<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 3, 1996
REGISTRATION STATEMENT NO. 33-64949
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
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.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock................................ 13,800,000* $13.45* $185,610,000 $64,004**
</TABLE>
* Adjusted to reflect a 5 to 1 reverse stock split expected to occur on or
about January 5, 1996.
** Previously paid.
--------------------------
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.
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<PAGE>
EXPLANATORY NOTES
The Company has submitted a proposal to its shareholders to effect a reverse
stock split of its outstanding Common Stock. The proposal would cause each
outstanding share of Common Stock to be converted into one fifth of a share of
Common Stock. The proposal is scheduled for consideration at a special meeting
of shareholders to be held on January 5, 1996. The share and per share
information in this Registration Statement and the prospectus included herein
has been amended to reflect the effects of the proposal on the assumption that
it will be adopted prior to completion of the Offerings described herein.
This Registration Statement contains two forms of Prospectuses: one to be
used in connection with an offering in the United States (the "U.S.
Prospectus"), and one to be used in connection with a concurrent international
offering (the "International Prospectus"). The two Prospectuses are
substantially the same. The form of U.S. Prospectus is included herein in its
entirety and is followed by those pages to be used in the International
Prospectus which differ from, or are in addition to, those in the U.S.
Prospectus. Each of the pages for the International Prospectus included herein
is labeled "Alternate International Page."
<PAGE>
FOREST OIL CORPORATION
------------------------
CROSS REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY FORM S-2
<TABLE>
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus... Outside front cover page
2. Inside Front and Outside Back Cover Pages Inside front cover page, outside back
of Prospectus............................ cover page
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges....... Prospectus Summary, Risk Factors
4. Use of Proceeds........................... Use of Proceeds
5. Determination of Offering Price........... Not Applicable
6. Dilution.................................. Risk Factors
7. Selling Security Holders.................. Principal and Selling Shareholders
8. Plan of Distribution...................... Outside front cover page, Underwriting
9. Description of Securities to be
Registered............................... Outside front cover page, Prospectus
Summary, Dividend Policy, Description of
Capital Stock
10. Interests of Named Experts and Counsel.... Legal Matters, Experts
11. Information with Respect to Registrant.... Prospectus Summary, The Company,
Capitalization, Price Range of Common
Stock, Dividend Policy, Selected
Financial and Operating Data,
Management's Discussion and Analysis of
Financial Condition and Results of
Operations, Business and Properties, The
Anschutz and JEDI Transactions,
Description of Capital Stock,
Consolidated Financial Statements
12. Incorporation of Certain Information by
Reference................................ Inside front cover page
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
</TABLE>
<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 3, 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." 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 Offering.
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 December 29, 1995, the last reported sale price of the Common Stock
was $2 13/16 per share. This price does not reflect the 5 to 1 reverse stock
split proposed to be effected on January 5, 1996. Pro forma for a proposed
reverse stock split, the last reported sale price of the Common Stock on
December 29, 1995 was $14 1/16 per share. 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>
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<S> <C> <C> <C> <C>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT COMPANY(1) SHAREHOLDER(1)
Per Share........................ $ $ $ $
Total(2)......................... $ $ $ $
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</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 , 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 THE COMPANY HAS PROPOSED FOR ADOPTION BY ITS SHAREHOLDERS AT A MEETING
SCHEDULED TO BE HELD ON JANUARY 5, 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. See "-- Recent Developments -- Canadian
Acquisitions" 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, 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
3
<PAGE>
Development Investments Limited Partnership ("JEDI"). On December 29, 1995, JEDI
entered into an agreement with the Company ( the "Pending JEDI Agreement") to
exchange $22.4 million of the JEDI indebtedness and warrants to acquire Common
Stock for 1,680,000 shares of Common Stock to be issued by the Company. As a
result of these transactions, 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 a
five year shareholders agreement with the Company, and, in connection with the
Offering, 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 Offering. JEDI will enter into a shareholders agreement with the Company,
and has agreed to not transfer any of the shares of Common Stock that it will
acquire pursuant to the Pending JEDI Agreement 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 Offering, 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 Offering and consummation of the transactions
contemplated by the Pending JEDI Agreement, 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 obtaining of certain Canadian regulatory
approvals, the approval of the holders of both classes of the outstanding
capital stock of ATCOR and the completion of the Offering. A meeting of the
shareholders of ATCOR to consider approval of the acquisition is expected to
occur on January 16, 1996. The Company will use a substantial portion of the net
proceeds of the Offering to pay the costs and expenses of the ATCOR acquisition,
the closing of which is expected to occur immediately following the closing of
the Offering. 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 Offering in exchange for Anschutz's agreement to not sell the
shares of Company Common Stock that it owns for nine months after the Offering,
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 December 29, 1995, JEDI entered into the Pending JEDI Agreement to
exchange the $22.4 million tranche and the B Warrants for 1,680,000 shares of
Common Stock. As a result of the Pending JEDI Agreement, the Company expects
that non-cash interest expense will be reduced by an additional $1.5 million per
year. Completion of the transactions contemplated by the Pending JEDI Agreement
is subject to certain conditions, including obtaining clearance pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976. Pursuant to the Pending
JEDI Agreement, JEDI will enter 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 will entitle
JEDI to designate a member of the
6
<PAGE>
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
Pending JEDI Agreement 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 Pending JEDI Agreement, the Company would assume JEDI's
obligations under the Anschutz Option. Under the Anschutz Option, the Company
would be 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 would be 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 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 the Company has proposed
for adoption by its shareholders at a meeting to be held on January 5, 1996.
(3) Based on the number of shares of Common Stock outstanding at December 21,
1995, after giving effect to a proposed 5 to 1 reverse stock split. Includes
shares to be issued pursuant to the Pending JEDI Agreement. 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 B Warrants, 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
<PAGE>
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 Pending JEDI Agreement.
(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.
10
<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. The Company
believes that if the Offering is not successful, capital expenditures will be
significantly reduced in 1996.
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 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.
11
<PAGE>
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.
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
12
<PAGE>
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 Offering, 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.
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
13
<PAGE>
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 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."
14
<PAGE>
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. As of December 21, 1995, Anschutz owned approximately 35% 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,
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 completion
of the transactions contemplated by the Pending JEDI Agreement and 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 transactions contemplated by the Pending JEDI Agreement,
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 Company's B Warrants at an exercise price of $10.00 per share;
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.
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."
15
<PAGE>
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., 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 transactions contemplated by
the Pending JEDI Agreement, will have a principal amount of approximately $40
million. The portion of the JEDI indebtedness to be outstanding after completion
of the transaction contemplated by the Pending JEDI Agreement 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 $35 million on
direct capital expenditures in the United States in 1996. 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 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, and
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.
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 Pending JEDI Agreement, 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 a 5 to 1 reverse stock split that the Company has
proposed for adoption by its Shareholders at a meeting scheduled to be held on
January 5, 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". On December 29, 1995, the last reported sales
price of the Common Stock as quoted on the Nasdaq National Market was $2 13/16
per share. All of the following quotations have been adjusted to reflect the 5
to 1 reverse stock split of the Common Stock expected to occur on January 5,
1996. Pro forma for the proposed reverse stock split, the last reported sale
price of the Common Stock on December 29, 1995 was 14 1/16.
<TABLE>
<CAPTION>
1993 High Low
- ---------------------------------------- --------- --------
<S> <C> <C>
First Quarter........................... $23 1/8 $13 3/4
Second Quarter.......................... 30 19 3/8
Third Quarter........................... 29 3/8 20 5/8
Fourth Quarter.......................... 28 1/8 15 5/8
<CAPTION>
1994
- ----------------------------------------
<S> <C> <C>
First Quarter........................... $23 3/4 $17 3/16
Second Quarter.......................... 23 3/4 16 7/8
Third Quarter........................... 22 1/2 15 15/16
Fourth Quarter.......................... 17 1/2 7 3/8
<CAPTION>
1995
- ----------------------------------------
<S> <C> <C>
First Quarter........................... $12 3/16 $ 6 7/8
Second Quarter.......................... 11 7/8 7 3/16
Third Quarter........................... 15 5/8 8 1/8
Fourth Quarter.......................... 16 9/16 10 5/8
</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 Pending JEDI Agreement.
(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%.
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 Offering 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.
PENDING JEDI AGREEMENT
On December 29, 1995, JEDI entered into the Pending JEDI Agreement with the
Company to exchange the $22.4 million tranche and the B Warrants for 1,680,000
shares of Common Stock. As a result of the Pending JEDI Agreement, the Company
expects that non-cash interest expense will be reduced by an additional
$1,500,000 per year. Completion of the transactions contemplated by the JEDI
Agreement is subject to certain conditions, including obtaining clearance
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The
Pending JEDI Agreement would also eliminate the Conveyance Option described
above and provide 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
Pending JEDI Agreement, JEDI will enter 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 will entitle
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 Pending JEDI Agreement and still held by JEDI
are less than 3% of the outstanding shares of Common Stock.
30
<PAGE>
Pursuant to the JEDI Agreement, the Company would assume JEDI's obligations
under the Anschutz Option. Under the Anschutz Option, the Company would be
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 would
be 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. The
Company's 1996 budgeted capital expenditures for exploration and development are
approximately $14,000,000 and $21,000,000, respectively. There can be no
assurance that the Company will have access to sufficient capital to meet
31
<PAGE>
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.
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
Offerings and the ATCOR acquisition will give the Company flexibility to
implement its 1996 U.S. capital expenditure program for which the Company has
budgeted approximately $35 million. Before fully implementing this program, the
Company believes it must obtain approximately $30 million 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.
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 Offering 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 "-- Pending JEDI Agreement" 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
completion of the transactions contemplated by the Pending JEDI Agreement 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 Offerings and the ATCOR acquisition will give the Company
flexibility to implement its 1996 U.S. capital expenditure program for which the
Company has budgeted approximately $35 million. Before fully implementing this
program, the Company believes it must obtain approximately $30 million 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
capital expenditures for exploration and development are approximately
$14,000,000 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.
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
announced prior to the payment date in accordance with the formula for
determining dividends payable with respect to the $.75 Convertible Preferred
Stock.
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 Offering 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 December 29, 1995, JEDI entered into the
Pending JEDI Agreement with the Company to exchange $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, 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 will enter into the JEDI Shareholders
Agreement and has agreed to not transfer any of its shares of Common Stock that
it will acquire pursuant to the Pending JEDI Agreement 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."
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
38
<PAGE>
prices. As a result of the Anschutz and JEDI transactions, the ATCOR acquisition
and the Offering, 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
Offering and the consummation of the transactions contemplated by the
Pending JEDI Agreement, 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
39
<PAGE>
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 obtaining certain Canadian regulatory
approvals, the approval of the holders of both classes of the outstanding
capital stock of ATCOR and the completion of this offering. A meeting of the
shareholders of ATCOR to consider the approval of the acquisition is expected to
occur on January 16, 1996. The Company will use substantially all of the net
proceeds of this offering to pay the costs and expenses of the ATCOR
acquisition. The closing of the acquisition is expected to occur immediately
following the closing of this offering.
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, 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
41
<PAGE>
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 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
42
<PAGE>
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. 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.
43
<PAGE>
CANADIAN REGULATION. For a description of certain Canadian regulatory
matters, see "-- Foreign Operations" below.
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,
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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 Offering 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
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 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 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
Anshutz Option by exercising the B Warrants. Provided the Conveyance Option
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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.
Subject to certain conditions, the Company may satisfy the JEDI Loan by
conveying to JEDI the properties securing the loan, during a 30-day period
beginning July 27, 1998, pursuant to an exercise of the Conveyance Option. The
conditions to exercising the Conveyance Option include the expiration or full
exercise of the A Warrants, the absence of a default under the JEDI Loan
agreement, the accuracy of certain representations and warranties under the JEDI
Loan agreement and the absence of material liens or litigation affecting the
JEDI properties. Any such conveyance prior to July 27, 1998 must be approved by
Anschutz, if the Anshutz Option has not then been exercised or terminated. The
Company believes that the option to convey the properties to JEDI affords the
Company greater flexibility in managing its capital structure. Although the
Company has no current plans regarding the possible exercise of the Conveyance
Option, the Company would likely do so if at the time the Conveyance Option
became exercisable the outstanding balance of the JEDI Loan was significantly
greater than the value of the properties securing the JEDI Loan. 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.
PENDING JEDI TRANSACTION
On December 29, 1995, JEDI entered into the Pending JEDI Agreement with the
Company to exchange the $22,400,000 tranche and the B Warrants for 1,680,000
shares of Common Stock. Completion of the transactions contemplated by the
Pending JEDI Agreement is subject to certain conditions, including obtaining
clearance pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
The Pending JEDI Agreement would also eliminate the Conveyance Option described
above and provide 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
Pending JEDI Agreement, JEDI will enter 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 will entitle
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 Pending JEDI Agreement and still held by JEDI
are less than 3% of the outstanding shares of Common Stock. See "--Shareholders
Agreements" below.
Pursuant to the JEDI Agreement, the Company would assume JEDI's obligations
under the Anschutz Option. Under the Anschutz Option, the Company would be
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 would
be 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
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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.
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
54
<PAGE>
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 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).
55
<PAGE>
In connection with the Pending JEDI Agreement, JEDI will also enter into the
JEDI Shareholders Agreement. The JEDI Shareholders Agreement will entitle 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 Pending JEDI Agreement 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 will also contain 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 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 will also provide 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 Pending JEDI Agreement. 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 Pending
JEDI Agreement, the JEDI Registration Rights Agreement would be amended to
reflect the transfer of the B Warrants to the Company and the acquisition by
JEDI of shares of Common Stock upon the completion of the transactions
contemplated by the Pending JEDI Agreement.
56
<PAGE>
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."
57
<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>
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>
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>
59
<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.
60
<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 proposed acquisition by JEDI of 1,680,000 shares of Common Stock.
<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.
61
<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 June 1, 1995 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.
62
<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 million shares of capital stock,
consisting of 200 million 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 the Company has proposed for adoption by its
shareholders at a meeting to be held on January 5, 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 November 15, 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 December 29, 1995, JEDI entered into the Pending JEDI Agreement with the
Company to exchange the $22,400,000 tranche of the JEDI indebtedness and the B
Warrants for 1,680,000 shares of Common Stock. Completion of the transactions
contemplated by the JEDI Agreement is subject to certain conditions, including
obtaining clearance pursuant to the Hart-Scott-Rodino Antitrust Improvements Act
of 1976. See "The Anschutz and JEDI Transactions -- Pending JEDI Transaction."
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.
63
<PAGE>
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 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
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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 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
Offering in consideration of Anschutz's agreement to not sell its shares of
Common Stock for nine months, except in limited circumstances.
The Company has outstanding B Warrants that are held by JEDI and expire on
the earlier of December 31, 2002 or 36 months following exercise of the
Conveyance Option. JEDI has granted the Anschutz Option to Anschutz, which is an
option to purchase from JEDI up to 2,250,000 shares at a purchase price per
share of $10.00 plus an amount equal to the lesser of (a) 18% per annum from
July 27, 1995 to the date of exercise of the option, or (b) $15.50. The option
expires on July 27, 1998. JEDI will satisfy its obligations under the option to
Anschutz by exercising the B Warrants. Provided the Conveyance Option has not
been exercised, the Company may terminate the B Warrants at any time beginning
July 27, 1998 if the average closing price of the Common Stock for the 90 days
and 15 days preceding the termination is in excess of $12.50 per share.
On December 29, 1995, JEDI entered into the Pending JEDI Agreement with the
Company to exchange the $22.4 million tranche of the JEDI Loan and the B
Warrants for 1,680,000 shares of Common Stock Completion of the transactions
contemplated by the Pending JEDI Agreement is subject to certain conditions,
including obtaining clearance pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976. See "Anschutz and JEDI Transactions -- Pending JEDI
Transaction."
Pursuant to the Pending JEDI Agreement, the Company would assume JEDI's
obligations under the Anschutz Option. Under the Anschutz Option, the Company
would be 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.
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.
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<PAGE>
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 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. Anschutz owns approximately 35%
of the outstanding Common Stock as of December 21, 1995. Anschutz may acquire
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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, Anschutz would be able to acquire up to
an additional approximately 27% of the Common Stock by converting its Second
Series Preferred Stock and exercising the Anschutz Option and A Warrants during
their respective terms. After completion of the transactions contemplated by the
Pending JEDI Agreement and the Offering (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."
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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 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
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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. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Short-Term
Liquidity."
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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".
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
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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.
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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 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).
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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 December 29, 1995 Forest and Joint Energy Developments Limited
Partnership ("JEDI") entered into an agreement (the "Pending JEDI Agreement") to
exchange 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 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 TRANSACTION 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 TRANSACTION 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 TRANSACTION 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 December 29, 1995, JEDI entered into the Pending JEDI Agreement with the
Company to exchange 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"). Completion of the transactions
contemplated by the Pending JEDI Agreement is subject to certain conditions,
including obtaining clearance pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976. Pursuant to the Pending JEDI Agreement, JEDI would
agree 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 Pending JEDI Agreement, the Company would assume JEDI's
obligations under an option granted by JEDI (the "Anschutz Option"). Under the
Anschutz Option, the Company would be 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 would be 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 Pending JEDI Agreement.
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.
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)
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.
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 PENDING JEDI AGREEMENT
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
WHEN THE REVERSE STOCK SPLIT REFERRED TO IN NOTE 1 TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS HAS BEEN CONSUMMATED, WE WILL BE IN A POSITION
TO RENDER THE FOLLOWING REPORT.
KPMG PEAT MARWICK LLP
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 5, 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.
(UNSIGNED)
Denver, Colorado
December 29, 1995 (except as to the
reverse stock split referred to in Note 1,
which is as of January 5, 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.
The Company has submitted a proposal to its shareholders to effect a reverse
stock split of its outstanding Common Stock. The proposal would cause each share
of Common Stock to be converted into one fifth of a share of Common Stock. The
proposal is scheduled for consideration at a special meeting of shareholders to
be held on January 5, 1996. The share and per share information in the
accompanying condensed consolidated financial statements has been amended to
reflect the effects of the proposal on the assumption that it will be adopted.
(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)
PENDING JEDI AGREEMENT:
On December 29, 1995, JEDI entered into an agreement with the Company (the
"Pending JEDI Agreement") to exchange the $22,400,000 tranche and the B Warrants
for 1,680,000 shares of Common Stock. As a result of the Pending JEDI Agreement,
the Company expects that non cash interest expense will be reduced by an
additional $1.5 million per year. Completion of the transactions contemplated by
the Pending JEDI Agreement is subject to certain conditions, including obtaining
clearance pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
The Pending JEDI Agreement would also eliminate the Conveyance Option described
above and provide 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
Pending JEDI Agreement, JEDI will enter 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 will entitle
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 Pending JEDI Agreement and still held by JEDI
are less than 3% of the outstanding shares of Common Stock.
Pursuant to the Pending JEDI Agreement, the Company would assume JEDI's
obligations under the Anschutz Option. Under the Anschutz Option, the Company
would be 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 would be 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:
WHEN THE REVERSE STOCK SPLIT REFERRED TO IN NOTE 1 TO THE CONSOLIDATED
FINANCIAL STATEMENTS HAS BEEN CONSUMMATED, WE WILL BE IN A POSITION TO RENDER
THE FOLLOWING REPORT.
KPMG PEAT MARWICK LLP
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.
(UNSIGNED)
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 5, 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 -- The Company has submitted a proposal to its
shareholders to effect a reverse stock split of its outstanding Common Stock.
