administration and financial management......... $ 469 $ 646 $ 974 $ 848 $ 826
Sale of natural gas..................................... 12,523 15,036 20,043 9,285 6,916
Cost of transportation.................................. 8,245 6,429 8,370 8,880 9,517
Sale of interest in the Ethane Extraction Plant......... -- -- -- 10,350 --
Sale of undeveloped petroleum rights.................... 1,277 -- -- -- --
Cost of storage......................................... -- -- 51 95 101
Costs of drilling of wells and related services......... 295 478 761 1,308 683
Cost of power........................................... 250 245 352 433 12
Payment of processing fees for facilities............... 222 229 313 254 235
Revenue related to processing fees...................... 332 -- 453 -- --
Cost of rental and leasehold improvements............... 7 7 8 16 14
Accounts payable at period ended........................ 41 51 47 64 51
</TABLE>
These related party transactions are considered by management to be in the
normal course of business and at market value.
(13) PENSIONS:
Pension costs for the year amounted to $102,961 (1993 -- $358,826). The
following table shows the present value of the accrued pension benefits based on
an actuarial appraisal dated December 31, 1993 and projected to December 31,
1994 and the net assets available to provide for these benefits, measured on a
basis adjusted to market over three years.
<TABLE>
<CAPTION>
AT DECEMBER 31
-------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Estimated market related value of assets....................... $ 5,836 $ 5,533 $ 4,397
Estimated accrued pension benefits............................. 5,318 4,851 4,157
--------- --------- ---------
Surplus...................................................... $ 518 $ 682 $ 240
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-62
<PAGE>
ATCOR RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For each of the years in the three year period ended
December 31, 1994 and for the nine months ended September 30, 1995 and 1994
(Information with respect to the nine month periods is unaudited)
(Tabular amounts are in thousands of Canadian dollars except where indicated)
(14) SEGMENTED INFORMATION:
The oil and gas segment includes exploration, development and production of
oil and natural gas while the natural gas marketing and processing segment
includes the operations of the natural gas marketing business and of the Ethane
Extraction Plant.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
---------------------------------------------------
NATURAL GAS
OIL & GAS MARKETING &
PRODUCTION PROCESSING CORPORATE TOTAL
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues..................................................... $ 58,807 $ 132,200 $ -- $ 191,007
----------- ------------ ----------- -----------
Cost of gas.................................................. -- 105,732 -- 105,732
Operating and gas transportation............................. 12,863 17,964 -- 30,827
Royalties.................................................... 10,119 -- -- 10,119
Alberta Royalty Tax Credit................................... (1,621) -- -- (1,621)
Depletion and depreciation................................... 27,160 300 677 28,137
----------- ------------ ----------- -----------
48,521 123,996 677 173,194
----------- ------------ ----------- -----------
$ 10,286 $ 8,204 $ (677) 17,813
----------- ------------ -----------
----------- ------------ -----------
Investment income............................................ 504
Settlement fee............................................... 3,178
General and administrative................................... (4,743)
Interest..................................................... (4,009)
Income taxes................................................. (6,987)
-----------
Net earnings................................................. $ 5,756
-----------
-----------
Identifiable assets.......................................... $ 259,554 $ 30,650 $ 7,225 $ 297,429
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
Capital expenditures......................................... $ 32,307 $ 138 $ 1,276 $ 33,721
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
</TABLE>
Included in revenues relating to the natural gas marketing and processing
segment are sales to customers in the United States of $30,362,000 in 1994; 1993
- -- $31,805,000 and 1992 -- $31,352,000.
F-63
<PAGE>
ATCOR RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED
DECEMBER 31, 1994 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTH PERIODS IS UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE INDICATED)
(14) SEGMENTED INFORMATION: (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
---------------------------------------------------
NATURAL GAS
OIL & GAS MARKETING &
PRODUCTION PROCESSING CORPORATE TOTAL
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues..................................................... $ 51,528 $ 72,816 $ -- $ 124,344
----------- ------------ ----------- -----------
Cost of gas.................................................. -- 41,695 -- 41,695
Operating and gas transportation............................. 13,331 18,622 -- 31,953
Royalties.................................................... 8,972 -- -- 8,972
Alberta Royalty Tax Credit................................... (1,580) -- -- (1,580)
Depletion and depreciation................................... 20,629 1,915 446 22,990
----------- ------------ ----------- -----------
41,352 62,232 446 104,030
----------- ------------ ----------- -----------
$ 10,176 $ 10,584 $ (446) 20,314
----------- ------------ -----------
----------- ------------ -----------
Investment income............................................ 258
General and administrative................................... (4,385)
Gain on sale of interest Ethane Extraction Plant............. 7,326
Recovery of loss in value of securities...................... 83
Interest..................................................... (2,767)
Income taxes................................................. (10,591)
-----------
Net earnings................................................. $ 10,238
-----------
-----------
Identifiable assets.......................................... $ 262,127 $ 37,476 $ 6,599 $ 306,202
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
Capital expenditures......................................... $ 24,706 $ (140) $ 828 $ 25,394
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
</TABLE>
F-64
<PAGE>
ATCOR RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED
DECEMBER 31, 1994 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTH PERIODS IS UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE INDICATED)
(14) SEGMENTED INFORMATION: (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1992
---------------------------------------------------
NATURAL GAS
OIL & GAS MARKETING &
PRODUCTION PROCESSING CORPORATE TOTAL
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues..................................................... $ 31,199 $ 72,911 $ -- $ 104,110
----------- ------------ ----------- -----------
Cost of gas.................................................. -- 40,074 -- 40,074
Operating and gas transportation............................. 8,676 18,807 -- 27,483
Royalties.................................................... 5,869 -- -- 5,869
Alberta Royalty Tax Credit................................... (1,530) -- -- (1,530)
Depletion and depreciation................................... 12,447 2,118 362 14,927
----------- ------------ ----------- -----------
25,462 60,999 362 86,823
----------- ------------ ----------- -----------
$ 5,737 $ 11,912 $ (362) 17,287
----------- ------------ -----------
----------- ------------ -----------
Investment income............................................ 506
General and administrative................................... (4,269)
Interest..................................................... (144)
Income taxes................................................. (5,907)
-----------
Net earnings................................................. $ 7,473
-----------
-----------
Identifiable assets.......................................... $ 224,577 $ 24,691 $ 6,941 $ 256,209
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
Capital expenditures......................................... $ 40,538 $ 226 $ 227 $ 40,991
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
</TABLE>
(15) COMMITMENTS AND CONTINGENCIES:
(a) ATCOR has various commitments including those to buy, sell and transport
natural gas. These commitments are considered to be in the normal course of
business and, in the opinion of management, no material losses are anticipated
in fulfilling such commitments.
(b) The Company has been advised by the operator of the Edmonton Ethane
Extraction Plant that a joint venture audit has identified potential errors in
the processing fees charged and in the allocations of product volumes for the
period 1989 through 1993. It is estimated that the cost to the Company could be
up to $1.6 million pre-tax. Since the amount has not yet been agreed, no charge
has been recorded in the financial statements. It is anticipated that this
charge will be finalized during 1995 (during 1996 as of September 30, 1995) and
will be accounted for as a prior period adjustment.
(c) As outlined in Note 1, the net book value of oil and natural gas
properties is limited to a ceiling amount. At December 31, 1994, there was a
small surplus of the ceiling amount over the related net book value based, in
part, on the assumption that costs related to the Beaufort-Mackenzie Delta area
(Note 9(b)) were unimpaired. The ceiling test at September 30, 1995 was prepared
using average prices; if period end prices had been used, a write-down would
have been necessary. After the issue of the financial statements as at September
30, 1995, revisions were made to the estimated reserves at that date to reflect
possible reductions in such reserves. If the ceiling test at September 30, 1995
had been prepared using period end, rather than average prices, and if the
revised reserve estimates had been used, an after-tax write-down of
approximately $12,000,000 would have been required.
F-65
<PAGE>
ATCOR RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED
DECEMBER 31, 1994 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTH PERIODS IS UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE INDICATED)
(15) COMMITMENTS AND CONTINGENCIES: (CONTINUED)
During December 1995, the principal shareholders of the Company (the
"Shareholders") agreed to sell their shares in the Company to an unrelated U.S.
based company which is to make a similar offer to the other shareholders of the
Company and arrange the necessary financing. If these transactions are
completed, the Company's investment in 50% of its properties in the
Beaufort-Mackenzie Delta area are to be sold to these Shareholders for prices
which are less than the carried costs of such properties. This would, in the
absence of other changes to reserves and prices, result in a further ceiling
test write-down of approximately $11,000,000 after tax. Certain other assets are
also to be sold to the Shareholders for prices which would result in a gain.
The ceiling test status at December 31, 1995 will depend on reserve
quantities and prices at that date and completion of the above proposed sales to
the Shareholders. The foregoing does not take into account the reserve report as
of December 31, 1995 since such report was not available when these financial
statements were prepared.
(16) RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada. These principles
differ from United States GAAP; the principal differences are as follow:
(a) Under U.S. GAAP the carrying value of petroleum and natural gas
properties, net of deferred income taxes, is limited to the 10% present value of
after-tax future net revenue from proved reserves (based on prices and costs at
the balance sheet date) and the unimpaired cost of unproved properties (the
"U.S. ceiling test"). Under Canadian GAAP, future net revenue is not discounted
but projected financing costs are deducted; this is the principal reason for the
ceiling test write-downs under U.S. GAAP.
(b) U.S. GAAP requires that deferred tax assets or liabilities be computed
on the difference between financial statement and income tax bases of assets and
liabilities. Deferred tax provisions are based on the change during the period
in the related deferred tax asset or liability accounts (Financial Accounting
Standard 109 ("FAS 109")). FAS 109 effects are shown from December 31, 1991.
(c) The Ethane Extraction Plant was sold to a related party. Under U.S.
GAAP, the gain would be credited to contributed capital in the year the sale
closed--1994.
(d) Under U.S. GAAP, the excess of book value over quoted or fair value of
investments would be written off if the impairment is other than temporary.
(e) Under U.S. GAAP, the possible charge, referred to in Note 15(b), will be
accounted for as a charge against earnings in the year the amount is resolved
rather than as a prior period adjustment. Some $800,000 of the possible charge
was determined probable in 1994 and the after tax effect is reflected below.
F-66
<PAGE>
ATCOR RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED
DECEMBER 31, 1994 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTH PERIODS IS UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE INDICATED)
(16) RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES: (CONTINUED)
The effect of the differences between Canadian and U.S. GAAP on the
consolidated statement of earnings are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED
SEPTEMBER 30 DECEMBER 31
-------------------- --------------------------------
1995 1994 1994 1993 1992
--------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net income as reported....................................... $ 1,919 $ 2,475 $ 5,756 $ 10,238 $ 7,473
(Increase) decrease in depletion, net of tax (a)............. (4,711) 1,817 (12,414) (5,579) 2,191
Income taxes -- liability method (b)......................... 1,425 (1,857) 1,264 936 (978)
Elimination of gain on sale of interest in Ethane Extraction
Plant, net of tax (c)....................................... -- -- -- (3,683) --
Write-down of investment in securities (d)................... -- -- -- -- (2,689)
Probable charge related to correction of a prior period
error, net of tax (e)....................................... -- -- (448) -- --
--------- --------- ---------- --------- ---------
Net (loss) income under U.S. GAAP............................ $ (1,367) $ 2,435 $ (5,842) $ 1,912 $ 5,997
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
(Loss) earnings per share under U.S. GAAP.................... $ (0.04) $ 0.06 $ (0.15) $ 0.04 $ 0.18
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
</TABLE>
As outlined in Note 15(c), the estimated oil and gas reserves of the Company
were revised to reflect possible reductions in reserve quantities after the
Canadian GAAP financial statements for the nine months ended September 30, 1995
were issued. The increase in depletion of $4,711,000, referred to above, is
after giving effect to such possible reduction.
The reported cash flows in the consolidated statement of changes in
financial condition under U.S. GAAP are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31
---------------------- ----------------------------------
1995 1994 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating activities.................................... $ 28,205 $ 27,251 $ 37,021 $ 27,388 $ 27,500
Financing activities.................................... (14,824) (8,635) (11,798) 14,406 12,929
Investing activities.................................... (13,381) (8,366) (14,973) (50,897) (40,737)
</TABLE>
- ------------------------
F-67
<PAGE>
ATCOR RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED
DECEMBER 31, 1994 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTH PERIODS IS UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE INDICATED)
(16) RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES: (CONTINUED)
The effect of U.S. GAAP on retained earnings is as follows:
<TABLE>
<S> <C>
Retained earnings under Canadian GAAP, December 31, 1991................. $ 16,148
Charge on adoption for FAS 109........................................... (2,851)
Write-down of oil and gas assets required under U.S. ceiling test at
December 31, 1991....................................................... (31,055)
---------
Deficit at December 31, 1991 restated under U.S. GAAP................ (17,758)
Net income (loss) under U.S. GAAP for the years ended
December 31, 1992...................................................... 5,997
December 31, 1993...................................................... 1,912
December 31, 1994...................................................... (5,842)
---------
(15,691)
Dividends declared during the years ended
December 31, 1992...................................................... (747)
December 31, 1993...................................................... (591)
December 31, 1994...................................................... --
---------
(1,338)
---------
Deficit at December 31, 1994 under U.S. GAAP......................... (17,029)
---------
Net loss for the nine month period ended September 30, 1995 under U.S.
GAAP (unaudited)........................................................ (1,367)
---------
Deficit at September 30, 1995 under U.S. GAAP (unaudited)................ $ (18,396)
---------
---------
</TABLE>
F-68
<PAGE>
[Letterhead]
January 1, 1996
Forest Oil Corporation
1600 Broadway, Suite 2200
Denver, Colorado 80202
Gentlemen:
At your request, we have reviewed the estimates prepared by the
engineering staff of Forest Oil Corporation (Forest) of net proved hydrocarbon
reserves, future net revenue and discounted future net revenue attributable to
the interests owned by Forest in certain designated properties as set forth on
Exhibit A hereto, as of December 31, 1995. In our opinion, the proved reserves
and future net revenue information associated with the reviewed properties
presented herein comply with the definitions and disclosure guidelines of the
Security and Exchange Commission's Regulation S-X Part 210.4-10 Sec. (a) as
clarified by the Commissioner's Staff Accounting Bulletin No. 40 and the
Statement of Financial Accounting Standards No. 69.
The estimated December 1995 product prices used by Forest in its
preparation of the future net revenue presented herein may vary significantly
in the future for such reasons as normal price fluctuations and unsettled world
economic and political conditions. The recoverable reserves and future net
revenue attributable thereto are related to a large extent to the hydrocarbon
prices received. Therefore, quantities of reserves actually recovered and the
future net revenue actually received may differ substantially from the estimated
quantities presented in this report.
The estimated net reserves, future net revenue, and discounted future
net revenue attributable to Forest's interest in the properties reviewed and
those properties not reviewed are summarized as follows.
SEC PARAMETERS
Estimated Net Reserve and Income Data
Certain Leasehold and Royalty Interests of
Forest Oil Corporation
As of December 31, 1995
------------------------------------------
<TABLE>
<CAPTION>
Future Net Future Net Revenue
Oil/Condensate Gas Revenue Discounted @ 10%
Barrels MMCF ($) ($)
-------------- ---- ---------- ------------------
<S> <C> <C> <C> <C>
PROVED DEVELOPED
PRODUCING
Reviewed 3,215,640 62,588 92,353,851 74,631,132
Not Reviewed 1,186 1,147 535,603 334,554
--------- ------ ---------- ----------
Total PDP 3,216,826 63,715 92,889,454 74,965,686
NON-PRODUCING
Reviewed 2,402,314 96,840 183,438,076 109,583,991
PROVED UNDEVELOPED
Reviewed 343,034 56,279 85,280,180 55,476,450
A-1
<PAGE>
Forest Oil Corporation
January 1, 1996
Page 2
<CAPTION>
Future Net Future Net Revenue
Oil/Condensate Gas Revenue Discounted @ 10%
Barrels MMCF ($) ($)
-------------- ---- ---------- ------------------
<S> <C> <C> <C> <C>
TOTAL PROVED
Reviewed 5,960,988 215,687 361,072,109 239,691,573
Not Reviewed 1,186 1,147 535,603 334,554
--------- ------- ----------- -----------
Total 5,962,174 216,834 361,607,712 240,026,127
PERCENT REVIEWED 100.0% 99.5% 99.9% 99.9%
</TABLE>
Liquid hydrocarbons are expressed in standard 42 gallon barrels. All
gas volumes are sales gas expressed in millions of cubic feet (MMCF) at the
official temperature and pressure bases of the areas where the gas reserves are
located. The above stated values do not quantify or otherwise account for any
accumulated gas imbalances that may exist.
The future gross revenue is after the deduction of production taxes.
The deductions are comprised of the normal direct costs of operating the wells,
ad valorem taxes, recompletion costs, development costs, and certain abandonment
costs net of salvage. The future undiscounted net revenue is before the
deduction of state and federal income taxes and general administrative overhead,
and has not been adjusted for outstanding loans which may exist nor does it
include any adjustment for cash on hand or undistributed income. The discounted
future net revenue reflects a $3,577,445 adjustment for the additional value
associated with volumetric production payment considerations, but has not been
adjusted for any outstanding loans which may exist nor does it include any
adjustment for cash on hand or undistributed income.
In performing our review we have relied upon data furnished by Forest
with respect to property interests owned, production from the examined wells,
current costs for operations and future development, current prices for the
products, geological, structural and isopach maps, well logs, core analyses, and
pressure measurements. These data were accepted as authentic and sufficient for
determining the reserves unless, during the course of our examination, a matter
of question came to our attention in which case the data were not accepted until
all questions were satisfactorily resolved. No consideration was given in this
report, for the reviewed properties, to potential environmental liabilities
which may exist nor were any costs included for potential liability to restore
and clean up damages, if any, caused by past operating practices. Our review
included (1) a study and evaluation of Forest's methods and procedures for
estimating and documenting its reserve information, production expense and
development expense, (2) tests to evaluate Forest's estimate of its proved oil
and gas reserves, future net revenue and discounted future net revenue, and (3)
such tests and procedures as we considered necessary under the circumstances to
render the conclusions set forth herein. The reserve estimates examined
represent approximately 99.9 percent of Forest's estimated proved future net
revenue discounted at 10 percent.
In our opinion, Forest's estimates of the proved reserves, future net
revenue and discounted future net revenue for its interests in the designated
properties set forth in Exhibit A hereto are, in the aggregate, reasonable and
were prepared in accordance with generally accepted engineering and evaluation
principles, and we found no bias in the utilization and analysis of data. In
certain cases Forest's estimates of reserves or income data for a given field
were significantly higher or lower than Ryder Scott's estimates. However, it is
our opinion, that in the aggregate Forest's estimates of reserves, future net
revenue, and discounted future net revenue are reasonable in accordance with
generally accepted engineering and evaluation principles.
A-2
<PAGE>
Forest Oil Corporation
January 1, 1996
Page 3
In the utilization of the reserve and income data presented herein,
consideration should be given to the following characteristics of estimates of
reserves, future production rates, and resulting net income:
1) The reserves included in this report are estimates only and should not
be construed as being exact quantities. They may or may not be
actually recovered. Moreover, estimates of proved reserves may
increase or decrease as a result of future operations of Forest.
2) The future production rates from properties now on production may be
more or less than estimated because of changes in market demand or
allowables set by regulatory bodies. Properties which are not
currently producing may start producing earlier or later than
anticipated in our estimates of their future production rates.
3) The future prices received by Forest for the sale of its production
may be higher or lower than the prices used in this report as
described above, and the operating costs and other costs relating to
such production may also increase or decrease from existing levels;
however, such possible changes in prices and costs were, in accordance
with rules adopted by the Securities and Exchange Commission, omitted
from consideration in preparing this report.
Neither we nor any of our employees have any interest in the subject
properties and neither the employment to make this study nor the compensation is
contingent on our expression of opinion regarding estimates of reserves, future
net revenue or discounted future net revenue for the subject properties.
Very truly yours,
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
/S/ L.B. BRANUM
L.B. Branum, P.E.
Petroleum Engineer
LBB/sw
Approved
/S/ JOHN WARNER
- --------------------
John R. Warner, P.E.
Group Vice President
A-3
<PAGE>
Page 1 of 2
EXHIBIT A
FOREST OIL CORPORATION
Fields Reviewed by Ryder Scott Company
As of December 31, 1995
ARKANSAS
Aetna Field Franklin County
Cecil Field Franklin County
LOUISIANA
Anse LaButte Field St. Martin Parish
Black Hawk Field Concordia Parish
Jeanerette Field St. Mary Parish
MISSISSIPPI
Vintage Field Jefferson Davis County
OKLAHOMA
Apache, East Field Caddo County
Elk City Field Washita County
Jefferson NW Field Grant County
Perry Townsite Field Noble County
Polo, East Field Noble County
South Mulhall Field Logan County
Stillwater, NW Field Noble & Payne Counties
Vassar, SE Field Payne County
Washington Field McClain County
West Webb Field Grant County
TEXAS
Barbers Hill Field Chambers County
Gomez Field Pecos County
Good, SE Field Borden County
Katy Field Ft. Bend, Harris & Waller Counties
Katy, South Field Ft. Bend & Waller Counties
Lockridge Field Ward County
Loma Vieja Field Zapata County
Martinez Field Jim Hogg County
McAllen Ranch Field Hidalgo County
Slaughter Field Cockran County
Vermejo Field Loving & Ward Counties
WYOMING
Austin Creek Field Natrona County
Grieve Field Natrona County
A-4
<PAGE>
Page 2 of 2
EXHIBIT A (Cont'd.)
FOREST OIL CORPORATION
Fields Reviewed by Ryder Scott Company
As of December 31, 1995
OFFSHORE LOUISIANA
Chandeleur Sound Block 8 Field
Chandeleur Sound Block 32 Field
East Cameron Block 109 Field
Eugene Island Block 53 Field
Eugene Island Block 190 Field
Eugene Island Block 255 Field
Eugene Island Block 273 Field
Eugene Island Block 292 Field
Eugene Island Block 308 Field
Eugene Island Block 325 Field
Eugene Island Block 342 Field
Ship Shoal Block 58 Field
Ship Shoal Block 277 Field
South Marsh Island Block 142 Field
South Pelto Block 6 Field
South Timballer Block 178 Field
South Timballer Block 245 Field
Vermilion Block 102 Field
Vermilion Block 255 Field
Vermilion Block 275 Field
West Cameron Block 44 Field
West Cameron Block 225 Field
West Cameron Block 285/432 Field
West Cameron Block 615 Field
OFFSHORE TEXAS
Brazos Block 491 Field
Brazos Block 507 Field
Galveston Block A34/A35 Field
High Island Block A20 Field
High Island Block 116 Field
High Island Block 164 Field
Matagorda Island Block 682/670 Field
A-5
<PAGE>
[Fekete Associates Inc. Letterhead]
December 27, 1995
Forest Oil Corporation
1600 Broadway - Suite 2200
Denver, Colorado
80202
ATTENTION: MR. BILL BERILGEN
- ----------------------------
Gentlemen:
RE: LETTER OF TRANSMITTAL
EVALUATION OF THE OIL AND GAS INTERESTS OF
SAXON PETROLEUM INC.
AS AT DECEMBER 31, 1995
(CONSTANT COSTS AND PRICES)
- -----------------------------------------------
Pursuant to your request we have prepared an evaluation of the proved crude
oil, natural gas and natural gas products reserves and the present worth
values of these reserves for the petroleum and natural gas interests of Saxon
Petroleum Inc., herein after referred to as the "Company", as of December 31,
1995.
The future net revenues and present worth values presented in this report
were calculated using "Yearend Pricing" assumptions based on the crude oil,
natural gas and natural gas product prices in effect at December, 1995 with
no inflation of operating or capital costs. All revenues were presented in
U.S. dollars and do not include an allowance for income tax.
The Company's share of proved remaining crude oil, natural gas, natural gas
liquids as of December 31, 1995 and the respective present worth values assigned
to these reserves based on "Yearend Pricing" assumptions were estimated to be as
follows:
B-1
<PAGE>
SAXON PETROLEUM INC.
EXECUTIVE SUMMARY
AS AT DECEMBER 31, 1995
(YEAR END COSTS AND PRICES)
*U.S. FUNDS*
---------------------------
<TABLE>
<CAPTION>
COMPANY INTEREST RESERVES REMAINING*
-----------------------------------------------------
BEFORE ROYALTY AFTER ROYALTY ROYALTY REC.
---------------- ----------------- ---------------
OIL GAS OIL GAS OIL GAS
------- ------- ------- -------- ------ -------
(MSTB) (MMSCF) (MSTB) (MMSCF) (MSTB) (MMSCF)
<S> <C> <C> <C> <C> <C> <C>
Proved Producing 3515.8 12074.1 3007.7 9682.6 6.1 19.3
Proved Non-Producing 1541.0 8045.4 1330.3 6534.8 - -
------ ------- ------ ------- ----- ------
Total Proved 5056.8 20119.6 4337.9 16217.5 6.1 19.3
NET PRESENT VALUE, M$
---------------------
NET PRESENT VALUE DISC @ 0% 10%
- ----------------- --------- -------
Proved Producing 34180.0 21611.0
Proved Non-Producing 14400.8 7280.0
------- -------
Total Proved 48580.8 28891.0
VALUE OF ALBERTA ROYALTY TAX CREDIT
- -----------------------------------
Proved Producing 1617.0 1175.0
Proved Non-Producing 2154.0 1504.0
------ ------
Total Proved 3771.0 2679.0
GRAND TOTAL
Proved Producing 35797.0 22786.0
Proved Non-Producing 16554.8 8784.0
------- -------
Total Proved 52351.8 31570.0
</TABLE>
* Includes Company working interest and/or royalty interest share of
remaining natural gas, solution gas, oil, condensate and natural gas
liquids reserves.
NOTE: Numbers may not add due to rounding.
The estimates of remaining reserves for each property are summarized in
Table 1. Remaining reserves include primary and secondary (solution gas
recovered from oil, propane, butane, condensate recovered from natural gas
and sulphur) products.
[Fekete Associates Inc. LOGO]
B-2
<PAGE>
A summary of the net present value, in U.S. funds, of the Company's
interests, discounted at rates of 0%, 10%, 15%, 20% and 25% to the evaluation
reference date of December 31, 1995, is shown in Table 2.
The cash flow projections and net present values, in U.S. funds, for proved
producing, proved non-producing total proved, probable additional and total
proved plus probable additional reserves are attached as Tables 3 through 7,
respectively.
The cash flow projections and net present values, in U.S. funds, for proved
producing, proved non-producing total proved, probable additional and total
proved plus probable additional reserves are attached as Tables 8 through 12,
respectively.
Product price forecasts are shown in Table 13.
The reserve and net present values shown in the attached Tables are not
risked.
The extent and character of ownership and all other factual data were supplied
by or obtained from the files of Saxon Petroleum Inc. and were accepted as
correct.
A field inspection was not considered necessary by Fekete Associates Inc.