The proposal would cause each share of Common Stock to be converted into one
fifth of a share of Common Stock. The proposal is scheduled for consideration at
a special meeting of shareholders to be held on January 5, 1996. The share and
per share information in the accompanying consolidated financial statements has
been amended to reflect the effects of the proposal on the assumption that it
will be adopted prior to completion of the offering described herein.
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.
F-23
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 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
F-24
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
(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.
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
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)
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 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
F-26
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(4) LONG-TERM DEBT: (CONTINUED)
7.255% to 8.875% and the Company was in compliance with the covenants of the
Credit Facility. The 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..................................... 58
Principal and Selling Shareholders............. 61
Description of Capital Stock................... 63
Underwriting................................... 68
Legal Matters.................................. 70
Experts........................................ 70
Certain Definitions............................ 70
Available Information.......................... 72
Incorporation of Certain Documents by
Reference.................................... 72
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>
[ALTERNATE INTERNATIONAL 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 3, 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."
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 Offering. 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 December 29, 1995, the last reported sale price of the Common Stock
was $2 13/16 per share. This price does not reflect the 5 to 1 reverse stock
split proposed to be effected on January 5, 1996. Pro forma for a proposed
reverse stock split, the last reported sale price of the Common Stock on
December 29, 1995 was $14 1/16 per share. 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 , 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.
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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 (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.....................................
-----------
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.
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,
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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 will not offer or sell. in the United Kingdom, by means
of any document, any shares of Common Stock other than to persons whose ordinary
business it is to buy or sell shares or debentures, whether as principal or
agent (except under circumstances which do not constitute an offer to the public
within the meaning of the Companies Act of 1985), (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 them 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 to any person in the
United Kingdom, any investment advertisement (within the meaning of the 1988
Act) relating to the shares of Common Stock if that person falls within Article
9(3) of the 1986 Act (Investment Advertisements) (Exemptions) Order 1988.
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.
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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 jursidiction 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
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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
<PAGE>
[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
<PAGE>
[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 , 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
II-2
<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>
II-3
<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.
** To be filed by amendment.
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 2, 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 January 2, 1996
(Robert S. Boswell) (Principal Executive Officer)
DAVID H. KEYTE* Vice President and Chief Financial
------------------------------------------------ Officer (Principal Financial January 2, 1996
(David H. Keyte) Officer)
JOAN C. SONNEN*
------------------------------------------------ Controller (Principal Accounting January 2, 1996
(Joan C. Sonnen) Officer)
PHILIP F. ANSCHUTZ*
------------------------------------------------
(Philip F. Anschutz)
ROBERT S. BOSWELL*
------------------------------------------------ Directors of the Registrant January 2, 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>
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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>
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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.
** To be filed by amendment.
All other exhibits have previously been filed.
<PAGE>
[Exhibit 5.1 Opinion]
January 3, 1996
Forest Oil Corporation
1600 Broadway, Suite 2200
Denver, CO 80202
Gentlemen:
We are acting as counsel for Forest Oil Corporation, a New York
corporation (the "Company"), in connection with the proposed offer and sale
by the Company and Saxon Petroleum Inc. (the "Selling Shareholder") to the
Underwriters (the "Underwriters"), pursuant to the prospectus forming a part
of a Registration Statement on Form S-2, File No. 33-64949, originally filed
with the Securities and Exchange Commission on December 13, 1995 (such
Registration Statement, as amended at the effective date thereof being
referred to herein as the "Registration Statement") of 10,940,000 and
1,060,000, shares, respectively, of Common Stock, par value $.10 per share
("Common Stock"), of the Company, together with a maximum of 1,800,000 shares
of Common Stock which may be sold to the Underwriters pursuant to the over-
allotment option provided in the Underwriting Agreement (collectively, said
13,800,000 shares of Common Stock are referred to herein as the "Shares").
Share numbers in this opinion have been adjusted to reflect a proposed 5 to 1
reverse stock split to be considered at a special meeting of shareholders
scheduled to be held on January 5, 1996. Capitalized terms used but not
defined herein have the meanings set forth in the Registration Statement.
We are rendering this opinion as of the time the Registration Statement
becomes effective in accordance with Section 8(a) of the Securities Act of
1933, as amended.
In connection with the opinion expressed herein, we have examined, among
other things, the Restated Certificate of Incorporation and the bylaws of the
Company, as amended, the records of corporate proceedings that have occurred
prior to the date hereof with respect to such offering, the Registration
Statement and the form of Underwriting Agreement to be executed among the
Company, the Selling Shareholder and Salomon Brothers Inc, Dillon, Read & Co.
Inc., Morgan Stanley & Co. Incorporated and Chase Securities, Inc., as
Representatives of the several Underwriters. We have also reviewed such
questions of law as we have deemed necessary or appropriate.
<PAGE>
Forest Oil Corporation
January 3, 1996
Page 2
Based upon the foregoing, we are of the opinion that the Shares proposed
to be sold by the Company to the Underwriters have been validly authorized
for issuance and, upon the issuance and delivery of those Shares to be sold
by the Company, and the Shares to be sold by the Selling Shareholder in
accordance with the provisions of the Underwriting Agreement (assuming that
it is executed in the form reviewed by us), and as set forth in the
Registration Statement, the Shares will be validly issued, fully paid and
nonassessable.
This opinion is limited in all respects to the General Corporation Law
of the State of New York.
We hereby consent to the statements with respect to us under the heading
"Legal Matters" in the prospectus forming a part of the Registration
Statement and to the filing of this opinion as an exhibit to the Registration
Statement, but we do not thereby admit that we are within the class of
persons whose consent is required under the provisions of the Securities Act
of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission issued thereunder.
Very truly yours,
/s/ VINSON & ELKINS L.L.P.
<PAGE>
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.
ACQUISITION AGREEMENT
BETWEEN:
FOREST OIL CORPORATION
- and -
ATCOR RESOURCES LTD.
- and -
ATCO LTD.
- and -
CANADIAN UTILITIES LIMITED
- and -
CANUTILITIES HOLDINGS LTD
DATED DECEMBER 12, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
ARTICLE 1 INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 ARTICLE REFERENCES. . . . . . . . . . . . . . . . . . . . . . . 7
1.3 INTERPRETATION. . . . . . . . . . . . . . . . . . . . . . . . . 7
1.4 GOVERNING LAW AND JURISDICTION. . . . . . . . . . . . . . . . . 8
1.5 INVALIDITY, ETC.. . . . . . . . . . . . . . . . . . . . . . . . 8
1.6 DATE FOR ANY ACTION . . . . . . . . . . . . . . . . . . . . . . 8
1.7 CURRENCY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.8 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . 8
1.9 SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 2 THE ACQUISITION . . . . . . . . . . . . . . . . . . . . . . . . 9
2.1 ACQUISITION . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.2 ANCILLARY TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 3 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . 9
3.1 REPRESENTATIONS AND WARRANTIES OF ATCOR . . . . . . . . . . . . 9
(a) CORPORATE EXISTENCE AND POWER . . . . . . . . . . . . . .10
(b) CORPORATE AUTHORITY . . . . . . . . . . . . . . . . . . .10
(c) AUTHORIZATION; CONTRAVENTION . . . . . . . . . . . . . . .10
(d) APPROVALS . . . . . . . . . . . . . . . . . . . . . . . .10
(e) BINDING EFFECT . . . . . . . . . . . . . . . . . . . . . .11
(f) REPORTS . . . . . . . . . . . . . . . . . . . . . . . . .11
(g) NO MATERIAL ADVERSE CHANGE . . . . . . . . . . . . . . . .12
(h) LITIGATION . . . . . . . . . . . . . . . . . . . . . . . .12
(i) BOOKS AND RECORDS . . . . . . . . . . . . . . . . . . . .12
(j) MISSTATEMENTS . . . . . . . . . . . . . . . . . . . . . .13
(k) RECOMMENDATION . . . . . . . . . . . . . . . . . . . . . .13
(l) NO MERGER AGREEMENTS . . . . . . . . . . . . . . . . . . .13
(m) ISSUED CAPITAL . . . . . . . . . . . . . . . . . . . . . .13
(n) OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . .13
(o) U.S. CONTACTS . . . . . . . . . . . . . . . . . . . . . .13
(p) CONTINUING REPRESENTATIONS AND WARRANTIES . . . . . . . .14
3.2 REPRESENTATIONS AND WARRANTIES OF FOREST. . . . . . . . . . . .14
(a) CORPORATE EXISTENCE AND POWER . . . . . . . . . . . . . .14
(b) CORPORATE AUTHORITY . . . . . . . . . . . . . . . . . . .14
(c) AUTHORIZATION; CONTRAVENTION . . . . . . . . . . . . . . .14
(d) APPROVALS . . . . . . . . . . . . . . . . . . . . . . . .15
(e) BINDING EFFECT . . . . . . . . . . . . . . . . . . . . . .15
(f) REPORTS . . . . . . . . . . . . . . . . . . . . . . . . .15
(g) CONTINUING REPRESENTATIONS AND WARRANTIES . . . . . . . .16
(h) NO MATERIAL ADVERSE CHANGE . . . . . . . . . . . . . . . .16
(i) NO MERGER AGREEMENTS . . . . . . . . . . . . . . . . . . .16
(j) EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . .16
</TABLE>
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<TABLE>
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3.3 REPRESENTATIONS AND WARRANTIES OF PARENT 1. . . . . . . . . . .17
3.4 REPRESENTATIONS AND WARRANTIES OF PARENT 2. . . . . . . . . . .18
3.5 REPRESENTATIONS AND WARRANTIES OF PARENT 3. . . . . . . . . . .19
ARTICLE 4 COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . .21
4.1 COVENANTS OF ATCOR AND THE PRINCIPAL SHAREHOLDERS . . . . . . .21
4.2 COVENANTS OF FOREST . . . . . . . . . . . . . . . . . . . . . .26
4.3 MUTUAL COVENANTS OF ATCOR AND FOREST. . . . . . . . . . . . . .29
ARTICLE 5 CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . .29
5.1 MUTUAL CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . .29
5.2 CONDITIONS TO OBLIGATIONS OF ATCOR AND
THE PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . .31
5.3 CONDITIONS TO OBLIGATION OF FOREST. . . . . . . . . . . . . . .32
5.4 MATERIALITY THRESHOLD . . . . . . . . . . . . . . . . . . . . .33
5.5 NOTICE OF NON-COMPLIANCE. . . . . . . . . . . . . . . . . . . .34
ARTICLE 6 OTHER COVENANTS . . . . . . . . . . . . . . . . . . . . . . . .34
6.1 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . .34
6.2 COVENANTS OF PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . .38
6.3 SALE OF PRINCIPAL SHAREHOLDERS' ATCOR SHARES. . . . . . . . . .39
6.4 PUBLIC OFFERING . . . . . . . . . . . . . . . . . . . . . . . .40
6.5 NON-COMPETITION . . . . . . . . . . . . . . . . . . . . . . . .40
6.6 EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . .41
6.7 NAME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
ARTICLE 7 AMENDMENT AND TERMINATION . . . . . . . . . . . . . . . . . . .42
7.1 AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . .42
7.2 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . .42
7.3 EFFECT OF TERMINATION . . . . . . . . . . . . . . . . . . . . .43
ARTICLE 8 GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
8.1 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
8.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. . . . . . . . . . .44
8.3 BINDING EFFECT AND ASSIGNMENT . . . . . . . . . . . . . . . . .44
8.4 PUBLIC DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . .45
8.5 EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . .45
8.6 BEST INTERESTS . . . . . . . . . . . . . . . . . . . . . . . .45
8.7 TIME OF ESSENCE . . . . . . . . . . . . . . . . . . . . . . . .45
8.8 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . .45
8.9 FURTHER ASSURANCES. . . . . . . . . . . . . . . . . . . . . . .46
</TABLE>
<PAGE>
ACQUISITION AGREEMENT
THIS AGREEMENT made as of the 12th day of December, 1995.
BETWEEN:
FOREST OIL CORPORATION, a corporation incorporated under the
laws of New York ("Forest")
- and -
ATCOR RESOURCES LTD., a corporation incorporated under the
laws of Canada ("ATCOR")
- and -
ATCO LTD., a corporation incorporated under the laws of
Alberta ("Parent 1")
- and -
CANADIAN UTILITIES LIMITED, a corporation incorporated under
the laws of Canada ("Parent 2")
- and -
CANUTILITIES HOLDINGS LTD., a corporation incorporated under
the laws of Alberta ("Parent 3")
WHEREAS ATCOR intends to amalgamate with a wholly-owned subsidiary
("Newco") of Parent 1 under Section 182 of the CANADA BUSINESS CORPORATIONS ACT
on the terms and conditions of the Amalgamation Agreement annexed hereto as
Schedule A;
AND WHEREAS immediately upon the Amalgamation becoming effective,
Parent 1 will sell its common shares of Amalco to an indirect wholly-owned
Subsidiary of Forest, which will subscribe for treasury shares of Amalco, and
purchase all outstanding shares of Amalco tendered to it, and Amalco will redeem
the remaining shares other than the shares held by the Subsidiary;
AND WHEREAS the parties hereto have entered into this Agreement to
provide for the matters referred to in the foregoing recitals and for other
matters relating to such transaction;
NOW THEREFORE THIS AGREEMENT WITNESSES THAT in consideration of the
premises and the respective covenants and agreements herein contained, the
parties hereto covenant and agree as follows:
<PAGE>
-2-
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Agreement, unless there is something in the subject matter or
context inconsistent therewith, the following terms shall have the following
meanings:
"ACT" means the CANADA BUSINESS CORPORATIONS ACT, as amended;
"ACTION" against a person means an action, suit, investigation, complaint
or other proceeding pending against or affecting the person or its
property, whether civil or criminal, in law or equity or before any
arbitrator or Governmental Body.