Future capital additions from salvage value of wells, pipelines, plants,
tanks, batteries and other facilities have NOT been identified and therefore
NOT included in the cash flow and net present value projections.
This report has been prepared for the exclusive use of Saxon Petroleum Inc.
and no part thereof should be reproduced, distributed or made available to
any other person, company, regulatory body or organization without the
complete context of the report and the knowledge and consent of Fekete
Associates Inc.
The analyses, interpretations and opinions expressed in this report reflect
the best judgment of Fekete Associates Inc. Due to the inherent risks
associated with the petroleum business,
[Fekete Associates Inc. LOGO]
B-3
<PAGE>
Fekete Associates Inc. assumes no responsibility and makes no warranty
whatsoever in connection with the information, analyses, interpretations and
opinions presented herein.
Yours truly,
FEKETE ASSOCIATES INC.
/s/ Gary D. Metcalfe
Gary D. Metcalfe, P. Eng.
Vice-President
GDM/np
Attach.
[Fekete Associates Inc. LOGO]
B-4
<PAGE>
[MCDANIEL & ASSOCIATES CONSULTANTS LTD. LETTERHEAD]
December 22, 1995
ATCOR LTD.
600, 800 - 6th Avenue S.W.
Calgary, Alberta
T2P 3G3
Attention: MR. R. PRATT, V.P. OF FINANCE
Reference: ATCOR LTD.
EVALUATION OF PROVED OIL AND GAS RESERVES
YEAREND PRICING & COSTS
Dear Sir:
Pursuant to your request we have prepared an evaluation of the proved crude
oil, natural gas and natural gas products reserves and the present worth
values of these reserves for the petroleum and natural gas interests of Atcor
Ltd., hereinafter referred to as the "Company", as of December 31, 1995. The
future net revenues and present worth values presented in this report were
calculated using "Yearend Pricing" assumptions based on the crude oil, natural
gas and natural gas product prices in effect at December, 1995 with no
inflation of operating or capital costs. All revenues were presented in U.S.
dollars and do not include an allowance for income tax.
The properties evaluated in this report were indicated to include
essentially all of the Company's conventional petroleum and natural gas
interests in Canada. The Company's principal crude oil properties are located
in the Caroline, Herronton and Provost areas in the province of Alberta and
the Success area in the province of Saskatchewan. The principal natural gas
properties are in the Caroline, Herronton and Provost areas in the province
of Alberta and the Doig River area in the province of British Columbia.
The Company's share of proved remaining crude oil, natural gas, natural gas
liquids and sulphur reserves as of December 31, 1995 and the respective
present worth values assigned to these reserves based on "Yearend Pricing"
assumptions were estimated to be as follows:
C-1
<PAGE>
Atcor Ltd.
Yearend Pricing & Costs
December 22, 1995
Page 2
<TABLE>
<CAPTION>
ESTIMATED COMPANY SHARE OF
PROVED REMAINING RESERVES
AS OF DECEMBER 31, 1995
MBBL - MMCF - MLT
-----------------------------------------------------
Proved Proved Total
Producing Non-Producing Proved(3)
--------- ------------- ---------
<S> <C> <C> <C>
Crude Oil
Gross (1) 7,279 224 7,503
Net (2) 5,952 194 6,146
Natural Gas
Gross (1) 71,769 39,718 111,487
Net (2) 58,792 33,246 92,038
Natural Gas Liquids
Gross (1) 4,543 270 4,813
Net (2) 3,411 184 3,595
Sulphur
Gross (1) 624 - 624
Net (2) 505 - 505
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED COMPANY SHARE OF
PRESENT WORTH VALUES BEFORE INCOME TAX
AS OF DECEMBER 31, 1995
$1000 (4) (5) (6)
----------------------------------------------
DISCOUNTED AT
0% 10%
------- -------
<S> <C> <C>
Proved Producing Reserves 128,532 87,879
Proved Non-Producing Reserves 26,877 13,506
Total Proved Reserves 155,409 101,385
</TABLE>
(1) Gross reserves are defined as the aggregate of the Company's working
interest and royalty interest reserves before deduction of royalties
payable to others.
(2) Net reserves are gross reserves less all royalties payable to others.
(3) Essentially all of the proved reserves were considered to be developed.
(4) Financial matters such as prepayments, take or pay payments, general
obligations, etc. were not included.
(5) Based on "Constant Price" assumptions at December, 1995 (see Appendix 1
- Price Schedules).
(6) All present worth values are presented in U.S. $.
(7) No allowance has been made for any Alberta Royalty Tax Credit.
- McDaniel & Associates Consultants Ltd. -
C-2
<PAGE>
Atcor Ltd.
Yearend Pricing & Costs
December 22, 1995
Page 3
The Company's share of remaining reserves and present worth values are
presented on a total Company basis in Table A. Tables summarizing the
reserves, production and revenues for the total proved, proved producing and
proved non-producing reserve categories are presented in Appendices 2 to 4
respectively. Reserve estimates are presented by property in Table 2 and by
area in Table 3. Summations of the forecast production, revenues, applicable
royalties and operating and capital expenses are presented on a total basis
in Table 1 and by area in Table 4. Separate tables presenting the 1995
reserve additions resulting from 1995 drilling programs are presented in
Appendix 5. A summary of the Company's interests and encumbrances in each
property is also presented in Appendix 6.
Discussions of the assumptions and methodology employed to prepare the
reserve estimates and revenue forecasts are contained in the "Evaluation
Methodology" section of Appendix I. A summary of the product price schedules,
reserve definitions and Imperial and SI unit conversion factors are also
presented in Appendix I.
The extent and character of all factual information supplied by the Company
including ownership, well data, production, prices, revenues, operating
costs, contracts, and other relevant data were relied upon by us in preparing
this report and has been accepted as represented without independent
verification. In view of the generality of the assignment the opinions
expressed are not intended to provide a stand alone analysis of any specific
property but to relate to an overall evaluation of the reserves of the
Company.
This report was prepared by McDaniel & Associates Consultants Ltd. for the
exclusive use of Atcor Ltd. and is not to be reproduced, distributed or made
available, in whole or in part, to any person, company or organization other
than Atcor Ltd. without the knowledge and consent of McDaniel & Associates
Consultants Ltd. We reserve the right to revise any estimates provided
herein if any relevant data existing prior to preparation of this report were
not made available or if any data provided were found to be erroneous.
Sincerely,
MCDANIEL & ASSOCIATES CONSULTANTS LTD.
/s/ R. E. Hughes
- ---------------------------- PERMIT TO PRACTICE
R. E. Hughes, P. Eng. MCDANIEL & ASSOCIATES CONSULTANTS LTD.
Signature /s/ R. E. Hughes
/s/ C. B. Kowalski -------------------------------
- ---------------------------- Date DEC 22 1995
C. B. Kowalski, P. Eng. ------------------------------------
PERMIT NUMBER: P 3145
/s/ F. Shorning The Association of Professional Engineers,
- ---------------------------- Geologists and Geophysicists of Alberta
F. Shorning, P. Geol.
C-3
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
SHAREHOLDER OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH QUALIFIED SOLICITATION.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 10
The Company.................................... 16
Use of Proceeds................................ 16
Capitalization................................. 17
Price Range of Common Stock.................... 18
Dividend Policy................................ 18
Selected Financial and Operating
Data......................................... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 22
Business and Properties........................ 38
The Anschutz and JEDI Transactions............. 52
Management..................................... 57
Principal and Selling Shareholders............. 60
Description of Capital Stock................... 62
Underwriting................................... 66
Legal Matters.................................. 68
Experts........................................ 68
Certain Definitions............................ 68
Available Information.......................... 70
Incorporation of Certain Documents by
Reference.................................... 70
Index to Financial Statements.................. F-1
Review Report of Ryder Scott
Company...................................... A-1
Summary Reserve Report of Fekete Associates,
Inc.......................................... B-1
Summary Reserve Report of McDaniel & Associates
Consultants Ltd.............................. C-1
</TABLE>
12,000,000 SHARES
FOREST OIL
CORPORATION
COMMON STOCK
($.10 PAR VALUE)
[LOGO]
SALOMON BROTHERS INC
DILLON, READ & CO. INC.
MORGAN STANLEY & CO.
INCORPORATED
CHASE SECURITIES, INC.
PROSPECTUS
DATED , 1996
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
[ALTERNATE INTERNATIONAL PAGE]
SUBJECT TO COMPLETION
JANUARY 24, 1996
PROSPECTUS
12,000,000 SHARES
[LOGO]
FOREST OIL CORPORATION
COMMON STOCK
($.10 PAR VALUE)
Of the 12,000,000 shares of Common Stock, $.10 par value per share (the "Common
Stock"), of Forest Oil Corporation (the "Company") being offered hereby,
10,940,000 are being issued and sold by the Company and 1,060,000 shares are
being sold by Saxon Petroleum Inc. (the "Selling Shareholder"), a Canadian
corporation in which the Company holds a 56% economic (49% voting) interest. See
"Principal and Selling Shareholders." The Company will not receive any of the
proceeds from the sale of these shares by the Selling Shareholder.
Of the 12,000,000 shares of Common Stock offered hereby, 1,800,000 shares are
being offered hereby in an international offering outside the United States and
Canada (the "International Offering") and 10,200,000 shares are being offered in
a concurrent offering in the United States and Canada (the "U.S. Offering" and,
collectively with the International Offering, the "Offerings"), subject to
transfers between the International Underwriters and the U.S. Underwriters
(collectively, the "Underwriters"). The Price to Public and Underwriting
Discount per share will be identical for each of the Offerings. The closing of
the International Offering and the U.S. Offering are conditioned upon each
other. See "Underwriting."
The Common Stock is quoted on the Nasdaq National Market under the symbol
"FOIL." On January 25, 1996, the last reported sale price of the Common Stock
was $ per share. This price reflects a 5 to 1 reverse stock split effected on
January 8, 1996. See "Price Range of Common Stock" and "Description of Capital
Stock."
SEE "RISK FACTORS" ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT COMPANY(1) SHAREHOLDER(1)
Per Share........................ $ $ $ $
Total(2)......................... $ $ $ $
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Before deducting expenses, estimated at $1,000,000.
(2) The Company has granted the International Underwriters and the U.S.
Underwriters 30-day options to purchase up to an aggregate of 1,800,000
shares of Common Stock at the Price to Public, less Underwriting Discount,
solely to cover over-allotments, if any. If the Underwriters exercise such
options in full, the total Price to Public, Underwriting Discount and
Proceeds to Selling Shareholder will be $ , $ , and $ ,
respectively. See "Underwriting."
The Common Stock is offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the Common Stock will be made at the office of
Salomon Brothers Inc, Seven World Trade Center, New York, New York, or through
the facilities of The Depository Trust Company, on or about , 1996.
SALOMON BROTHERS INTERNATIONAL LIMITED
DILLON, READ & CO. INC.
MORGAN STANLEY & CO.
INTERNATIONAL
The date of this Prospectus is January , 1996.
<PAGE>
[ALTERNATE INTERNATIONAL PAGE]
CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of shares of
Common Stock by a Non-U.S. Holder. The term "Non-U.S. Holder" means (a) a
foreign corporation, (b) a foreign partnership, (c) a nonresident alien
individual or (d) a foreign estate or trust (that is, a trust or estate not
subject to United States federal income tax on income from sources without the
United States that is not effectively connected with the conduct of a trade or
business within the United States). An individual may, subject to certain
exceptions, be deemed to be a resident alien (as opposed to a nonresident alien)
with respect to a calendar year by virtue of being present in the United States
on at least 31 days in that calendar year and for an aggregate of at least 183
days during a three-year period ending in that calendar year (counting for such
purposes all of the days present in that year, one-third of the days present in
the immediately preceding year, and one-sixth of the days present in the second
preceding year). Resident aliens are subject to United States federal tax as if
they were United States citizens.
This discussion does not describe all aspects of United States federal
income and estate taxation that may be relevant to a Non-U.S. Holder's
particular circumstances or to certain types of Non-U.S. Holders that may be
subject to special treatment under United States federal income tax laws (for
example, insurance companies, tax-exempt organizations, financial institutions
or broker-dealers). Moreover, this discussion does not address non-U.S., state
and local tax consequences. Furthermore, this discussion is based on current
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
existing and proposed regulations promulgated thereunder and administrative and
judicial interpretations as of the date of this Prospectus, all of which are
subject to change. Any revisions of these authorities could be made retroactive
with respect to transactions consummated prior to the time such changes are
announced or enacted. NON-U.S. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS
REGARDING THE SPECIFIC UNITED STATES AND OTHER TAX CONSEQUENCES OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF SHARES OF COMMON STOCK.
DIVIDENDS
A dividend paid to a Non-U.S. Holder of Common stock will be subject to
United States withholding tax at a rate of 30% of the gross amount of the
dividend (or at such lower rate as may be provided by an applicable income tax
treaty), unless the dividend is effectively connected with the conduct of a
trade or business in the United States by the Non-U.S. Holder. If a dividend is
effectively connected with a United States trade or business of a Non-U.S.
Holder (or, if a tax treaty applies, is attributable to a U.S. permanent
establishment of the Non-U.S. Holder) who has properly filed a Form 4224 (or
similar statement) with the withholding agent with respect to the taxable year
in which the dividend is paid, no withholding will be required. However, that
dividend will be subject to the regular United States federal income tax on a
net income basis at applicable graduated individual or corporate rates, which is
not collected by withholding. Further, under certain circumstances, corporate
Non-U.S. Holders may be subject to an additional "branch profits tax" at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty.
Although proposed regulations could alter this position if they become
effective, currently the Internal Revenue Service's position is that a dividend
paid to an address in a foreign country is generally presumed to be paid to a
resident of the foreign country for purposes of determining the applicability of
the United States withholding tax discussed above (either at the statutory rate
of 30% or at any lower rate established by treaty) unless the payer has
knowledge to the contrary. Under the proposed regulations, however, a Non-U.S.
Holder of Common Stock who wishes to claim the benefit of an applicable treaty
rate would be required to file Form 1001 (Ownership, Exemption of Reduced Rate
Certificate) and, subject to a DE MINIMIS exception, Form 8305. (Certificate of
Residence) (a form not yet printed by the Internal Revenue Service) with the
withholding agent. Such forms would be required to contain the name and address
of the Non-U.S. Holder and other pertinent information to be certified by the
Non-U.S.
68
<PAGE>
[ALTERNATE INTERNATIONAL PAGE]
Holder under penalties of perjury, and, in the case of Form 8306, to include an
official statement by the competent authority in the foreign country that the
Non-U.S. Holder is a resident thereof for purposes of its tax laws.
A Non-U.S. Holder of Common Stock eligible for a reduced rate of United
States withholding pursuant to an income tax treaty may obtain a refund as to
any excess amounts withheld by filing a claim for refund with the Internal
Revenue Service.
GAIN ON DISPOSITION
In general, a Non-U.S. Holder will not be subject to the United States
federal withholding tax in respect of gain realized on a disposition of shares
of Common Stock. In addition, except as described below, regular United States
federal income tax will not apply to gain realized on the disposition of shares
of Common Stock, provided that (i) the gain is not effectively connected with
the conduct of a trade or business of the Non-U.S. Holder in the United States
(or, if any of certain tax treaties applies, is not attributable to a United
States permanent establishment of the Non-U.S. Holder within the meaning of the
applicable treaty), (ii) in the case of a Non-U.S. Holder who is an individual
(a) if such individual holds the Common Stock as a capital asset, either he (1)
is not present in the United States for 183 or more days in the taxable year of
the disposition (as calculated under certain provisions of the Code) or (2) if
so present in the United States, such individual's "tax home" for United States
federal income tax purposes is not in the United States and the gain is not
attributable to an office or other fixed place of business maintained in the
United States by such individual, (b) such individual is not subject to tax
pursuant to the Code provisions applicable to certain expatriates and (c) such
individual has not elected to be treated as a resident of the United States for
federal income tax purposes and (iii) at the time of disposition the Company is
not and has not been a United States Real Property Holding Corporation at any
time during the shorter of the holders holding period or the five-year period
ending on the date of disposition or, if the Company is or was a "United States
Real Property Holding Corporation" whose Common Stock is or was during the
calendar year of disposition regularly traded on an established securities
market, the Non-U.S. Holder has not held, directly or indirectly, at any time
during the shorter of the holder's holding period and the five-year period
ending on the date of disposition, more than 5% of the shares of Common Stock.
The Company believes that it currently is and will continue to be a "United
States Real Property Holding Corporation."
A partner in a partnership or a beneficiary of a trust or estate may be
subject to United States federal income tax on gain realized on the disposition
of shares of Common Stock by the partnership, trust or estate (even though that
entity may not be subject to tax) if (i) the partner or beneficiary is subject
to United States federal income tax because of its own status, such as a United
States resident or a foreign person engaged in a trade or business in the United
States whose gain is effectively connected with that trade or business or (ii)
the partner or beneficiary is a nonresident alien individual or foreign
corporation and the gain of the partnership, estate or trust disposing of the
shares of Common Stock is effectively connected with the conduct of a trade or
business within the United States by such partnership, estate or trust.
FEDERAL ESTATE TAXES
Shares of Common Stock owned, or treated as owned, by an individual who is a
Non-U.S. Holder at the time of death will be subject to United States federal
estate taxes, unless an applicable estate tax treaty provides otherwise.
UNITED STATES INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
The Company must report annually to the Internal Revenue Service the amount
of dividends paid to, and the tax withheld with respect to, a Non-U.S. Holder.
These information reporting requirements apply even if withholding was not
required because the dividends were effectively connected with a trade or
business in the United States of the Non-U.S. Holder or withholding was reduced
by an applicable tax treaty. Copies of these information returns may also be
made available, under the provisions of a specific treaty or agreement, to the
tax authorities in the country in which the Non-U.S. Holder resides. United
States backup withholding tax, which generally is a withholding tax imposed at a
rate of 31% on certain
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payments to persons that fail to furnish the information required under the
United States information reporting requirements, will generally not apply to
dividends paid on shares of Common Stock to a Non-U.S. Holder at an address
outside the United States, under temporary treasury regulations, unless the
payor has knowledge that the payee is a U.S. person.
In general, the payment of the proceeds of the disposition of shares of
Common Stock to or through a non-U.S. office of a non-U.S. broker will not
generally be subject to information reporting or backup withholding. Information
reporting requirements will apply, but backup withholding will not apply, to
payments made outside the United States to or through a foreign office of a
broker that is a United States person, a United States controlled foreign
corporation or a foreign person 50% or more of whose gross income (over a
three-year period) is effectively connected with the conduct of a United States
trade or business unless such broker has documentary evidence in its records of
the owner's non-U.S. status, certain other conditions are met and such broker
has no actual knowledge to the contrary or unless the owner otherwise
establishes an exemption. Temporary Treasury regulations provide that the
Treasury is considering whether backup withholding will apply with respect to
such payments that are not currently subject to backup withholding under the
current regulations. Under proposed Treasury regulations not currently in
effect, backup withholding will not apply to such payments absent actual
knowledge that the payee is a U.S. person.
The payment of proceeds of the disposition of shares of Common Stock by a
broker to or through a U.S. office is subject to both possible backup
withholding and information reporting requirements unless the holder certifies
his non-U.S. status under penalties of perjury, or otherwise establishes an
applicable exception.
REFUNDS
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be refunded or credited against the Non-U.S. Holder's
United States federal income tax liability, if any, provided that a proper claim
for refund is made or the required information is furnished to the Internal
Revenue Service.
70
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UNDERWRITING
Subject to the terms and conditions set forth in the International
Underwriting Agreement among the Company, the Selling Shareholder and Salomon
Brothers International Limited, Dillon, Read & Co. Inc. and Morgan Stanley & Co.
International Limited (together, the "International Underwriters"), the Company
and the Selling Shareholder have agreed to sell to the International
Underwriters, and each of the International Underwriters has severally agreed to
purchase from the Company and the Selling Shareholder, the aggregate number of
shares of Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
INTERNATIONAL UNDERWRITERS OF SHARES
- ----------------------------------------------------------------------- -----------
<S> <C>
Salomon Brothers International Limited.................................
Dillon, Read & Co. Inc.................................................
Morgan Stanley & Co. International Limited.............................
-----------
Total............................................................ 1,800,000
-----------
-----------
</TABLE>
The International Underwriting Agreement provides that the several
International Underwriters will be obligated to purchase all the shares of
Common Stock being offered (other than the shares covered by the over-allotment
option described below), if any are purchased. The International Managing
Underwriters are Salomon Brothers International Limited, Dillon, Read & Co. Inc.
and Morgan Stanley & Co. International Limited.
The International Underwriters have advised the Company that they propose
initially to offer the Common Stock directly to the public at the public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $ per share. The
International Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share on sales to certain other dealers. After the
initial offering, the price to public, and concessions to dealers may be
changed.
The Company has granted to the International Underwriters and the U.S.
Underwriters options to purchase up to an additional 270,000 and 1,530,000
shares of Common Stock, respectively, at the initial offering price less the
aggregate underwriting discounts and commissions, solely to cover
over-allotments. Either or both options may be exercised at any time up to 30
days after the date of this Prospectus. To the extent that the International
Underwriters and U.S. Underwriters exercise such options, each of the
International Underwriters or U.S. Underwriters, as the case may be, will be
committed, subject to certain conditions, to purchase a number of option shares
proportionate to such International Underwriter's or U.S. Underwriter's initial
commitment. The Company and the Selling Shareholder have entered into a U.S.
Underwriting Agreement with the U.S. Underwriters providing for the concurrent
offer and sale of 10,200,000 shares of Common Stock (in addition to the shares
covered by the over-allotment options described above) in the United States and
Canada. The price to public and aggregate underwriting discount per share for
the International Offering and U.S. Offering are identical. The closing of the
International Offering is a condition to the closing of the U.S. Offering, and
vice versa. The representatives of the U.S. Underwriters are Salomon Brothers
Inc, Dillon, Read & Co. Inc., Morgan Stanley & Co. Incorporated and Chase
Securities, Inc.
The International Underwriters and the U.S. Underwriters have entered into
an Agreement Between U.S. Underwriters and International Underwriters pursuant
to which each U.S. Underwriter has agreed that, as part of the distribution of
the shares of Common Stock offered in the U.S. Offering and subject to certain
exceptions, (a) it is not purchasing any such shares for the account of an
International Person (as defined blow), (b) it has not offered or sold, and will
not offer, sell, resell or deliver, directly or indirectly,
71
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any shares of Common Stock or distribute any prospectus relating to the Common
Stock to anyone other than a U.S. or Canadian Person (as defined below) and (c)
any dealer to whom it may sell any of the shares of Common Stock will represent
and agree that it will comply with the restrictions set forth in (a) and (b) and
will not offer, sell, resell or deliver, directly or indirectly, any of the
shares or distribute any prospectus relating to the Common Stock to any other
dealer who does not so represent and agree. In addition, pursuant to the
Agreement Between U.S. Underwriters and International Underwriters, each
International Underwriter has agreed that, as part of the distribution of shares
of Common Stock offered in the International Offering and subject to certain
exceptions, (1) it is not purchasing any such shares for the account of anyone
other than an International Person, (2) it has not offered or sold, and will not
offer, sell, resell or deliver, directly or indirectly, any shares of Common
Stock or distribute any prospectus relating to the Common Stock to anyone other
than an International Person and (3) any dealer to whom it may sell any of the
shares of Common Stock will represent and agree that it will comply with the
restrictions set forth in (1) and (2) and will not offer, sell, resell or
deliver, directly or indirectly, any of the shares or distribute any prospectus
relating to the Common Stock to any other dealer who does not so represent and
agree.
The foregoing limitations do not apply to stabilization transactions or to
transactions among the International Underwriters and the U.S. Underwriters
pursuant to the Agreement Between U.S. Underwriters and International
Underwriters. As used herein, "United States" means the United States of America
(including the District of Columbia) and its territories, possessions and other
areas subject to its jurisdiction, "Canada" means Canada, its provinces,
territories, possessions and other areas subject to its jurisdiction and "U.S.
or Canadian Person" means a citizen or resident of the United States or Canada,
a corporation, partnership or other entity created or organized in or under the
laws of the United States or Canada or any political subdivision thereof, or any
estate or trust the income of which is subject to United States or Canadian
income taxation regardless of its source (other than a foreign branch of such
entity), and includes any United States or Canadian branch of a person other
than a U.S. or Canadian Person. As used herein, the term "International Person"
means any person, corporation, partnership or other entity that is not a U.S. or
Canadian Person.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, sales may be made between the International Underwriters and the
U.S. Underwriters of such number of shares of Common Stock as may be mutually
agreed.
The Company and each International Underwriter and U.S. Underwriter (a) have
not offered or sold and, prior to the expiry of six months from the Closing
Date, will not offer or sell any shares of Common Stock in the United Kingdom
other than to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments, whether as principal or agent,
for the purposes of their businesses or otherwise in circumstances which have
not resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995, (b) have
complied and will comply with all applicable provisions of the Financial
Services Act of 1986 (the "1986 Act") with respect to anything done by it in
relation to the shares of Common Stock in, from or otherwise involving the
United Kingdom and (c) have only issued or passed on, and will only issue or
pass on, in the United Kingdom any document received by it in connection with
the issue of the shares of Common Stock to a person who is of a kind described
in Article 11(3) of the 1986 Act (Investment Advertisements) (Exemptions) Order
1995 or is a person to whom such document may otherwise lawfully be issued or
passed on.
The shares of Common Stock may not be offered or sold directly or indirectly
in Hong Kong by means of this document or any other offering material or
document other than to persons whose ordinary business it is to buy or sell
shares or debentures, whether as principal or as agent. Unless permitted to do
so by the securities laws of Hong Kong, no person may issue or cause to be
issued in Hong Kong this document or any amendment or supplement thereto or any
other information, advertisement or document relating to the shares of Common
Stock other than with respect to shares of Common Stock intended to be disposed
of to persons outside Hong Kong or to persons whose business involves the
acquisition, disposal or holding of securities, whether as principal or as
agent.
72
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[ALTERNATE INTERNATIONAL PAGE]
The shares of Common Stock have not been registered under the Securities and
Exchange Law of Japan and are not being offered and may not be offered or sold
directly or indirectly in Japan or to residents of Japan, except pursuant to
applicable Japanese laws and regulations.
For a period of 120 days after the date of this Prospectus, the Company, the
Selling Shareholder, and each director and executive officer of the Company have
agreed not to offer, sell, contract to sell or otherwise dispose of any shares
of Common Stock, any other capital stock of the Company or any security
convertible into or exercisable or exchangeable for Common Stock or any such
other capital stock without the prior written consent of Salomon Brothers Inc
and Salomon Brothers International Limited, except (a) the Company may register
the Common Stock and the Company and the Selling Shareholder may sell the shares
of Common Stock offered in the Offerings and (b) the Company may issue
securities pursuant to the Company's stock option or other benefit or incentive
plans maintained for its officers, directors or employees.