"ACQUISITION" means the acquisition by Forest 1 of all shares of Amalco
(newly issued and previously outstanding) as described in Section 2.1(b),
(c) and (d);
"AFFILIATE" has the meaning ascribed thereto in the Act;
"AMALCO" means the corporation resulting from the Amalgamation;
"AMALGAMATION" means the amalgamation of ATCOR and Newco under the
provisions of the Act on the terms and conditions set forth in the
Amalgamation Agreement;
"AMALGAMATION AGREEMENT" means the agreement attached hereto as Schedule A;
"ANCILLARY DOCUMENTS" means the agreements implementing the Ancillary
Transactions;
"ANCILLARY TRANSACTIONS" means the Sale Transactions and the
Reorganization;
"APPROVAL" means an authorization, consent, approval or waiver of,
clearance by, notice to or registration or filing with, or any other
similar action by or with respect to a Governmental Body or any other
person and the expiration or termination of all prescribed waiting, review
or appeal periods with respect to any of the foregoing;
"ASSESSMENT" has the meaning provided in section 4.1(i);
"ASSOCIATE" has the meaning ascribed thereto in the Act;
"ATCOR ASSETS" means all of the properties and assets of ATCOR and its
Subsidiaries on a consolidated basis;
"ATCOR FINANCIAL STATEMENTS" means the audited consolidated financial
statements of ATCOR for the year ended December 31, 1994 and the unaudited
consolidated financial statements of ATCOR for the nine month period ended
September 30, 1995;
<PAGE>
-3-
"ATCOR INFORMATION CIRCULAR" means the information circular of ATCOR to be
sent to shareholders of ATCOR in connection with the ATCOR Shareholders'
Meeting;
"ATCOR LTD." means the company of that name which is a Subsidiary of ATCOR;
"ATCOR SHAREHOLDERS MEETING" means the special meeting of shareholders of
ATCOR (including any adjournment thereof) to be held to consider and, if
thought fit, to approve the Amalgamation;
"ATCOR SHARES" means Class A Shares and Class B Shares as constituted on
the date hereof and includes all shares of Amalco issued pursuant to the
Amalgamation;
"BUSINESS DAY" means a day other than a Saturday, Sunday or a day when
banks in Calgary, Alberta or New York, New York generally are not open for
business;
"CLASS A SHARES" means the Class A Non-voting Shares of ATCOR;
"CLASS B SHARES" means the Class B Common Shares of ATCOR;
"CLOSING" means the completion of the Acquisition;
"CLOSING DATE" means the date of completion of the Acquisition, which shall
be a date selected by Forest which shall be not more than two days
following completion of the Offering;
"COURT" means the Court of Queen's Bench of Alberta;
"DISSENTING SHAREHOLDERS" means holders of ATCOR Shares who exercise, and
do not prior to the Closing Date withdraw or otherwise relinquish, the
right of dissent available to such holders in respect of the special
resolution to be placed before the shareholders of ATCOR at the ATCOR
Shareholders Meeting;
"DUE DILIGENCE RESPONSE" means the letter of even date herewith delivered
by ATCOR to Forest responding to various due diligence inquiries;
"ENCUMBRANCE" includes, without limitation, any mortgage, pledge,
assignment, charge (fixed or floating), lien, security interest, claim or
trust, or any royalty, carried, working, participation, net profits or
other third party interest and any agreement, option, right or privilege
capable of becoming any of the foregoing;
"ESCROW AGENT" means The R-M Trust Company;
"ESCROW AGREEMENT" means an agreement to be entered into among ATCOR,
Parent 1, Parent 2, Parent 3, Forest and the Escrow Agent providing for the
release of funds deposited with the Escrow Agent pursuant to Sections
4.2(f) and 5.2;
<PAGE>
-4-
"ETHANE PLANT" means the Edmonton Ethane Extraction Plant;
"EXCHANGE ACT" means the Securities Exchange Act of 1934 of the United
States, as amended, and the related rules and regulations thereunder;
"FINANCIAL INSTRUMENT TRANSACTIONS" means any agreements involving the
purchase, sale or ownership of interest rate or currency swaps, foreign
exchange swaps or forward delivery agreements or commodity or financial
derivatives (other than a contract for purchase or sale of oil or gas at a
fixed price on which delivery is intended to be made and in respect of
which the vendor has entered into a corresponding contract for sale or
purchase of such oil or gas at a fixed price);
"FOREST 1" means a corporation incorporated or to be incorporated under the
laws of Canada which is or shall be a wholly-owned Subsidiary of Forest;
"FRONTIER LANDS" means ATCOR's oil and gas rights in Canada lands and
freehold lands in the Arctic and offshore the east coast of Canada;
"GAAP" means generally accepted accounting principles as in effect in
Canada from time to time;
"GOVERNMENTAL BODY" means any agency, bureau, commission, court,
department, official, political subdivision, tribunal or other
instrumentality of any government, whether federal, provincial, county or
local, domestic or foreign;
"INSIDER" has the meaning ascribed thereto in the SECURITIES ACT,
S.A. 1981, c. S-6.1, as amended;
"INTERCOMPANY TRANSACTIONS" means any transaction between Parent 1,
Parent 2 or their affiliates, on the one hand, and ATCOR or its
Subsidiaries, on the other hand, entered into on or prior to the Closing
Date and including, but not limited to the Sale Transactions, but excluding
the transactions described in Section 2.1;
"INDEMNIFIED PERSON" means any person entitled to be or alleging to have a
right to be indemnified pursuant to the provisions of Sections 6.1(a)
through (e);
"INDEMNIFYING PERSON" means any person from whom an Indemnified Person is
seeking indemnity pursuant to the provisions of Sections 6.1(a) through
(e);
"LIEN" means any mortgage, deed of trust, lien (statutory or otherwise),
pledge, hypothecation, charge, deposit arrangement, preference, priority,
security interest or encumbrance of any kind (including, but not limited
to, any conditional sale agreement or other title retention agreement, any
capitalized lease or financing lease having substantially the same economic
effect as the foregoing and the filing of or agreement to give any
financing
<PAGE>
-5-
statement under the PERSONAL PROPERTY SECURITY ACT or comparable law of
any jurisdiction to evidence any of the foregoing);
"LOSS" means any cost, damage, disbursement, expense, liability, judgment,
loss, deficiency, obligation, penalty or settlement of any kind or nature,
whether foreseeable or unforeseeable, including, but not limited to,
interest or other carrying costs, penalties, legal, accounting, expert
witness, consultant and other professional fees and expenses incurred in
the investigation, collection, prosecution and defense of claims and
amounts paid in settlement, that may be imposed on or otherwise incurred or
suffered by the specified person;
"MARKETABLE SECURITIES" means 200,000 Class I preferred shares of Trilon
Corporation;
"MARKETING BUSINESS" means the business of buying gas from third parties
for resale and marketing such gas to others (or as shrinkage gas for ATCOR
Ltd.'s interest in the Ethane Plant), and marketing gas produced by ATCOR
Ltd., and buying gas or selling gas to or for third parties as broker as
conducted by ATCOR Ltd. (or Parent 2 or its Subsidiaries, as the case may
be) on the date hereof;
"MARKETING EMPLOYEES" means the officers, employees, representatives,
agents and advisors who as at the date hereof conduct the Marketing
Business, as specified in the Due Diligence Response;
"MATERIAL CONTRACT" means (i) agreements with investment bankers, brokers,
finders, consultants and advisers engaged by ATCOR or a Subsidiary with
respect to any transactions contemplating the recapitalization of ATCOR or
the Subsidiary, the purchase or sale by ATCOR or a Subsidiary of assets not
in the ordinary course of business or the issuance and sale by ATCOR or a
Subsidiary of any securities of ATCOR or a Subsidiary, as the case may be;
(ii) agreements of arrangements for the purchase, sale, delivery,
gathering, transportation or processing of oil or gas to which ATCOR or a
Subsidiary of ATCOR is bound, other than those which are terminable by
ATCOR or its Subsidiary without penalty or payment on not more than one
month's notice; (iii) Financial Instrument Transactions; (iv) agreements
with any shareholder having beneficial ownership of 5% or more of the ATCOR
Shares of any class then issued and outstanding, or any director or officer
of ATCOR or a Subsidiary and all shareholders' agreements and voting
trusts; and (v) agreements not made in the ordinary course of business and
which are materially adverse to the business of ATCOR or a Subsidiary;
"NEWCO" means a corporation incorporated or to be incorporated under the
laws of Canada which is or shall be a wholly-owned Subsidiary of Parent 1;
"OFFER" means the offer to purchase Amalco shares pursuant to
Section 2.1(c) at a price of $4.88 per share;
"OFFERING" means the public offering of shares by Forest described in
Section 6.4;
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"PARENT 1 ATCOR SHARES", "PARENT 2 ATCOR SHARES", and PARENT 3 ATCOR
SHARES" have the meaning set out in Sections 3.3, 3.4 and 3.5 respectively;
"PRINCIPAL SHAREHOLDERS" means Parent 1, Parent 2 and Parent 3;
"PRINCIPAL SHAREHOLDERS' ATCOR SHARES" means Parent 1's ATCOR Shares,
Parent 2's ATCOR Shares, and Parent 3's ATCOR Shares;
"PROPRIETARY RIGHTS" means all computer software, seismic data, copyrights,
uncopyrighted works, trademarks, trademark rights, service marks, trade
names, trade name rights, patents, patent rights, unpatented inventions,
licenses, permits, trade secrets, know-how, inventions and intellectual
property rights and other proprietary rights together with applications and
licenses for any of the foregoing;
"RECOMMENDATION" has the meaning set out in Section 3.1(k);
"REDEMPTION AMOUNT" means the amount required to redeem all shares of
Amalco not tendered to the Offer;
REGISTRATION STATEMENT" means the registration statement filed by Forest at
the Securities and Exchange Commission in respect of the Offering;
"REGULATION" means (i) any applicable law, rule, regulation, judgment,
decree, ruling, order, award, injunction, recommendation or other official
action of any Governmental Body and (ii) any official change in the
interpretation or administration of any of the foregoing by the
Governmental Body or by any other Governmental Body or other person
responsible for the interpretation or administration of any of the
foregoing;
"REORGANIZATION" means the transfer of all the ATCOR Assets used in the
Marketing Business carried on by ATCOR Ltd. and all of such business to a
wholly-owned Subsidiary of ATCOR Ltd. (which shall hold no other assets and
carry on no other business) in consideration for shares of the Subsidiary,
all in a form satisfactory to Forest;
"SALE DOCUMENTS" means the agreements implementing the Sale Transactions in
a form satisfactory to ATCOR and Forest;
"SALE TRANSACTIONS" means the sale of the Marketable Securities and
interests in the Ethane Plant and Frontier Lands to Parent 1 and Parent 2;
"SAXON" means Saxon Petroleum, Inc.;
"SUBSIDIARY" has the meaning ascribed thereto in the Act and, except where
the context otherwise requires, means a Subsidiary of ATCOR;
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"TAXES" means all taxes, charges, fees, levies, duties, imposts,
withholdings, restrictions, fines, interest, penalties, additions to tax or
other assessments or charges, including, but not limited to, income,
excise, goods and services, property, withholding, sales, use, gross
receipts, value added and franchise taxes, license recording, documentation
and registration fees and customs duties imposed by any Governmental Body;
"TAX RETURN" means a report, return or other information required to be
filed by a person with or submitted to a Governmental Body with respect to
Taxes, including, where permitted or required, combined or consolidated
returns for any group of entities that includes the person;
"TRADE SECRETS" means all information of a confidential and proprietary
nature to ATCOR or Parent 2, respectively, pertaining to the Marketing
Business including all customer lists and proprietary computer software;
"TRANSACTION EXPENSES" means all expenses of ATCOR in connection with
negotiating, entering into and approving this Agreement, and the Ancillary
Transactions including fees and expenses of counsel, accountants, and
financial advisors, costs of valuations and fairness opinions, fees payable
to any brokers, in each case payable to parties retained by ATCOR prior to
Closing, fees and expenses of the members of the Special Committee of
ATCOR's board of directors and amounts required to be included by Section
4.1(c)(iii);
"TRANSACTION PROPOSAL" has the meaning set out in Section 4.1(a).
1.2 ARTICLE REFERENCES
The division of this Agreement into Articles, Sections, paragraphs and
other subdivisions, the insertion of headings and the provision of a table of
contents are for convenience of reference only and shall not affect the
construction or interpretation hereof.
1.3 INTERPRETATION
In this Agreement, except where otherwise specified:
(a) the terms "this Agreement", "hereof", "herein", "hereunder" and
similar expressions refer, unless otherwise specified, to this
Agreement taken as a whole and not to any particular section,
paragraph or clause;
(b) words importing the singular number or masculine gender shall include
the plural number or the feminine or neuter genders, and vice versa;
(c) all references to Articles and Schedules refer, unless otherwise
specified, to articles of and schedules to this Agreement;
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(d) all references to Sections refer, unless otherwise specified, to
sections, paragraphs or clauses of this Agreement and reference to
paragraphs or clauses refer to paragraphs in the same section as the
reference or clauses in the same paragraph as the reference; and
(e) words and terms denoting inclusiveness (such as "include" or
"includes" or "including"), whether or not so stated, are not limited
by and do not imply limitation of, their context or the words or
phrases which precede or succeed them.
1.4 GOVERNING LAW AND JURISDICTION
This Agreement and, unless otherwise specified therein, all other
documents and instruments delivered in accordance with this Agreement shall be
governed by and interpreted in accordance with the laws of the Province of
Alberta. The parties irrevocably submit to the non-exclusive jurisdiction of
the courts of the Province of Alberta, without prejudice to the rights of the
parties to take proceedings in any other jurisdictions.
1.5 INVALIDITY, ETC.
Any provision hereof which is prohibited or unenforceable shall be
ineffective only to the extent of such prohibition or unenforceability, without
invalidating the remaining provisions hereof.
1.6 DATE FOR ANY ACTION
If any date on which any action is required to be taken hereunder by
any of the parties hereto is not a business day, such action shall be required
to be taken on the next succeeding day which is a business day.
1.7 CURRENCY
Unless otherwise stated, all references in this Agreement to sums of
money are expressed in lawful money of Canada.
1.8 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement among the parties
pertaining to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or written, among the
parties with respect to the subject matter hereof, except for agreements between
the parties and their agents respecting the confidentiality of information
provided in connection with the transactions contemplated herein.
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1.9 SCHEDULES
The following Schedule forms part of this Agreement:
Schedule A - Amalgamation Agreement
ARTICLE 2
THE ACQUISITION
2.1 ACQUISITION
Subject to the terms and conditions hereof, the parties shall complete
each of the following transactions on the Closing Date in the order set forth in
this Section 2.1:
(a) The Amalgamation shall be completed and made effective;
(b) Forest 1 shall purchase from Parent 1 and Parent 1 shall sell to
Forest 1, all outstanding Common Shares of Amalco for an aggregate
price of $1.00;
(c) Forest 1 shall make the Offer to acquire all of the shares of Amalco
not held by Forest 1 and shall acquire all of the shares of Amalco
tendered to the Offer;
(d) Forest 1 shall subscribe for and purchase from Amalco, and Amalco,
ATCOR and Parent 1 hereby agree that Amalco shall issue to Forest 1 a
number of Common Shares of Amalco to be designated by Forest at an
aggregate price of the Redemption Amount; and
(e) Amalco shall redeem all shares not held by Forest 1.
2.2 ANCILLARY TRANSACTIONS
Prior to the Closing Date, ATCOR shall complete the Reorganization and
execute the Sale Documents.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF ATCOR
ATCOR represents and warrants to and in favour of Forest as follows
and acknowledges that Forest is relying upon such representations and warranties
in connection with the matters contemplated by this Agreement:
<PAGE>
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(a) CORPORATE EXISTENCE AND POWER. Each of ATCOR and its Subsidiaries is
a corporation duly incorporated, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, has all
necessary corporate power and authority and all material licenses,
authorizations, consents and approvals required to own, lease, license
or use its properties now owned, leased, licensed or used and to carry
on its business as now conducted and is duly qualified as a foreign
corporation under the laws of each jurisdiction in which such
qualification is required to own, lease, license or use its properties
now owned, leased, licensed and used or to carry on its business as
now conducted and in which the failure to be so qualified could
materially and adversely affect the business, properties, operations,
prospects or condition (financial or otherwise) of ATCOR and its
Subsidiaries, taken as a whole, or the ability of ATCOR or the
Subsidiary, as the case may be, to perform its obligations under this
Agreement, the Amalgamation Agreement and the Ancillary Documents.
(b) CORPORATE AUTHORITY. ATCOR has all necessary corporate power and
authority to execute, deliver and perform its obligations under this
Agreement, the Amalgamation Agreement and the Ancillary Documents.
(c) AUTHORIZATION; CONTRAVENTION. Subject to obtaining the Approvals
referred to in paragraph (d), the execution and delivery of this
Agreement, the Amalgamation Agreement and the Ancillary Documents by
ATCOR and the performance by ATCOR of its obligations hereunder and
thereunder have been duly authorized by all necessary corporate action
and do not and will not:
(i) contravene, violate, result in a breach of or constitute a
default under, its articles of incorporation or certificate of
incorporation, as the case may be, or bylaws, any Regulation or
any decision, ruling, order or award of any arbitrator by which
ATCOR or any Subsidiary may be bound or affected, or any
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which ATCOR or any Subsidiary is a
party or by which it is bound where such contravention could
reasonably be expected to prevent or materially hinder the
completion of the transactions contemplated by this Agreement or
could have a material adverse effect on ATCOR;
(ii) terminate or modify any rights, or accelerate or increase any
obligations, of ATCOR or a Subsidiary under any Material Contract
to which ATCOR or any of its Subsidiaries is a party or pursuant
to which any of its property is held, or give any person a right
to do so.
(d) APPROVALS. Except for an Approval from the Alberta Energy and Utility
Board and the approval of the ATCOR Shareholders, no Approval of any
Governmental Body or other person is required or advisable on the part
of ATCOR or any Subsidiary for the due execution delivery and
performance by ATCOR of this Agreement, the Amalgamation Agreement and
the Ancillary Documents.
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(e) BINDING EFFECT. Each of this Agreement, the Amalgamation Agreement
and the Ancillary Documents is a legally valid and binding obligation
of ATCOR enforceable against it in accordance with its terms, except
as may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors'
rights generally and general principles of equity.
(f) REPORTS
(i) ATCOR has heretofore delivered to Forest true and complete copies
of ATCOR's 1994 Annual Information Form, ATCOR's information
circular relating to its 1995 annual meeting of shareholders,
ATCOR's Annual Report to shareholders and ATCOR's Financial
Statements. As of their respective dates, such forms and
statements did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading and
complied in all material respects with all applicable
requirements of law. The audited financial statements and
unaudited interim financial statements of ATCOR and its
consolidated subsidiaries included or incorporated by reference
in such forms and statements were prepared in accordance with
GAAP (except (i) as otherwise indicated in such financial
statements and the notes thereto or, in the case of audited
statements, in the related report of ATCOR's independent
accountants or (ii) in the case of unaudited interim statements,
to the extent they may not include notes or may be condensed or
summary statements), and fairly present the consolidated
financial position, results of operations and changes in
financial position of ATCOR and its consolidated subsidiaries as
of the dates thereof and for the periods indicated therein
(subject, in the case of any unaudited interim financial
statements, to normal year-end audit adjustments).
(ii) ATCOR will deliver to Forest as soon as they become available
true and complete copies of any report or statement filed by it
with Canadian securities regulatory authorities subsequent to the
date hereof. As of their respective dates, such reports and
statements (excluding any information therein provided by Forest,
as to which ATCOR makes no representation) will not contain any
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they are made, not misleading and will comply in all material
respects with all applicable requirements of law. The
consolidated financial statements of ATCOR to be included in such
reports and statements (excluding any information therein
provided by Forest, as to which ATCOR makes no representation)
will be prepared in accordance with GAAP (except (i) as otherwise
indicated in such financial statements and the notes thereto or,
in the case of audited statements, in the related report of
ATCOR's independent accountants or (ii)
<PAGE>
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in the case of unaudited interim statements, to the extent
they may not include notes or may be condensed or summary
statements) and will present fairly the consolidated financial
position, results of operations and changes in financial
position of ATCOR as of the dates thereof and for the periods
indicated therein (subject, in the case of any unaudited
interim financial statements, to normal year-end audit
adjustments).
(g) NO MATERIAL ADVERSE CHANGE. Since December 31, 1994, there has been
no material adverse change in the business, properties, operations,
prospects or condition (financial or otherwise) of ATCOR and its
Subsidiaries, taken as a whole, except as disclosed by ATCOR in the
public filing documents which were provided to Forest pursuant to
Section 3.1(f).
(h) LITIGATION. Except as previously disclosed to Forest in writing,
which writing makes reference to this Agreement, there is no Action
commenced or, to the knowledge of ATCOR, threatened against ATCOR or
any of its Subsidiaries or that might affect the property of ATCOR or
any of its Subsidiaries that (i) individually or in the aggregate, if
determined adversely to any of them, could result in a liability to
any of them in an amount that exceeds $200,000 in the aggregate, or
(ii) involves the Amalgamation, the Acquisition or the Ancillary
Transactions nor, to the knowledge of ATCOR are there any grounds on
which any such Action could be commenced with any reasonable
likelihood of success.
(i) BOOKS AND RECORDS.
(i) The records and books of account of each of ATCOR and its
Subsidiaries are correct and complete in all material
respects, have been maintained in accordance with good
business practices and are reflected accurately in the
financial statements referred to in Section 3.1(f). Each of
ATCOR and its Subsidiaries has accounting controls sufficient
to ensure that its transactions are executed in accordance
with management's general or specific authorization and
recorded in conformity with GAAP so as to maintain
accountability for assets.
(ii) The minute books of each of ATCOR and its Subsidiaries contain
accurate records of all meetings and accurately reflect all
corporate action of the shareholders and the board of directors
(including committees) of ATCOR or the Subsidiary, as the case
may be.
(iii) The books and ledgers of each of ATCOR and its Subsidiaries
correctly record all transfer and issuances of all shares of
ATCOR or the Subsidiary, as the case may be, and (in the
case of the Subsidiaries) contain all cancelled and unused
stock certificates of the Subsidiary.
<PAGE>
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(j) MISSTATEMENTS. Except to the extent revised or superseded by a
subsequent certificate, schedule or report furnished to Forest, no
certificate, schedule or report (including the Due Diligence Response)
furnished by ATCOR to Forest with respect to ATCOR or a Subsidiary of
ATCOR in connection with the negotiation of this Agreement or any of
the Ancillary Documents or the satisfaction of any condition under
this Agreement or any of the Sale Documents contained as of the date
thereof any untrue statement of a material fact or omitted to state a
material fact necessary to make the statement contained therein, in
the light of the circumstances under which it was made, not
misleading.
(k) RECOMMENDATION. The Board of Directors of ATCOR, at a meeting duly
called and held, has (i) duly determined that the Amalgamation, the
Acquisition and the Ancillary Transactions are in the best interests
of ATCOR and its shareholders, and (ii) resolved to recommend that
holders of ATCOR Shares approve the Amalgamation and the Amalgamation
Agreement, (collectively, the "Recommendation").
(l) NO MERGER AGREEMENTS. Except for this Agreement, none of ATCOR and
its Subsidiaries has entered into any agreement with any person which
has not been terminated as of the date of this Agreement and under
which there remains any liability or obligation of any of ATCOR and
its Subsidiaries with respect to a merger or consolidation with any of
ATCOR and its Subsidiaries, an acquisition of any equity securities of
any of ATCOR and its Subsidiaries or any other acquisition of a
substantial amount of the assets of any of ATCOR and its Subsidiaries.
(m) ISSUED CAPITAL. The authorized capital of ATCOR consists of:
(i) an unlimited number of Class A Shares, of which 27,272,536 (and
no more) are issued and outstanding as of the date hereof;
(ii) an unlimited number of Class B Shares, of which 10,835,416 (and
no more) are issued and outstanding as of the date hereof; and
(iii) an unlimited number of Series Preferred Shares issuable in
series, of which no shares are issued and outstanding as of
the date hereof.
provided that the respective number of Class A Shares and Class B
Shares may vary by reason of the conversion of shares of one class
into the other class.
(n) OPTIONS. No person has any agreement, warrant, right or option, or
any privilege capable of becoming an agreement, right or option, for
the purchase or issuance of any unissued shares of ATCOR or any
material subsidiary of ATCOR.
(o) U.S. CONTACTS. ATCOR, its Subsidiaries and any entities controlled by
them did not have either assets having an aggregate book value of
$15 million (U.S.) in the United
<PAGE>
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States or an aggregate of $25 million (U.S.) in revenues from sales
in or into the United States in any of their most recent fiscal years,
nor is it expected that such entities will have such assets or sales
in their current fiscal years.