No action has been taken or will be taken in any jurisdiction by the Company
or the International Underwriters or the U.S. Underwriters that would permit a
public offering of the shares offered hereby in any jurisdiction where action
for that purpose is required, other than the United States. Persons who come
into possession of this Prospectus are required by the Company and the
International Underwriters and the U.S. Underwriters to inform themselves about
and to observe any restrictions as to the offering of the shares offered hereby
and the distribution of this Prospectus.
Purchasers of the shares of Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase in addition to the offering price set forth on the cover
page hereof.
Dillon, Read & Co. Inc. has performed various investment banking services
for the Company in the past 12 months, for which it has received customary fees.
The Company and the Selling Shareholder have agreed to indemnify the
International Underwriters against certain civil liabilities, including certain
liabilities under the Securities Act of 1933, as amended (the "Securities Act"),
or contribute to payments the International Underwriters may be required to make
in respect thereof.
In connection with the International Offering, certain International
Underwriters and selling group members who are qualifying registered market
makers on the Nasdaq National Market may engage in passive market making
transactions in the Common Stock on the Nasdaq National Market in accordance
with Rule 10b-6A under the Securities Exchange Act of 1934, during the two
business day period before commencement of offers or sales of the Common Stock
offered hereby. Passive market making transactions must comply with certain
volume and price limitations and be identified as such. In general, a passive
market maker may display its bid at a price not in excess of the highest
independent bid for the security, and if all independent bids are lowered below
the passive market maker's bid, then such bid must be lowered when certain
purchase limits are exceeded.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for the
Company by Vinson & Elkins L.L.P., Houston, Texas, and certain legal matters
will be passed upon for the Underwriters by Cahill Gordon & Reindel, a
partnership including a professional corporation, New York, New York.
EXPERTS
The consolidated financial statements of Forest Oil Corporation as of
December 31, 1994 and 1993 and for each of the years in the three-year period
ended December 31, 1994 have been incorporated by reference and included herein
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, incorporated by reference and appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.
73
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[ALTERNATE INTERNATIONAL PAGE]
The consolidated financial statements of ATCOR Resources, Ltd. as at
December 31, 1994 and 1993 and for each of the years in the three-year period
ended December 31, 1994 have been included herein in reliance upon the report of
Price Waterhouse, independent auditors, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing. Price Waterhouse
is a Canadian partnership, resident in Canada.
The Company's U.S. reserve estimates set forth in this Prospectus have been
reviewed by Ryder Scott Company and are included herein in reliance upon the
authority of said firm as experts in petroleum engineering.
The reserve estimates of ATCOR set forth in this Prospectus have been
prepared by McDaniel & Associates Consultants Ltd. and are included herein in
reliance upon the authority of said firm as experts in petroleum engineering.
The reserve estimates of Saxon set forth in this Prospectus have been
prepared by Fekete & Associates, Inc. and are included herein in reliance upon
the authority of said firm as experts in petroleum engineering.
CERTAIN DEFINITIONS
Unless otherwise indicated in this Prospectus, natural gas volumes are
stated at the legal pressure base of the state or area in which the reserves are
located at 60 Fahrenheit. Natural gas equivalents are determined using the ratio
of six Mcf of natural gas to one barrel of crude oil, condensate or natural gas
liquids so that one barrel of oil is referred to as six Mcf of natural gas
equivalent or "Mcfe".
As used in this Prospectus, the following terms have the following specific
meanings: "Mcf" means thousand cubic feet, "MMcf" means million cubic feet,
"Bcf" means billion cubic feet, "Mcfe" means thousand cubic feet equivalent,
"MMcfe" means million cubic feet equivalent, "Bcfe" means billion cubic feet
equivalent, "MMbtu" means million British thermal units and "Bbtu" means billion
British Thermal Units. "Mcf/d" means thousand cubic feet per day, "MMcf/d" means
million cubic feet per day and "MMcfe/d" means million cubic feet equivalent per
day.
"Bbls" means barrels, "Mbbls" means thousand barrels and "MMbbls" means
million barrels. "Bbls/d" means barrels per day.
The term "spot market" as used herein refers to natural gas sold under
contracts with a term of six months or less or contracts which call for a
redetermination of sales prices every six months or earlier.
With respect to information concerning the Company's working interests in
wells or drilling locations, "gross" oil and gas wells or "gross" acres is the
number of wells or acres in which the Company has an interest, and "net" oil and
gas wells or "net" acres are determined by multiplying "gross" wells or acres by
the Company's working interest in those wells or acres. A working interest in an
oil and gas lease is an interest that gives the owner the right to drill,
produce, and conduct operating activities on the property and to receive a share
of production of any hydrocarbons covered by the lease. A working interest in an
oil and gas lease also entitles its owner to a proportionate interest in any
well located on the lands covered by the lease, subject to all royalties,
overriding royalties and other burdens, to all costs and expenses of
exploration, development and operation of any well located on the lease, and to
all risks in connection therewith.
"Capital expenditures" means costs associated with exploratory and
development drilling (including exploratory dry holes); leasehold acquisitions;
seismic data acquisitions; geological, geophysical and land related overhead
expenditures; delay rentals; controlling interests in other independent oil and
natural gas companies; producing property acquisitions; and other miscellaneous
capital expenditures.
A "development well" is a well drilled as an additional well to the same
horizon or horizons as other producing wells on a prospect, or a well drilled on
a spacing unit adjacent to a spacing unit with an
74
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existing well capable of commercial production and which is intended to extend
the proven limits of a prospect. An "exploratory well" is a well drilled to find
commercially productive hydrocarbons in a unproved area, or to extend
significantly a known prospect.
A "farmout" is an assignment to another party of an interest in a drilling
location and related acreage conditional upon performing future exploratory
efforts including the drilling of a well on that location.
"Reserves" means natural gas and crude oil, condensate and natural gas
liquids on a net revenue interest basis, found to be commercially recoverable.
"Proved developed reserves" includes proved developed producing reserves.
"Proved developed producing reserves" includes only those reserves expected to
be recovered from existing completion intervals in existing wells. "Proved
undeveloped reserves" includes those reserves expected to be recovered from new
wells on proved undrilled acreage or from existing wells where a relatively
major expenditure is required for recompletion.
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
S-2 (the "Registration Statement", which term encompasses all amendments,
exhibits, annexes and schedules thereto) under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all the information set forth in the Registration Statement, to
which reference is hereby made. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement and the exhibits
thereto, reference is hereby made to the exhibit for a more complete description
of the matter involved, and each statement made herein shall be deemed qualified
in its entirety by such reference.
The Company is subject to the informational and reporting requirements of
the Securities Exchange Act of 1934, as amended (the "1934 Act"), and in
accordance therewith files periodic reports, proxy and information statements
and other information with the Commission. The Registration Statement filed by
the Company with the Commission, as well as such reports, proxy and information
statements and other information filed by the Company with the Commission, may
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at 7 World
Trade Center, New York, New York 10048, and the Chicago Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material, when filed, may also be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Common Stock is quoted on the
Nasdaq National Market and such reports, proxy and information statements and
other information concerning the Company are available at the offices of the
Nasdaq National Market located at 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated by reference in this Prospectus is (i) the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994, (ii) the
Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995,
June 30, 1995 and September 30, 1995 (iii) the Company's Current Reports on Form
8-K dated October 11, 1995 (as amended December 27, 1995), December 12, 1995 and
December 20, 1995 all filed previously with the SEC pursuant to Section 13 of
the 1934 Act. Any statement contained in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person, including any
beneficial owner of Common Stock, to whom a copy of this Prospectus has been
delivered, on the written or oral request of
75
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[ALTERNATE INTERNATIONAL PAGE]
such person, a copy of any or all of the foregoing documents incorporated by
reference in this Prospectus, other than exhibits to such documents unless such
exhibits are specifically incorporated by reference into the information that
this Prospectus incorporates. Written or oral requests for such copies should be
directed to Daniel L. McNamara, Corporate Counsel and Secretary, Forest Oil
Corporation, 1600 Broadway, Suite 2200, Denver, Colorado 80202 (telephone: (303)
812-1400).
76
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[ALTERNATE INTERNATIONAL PAGE]
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
SHAREHOLDER OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH QUALIFIED SOLICITATION.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 10
The Company.................................... 16
Use of Proceeds................................ 16
Capitalization................................. 17
Price Range of Common Stock.................... 18
Dividend Policy................................ 18
Selected Financial and Operating
Data......................................... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 22
Business and Properties........................ 38
The Anschutz and JEDI Transactions............. 52
Management..................................... 58
Principal and Selling Shareholders............. 61
Description of Capital Stock................... 63
Certain United States Tax Consequences to
Non-U.S. Holders............................. 68
Underwriting................................... 71
Legal Matters.................................. 73
Experts........................................ 73
Certain Definitions............................ 74
Available Information.......................... 75
Incorporation of Certain Documents by
Reference.................................... 75
Index to Financial Statements.................. F-1
Review Report of Ryder Scott
Company...................................... A-1
Summary Reserve Report of Fekete Associates,
Inc.......................................... B-1
Summary Reserve Report of McDaniel & Associates
Consultants Ltd.............................. C-1
</TABLE>
12,000,000 SHARES
FOREST OIL
CORPORATION
COMMON STOCK
($.10 PAR VALUE)
[LOGO]
SALOMON BROTHERS
INTERNATIONAL LIMITED
DILLON, READ & CO. INC.
MORGAN STANLEY & CO.
INTERNATIONAL
PROSPECTUS
DATED JANUARY , 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC registration fee........................................... $ 64,004
NASD fee....................................................... 19,061
Printing and engraving expenses................................ 300,000
Accounting fees................................................ 150,000
Reserve Engineers.............................................. 175,000
Legal fees..................................................... 200,000
Blue Sky fees and expenses..................................... 12,000
Transfer Agent and Registrar fee............................... 10,000
Miscellaneous.................................................. 69,935
----------
Total...................................................... $1,000,000
----------
----------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 721 through 725 of the Business Corporation Law of the State of New
York (the "BCL"), in which Forest Oil Corporation is incorporated, permit New
York corporations, acting through their boards of directors, to extend broad
protection to their directors, officers and other employees by way of indemnity
and advancement of expenses. These sections (1) provide that the statutory
indemnification provisions of the BCL are not exclusive, provided that no
indemnification may be made to or on behalf of any director or officer if a
judgment or other final adjudication adverse to the director or officer
establishes that his acts were committed in bad faith or were the result of
active and deliberate dishonesty and were material to the cause of action so
adjudicated, or that he personally gained in fact a financial profit or other
advantage to which he was not entitled, (2) establish procedures for
indemnification and advancement of expenses that may be contained in the
certificate of incorporation or by-laws, or, when authorized by either of the
foregoing, set forth in a resolution of the shareholders or directors or an
agreement providing for indemnification and advancement of expenses, (3) apply a
single standard for statutory indemnification for third-party and derivative
suits by providing that indemnification is available if the director or officer
acted, in good faith, for a purpose which he reasonably believed to be in the
best interests of the corporation, and, in criminal actions, had no reasonable
cause to believe that his conduct was unlawful, (4) eliminate the requirement
for mandatory statutory indemnification that the indemnified party be "wholly"
successful and (5) provide for the advancement of litigation expenses upon
receipt of an undertaking to repay such advance if the director or officer is
ultimately determined not to be entitled to indemnification. Section 726 of the
BCL permits the purchase of insurance to indemnify a corporation or its officers
and directors to the extent permitted. Essentially, the amended BCL allows
corporations to provide for indemnification of directors, officers and employees
except in those cases where a judgment or other final adjudication adverse to
the indemnified party establishes that the acts were committed in bad faith or
were the result of active and deliberate dishonesty or that the indemnified
party personally gained a financial profit or other advantage to which he was
not legally entitled.
Article IX of the By-laws of Forest Oil Corporation contains very broad
indemnification provisions which permit the corporation to avail itself of the
amended BCL to extend broad protection to its directors, officers and employees
by way of indemnity and advancement of expenses. It sets out the standard under
which the Company will indemnify directors and officers, provides for
reimbursement in such instances, for the advancement or reimbursement for
expenses reasonably incurred in defending an action, and for the extension of
indemnity to persons other than directors and officers. It also establishes the
manner of handling indemnification when a lawsuit is settled. It is not intended
that this By-law is an exclusive method of indemnification.
Article IX of the By-laws may only be amended prospectively. In addition,
the Company cannot, except by elimination or amendment of such section of the
By- laws, limit the rights of any indemnified
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<PAGE>
person to indemnity or advancement of expenses provided in accordance with this
By-law. It also permits the indemnified person to sue the Company for
indemnification, shifting the burden of proof to the Company to prove that the
indemnified person has not met the standards of conduct required for
indemnification and requires the Company to pay the costs of such suit if the
indemnified person is successful.
The Restated Certificate of Incorporation of the Company limits the personal
liability of the Company's directors to the fullest extent permitted under the
BCL.
Additionally, the BCL was amended in 1987 to allow New York corporations to
limit or eliminate director's liability for certain breaches of duty. The
Restated Certificate of Incorporation provides that a director of the Company
shall not be liable to the Company or its shareholders for damages for any
breach of duty in such a capacity unless a judgment or other final adjudication
adverse to the director establishes that:
(a) the director's acts or omissions were in bad faith or involved
intentional misconduct or a knowing violation of law; or
(b) the director personally gained in fact a financial profit or other
advantage to which the director was not legally entitled; or
(c) the director's acts violated Section 719 of the BCL.
A director's liability for any act or omission prior to the adoption of the
amendment to the BCL to eliminate director's liability for certain breaches of
duty shall not be eliminated or limited by virtue thereof and any repeal or
modification of the foregoing provisions of, or the adoption of any provision
of, the Restated Certificate of Incorporation inconsistent with the BCL shall
not adversely affect any right, immunity or protection of director existing
thereunder with respect to any act or omission occurring prior to or at the time
of such repeal or modification or the adoption of such inconsistent provision.
If the BCL is subsequently amended to permit the further elimination or
limitation of the personal liability of a director, then the liability of the
director shall be eliminated or limited to the fullest extent permitted by the
BCL as so amended.
The Company has insurance coverage which protects directors and officers of
Forest Oil Corporation and its subsidiaries against judgments, settlements and
legal costs incurred because of actual or alleged errors or omissions in
connection with their activities as directors or officers of Forest Oil
Corporation and its subsidiaries. One of the policies is a Directors and
Officers Liability and Corporation Reimbursement Policy, which covers the period
July 25, 1995 to July 25, 1996. Where Forest Oil Corporation or its subsidiaries
indemnifies covered directors and officers, Forest Oil Corporation is
responsible for a $500,000 deductible per loss. The maximum annual cumulative
policy limit is $20 million.
The Company also has Pension Trust Liability Coverage as respects Forest Oil
Corporation Pension Trust and the Retirement Savings Plan. It covers legal
liability and defense of Plan sponsors and fiduciaries for certain claims based
upon actual or alleged Breach of Fiduciary Duty (as defined in the policy) as
respects the covered benefit plans. The coverage limit is $10 million (annual
cumulative policy limit) and is subject to a deductible of $100,000 for each
loss when indemnifiable by Forest Oil Corporation and its subsidiaries.
These policies contain exclusions commonly found in such insurance policies
including, but not limited to, exclusions for claims based on fines and
penalties imposed by law or other matters deemed uninsurable by law, claims
brought by one insured against another insured, claims based upon or
attributable to an officer or director gaining any personal profit or advantage
to which he or she is not legally entitled, adjudicated acts of active or
deliberate dishonesty, and claims based upon attempts (whether alleged or
actual, successful or unsuccessful) by persons to acquire securities of the
Company against the opposition of the Company's Board of Directors and in
connection with which the Company acquires its securities from such persons at a
price not available to all other shareholders or gives
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<PAGE>
consideration to such persons to terminate such attempts. Also excluded are
those attempts (whether alleged or actual, successful or unsuccessful) by the
Company to acquire its securities at a premium over the then existing market
price other than pursuant to an offer to all of the holders of that class.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person thereof in connection with the
securities being registered (and the Securities and Exchange Commission is still
of the same opinion), the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 16. EXHIBITS.
<TABLE>
<C> <S> <C>
* Exhibit 1.1 Form of U.S. Underwriting Agreement.
* Exhibit 1.2 Form of International Underwriting Agreement.
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 Certificate of Amendment of the Restated Certificate of Incorporation
3(i)(a) dated as of July 20, 1995, incorporated herein by reference to Exhibit
3(i)(a) to Form 10-Q for Forest Oil Corporation for the quarter ended
June 30, 1995 (File No. 0-4597).
Exhibit Certificate of Amendment of the Restated Certificate of Incorporation
3(i)(b) dated as of July 26, 1995, incorporated herein by reference to Exhibit
3(i)(b) to Form 10-Q for Forest Oil Corporation for the quarter ended
June 30, 1995 (File No. 0-4597).
* Exhibit Certificate of Amendment of the Restated Certificate of Incorporation.
3(i)(c)
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 Amendment No. 7 to By-Laws dated as of December 3, 1993, incorporated
3(ii)(a) 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 Amendment No. 8 to By-Laws dated as of February 24, 1994, incorporated
3(ii)(b) 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 Amendment No. 9 to By-Laws dated as of May 15, 1995, incorporated herein
3(ii)(c) by reference to Exhibit 3(ii)(c) to Form 10-Q for Forest Oil Corporation
for the quarter ended June 30, 1995 (File No. 0-4597).
Exhibit Amendment No. 10 to By-Laws dated as of July 27, 1995, incorporated
3(ii)(d) herein by reference to Exhibit 3(ii)(d) to Form 10-Q for Forest Oil
Corporation for the quarter ended June 30, 1995 (File No. 0-4597).
</TABLE>
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<PAGE>
<TABLE>
<C> <S> <C>
Exhibit 4.1 Indenture dated as of September 8, 1993 between Forest Oil Corporation
and Shawmut Bank, Connecticut, (National Association), incorporated
herein by reference to Exhibit 4.1 to Form 10-Q for Forest Oil
Corporation for the quarter ended September 30, 1993 (File No. 0-4597).
Exhibit 4.2 Loan Agreement between Forest Oil Corporation and Joint Energy
Development Investments Limited Partnership dated as of December 28,
1993, incorporated herein by reference to Exhibit 4.1 to Form 8-K for
Forest Oil Corporation dated December 30, 1993 (File No. 0-4597).
Exhibit 4.3 Second Amendment effective as of July 27, 1995 to Deed of Trust,
Assignment of Production, Security Agreement and Financing Statement,
incorporated herein by reference to Exhibit 4.2 to Form 8-K for Forest
Oil Corporation dated October 11, 1995 (File No. 0-4597).
Exhibit 4.4 Amended and Restated Credit Agreement dated as of August 31, 1995 between
Forest Oil Corporation and Subsidiaries, Borrower and Subsidiary
Guarantors and The Chase Manhattan Bank (National Association), as agent,
incorporated herein by reference to Exhibit 4.1 to Form 10-Q for Forest
Oil Corporation for the quarter ended September 30, 1995 (File No.
0-4597).
Exhibit 4.5 First Amendment dated as of December 28, 1993 relating to Exhibit 4.2
hereof, incorporated herein by reference to Exhibit 4.3 to Form 10-Q for
Forest Oil Corporation for the quarter ended June 30, 1994 (File No.
0-4597).
Exhibit 4.6 Second Amendment dated as of July 27, 1995 relating to Exhibit 4.2
hereof, incorporated by reference to Exhibit 4.1.
Exhibit 4.7 Deed of Trust, Assignment of Production, Security Agreement and Financing
Statement dated as of December 28, 1993 by and between Forest Oil
Corporation and Joint Energy Development Investments Limited Partnership,
incorporated herein by reference to Exhibit 4.2 to Form 8-K for Forest
Oil Corporation dated December 30, 1993 (File No. 0-4597).
Exhibit 4.8 First Amendment dated as of June 15, 1994 relating to Exhibit 4.7 hereof,
incorporated herein by reference to Exhibit 4.4 to Form 10-Q for Forest
Oil Corporation for the quarter ended June 30, 1994 (File No. 0-4597).
Exhibit 4.9 Specimen of Common Stock Certificate.
Exhibit 4.10 Act of Mortgage, Assignment of Production, Security Agreement and
Financing Statement dated as of December 28, 1993 between Forest Oil
Corporation and Joint Energy Development Investments Limited Partnership,
incorporated herein by reference to Exhibit 4.3 to Form 8-K for Forest
Oil Corporation dated December 30, 1993 (File No. 0-4597).
Exhibit 4.11 Warrant Agreement dated as of December 3, 1991 between Forest Oil
Corporation and The Chase Manhattan Bank (National Association), as
Warrant Agent (including Form of Warrant), incorporated herein by
reference to Exhibit 4.7 to Form 10-K for Forest Oil Corporation for the
year ended December 31, 1991 (File No. 0-4597).
Exhibit 4.12 Rights Agreement between Forest Oil Corporation and Mellon Securities
Trust Company, as Rights Agent dated as of October 14, 1993, incorporated
herein by reference to Exhibit 4.3 to Form 10-Q for Forest Oil
Corporation for the quarter ended September 30, 1993 (File No. 0-4597).
Exhibit 5.1 Opinion of Vinson & Elkins L.L.P., relating to the legality of the Common
Stock, par value $.10 per share, of Forest Oil Corporation registered
pursuant hereto.
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S> <C>
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, incorporated
herein by reference to Exhibit 10.3 to Form 10-Q for Forest Oil
Corporation for the quarter ended June 30, 1990 (File No. 0-4597).
Exhibit 10.4 Form of non-qualified Supplemental Executive Retirement Plan,
incorporated herein by reference to Exhibit 10.4 to Form 10-K for Forest
Oil Corporation for the year ended December 31, 1990 (File No. 0-4597).
Exhibit 10.5 Form of Executive Retirement Agreement, incorporated herein by reference
to Exhibit 10.5 to Form 10-K for Forest Oil Corporation for the year
ended December 31, 1990 (File No. 0-4597).
Exhibit 10.6 Forest Oil Corporation 1992 Stock Option Plan and Option Agreement,
incorporated herein by reference to Exhibit 10.7 to Form 10-K for Forest
Oil Corporation for the year ended December 31, 1991 (File No. 0-4597).
Exhibit 10.7 Letter Agreement with Richard B. Dorn relating to a revision to Exhibit
10.5 hereof, incorporated herein by reference to Exhibit 10.11 to Form
10-K for Forest Oil Corporation for the year ended December 31, 1991
(File No. 0-4597).
Exhibit 10.8 Forest Oil Corporation Annual Incentive Plan effective as of January 1,
1992, incorporated herein by reference to Exhibit 10.8 to Form 10-K for
Forest Oil Corporation for the year ended December 31, 1992 (File No.
0-4597).
Exhibit 10.9 Form of Executive Severance Agreement, 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. 0-597).
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 10.11 Acquisition Agreement among Forest Oil Corporation, ATCOR Resources Ltd.,
ATCO Ltd., Canadian Utilities Limited and CanUtilities Holdings Ltd.
dated December 12, 1995.
Exhibit 10.12 Second Restructure Agreement between Joint Energy Development Investments
Limited Partnership and Forest Oil Corporation dated December 29, 1995.
Exhibit 23.1 Consent of Vinson & Elkins L.L.P. (included in Exhibit 5 hereto).
* Exhibit 23.2 Consent of KPMG Peat Marwick LLP.
Exhibit 23.3 Consent of Price Waterhouse.
Exhibit 23.4 Consent of Ryder Scott Company.
Exhibit 23.5 Consent of Fekete Associates, Inc.
Exhibit 23.6 Consent of McDaniel & Associates, Consultants Ltd.
Exhibit 24 Powers of Attorney of the following Officers and Directors: Philip F.
Anschutz, Robert S. Boswell, Richard J. Callahan, Dale F. Dorn, William
L. Dorn, David H. Keyte, James H. Lee, Daniel L. McNamara, Craig D.
Slater, Joan C. Sonnen, Drake S. Tempest and Michael B. Yanney.
</TABLE>
- ------------------------
* Filed herewith.
All other exhibits have previously been filed.
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<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Denver, State of Colorado, on January 24, 1996.
FOREST OIL CORPORATION
By: /s/ DANIEL L. MCNAMARA
-----------------------------------
Daniel L. McNamara
CORPORATE COUNSEL AND SECRETARY
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------------------ ----------------------------------- -------------------
<C> <S> <C>
ROBERT S. BOSWELL* President and Chief Executive
------------------------------------------------ Officer (Principal Executive January 24, 1996
(Robert S. Boswell) Officer)
DAVID H. KEYTE* Vice President and Chief Financial
------------------------------------------------ Officer (Principal Financial January 24, 1996
(David H. Keyte) Officer)
JOAN C. SONNEN*
------------------------------------------------ Controller (Principal Accounting January 24, 1996
(Joan C. Sonnen) Officer)
PHILIP F. ANSCHUTZ*
------------------------------------------------
(Philip F. Anschutz)
ROBERT S. BOSWELL*
------------------------------------------------ Directors of the Registrant January 24, 1996
(Robert S. Boswell)
RICHARD J. CALLAHAN*
------------------------------------------------
(Richard J. Callahan)
DALE F. DORN*
------------------------------------------------
(Dale F. Dorn)
WILLIAM L. DORN*
------------------------------------------------
(William L. Dorn)
JAMES H. LEE*
------------------------------------------------
(James H. Lee)
CRAIG D. SLATER*
------------------------------------------------
(Craig D. Slater)
DRAKE S. TEMPEST*
------------------------------------------------
(Drake S. Tempest)
MICHAEL B. YANNEY*
------------------------------------------------
(Michael B. Yanney)
*By: /s/ Daniel L. McNamara
-------------------------------------------
Daniel L. McNamara
(AS ATTORNEY-IN-FACT FOR
EACH OF THE PERSONS INDICATED)
</TABLE>
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<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
EXHIBIT NO. DESCRIPTION NO.
----------------- ---------------------------------------------------------------------------------- ---------
<C> <S> <C> <C>
* Exhibit 1.1 Form of U.S. Underwriting Agreement.
* Exhibit 1.2 Form of International Underwriting Agreement.
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, incorporated herein by reference to Exhibit 3(i)(a) to Form 10-Q
for Forest Oil Corporation for the quarter ended June 30, 1995 (File No. 0-4597).
Exhibit 3(i)(b) Certificate of Amendment of the Restated Certificate of Incorporation dated as of
July 26, 1995, incorporated herein by reference to Exhibit 3(i)(b) to Form 10-Q
for Forest Oil Corporation for the quarter ended June 30, 1995 (File No. 0-4597).
* Exhibit 3(i)(c) Certificate of Amendment of the Restated Certificate of Incorporation.
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, incorporated herein by
reference to Exhibit 3(ii)(c) to Form 10-Q for Forest Oil Corporation for the
quarter ended June 30, 1995 (File No. 0-4597).
Exhibit 3(ii)(d) Amendment No. 10 to By-Laws dated as of July 27, 1995, incorporated herein by
reference to Exhibit 3(ii)(d) to Form 10-Q for Forest Oil Corporation for the
quarter ended June 30, 1995 (File No. 0-4597).
Exhibit 4.1 Indenture dated as of September 8, 1993 between Forest Oil Corporation and Shawmut
Bank, Connecticut, (National Association), incorporated herein by reference to
Exhibit 4.1 to Form 10-Q for Forest Oil Corporation for the quarter ended
September 30, 1993 (File No. 0-4597).
Exhibit 4.2 Loan Agreement between Forest Oil Corporation and Joint Energy Development
Investments Limited Partnership dated as of December 28, 1993, incorporated herein
by reference to Exhibit 4.1 to Form 8-K for Forest Oil Corporation dated December
30, 1993 (File No. 0-4597).
Exhibit 4.3 Second Amendment effective as of July 27, 1995 to Deed of Trust, Assignment of
Production, Security Agreement and Financing Statement, incorporated herein by
reference to Exhibit 4.2 to Form 8-K for Forest Oil Corporation dated October 11,
1995 (File No. 0-4597).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
EXHIBIT NO. DESCRIPTION NO.
----------------- ---------------------------------------------------------------------------------- ---------
<C> <S> <C> <C>
Exhibit 4.4 Amended and Restated Credit Agreement dated as of August 31, 1995 between Forest
Oil Corporation and Subsidiaries, Borrower and Subsidiary Guarantors and The Chase
Manhattan Bank (National Association), as agent, incorporated herein by reference
to Exhibit 4.1 to Form 10-Q for Forest Oil Corporation for the quarter ended
September 30, 1995 (File No. 0-4597).
Exhibit 4.5 First Amendment dated as of December 28, 1993 relating to Exhibit 4.2 hereof,
incorporated herein by reference to Exhibit 4.3 to Form 10-Q for Forest Oil
Corporation for the quarter ended June 30, 1994 (File No. 0-4597).
Exhibit 4.6 Second Amendment dated as of July 27, 1995 relating to Exhibit 4.2 hereof,
incorporated by reference to Exhibit 4.1.
Exhibit 4.7 Deed of Trust, Assignment of Production, Security Agreement and Financing
Statement dated as of December 28, 1993 by and between Forest Oil Corporation and
Joint Energy Development Investments Limited Partnership, incorporated herein by
reference to Exhibit 4.2 to Form 8-K for Forest Oil Corporation dated December 30,
1993 (File No. 0-4597).
Exhibit 4.8 First Amendment dated as of June 15, 1994 relating to Exhibit 4.7 hereof,
incorporated herein by reference to Exhibit 4.4 to Form 10-Q for Forest Oil
Corporation for the quarter ended June 30, 1994 (File No. 0-4597).
Exhibit 4.9 Specimen of Common Stock Certificate.
Exhibit 4.10 Act of Mortgage, Assignment of Production, Security Agreement and Financing
Statement dated as of December 28, 1993 between Forest Oil Corporation and Joint
Energy Development Investments Limited Partnership, incorporated herein by
reference to Exhibit 4.3 to Form 8-K for Forest Oil Corporation dated December 30,
1993 (File No. 0-4597).
Exhibit 4.11 Warrant Agreement dated as of December 3, 1991 between Forest Oil Corporation and
The Chase Manhattan Bank (National Association), as Warrant Agent (including Form
of Warrant), incorporated herein by reference to Exhibit 4.7 to Form 10-K for
Forest Oil Corporation for the year ended December 31, 1991 (File No. 0-4597).
Exhibit 4.12 Rights Agreement between Forest Oil Corporation and Mellon Securities Trust
Company, as Rights Agent dated as of October 14, 1993, incorporated herein by
reference to Exhibit 4.3 to Form 10-Q for Forest Oil Corporation for the quarter
ended September 30, 1993 (File No. 0-4597).
Exhibit 5.1 Opinion of Vinson & Elkins L.L.P., relating to the legality of the Common Stock,
par value $.10 per share, of Forest Oil Corporation registered pursuant hereto.
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, incorporated herein by
reference to Exhibit 10.3 to Form 10-Q for Forest Oil Corporation for the quarter
ended June 30, 1990 (File No. 0-4597).
Exhibit 10.4 Form of non-qualified Supplemental Executive Retirement Plan, incorporated herein
by reference to Exhibit 10.4 to Form 10-K for Forest Oil Corporation for the year
ended December 31, 1990 (File No. 0-4597).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
EXHIBIT NO. DESCRIPTION NO.
----------------- ---------------------------------------------------------------------------------- ---------
<C> <S> <C> <C>
Exhibit 10.5 Form of Executive Retirement Agreement, incorporated herein by reference to
Exhibit 10.5 to Form 10-K for Forest Oil Corporation for the year ended December
31, 1990 (File No. 0-4597).
Exhibit 10.6 Forest Oil Corporation 1992 Stock Option Plan and Option Agreement, incorporated
herein by reference to Exhibit 10.7 to Form 10-K for Forest Oil Corporation for
the year ended December 31, 1991 (File No. 0-4597).
Exhibit 10.7 Letter Agreement with Richard B. Dorn relating to a revision to Exhibit 10.5
hereof, incorporated herein by reference to Exhibit 10.11 to Form 10-K for Forest
Oil Corporation for the year ended December 31, 1991 (File No. 0-4597).
Exhibit 10.8 Forest Oil Corporation Annual Incentive Plan effective as of January 1, 1992,
incorporated herein by reference to Exhibit 10.8 to Form 10-K for Forest Oil
Corporation for the year ended December 31, 1992 (File No. 0-4597).
Exhibit 10.9 Form of Executive Severance Agreement, 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. 0-597).
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 10.11 Acquisition Agreement among Forest Oil Corporation, ATCOR Resources Ltd., ATCO
Ltd., Canadian Utilities Limited and CanUtilities Holdings Ltd. dated December 12,
1995.
Exhibit 10.12 Second Restructure Agreement between Joint Energy Development Investments Limited
Partnership and Forest Oil Corporation dated December 29, 1995.
Exhibit 23.1 Consent of Vinson & Elkins L.L.P. (included in Exhibit 5 hereto).
Exhibit 23.2 Consent of KPMG Peat Marwick LLP.
Exhibit 23.3 Consent of Price Waterhouse.
Exhibit 23.4 Consent of Ryder Scott Company.
Exhibit 23.5 Consent of Fekete Associates, Inc.
Exhibit 23.6 Consent of McDaniel & Associates, Consultants Ltd.
Exhibit 24 Powers of Attorney of the following Officers and Directors: Philip F. Anschutz,
Robert S. Boswell, Richard J. Callahan, Dale F. Dorn, William L. Dorn, David H.
Keyte, James H. Lee, Daniel L. McNamara, Craig D. Slater, Joan C. Sonnen, Drake S.
Tempest and Michael B. Yanney.
</TABLE>
- ------------------------
* Filed herewith.
All other exhibits have previously been filed.
<PAGE>
Forest Oil Corporation
10,200,000 Shares
Common Stock
($.10 par value)
U.S. Underwriting Agreement
New York, New York
, 1996
Salomon Brothers Inc
Dillon, Read & Co. Inc.
Morgan Stanley & Co. Incorporated
Chase Securities, Inc.
As Representatives of the several U.S. Underwriters,
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Dear Sirs:
Forest Oil Corporation, a New York corporation (the
"Company"), and Saxon Petroleum Inc. (the "Selling Stockholder")
propose to sell 9,299,000 and 901,000 shares, respectively, of
Common Stock $.10 par value (the "Common Stock"), of the Company
(said shares to be issued and sold by the Company and the Selling
Stockholder being hereinafter called the "U.S. Underwritten
Securities"), to the underwriters named in Schedule I hereto (the
"U.S. Underwriters"), for whom you (the "Representatives") are
acting as representatives. The Company also proposes to grant to
the U.S. Underwriters an option to purchase up to an additional
1,530,000 shares of Common Stock (the "U.S. Option Securities";
the U.S. Option Securities, together with the U.S. Underwritten
Securities, being hereinafter called the "U.S. Securities").
It is understood that the Company and the Selling
Stockholder are concurrently entering into an International
Underwriting Agreement dated the date hereof (the "International
Underwriting Agreement") providing for (i) the sale by the
Company and the Selling Stockholder of an aggregate of 1,800,000
shares of Common Stock (the "International Underwritten
Securities") and (ii) the grant by the Company of an option to
the International Underwriters referred to below to purchase up
to an additional 270,000 shares of Common Stock (the
"International Option
- --------------
(1) Plus an option to purchase from the Company up to 1,530,000 additional
shares to cover over-allotments.
<PAGE>
-2-
Securities"); the International Option Securities together with the
International Underwritten Securities, being hereinafter called the
"International Securities," and, together with the U.S. Securities, the
"Securities"). It is contemplated that the International Securities shall be
sold outside the United States and Canada through arrangements with certain
underwriters outside the United States and Canada (the "International
Underwriters") for whom Salomon Brothers International Limited, Dillon, Read
& Co. Inc. and Morgan Stanley & Co. International Limited are acting as
representatives (the "International Representatives"). It is further
understood and agreed that the U.S. Underwriters and the International
Underwriters have entered into an Agreement Between U.S. Underwriters and
International Underwriters dated the date hereof (the "Agreement Between U.S.
Underwriters and International Underwriters"), pursuant to which, among other
things, the International Underwriters may purchase from the U.S.
Underwriters a portion of the U.S. Securities to be sold pursuant to the U.S.
Underwriting Agreement and the U.S. Underwriters may purchase from the
International Underwriters a portion of the International Securities to be
sold pursuant to the International Underwriting Agreement.
Pursuant to the Acquisition Agreement ("Acquisition
Agreement") dated December 12, 1995 by and among the Company,
ATCOR Resources Ltd., a Canadian corporation ("ATCOR"), Atco
Ltd., a corporation incorporated under the laws of Alberta,
Canadian Utilities Limited, a Canadian corporation ("Canadian
Utilities"), and Canutilities Holdings Ltd., a corporation
incorporated under the laws of Alberta ("Canutilities") and
subject to the terms and conditions set forth therein, the
Company agreed to purchase Atco Ltd., Canadian Utilities and
Canutilities agreed to sell ATCOR (the "Acquisition"), as more
fully described in the Prospectuses (as hereinafter defined).
Consummation of the Acquisition and the purchase of the U.S.
Underwritten Securities by the U.S. Underwriters and the
International Underwritten Securities by the International
Underwriters, are mutually contingent transactions, and the
Company intends that the closing of the Acquisition shall occur
immediately following the consummation of the transactions
contemplated by this Agreement and the International Underwriting
Agreement.
1. REPRESENTATIONS AND WARRANTIES.
(a) The Company represents and warrants to, and agrees
with, each U.S. Underwriter as set forth below in this Section
1(a). Certain terms used in this Section 1 are defined in
paragraph (iv) hereof.
<PAGE>
-3-
(i) The Company meets the requirements for use of
Form S-2 under the Securities Act of 1933 (the "Act") and
has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (file number 33-
64949) on such Form, including related Preliminary
Prospectuses, for the registration under the Act of the
offering and sale of the Securities. The Company has filed
one or more amendments thereto, including the related
Preliminary Prospectuses, each of which has previously been
furnished to you. The Company will next file with the
Commission either (i) prior to effectiveness of such
registration statement, a further amendment to such
registration statement (including the form of final
prospectuses) or (ii) after effectiveness of such
registration statement, final prospectuses in accordance
with Rules 430A and 424(b)(1) or (4). In the case of clause
(ii), the Company has included in such registration
statement, as amended at the Effective Date, all information
(other than Rule 430A Information) required by the Act and
the rules thereunder to be included in the Prospectuses with
respect to the Securities and the offering thereof. As
filed, such amendment and form of final prospectuses, or
such final prospectuses, shall include all Rule 430A
Information, together with all other such required
information, with respect to the Securities and the offering
thereof and, except to the extent the Representatives shall
agree in writing to a modification, shall be in all
substantive respects in the form furnished to you prior to
the Execution Time or, to the extent not completed at the
Execution Time, shall contain only such specific additional
information and other changes (beyond that contained in the
latest U.S. Preliminary Prospectus) as the Company has
advised you, prior to the Execution Time, will be included
or made therein.
(ii) It is understood that two forms of prospectuses
are to be used in connection with the offering and sale of
the Securities: one form of prospectus relating to the U.S.
Securities, which are to be offered and sold to United
States and Canadian Persons, and one form of prospectus
relating to the International Securities, which are to be
offered and sold to persons other than United States and
Canadian Persons. Such form of prospectus relating to the
U.S. Securities as first filed pursuant to Rule 424(b) or,
if no filing pursuant to Rule 424(b) is made, such form of
prospectus included in the Registration Statement at the
Effective Date, is referred to herein as the "U.S. Prospectus";
such form of prospectus relating to the International Securities
as first filed pursuant to Rule 424(b) or, if no filing pursuant
to Rule 424(b) is made, such form of prospectus included in the
<PAGE>
-4-
Registration Statement at the Effective Date, is referred to herein
as the "International Prospectus"; and the U.S. Prospectus and the
International Prospectus are collectively referred to herein as the
"Prospectuses".
(iii) To the best of the Company's knowledge, no
order preventing or suspending the use of any Preliminary
Prospectuses has been issued by the Commission. On the
Effective Date, the Registration Statement did or will, and
when the Prospectuses are first filed (if required) in
accordance with Rule 424(b) and on the Closing Date, the
Prospectuses (and any supplements thereto) will, comply in
all material respects with the applicable requirements of
the Act and the Securities Exchange Act of 1934 (the
"Exchange Act") and the respective rules and regulations
thereunder. On the Effective Date, the Registration
Statement did not or will not contain any untrue statement
of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make
the statements therein not misleading, and, on the Effective
Date, each Prospectus, if not filed pursuant to Rule 424(b),
did not or will not, and on the date of any filing pursuant
to Rule 424(b) and on the Closing Date, each Prospectus
(together with any supplement thereto) will not, include any
untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading; PROVIDED, HOWEVER, that the
Company makes no representations or warranties as to the
information contained in or omitted from the Registration
Statement, or the Prospectuses (or any supplement thereto)
in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of any
U.S. Underwriter through the Representatives specifically
for inclusion in or omission from the Registration Statement
or the Prospectuses (or any supplement thereto).
(iv) The terms which follow, when used in this
Agreement, shall have the meanings indicated. The term "the
Effective Date" shall mean each date that the Registration
Statement and any post-effective amendment or amendments
thereto became or become effective. "Execution Time" shall
mean the date and time that this Agreement is executed and
delivered by the parties hereto. The "U.S. Preliminary
Prospectus" and the "International Preliminary Prospectus",
respectively, shall mean any preliminary prospectus with
respect to the offering of the U.S. Securities and the
International Securities, as the case may be, referred to in
paragraph (i) above and any preliminary prospectus with
<PAGE>
-5-
respect to the offering of the U.S. Securities and the
International Securities, as the case may be, included in
the Registration Statement at the Effective Date that omits
Rule 430A Information; and the U.S. Preliminary Prospectus
and the International Preliminary Prospectus are hereinafter
collectively called the "Preliminary Prospectuses".
"Prospectus" shall mean the prospectus relating to the
Securities that is first filed pursuant to Rule 424(b) after
the Execution Time or, if no filing pursuant to Rule 424(b)
is required, shall mean the form of final prospectus
relating to the Securities included in the Registration
Statement at the Effective Date. "Registration Statement"
shall mean the registration statement referred to in
paragraph (i) above, including incorporated documents,
exhibits and financial statements, as amended at the
Execution Time (or, if not effective at the Execution Time,
in the form in which it shall become effective) and, in the
event any post-effective amendment thereto becomes effective
prior to the Closing Date (as hereinafter defined), shall
also mean such registration statement as so amended. Such
term shall include any Rule 430A Information deemed to be
included therein at the Effective Date as provided by Rule
430A. "Rule 424" and "Rule 430A" refer to such rules under
the Act. "Rule 430A Information" means information with
respect to the Securities and the offering thereof permitted
to be omitted from the Registration Statement when it
becomes effective pursuant to Rule 430A. Any reference
herein to the Registration Statement, a Preliminary
Prospectus or the Prospectuses shall be deemed to refer to
and include the documents (or any portions thereof)
incorporated by reference therein pursuant to Item 12 of
Form S-2 whether filed under the Exchange Act or delivered
pursuant to Item 11 of Form S-2. Any reference herein to
the Registration Statement, a Preliminary Prospectus or the
Prospectuses shall be deemed to refer to and include the
documents incorporated by reference therein pursuant to Item
12 of Form S-2 which were filed under the Exchange Act on or
before the Effective Date of the Registration Statement or
the issue date of such Preliminary Prospectus or the
Prospectuses, as the case may be; and any reference herein
to the terms "amend", "amendment" or "supplement" with
respect to the Registration Statement, any Preliminary
Prospectus or the Prospectuses shall be deemed to refer to
and include the filing of any document under the Exchange
Act after the Effective Date of the Registration Statement,
or the issue date of any Preliminary Prospectus or the
Prospectuses, as the case may be, deemed to be incorporated
therein by reference. "United States or Canadian Person"
shall mean any person who is a national or resident of the
United States or Canada, any
<PAGE>
-6-
corporation, partnership, or other entity created or organized in
or under the laws of the United States or Canada or of any political
subdivision thereof, or any estate or trust the income of which is
subject to United States or Canadian Federal income
taxation, regardless of its source (other than any non-
United States or non-Canadian branch of any United States or
Canadian Person), and shall include any United States or
Canadian branch of a person other than a United States or
Canadian Person. "U.S." or "United States" shall mean the
United States of America (including the states thereof and
the District of Columbia), its territories, its possessions
and other areas subject to its jurisdiction.
(v) The only corporate subsidiaries of the Company
are listed on Schedule II hereto and are each referred to
herein as a "subsidiary" and are collectively referred to
herein as the "subsidiaries".
(vi) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of New York, and each subsidiary of the
Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of its
jurisdiction of incorporation or organization, as the case
may be, and each has the corporate power and authority to
own its properties and conduct its business as described in
the Prospectuses, and has been duly qualified as a foreign
corporation and is in good standing under the laws of each
other jurisdiction in which its ownership or leasing of its
properties or its conduct of its material business makes
such qualification necessary, except to the extent that any
failure to so qualify or be in good standing would not have
a material adverse effect on the condition (financial or
other), earnings, business or properties of the Company and
its subsidiaries, taken as a whole.
(vii) The issuance and sale of the Securities to be
sold by the Company under this Agreement and the
International Underwriting Agreement and the fulfillment of
the terms of this Agreement, the International Underwriting
Agreement or the Acquisition Agreement do not result in a
breach of any of the terms or provisions of, or constitute a
default (or an event which, with notice or lapse of time or
both, would constitute a default) under, (i) the Restated
Certificate of Incorporation or Bylaws of the Company or its
subsidiaries, (ii) any bond, debenture, note, loan
agreement, indenture, mortgage, deed of trust, lease or
other agreement or instrument to which the Company or its
subsidiaries is now a
<PAGE>
-7-
party or by which any of them is bound, or (iii) any order of any
court or governmental agency or authority entered in any proceeding
to which the Company or its subsidiaries was or is now a party or by
which either of them is bound, which default or breach would
have a material adverse effect on the condition (financial
or other), earnings, business or properties of the Company
and its subsidiaries, taken as a whole.
(viii) Neither the Company, nor any of its
subsidiaries has sustained since the date of the latest
audited financial statements included or incorporated by
reference in the Prospectus any material loss or
interference with its business from fire, explosion, flood
or other calamity, whether or not covered by insurance, or
from any court or governmental action, order or decree,
otherwise than as set forth or contemplated in the
Prospectuses; and, since the respective dates as of which
information is given in the Registration Statement and the
Prospectuses, there has not been any material increase in
the long-term debt of the Company or any of its
subsidiaries.
(ix) The Company has all requisite corporate power
and authority to enter into this Agreement, the
International Underwriting Agreement and the Acquisition
Agreement, to issue, sell and deliver the Securities as
provided herein and to consummate the transactions
contemplated herein and in the Acquisition Agreement, and
this Agreement, the International Underwriting Agreement and
the Acquisition Agreement has been duly authorized, executed
and delivered by the Company. Each consent, approval,
authorization, order, declaration or filing by or with any
governmental agency or body necessary for the offer and sale
of the Securities, the execution, delivery and performance
of this Agreement, the International Underwriting Agreement
and the Acquisition Agreement by the Company and the
consummation by the Company of the transactions contemplated
hereby, by the International Underwriting Agreement, and by
the Acquisition Agreement have been made or obtained, except
such as may be necessary to make the Registration Statement
effective (and maintain it as effective) under the Act and
to qualify the Securities for public offering by you under
state securities or Blue Sky laws or by the National
Association of Securities Dealers, Inc. ("NASD") in
connection with the purchase and distribution of the
Securities by the U.S. Underwriters and the International
Underwriters.
(x) The actual and as adjusted capitalization of
the Company as of September 30, 1995 is as set forth under the
<PAGE>
-8-
heading "Capitalization" in the Prospectuses; the issued
shares of capital stock of the Company conform to the
description thereof in the Prospectuses and have been duly
authorized and validly issued and are fully paid and
nonassessable; all outstanding shares of capital stock of
each of the subsidiaries have been duly authorized and
validly issued, and are fully paid and nonassessable and
(except as described in the Registration Statement) are
owned directly by the Company or by another subsidiary of
the Company free and clear of any liens, encumbrances,
equities or claims.
(xi) The Securities to be issued and sold by the
Company to the U.S. Underwriters hereunder and to the
International Underwriters under the International
Underwriting Agreement have been duly authorized and, when
issued and paid for as contemplated herein, will be validly
issued, fully paid and nonassessable and will conform to the
description thereof in the Prospectuses and will not have
been issued in violation of or subject to any preemptive
rights or rights of first refusal.
(xii) Except as described in the Registration
Statement, there are no options, warrants, agreements,
preemptive rights, conversion rights, contracts or other
rights in existence to purchase or acquire from the Company
any shares of the capital stock or securities or obligations
convertible into, or any contracts or commitments to issue
or sell shares of capital stock or any such rights or other
securities of the Company. The descriptions of the
Company's retirement and savings plans, stock option, stock
purchase and other stock plans or arrangements, and the
options or other rights granted and exercised thereunder, as
set forth in the Prospectuses, are accurate and fair
summaries of such plans, arrangements, options and rights.
(xiii) There are no legal, regulatory,
administrative or governmental actions, suits or proceedings
pending to which the Company or any of its subsidiaries or
any of their officers is a party or of which any properties
of the Company or any of its subsidiaries is the subject
except as set forth in the Prospectuses, or as individually
or in the aggregate, do not now have and are not reasonably
expected in the future to have any material adverse effect
in the condition (financial or other), earnings, business or
properties of the Company and its subsidiaries, taken as a
whole; and to the best knowledge of the Company, no such
proceedings are threatened or contemplated by any of such
governmental, regulatory or administrative authorities or
others and there
<PAGE>
-9-
are no agreements, contracts, leases or documents of the Company
or any of its subsidiaries that are required to be described in the
Prospectuses or to be filed as exhibits to the Registration Statement
by the Act or the Exchange Act or the rules and regulations thereunder
which have not been described in all materials respects in the
Prospectuses or filed as exhibits to the Registration
Statement.
(xiv) All material agreements to which the Company or
any of its subsidiaries is a party and which are required to
be described in the Registration Statement or the
Prospectuses are described therein. The Company is not in
breach of or in violation under any of the material terms or
provisions of, or in default under, (i) any material
contract, indenture, mortgage, deed of trust, permit,
license, note agreement or other material agreement or
material instrument to which the Company is a party or by
which any of its properties are bound, (ii) its Restated
Certificate of Incorporation or Bylaws, or (iii) any order,
judgment, statute, rule or regulation of any court or
governmental, administrative or regulatory agency or body
having jurisdiction over the Company or any of its
properties, except as may be properly described in the
Prospectuses or such as individually or in the aggregate do
not now have and are not reasonably expected to have a
material adverse effect upon the condition (financial or
other), earnings, business or properties of the Company and
its subsidiaries, taken as a whole.
(xv) The Company has obtained the agreement of each
of the Company's directors and executive officers that such
persons will not, for a period of 120 days after the date of
the Prospectuses, offer to sell, contract to sell or
otherwise sell (including without limitation in a short
sale), grant any option to purchase, or dispose of any
shares of Common Stock of the Company, any options or
warrants to purchase any shares of Common Stock of the
Company, or any securities convertible into or exchangeable
for shares of Common Stock of the Company, without the prior
written consent of the Salomon Brothers Inc and Salomon
Brothers International Limited, as the case may be, except
the Company may issue securities pursuant to the Company's
retirement savings, stock option or other benefit or
incentive plans maintained for its officers, directors or
employees.
(xvi) The Company has not taken and will not take,
directly or indirectly, prior to the earlier of 90 days from
the date of this Agreement and the International
Underwriting Agreement and the termination of the
underwriting syndicate
<PAGE>
-10-
contemplated by this Agreement, any action designed to stabilize or
manipulate the price of any security of the Company, or which caused
or resulted in, or which might in the future reasonably be expected to
cause or result in, stabilization or manipulation of the price of any
security of the Company.
(xvii) KPMG Peat Marwick LLP, who have certified
certain financial statements of the Company and its
subsidiaries, are independent public accountants as required
by the Act and the Exchange Act and the rules and
regulations of the Commission thereunder.
(xviii) Price Waterhouse, who have certified certain
financial statements of ATCOR and its subsidiaries, are
independent public accountants, as required by Canadian
securities legislation, the Act and the Exchange Act and the
rules and regulations of the Commission thereunder.
(xix) The consolidated financial statements of the
Company (including the related notes and supporting
schedules) filed as part of the Registration Statement or
included or incorporated by reference in the Prospectuses
present fairly in all material respects the condition
(financial or other) and results of operations of the
Company and its consolidated subsidiaries, at the dates and
for the periods indicated, and have been prepared in
conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods
involved, except as set forth in the notes to such financial
statements and except to the extent that certain footnote
disclosures regarding the unaudited financial statements
have been omitted in accordance with the applicable rules of
the Commission. The amounts included in the Registration
Statement and the amounts in the Prospectuses under the
captions "Prospectus Summary -- Summary Financial and
Operating Data" and "Selected Financial and Operating Data"
fairly present, in all material respects, the information
shown therein and have been determined on a basis consistent
with the financial statements included in the Registration
Statement and the Prospectuses.
(xx) The Company effected a five to one reverse
stock split of its outstanding Common Stock on January 5,
1996; neither the Board of Directors of the Company (or any
committee thereof) nor any shareholder of the Company have
taken any action since such date, or to the knowledge of the
Company are contemplating taking any action, to rescind such
reverse stock split; and no legal, regulatory,
administrative
<PAGE>
-11-
or governmental action, suit or proceeding to which the Company
or any of its subsidiaries or any of their officers is a party is
pending, or to the knowledge of the Company threatened, which seeks
to rescind such reverse stock split.