(p) CONTINUING REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties made with respect to ATCOR or a
Subsidiary of ATCOR in this Agreement as of any date other than the
Closing Date shall be true and correct in all material respects on and
as of the Closing Date except as and except that ATCOR will prepare
and deliver to Forest such updates or other revisions of the written
disclosures referred to in this Section 3.1 or the Due Diligence
Response as having been delivered by ATCOR as shall be necessary in
order to make each of such written disclosures correct and complete in
all material respects on and as of the Closing Date. Subject to
Section 5.4, the requirement to prepare and deliver updates or other
revisions of the written disclosures, and the receipt by Forest of
information on or before the Closing Date, shall not limit the right
of Forest to require as a condition precedent to the performance of
its obligations under this Agreement on the Closing Date the accuracy
in all material respects of the representations and warranties and the
performance in all material respects of the covenants of ATCOR
(without regard to such updates or other revisions).
3.2 REPRESENTATIONS AND WARRANTIES OF FOREST
Forest represents and warrants to and in favour of ATCOR and the
Principal Shareholders as follows and acknowledges that ATCOR and the Principal
Shareholders are relying upon such representations and warranties in connection
with the matters contemplated by this Agreement:
(a) CORPORATE EXISTENCE AND POWER. Forest is a corporation duly
incorporated, validly existing and in good standing under the laws of
the jurisdiction of its incorporation.
(b) CORPORATE AUTHORITY. Forest has all necessary corporate power and
authority to execute, deliver and perform its obligations under this
Agreement.
(c) AUTHORIZATION; CONTRAVENTION. The execution and delivery of this
Agreement by Forest and the performance by Forest of its obligations
hereunder have been duly authorized by all necessary corporate action
and do not and will not contravene, violate, result in a breach of or
constitute a default under, its articles of incorporation or
certificate of incorporation, as the case may be, or bylaws, any
Regulation or any decision, ruling, order or award of any arbitrator
by which Forest or any Subsidiary may be bound or affected or any
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which Forest or any Subsidiary is a party or by which
it is bound where such contravention could reasonably be expected to
prevent or materially hinder the completion of the transactions
contemplated by this Agreement or could have a material adverse effect
on Forest.
<PAGE>
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(d) APPROVALS: Other than (i) Approval pursuant to the INVESTMENT CANADA
ACT, (ii) filing of a pre-notification pursuant to the COMPETITION ACT
(Canada), and (iii) Approval from the Alberta Energy and Utilities
Board; no Approval of any Governmental Body or other person is
required or advisable for the due execution, delivery and performance
by Forest of this Agreement;
(e) BINDING EFFECT. This Agreement is a legally valid and binding
obligation of Forest enforceable against it in accordance with its
terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally and general principles of
equity.
(f) REPORTS:
(i) Forest has heretofore delivered to ATCOR and the Principal
Shareholders true and complete copies of Forest's Form 10-K
relating to the year ended December 31, 1994, Forest's Form 10-Q
for the nine months ended September 30, 1995, Forest's Proxy
Statement relating to its 1995 annual meeting of shareholders and
Forest's Annual Report to shareholders. As of their respective
dates, such forms and statements, (including all exhibits and
schedules thereto and documents incorporated by reference
therein) did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading and
complied in all material respects with all applicable
requirements of law. The audited financial statements and
unaudited interim financial statements of Forest and its
consolidated subsidiaries included or incorporated by reference
in such forms and statements, were prepared in accordance with
generally accepted accounting principles in the United States
(except (i) as otherwise indicated in such financial statements
and the notes thereto or, in the case of audited statements, in
the related report of Forest's independent accountants or (ii) in
the case of unaudited interim statements, to the extent they may
not include notes or may be condensed or summary statements), and
fairly present the consolidated financial position, results of
operations and changes in financial position of Forest and its
consolidated subsidiaries as of the dates thereof and for the
periods indicated therein (subject, in the case of any unaudited
interim financial statements, to normal year-end audit
adjustments).
(ii) Forest will deliver to ATCOR as soon as they become available
true and complete copies of any report or statement filed by it
in accordance with applicable Regulations and policies of
securities regulatory authorities subsequent to the date hereof.
As of their respective dates, such reports and statements
(excluding any information therein provided by or with respect to
ATCOR, as to which Forest makes no representation) will not
contain any untrue statement of a material fact or omit to state
a material fact required to
<PAGE>
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be stated therein or necessary to make the statements therein,
in light of the circumstances under which they are made, not
misleading and will comply in all material respects with all
applicable requirements of law. The consolidated financial
statements of Forest to be included in such reports and
statements (excluding any information therein provided by or
with respect to ATCOR, as to which Forest makes no
representation) will be prepared in accordance with generally
accepted accounting principles in the United States (except
(i) as otherwise indicated in such financial statements and
the notes thereto or, in the case of audited statements, in
the related report of Forest's independent accountants or (ii)
in the case of unaudited interim statements, to the extent
they may not include notes or may be condensed or summary
statements) and will present fairly the consolidated financial
position, results of operations and changes in financial
position of Forest as of the dates thereof and for the periods
indicated therein (subject, in the case of any unaudited
interim financial statements, to normal year-end audit
adjustments).
(g) CONTINUING REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties made with respect to Forest or a
Subsidiary of Forest in this Agreement as of any date other than the
Closing Date shall be true and correct in all material respects on and
as of the Closing Date.
(h) NO MATERIAL ADVERSE CHANGE. Since December 31, 1994, there has been
no material adverse change in the business, properties, operations,
prospects or condition (financial or otherwise) of Forest and its
Subsidiaries, taken as a whole, except as disclosed by Forest in the
public filing documents which were provided to ATCOR pursuant to
Section 3.2(f).
(i) NO MERGER AGREEMENTS. Except for this Agreement, and except as
disclosed in the public filing documents provided to ATCOR pursuant to
Section 3.2(f), none of Forest and its Subsidiaries has entered into
any agreement with any person which has not been terminated as of the
date of this Agreement and under which there remains any liability or
obligation of any of Forest and its Subsidiaries with respect to a
merger or consolidation with any of Forest and its Subsidiaries, an
acquisition of any equity securities of any of Forest and its
Subsidiaries or any other acquisition of a substantial amount of the
assets of any of Forest and its Subsidiaries.
(j) EMPLOYEES. Forest intends to cause ATCOR to continue the employment
of ATCOR's current employees following the Closing upon substantially
the same terms and conditions of employment as presently exist,
subject to Forest's personnel policies.
<PAGE>
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3.3 REPRESENTATIONS AND WARRANTIES OF PARENT 1
Parent 1 represents and warrants to and in favour of Forest as
follows, and acknowledges that Forest is relying upon such representations and
warranties in connection with the matters contemplated by this Agreement:
(a) Parent 1 is a corporation duly incorporated validly existing and in
good standing under the laws of Alberta and has the corporate power
and authority to own and lease its property and assets and to carry on
its current activities;
(b) Parent 1 has all necessary corporate power and authority to execute,
deliver and perform its obligations under this Agreement;
(c) the execution and delivery of this Agreement by Parent 1 and the
performance by Parent 1 of its obligations hereunder have been duly
authorized by all necessary corporate action and do not and will not
contravene, violate or result in a breach of or constitute a default
under:
(i) the Articles of Incorporation or by-laws of Parent 1;
(ii) any applicable laws, the contravention of which could reasonably
be expected to prevent or materially hinder the completion of
the Amalgamation; or
(iii) any indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which Parent 1 is a party
or by which it is bound where such contravention could
reasonably be expected to prevent or materially hinder the
completion of the Amalgamation, the Acquisition or the
Ancillary Transactions or could have any material adverse
effect on Forest or ATCOR;
(d) this Agreement is a legally valid and binding obligation of Parent 1
enforceable against it in accordance with its terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or affecting creditors rights generally and
general principles of equity;
(e) no Approval of any Governmental Body or other person is required or
advisable on the part of Parent 1 or any Subsidiary of Parent 1 for
the due execution, delivery and performance by Parent 1 of this
Agreement and the Ancillary Documents to which it is a party;
(f) Parent 1 is the registered and beneficial owner of the following
securities of ATCOR;
(i) Nil Class A Shares;
(ii) 2,500 Class B Shares;
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(The shares referred to in (i) to (ii) inclusive being collectively
"PARENT 1'S ATCOR SHARES");
(g) Parent 1 has good and marketable title to Parent 1's ATCOR Shares,
free and clear of any and all mortgages, liens, charges, restrictions,
security interests, adverse claims, pledges, encumbrances and demands
or rights of others of any nature or kind whatsoever including,
without limitation, any agreement, right or option, or any privilege
capable of becoming an agreement, right or option, for the purchase or
transfer of any of Parent 1's ATCOR Shares or any interest therein or
right thereto, except pursuant to the terms of this Agreement; and
(h) Parent 1's ATCOR Shares, Parent 2's ATCOR Shares and Parent 3's ATCOR
Shares comprise all of the securities of ATCOR of any kind or nature
which Parent 1 owns, directly or indirectly, or over which Parent 1
exercises voting or other control.
3.4 REPRESENTATIONS AND WARRANTIES OF PARENT 2
Parent 2 represents and warrants to and in favour of Forest as
follows, and acknowledges that Forest is relying upon such representations and
warranties in connection with the matters contemplated by this Agreement:
(a) Parent 2 is a corporation duly incorporated, validly existing and in
good standing under the laws of Canada and has the corporate power and
authority to own and lease its property and assets and to carry on its
current activities;
(b) Parent 2 has all necessary corporate power and authority to execute,
deliver and perform its obligations under this Agreement;
(c) the execution and delivery of this Agreement by Parent 2 and the
performance by Parent 2 of its obligations hereunder have been duly
authorized by all necessary corporate action and do not and will not
contravene, violate, result in a breach of or constitute a default
under:
(i) the Articles of Incorporation or by-laws of Parent 2;
(ii) any applicable laws, the contravention of which could reasonably
be expected to prevent or materially hinder the completion of
the Amalgamation; or
(iii) any indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which Parent 2 is a party
or by which it is bound where such contravention could
reasonably be expected to prevent or materially hinder the
completion of the Amalgamation, the Acquisition or the
Ancillary Transactions or could have any material adverse
effect on Forest or ATCOR;
<PAGE>
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(d) this Agreement is a legally valid and binding obligation of Parent 2
enforceable against it in accordance with its terms, except as may be
limited by bankruptcy, insolvency, reorganization moratoriums or
similar laws affecting creditors rights generally and general
principles of equity;
(e) no Approval of any Governmental Body or other person is required or
advisable on the part of Parent 2 for the due execution, delivery and
performance by Parent 2 of this Agreement, and the Ancillary Documents
to which it is a party;
(f) Parent 2 is the registered and beneficial owner of the following
securities of ATCOR:
(i) 6,465,083 Class A Shares;
(ii) 5,417,208 Class B Shares;
(collectively "PARENT 2'S ATCOR SHARES");
(g) Parent 2 has good and marketable title to Parent 2's ATCOR Shares,
free and clear of any and all mortgages, liens, charges, restrictions,
security interests, adverse claims, pledges, encumbrances and demands
or rights of others of any nature or kind whatsoever including,
without limitation, any agreement, right or option, or any privilege
capable of becoming an agreement, right or option, for the purchase or
transfer of any of Parent 2's ATCOR Shares or any interest therein or
right thereto, except pursuant to the terms of this Agreement; and
(h) Parent 2's ATCOR Shares comprise all of the securities of ATCOR of any
kind or nature which Parent 2 owns, directly or indirectly, or over
which Parent 2 exercises voting or other control.
3.5 REPRESENTATIONS AND WARRANTIES OF PARENT 3
Parent 3 represents and warrants to and in favour of Forest as
follows, and acknowledges that Forest is relying upon such representations and
warranties in connection with the matters contemplated by this Agreement:
(a) Parent 3 is a corporation duly incorporated, validly existing and in
good standing under the laws of Alberta and has the corporate power
and authority to own and lease its property and assets and to carry on
its current activities;
(b) Parent 3 has all necessary corporate power and authority to execute,
deliver and perform its obligations under this Agreement;
(c) the execution and delivery of this Agreement by Parent 3 and the
performance by Parent 3 of its obligations hereunder have been duly
authorized by all necessary
<PAGE>
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corporate action and do not and will not contravene, violate, result
in a breach of or constitute a default under:
(i) the Articles of Incorporation or by-laws of Parent 3;
(ii) any applicable laws, the contravention of which could reasonably
be expected to prevent or materially hinder the completion of
the Amalgamation; or
(iii) any indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which Parent 3 is a party
or by which it is bound where such contravention could
reasonably be expected to prevent or materially hinder the
completion of the Amalgamation, the Acquisition or the
Ancillary Transactions or could have any material adverse
effect on Forest or ATCOR;
(d) this Agreement is a legally valid and binding obligation of Parent 3
enforceable against it in accordance with its terms, except as may be
limited by bankruptcy, insolvency, reorganization moratoriums or
similar laws affecting creditors rights generally and general
principles of equity;
(e) no Approval of any Governmental Body or other person is required or
advisable on the part of Parent 3 for the due execution, delivery and
performance by Parent 3 of this Agreement, and the Ancillary Documents
to which it is a party;
(f) Parent 3 is the registered and beneficial owner of the following
securities of ATCOR:
(i) 1,544,638 Class A Shares;
(ii) 3,894,638 Class B Shares;
(collectively "PARENT 3'S ATCOR SHARES");
(g) Parent 3 has good and marketable title to Parent 3's ATCOR Shares,
free and clear of any and all mortgages, liens, charges, restrictions,
security interests, adverse claims, pledges, encumbrances and demands
or rights of others of any nature or kind whatsoever including,
without limitation, any agreement, right or option, or any privilege
capable of becoming an agreement, right or option, for the purchase or
transfer of any of Parent 3's ATCOR Shares or any interest therein or
right thereto, except pursuant to the terms of this Agreement; and
(h) Parent 3's ATCOR Shares comprise all of the securities of ATCOR of any
kind or nature which Parent 3 owns, directly or indirectly, or over
which Parent 3 exercises voting or other control.
<PAGE>
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ARTICLE 4
COVENANTS
4.1 COVENANTS OF ATCOR AND THE PRINCIPAL SHAREHOLDERS
ATCOR and, for the purposes of Sections 4.1(a) and 4.1(b) only, each
of the Principal Shareholders covenant in favour of Forest that prior to the
Closing Date they shall do, take or perform or refrain from doing, taking and
performing such actions and steps as may be necessary or advisable to ensure
compliance with the following:
(a) None of the Principal Shareholders, ATCOR and their respective
Subsidiaries shall, nor shall any of the Principal Shareholders,
ATCOR and their respective Subsidiaries authorize or permit any of
their officers, directors or employees or any financial advisor,
attorney, accountant or other representative retained by them to:
(i) solicit, initiate or encourage (including, without limitation,
by way of furnishing information), any inquiry or the making of
any proposal to ATCOR or its shareholders from any person (other
than Forest, any affiliate of Forest or any person acting in
concert with Forest), which constitutes, or may reasonably be
expected to lead to, in each case whether in one transaction
or in a series of transactions, (A) an acquisition from ATCOR or
its shareholders of any securities (other than non-convertible
debt securities) of any of ATCOR and its Subsidiaries, (B) any
acquisition of a substantial amount of assets of any of ATCOR
and its Subsidiaries, (C) an amalgamation, merger or
consolidation of any of ATCOR and its Subsidiaries or (D) any
take-over bid, issuer bid, exchange offer, recapitalization,
liquidation, dissolution or similar transaction involving any
of ATCOR and its Subsidiaries or any other transaction the
consummation of which would or could reasonably be expected to
impede, interfere with, prevent or materially delay the
conclusion of any of the Amalgamation, the Acquisition and
the Ancillary Transactions or which would or could reasonably
be expected to materially delay the conclusion of any of the
Amalgamation or which would or could reasonably be expected
to materially reduce the benefits to Forest of the Acquisition
(collectively, the "TRANSACTION PROPOSALS") or agree to or
endorse any Transaction Proposal; or
(ii) enter into or participate in any discussions or negotiations
regarding any of the foregoing, or furnish to any other person
any information with respect to the business, properties,
operations, prospects or conditions (financial or otherwise) of
ATCOR and its Subsidiaries or any of the foregoing, or otherwise
cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other
person to do or seek any of the foregoing;
<PAGE>
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provided that nothing in this paragraph (a) shall be construed as
limiting the power of the board of directors of ATCOR to respond as
required by law to any submission or proposal regarding any take-over
bid or any acquisition or disposition of assets or to amalgamate,
merge or effect an arrangement or otherwise to fulfil their fiduciary
duties to ATCOR and its shareholders in relation to such transaction
(including, without limitation, to provide information on a
confidential basis enter into discussions and negotiations, or
withdraw or modify the Recommendation) if the board of directors of
ATCOR (having consulted outside counsel), concludes in good faith that
to do so would be a proper exercise of such directors' fiduciary
duties and provided further that the foregoing shall not entitle ATCOR
to terminate this Agreement, to not proceed with the ATCOR
Shareholders Meeting as contemplated herein or to withdraw from the
shareholders the vote on the Amalgamation;
(b) In the event that ATCOR, a Principal Shareholder or any of their
Subsidiaries receives any proposal or offer referred to in paragraph
(a) or an enquiry with respect thereto, ATCOR, or such Principal
Shareholder, as the case may be, will promptly notify Forest in
writing of all relevant details relating thereto;
(c) Each of ATCOR and its Subsidiaries
(i) will not declare any dividends on or make any other
distributions in respect of its outstanding shares;
(ii) will not issue, authorize or propose the issuance of, or
purchase or propose the purchase of any of its shares of any
class or securities convertible into or rights, warrants, or
options to acquire any such shares or other exchangeable or
convertible securities;
(iii) will not, directly or indirectly, enter into any agreement,
commitment, understanding or obligation with or in favour of
or make any payment (for services rendered or otherwise) to
any of the Principal Shareholders, other than management
fees payable to Parent 1 and Parent 2 and other amounts paid
to a Principal Shareholder in the ordinary course of
business of such Principal Shareholder, provided that the
amount by which such fees are paid at a rate exceeding the
rate of the fees paid during the year ended December 31,
1995 shall be included as Transaction Expenses.
(d) Each of ATCOR and its Subsidiaries:
(i) will carry on its business in, and only in,
the ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent with such
business, use commercially reasonable best business efforts
to preserve intact its present business organization,
licences and permits to the end that its goodwill and
business shall be maintained;
<PAGE>
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(ii) will keep adequate records and books of account reflecting
all its financial transactions, keep minute books containing
accurate records of all meetings and accurately reflecting
all corporate action of its shareholders and its board of
directors (including committees) and keep stock books and
ledgers correctly recording all transfers and issuances of
all capital stock;
(iii) will maintain, keep and preserve all its real property and
personal property used or useful in the proper conduct of
its business in good working order and condition, ordinary
wear and tear excepted;
(iv) will maintain adequate insurance;
(v) will comply in all material respects with all Regulations and
each decision, ruling, order or award of all arbitrators
applicable to its business, properties or operations;
(vi) will not acquire or agree to acquire any assets or acquire or
agree to acquire by amalgamating, merging or consolidating
with, purchasing substantially all of the assets of or
otherwise, any business or any corporation, partnership,
association or other business organization or division
thereof, other than in the ordinary course of business or
pursuant to commitments entered into after the date hereof
with the prior written consent of Forest;
(vii) will timely file all Tax Returns that are required to be
filed by it and pay before they become delinquent all Taxes
due pursuant to those Tax Returns or any Assessment received
by it or otherwise required to be paid, except Taxes being
contested in good faith by appropriate proceedings and for
which adequate reserves or other provisions are maintained;
(viii) other than as contemplated by this Agreement, will not amend
its articles of incorporation or by-laws;
(ix) will not, without the prior written consent
of Forest sell, transfer, assign, convey or otherwise dispose
of or create any Encumbrance on or allow the sale, transfer,
assignment, conveyance or disposition of or creation of any
Lien on any of its assets which have a total aggregate value
in excess of $2,500,000, other than personal property that is
replaced by equivalent property or consumed or sold in the
ordinary course of business and other than Liens arising in
the ordinary course of business as a result of operations
under agreements affecting the assets of ATCOR or its
Subsidiaries;
(x) will not, without the prior written consent of Forest, sell,
transfer, assign, convey or otherwise dispose of or create any
Encumbrance on or allow the sale, transfer, assignment,
conveyance or disposition of or creation of any
<PAGE>
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Lien on any of its Proprietary Rights or any assets relating
to the Marketing Business;
(xi) will not, without the prior written consent of Forest, make
(except pursuant to existing commitments), commit, or allow
the committal to make individual expenditures exceeding
$750,000 or expenditures exceeding $5,000,000 in the
aggregate, except where such expenditures are required to
preserve property or safeguard individuals from harm where
such property or individuals are in imminent danger of
material damage or injury;
(xii) will not, without the prior written consent of Forest,
alter the compensation, benefits or retention plans or
arrangements currently in place (including rights upon
termination) of any of its officers or employees and will
not enter into any new employment or management contract;
(xiii) will not, directly or indirectly, enter into any agreement,
commitment, understanding or other obligation with or in
favour of, or make any payment (for services rendered or
otherwise) to, any insider of ATCOR or any associate or
affiliate of any insider of ATCOR, except payment of
salaries and benefits to directors and senior officers of
ATCOR in accordance with ATCOR's salary and benefits program
in effect as at December 31, 1994 except for payments to
directors included in Transaction Expenses;
(xiv) will not guarantee the payment of indebtedness or incur
indebtedness for additional borrowed money or issue any debt
securities, except in connection with borrowings in the
ordinary course of business;
(xv) will not without the prior written consent of Forest, enter
into any contracts providing for the purchase, sale or
delivery of oil or gas with a term in excess of 95 days or
providing for delivery at a time more than 75 days after the
contract is entered into or any Financial Instrument
Transaction with a term in excess of 30 days;
(xvi) will not disclose to any person, other than officers,
directors, and key employees and professional advisors of
ATCOR who are bound by an agreement of confidentiality,
confidential information relating to Forest;
(e) ATCOR will:
(i) Notify Forest in writing: (x) promptly after the occurrence
thereof, of any material adverse change (actual, anticipated,
contemplated or, to the knowledge of ATCOR, threatened,
financial or otherwise) in its business affairs, operations,
assets, liabilities (contingent or otherwise) or capital and
(y) promptly after the occurrence, or failure to occur, of
any such event, information with respect to any event which,
if known as of the date of this
<PAGE>
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Agreement, would have been required to be disclosed to Forest or
which would be likely to cause any representation or warranty
of ATCOR herein or the Due Diligence Response to be untrue or
inaccurate in any material respect at any time from the date
of this Agreement to the Closing Date;
(ii) As soon as available, and in any event within 35 days after
the end of each month, provide Forest with the consolidated
balance sheet of ATCOR as of the end of the month and the
related consolidated statements of income and retained
earnings and changes in financial position for the portion of
the fiscal year of ATCOR ended with the last day of the
month, all in reasonable detail and stating in comparative
form the respective consolidated figures for the
corresponding date and period in the previous fiscal year
(subject to year-end adjustments);
(iii) Promptly after the commencement of each such matter, provide
to Forest written notice of all Actions affecting ATCOR or a
Subsidiary that, if adversely determined, could materially
and adversely affect the business, properties, operations,
prospects or condition (financial or otherwise) of ATCOR and
its Subsidiaries, taken as a whole, or the ability of ATCOR
or the Subsidiary, as the case may be, to perform its
obligations under this Agreement or any Ancillary Document
to which it is or may become a party; and
(iv) Provide Forest with such other information respecting the
condition or operations, financial or otherwise, of any of ATCOR
and its Subsidiaries as Forest may from time to time reasonably
request;
(f) ATCOR will provide to Forest, and to the officers, employees,
financial advisors, attorneys, accountants and other representatives
of Forest, reasonable access during normal business hours to all its
properties, books, contracts, commitments, personnel and records;
furnish as promptly as practicable to Forest and its respective
representatives such information with respect to the business,
properties, operations, prospects or conditions (financial or
otherwise) of ATCOR and its Subsidiaries as Forest may from time to
time reasonably request to enable Forest to effect a thorough
investigation of ATCOR; and to the extent reasonably requested by
Forest, cause its officers, personnel, employees, independent public
accountants and other representatives to, provide information
regarding ATCOR to, and otherwise cooperate with, Forest;
(g) ATCOR will use commercially reasonable best business efforts to do all
acts and things as may be necessary or desirable to ensure the
successful implementation of the Amalgamation, the Acquisition and the
Ancillary Transactions and, without limiting the generality of the
foregoing:
<PAGE>
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(i) ATCOR will use commercially reasonable best business efforts
to, as soon as practicable and in any event on or before
December 18, 1995, complete the preparation of the ATCOR
Information Circular and mail to its shareholders and file in
all jurisdictions where required the ATCOR Information
Circular and other documentation required in connection with
the ATCOR Shareholders Meeting, all in accordance with
National Policy No. 41 of the Canadian Securities
Administrators (except as such Policy may be waived by the
applicable authorities) and applicable law, and ATCOR will
use all reasonable efforts to, as soon as practicable and in
any event on or before January 18, 1996, convene the ATCOR
Shareholders Meeting for the purpose of approving the
Amalgamation;
(ii) ATCOR will cause a list of ATCOR shareholders as of the record
date for the ATCOR Shareholders Meeting, in a form suitable for
soliciting of ATCOR shareholders and prepared by the transfer
agent of ATCOR, to be delivered to Forest no later than the
second business day after such record date;
(iii) Subject to obtaining the required shareholder approval,
ATCOR will file Articles of Amalgamation implementing the
Amalgamation on the Closing Date in accordance with Section
2.1; and
(iv) ATCOR will use commercially reasonable best business efforts to
cause each of the conditions precedent set forth in Sections 5.1
and 5.3 which is within its control to be complied with;
(h) ATCOR will ensure that the ATCOR Information Circular and the
convening and conduct of the ATCOR Shareholders Meeting comply with
all applicable Regulations and policies of regulatory authorities and
will allow Forest and its counsel to review and comment on drafts of
the ATCOR Information Circular and participate in the preparation
thereof; and
(i) ATCOR will, within five business days of ATCOR or any of its
Subsidiaries receiving any written audit inquiry, assessment,
reassessment, confirmation or variation of an assessment, indication
that an assessment is being considered, request for filing of a waiver
or extension of time or any other notice in writing relating to Taxes,
losses or tax pools (an "ASSESSMENT"), deliver to Forest a copy
thereof together with a statement setting out, to the extent then
determinable, an estimate of the obligations, if any, of ATCOR, or the
appropriate Subsidiary, on the assumption that such Assessment is
valid and binding.
4.2 COVENANTS OF FOREST
Forest covenants in favour of ATCOR and the Principal Shareholders
that prior to the Closing Date, it shall do, take or perform or refrain from
doing, taking or performing such actions and steps as may be necessary or
advisable to ensure compliance with the following:
<PAGE>
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(a) Forest will, subject to the terms hereof, use commercially reasonable
best business efforts to do all other acts and things as may be
necessary or desirable to ensure the successful implementation of the
Acquisition, including the completion of the Offering or the providing
of other financing for the Acquisition;
(b) Each of Forest and its Subsidiaries:
(i) will carry on its business in, and only in, the ordinary course
in substantially the same manner as heretofore conducted and, to
the extent consistent with such business, use commercially
reasonable best business efforts to preserve intact its present
business organization, licences and permits to the end that its
goodwill and business shall be maintained;
(ii) will keep adequate records and books of account reflecting all
its financial transactions, keep minute books containing accurate
records of all meetings and accurately reflecting all corporate
action of its shareholders and its board of directors (including
committees) and keep stock books and ledgers correctly recording
all transfers and issuances of all capital stock;
(iii) will maintain, keep and preserve all its real property and
personal property used or useful in the proper conduct of
its business in good working order and condition, ordinary
wear and tear excepted;
(iv) will maintain adequate insurance;
(v) will comply in all material respects with all Regulations and
each decision, ruling, order or award of all arbitrators
applicable to its business, properties or operations;
(vi) will not acquire or agree to acquire any assets or acquire or
agree to acquire by amalgamating, merging or consolidating with,
purchasing substantially all of the assets of or otherwise, any
business or any corporation, partnership, association or other
business organization or division thereof, other than in the
ordinary course of business or pursuant to commitments entered
into after the date hereof with the prior written consent of
ATCOR;
(vii) will timely file all Tax Returns that are required to be
filed by it and pay before they become delinquent all Taxes
due pursuant to those Tax Returns or any Assessment received
by it or otherwise required to be paid, except Taxes being
contested in good faith by appropriate proceedings and for
which adequate reserves or other provisions are maintained; and
(viii) will not disclose to any person, other than officers,
directors, and key employees and professional advisors of
Forest who are bound by an agreement of confidentiality,
confidential information relating to ATCOR;
<PAGE>
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(c) Forest will promptly notify ATCOR in writing of:
(i) any material adverse change (actual, anticipated, contemplated
or, to the knowledge of Forest, threatened, financial or
otherwise, in its business, affairs, operations, assets,
liabilities (contingent or otherwise) or capital of Forest or
its ability to complete the Acquisition, the Ancillary
Transactions or the Offering;
(ii) any change in any representation or warranty set forth in
Section 3.2 hereof which change is or may be of such a nature as
to render any such representation or warranty misleading or
untrue; or
(iii) any material fact which arises and which would have been
required to be stated herein had the fact arisen on or prior
to the date of this Agreement.
Forest shall in good faith discuss with ATCOR any change in
circumstances (actual, anticipated, contemplated or, to the knowledge
of Forest, threatened, financial or otherwise) which is of such a
nature that there may be a reasonable question as to whether notice
need be given to ATCOR pursuant to this section;
(d) Forest will provide to ATCOR, and to the officers, employees,
financial advisors, attorneys, accountants and other representatives
of ATCOR, reasonable access during normal business hours to all its
properties, books, contracts, commitments, personnel and records;
furnish as promptly as practicable to ATCOR and its respective
representatives such information with respect to the business,
properties, operations, prospects or conditions (financial or
otherwise) of Forest and its Subsidiaries as ATCOR may from time to
time reasonably request to enable ATCOR to effect a thorough
investigation of Forest; and to the extent reasonably requested by
ATCOR, cause its officers, personnel, employees, independent public
accountants and other representatives to, provide information
regarding Forest, and otherwise cooperate with, ATCOR;
(e) Except as contemplated herein, neither Forest nor any person
controlled directly or indirectly by Forest will, except pursuant to
the terms of this Agreement, acquire or agree to acquire, or make any
proposal or offer to acquire, directly or indirectly or in any manner,
any securities of ATCOR or any of its Subsidiaries;
(f) Forest shall forthwith upon completion of the Offering, deposit in
escrow with the Escrow Agent an amount equal to the Redemption Amount
plus the amount required to purchase all the shares of Amalco which
are tendered to the Offer, on terms acceptable to ATCOR, to be
released only for the purposes specified in Section 2.1(c) and (d)
hereof.
(g) Forest will use all reasonable efforts to cause each of the conditions
set forth in Sections 5.1 and 5.3 which is within its control to be
complied with.
<PAGE>
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4.3 MUTUAL COVENANTS OF ATCOR AND FOREST
Each of ATCOR and Forest covenant in favour of the other that prior to
the Closing Date, it shall and it shall cause each of its subsidiaries, to do,
take or perform or refrain from doing, taking and performing such actions and
steps as may be necessary or advisable to ensure compliance with the following:
(a) each of ATCOR and Forest will use commercially reasonable best
business efforts to satisfy (or cause the satisfaction of) the
conditions precedent to its obligations hereunder and to take, or
cause to be taken, all other action and to do, or cause to be done,
all other things necessary, proper or advisable under applicable laws
and regulations to complete the Amalgamation, the Acquisition, the
Ancillary Transactions and the Offering including using commercially
reasonable best business efforts to:
(i) obtain all necessary waivers, consents and approvals required
to be obtained by it from other parties to loan agreements,
leases and other contracts;
(ii) obtain all necessary consents, approvals and authorizations as
are required to be obtained by it under any Canadian or foreign
law or regulation; and
(iii) effect all necessary registrations and filings and
submissions of information requested by governmental
authorities required to be effected by it in connection with
the Amalgamation, the Acquisition, the Ancillary Documents
and the Offering; and
(b) each of ATCOR and Forest will use commercially reasonable best
business efforts to cooperate with the other in connection with the
performance by the other of its obligations under this subsection
including, without limitation, continuing to provide reasonable access
to information and to maintain ongoing communications as between
Forest and ATCOR.
ARTICLE 5
CONDITIONS PRECEDENT
5.1 MUTUAL CONDITIONS PRECEDENT
Subject to Section 5.4, the respective obligations of ATCOR and the
Principal Shareholders and Forest to complete the transactions contemplated by
Section 2.1 and the obligation of ATCOR to file articles of Amalgamation to give
effect to the Amalgamation, except that the condition specified in paragraph (i)
below shall not apply to ATCOR's obligation to file Articles of Amalgamation,
shall be subject to the satisfaction, on or before the Closing Date, of the
following conditions, any of which may be waived in whole or in part, by the
mutual consent of such parties without prejudice to their right to rely on any
other of such conditions:
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(a) the Amalgamation shall have received the affirmative vote of not less
than 66 2/3% of the votes cast by the holders of each of the Class A
Shares and the Class B Shares, and by the holders of all ATCOR Shares;
(b) all other consents, orders and approvals necessary or that ATCOR and
Forest agree are appropriate for the completion of the Amalgamation,
the Acquisition and the Ancillary Transactions shall have been
obtained;
(c) there shall be no action taken under any existing applicable law or
regulation, nor any statute, rule, regulation or order which is
enacted, enforced, promulgated or issued by any court, department,
commission, board, regulatory body, government or governmental
authority or similar agency, domestic or foreign, that:
(i) makes it illegal or otherwise directly or indirectly restrains,
enjoins or prohibits the Amalgamation, the Acquisition or the
Ancillary Transactions, where the failure to complete such
transactions would have a material adverse effect on the
completion of the Amalgamation, the Acquisition or the Ancillary
Transactions;
(ii) results in a judgement or assessment of material damages,
directly or indirectly, relating to the transactions
contemplated herein; or
(iii) imposes or confirms material limitations on the ability of
Forest to effectively exercise full rights of ownership of
the shares of Amalco to be acquired by Forest pursuant to
the Acquisition;
(d) there shall not be in force any law, order or decree making illegal,
restraining or enjoining the completion of the Amalgamation,
Acquisition or Ancillary Transactions or which enables any court,
department, commission, board, regulatory body, government or
governmental authority or similar agency, domestic or foreign, as a
result of the transactions contemplated herein, to:
(i) prohibit Forest or any of its Subsidiaries or ATCOR or any of its
Subsidiaries from owning or operating all or any portion of their
respective businesses or assets; or
(ii) compel Forest or any of its Subsidiaries or ATCOR or any of its
Subsidiaries to dispose of or hold separately all or any portion
of their respective businesses or assets or the ATCOR Shares or
shares of Amalco to be acquired by Forest pursuant to the
Acquisition;
if such prohibition or compulsion could have a material adverse effect
on Forest and its Subsidiaries (including Amalco), on a consolidated
basis, after completion of the Acquisition;
<PAGE>
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(e) ATCOR and the other parties thereto shall have entered into the Sale
Documents in a form satisfactory to ATCOR and Forest;
(f) there shall have been filed notification and report forms to the
extent required under the INVESTMENT CANADA ACT and the COMPETITION
ACT and there shall be no legal impediment under such Acts to the
transactions contemplated hereby;
(g) an Approval of the Alberta Energy and Utilities Board shall have been
obtained pursuant to the PUBLIC UTILITIES BOARD ACT and GAS UTILITIES
ACT;
(h) none of the consents, orders or approvals contemplated herein shall
contain terms or conditions or require undertakings or security deemed
unacceptable by ATCOR or Forest, acting reasonably; and
(i) the Amalgamation shall have been completed.
5.2 CONDITIONS TO OBLIGATIONS OF ATCOR AND THE PRINCIPAL SHAREHOLDERS
In addition to the conditions set forth in Section 5.1 and subject to
Section 5.4, the obligations of ATCOR and the Principal Shareholders to complete
the transactions contemplated by Section 2.1 are subject to the satisfaction, on
or before the earlier of the dates specified in each paragraph below or the
Closing Date, of the following conditions, any of which may be waived by ATCOR,
Parent 1, Parent 2 or Parent 3 as applicable in whole or in part without
prejudice to such party's right to rely on any other condition in its favour:
(a) the covenants of Forest to be performed on or before the Closing Date
pursuant to the terms of this Agreement shall have been duly performed
in all material respects by Forest, and ATCOR shall have received a
certificate to that effect dated the Closing Date, signed by two
senior officers of Forest on behalf of Forest, and ATCOR shall not
have reasonably established that it has knowledge to the contrary;
(b) ATCOR and the Principal Shareholders shall have received on or before
December 24, 1995 satisfactory assurances with respect to the
Offering;
(c) on or before the Closing Date, Forest shall have furnished ATCOR and
the Principal Shareholders with certified copies of the resolutions
duly passed by the board of directors of Forest approving this
Agreement and the completion of the transactions contemplated hereby
and directing the submission for approval by Forest shareholders of
any matters hereunder requiring such approval;
(d) the representations and warranties of Forest set out in Section 3.2
shall have been true and correct in all material respects on the date
of this Agreement and such representations and warranties shall be
true and correct in all material respects on the Closing Date as if
made on and as of such date, except as affected by transactions
contemplated or permitted by this Agreement, and ATCOR and the
Principal
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Shareholders shall have received a certificate from Forest to that
effect, dated the Closing Date and signed by two senior officers of
Forest, and ATCOR and the Principal Shareholders shall not have
reasonably established that it has knowledge to the contrary; and
(e) ATCOR and the Principal Shareholders shall have received an opinion of
counsel to Forest in a form acceptable to them, acting reasonably, as
to the matters set forth in Sections 3.2(a), (b), (c), (d) and (e)
which opinion may rely on certificates of an officer or officers of
Forest as to matters of fact.
Notwithstanding the foregoing conditions, if any such condition fails due to
breach with respect to any representation or warranty set forth in
Section 3.2(f) or any covenant set forth in Section 4.2, such conditions shall
be deemed to be satisfied if within five business days after receipt by Forest
of written notice of such breach (x) Forest delivers assurances satisfactory to
ATCOR, Parent 1 and Parent 2 with respect to the Offering, (y) the condition set
forth in paragraph (c) above has been satisfied or (z) Forest deposits
$185,966,805.80 with the Escrow Agent.