(xxi) The Acquisition Agreement is in full force and
effect; and neither the Board of Directors of the Company
(or any committee thereof) nor any shareholder of the
Company has taken any action, or to the knowledge of the
Company is contemplating taking any action, to modify,
amend, supplement or rescind the Acquisition Agreement; all
of the conditions to consummating the Acquisition have been
satisfied or are reasonably expected by the Company to be
satisfied as of the Closing Date, and no event has occurred,
or to the knowledge of the Company is reasonably expected to
occur, which would prevent or delay the consummation of the
Acquisition immediately, or waive any provision thereof,
following the consummation of the sale of the U.S.
Underwritten Securities pursuant to this Agreement and the
International Underwritten Securities pursuant to the
International Underwriting Agreement.
(xxii) The agreement of The Anschutz Corporation
("Anschutz") to not transfer any of the shares of Common
Stock of the Company owned by it, except in certain limited
circumstances, for a period of nine months following the
Closing Date, is in full force and effect, and the Company
will not enter into any agreement to modify, amend,
supplement or rescind such agreement, or waive any provision
thereof, for a period of 180 days from the date of the
Prospectuses without the prior written consent of Salomon
Brothers Inc.
(xxiii) The agreement of Joint Energy Development
Investments Limited Partnership ("JEDI") to not transfer any
of the shares of Common Stock of the Company owned by it,
except in certain limited circumstances, described in the
Prospectuses, is in full force and effect, and the Company
will not enter into any agreement to modify, amend,
supplement or rescind such agreement, or waive any provision
thereof, for a period of 180 days from the date of the
Prospectuses without the prior written consent of Salomon
Brothers Inc.
(b) The Selling Stockholder represents and warrants
to, and agrees with each U.S. Underwriter that:
(i) The Selling Stockholder is the lawful owner of
the Securities to be sold by the Selling Stockholder
hereunder and under the International Underwriting Agreement
and upon
<PAGE>
-12-
sale and delivery of, and payment for, such Securities, as
provided herein, the Selling Stockholder will convey good
and marketable title to such Securities, free and clear of
all liens, encumbrances, equities and claims whatsoever.
(ii) The Selling Stockholder has not taken and will
not take, directly or indirectly, prior to the earlier of 90
days from the date of this Agreement and the International
Underwriting Agreement and the termination of the
underwriting syndicate contemplated by this Agreement and
the International Underwriting Agreement, any action
designed to or which has constituted or which might
reasonably be expected to cause or result, under the
Exchange Act or otherwise, in stabilization or manipulation
of the price of any security of the Company to facilitate
the sale or resale of the Securities.
(iii) Certificates in negotiable form for the Selling
Stockholder's Securities have been placed in custody, for
delivery pursuant to the terms of this Agreement and the
International Underwriting Agreement, under a Custody
Agreement duly authorized, executed and delivered by such
Selling Stockholder, in the form heretofore furnished to you
(the "Custody Agreement") with The Chase Manhattan Bank of
Canada, as custodian (the "Custodian"); the U.S. Securities
represented by the certificates so held in custody for the
Selling Stockholder are subject to the interest hereunder of
the U.S. Underwriters and the Company; the arrangements for
custody and delivery of such certificates, made by the
Selling Stockholder hereunder, under the International
Underwriting Agreement and under the Custody Agreement, are
not subject to termination by any acts of the Selling
Stockholder, or by operation of law or by the occurrence of
any other event; and if such event shall occur before the
delivery of such Securities hereunder or under the
International Underwriting Agreement, certificates for the
Securities will be delivered by the Custodian in accordance
with the terms and conditions of this Agreement, the
International Underwriting Agreement and the Custody
Agreement as if such event had not occurred, regardless of
whether or not the Custodian shall have received notice of
such event.
(iv) No consent, approval, authorization or order of
any court or governmental agency or body is required for the
consummation by the Selling Stockholder of the transactions
contemplated herein, except such as may have been obtained
under the Act and such as may be required under the blue sky
laws of any jurisdiction in connection with the purchase and
<PAGE>
-13-
distribution of the Securities by the Underwriters and such
other approvals as have been obtained.
(v) Neither the sale of the Securities being sold
by the Selling Stockholder nor the consummation of any other
of the transactions herein contemplated, or contemplated by
the International Underwritng Agreement, by such Selling
Stockholder or the fulfillment of the terms hereof or of the
International Underwriting Agreement by such Selling
Stockholder will conflict with, result in a breach or
violation of, or constitute a default under any law or the
charter or by-laws of such Selling Stockholder or the terms
of any indenture or other agreement or instrument to which
such Selling Stockholder or any of its subsidiaries is a
party or bound, or any judgment, order or decree applicable
to such Selling Stockholder or any of its subsidiaries of
any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over
such Selling Stockholder or any of its subsidiaries.
2. PURCHASE AND SALE. Subject to the terms and conditions
and in reliance upon the representations and warranties herein
set forth:
(a) The Company and the Selling Stockholder agree to
sell to each U.S. Underwriter, and each U.S. Underwriter
agrees, severally and not jointly, to purchase from the
Company, at a purchase price of $____ per share, the amount
of the U.S. Underwritten Securities set forth opposite such
U.S. Underwriter's name in Schedule I hereto.
(b) The Company hereby grants an option to the several
U.S. Underwriters to purchase, severally and not jointly, up
to 1,530,000 shares of the U.S. Option Securities at the
same purchase price per share as the U.S. Underwritten
Securities by the U.S. Underwriters. Said option may be
exercised in whole or in part at any time (but not more than
once), on or before the 30th day after the date of the U.S.
Prospectus upon written or telegraphic notice by the
Representatives to the Company setting forth the number of
shares of the U.S. Option Securities as to which the several
U.S. Underwriters are exercising the option and the
settlement date. Delivery of certificates for the shares of
U.S. Option Securities by the Company, and payment therefor
to the Company, shall be made as provided in Section 3
hereof. The number of shares of the U.S. Option Securities
to be purchased by each U.S. Underwriter shall be the same
percentage of the total number of shares of the U.S. Option
Securities to be purchased by the
<PAGE>
-14-
several U.S. Underwriters as such U.S. Underwriter is purchasing
of the U.S. Underwritten Securities, subject to such adjustments
as you in your absolute discretion shall make to eliminate any
fractional shares.
3. DELIVERY AND PAYMENT. Delivery of and payment for the
U.S. Underwritten Securities shall be made at 9:00 AM, New York
City time, on January __, 1996, or such later date (not later
than ___, 1996) as the Representatives shall designate, which
date and time may be postponed by agreement between the
Representatives and the Company or as provided in Section 9
hereof (such date and time of delivery and payment for the U.S.
Securities being herein called the "Closing Date"). Delivery of
the U.S. Underwritten Securities shall be made to the
Representatives from the respective accounts of the several U.S.
Underwriters against payment by the several U.S. Underwriters
through the Representatives of the purchase price thereof to or
upon the order of the Company and the Selling Stockholder by
certified or official bank check or checks drawn on or by a New
York Clearing House bank and payable in next day funds, or at the
option of the Company by wire transfer to accounts designated in
writing by the Company and the Selling Stockholder (as the case
may be) of immediately available funds; provided that, the
Company and the Selling Stockholder shall reimburse the U.S.
Underwriters by payment to the Representatives for the cost of
providing such immediately available funds (which reimbursement
shall be netted against the amounts payable to the Company and
the Selling Stockholder). Delivery of the U.S. Underwritten
Securities shall be made at such location as the Representatives
shall reasonably designate at least one business day in advance
of the Closing Date and payment for such U.S. Underwritten
Securities shall be made at the office of Cahill Gordon &
Reindel, 80 Pine Street, New York, New York. Certificates for
the U.S. Underwritten Securities shall be registered in such
names and in such denominations as the Representatives may
request not less than three full business days in advance of the
Closing Date.
The Company and Selling Stockholder agree to have the
U.S. Securities available for inspection, checking and packaging
by the Representatives in New York, New York, not later than 2:00
PM on the business day prior to the Closing Date.
The Selling Stockholder will pay all applicable state
transfer taxes, if any, involved in the transfer to the several
U.S. Underwriters of the U.S. Securities to be purchased by them
from the Selling Stockholder and the respective U.S. Underwriters
will pay any additional stock transfer taxes involved in further
transfers.
<PAGE>
-15-
If the option provided for in Section 2(b) hereof is
exercised after the third business day prior to the Closing Date,
the Company will deliver (at the expense of the Company) to the
Representatives, at Seven World Trade Center, New York, New York,
on the date specified by the Representatives (which shall be
within four business days after exercise of said option),
certificates for the U.S. Option Securities in such names and
denominations as the Representatives shall have requested against
payment of the purchase price thereof to or upon the order of the
Company by certified or official bank check or checks drawn on or
by a New York Clearing House bank and payable in next day funds,
or by wire transfer of immediately available funds if so
requested by the Company provided that the Company reimburses the
U.S. Underwriters by payment to the Representatives for the cost
of providing such immediately available funds. If settlement for
the U.S. Option Securities occurs after the Closing Date, the
Company will deliver to the Representatives on the settlement
date for the U.S. Option Securities, and the obligation of the
Underwriters to purchase the U.S. Option Securities shall be
conditioned upon receipt of, supplemental opinions, certificates
and letters confirming as of such date the opinions, certificates
and letters delivered on the Closing Date pursuant to Section 6
hereof.
It is understood and agreed that the Closing Date shall
occur simultaneously with the "Closing Date" under the
International Underwriting Agreement.
4. OFFERING BY U.S. UNDERWRITERS. It is understood that
the several U.S. Underwriters propose to offer the U.S.
Securities for sale to the public as set forth in the U.S.
Prospectus.
5. AGREEMENTS.
(a) The Company agrees with the several U.S.
Underwriters and the Selling Stockholder that:
(i) The Company will use its best efforts to cause the
Registration Statement, if not effective at the Execution
Time, and any amendments thereof, to become effective.
Prior to the termination of the offering of the Securities,
the Company will not file any amendment of the Registration
Statement or supplement to the U.S. Prospectus without your
prior consent, which consent shall not be unreasonably
withheld. Subject to the foregoing sentence, if the
Registration Statement has become or becomes effective
pursuant to Rule 430A, or filing of the U.S. Prospectus is
otherwise required under Rule 424(b), the Company will cause
the U.S. Prospectus, properly completed, and any supplement
<PAGE>
-16-
thereto to be filed with the Commission pursuant to the
applicable paragraph of Rule 424(b) within the time period
prescribed and will provide evidence satisfactory to the
Representatives of such timely filing. The Company will
promptly advise the Representatives (A) when the
Registration Statement, if not effective at the Execution
Time, and any amendment thereto, shall have become
effective, (B) when the U.S. Prospectus, and any supplement
thereto, shall have been filed (if required) with the
Commission pursuant to Rule 424(b), (C) when, prior to
termination of the offering of the U.S. Securities, any
amendment to the Registration Statement shall have been
filed or become effective, (D) of any request by the
Commission for any amendment of the Registration Statement
or supplement to the U.S. Prospectus or for any additional
information, (E) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration
Statement or the institution or threatening of any
proceeding for that purpose and (F) of the receipt by the
Company of any notification with respect to the suspension
of the qualification of the U.S. Securities for sale in any
jurisdiction or the initiation or threatening of any
proceeding for such purpose. The Company will use its
reasonable best efforts to prevent the issuance of any such
stop order and, if issued, to obtain as soon as possible the
withdrawal thereof.
(ii) If, at any time when a prospectus relating to the
U.S. Securities is required to be delivered under the Act,
any event occurs as a result of which the U.S. Prospectus as
then supplemented would include any untrue statement of a
material fact or omit to state any material fact necessary
to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or
if it shall be necessary to amend the Registration Statement
or supplement the U.S. Prospectus to comply with the Act or
the Exchange Act or the respective rules thereunder, the
Company promptly will prepare and file with the Commission,
subject to the second sentence of paragraph (a)(i) of this
Section 5, an amendment or supplement which will correct
such statement or omission or effect such compliance.
(iii) As soon as practicable, the Company will make
generally available to its security holders and to the
Representatives an earnings statement or statements of the
Company and its subsidiaries which will satisfy the
provisions of Section 11(a) of the Act and Rule 158 under
the Act.
<PAGE>
-17-
(iv) The Company will furnish to the Representatives
and counsel for the U.S. Underwriters, without charge,
signed copies of the Registration Statement (including
exhibits thereto) and to each other U.S. Underwriter a copy
of the Registration Statement (without exhibits thereto)
and, so long as delivery of a prospectus by an Underwriter
or dealer may be required by the Act, as many copies of each
U.S. Preliminary Prospectus and any supplement thereto as
the Representatives may reasonably request. The Company
will pay the expenses of printing or other production of all
documents relating to the offering.
(v) The Company will arrange for the qualification of
the Securities for sale under the laws of such jurisdictions
as the Representatives may designate and will maintain such
qualifications in effect so long as required for the
distribution of the Securities; PROVIDED, HOWEVER, that the
Company shall not be required to qualify to do business in
any jurisdiction where it is not now qualified or to file a
general consent to service of process in any jurisdiction.
The Company will pay the fee of the NASD in connection with
its review of the offering.
(vi) The Company will not, for a period of 120 days
following the Execution Time, without the prior written
consent of Salomon Brothers Inc and Salomon Brothers
International Limited, offer, sell or contract to sell, or
otherwise dispose of, directly or indirectly, or announce
the offering of, any other shares of Common Sock or any
securities convertible into, or exchangeable for, shares of
Common Stock; PROVIDED, HOWEVER, that the Company may issue
securities (A) pursuant to any stock option, retirement, savings
or other benefit or incentive plans maintained for the
Company's officers, directors or employees, in effect at the
Execution Time and (B) for the payment of regular dividends
in the Company's $.75 Convertible Preferred Stock.
(vii) The Company confirms as of the date hereof that it
is in compliance with all provisions of Section 1 of Laws of
Florida, Chapter 92-198, AN ACT RELATING TO DISCLOSURE OF
DOING BUSINESS WITH CUBA, and the Company further agrees
that if it commences engaging in business with the
government of Cuba or with any person or affiliate located
in Cuba after the date the Registration Statement becomes or
has become effective with the Commission or with the Florida
Department of Banking and Finance (the "Department"),
whichever date is later, or if the information reported in
the Prospectuses, if any, concerning the Company's business
with Cuba or with any
<PAGE>
-18-
person or affiliate located in Cuba
changes in any material way, the Company will provide the
Department notice of such business or change, as
appropriate, in a form acceptable to the Department.
(b) Each U.S Underwriter agrees that (i) it is not
purchasing any of the U.S. Securities for the account of any non-
United States or Canadian Person, (ii) it has not offered or
sold, and will not offer or sell, directly or indirectly, any of
the U.S. Securities or distribute any U.S. Prospectus to any
person outside the United States or Canada, or to any non-United
States or Canadian Person, and (iii) any dealer to whom it may
sell any of the U.S. Securities will represent that it is not
purchasing for the account of any non-United States or Canadian
Person and agree that it will not offer or resell, directly or
indirectly, any of the U.S. Securities outside the United States
or Canada, or to any non-United States or Canadian Person or to
any other dealer who does not so represent and agree; PROVIDED,
HOWEVER, that the foregoing shall not restrict (A) purchases and
sales between the U.S. Underwriters on the one hand and the
International Underwriters on the other hand pursuant to the
Agreement Between U.S. Underwriters and International
Underwriters, (B) stabilization transactions contemplated under
the Agreement Between U.S. Underwriters and International
Underwriters, conducted through Salomon Brothers Inc (or through
the Representatives and International Representatives) as part of
the distribution of the Securities, and (C) sales to or through
(or distributions of U.S. Prospectuses or U.S. Preliminary
Prospectuses to) United States or Canadian Persons who are
investment advisors, or who otherwise exercise investment
discretion, and who are purchasing for the account of any non-
United States or Canadian Person.
(c) The agreements of the U.S. Underwriters set forth
in paragraph (b) of this Section 5 shall terminate upon the
earlier of the following events:
(i) a mutual agreement of the Representatives and the
International Representatives to terminate the selling
restrictions set forth in paragraph (b) of this Section 5
and Section 5(b) of the International Underwriting
Agreement; or
(ii) the expiration of a period of 30 days after the
Closing Date, unless (A) the International Representatives
shall have given notice to the Company and the
Representatives that the distribution of the International
Securities by the International Underwriters has not yet
been completed, or (B) the Representatives shall have given
notice to the Company and the International Representatives
that the distribution of the
<PAGE>
-19-
U.S. Securities by the U.S.
Underwriters has not yet been completed. If such notice by
the Representatives or the International Representatives is
given, the agreements set forth in such paragraph (b) shall
survive until the earlier of (1) the event referred to in
clause (i) of this subsection (c) or (2) the expiration of
an additional period of 30 days from the date of any such
notice.
6. CONDITIONS TO THE OBLIGATIONS OF THE U.S.
UNDERWRITERS. The obligations of the U.S. Underwriters to
purchase the U.S. Underwritten Securities and the U.S. Option
Securities shall be subject to the accuracy of the
representations and warranties on the part of the Company and the
Selling Stockholder contained herein as of the Execution Time,
the Closing Date and any settlement date pursuant to Section 3
hereof, to the accuracy of the statements of the Company and the
Selling Stockholder made in any certificates pursuant to the
provisions hereof, to the performance by the Company and the
Selling Stockholder of their obligations hereunder and to the
following additional conditions:
(a) If the Registration Statement has not become
effective prior to the Execution Time, unless the
Representatives agree in writing to a later time, the
Registration Statement will become effective not later than
(i) 6:00 P.M New York City time on the date of determination
of the public offering price, if such determination occurred
at or prior to 3:00 P.M. New York City time on such date or
(ii) 12:00 Noon on the business day immediately following
the day on which the pubic offering price was determined, if
such determination occurred after 3:00 P.M. New York City
time on such date; if filing of the Prospectuses, or any
supplement thereto, is required pursuant to Rule 424(b), the
Prospectuses, and any such supplement, will be filed in the
manner and within the time period required by Rule 424(b);
and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or
threatened.
(b) The Company shall have furnished to the
Representatives the opinion of Daniel L. McNamara, Esq.,
Corporate Counsel and Secretary for the Company, dated the
Closing Date, to the effect that:
(i) each of the Company and its subsidiaries has been
duly incorporated and is validly existing as a corporation
in good standing under the laws of the jurisdiction in which
it is chartered or organized, with full corporate power and
authority to own its properties and conduct its business as
<PAGE>
-20-
described in the Prospectuses, and is duly qualified to do
business as a foreign corporation and is in good standing
under the laws of each jurisdiction in which its ownership
or leasing of its material properties or its conduct of its
material business makes such qualification necessary, except
to the extent the failure, individually or in the aggregate,
to be so qualified or in good standing could have a material
adverse effect on the condition (financial or other),
earnings, business or properties of the Company and its
subsidiaries, taken as a whole;
(ii) all the outstanding shares of capital stock of
the subsidiaries have been duly and validly authorized and
issued and are fully paid and nonassessable, and, except as
otherwise set forth in the Prospectuses, all outstanding
shares of capital stock of the subsidiaries are owned by the
Company either directly or through wholly owned subsidiaries
free and clear of any perfected security interest and, to
the knowledge of such counsel, any other security interests,
claims, liens or encumbrances;
(iii) the Company's authorized equity capitalization is
as set forth in the Prospectuses; the capital stock of the
Company conforms to the description thereof contained in the
Prospectuses; all of the outstanding shares of capital stock
(including the Securities being sold hereunder by the
Selling Stockholder) have been duly authorized and validly
issued and are fully paid and nonassessable and were not
issued in violation of or subject to any preemptive or other
rights to subscribe for the capital stock; the Securities
have been duly authorized, and, when issued and delivered to
and paid for by the U.S. Underwriters pursuant to this
Agreement and the International Underwriters pursuant to the
International Underwriting Agreement, will be validly
issued, fully paid and nonassessable; based upon information
provided by the NASD and assuming the Securities are sold in
the manner described in the Registration Statement, the
Securities are duly authorized for quotation on the Nasdaq
National Market; the certificates for the Securities are in
valid and sufficient form; and, except as otherwise set
forth in the Prospectuses, the holders of outstanding shares
of capital stock of the Company are not entitled to
preemptive or other rights to subscribe for the Securities;
(iv) to the best knowledge of such counsel, there is
no pending or threatened action, suit or proceeding before
any court or governmental agency, authority or body or any
arbitrator involving the Company or any of its subsidiaries
of
<PAGE>
-21-
a character required to be disclosed in the Registration
Statement which is not adequately disclosed in the
Prospectuses, and there is no contract, agreement, lease,
instrument, license or other document of a character
required to be described in the Registration Statement or
Prospectuses, or to be filed as an exhibit, which is not
described or filed as required; and the statements in the
Prospectuses under the headings "Business and Properties --
Legal Proceedings" fairly summarize the matters therein
described;
(v) such counsel has no reason to believe that, at
the Effective Date, the Registration Statement contained
any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary
to make the statements therein not misleading or that the
Prospectuses include any untrue statement of a material fact
or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under
which they were made, not misleading.
(vi) this Agreement and the International Underwriting
Agreement have been duly authorized, executed and delivered
by the Company;
(vii) no consent, approval, authorization or order of
any court or governmental agency or body is required for the
consummation of the transactions contemplated herein and by
the International Underwriting Agreement and the
distribution of the Securities by the U.S. Underwriters and
the International Underwriters, except such as have been
obtained under the Act and such as may be required under the
blue sky or foreign laws of any jurisdiction in connection
with the purchase and distribution of the Securities by the
U.S. Underwriters and International Underwriters, and by the
NASD, and such other approvals (specified in such opinion)
as have been obtained;
(viii) neither the issuance, sale or delivery of the
Securities, nor the consummation of any other of the
transactions herein contemplated nor the fulfillment of the
terms hereof or of the International Underwriting Agreement
will conflict with, result in a breach or violation of, or
constitute a default under any law, rule or regulation
(except that such counsel need not express any opinion with
respect to any federal or state securities laws) or the
Restated Certificate of Incorporation or Bylaws of the
Company or the terms of any indenture or other agreement or
instrument known to such counsel and to which the Company or
any of its
<PAGE>
-22-
subsidiaries is a party or bound or any judgment,
order, or decree known to such counsel to be applicable to
the Company or any of its subsidiaries of any court,
regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over the Company or any of
its subsidiaries; and
(ix) other than the Selling Stockholder, Anschutz and
JEDI, no holders of securities of the Company have rights to
the registration of such securities under the Registration
Statement.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of the laws of Alberta, Canada,
to the extent he deems proper and specified in such opinion, upon
the opinion of Canadian counsel of good standing whom he believes
to be reliable and who is satisfactory to counsel for the U.S.
Underwriters and (B) as to matters of fact, to the extent he
deems proper, on certificates of responsible officers of the
Company and public officials. References to the Prospectuses in
this paragraph (b) include any supplements thereto at the Closing
Date.
(c) The Company shall have furnished to the
Representatives the opinion of Vinson & Elkins L.L.P.,
counsel for the Company, dated the Closing Date, to the
effect that:
(i) the Registration Statement has become
effective under the Act; any required filing of the
Prospectuses, and any supplements thereto, pursuant
to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b); to
the best knowledge of such counsel, no stop order
suspending the effectiveness of the Registration
Statement has been issued, no proceedings for that
purpose have been instituted or threatened and the
Registration Statement and the Prospectuses (other
than the financial statements and other financial
and statistical information contained therein as to
which such counsel need express no opinion) comply
as to form in all material respects with the
applicable requirements of Form S-2, the Act and the
Exchange Act and the respective rules and
regulations thereunder; and such counsel has no
reason to believe that, at the Effective Date, the
Registration Statement contained any untrue
statement of a material fact or omitted to state any
material fact required to be stated therein or
necessary to make the statements therein not
misleading or that the Prospectuses include any
untrue statement of a material fact or omits to
state a
<PAGE>
-23-
material fact necessary to make the
statements therein, in the light of the
circumstances under which they were made, not
misleading;
(ii) no consent, approval, authorization or
order of any court or governmental agency or body is
required for the consummation of the transactions
contemplated herein and by the International
Underwriting Agreement, except such as have been
obtained under the Act and such as may be required
under the blue sky or foreign laws of any
jurisdiction in connection with the purchase and
distribution of the Securities by the U.S.
Underwriters and the International Underwriters, and
by the NASD, and such other approvals (specified in
such opinion) as have been obtained; and
(iii) neither the issuance, sale or delivery of
the Securities, nor the consummation of any other of
the transactions herein contemplated nor the
fulfillment of the terms hereof or by the
International Underwriting Agreement will conflict
with, result in a breach or violation of, or
constitute a default under any law, rule or
regulation (except that such counsel need not
express any opinion with respect to any federal or
state securities laws) or the Restated Certificate
of Incorporation or Bylaws of the Company or the
terms of any indenture or other agreement or
instrument known to such counsel and to which the
Company or any of its subsidiaries is a party or
bound or any judgment, order or decree known to such
counsel to be applicable to the Company or any of
its subsidiaries of any court, regulatory body,
administrative agency, governmental body or
arbitrator having jurisdiction over the Company or
any of its subsidiaries.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction
other than the State of Texas or the United States, to the extent
they deem proper and specified in such opinion, upon the opinion
of other counsel of good standing whom they believe to be
reliable and who are satisfactory to counsel for the U.S.
Underwriters and (B) as to matters of fact, to the extent they
deem proper, on certificates of responsible officers of the
Company and public officials. References to the prospectus in
this paragraph (c) include any supplements thereto at the Closing
Date.
<PAGE>
-24-
(d) The Representatives shall have received from
Cahill Gordon & Reindel, counsel for the U.S. Underwriters,
such opinion or opinions, dated the Closing Date, with
respect to the issuance and sale of the U.S. Securities, the
Registration Statement, the U.S. Prospectus (together with
any supplement thereto) and other related matters as the
Representatives may reasonably require, and the Company
shall have furnished to such counsel such documents as they
request for the purpose of enabling them to pass upon such
matters.
(e) The Company shall have furnished to the
Representatives a certificate of the Company, signed by the
Chairman of the Board or the President and the principal
financial or accounting officer of the Company, dated the
Closing Date, to the effect that the signers of such
certificate have carefully examined the Registration
Statement, the Prospectuses, any supplement to the
Prospectuses and this Agreement and that:
(i) the representations and warranties of the
Company in this Agreement are true and correct in all
material respects on and as of the Closing Date with
the same effect as if made on the Closing Date and the
Company has complied with all the agreements and
satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Date
pursuant to this Agreement;
(ii) no stop order suspending the effectiveness
of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or,
to the Company's knowledge, threatened; and
(iii) since the date of the most recent financial
statements included in the Prospectuses (exclusive of
any supplement thereto), there has been no material
adverse change in the condition (financial or other),
earnings, business or properties of the Company and
its subsidiaries, taken as a whole, whether or not
arising from transactions in the ordinary course of
business, except as set forth in or contemplated in
the Prospectuses (exclusive of any supplement
thereto).
(f) At the Execution Time and at the Closing Date,
KPMG Peat Marwick LLP shall have furnished to the
Representatives a letter or letters, dated respectively as
of the Execution Time and as of the Closing Date, in form
and substance satisfactory to the Representatives.