5.3 CONDITIONS TO OBLIGATION OF FOREST
In addition to the conditions set forth in Section 5.1 and subject to
Section 5.4, the obligation of Forest to complete the transactions contemplated
by Section 2.1 is subject to the satisfaction, on or before the Closing Date, of
the following conditions, any of which may be waived by Forest in whole or in
part without prejudice to Forest's right to rely on any other condition in
favour of Forest:
(a) the covenants of ATCOR and the Principal Shareholders to be performed
on or before the Closing Date pursuant to the terms of this Agreement
shall have been duly performed in all material respects by ATCOR and
the Principal Shareholders and Forest shall have received a
certificate from ATCOR and the Principal Shareholders to that effect,
dated the Closing Date and signed by two senior officers of ATCOR and
the Principal Shareholders, and Forest shall not have reasonably
established that it has knowledge to the contrary;
(b) on or before the Closing Date, ATCOR and the Principal Shareholders
shall have furnished Forest with:
(i) certified copies of the resolutions duly passed by the board of
directors of ATCOR and the Principal Shareholders approving this
Agreement and the completion of the transactions contemplated
hereby and, in the case of ATCOR, directing the submission of the
Amalgamation for approval at the ATCOR Shareholders' Meeting; and
(ii) certified copies of the resolutions duly passed at the ATCOR
Shareholders' Meeting approving the Amalgamation;
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(c) the representations and warranties of ATCOR and the Principal
Shareholders set out in Sections 3.1, 3.3, 3.4 and 3.5 shall have been
true and correct in all material respects on the date of this
Agreement and such representations and warranties shall be true and
correct in all material respects on the Closing Date (before giving
effect to the Amalgamation) as if made on and as of such date, except
as affected by transactions contemplated or permitted by this
Agreement, and Forest shall have received certificates from ATCOR, and
each of the Principal Shareholders to that effect, dated the Closing
Date and signed by two senior officers of ATCOR and each of the
Principal Shareholders and Forest shall not have reasonably
established that it has knowledge to the contrary;
(d) on the Closing Date, ATCOR shall have furnished Forest with a
certificate of ATCOR, signed by two senior officers of ATCOR,
certifying as to the number of shares in respect of which holders of
the ATCOR Shares have exercised rights of dissent in respect of the
Amalgamation;
(e) no material adverse change (or any event, condition or state of facts
which may reasonably be expected to give rise to any such change)
shall have occurred in the assets, liabilities, business, operations
or capital of ATCOR from and after the date hereof (excluding any such
change, event, condition or state of facts resulting from changes in
general economic conditions, including changes in interest rates or
prices received by ATCOR or any of its Subsidiaries for oil, gas or
other commodities);
(f) shareholders representing not more than five (5%) percent of the
aggregate of the issued and outstanding ATCOR Shares shall be
Dissenting Shareholders;
(g) Forest shall have completed the Offering and received funds of not
less than $185,966,805 therefrom;
(h) ATCOR shall have completed the Reorganization prior to the Closing
Date;
(i) Forest shall have received an opinion of counsel to ATCOR and the
Principal Shareholders in a form acceptable to Forest, acting
reasonably, as to the matters set forth in paragraphs (a), (b), (c),
(d) and (e) of Sections 3.1, 3.3, 3.4 and 3.5 which opinion may rely
on certificates of an officer or officers of ATCOR and the Principal
Shareholders as to matters of fact.
5.4 MATERIALITY THRESHOLD
Notwithstanding the foregoing conditions, if any such condition fails
due to a breach with respect to any representation or warranty set forth in
Section 3.1 or any covenant set forth in Section 4.1(d), (e), (f), (g), (h) or
(i) such condition shall be deemed to be satisfied and such breach shall not
give rise to a right of Forest to terminate this Agreement unless such breaches
in the aggregate have a material adverse effect on ATCOR on a consolidated basis
taken as a whole.
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5.5 NOTICE OF NON-COMPLIANCE
Each of ATCOR and Forest shall give prompt notice to each of the other
of the occurrence, or failure to occur, at any time from the date hereof to the
Closing Date of any event or state of facts which occurrence or failure would,
or would be likely to:
(a) cause any of the representations or warranties of either party
contained herein to be untrue or inaccurate in any material respect,
or
(b) result in the failure to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied hereunder,
provided that no such notification shall affect the representations or
warranties of the parties or the conditions to the obligations of the parties
hereunder.
ARTICLE 6
OTHER COVENANTS
6.1 INDEMNIFICATION
(a) Each of ATCOR, Parent 1 and Parent 2 shall severally indemnify Forest
against and hold it harmless from any and all Losses in any way
relating to or allegedly arising out of any breach of its respective
representations, warranties, covenants or agreements contained in this
Agreement, the Amalgamation Agreement or any Ancillary Document,
whether or not the Acquisition is concluded or the obligations of the
parties hereunder are terminated pursuant to Article 7 or otherwise.
(b) ATCOR shall indemnify Forest and its "CONTROLLING PERSONS" (within the
meaning of Section 20 of the EXCHANGE ACT) and their respective
shareholders, directors, officers, employees, agents and affiliates
against, and hold each of those persons harmless from, any and all
Losses in any way relating to or allegedly arising out of any untrue
statement of a material fact relating solely to ATCOR contained in the
Registration Statement (or any amendment or supplement thereto)
relating to the Offering or any failure to state a material fact
relating to ATCOR required to make any statement contained therein not
misleading in light of the circumstances under which it was made.
ATCOR shall have no obligation to Forest or any other person under
this paragraph (b) with respect to any of the foregoing arising
primarily out of the gross negligence or wilful misconduct of Forest
or the other Indemnified Person, as the case may be, as determined by
a final judgment of a court of competent jurisdiction or to the extent
that the Registration Statement presents any information in a manner
different from the presentation in the documents referred to in
Section 3.1(f)(i) or (ii) or not contained in those documents, and
such information as so presented in the Registration Statement would
not have been misleading but for the different manner of presentation
in the Registration Statement.
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(c) Each of Parent 1 and Parent 2 shall jointly and severally indemnify
Forest against and hold it harmless from (i) any Loss suffered with
respect to Taxes as a result of any Intercompany Transaction to the
extent such Taxes exceed Taxes due pursuant to the Tax Returns and
(ii) any Loss suffered arising out of any direct or indirect claim
made by any shareholder of ATCOR (other than Forest) in respect of any
Intercompany Transaction.
(d) Forest shall indemnify each of ATCOR, Parent 1 and Parent 2 and each
of their "CONTROLLING PERSONS" (within the meaning of Section 20 of
the EXCHANGE ACT) from time to time, and their respective
shareholders, directors, officers, employees, agents and affiliates,
against, and hold each of those persons harmless from, any and all
losses in any way relating to or allegedly arising out of any untrue
statement of a material fact contained in the Registration Statement
(other than information relating to ATCOR), other notification, or any
materials filed by Forest with the Securities and Exchange Commission
or distributed or otherwise disseminated to the public (or any
amendment or supplement thereto), relating to the Offering or any
failure to state a material fact (other than information relating to
ATCOR) required to make any statement contained therein not misleading
in light of the circumstances under which it was made. Forest shall
have no obligation to ATCOR and the Principal Shareholders or any
other person under this paragraph (d) with respect to any of the
foregoing arising primarily out of the gross negligence or wilful
misconduct of any of ATCOR and the Principal Shareholders or the other
Indemnified Person, as the case may be, as determined by a final
judgment of a court of competent jurisdiction.
(e) Forest shall indemnify each of ATCOR and the Principal Shareholders
against and hold them harmless from any and all losses in any way
relating to or allegedly arising out of any breach of the
representations, warranties, covenants or agreements of Forest
contained in this Agreement, whether or not the Amalgamation is
concluded or the obligations of the parties under this Agreement are
terminated.
(f) If any Action indemnifiable under this Section shall be brought,
asserted or threatened against any person, the Indemnified Person
shall promptly notify the Indemnifying Persons. A failure to notify
an Indemnifying Person timely or at all shall reduce the liabilities
and obligations of the Indemnifying Person under this Section only to
the extent the Indemnifying Person is actually prejudiced by such
failure. The Indemnifying Persons shall be entitled to assume the
defense of the Action, including the employment of counsel
satisfactory to the Indemnified Person and the payment of all related
fees and expenses, but the Indemnified Person may employ separate
counsel in the Action and participate in the defense of the Action at
its own expense. However, the Indemnified Person may by written
notice to the Indemnifying Person assume the defense of the Action,
including the employment of counsel, at the expense of the
Indemnifying Person (except that the Indemnifying Person shall not be
liable for the fees and expenses of more than one such separate
counsel with respect to the Action) if:
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(i) without a delay that shall be prejudicial to the interests of the
Indemnified Person, the Indemnifying Person fails to:
(A) acknowledge in writing to the Indemnified Person the
liability of the Indemnifying Person to the Indemnified Person
under this Section with respect to the Action, (B) assume the
defense, (C) post an indemnity or similar bond (in form and
substance satisfactory to the Indemnified Person) in an amount
equal to the full amount for which the Indemnified Person may be
liable as a result of the Action (including penalties and
interest) or provide other evidence satisfactory to the
Indemnified Person of the ability of the Indemnifying Person to
pay that amount in full or (D) employ counsel reasonably
satisfactory to the Indemnified Person;
(ii) the persons against whom the Action shall have been brought,
asserted or threatened (including any impleaded parties) include
both the Indemnified Person and the Indemnifying Person and the
Indemnified Person is advised by counsel that there may be one or
more legal defenses available to the Indemnified Person that are
different from or additional to those available to the
Indemnifying Person; or
(iii) the Indemnified Person reasonably believes that the Action
or an unfavourable resolution of the Action may materially
and adversely affect the business, properties, operations,
prospects or condition (financial or otherwise) of the
Indemnified Person and its affiliates other than as a result
of the payment of money damages.
If the Indemnified Person has assumed the defense of the Action
pursuant to any of the conditions stated above, then the Indemnifying
Person shall not have the right to assume the defense of the Action on
behalf of the Indemnified Person and the Indemnified Person shall have
the right to control the defense, compromise or settlement of any
indemnifiable Action on behalf of and for the account and risk of the
Indemnifying Person. The Indemnifying Person shall be bound by the
result of the defense of any Action, whether the defense shall have
been assumed by the Indemnifying Person or by the Indemnified Person,
and shall indemnify the Indemnified Person against, and hold the
Indemnified Person harmless from, all Losses in any way relating to or
allegedly arising in connection with the matter or matters that shall
be the basis of the Action or otherwise connected to the Action,
except that the Indemnifying Person shall not be liable for the
payment of the amount of money damages provided in a settlement of an
indemnifiable Action defended by the Indemnified Person pursuant to
the second or third conditions stated above that shall have been
effected without the written consent of the Indemnifying Person, which
consent shall not be unreasonably withheld.
(g) Notwithstanding anything in this Section to the contrary, if, in
connection with an Action indemnifiable under this Section, a
Governmental Body or other person having authority or jurisdiction
over a matter or matters related to the Action shall
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have rendered, entered or granted a binding judgment, decision,
ruling, order or award with respect to the matter or matters
providing for the payment of money damages or the claimant and the
Indemnifying Person shall have agreed to settle the Action for an
amount of money damages without reservation of any rights or
defenses against the Indemnified Person, and if the Indemnified
Person elects to appeal the judgment, decision, ruling, order or
award or declines to agree to the proposed settlement, as the case
may be, then the Indemnified Person may continue to defend the
Action, free of any participation by the Indemnifying Person, but
the amount of any ultimate liability of the Indemnifying Person
under this Section with respect to Losses related to or allegedly
arising in connection with the matter or matters that shall have
been comprehended by the judgment, decision, ruling, order or award
or by the proposed settlement, as the case may be, shall then be
limited to the amount of the judgment, decision, ruling, order or
award or the amount of the proposed settlement, as the case may be,
plus the other indemnified Losses of the Indemnified Person relating
to the matter or matters through the date of its election to appeal or
its rejection of the proposed settlement, as the case may be.
(h) If the indemnification provided for in paragraph (b) or (d) hereof is
unavailable to an Indemnified Person (other than by reason of
exceptions provided in this Section), or is insufficient to hold
harmless an Indemnified Person in respect of any Loss then the
Indemnifying Person, in lieu of indemnifying the Indemnified Person,
shall contribute to the amount paid or payable by the Indemnified
Person as a result of the Loss in the proportion that is appropriate
to reflect the relative fault of the Indemnifying Person on the one
part and of the Indemnified Person on the other part in connection
with the events or circumstances which resulted in the Loss as well as
any other relevant equitable considerations. The relative fault of
the Indemnifying Person on the one part and of the Indemnified Person
on the other part shall be determined by reference to, among other
things, those persons' relative intent, knowledge, access to
information and opportunity to correct or prevent the events or
circumstances resulting in the Loss. The amount of any Loss suffered,
incurred or paid any person shall be deemed to include all expenses
incurred or paid by the person in connection with investigating or
defending any Action, including, but not limited to, the fees and
expenses of counsel.
(i) The indemnification set forth in this Section shall be in addition to
any other obligations or liabilities of an Indemnifying Person to an
Indemnified Person at common law or otherwise. The provisions of this
Section shall not eliminate or otherwise limit the right of any
Indemnified Person or any other person to seek to recover
contribution, damages or otherwise enforce its rights against the
Indemnifying Person or any other person without regard to the
provisions of this Section. If at any time all or any part of any
indemnification payment hereunder is or must be rescinded or returned
to the person making such indemnity payment for any reason whatsoever
(including, without limitation, the insolvency, bankruptcy or
reorganization of any person) the indemnification obligations of the
person
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making such payment shall be reinstated with respect to such payment
so rescinded or returned as though such payment had never been made
or received.
6.2 COVENANTS OF PRINCIPAL SHAREHOLDERS
Each of the Principal Shareholders covenants in favour of Forest that
it shall do, take or perform or refrain from doing, taking and performing such
actions and steps as may be necessary or advisable to ensure compliance with the
following:
(a) Prior to the Closing Date, the Principal Shareholder will not,
directly or indirectly, sell, assign, transfer or otherwise dispose of
any of the Principal Shareholder's ATCOR Shares or in the case of
Parent 1, shares of Newco, or commit to their disposal, or enter into
any negotiations with the view to such disposal, other than pursuant
to the Amalgamation or this Agreement, except as required by Forest
pursuant to Section 6.3.
(b) Prior to the Closing Date, each Principal Shareholder will vote as a
shareholder of ATCOR against any proposal, other than to approve the
Amalgamation, submitted to the shareholders of ATCOR proposing that
ATCOR directly or indirectly, do any of the things described in
Section 4.1(a).
(c) Prior to the Closing Date, each Principal Shareholder will take or do
all acts and things as may be necessary or appropriate to ensure the
successful implementation of the Amalgamation and, without limiting
the generality of the foregoing:
(i) each Principal Shareholder will exercise all voting rights
attaching to ATCOR Shares held by it in favour of approving the
Amalgamation, and contrary to any challenge to or modification of
the Amalgamation not consented to by Forest, at the ATCOR
Shareholders' Meeting;
(ii) each Principal Shareholder will not take any action which might,
directly or indirectly, interfere or be inconsistent with or
otherwise adversely affect the implementation of the Amalgamation
and will vote as a shareholder against any proposals submitted to
the shareholders of ATCOR proposing that ATCOR take any such
action;
(iii) each Principal Shareholder agrees that it will not request
any director of ATCOR to take or do any step or action which
would reasonably be expected to make the implementation of
the Amalgamation or the completion of the transactions
contemplated herein less likely;
(iv) each Principal Shareholder will cooperate with Forest and ATCOR
in obtaining such other consents, orders or approvals as are
necessary or appropriate for the completion of the Amalgamation,
the Acquisition and the
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Ancillary Transactions and provide in a timely manner all
information required in connection therewith.
(d) Parent 1 will cause Newco to be incorporated, will hold all
outstanding shares of Newco and will cause Newco to effect the
Amalgamation.
6.3 SALE OF PRINCIPAL SHAREHOLDERS' ATCOR SHARES
(a) Subject to paragraph (f), in the event a Transaction Proposal is made
prior to the ATCOR Shareholders' Meeting, each Principal Shareholder
agrees to cause ATCOR to complete the Reorganization and to tender and
not withdraw all of the ATCOR Shares held, directly or indirectly, by
such Principal Shareholder, to any offer made by Forest to all holders
of ATCOR Shares for a consideration of not less than $4.88 per share,
provided such offer is made prior to the date which is 10 days after
the date of the ATCOR Shareholders' Meeting.
(b) Subject to paragraphs (e) and (f) the Principal Shareholders agree to
tender their ATCOR Shares to any third party offer therefor made
generally to holders of Class A Shares and Class B Shares if Forest so
requires. If the Principal Shareholders shall dispose of any ATCOR
Shares as consented to or required by Forest, or in any manner
directly or indirectly, the Principal Shareholders shall pay to Forest
a fee equal to 50% of the amount by which (i) the aggregate proceeds
of such disposition exceeds (ii) the aggregate of the amount which
would be received by the Principal Shareholders pursuant to this
Agreement (adjusted for any differences in the value to the Principal
Shareholders arising from transactions collateral to such disposition,
from the Sale Transactions) and $2 million.
(c) If Forest shall acquire ATCOR Shares pursuant to the Acquisition, and
within 120 days of the Closing Date shall re-sell such shares at a
price in excess of $4.88 per share, Forest shall pay to the Principal
Shareholders an amount equal to $2 million in respect of their
expenses in connection with negotiating and entering into this
Agreement and the Ancillary Transactions and shall pay to the persons
who were holders of ATCOR Shares on the Closing Date an aggregate
amount equal to 50% of the amount by which the proceeds of sale of
such shares (after deducting such $2 million) exceeds $4.88 per
share. For greater certainty, this obligation shall not arise upon
(i) a transaction in which ATCOR merges with Saxon or with any entity
controlled by Forest; or (ii) a transaction in which ATCOR merges with
any entity and the resulting entity is controlled directly or
indirectly controlled by Forest; (iii) a sale, merger or joint venture
of the Subsidiary carrying on the Marketing Business; (iv) a public
offering of ATCOR Shares.
(d) If within 120 days after acquiring the ATCOR Shares pursuant to
paragraph (a), Forest shall offer to acquire ATCOR Shares held by
other shareholders, at a higher price, Forest shall pay, to those
persons who sold ATCOR Shares pursuant to the
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Offer described in paragraph (a), the excess of the higher price
over the price paid to such selling shareholders;
(e) Paragraph (b) shall cease to apply after termination of this Agreement
pursuant to its terms by ATCOR or a Principal Shareholder as a result
of failure of Forest to complete the Offering (other than any such
failure following the announcement of a Transaction Proposal prior to
termination of this Agreement) except with respect to a sale within
120 days after (i) the announcement of a Transaction Proposal prior to
termination of this Agreement; or (ii) the board of directors of ATCOR
withdrawing the Recommendation.
(f) If Forest shall desire to make an offer to acquire ATCOR Shares
pursuant to paragraph (a) or shall require the Principal Shareholders
to tender their ATCOR Shares pursuant to paragraph (b), the Principal
Shareholders and Forest will co-operate with each other and with any
bidder to whom Forest desires the Principal Shareholders to tender the
Principal Shareholder's ATCOR Shares to achieve substantially the same
income tax consequences to the Principal Shareholders as the
Acquisition. If such result is not possible, the Principal
Shareholders shall not be required by paragraphs (a) or (b) to sell
their ATCOR Shares.
6.4 PUBLIC OFFERING
Within 10 days after the execution and delivery of this Agreement,
Forest shall file a registration statement with the Securities and Exchange
Commission in contemplation of a public offering of its capital stock. Forest
will use commercially reasonable best business efforts to cause the registration
statement to become effective and to sell the registered shares in a public
offering as contemplated herein not later than February 14, 1996. ATCOR will
cooperate with Forest in the preparation of the registration statement and will
furnish or make available all information, including financial information and
reserve reports, with respect to ATCOR and its properties which Forest
reasonably requests for inclusion therein in order to comply with applicable
Regulations.