<PAGE>
-25-
(g) At the Execution Time and at the Closing Date,
Price Waterhouse shall have furnished to the Representatives
a letter or letters, dated respectively as of the Execution
Time and as of the Closing Date, in form and substance
satisfactory to the Representatives.
(h) Subsequent to the Execution Time or, if earlier,
the dates as of which information is given in the
Registration Statement (exclusive of any amendment thereof)
and the Prospectuses (exclusive of any supplement thereto),
there shall not have been (i) any change or decrease
specified in the letter or letters referred to in paragraphs
(f) and (g) of this Section 6 or (ii) any change, or any
development involving a prospective change, in or affecting
the business or properties of the Company and its
subsidiaries and ATCOR, taken as a whole, the effect of
which, in any case referred to in clause (i) or (ii) above,
is, in the judgment of the Representatives, so material and
adverse as to make it impractical or inadvisable to proceed
with the offering or delivery of the Securities as
contemplated by the Registration Statement (exclusive of any
amendment thereof) and the Prospectuses (exclusive of any
supplement thereto).
(i) At the Execution Time, the Company shall have
furnished to the Representatives a letter substantially in
the form of Exhibit A hereto from each executive officer and
director of the Company addressed to the Representatives, in
which each such person agrees not to offer, sell or contract
to sell, or otherwise dispose of, directly or indirectly, or
announce an offering of, any shares of Common Stock
beneficially owned by such person or any securities
convertible into, or exchangeable for, shares of Common
Stock for a period of 120 days following the Execution Time
without the prior consent of Salomon Brothers Inc and
Salomon Brothers International Limited, other than shares of
Common Stock disposed of as bona fide gifts or by act of
law.
(j) Prior to the Closing Date, the Company shall have
furnished to the Representatives such further information,
certificates and documents as the Representatives may
reasonably request.
(k) The Selling Stockholder shall have furnished to
the Representatives the opinion of McCarthy Tetrault,
counsel for the Selling Stockholder, dated the Closing Date,
to the effect that:
(i) this Agreement, the International
Underwriting Agreement, the Custody Agreement and the
Power of
<PAGE>
-26-
Attorney executed by the Selling Stockholder
have been duly authorized, executed and delivered by
the Selling Stockholder; this Agreement, the
International Underwriting Agreement and the Custody
Agreement are valid and binding on the Selling
Stockholder; and the Selling Stockholder has full legal
right and authority to sell, transfer and deliver in
the manner provided in this Agreement, the
International Underwriting Agreement and the Custody
Agreement the Securities being sold by the Selling
Stockholder hereunder and under the International
Underwriting Agreement;
(ii) the delivery by the Selling Stockholder to
the several U.S. Underwriters and International
Underwriters of certificates for the Securities being
sold hereunder and under the International Underwriting
Agreement by the Selling Stockholder against payment
therefor as provided herein and therein, will pass good
and marketable title to such Securities to the several
U.S. Underwriters and International Underwriters, free
and clear of all liens, encumbrances, equities and
claims whatsoever;
(iii) no consent, approval, authorization or order
of any court or governmental agency or body is required
for the consummation by the Selling Stockholder of the
transactions contemplated herein and by the
International Underwriting Agreement, except such as
may have been obtained under the Act and such as may be
required under the blue sky laws of any jurisdiction in
connection with the purchase and distribution of the
Securities by the U.S. Underwriters and International
Underwriters, and by the NASD, and such other approvals
(specified in such opinion) as have been obtained; and
(iv) neither the sale of the Securities being
sold by the Selling Stockholder nor the consummation of
any other of the transactions herein contemplated, or
by the International Underwriting Agreement, by the
Selling Stockholder or the fulfillment of the terms
hereof, or of the International Underwriting Agreement,
by the Selling Stockholder will conflict with, result
in a breach or violation of, or constitute a default
under any law or the charter or By-laws of the Selling
Stockholder or the terms of any indenture or other
agreement or instrument known to such counsel and to
which the Selling Stockholder or any of its
subsidiaries is a party or bound, or any judgment,
order or decree known to such counsel to be applicable
to the Selling Stockholder or
<PAGE>
-27-
any of its subsidiaries of any court, regulatory body
administrative agency, governmental body or arbitrator having
jurisdiction over the Selling Stockholder or any of its
subsidiaries.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction
other than the Province of Alberta or Canada, to the extent they
deem proper and specified in such opinion, upon the opinion of
other counsel of good standing whom they believe to be reliable
and who are satisfactory to counsel for the U.S. Underwriters,
and (B) as to matters of fact, to the extent they deem proper, on
certificates of responsible officers of the Selling Stockholder
and public officials.
(l) The Selling Stockholder shall have furnished to
the Representatives a certificate, signed by the Chairman of
the Board or the President and the principal financial or
accounting officer of the Selling Stockholder, dated the
Closing Date, to the effect that the signers of such
certificate have carefully examined the Registration
Statement, the Prospectuses, any supplement to the
Prospectuses and this Agreement and that the representations
and warranties of the Selling Stockholder in this Agreement
are true and correct in all material respects on and as of
Closing Date to the same effect as if made on the Closing
Date.
(m) Other than the payment of the purchase price, all
of the conditions to consummating the Acquisition have been
satisfied as of the Closing Date.
(n) The closing of the purchase of the International
Securities to be issued and sold by the Company and the
Selling Stockholder pursuant to the International
Underwriting Agreement shall occur concurrently with the
closing described herein.
If any of the conditions specified in this Section 6
shall not have been fulfilled in all material respects when and
as provided in this Agreement, or if any of the opinions and
certificates mentioned above or elsewhere in this Agreement shall
not be in all material respects reasonably satisfactory in form
and substance to the Representatives and counsel for the U.S.
Underwriters, this Agreement and all obligations of the U.S.
Underwriters hereunder may be canceled at, or at any time prior
to, the Closing Date by the Representatives. Notice of such
cancellation shall be given to the Secretary of the Company and
the
<PAGE>
-28-
Selling Stockholder in writing or by telephone or telegraph
confirmed in writing.
7. REIMBURSEMENT OF U.S. UNDERWRITERS' EXPENSES. If
the sale of the Securities provided for herein is not consummated
because any condition to the obligations of the U.S. Underwriters
set forth in Section 6 hereof is not satisfied, because of any
termination pursuant to Section 10 hereof or because of any
refusal, inability or failure on the part of the Company or the
Selling Stockholder to perform any agreement herein or comply
with any provision hereof other than by reason of a default by
any of the U.S. Underwriters, the Company will reimburse the U.S.
Underwriters severally upon demand for all reasonable out-of-
pocket expenses (including reasonable fees and disbursements of
counsel) that shall have been incurred by them in connection with
the proposed purchase and sale of the Securities. If the Company
is required to make any payments to the U.S. Underwriters under
this Section 7 because of the Selling Stockholder's refusal,
inability or failure to satisfy any condition to the obligations
of the U.S. Underwriters set forth in Section 6, the Selling
Stockholder shall reimburse the Company on demand for all amounts
so paid.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company and the Selling Stockholder jointly
and severally agree to indemnify and hold harmless each U.S.
Underwriter, the directors, officers, employees and agents
of each U.S. Underwriter and each person who controls any
U.S. Underwriter within the meaning of either the Act or the
Exchange Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them
may become subject under the Act, the Exchange Act or other
Federal or state statutory law or regulation, at common law
or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration
Statement for the registration of the Securities as
originally filed or in any amendment thereof, or in any U.S.
or International Preliminary Prospectus or in either of the
Prospectuses, or in any amendment thereof or supplement
thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, and agrees to reimburse each such
indemnified party, as incurred, for any legal or other
expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage,
liability or action; PROVIDED,
<PAGE>
-29-
that the Selling Stockholder shall not be responsible pursuant to
this indemnity for losses, claims, damages or liabilities arising out
of or based upon any such untrue statement or omission or
allegation thereof based upon information furnished by any
party other than the Selling Stockholder or for an amount in
excess of the proceeds to such Selling Stockholder from the
sale of the U.S. or International Underwritten Securities
sold by it; PROVIDED, HOWEVER, that the Company and the
Selling Stockholder will not be liable in any such case to
the extent that any such loss, claim, damage or liability
arises out of or is based upon any such untrue statement or
alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any
U.S. Underwriter through the Representatives specifically
for inclusion therein; and PROVIDED, FURTHER, that such
indemnity with respect to any preliminary prospectus shall
not inure to the benefit of the U.S. Underwriter (or any
person controlling the U.S. Underwriter) from whom the
person asserting any such loss, claim, damage or liability
purchased the Securities which are the subject thereof if
such person did not receive a copy of the U.S. Prospectus
(or the U.S. Prospectus as amended and supplemented) at or
prior to the confirmation of the sale of such U.S.
Securities to such person in any case where such delivery is
required by the Act and the untrue statement or omission of
a material fact contained in such preliminary prospectus was
corrected in the U.S. Prospectus (or the U.S. Prospectus as
amended or supplemented) provided that the Company shall
have delivered the U.S. Prospectus, as amended or
supplemented, to the Representatives on a timely basis to
permit such delivery. This indemnity agreement will be in
addition to any liability which the Company or the Selling
Stockholder may otherwise have.
(b) Each U.S. Underwriter severally agrees to
indemnify and hold harmless the Company, the Selling
Stockholder, each of the Company's directors, each of the
Company's officers who signs the Registration Statement, and
each person who controls the Company within the meaning of
either the Act or the Exchange Act, to the same extent as
the foregoing indemnity from the Company and the Selling
Stockholder to each U.S. Underwriter, but only with
reference to written information relating to such U.S.
Underwriter furnished to the Company by or on behalf of such
U.S. Underwriter through the Representatives specifically
for inclusion in the documents referred to in the foregoing
indemnity. This indemnity agreement will be in addition to
any liability which any U.S.
<PAGE>
-30-
Underwriter may otherwise have. The Company and the Selling Stockholder
acknowledge that the statements set forth in the last paragraph of
the cover page, the first and second paragraphs set forth on the
inside front cover page and under the heading "Underwriting"
in any U.S. or International Preliminary Prospectus and the
Prospectuses constitute the only information furnished in
writing by or on behalf of the several U.S. Underwriters for
inclusion in any U.S. or International Preliminary
Prospectus or the Prospectuses, and you, as the
Representatives, confirm that such statements are correct.
(c) Promptly after receipt by an indemnified party
under this Section 8 of notice of the commencement of any
action, such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party under
this Section 8, notify the indemnifying party in writing of
the commencement thereof; but the failure so to notify the
indemnifying party (i) will not relieve it from liability
under paragraph (a) or (b) above unless and to the extent it
did not otherwise learn of such action and such failure
results in the forfeiture by the indemnifying party of
substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations
to any indemnified party other than the indemnification
obligation provided in paragraph (a) or (b) above. The
indemnifying party shall be entitled to appoint counsel of
the indemnifying party's choice at the indemnifying party's
expense to represent the indemnified party in any action for
which indemnification is sought (in which case the
indemnifying party shall not thereafter be responsible for
the fees and expenses of any separate counsel retained by
the indemnified party or parties except as set forth below);
PROVIDED, HOWEVER, that such counsel shall be satisfactory
to the indemnified party. Notwithstanding the indemnifying
party's election to appoint counsel to represent the
indemnified party in an action, the indemnified party shall
have the right to employ separate counsel (including local
counsel), and the indemnifying party shall bear the
reasonable fees, costs and expenses of such separate counsel
if (i) the use of counsel chosen by the indemnifying party
to represent the indemnified party would present such
counsel with a conflict of interest, (ii) the actual or
potential defendants in, or targets of, any such action
include both the indemnified party and the indemnifying
party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or
additional to those
<PAGE>
-31-
available to the indemnifying party, (iii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party
to represent the indemnified party within a reasonable time after
notice of the institution of such action or (iv) the indemnifying
party shall authorize the indemnified party to employ
separate counsel at the expense of the indemnifying party.
An indemnifying party will not, without the prior written
consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution may be
sought hereunder (whether or not the indemnified parties are
actual or potential parties to such claim or action) unless
such settlement, compromise or consent includes an
unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or
proceeding.
(d) In the event that the indemnity provided in
paragraph (a) or (b) of this Section 8 is unavailable to or
insufficient to hold harmless an indemnified party for any
reason, the Company and the Selling Stockholder, jointly and
severally, and the U.S. Underwriters agree to contribute to
the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in
connection with investigating or defending same)
(collectively "Losses") to which the Company, the Selling
Stockholder and one or more of the U.S. Underwriters may be
subject in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling
Stockholder on the one hand and by the U.S. Underwriters on
the other from the offering of the Securities; PROVIDED,
HOWEVER, that in no case shall any U.S. Underwriter (except
as may be provided in any agreement among underwriters
relating to the offering of the Securities) be responsible
for any amount in excess of the underwriting discount or
commission applicable to the Securities purchased by such
U.S. Underwriter hereunder. If the allocation provided by
the immediately preceding sentence is unavailable for any
reason, the Company and the Selling Stockholder, jointly and
severally, and the U.S. Underwriters shall contribute in
such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company
and the Selling Stockholder on the one hand and of the U.S.
Underwriters on the other in connection with the statements
or omissions which resulted in such Losses as well as any
other relevant equitable considerations. Benefits received
by the Company and the Selling Stockholder shall be deemed
to be equal to the total net proceeds from the
<PAGE>
-32-
offering (after deducting expenses), and benefits received by the
U.S. Underwriters shall be deemed to be equal to the total
underwriting discounts and commissions, in each case as set
forth on the cover page of the U.S. Prospectus. Relative
fault shall be determined by reference to whether any
alleged untrue statement or omission relates to information
provided by the Company, the Selling Stockholder or the U.S.
Underwriters. The Company, the Selling Stockholder and the
U.S. Underwriters agree that it would not be just and
equitable if contribution were determined by pro rata
allocation or any other method of allocation which does not
take account of the equitable considerations referred to
above. Notwithstanding the provisions of this paragraph
(d), no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. For purposes of this
Section 8, each person who controls an U.S. Underwriter
within the meaning of either the Act or the Exchange Act and
each director, officer, employee and agent of an U.S.
Underwriter shall have the same rights to contribution as
such U.S. Underwriter, and each person who controls the
Company within the meaning of either the Act or the Exchange
Act, each officer of the Company who shall have signed the
Registration Statement and each director of the Company
shall have the same rights to contribution as the Company,
subject in each case to the applicable terms and conditions
of this paragraph (d).
9. DEFAULT BY A U.S. UNDERWRITER. If any one or more
U.S. Underwriters shall fail to purchase and pay for any of the
U.S. Securities agreed to be purchased by such U.S. Underwriter
or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their
obligations under this Agreement, the remaining U.S. Underwriters
shall be obligated severally to take up and pay for (in the
respective proportions which the amount of U.S. Securities set
forth opposite their names in Schedule I hereto bears to the
aggregate amount of U.S. Securities set forth opposite the names
of all the remaining U.S. Underwriters) the U.S. Securities which
the defaulting U.S. Underwriter or Underwriters agreed but failed
to purchase; PROVIDED, HOWEVER, that in the event that the
aggregate amount of U.S. Securities which the defaulting U.S.
Underwriter or Underwriters agreed but failed to purchase shall
exceed 10% of the aggregate amount of U.S. Securities set forth
in Schedule I hereto, the remaining U.S. Underwriters shall have
the right to purchase all, but shall not be under any obligation
to purchase any, of the U.S. Securities, and if such non-
defaulting U.S. Underwriters do not purchase all the U.S.
Securities, this Agreement will terminate
<PAGE>
-33-
without liability to any non-defaulting U.S. Underwriter, the Selling
Stockholder or the Company. In the event of a default by any U.S.
Underwriter as set forth in this Section 9, the Closing Date shall be
postponed for such period, not exceeding seven days, as the
Representatives shall determine in order that the required
changes in the Registration Statement and the U.S. Prospectus or
in any other documents or arrangements may be effected. Nothing
contained in this Agreement shall relieve any defaulting U.S.
Underwriter of its liability, if any, to the Company, the Selling
Stockholder and any non-defaulting U.S. Underwriter for damages
occasioned by its default hereunder.
10. TERMINATION. This Agreement shall be subject to
termination in the absolute discretion of the Representatives, by
notice given to the Company prior to delivery of and payment for
the U.S. Securities, if prior to such time (i) trading in the
Company's Common Stock shall have been suspended by the
Commission or the Nasdaq National Market or trading in securities
generally on the New York Stock Exchange or the Nasdaq National
Market shall have been suspended or limited or minimum prices
shall have been established on the New York Stock Exchange or the
the Nasdaq National Market, (ii) a banking moratorium shall have
been declared either by Federal or New York State authorities or
(iii) there shall have occurred any outbreak or escalation of
hostilities, declaration by the United States of a national
emergency or war or other calamity or crisis the effect of which
on financial markets is such as to make it, in the judgment of
the Representatives, impracticable or inadvisable to proceed with
the offering or delivery of the Securities as contemplated by the
U.S. Prospectus (exclusive of any supplement thereto).
11. REPRESENTATIONS AND INDEMNITIES TO SURVIVE. The
respective agreements, representations, warranties, indemnities
and other statements of the Company or its officers, of the
Selling Stockholder and of the U.S. Underwriters set forth in or
made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of
any U.S. Underwriter, the Selling Stockholder or the Company or
any of the officers, directors or controlling persons referred to
in Section 8 hereof, and will survive delivery of and payment for
the U.S. Securities. The provisions of Sections 7 and 8 hereof
shall survive the termination or cancellation of this Agreement.
12. NOTICES. All communications hereunder will be in
writing and effective only on receipt, and, if sent to the
Representatives, will be mailed, delivered or telegraphed and
confirmed to them, care of Salomon Brothers Inc, at Seven World
Trade Center, New York, New York 10048; or, if sent to the
Company,
<PAGE>
-34-
will be mailed, delivered, or telegraphed and confirmed
to it at 1600 Broadway, Suite 2200, Denver, Colorado 80202,
Attention: Daniel L. McNamara, Esq.; or if sent to the Selling
Stockholder, will be mailed, delivered, or telegraphed and
confirmed to it at 1700, 736 6th Avenue SW, Calgary, Alberta
T2P 3T7, Canada, Attention: Mr. William Brebber.
13. SUCCESSORS. This Agreement will inure to the
benefit of and be binding upon the parties hereto and their
respective successors and the officers and directors and
controlling persons referred to in Section 8 hereof, and no other
person will have any right or obligation hereunder.
14. APPLICABLE LAW. This Agreement will be governed
by and construed in accordance with the laws of the State of New
York, without regard to the principles of conflicts of laws.
15. COUNTERPARTS. This Agreement may be executed in
more than one counterpart each of which shall be deemed an
original and each of which shall constitute one and the same
instrument.
<PAGE>
-35-
If the foregoing is in accordance with your
understanding of our agreement, please sign and send us the
enclosed duplicate hereof, whereupon this letter and your
acceptance shall represent a binding agreement among the Company,
the Selling Stockholder and the several U.S. Underwriters.
Very truly yours,
FOREST OIL CORPORATION
By: ------------------------------------
Name:
Title:
SAXON PETROLEUM INC.
the Selling Stockholder
By: ------------------------------------
Name:
Title: Attorney-in-Fact
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above
written.
SALOMON BROTHERS INC
DILLON, READ & CO. INC.
MORGAN STANLEY & CO. INCORPORATED
CHASE SECURITIES, INC.
By: Salomon Brothers Inc
By: -------------------------------
For themselves and the other
several U.S. Underwriters named in
Schedule I to the foregoing
Agreement.
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF U.S.
UNDERWRITTEN
SECURITIES TO BE
U.S. UNDERWRITERS PURCHASED
- ------------------ ---------------------
<S> <C>
Salomon Brothers Inc . . . . . . . . . .
Dillon, Read & Co. Inc. . . . . . . . .
Morgan Stanley & Co. Incorporated . . .
Chase Securities, Inc. . . . . . . . . .
----------
Total . . . . . . . 10,200,000
----------
</TABLE>
<PAGE>
SCHEDULE II
SUBSIDIARIES OF FOREST OIL CORPORATION
DELAWARE SUBSIDIARIES
Forest I Development Company (2)
Forest Merger Corporation
Forest Oil of Turkey, Ltd.
Forest Pipeline Company
CANADA SUBSIDIARIES
Forest Canada I Development Ltd.
Forest Oil of Canada, Ltd.
Effective December 20, 1995, Forest Oil Corporation acquired a
49% voting interest in Saxon Petroleum Inc., an Alberta
corporation.
Effective December 15, 1995, Forest Oil Corporation incorporated
3189490 Canada Ltd., a Canadian corporation.
- --------------
(2) Oklatex Corp. (a Texas corporation) is a wholly owned subsidiary of
Forest I Development Company.
<PAGE>
EXHIBIT A
Letterhead of officer or director of
Forest Oil Corporation
FOREST OIL CORPORATION
PUBLIC OFFERING OF COMMON STOCK
January __, 1996
Salomon Brothers Inc
Dillon, Read & Co. Inc.
Morgan Stanley & Co. Incorporated
Chase Securities, Inc.
As Representatives of the several U.S. Underwriters
and
Salomon Brothers International Limited
Dillon, Read & Co. Inc.
Morgan Stanley & Co. International Limited
As International Representatives of the several
International Underwriters,
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Dear Sirs:
This letter is being delivered to you in connection
with the proposed U.S. Underwriting Agreement (the "U.S.
Underwriting Agreement") and International Underwriting Agreement
(together with the U.S. Underwriting Agreement the "Underwriting
Agreements"), between Forest Oil Corporation, a New York
corporation (the "Company"), a certain Selling Stockholder named
therein and each of you as respective representatives of a group
of U.S. Underwriters and International Underwriters, as the case
may be, named therein (collectively, the "Underwriters"),
relating to an underwritten public offering of Common Stock, $.10
par value (the "Common Stock"), of the Company.
In order to induce you and the other Underwriters to
enter into the Underwriting Agreements, the undersigned agrees
not to offer, sell or contract to sell, or otherwise dispose of,
directly or indirectly, or announce an offering of, any shares of
Common Stock beneficially owned by the undersigned or any
securities convertible into, or exchangeable for, shares of
Common Stock for a period of 120 days following the day on which
the Underwriting Agreements are executed without the prior
consent of Salomon Brothers Inc and Salomon Brothers
International Limited,
<PAGE>
-2-
other than shares of Common Stock disposed of as bona fide gifts or by act of
law.
If for any reason the Underwriting Agreements shall be
terminated prior to the Closing Date (as defined in the
Underwriting Agreements), the agreement set forth above shall
likewise be terminated.
Sincerely,
_________________________________
Name:
Title:
Address:
<PAGE>
Forest Oil Corporation
1,800,000 Shares(1)
Common Stock
($.10 par value)
International Underwriting Agreement
London, England
_________ __, 1996
Salomon Brothers International Limited
Dillon, Read & Co. Inc.
Morgan Stanley & Co. International Limited
As Representatives of the several International Underwriters,
c/o Salomon Brothers International Limited
Victoria Plaza
111 Buckingham Palace Road
London SW1W OSB ENGLAND
Dear Sirs:
Forest Oil Corporation, a New York corporation (the "Company"), and
Saxon Petroleum Inc. (the "Selling Stockholder") propose to sell 1,641,000 and
159,000 shares, respectively, of Common Stock $.10 par value (the "Common
Stock"), of the Company (said shares to be issued and sold by the Company and
the Selling Stockholder being hereinafter called the "International Underwritten
Securities"), to the underwriters named in Schedule I hereto (the "International
Underwriters"), for whom you (the "International Representatives") are acting as
representatives. The Company also proposes to grant to the International
Underwriters an option to purchase up to an additional 270,000 shares of Common
Stock (the "International Option Securities"; the International Option
Securities, together with the International Underwritten Securities, being
hereinafter called the "International Securities").
It is understood that the Company and the Selling Stockholder are
concurrently entering into a U.S. Underwriting Agreement dated the date hereof
(the "U.S. Underwriting Agreement") providing for (i) the sale by the Company
and the Selling Stockholder of an aggregate of 10,200,000 shares of Common
Stock (the "U.S. Underwritten Securities") and (ii) the grant by the Company of
an option to the U.S. Underwriters
- -----------------
(1) Plus an option to purchase from the Company up to 270,000 additional
shares to cover over-allotments.
<PAGE>
-2-
referred to below to purchase up to an additional 1,530,000 shares of Common
Stock (the "U.S. Option Securities"; the U.S. Option Securities together with
the U.S. Underwritten Securities, being hereinafter called the "U.S.
Securities," and, together with the International Securities, the "Securities").
It is contemplated that the U.S. Securities shall be sold in the United States
and Canada through arrangements with certain underwriters outside the United
States and Canada (the "U.S. Underwriters") for whom Salomon Brothers Inc,
Dillon, Read & Co. Inc., Morgan Stanley & Co. Incorporated and Chase Securities,
Inc. are acting as representatives (the "Representatives"). It is further
understood and agreed that the U.S. Underwriters and the International
Underwriters have entered into an Agreement Between U.S. Underwriters and
International Underwriters dated the date hereof (the "Agreement Between U.S.
Underwriters and International Underwriters"), pursuant to which, among other
things, the International Underwriters may purchase from the U.S. Underwriters a
portion of the U.S. Securities to be sold pursuant to the U.S. Underwriting
Agreement and the U.S. Underwriters may purchase from the International
Underwriters a portion of the International Securities to be sold pursuant to
the International Underwriting Agreement.
Pursuant to the Acquisition Agreement ("Acquisition Agreement") dated
December 12, 1995 by and among the Company, ATCOR Resources Ltd., a Canadian
corporation ("ATCOR"), Atco Ltd., a corporation incorporated under the laws of
Alberta, Canadian Utilities Limited, a Canadian corporation ("Canadian
Utilities"), and Canutilities Holdings Ltd., a corporation incorporated under
the laws of Alberta ("Canutilities") and subject to the terms and conditions set
forth therein, the Company agreed to purchase and Atco Ltd., Canadian Utilities
and Canutilities agreed to sell ATCOR (the "Acquisition"), as more fully
described in the Prospectuses (as hereinafter defined). Consummation of the
Acquisition and the purchase of the U.S. Underwritten Securities by the U.S.
Underwriters and the International Underwritten Securities by the International
Underwriters, are mutually contingent transactions, and the Company intends that
the closing of the Acquisition shall occur immediately following the
consummation of the transactions contemplated by this Agreement and the U.S.
Underwriting Agreement.
1. REPRESENTATIONS AND WARRANTIES.
(a) The Company represents and warrants to, and agrees with, each
International Underwriter as set forth below in this
<PAGE>
-3-
Section 1(a). Certain terms used in this Section 1 are defined in paragraph
(iv) hereof.
(i) The Company meets the requirements for use of Form S-2 under
the Securities Act of 1933 (the "Act") and has filed with the Securities
and Exchange Commission (the "Commission") a registration statement (file
number 33-64949) on such Form, including related Preliminary
Prospectuses, for the registration under the Act of the offering and sale
of the Securities. The Company has filed one or more amendments thereto,
including the related Preliminary Prospectuses, each of which has
previously been furnished to you. The Company will next file with the
Commission either (i) prior to effectiveness of such registration
statement, a further amendment to such registration statement (including
the form of final prospectuses) or (ii) after effectiveness of such
registration statement, final prospectuses in accordance with Rules 430A
and 424(b)(1) or (4). In the case of clause (ii), the Company has included
in such registration statement, as amended at the Effective Date, all
information (other than Rule 430A Information) required by the Act and the
rules thereunder to be included in the Prospectuses with respect to the
Securities and the offering thereof. As filed, such amendment and form of
final prospectuses, or such final prospectuses, shall include all Rule 430A
Information, together with all other such required information, with
respect to the Securities and the offering thereof and, except to the
extent the International Representatives shall agree in writing to a
modification, shall be in all substantive respects in the form furnished to
you prior to the Execution Time or, to the extent not completed at the
Execution Time, shall contain only such specific additional information and
other changes (beyond that contained in the latest International
Preliminary Prospectus) as the Company has advised you, prior to the
Execution Time, will be included or made therein.
(ii) It is understood that two forms of prospectuses are to be
used in connection with the offering and sale of the Securities: one form
of prospectus relating to the U.S. Securities, which are to be offered and
sold to United States and Canadian Persons, and one form of prospectus
relating to the International Securities, which are to be offered and sold
to persons other than United States and Canadian Persons. Such form of
prospectus relating to the U.S. Securities as first filed pursuant to Rule
424(b) or, if no filing pursuant to Rule 424(b) is
<PAGE>
-4-
made, such form of prospectus included in the Registration Statement at the
Effective Date, referred to herein as the "U.S. Prospectus"; such form of
prospectus relating to the International Securities as first filed pursuant
to Rule 424(b) or, if no filing pursuant to Rule 424(b) is made, such form
of prospectus included in the Registration Statement at the Effective Date,
is referred to herein as the "International Prospectus"; and the U.S.
Prospectus and the International Prospectus are collectively referred to
herein as the "Prospectuses".
(iii) To the best of the Company's knowledge, no order preventing
or suspending the use of any Preliminary Prospectuses has been issued by
the Commission. On the Effective Date, the Registration Statement did or
will, and when the Prospectuses are first filed (if required) in accordance
with Rule 424(b) and on the Closing Date, the Prospectuses (and any
supplements thereto) will, comply in all material respects with the
applicable requirements of the Act and the Securities Exchange Act of 1934
(the "Exchange Act") and the respective rules and regulations thereunder.
On the Effective Date, the Registration Statement did not or will not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein not misleading, and, on the Effective Date, each
Prospectus, if not filed pursuant to Rule 424(b), did not or will not, and
on the date of any filing pursuant to Rule 424(b) and on the Closing Date,
each Prospectus (together with any supplement thereto) will not, include
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; PROVIDED,
HOWEVER, that the Company makes no representations or warranties as to the
information contained in or omitted from the Registration Statement, or the
Prospectuses (or any supplement thereto) in reliance upon and in conformity
with information furnished in writing to the Company by or on behalf of any
International Underwriter through the International Representatives
specifically for inclusion in or omission from the Registration Statement
or the Prospectuses (or any supplement thereto).
(iv) The terms which follow, when used in this Agreement, shall
have the meanings indicated. The term "the Effective Date" shall mean each
date that the Registration Statement and any post-effective amendment or
amendments
<PAGE>
-5-
thereto became or become effective. "Execution Time" shall mean the date
and time that this Agreement is executed and delivered by the parties
hereto. The "U.S. Preliminary Prospectus" and the "International
Preliminary Prospectus", respectively, shall mean any preliminary
prospectus with respect to the offering of the U.S. Securities and the
International Securities, as the case may be, referred to in paragraph (i)
above and any preliminary prospectus with respect to the offering of the
U.S. Securities and the International Securities, as the case may be,
included in the Registration Statement at the Effective Date that omits
Rule 430A Information; and the U.S. Preliminary Prospectus and the
International Preliminary Prospectus are hereinafter collectively called
the "Preliminary Prospectuses". "Prospectus" shall mean the prospectus
relating to the Securities that is first filed pursuant to Rule 424(b)
after the Execution Time or, if no filing pursuant to Rule 424(b) is
required, shall mean the form of final prospectus relating to the
Securities included in the Registration Statement at the Effective Date.
"Registration Statement" shall mean the registration statement referred to
in paragraph (i) above, including incorporated documents, exhibits and
financial statements, as amended at the Execution Time (or, if not
effective at the Execution Time, in the form in which it shall become
effective) and, in the event any post-effective amendment thereto becomes
effective prior to the Closing Date (as hereinafter defined), shall also
mean such registration statement as so amended. Such term shall include
any Rule 430A Information deemed to be included therein at the Effective
Date as provided by Rule 430A. "Rule 424" and "Rule 430A" refer to such
rules under the Act. "Rule 430A Information" means information with
respect to the Securities and the offering thereof permitted to be omitted
from the Registration Statement when it becomes effective pursuant to Rule
430A. Any reference herein to the Registration Statement, a Preliminary
Prospectus or the Prospectuses shall be deemed to refer to and include the
documents (or any portions thereof) incorporated by reference therein
pursuant to Item 12 of Form S-2 whether filed under the Exchange Act or
delivered pursuant to Item 11 of Form S-2. Any reference herein to the
Registration Statement, a Preliminary Prospectus or the Prospectuses shall
be deemed to refer to and include the documents incorporated by reference
therein pursuant to Item 12 of Form S-2 which were filed under the Exchange
Act on or before the Effective Date of the Registration Statement or the
issue date of such Preliminary Prospectus or the Prospectuses, as the case
may be; and any reference herein
<PAGE>
-6-
to the terms "amend", "amendment" or "supplement" with respect to the
Registration Statement, any Preliminary Prospectus or the Prospectuses
shall be deemed to refer to and include the filing of any document under
the Exchange Act after the Effective Date of the Registration Statement, or
the issue date of any Preliminary Prospectus or the Prospectuses, as the
case may be, deemed to be incorporated therein by reference. "United
States or Canadian Person" shall mean any person who is a national or
resident of the United States or Canada, any corporation, partnership, or
other entity created or organized in or under the laws of the United States
or Canada or of any political subdivision thereof, or any estate or trust
the income of which is subject to United States or Canadian Federal income
taxation, regardless of its source (other than any non-United States or
non-Canadian branch of any United States or Canadian Person), and shall
include any United States or Canadian branch of a person other than a
United States or Canadian Person. "U.S." or "United States" shall mean the
United States of America (including the states thereof and the District of
Columbia), its territories, its possessions and other areas subject to its
jurisdiction.
(v) The only corporate subsidiaries of the Company are listed on
Schedule II hereto and are each referred to herein as a "subsidiary" and
are collectively referred to herein as the "subsidiaries".
(vi) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
New York, and each subsidiary of the Company has been duly incorporated and
is validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation or organization, as the case may be, and each
has the corporate power and authority to own its properties and conduct its
business as described in the Prospectuses, and has been duly qualified as a
foreign corporation and is in good standing under the laws of each other
jurisdiction in which its ownership or leasing of its properties or its
conduct of its material business makes such qualification necessary, except
to the extent that any failure to so qualify or be in good standing would
not have a material adverse effect on the condition (financial or other),
earnings, business or properties of the Company and its subsidiaries, taken
as a whole.
(vii) The issuance and sale of the Securities to be sold by the
Company under this Agreement and the U.S.
<PAGE>
-7-
Underwriting Agreement and the fulfillment of the terms of this Agreement,
the U.S. Underwriting Agreement or the Acquisition Agreement do not result
in a breach of any of the terms or provisions of, or constitute a default
(or an event which, with notice or lapse of time or both, would constitute
a default) under, (i) the Restated Certificate of Incorporation or Bylaws
of the Company or its subsidiaries, (ii) any bond, debenture, note, loan
agreement, indenture, mortgage, deed of trust, lease or other agreement or
instrument to which the Company or its subsidiaries is now a party or by
which any of them is bound, or (iii) any order of any court or governmental
agency or authority entered in any proceeding to which the Company or its
subsidiaries was or is now a party or by which either of them is bound,
which default or breach would have a material adverse effect on the
condition (financial or other), earnings, business or properties of the
Company and its subsidiaries, taken as a whole.
(viii) Neither the Company, nor any of its subsidiaries has
sustained since the date of the latest audited financial statements
included or incorporated by reference in the Prospectus any material loss
or interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectuses; and, since the respective dates as of
which information is given in the Registration Statement and the
Prospectuses, there has not been any material increase in the long-term
debt of the Company or any of its subsidiaries.
(ix) The Company has all requisite corporate power and authority
to enter into this Agreement, the U.S. Underwriting Agreement and the
Acquisition Agreement, to issue, sell and deliver the Securities as
provided herein and to consummate the transactions contemplated herein and
in the Acquisition Agreement, and this Agreement, the U.S. Underwriting
Agreement and the Acquisition Agreement has been duly authorized, executed
and delivered by the Company. Each consent, approval, authorization,
order, declaration or filing by or with any governmental agency or body
necessary for the offer and sale of the Securities, the execution, delivery
and performance of this Agreement, the U.S. Underwriting Agreement and the
Acquisition Agreement by the Company and the consummation by the Company of
the transactions contemplated hereby, by the U.S. Underwriting
<PAGE>
-8-
Agreement, and by the Acquisition Agreement have been made or obtained,
except such as may be necessary to make the Registration Statement
effective (and maintain it as effective) under the Act and to qualify the
Securities for public offering by you under state securities or Blue Sky
laws or by the National Association of Securities Dealers, Inc. ("NASD") in
connection with the purchase and distribution of the Securities by the U.S.
Underwriters and the International Underwriters.
(x) The actual and as adjusted capitalization of the Company as
of September 30, 1995 is as set forth under the heading "Capitalization" in
the Prospectuses; the issued shares of capital stock of the Company conform
to the description thereof in the Prospectuses and have been duly
authorized and validly issued and are fully paid and nonassessable; all
outstanding shares of capital stock of each of the subsidiaries have been
duly authorized and validly issued, and are fully paid and nonassessable
and (except as described in the Registration Statement) are owned directly
by the Company or by another subsidiary of the Company free and clear of
any liens, encumbrances, equities or claims.
(xi) The Securities to be issued and sold by the Company to the
International Underwriters hereunder and to the U.S. Underwriters under the
U.S. Underwriting Agreement have been duly authorized and, when issued and
paid for as contemplated herein, will be validly issued, fully paid and
nonassessable and will conform to the description thereof in the
Prospectuses and will not have been issued in violation of or subject to
any preemptive rights or rights of first refusal.
(xii) Except as described in the Registration Statement, there are
no options, warrants, agreements, preemptive rights, conversion rights,
contracts or other rights in existence to purchase or acquire from the
Company any shares of the capital stock or securities or obligations
convertible into, or any contracts or commitments to issue or sell shares
of capital stock or any such rights or other securities of the Company.
The descriptions of the Company's retirement and savings, stock option,
stock purchase and other stock plans or arrangements, and the options or
other rights granted and exercised thereunder, as set forth in the
Prospectuses, are accurate and fair summaries of such plans, arrangements,
options and rights.
<PAGE>
-9-
(xiii) There are no legal, regulatory, administrative or
governmental actions, suits or proceedings pending to which the Company or
any of its subsidiaries or any of their officers is a party or of which any
properties of the Company or any of its subsidiaries is the subject except
as set forth in the Prospectuses, or as individually or in the aggregate,
do not now have and are not reasonably expected in the future to have any
material adverse effect in the condition (financial or other), earnings,
business or properties of the Company and its subsidiaries, taken as a
whole; and to the best knowledge of the Company, no such proceedings are
threatened or contemplated by any of such governmental, regulatory or
administrative authorities or others and there are no agreements,
contracts, leases or documents of the Company or any of its subsidiaries
that are required to be described in the Prospectuses or to be filed as
exhibits to the Registration Statement by the Act or the Exchange Act or
the rules and regulations thereunder which have not been described in all
material respects in the Prospectuses or filed as exhibits to the
Registration Statement.
(xiv) All material agreements to which the Company or any of its
subsidiaries is a party and which are required to be described in the
Registration Statement or the Prospectuses are described therein. The
Company is not in breach of or in violation under any of the material terms
or provisions of, or in default under, (i) any material contract,
indenture, mortgage, deed of trust, permit, license, note agreement or
other material agreement or material instrument to which the Company is a
party or by which any of its properties are bound, (ii) its Restated
Certificate of Incorporation or Bylaws, or (iii) any order, judgment,
statute, rule or regulation of any court or governmental, administrative or
regulatory agency or body having jurisdiction over the Company or any of
its properties, except as may be properly described in the Prospectuses or
such as individually or in the aggregate do not now have and are not
reasonably expected to have a material adverse effect upon the condition
(financial or other), earnings, business or properties of the Company and
its subsidiaries, taken as a whole.
(xv) The Company has obtained the agreement of each of the
Company's directors and executive officers that such persons will not, for
a period of 120 days after the date of the Prospectuses, offer to sell,
contract to sell or otherwise sell (including without limitation in a short
<PAGE>
-10-
sale), grant any option to purchase, or dispose of any shares of Common
Stock of the Company, any options or warrants to purchase any shares of
Common Stock of the Company, or any securities convertible into or
exchangeable for shares of Common Stock of the Company, without the prior
written consent of the Salomon Brothers Inc and Salomon Brothers
International Limited, as the case may be, except the Company may issue
securities pursuant to the Company's retirement, savings, stock option or
other benefit or incentive plans maintained for its officers, directors or
employees.
(xvi) The Company has not taken and will not take, directly or
indirectly, prior to the earlier of 90 days from the date of this Agreement
and the U.S. Underwriting Agreement and the termination of the underwriting
syndicate contemplated by this Agreement and the U.S. Underwriting
Agreement, any action designed to stabilize or manipulate the price of any
security of the Company, or which caused or resulted in, or which might in
the future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any security of the Company.
(xvii) KPMG Peat Marwick LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by Canadian securities regulations, the Act and the
Exchange Act and the rules and regulations of the Commission thereunder.
(xviii) Price Waterhouse, who have certified certain financial
statements of ATCOR and its subsidiaries, are independent public
accountants, as required by the Act in the Exchange Act and the rules and
regulations of the Commission thereunder.
(xix) The consolidated financial statements of the Company
(including the related notes and supporting schedules) filed as part of the
Registration Statement or included or incorporated by reference in the
Prospectuses present fairly in all material respects the condition
(financial or other) and results of operations of the Company and its
consolidated subsidiaries, at the dates and for the periods indicated, and
have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods involved,
except as set forth in the notes to such financial statements and except to
the extent that certain footnote
<PAGE>
-11-
disclosures regarding the unaudited financial statements have been omitted
in accordance with the applicable rules of the Commission. The amounts
included in the Registration Statement and the amounts in the Prospectuses
under the captions "Prospectus Summary -- Summary Financial and Operating
Data" and "Selected Financial and Operating Data" fairly present, in all
material respects, the information shown therein and have been determined
on a basis consistent with the financial statements included in the
Registration Statement and the Prospectuses.
(xx) The Company effected a five to one reverse stock split of
its outstanding Common Stock on January , 1996; neither the Board of
Directors of the Company (or any committee thereof) nor any shareholder of
the Company have taken any action since such date, or to the knowledge of
the Company are contemplating taking any action, to rescind such reverse
stock split; and no legal, regulatory, administrative or governmental
action, suit or proceeding to which the Company or any of its subsidiaries
or any of their officers is a party is pending, or to the knowledge of the
Company threatened, which seeks to rescind such reverse stock split.
(xxi) The Acquisition Agreement is in full force and effect; and
neither the Board of Directors of the Company (or any committee thereof)
nor any shareholder of the Company has taken any action, or to the
knowledge of the Company is contemplating taking any action, to modify,
amend, supplement or rescind the Acquisition Agreement; all of the
conditions to consummating the Acquisition have been satisfied or are
reasonably expected by the Company to be satisfied as of the Closing Date,
and no event has occurred, or to the knowledge of the Company is reasonably
expected to occur, which would prevent or delay the consummation of the
Acquisition immediately, or waive any provision thereof, following the
consummation of the sale of the International Underwritten Securities
pursuant to this Agreement and the U.S. Underwritten Securities pursuant to
the U.S. Underwriting Agreement.
(xxii) The agreement of The Anschutz Corporation ("Anschutz") to
not transfer any of the shares of Common Stock of the Company owned by it,
except in certain limited circumstances, for a period of nine months
following Closing Date, is in full force and effect, and the Company will
not enter into any agreement to modify, amend, supplement or rescind such
agreement, or waive any provision thereof, for
<PAGE>
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a period of 180 days from the date of the Prospectuses without the prior
written consent of Salomon Brothers Inc.
(xxiii) The agreement of Joint Energy Development Investments
Limited Partnership ("JEDI") to not transfer any of the shares of Common
Stock of the Company owned by it, except in certain limited circumstances,
described in the Prospectuses, is in full force and effect, and the Company
will not enter into any agreement to modify, amend, supplement or rescind
such agreement, or waive any provision thereof, for a period of 180 days
from the date of the Prospectus without the prior written consent of
Salomon Brothers Inc.
(b) The Selling Stockholder represents and warrants to, and agrees
with each International Underwriter that:
(i) The Selling Stockholder is the lawful owner of the Securities to
be sold by the Selling Stockholder hereunder and under the U.S.
Underwriting Agreement and upon sale and delivery of, and payment for, such
Securities, as provided herein, the Selling Stockholder will convey good
and marketable title to such Securities, free and clear of all liens,
encumbrances, equities and claims whatsoever.
(ii) The Selling Stockholder has not taken and will not take, directly
or indirectly, prior to the earlier of 90 days from the date of this
Agreement and the U.S. Underwriting Agreement and the termination of the
underwriting syndicate contemplated by this Agreement and the U.S.
Underwriting Agreement, any action designed to or which has constituted or
which might reasonably be expected to cause or result, under the Exchange
Act or otherwise, in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Securities.
(iii) Certificates in negotiable form for the Selling Stockholder's
Securities have been placed in custody, for delivery pursuant to the terms
of this Agreement and the U.S. Underwriting Agreement, under a Custody
Agreement duly authorized, executed and delivered by such Selling
Stockholder, in the form heretofore furnished to you (the "Custody
Agreement") with The Chase Manhattan Bank of Canada, as custodian (the
"Custodian"); the International Securities represented by the certificates
so held in custody for the Selling Stockholder are subject to the interest
hereunder of the International Underwriters and the
<PAGE>
-13-
Company; the arrangements for custody and delivery of such certificates,
made by the Selling Stockholder hereunder, under the U.S. Underwriting
Agreement and under the Custody Agreement, are not subject to termination
by any acts of the Selling Stockholder, or by operation of law or by the
occurrence of any other event; and if such event shall occur before the
delivery of such Securities hereunder or under the U.S. Underwriting
Agreement, certificates for the Securities will be delivered by the
Custodian in accordance with the terms and conditions of this Agreement,
the U.S. Underwriting Agreement and the Custody Agreement as if such event
had not occurred, regardless of whether or not the Custodian shall have
received notice of such event.
(iv) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by the Selling
Stockholder of the transactions contemplated herein, except such as may
have been obtained under the Act and such as may be required under the blue
sky laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the U.S. Underwriters and the
International Underwriters and such other approvals as have been obtained.
(v) Neither the sale of the Securities being sold by the Selling
Stockholder nor the consummation of any other of the transactions herein
contemplated, or contemplated by the U.S. Underwriting Agreement, by such
Selling Stockholder or the fulfillment of the terms hereof or of the U.S.
Underwriting Agreement by such Selling Stockholder will conflict with,
result in a breach or violation of, or constitute a default under any law
or the charter or by-laws of such Selling Stockholder or the terms of any
indenture or other agreement or instrument to which such Selling
Stockholder or any of its subsidiaries is a party or bound, or any
judgment, order or decree applicable to such Selling Stockholder or any of
its subsidiaries of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over such Selling
Stockholder or any of its subsidiaries.
2. PURCHASE AND SALE. Subject to the terms and conditions and in
reliance upon the representations and warranties herein set forth:
(a) The Company and the Selling Stockholder agree to sell to each
International Underwriter, and each
<PAGE>
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International Underwriter agrees, severally and not jointly, to purchase
from the Company, at a purchase price of $____ per share, the amount of the
International Underwritten Securities set forth opposite such International
Underwriter's name in Schedule I hereto.
(b) The Company hereby grants an option to the several International
Underwriters to purchase, severally and not jointly, up to 270,000 shares
of the International Option Securities at the same purchase price per share
as the International Underwritten Securities by the International
Underwriters. Said option may be exercised in whole or in part at any time
(but not more than once), on or before the 30th day after the date of the
U.S. Prospectus upon written or telegraphic notice by the Representatives
to the Company setting forth the number of shares of the International
Option Securities as to which the several International Underwriters are
exercising the option and the settlement date. Delivery of certificates
for the shares of International Option Securities by the Company, and
payment therefor to the Company, shall be made as provided in Section 3
hereof. The number of shares of the International Option Securities to be
purchased by each International Underwriter shall be the same percentage of
the total number of shares of the International Option Securities to be
purchased by the several International Underwriters as such International
Underwriter is purchasing of the International Underwritten Securities,
subject to such adjustments as you in your absolute discretion shall make
to eliminate any fractional shares.
3. DELIVERY AND PAYMENT. Delivery of and payment for the International
Underwritten Securities shall be made at 9:00 AM, New York City time, on
January __, 1996, or such later date (not later than ___, 1996) as the
International Representatives shall designate, which date and time may be
postponed by agreement between the International Representatives and the Company
or as provided in Section 9 hereof (such date and time of delivery and payment
for the U.S. Securities being herein called the "Closing Date"). Delivery of
the International Underwritten Securities shall be made to the International
Representatives from the respective accounts of the several International
Underwriters against payment by the several International Underwriters through
the International Representatives of the purchase price thereof to or upon the
order of the Company and the Selling Stockholder by certified or official bank
check or checks drawn on or by a New York Clearing House bank and payable in
next day funds, or at the option of the Company by wire transfer to accounts
designated
<PAGE>
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in writing by the Company and the Selling Stockholder (as the case may be) of
immediately available funds; provided that, the Company and the Selling
Stockholder shall reimburse the International Underwriters by payment to the
International Representatives for the cost of providing such immediately
available funds (which reimbursement shall be netted against the amounts payable
to the Company and the Selling Stockholder). Delivery of the International
Underwritten Securities shall be made at such location as the International
Representatives shall reasonably designate at least one business day in advance
of the Closing Date and payment for the Securities shall be made at the office
of Cahill Gordon & Reindel, 80 Pine Street, New York, New York. Certificates
for the International Underwritten Securities shall be registered in such names
and in such denominations as the International Representatives may request not
less than three full business days in advance of the Closing Date.
The Company and Selling Stockholder agree to have the U.S. Securities
available for inspection, checking and packaging by the International
Representatives in New York, New York, not later than 2:00 PM on the business
day prior to the Closing Date.
The Selling Stockholder will pay all applicable state transfer taxes,
if any, involved in the transfer to the several International Underwriters of
the International Securities to be purchased by them from the Selling
Stockholder and the respective International Underwriters will pay any
additional stock transfer taxes involved in further transfers.
If the option provided for in Section 2(b) hereof is exercised after
the third business day prior to the Closing Date, the Company will deliver (at
the expense of the Company) to the International Representatives, at Seven World
Trade Center, New York, New York, on the date specified by the International
Representatives (which shall be within four business days after exercise of said
option), certificates for the International Option Securities in such names and
denominations as the International Representatives shall have requested against
payment of the purchase price thereof to or upon the order of the Company by
certified or official bank check or checks drawn on or by a New York Clearing
House bank and payable in next day funds, or by wire transfer of immediately
available funds if so requested by the Company provided that the Company
reimburses the International Underwriters by payment to the International
Representatives for the cost of providing such immediately available funds. If
settlement for the International Option Securities occurs after the Closing
Date, the Company will deliver to the International Representatives on the
settlement
<PAGE>
-16-
date for the International Option Securities, and the obligation of the
Underwriters to purchase the International Option Securities shall be
conditioned upon receipt of, supplemental opinions, certificates and letters
confirming as of such date the opinions, certificates and letters delivered on
the Closing Date pursuant to Section 6 hereof.
It is understood and agreed that the Closing Date shall occur
simultaneously with the "Closing Date" under the International Underwriting
Agreement.
4. OFFERING BY INTERNATIONAL UNDERWRITERS. It is understood that the
several International Underwriters propose to offer the Securities for sale to
the public as set forth in the International Prospectus.
5. AGREEMENTS.
(a) The Company agrees with the several International Underwriters
and the Selling Stockholder that:
(i) The Company will use its best efforts to cause the
Registration Statement, if not effective at the Execution Time, and any
amendments thereof, to become effective. Prior to the termination of the
offering of the Securities, the Company will not file any amendment of the
Registration Statement or supplement to the International Prospectus
without your prior consent, which consent shall not be unreasonably
withheld. Subject to the foregoing sentence, if the Registration Statement
has become or becomes effective pursuant to Rule 430A, or filing of the
International Prospectus is otherwise required under Rule 424(b), the
Company will cause the International Prospectus, properly completed, and
any supplement thereto to be filed with the Commission pursuant to the
applicable paragraph of Rule 424(b) within the time period prescribed and
will provide evidence satisfactory to the International Representatives of
such timely filing. The Company will promptly advise the International
Representatives (A) when the Registration Statement, if not effective at
the Execution Time, and any amendment thereto, shall have become effective,
(B) when the International Prospectus, and any supplement thereto, shall
have been filed (if required) with the Commission pursuant to Rule 424(b),
(C) when, prior to termination of the offering of the International
Securities, any amendment to the Registration Statement shall have been
filed or become effective, (D) of any request by the Commission for any
amendment of the Registration Statement
<PAGE>
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or supplement to the International Prospectus or for any
additional information, (E) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (F) of
the receipt by the Company of any notification with respect to the
suspension of the qualification of the International Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for
such purpose. The Company will use its reasonable best efforts to prevent
the issuance of any such stop order and, if issued, to obtain as soon as
possible the withdrawal thereof.
(ii) If, at any time when a prospectus relating to the
International Securities is required to be delivered under the Act, any
event occurs as a result of which the International Prospectus as then
supplemented would include any untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or
if it shall be necessary to amend the Registration Statement or supplement
the International Prospectus to comply with the Act or the Exchange Act or
the respective rules thereunder, the Company promptly will prepare and file
with the Commission, subject to the second sentence of paragraph (a)(i) of
this Section 5, an amendment or supplement which will correct such
statement or omission or effect such compliance.
(iii) As soon as practicable, the Company will make generally
available to its security holders and to the International Representatives
an earnings statement or statements of the Company and its subsidiaries
which will satisfy the provisions of Section 11(a) of the Act and Rule 158
under the Act.