6.5 NON-COMPETITION
(a) Each of Parent 1 and Parent 2 covenants with Forest and ATCOR that for
a period of 3 years following Closing (the "Restricted Period"),
neither Parent 1 nor Parent 2 nor any of their respective affiliates
shall in any way, directly or indirectly:
(i) interfere in or with the employment or engagement of any of the
Marketing Employees within the Marketing Business;
(ii) attempt to induce any of the Marketing Employees to terminate his
or her respective employment or engagement within the Marketing
Business;
(iii) attempt to induce any of the Marketing Employees to breach
the terms or conditions of his or her respective employment
or engagement contract
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including, without limitation, any breach related to the
disclosure or misuse of confidential or otherwise
proprietary information; or
(iv) employ or engage or seek to employ or engage any of the Marketing
Employees directly or indirectly in any business carried on by
Parent 1, Parent 2 or any of their respective Affiliates,
regardless of whether such Marketing Employees continue to be
employed within the Marketing Business;
(v) utilize in any manner any of the Trade Secrets of ATCOR.
(b) Forest covenants with Parent 1, Parent 2 and Parent 3 that for the
Restricted Period, neither Forest nor any of its affiliates shall in
any way, directly or indirectly utilize in any manner any of the Trade
Secrets of Parent 2.
(c) The Restricted Period shall be extended by the length of any period
during which any of the Principal Shareholders or their Subsidiaries
or Forest is in breach of the terms of this Section 6.5 and shall be
reduced by such period as may be required so that the covenants in
this section 6.5 are enforceable.
(d) Each of the Principal Shareholders and Forest acknowledges that the
covenants set forth in this Section 6.5 are an essential element of
this Agreement and that, but for the agreement of each of the
Principal Shareholders and Forest to comply with these covenants,
Forest and the Principal Shareholders would not have entered into this
Agreement. Each of the Principal Shareholders and Forest acknowledges
that this Section 6.5 constitutes an independent covenant and shall
not be affected by performance or nonperformance of any other
provision of this Agreement by Forest and the Principal Shareholders.
Each of the Principal Shareholders and Forest has independently
consulted with its counsel and after such consultation agrees that the
covenants set forth in this Section 6.5 are reasonable and proper.
(e) If any part of this Section 6.5 is unenforceable at law or in equity,
then the covenants and agreements set forth in this Section shall be
reduced in scope or amended, as to term, geographical area or
otherwise, to the extent required so that such agreements and
covenants, as so reduced or amended, are enforceable at law and in
equity and the unenforceable part shall be deemed to be severed from
the balance of the provisions of this Section which remaining
provisions shall survive and be of full force and effect.
6.6 EXPENSES
Parent 1 and Parent 2 jointly and severally agree that, if the
Acquisition is completed, they shall reimburse ATCOR for any amount by which
Transaction Expenses exceed $1 million.
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6.7 NAME
Forest agrees that, if the Acquisition is completed, it shall within
90 days after the Closing Date, cause ATCOR and its Subsidiaries to change their
name to a name which does not include the word "ATCOR" or "ATCO".
ARTICLE 7
AMENDMENT AND TERMINATION
7.1 AMENDMENT
This Agreement may at any time and from time to time, before or after
the holding of the ATCOR Shareholders' Meeting but not later than the Closing
Date, be amended by written agreement of the parties hereto without, subject to
applicable law, further notice to or authorization on the part of their
respective shareholders and any such amendment may, without limitation:
(a) change the time for performance of any of the obligations or acts of
the parties hereto;
(b) waive any inaccuracies or modify any representation or warranty
contained herein or in any document delivered pursuant hereto; or
(c) waive compliance with or modify any of the conditions precedent
contained herein.
7.2 TERMINATION
This Agreement may be terminated
(a) at any time prior to the Closing Date by mutual agreement of the
parties hereto, without further action on the part of the shareholders
of ATCOR;
(b) by ATCOR, Parent 1, Parent 2 or Parent 3 or Forest by notice to the
others if the Closing has not occurred by February 14, 1996, or such
other date as may be agreed to by the parties hereto in writing;
(c) by ATCOR, Parent 1, Parent 2 or Parent 3 by notice to Forest in the
event of a breach of this Agreement by Forest, provided, however, that
if such breach is with respect to any representation or warranty set
forth in Section 3.2(f) or any covenant set forth in Section 4.2, this
Agreement may not be terminated by ATCOR, Parent 1 or Parent 2 if
within five business days after receipt by Forest of written notice of
such breach (x) Forest delivers assurances satisfactory to ATCOR,
Parent 1 and Parent 2 with respect to the Offering, (y) the condition
set forth in Section 5.2(c) has been satisfied, or (z) Forest deposits
$185,966,805.80 with the Escrow Agent;
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(d) subject to Section 5.4, by Forest by notice to ATCOR in the event
of a breach of this Agreement by any of ATCOR, Parent 1, Parent 2 or
Parent 3.
7.3 EFFECT OF TERMINATION
If this Agreement is validly terminated pursuant to any provision of
this Agreement the parties shall return all materials and copies of all
materials delivered to ATCOR or Forest, as the case may be, or their agents and
except for any liability arising or which may arise as a result of any breach by
either party of its obligations hereunder prior to such termination no party
shall have any further obligation to the other party hereunder with respect to
this Agreement. Sections 6.1, 8.5 and this Section shall survive any
termination of this Agreement and continue in full force and effect.
ARTICLE 8
GENERAL
8.1 NOTICES
All notices which may or are required to be given pursuant to any
provision of this Agreement shall be given or made in writing and shall be
served personally or sent by telecopy and in the case of:
(a) ATCOR, addressed to:
ATCOR Resources Ltd.
600, 800 - 6th Avenue S.W.
Calgary, Alberta
T2P 3G3
Attention: Art C. Eastly
Telecopier: (403) 261-7665
(b) Forest, addressed to:
Forest Oil Corporation
1600 Broadway
Suite 2200
Denver, Colorado 80202
Attention: V. Bruce Thompson
Telecopier: (303) 812-1602
<PAGE>
- 44 -
(c) ATCO Ltd.:
1600, 909 - 11th Avenue S.W.
Calgary, Alberta
T2R 1N6
Attention: James A. Campbell
Telecopier: (403) 292-7532
(d) Canadian Utilities Limited:
10035 - 105 Street
Edmonton, Alberta
T5J 2V6
Attention: Cameron S. Richardson
Telecopier: (403) 420-7400
(e) CanUtilities Holdings Ltd.:
1600, 909 - 11th Avenue S.W.
Calgary, Alberta
T2R 1N6
Attention: Cameron S. Richardson
Telecopier: (403) 292-7507
or such other address or telecopier number as the parties may, from time to
time, advise the other parties hereto by notice in writing. The date of receipt
of any such notice shall be deemed to be the date of delivery thereof or, in the
case of notice sent by telecopy, the date of successful transmission thereof
(unless transmission is received after normal business hours, in which case the
date of receipt shall be deemed to be the next business day).
8.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The representations and warranties contained herein shall,
notwithstanding any investigation by any party, survive the execution of this
Agreement, provided that the liability of a party hereunder for a breach of any
of the representations and warranties contained herein shall terminate one year
after the Closing Date unless prior to such termination date written notice of a
claim for breach of any representation or warranty shall have been given by the
party alleging the breach (which notice must specify the claim made) to the
party alleged to have committed the breach.
8.3 BINDING EFFECT AND ASSIGNMENT
This Agreement shall be binding upon and shall enure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
Neither this Agreement nor any rights
<PAGE>
- 45 -
hereunder or under the Amalgamation may be assigned by any party without the
prior written consent of the other parties.
8.4 PUBLIC DISCLOSURE
The parties agree to consult with each other before making any public
disclosure or announcement of or pertaining to this Agreement and that any such
disclosure or announcement shall be mutually satisfactory to all parties;
provided, however, that this Section 8.4 shall not apply in the event any party
hereto is advised by its counsel that certain disclosures or announcements,
which the other parties after reasonable notice will not consent to, are
required to be made by applicable laws, stock exchange rules or policies of
regulatory authorities having jurisdiction.
8.5 EXPENSES
Subject to Section 6.6, each party shall pay its own costs incurred in
connection with the Acquisition and shall not be responsible for any costs,
expenses or fees incurred or paid by the other parties.
8.6 BEST INTERESTS
Notwithstanding the provisions of Section 6.4, it is expressly agreed
and understood that Forest shall not be obliged to complete an Offering which is
deemed imprudent, inadvisable and against Forest's best interests in all the
circumstances by the underwriters under the Offering.
8.7 TIME OF ESSENCE
Time shall be of the essence of this Agreement.
8.8 COUNTERPARTS
This Agreement may be executed in counterparts, each of which shall be
deemed an original, and all of which together shall constitute one and the same
instrument. Each party that signs a counterpart shall provide an original of
that counterpart to the other parties hereto.
<PAGE>
8.8 FURTHER ASSURANCES
Each of the parties shall make, do and execute, or cause to be made,
done and executed all such further acts, deeds, agreements, transfers,
assurances, instruments or documents as may reasonably be required in order to
implement this Agreement and the Acquisition.
IN WITNESS WHEREOF the parties have executed this Agreement as of the
date first above written.
FOREST OIL CORPORATION ATCOR RESOURCES LTD.
by: /s/ William L. Dorn by: /s/ Arthur C. Eastly
-------------------------- --------------------------
by: /s/ Robert S. Boswell by: /s/ Ronald E. Pratt
-------------------------- --------------------------
ATCO LTD. CANADIAN UTILITIES LIMITED
By: /s/ James A. Campbell by: /s/ James A. Campbell
-------------------------- --------------------------
by: /s/ William L. Britton by: /s/ William L. Britton
-------------------------- --------------------------
CANUTILITIES HOLDINGS LTD.
by: /s/ William L. Britton
--------------------------
by: /s/ Karen M. Watson
--------------------------
<PAGE>
SCHEDULE A
AMALGAMATION AGREEMENT
This Amalgamation Agreement made as of the 15th day of December, 1995.
BETWEEN:
ATCOR RESOURCES LTD., a corporation subject to the CANADA
BUSINESS CORPORATIONS ACT (hereinafter referred to as
"ATCOR")
OF THE FIRST PART
- and -
3140334 CANADA LTD., a corporation subject to the CANADA
BUSINESS CORPORATIONS ACT (hereinafter referred to as
"Newco")
OF THE SECOND PART
WHEREAS ATCOR is a publicly traded corporation, the shares of which
are listed on The Toronto Stock Exchange;
AND WHEREAS the parties intend to effect an amalgamation of ATCOR and
Newco;
AND WHEREAS the parties intend to propose such amalgamation and
related transactions to their shareholders pursuant to and in accordance with
the CANADA BUSINESS CORPORATIONS ACT and in accordance with the terms
hereinafter set forth;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
premises and the respective covenants and agreements herein contained, the
parties hereto covenant and agree as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Agreement, including the recitals, unless there is something
in the subject matter or context inconsistent therewith, the following terms
shall have the following meanings:
(a) "ACQUISITION AGREEMENT" means the agreement dated December 12, 1995
among Forest Oil Corporation, ATCOR, ATCO Ltd, Canadian Utilities
Limited, and CanUtilities Holdings Ltd. to which this Agreement forms
Schedule A;
(b) "ACT" means the CANADA BUSINESS CORPORATIONS ACT, as amended;
(c) "AGREEMENT" means this Amalgamation Agreement;
(d) "AMALCO" means the continuing corporation constituted upon the
Amalgamation;
(e) "AMALGAMATING CORPORATIONS" means Newco and ATCOR;
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<PAGE>
(f) "AMALGAMATION" means the amalgamation of ATCOR and Newco contemplated
by this Agreement;
(g) "ARTICLES OF AMALGAMATION" means the Articles of Amalgamation set out
in Schedule A hereto;
(h) "ATCOR CLASS A SHARES" means the issued Class A non-voting shares of
ATCOR;
(i) "ATCOR CLASS B SHARES" means the issued Class B common shares of
ATCOR;
(j) "ATCOR SHAREHOLDERS' MEETING" means the special meeting of holders of
ATCOR Shares to be held to consider and, if thought fit, approve the
Amalgamation;
(k) "EFFECTIVE DATE" means the date shown on the Certificate of
Amalgamation giving effect to the Amalgamation;
(l) "NEWCO SHARES" means the issued common shares of Newco;
(m) "SUBSIDIARY" means a subsidiary as defined in the SECURITIES ACT
(Alberta);
(n) "TRANSMITTAL AND ELECTION FORM" means the Transmittal and Election
Form forwarded to holders of ATCOR shares in connection with the ATCOR
Shareholders' Meeting.
1.2 HEADINGS
The division of this Agreement into Articles, Sections, paragraphs and
other subdivisions, the insertion of headings and the provision of a table of
contents are for convenience of reference only and shall not affect the
construction or interpretation hereof.
1.3 INTERPRETATION
In this Agreement, except where otherwise specified:
(a) the terms "this Agreement", "hereof", "herein", "hereunder" and
similar expressions refer, unless otherwise specified, to this
Agreement taken as a whole and not to any particular section,
paragraph or clause;
(b) words importing the singular number or masculine gender shall include
the plural number or the feminine or neuter genders, and vice versa;
(c) all references to Articles and Schedules refer, unless otherwise
specified, to articles of and schedules to this Agreement;
(d) all references to Sections refer, unless otherwise specified, to
sections, paragraphs or clauses of this Agreement and references to
paragraphs or clauses refer to paragraphs in the same section as the
reference or clauses in the same paragraph as the reference; and
(e) words and terms denoting inclusiveness (such as "include" or
"includes" or "including"), whether or not so stated, are not limited
by and do not imply limitation of, their context or the words or
phrases which precede or succeed them.
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<PAGE>
1.4 GOVERNING LAW AND JURISDICTION
This Agreement and, unless otherwise specified therein, all other
documents and instruments delivered in accordance with this Agreement shall be
governed by and interpreted in accordance with the laws of the Province of
Alberta. The parties irrevocably submit to the non-exclusive jurisdiction of
the courts of the Province of Alberta, without prejudice to the rights of the
parties to take proceedings in any other jurisdictions.
1.5 INVALIDITY, ETC.
Any provision hereof which is prohibited or unenforceable shall be
ineffective only to the extent of such prohibition or unenforceability, without
invalidating the remaining provisions hereof.
1.6 DATE FOR ANY ACTION
In the event that any date on which any action is required to be taken
hereunder by any of the parties hereto is not a business day in the place where
the action is required to be taken, such action shall be required to be taken on
the next succeeding day which is a business day in such place.
1.7 CURRENCY
Unless otherwise stated, all references in this Agreement to sums of
money are expressed in lawful money of Canada.
1.8 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties
pertaining to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or written, between
the parties with respect to the subject matter hereof.
1.9 SCHEDULES
The following Schedule forms part of this Agreement:
Schedule A - Articles of Amalgamation
ARTICLE 2
THE AMALGAMATION
2.1 AGREEMENT TO AMALGAMATE
ATCOR and Newco agree to amalgamate pursuant to the Act in accordance
with the terms of this Agreement.
2.2 EFFECT OF AMALGAMATION
On the Effective Date:
(a) ATCOR and Newco shall be amalgamated under the provisions of the Act
and shall continue as one corporation;
(b) the property of each of ATCOR and Newco shall continue to be the
property of Amalco;
(c) Amalco shall continue to be liable for the obligations of each of
ATCOR and Newco; and
Page A-39
<PAGE>
(d) the Articles of Amalgamation attached hereto as Schedule A shall be
the articles of Amalco.
2.3 CERTAIN PROVISIONS APPLICABLE TO AMALCO
(a) The name of Amalco shall be "ATCOR Resources Ltd.".
(b) The registered office of Amalco shall be located at the City of
Calgary, in the Province of Alberta.
(c) The authorized share capital of Amalco shall consist of an unlimited
number of common shares (herein the "Common Shares") and an unlimited
number of Class A Special Shares, Class B Special Shares and Class C
Special Shares, the rights, privileges, restrictions and conditions of
which are set forth in Exhibit A to the Articles of Amalgamation.
(d) There shall be no restrictions upon the right to transfer any shares
of Amalco.
(e) The minimum number of directors in Amalco shall be one and the maximum
number of directors shall be ten.
(f) There shall be no restriction on the business which Amalco may carry
on.
(g) The first directors of Amalco shall be the persons whose names and
addresses are set out below, who shall hold office until the first
annual meeting of Amalco, or until their successors are elected or
appointed:
A. C. Eastly, 600, 800 - 6th Avenue S.W., Calgary, Alberta;
W. L. Britton, 600, 800 - 6th Avenue S.W., Calgary, Alberta; and
C. S. Richardson, 600, 800 - 6th Avenue S.W., Calgary, Alberta.
The subsequent directors shall be elected each year thereafter at the
annual meeting of the shareholders of Amalco.
(h) The by-laws of Amalco shall be the by-laws of Newco until repealed,
amended, altered or added to.
2.4 CONVERSION OF SHARE CAPITAL
On the Effective Date, the authorized share capital of Amalco shall be as
set forth in the Articles of Amalgamation. The issued and outstanding shares in
the capital of each of the Amalgamating Corporations (other than any shares of
ATCOR held by a shareholder who is a dissenting shareholder under the Act at the
Effective Date) shall be converted into issued and outstanding Common Shares,
Class A Special Shares, Class B Special Shares or Class C Special Shares of
Amalco on the Effective Date as follows:
(a) each Newco Share shall be converted into one Common Share of Amalco;
(b) subject to (d) hereof, each ATCOR Class A Share shall be converted
into one Class A Special Share of Amalco;
(c) subject to (d) hereof, each ATCOR Class B Share shall be converted
into one Class A Special Share of Amalco; and
(d) where a holder of ATCOR Class A Shares or ATCOR Class B Shares
provides a written request to ATCOR in the Transmittal and Election
Form, such ATCOR Class A Shares or ATCOR Class B Shares, as the case
may be, of such holder as are designated in such written request shall
be converted into Class B Special Shares or Class C Special Shares of
Amalco in the ratio of one
Page A-40
<PAGE>
Class B Special Share or Class C Special
Share for each ATCOR Class A Share or ATCOR Class B Share so
converted.
2.5 STATED CAPITAL
Upon the Amalgamation, Amalco shall add the following amounts to the stated
capital accounts of Amalco in respect of the Common Shares, the Class A Special
Shares, Class B Special Shares and Class C Special Shares:
(a) in respect of the Common Shares an amount equal to $1.00 (one dollar);
(b) in respect of the Class A Special Shares an amount equal to $2.65
multiplied by the number of Class A Special Shares issued on the
Effective Date;
(c) in respect of the Class B Special Shares an amount equal to $1.40
multiplied by the number of Class B Special Shares issued on the
Effective Date and
(d) in respect of the Class C Special Shares an amount equal to the lesser
of: (i) $2.15 multiplied by the number of Class C Special Shares
issued on the Effective Date and (ii) the amount by which the
aggregate of the paid-up capital of the ATCOR Class A Shares and the
ATCOR Class B Shares for the purposes of the INCOME TAX ACT (Canada)
immediately prior to the Amalgamation exceeds the aggregate of the
amounts which will be added to the stated capital of the Class A
Special Shares and the Class B Special Shares pursuant to (b) and (c)
of this Section 2.5.