(iv) The Company will furnish to the Representatives and counsel
for the International Underwriters, without charge, signed copies of the
Registration Statement (including exhibits thereto) and to each other
International Underwriter a copy of the Registration Statement (without
exhibits thereto) and, so long as delivery of a prospectus by an
Underwriter or dealer may be required by the Act, as many copies of each
International Preliminary Prospectus and any supplement thereto as the
International Representatives may reasonably request. The Company will pay
the expenses of printing or other production of all documents relating to
the offering.
<PAGE>
-18-
(v) The Company will arrange for the qualification of the Securities
for sale under the laws of such jurisdictions as the International
Representatives may designate and will maintain such qualifications in effect
so long as required for the distribution of the U.S. Securities; PROVIDED,
HOWEVER, that the Company shall not be required to qualify to do business in
any jurisdiction where it is not now qualified or to file a general consent to
service of process in any jurisdiction. The Company will pay the fee of the
NASD in connection with its review of the offering.
(vi) The Company will not, for a period of 120 days following the
Execution Time, without the prior written consent of Salomon Brothers
International Limited, offer, sell or contract to sell, or otherwise dispose of,
directly or indirectly, or announce the offering of, any other shares of Common
Stock or any securities convertible into, or exchangeable for, shares of Common
Stock; PROVIDED, HOWEVER, that the Company may issue securities (A) pursuant to
any stock option, retirement, savings or other benefit or incentive plans
maintained for the Company's officers, directors or employees, in effect at
the Execution Time and (B) for the payment of regular dividends in the
Company's $.75 Convertible Preferred Stock.
(vii) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
AN ACT RELATING TO DISCLOSURE OF DOING BUSINESS WITH CUBA, and the Company
further agrees that if it commences engaging in business with the government of
Cuba or with any person or affiliate located in Cuba after the date the
Registration Statement becomes or has become effective with the Securities and
Exchange Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported in the
Prospectus, if any, concerning the Company's business with Cuba or with any
person or affiliate located in Cuba changes in any material way, the Company
will provide the Department notice of such business or change, as appropriate,
in a form acceptable to the Department.
(b) Each International Underwriter agrees that (i) it is not
purchasing any of the International Securities for the account of any United
States or Canadian Person, (ii) it has not offered or sold, and will not offer
or sell, directly or indirectly, any of the Securities or distribute any
International Prospectus to any person in the United States or Canada, or to any
United States or Canadian
<PAGE>
-19-
Person, and (iii) any dealer to whom it may sell any of the International
Securities will represent that it is not purchasing for the account of any
United States or Canadian Person and agree that it will not offer or resell,
directly or indirectly, any of the International Securities in the United States
or Canada, or to any United States or Canadian Person or to any other dealer who
does not so represent and agree; PROVIDED, HOWEVER, that the foregoing shall not
restrict (A) purchases and sales between the U.S. Underwriters on the one hand
and the International Underwriters on the other hand pursuant to the Agreement
Between U.S. Underwriters and International Underwriters, (B) stabilization
transactions contemplated under the Agreement Between U.S. Underwriters and
International Underwriters, conducted through Salomon Brothers Inc (or through
the Representatives and International Representatives) as part of the
distribution of the Securities, and (C) sales to or through (or distributions of
International Prospectuses or International Preliminary Prospectuses to) persons
not United States or Canadian Persons who are investment advisors, or who
otherwise exercise investment discretion, and who are purchasing for the account
of any United States or Canadian Person.
(c) The agreements of the International Underwriters set forth in
paragraph (b) of this Section 5 shall terminate upon the earlier of the
following events:
(i) a mutual agreement of the Representatives and the International
Representatives to terminate the selling restrictions set forth in
paragraph (b) of this Section 5 and Section 5(b) of the U.S. Underwriting
Agreement; or
(ii) the expiration of a period of 30 days after the Closing Date,
unless (A) the International Representatives shall have given notice to the
Company and the Representatives that the distribution of the International
Securities by the International Underwriters has not yet been completed, or
(B) the Representatives shall have given notice to the Company and the
International Underwriters that the distribution of the U.S. Securities by
the U.S. Underwriters has not yet been completed. If such notice by the
Representatives or the International Representatives is given, the
agreements set forth in such paragraph (b) shall survive until the earlier
of (1) the event referred to in clause (i) of this
<PAGE>
-20-
subsection (c) or (2) the expiration of an additional period of 30 days
from the date of any such notice.
6. CONDITIONS TO THE OBLIGATIONS OF THE INTERNATIONAL UNDERWRITERS. The
obligations of the International Underwriters to purchase the International
Underwritten Securities and the International Option Securities shall be subject
to the accuracy of the representations and warranties on the part of the Company
and the Selling Stockholder contained herein as of the Execution Time, the
Closing Date and any settlement date pursuant to Section 3 hereof, to the
accuracy of the statements of the Company and the Selling Stockholder made in
any certificates pursuant to the provisions hereof, to the performance by the
Company and the Selling Stockholder of their obligations hereunder and to the
following additional conditions:
(a) If the Registration Statement has not become effective prior to
the Execution Time, unless the International Representatives agree in
writing to a later time, the Registration Statement will become effective
not later than (i) 6:00 P.M New York City time on the date of determination
of the public offering price, if such determination occurred at or prior to
3:00 P.M. New York City time on such date or (ii) 12:00 Noon on the
business day immediately following the day on which the pubic offering
price was determined, if such determination occurred after 3:00 P.M. New
York City time on such date; if filing of the Prospectuses, or any
supplement thereto, is required pursuant to Rule 424(b), the Prospectuses,
and any such supplement, will be filed in the manner and within the time
period required by Rule 424(b); and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or threatened.
(b) The Company shall have furnished to the International
Representatives the opinion of Daniel L. McNamara, Esq., Corporate Counsel
and Secretary for the Company, and Vinson & Elkins L.L.P., counsel for the
Company each dated the Closing Date, in the forms specified in
Sections 6(b) and 6(c), respectively, of the U.S. Underwriting Agreement.
(c) The International Representatives shall have received from Cahill
Gordon & Reindel, counsel for the International Underwriters, such opinion
or opinions, dated the Closing Date, with respect to the issuance and sale
of the International Securities, the Registration Statement,
<PAGE>
-21-
the International Prospectus (together with any supplement thereto) and
other related matters as the International Representatives may reasonably
require, and the Company shall have furnished to such counsel such
documents as they request for the purpose of enabling them to pass upon
such matters.
(d) The Company shall have furnished to the International
Representatives a certificate of the Company, signed by the Chairman of the
Board or the President and the principal financial or accounting officer of
the Company, dated the Closing Date, to the effect that the signers of such
certificate have carefully examined the Registration Statement, the
Prospectuses, any supplement to the Prospectuses and this Agreement and
that:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of
the Closing Date with the same effect as if made on the Closing Date
and the Company has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or prior to
the Closing Date pursuant to this Agreement;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Company's knowledge,
threatened; and
(iii) since the date of the most recent financial statements
included in the Prospectuses (exclusive of any supplement thereto),
there has been no material adverse change in the condition (financial
or other), earnings, business or properties of the Company and its
subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth
in or contemplated in the Prospectus (exclusive of any supplement
thereto).
(e) At the Execution Time and at the Closing Date, KPMG Peat Marwick
LLP shall have furnished to the International Representatives a letter or
letters, dated respectively as of the Execution Time and as of the Closing
Date, in form and substance satisfactory to the International
Representatives.
<PAGE>
-22-
(f) At the Execution Time and at the Closing Date, Price Waterhouse
shall have furnished to the International Representatives a letter or
letters, dated respectively as of the Execution Time and as of the Closing
Date, in form and substance satisfactory to the International
Representatives.
(g) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectuses (exclusive of any supplement
thereto), there shall not have been (i) any change or decrease specified in
the letter or letters referred to in paragraphs (e) and (f) of this Section
6 or (ii) any change, or any development involving a prospective change, in
or affecting the business or properties of the Company and its subsidiaries
and ATCOR, taken as a whole, the effect of which, in any case referred to
in clause (i) or (ii) above, is, in the judgment of the International
Representatives, so material and adverse as to make it impractical or
inadvisable to proceed with the offering or delivery of the Securities as
contemplated by the Registration Statement (exclusive of any amendment
thereof) and the Prospectuses (exclusive of any supplement thereto).
(h) At the Execution Time, the Company shall have furnished to the
International Representatives a letter substantially in the form of Exhibit
A hereto from each executive officer and director of the Company addressed
to the International Representatives, in which each such person agrees not
to offer, sell or contract to sell, or otherwise dispose of, directly or
indirectly, or announce an offering of, any shares of Common Stock
beneficially owned by such person or any securities convertible into, or
exchangeable for, shares of Common Stock for a period of 120 days following
the Execution Time without the prior consent of Salomon Brothers Inc, other
than shares of Common Stock disposed of as bona fide gifts or by act of
law.
(i) Prior to the Closing Date, the Company shall have furnished to
the International Representatives such further information, certificates
and documents as the International Representatives may reasonably request.
(j) The Selling Stockholder shall have furnished to the International
Representatives the opinion of McCarthy Tetrault, counsel for the Selling
Stockholder, dated the
<PAGE>
-23-
Closing Date, in the form specified in Section 6(k) of the U.S.
Underwriting Agreement.
(k) The Selling Stockholder shall have furnished to the International
Representatives a certificate, signed by the Chairman of the Board or the
President and the principal financial or accounting officer of the Selling
Stockholder, dated the Closing Date, to the effect that the signers of such
certificate have carefully examined the Registration Statement, the
Prospectuses, any supplement to the Prospectuses and this Agreement and
that the representations and warranties of the Selling Stockholder in this
Agreement are true and correct in all material respects on and as of
Closing Date to the same effect as if made on the Closing Date.
(l) Other than the payment of the purchase price, all of the
conditions to consummating the Acquisition have been satisfied as of the
Closing Date.
(m) The closing of the purchase of the U.S. Securities to be issued
and sold by the Company and the Selling Stockholder pursuant to the U.S.
Underwriting Agreement shall occur concurrently with the closing described
herein.
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects when and as provided in this
Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material respects
reasonably satisfactory in form and substance to the Representatives and
counsel for the International Underwriters, this Agreement and all
obligations of the International Underwriters hereunder may be canceled at,
or at any time prior to, the Closing Date by the International
Representatives. Notice of such cancellation shall be given to the
Secretary of the Company and the Selling Stockholder in writing or by
telephone or telegraph confirmed in writing.
7. REIMBURSEMENT OF INTERNATIONAL UNDERWRITERS' EXPENSES. If
the sale of the Securities provided for herein is not consummated because
any condition to the obligations of the International Underwriters set
forth in Section 6 hereof is not satisfied, because of any termination
pursuant to Section 10 hereof or because of any refusal, inability or
failure on the part of the Company or the Selling Stockholder to perform
any agreement herein or comply with
<PAGE>
-24-
any provision hereof other than by reason of a default by any of the
International Underwriters, the Company will reimburse the International
Underwriters severally upon demand for all reasonable out-of-pocket
expenses (including reasonable fees and disbursements of counsel) that
shall have been incurred by them in connection with the proposed purchase
and sale of the Securities. If the Company is required to make any
payments to the International Underwriters under this Section 7 because of
the Selling Stockholder's refusal, inability or failure to satisfy any
condition to the obligations of the International Underwriters set forth in
Section 6, the Selling Stockholder shall reimburse the Company on demand
for all amounts so paid.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company and the Selling Stockholder jointly and severally
agree to indemnify and hold harmless each International Underwriter, the
directors, officers, employees and agents of each International Underwriter
and each person who controls any International Underwriter within the
meaning of either the Act or the Exchange Act against any and all losses,
claims, damages or liabilities, joint or several, to which they or any of
them may become subject under the Act, the Exchange Act or other Federal or
state statutory law or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement for
the registration of the Securities as originally filed or in any amendment
thereof, or in any U.S. or International Preliminary Prospectus or in
either of the Prospectuses, or in any amendment thereof or supplement
thereto, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, and agrees to reimburse each
such indemnified party, as incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action; PROVIDED, that the
Selling Stockholder shall not be responsible pursuant to this indemnity for
losses, claims, damages or liabilities arising out of or based upon any
such untrue statement or omission or allegation thereof based upon
information furnished by any party other than the Selling Stockholder or
for an amount in
<PAGE>
-25-
excess of the proceeds to such Selling Stockholder from the sale of the
U.S. or International Underwritten Securities sold by it; PROVIDED,
HOWEVER, that the Company and the Selling Stockholder will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and
in conformity with written information furnished to the Company by or on
behalf of any International Underwriter through the International
Representatives specifically for inclusion therein; and PROVIDED, FURTHER,
that such indemnity with respect to any preliminary prospectus shall not
inure to the benefit of the International Underwriter (or any person
controlling the International Underwriter) from whom the person asserting
any such loss, claim, damage or liability purchased the Securities which
are the subject thereof if such person did not receive a copy of the
International Prospectus (or the International Prospectus as amended and
supplemented) at or prior to the confirmation of the sale of such
International Securities to such person in any case where such delivery is
required by the Act and the untrue statement or omission of a material fact
contained in such preliminary prospectus was corrected in the International
Prospectus (or the International Prospectus as amended or supplemented)
provided that the Company shall have delivered the International
Prospectus, as amended or supplemented, to the International
Representatives on a timely basis to permit such delivery. This indemnity
agreement will be in addition to any liability which the Company or the
Selling Stockholder may otherwise have.
(b) Each International Underwriter severally agrees to indemnify and
hold harmless the Company, the Selling Stockholder, each of the Company's
directors, each of the Company's officers who signs the Registration
Statement, and each person who controls the Company within the meaning of
either the Act or the Exchange Act, to the same extent as the foregoing
indemnity from the Company and the Selling Stockholder to each
International Underwriter, but only with reference to written information
relating to such International Underwriter furnished to the Company by or
on behalf of such International Underwriter through the International
Representatives specifically for inclusion in the documents referred to in
the foregoing indemnity. This indemnity agreement will be in addition to
any liability which any International Underwriter may otherwise have. The
Company and the Selling Stockholder acknowledge that the
<PAGE>
-26-
statements set forth in the last paragraph of the cover page, the first and
second paragraphs set forth on the inside front cover page and under the
heading "Underwriting" in any U.S. or International Preliminary Prospectus
and the Prospectuses constitute the only information furnished in writing
by or on behalf of the several International Underwriters for inclusion in
any U.S. or International Preliminary Prospectus or the Prospectuses, and
you, as the Representatives, confirm that such statements are correct.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party
(i) will not relieve it from liability under paragraph (a) or (b) above
unless and to the extent it did not otherwise learn of such action and such
failure results in the forfeiture by the indemnifying party of substantial
rights and defenses and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than
the indemnification obligation provided in paragraph (a) or (b) above. The
indemnifying party shall be entitled to appoint counsel of the indemnifying
party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in
which case the indemnifying party shall not thereafter be responsible for
the fees and expenses of any separate counsel retained by the indemnified
party or parties except as set forth below); PROVIDED, HOWEVER, that such
counsel shall be satisfactory to the indemnified party. Notwithstanding
the indemnifying party's election to appoint counsel to represent the
indemnified party in an action, the indemnified party shall have the right
to employ separate counsel (including local counsel), and the indemnifying
party shall bear the reasonable fees, costs and expenses of such separate
counsel if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a conflict
of interest, (ii) the actual or potential defendants in, or targets of, any
such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be
legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party,
(iii) the indemnifying party shall not have employed counsel
<PAGE>
-27-
satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of the institution of such action or
(iv) the indemnifying party shall authorize the indemnified party to employ
separate counsel at the expense of the indemnifying party. An indemnifying
party will not, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry of any judgment with
respect to any pending or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified parties are actual or potential parties to
such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Selling Stockholder,
jointly and severally, and the International Underwriters agree to
contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating or defending same) (collectively, "Losses") to which the
Company, the Selling Stockholder and one or more of the International
Underwriters may be subject in such proportion as is appropriate to reflect
the relative benefits received by the Company and the Selling Stockholder
on the one hand and by the International Underwriters on the other from the
offering of the Securities; PROVIDED, HOWEVER, that in no case shall any
International Underwriter (except as may be provided in any agreement among
underwriters relating to the offering of the Securities) be responsible for
any amount in excess of the underwriting discount or commission applicable
to the Securities purchased by such International Underwriter hereunder.
If the allocation provided by the immediately preceding sentence is
unavailable for any reason, the Company and the Selling Stockholder,
jointly and severally, and the International Underwriters shall
contribute in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company and
the Selling Stockholder on the one hand and of the International
Underwriters on the other in connection with the statements or
omissions which resulted in such Losses as well as any other relevant
equitable considerations. Benefits received by the Company and the
<PAGE>
-28-
Selling Stockholder shall be deemed to be equal to the total net proceeds
from the offering (after deducting expenses), and benefits received by the
International Underwriters shall be deemed to be equal to the total
underwriting discounts and commissions, in each case as set forth on the
cover page of the International Prospectus. Relative fault shall be
determined by reference to whether any alleged untrue statement or omission
relates to information provided by the Company, the Selling Stockholder or
the International Underwriters. The Company, the Selling Stockholder and
the International Underwriters agree that it would not be just and
equitable if contribution were determined by pro rata allocation or any
other method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this
paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section 8, each person who controls an International
Underwriter within the meaning of either the Act or the Exchange Act and
each director, officer, employee and agent of an International Underwriter
shall have the same rights to contribution as such International
Underwriter, and each person who controls the Company within the meaning of
either the Act or the Exchange Act, each officer of the Company who shall
have signed the Registration Statement and each director of the Company
shall have the same rights to contribution as the Company, subject in each
case to the applicable terms and conditions of this paragraph (d).
9. DEFAULT BY AN INTERNATIONAL UNDERWRITER. If any one or more
International Underwriters shall fail to purchase and pay for any of the
International Securities agreed to be purchased by such International
Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining International Underwriters shall be obligated severally
to take up and pay for (in the respective proportions which the amount of
International Securities set forth opposite their names in Schedule I hereto
bears to the aggregate amount of Securities set forth opposite the names of all
the remaining International Underwriters) the International Securities which the
defaulting International Underwriter or Underwriters agreed but failed to
purchase; PROVIDED, HOWEVER, that in the event that the aggregate amount of
International Securities which the defaulting International Underwriter or
Underwriters agreed but failed to purchase shall exceed 10% of
<PAGE>
-29-
the aggregate amount of Securities set forth in Schedule I hereto, the remaining
International Underwriters shall have the right to purchase all, but shall not
be under any obligation to purchase any, of the International Securities, and if
such non-defaulting International Underwriters do not purchase all the
International Securities, this Agreement will terminate without liability to any
non-defaulting International Underwriter, the Selling Stockholder or the
Company. In the event of a default by any International Underwriter as set
forth in this Section 9, the Closing Date shall be postponed for such period,
not exceeding seven days, as the International Representatives shall determine
in order that the required changes in the Registration Statement and the
International Prospectus or in any other documents or arrangements may be
effected. Nothing contained in this Agreement shall relieve any defaulting
International Underwriter of its liability, if any, to the Company, the Selling
Stockholder and any non-defaulting Underwriter for damages occasioned by its
default hereunder.
10. TERMINATION. This Agreement shall be subject to termination in
the absolute discretion of the International Representatives, by notice given to
the Company prior to delivery of and payment for the International Securities,
if prior to such time (i) trading in the Company's Common Stock shall have been
suspended by the Commission or the Nasdaq National Market or trading in
securities generally on the New York Stock Exchange or the Nasdaq National
Market shall have been suspended or limited or minimum prices shall have been
established on the New York Stock Exchange or the the Nasdaq National Market,
(ii) a banking moratorium shall have been declared either by Federal or New York
State authorities or (iii) there shall have occurred any outbreak or escalation
of hostilities, declaration by the United States of a national emergency or war
or other calamity or crisis the effect of which on financial markets is such as
to make it, in the judgment of the International Representatives, impracticable
or inadvisable to proceed with the offering or delivery of the Securities as
contemplated by the International Prospectus (exclusive of any supplement
thereto).
11. REPRESENTATIONS AND INDEMNITIES TO SURVIVE. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers, of the Selling Stockholder and of the International
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of any
International Underwriter, the Selling Stockholder or the Company or any of the
officers, directors or controlling persons referred to in Section 8 hereof, and
will survive
<PAGE>
-30-
delivery of and payment for the International Securities. The provisions of
Sections 7 and 8 hereof shall survive the termination or cancellation of this
Agreement.
12. NOTICES. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the International Representatives,
will be mailed, delivered or telegraphed and confirmed to them, care of Salomon
Brothers International Limited, at Victoria Plaza, 111 Buckingham Palace Road,
London SW1W OSB ENGLAND; or, if sent to the Company, will be mailed, delivered,
or telegraphed and confirmed to it at 1600 Broadway, Suite 2200, Denver,
Colorado 80202, Attention: Daniel L. McNamara, Esq.; or if sent to the Selling
Stockholder, will be mailed, delivered, or telegraphed and confirmed to it at
1700, 736 6th Avenue SW, Calgary, Alberta T2P 3T7, Canada, Attention: Mr.
William Brebber.
13. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 8 hereof, and no
other person will have any right or obligation hereunder.
14. APPLICABLE LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAWS.
15. COUNTERPARTS. This Agreement may be executed in more than one
counterpart each of which shall be deemed an original and each of which shall
constitute one and the same instrument.
<PAGE>
-31-
If the foregoing is in accordance with your understanding of our
agreement, please sign and send us the enclosed duplicate hereof, whereupon this
letter and your acceptance shall represent a binding agreement among the
Company, the Selling Stockholder and the several International Underwriters.
Very truly yours,
FOREST OIL CORPORATION
By:
-------------------------------------
Name:
Title:
SAXON PETROLEUM INC.
the Selling Stockholder
By:
------------------------------------
Name:
Title: Attorney-in-Fact
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above
written.
SALOMON BROTHERS INTERNATIONAL LIMITED
DILLON, READ & CO. INC.
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
By: Salomon Brothers International Limited
By:
------------------------------
For themselves and the other
several International Underwriters
named in Schedule I to the foregoing
Agreement.
<PAGE>
SCHEDULE I
Number of Shares
of International
Underwritten
Securities to be
International Underwriters Purchased
- -------------------------- -----------------
Salomon Brothers International Limited . .
Dillon, Read & Co. Inc. . . . . . . . . .
Morgan Stanley & Co. International
Limited . . . . . . . . . . . . . . . . .
---------
Total . . . . . . 1,800,000
---------
<PAGE>
SCHEDULE II
SUBSIDIARIES OF FOREST OIL CORPORATION
DELAWARE SUBSIDIARIES
Forest I Development Company(2)
Forest Merger Corporation
Forest Oil of Turkey, Ltd.
Forest Pipeline Company
CANADA SUBSIDIARIES
Forest Canada I Development Ltd.
Forest Oil of Canada, Ltd.
Effective December 20, 1995, Forest Oil Corporation acquired a 49% voting
interest in Saxon Petroleum Inc., an Alberta corporation.
Effective December 15, 1995, Forest Oil Corporation incorporated 3189490 Canada
Ltd., a Canadian corporation.
- -------------------------
(2) Oklatex Corp. (a Texas corporation) is a wholly owned subsidiary of
Forest I Development Company.
<PAGE>
EXHIBIT A
Letterhead of officer or director of
Forest Oil Corporation
FOREST OIL CORPORATION
PUBLIC OFFERING OF COMMON STOCK
January __, 1996
Salomon Brothers Inc
Dillon, Read & Co. Inc.
Morgan Stanley & Co. Incorporated
Chase Securities, Inc.
As Representatives of the several U.S. Underwriters
and
Salomon Brothers International Limited
Dillon, Read & Co. Inc.
Morgan Stanley & Co. International Limited
As Representatives of the several
International Underwriters,
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Dear Sirs:
This letter is being delivered to you in connection with the proposed
U.S. Underwriting Agreement (the "U.S. Underwriting Agreement") and
International Underwriting Agreement (together with the U.S. Underwriting
Agreement the "Underwriting Agreements"), between Forest Oil Corporation, a New
York corporation (the "Company"), a certain Selling Stockholder named therein
and each of you as respective representatives of a group of U.S. Underwriters
and International Underwriters, as the case may be, named therein (collectively,
the "Underwriters"), relating to an underwritten public offering of Common
Stock, $.10 par value (the "Common Stock"), of the Company.
In order to induce you and the other Underwriters to enter into the
Underwriting Agreements, the undersigned agrees not to offer, sell or contract
to sell, or otherwise dispose of, directly or indirectly, or announce an
offering of, any shares of Common Stock beneficially owned by the undersigned or
any securities convertible into, or exchangeable for, shares of Common Stock for
a period of 120 days following the day on which
<PAGE>
-2-
the Underwriting Agreements are executed without the prior consent of Salomon
Brothers Inc and Salomon Brothers International Limited, other than shares of
Common Stock disposed of as bona fide gifts or by act of law.
<PAGE>
-3-
If for any reason the Underwriting Agreements shall be terminated
prior to the Closing Date (as defined in the Underwriting Agreements), the
agreement set forth above shall likewise be terminated.
Sincerely,
_________________________________
Name:
Title:
Address:
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION
OF FOREST OIL CORPORATION
Under 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. Immediately upon the effectiveness of this amendment to the
Corporation's Certificate of Incorporation pursuant to the New York Business
Corporation Law (the "Effective Time"), each five issued and outstanding
shares of the Corporation's Common Stock, Par Value $.10 Per Share ("Old
Common Stock"), shall automatically, without further action on the part of
the Corporation or any holder of such Old Common Stock, be reclassified into
one new share of the Corporation's Common Stock, $.10 Par Value Per Share
("New Common Stock"), as constituted following the Effective Time. The
reclassification of the Old Common Stock into New Common Stock, will be
deemed to occur at the Effective Time, regardless of when the certificates
representing such Old Common Stock are physically surrendered to the
Corporation for exchange into certificates representing New Common Stock.
After the Effective Time, certificates representing the Old Common Stock
will, until such shares are surrendered to the Corporation for exchange into
New Common Stock, represent the number and class of New Common Stock into
which such Old Common Stock shall have been converted pursuant to this
amendment.
In cases in which the conversion of the Old Common Stock into New Common
Stock results in any shareholder holding a fraction of a share, the Company
will pay the shareholder for such fractional interest on the basis of the
average closing market price on the National Market System of the National
Association of Securities Dealers for the 10 trading days immediately
preceding the Effective Time.
4. Following the Effective Time, the number of outstanding shares of
the Corporation will be reduced. The number of shares authorized to be issued
by the Corporation will not change. This amendment authorizes the officers of
the Corporation to reduce the stated capital of the Corporation to reflect
the change in outstanding shares of the Corporation. Based upon the
53,289,960 shares of Old Common Stock outstanding as of December 27, 1995,
the stated
<PAGE>
capital of the Corporation would be reduced from $5,328,996 to $1,065,799 to
reflect the reduction in outstanding shares of the Corporation.
At a meeting of the Board of Directors held on December 12, 1995, and at
a meeting of the shareholders held on January 5, 1996, 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 5th day of
January, 1996.
William L. Dorn
CHAIRMAN OF THE BOARD
Daniel L. McNamara
SECRETARY