ARTICLE 3
CONDITIONS
3.1 The respective obligations of the parties hereto to complete the
transactions contemplated by this Agreement and to file Articles of Amalgamation
shall be subject to satisfaction, on or before the Effective Date, of the
following conditions:
(a) the Amalgamation and this Agreement, with or without amendment, shall
have been approved at the ATCOR Shareholders' Meeting, or any
adjournment thereof, in accordance with the Act and shall have
otherwise been approved by the requisite majority of persons entitled
or required to vote thereon as determined by the Act;
(b) there shall not be in force any order or decree restraining or
enjoining the consummation of the transactions contemplated by this
Agreement;
(c) the Acquisition Agreement shall not have been terminated pursuant to
Article 7 of the Acquisition Agreement.
3.2 MERGER OF CONDITIONS
The conditions set out in Section 3.1 shall be conclusively deemed to
have been satisfied, waived or released on the filing of Articles of
Amalgamation under the Act.
Page A-41
<PAGE>
ARTICLE 4
AMENDMENT AND TERMINATION
4.1 AMENDMENT
This Agreement may, at any time and from time to time before or after
the holding of the ATCOR Shareholders' Meeting but not later than the Effective
Date, be amended by written agreement of the parties hereto without further
notice to or authorization on the part of the holders of ATCOR shares or Newco
shares. Without limiting the generality of the foregoing, any such amendment
may:
(a) change the time for performance of any of the obligations or acts of
the parties hereto;
(b) waive any inaccuracies or modify any of the covenants contained herein
or in any document to be delivered pursuant hereto; or
(c) waive compliance with or modify any of the covenants herein contained
or waive or modify performance of any of the obligations of the
parties hereto;
provided that, notwithstanding the foregoing, the consideration to be received
by holders of ATCOR shares shall not be decreased without the approval of the
holders of ATCOR shares given in the same manner as required for the approval of
the Amalgamation.
4.2 TERMINATION
This Agreement may, at any time before or after the holding of the
ATCOR Shareholders' Meeting but prior to the Effective Date, be terminated by
agreement of the parties without further action on the part of the holders of
ATCOR shares or Newco shares.
ARTICLE 5
GENERAL
5.1 ASSIGNMENT
No party may assign its rights or obligations under this Agreement or
the Amalgamation without the prior written consent of the other parties hereto.
5.2 BINDING EFFECT
This Agreement shall be binding upon and shall enure to the benefit of
the parties hereto and their respective successors and permitted assigns.
5.3 WAIVER
Any waiver or release of any of the provisions of this Agreement, to
be effective, must be in writing executed by the parties granting the same.
Waivers may only be granted upon compliance with the terms governing amendments
set forth in Section 7.1 of the Acquisition Agreement, mutatis mutandis.
Page A-42
<PAGE>
5.4 COUNTERPARTS
This Agreement may be executed in one or more counterparts each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the date first above written.
ATCOR RESOURCES LTD.
By: "Arthur C. Eastly"
By: "Ronald E. Pratt"
3140334 CANADA LTD.
By: "Cameron S. Richardson"
By: "Arthur C. Eastly"
Page A-43
<PAGE>
SCHEDULE A
ARTICLES OF AMALGAMATION
NAME OF CORPORATION: ATCOR Resources Ltd.
CORPORATE ACCESS NO.:
THE CLASSES AND ANY MAXIMUM NUMBER OF SHARES THAT THE CORPORATION IS
AUTHORIZED TO ISSUE:
The attached Exhibit A is incorporated into and forms part of this form.
RESTRICTIONS IF ANY ON SHARE TRANSFERS:
None.
NUMBER (OR MINIMUM AND MAXIMUM NUMBER) OF DIRECTORS:
The Corporation shall have a minimum of one and a maximum of ten directors,
with the number of directors within such range to be set from time to time
by ordinary resolution of the shareholders, or in the absence of such
resolution by resolution of the directors.
RESTRICTIONS IF ANY ON BUSINESS THE CORPORATION MAY CARRY ON:
There shall be no restrictions as to the business which the Corporation may
carry on.
OTHER PROVISIONS IF ANY:
Subject to the CANADA BUSINESS CORPORATIONS ACT, the directors may, between
annual general meetings of shareholders, appoint one or more additional
directors of the corporation to serve until the next annual general meeting
of shareholders.
NAME OF AMALGAMATING CORPORATIONS CORPORATE ACCESS NO.
ATCOR Resources Ltd. 266455-1
3140334 Canada Ltd. 314033-4
Page A-44
<PAGE>
EXHIBIT A
TO THE
ARTICLES OF AMALGAMATION
OF ATCOR RESOURCES LTD.
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS AND INTERPRETATIONS: In these provisions, unless the context
otherwise requires, the following words and expressions shall have the meanings
set forth below:
"ACT" means the CANADA BUSINESS CORPORATIONS ACT and the regulations
thereunder;
"ACQUISITION" means the acquisition by way of purchase of all of the issued
and outstanding Common Shares by any Person following the Amalgamation;
"AMALGAMATION" means the amalgamation of ATCOR Resources Ltd. and 3140334
Canada Ltd. to form the Corporation;
"ATCOR SHARES" means the Class A non-voting shares and Class B common
shares of ATCOR Resources Ltd.;
"BUSINESS DAY" means any day other than a Saturday, Sunday or banking
holiday in Calgary, Alberta;
"CLASS A SPECIAL SHARES" means the Class A Special Shares that the
Corporation is authorized to issue;
"CLASS B SPECIAL SHARES" means the Class B Special Shares that the
Corporation is authorized to issue;
"CLASS C SPECIAL SHARES" means the Class C Special Shares that the
Corporation is authorized to issue;
"COMMON SHARES" means the common shares that the Corporation is authorized
to issue;
"DIRECTORS" means, at any particular time, the directors of the Corporation
at such time;
"DISSENTING SHAREHOLDER" means a registered holder of issued and
outstanding shares of ATCOR Resources Ltd. who has exercised his right to
dissent in compliance with Section 190 of the Act;
"PERSON" shall be broadly interpreted and includes an individual, body
corporate, sole proprietorship, partnership, unincorporated association,
unincorporated organization, association, organization, syndicate, joint
venture, trust, trustee, the Crown, any government or any ministry, agency,
department, board, commission, branch, office or tribunal of any government
howsoever designated or constituted or any other entity recognized by law;
"REDEMPTION PRICE" means, with respect to each Class A Special Share, Class
B Special Share or Class C Special Share, $4.88 (CDN);
"REMAINING PROPERTY" means the property and assets of the Corporation
available for distribution to the shareholders of the Corporation on a
liquidation, dissolution or winding-up of the Corporation, whether
voluntary or involuntary, or any other distribution of the property and
assets of the Corporation among its shareholders for the purpose of winding
up its affairs; and
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<PAGE>
"TRANSMITTAL AND ELECTION FORM" means the transmittal and election form
sent to a holder of ATCOR Shares in connection with the Amalgamation, duly
completed and executed in accordance with the instructions set forth
therein.
1.2 REFERENCES: All references in these provisions to subsections, paragraphs
and subparagraphs, unless otherwise specified, are to subsections, paragraphs
and subparagraphs of these provisions.
1.3 STATUTORY REFERENCES: Unless otherwise stated, any reference in these
provisions to any act or statute or section thereof shall be deemed to be a
reference to such act or statute or section, as amended, re-enacted or replaced
from time to time.
1.4 HEADINGS: The division of these provisions into sections, subsections,
paragraphs, subparagraphs and clauses and the insertion of headings are for
convenience of reference only and shall not affect the construction or
interpretation of these provisions.
1.5 NUMBER AND GENDER: Words importing the singular shall include the plural
and vice-versa and words importing gender shall include all genders, unless the
context otherwise requires.
1.6 CURRENCY: In these provisions, all dollar amounts are stated in Canadian
currency.
1.7 HOLDER: For the purpose of these provisions, unless otherwise provided
herein, any reference to a holder of shares of the Corporation shall be a
reference to the registered owner of such share at the relevant time.
1.8 NOTICE: Any notice, share certificate, cheque, bank draft or other
document required or permitted to be given, deposited or delivered by the
Corporation to or with any holder of shares of the Corporation pursuant to these
provisions shall, except as otherwise specifically provided in these provisions,
be sent by first class mail, postage prepaid, or delivered to such holder, at
its last address shown in the books of the Corporation. Any notice or other
document given, deposited or delivered as aforesaid shall be deemed to be given,
deposited or delivered, as the case may be, on the date upon which it is mailed
or delivered.
ARTICLE 2
COMMON SHARES
The Common Shares shall have attached to them the following rights,
privileges, restrictions and conditions:
2.1 DIVIDENDS
2.1.1 DIVIDENDS: The holders of the Common Shares shall be entitled,
subject to the rights, privileges, restrictions and conditions
attaching to the Class A Special Shares, Class B Special Shares
and the Class C Special Shares to receive any dividend declared
by the Directors on the Common Shares from time to time.
2.2 LIQUIDATION, DISSOLUTION OR WINDING-UP
2.2.1 LIQUIDATION, DISSOLUTION OR WINDING-UP: In the event of a
distribution of the property and assets of the Corporation among
its shareholders in connection with the liquidation, dissolution
or winding-up of the Corporation, whether voluntary or
involuntary, or any other distribution of the property and assets
of the Corporation among its shareholders for the purpose of
winding up its affairs, the holders of the Common Shares shall be
entitled, subject to the rights, privileges, restrictions and
conditions attaching to the Class A Special Shares, Class B
Special Shares and Class C Special Shares to receive the
Remaining Property.
Page A-46
<PAGE>
2.3 VOTING RIGHTS
2.3.1 VOTING RIGHTS: Each holder of Common Shares shall be entitled to
receive notice of, and to attend, all meetings of shareholders of
the Corporation and to vote at such meetings, except meetings at
which only holders of a specified class of shares (other than
Common Shares) are entitled to vote. At all meetings at which
the holders of Common Shares are entitled to vote, each holder of
Common Shares shall be entitled to one vote in respect of each
Common Share held by such holder.
ARTICLE 3
CLASS A SPECIAL SHARES
The Class A Special Shares shall have attached to them the following
rights, privileges, restrictions and conditions:
3.1 PRIORITIES
3.1.1 DISTRIBUTIONS OF THE REMAINING PROPERTY:
(a) The Class A Special Shares shall rank prior to the Common
Shares, Class B Special Shares and Class C Special Shares
with respect to distributions of the Remaining Property; and
(b) For so long as any of the Class A Special Shares are
outstanding, the Corporation shall not make any capital
distribution in respect of, or redeem, repurchase or
otherwise acquire, any Common Shares or Class C Special
Shares.
3.1.2 DIVIDENDS: For so long as any of the Class A Special Shares are
outstanding, the Corporation shall not pay or set aside for
payment, any dividends on the Common Shares.
3.2 DIVIDENDS
3.2.1 NON-ENTITLEMENT: The holders of Class A Special Shares, as such,
shall not be entitled to receive any dividends.
3.3 LIQUIDATION, DISSOLUTION OR WINDING-UP
3.3.1 DISTRIBUTION OF REMAINING PROPERTY: In the event of a
distribution of the property and assets of the Corporation among
its shareholders in connection with the liquidation, dissolution
or winding-up of the Corporation, whether voluntary or
involuntary, or any other distribution of the property and assets
of the Corporation among its shareholders for the purpose of
winding up its affairs, a holder of Class A Special Shares shall
be entitled to receive out of the Remaining Property, before any
amount is paid or distributed to the holders of the Common
Shares, Class B Special Shares or Class C Special Shares, an
amount equal to the aggregate Redemption Price of the Class A
Special Shares held by such holder on the date of distribution.
After payment to a holder of Class A Special Shares of the
amounts payable to such holder, as such, under this paragraph
3.3.1, such holder shall not be entitled to share in any further
distribution of Remaining Property.
3.3.2 METHOD OF PAYMENT: The amount payable under paragraph 3.3.1 in
respect of any Class A Special Share held by a particular holder
may be satisfied by the delivery of a cheque of the Corporation
and the provisions of paragraph 3.5.3 shall apply MUTATIS
MUTANDIS to such payment.
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<PAGE>
3.4 REDEMPTION BY THE HOLDER
3.4.1 RIGHT/OBLIGATION TO REDEEM: The holders of Class A Special Shares
shall be entitled to require the Corporation to redeem at any
time, upon giving notice as hereinafter provided, all or any
number of the Class A Special Shares registered in the name of
such holders on the books of the Corporation. The holders of
Class A Special Shares exercising their option to have the
Corporation redeem, shall give notice to the Corporation setting
out the date on which the Corporation is to redeem the shares,
which date shall be not less than 10 days from the date of the
notice, and if the holders desire to have less than all the Class
A Special Shares registered in their names redeemed by the
Corporation, the number of the shares of the holders to be
redeemed. The date on which the redemption at the option of the
holders is to occur shall be the option redemption date. The
holders of any Class A Special Shares may, with the consent of
the Corporation, revoke such notice prior to the option
redemption date. Upon delivery to the Corporation of a share
certificate or certificates representing the Class A Special
Shares which the holders desire the Corporation to redeem (if any
such share certificates have been issued by the Corporation), the
Corporation shall on the option redemption date, to the extent
permitted by applicable law, redeem such Class A Special Shares
by paying to the holders the amount of the Redemption Price.
Upon payment of the Redemption Price of the Class A Special
Shares so redeemed by the Corporation, the holder thereof shall
not be entitled to exercise any of the rights of shareholders in
respect thereof.
3.5 REDEMPTION BY THE CORPORATION
3.5.1 RIGHT/OBLIGATION TO REDEEM: The Corporation shall, immediately
following an Acquisition, redeem all of the then outstanding
Class A Special Shares at the Redemption Price. The Corporation
shall not be required to give any notice of redemption in
connection therewith. If the redemption by the Corporation of
all of the then outstanding Class A Special Shares would be
contrary to applicable law, the Corporation shall redeem the
maximum number of Class A Special Shares (rounded to the next
lower multiple of 100 shares) which the Corporation is then
permitted to redeem, such redemption to be made on a pro rata
basis (disregarding fractions of shares) among all registered
holders of Class A Special Shares in accordance with the number
of shares held by each of them, respectively. From time to time
thereafter, as soon as permitted by applicable law, the
Corporation shall redeem the maximum number of then outstanding
Class A Special Shares as would not be contrary to applicable
law, MUTATIS MUTANDIS, in accordance with the foregoing
provisions of this subsection.
3.5.2 REDEMPTION AND PAYMENT: Upon the redemption of Class A Special
Shares, provided that a holder of any such Class A Special Shares
shall have presented and surrendered to the Corporation the
Transmittal and Election Form and the certificates representing
all ATCOR Shares held by such holder which were converted into
Class A Special Shares, the Corporation shall pay or cause to be
paid to such holder the Redemption Price for each Class A Special
Share so redeemed. Without limitation, the Corporation shall be
deemed to have paid to such holder the Redemption Price for each
Class A Special Share so redeemed when a cheque representing such
amount has been mailed to the address of such holder as it
appeared on the applicable securities register of ATCOR when the
Amalgamation became effective or as it appears in the Transmittal
and Election Form, has been delivered to such holder, or has been
set aside for pick up in accordance with the delivery
instructions in the Transmittal and Election Form. The holder of
Class A Special Shares who has not so presented and surrendered
the certificates representing all ATCOR Shares held by such
holder which were so converted shall be entitled to receive, and
the Corporation shall pay or cause to be paid to such holder, the
Redemption Price for each Class A Special Share redeemed only
upon presentation and surrender by such holder to the Corporation
at its registered office of the certificates representing all
ATCOR Shares of such holder which have been converted into Class
A Special Shares. On and after the redemption of any such Class
A Special Shares, the holder thereof shall not be entitled to
exercise any of the rights of shareholders in respect thereof,
other than the right to receive payment, without interest, of the
Redemption Price as aforesaid or as provided in subsection 3.5.3
below, unless payment of the aforesaid Redemption Price shall not
be made in accordance with the foregoing provisions or as
provided in subsection 3.5.3 below, in which case the rights of
such shareholders shall remain unaffected.
Page A-48
<PAGE>
3.5.3 RIGHT TO DEPOSIT REDEMPTION PRICE: The Corporation shall have the
right at any time in respect of a redemption of the Class A
Special Shares to deposit the Redemption Price for such of the
redeemed Class A Special Shares registered in the names of
shareholders who have not at the date of such deposit presented
and surrendered to the Corporation certificates representing all
of their ATCOR Shares which were so converted into Class A
Special Shares in a special account with a Canadian chartered
bank or trust company to be paid without interest to or to the
order of the respective holders of such Class A Special Shares
upon presentation and surrender by them respectively, to the
Corporation of their share certificates to be so presented and
surrendered and the Transmittal and Election Form. Any interest
allowed on any such deposit shall belong to the Corporation.
3.5.4 UNCLAIMED MONIES: Redemption monies that are represented by a
cheque which has not been presented to the Corporation's bankers
for payment or that otherwise remain unclaimed (including monies
held on deposit in a special account as provided for in
subsection 3.5.3 above) for a period of six years shall be
forfeited to the Corporation.
3.5.5 DISSENT: Notwithstanding anything to the contrary in the
foregoing, in the event a Dissenting Shareholder in respect of
ATCOR Shares has been paid the fair value of the ATCOR Shares
held by such Shareholder immediately prior to the Amalgamation
pursuant to Section 190 of the Act, such Dissenting Shareholder
shall have no right to receive the redemption price for the Class
A Special Shares into which such ATCOR Shares were converted
notwithstanding that the same have been redeemed, shall not be
entitled to exercise any of the rights of shareholders in respect
thereof, and the redemption monies for such Class A Special
Shares held on deposit in a special account as provided for in
subsection 3.5.3 above shall be forfeited to the Corporation.
3.5.6 REPLACEMENT SHARE CERTIFICATE: If less than all of a holder's
Class A Special Shares represented by any share certificate or
share certificates are redeemed pursuant to this subsection 3.5,
a new share certificate representing the balance of the Class A
Special Shares held by such holder shall be issued to such
holder, at the expense of the Corporation, on the later of the
applicable redemption date and the date of receipt by the
Corporation of the share certificate or share certificates
representing the shares to be redeemed.
3.6 VOTING RIGHTS
3.6.1 VOTING RIGHTS: Except as otherwise provided in the Act, the
Class A Special Shares shall be non-voting shares, and a holder
of Class A Special Shares, as such, shall not be entitled to
receive notice of, or to attend, meetings of shareholders of the
Corporation, and shall not be entitled to vote at such meetings.
ARTICLE 4
CLASS B SPECIAL SHARES
The Class B Special Shares shall have attached to them the following rights,
privileges, restrictions and conditions:
4.1 PRIORITIES
4.1.1 DISTRIBUTIONS OF THE REMAINING PROPERTY:
(a) The Class B Special Shares shall rank prior to the Common
Shares and the Class C Special Shares with respect to
distributions of the Remaining Property; and
(b) For so long as any of the Class B Special Shares are
outstanding, the Corporation shall not make any capital
distribution in respect of, or redeem, repurchase or
otherwise acquire, any Common Shares or Class C Special
Shares.
Page A-49
<PAGE>
4.1.2 DIVIDENDS: For so long as any of the Class B Special Shares are
outstanding, the Corporation shall not pay or set aside for
payment, any dividends on the Common Shares.
4.2 DIVIDENDS
4.2.1 NON-ENTITLEMENT: The holders of Class B Special Shares, as such,
shall not be entitled to receive any dividends.
4.3 LIQUIDATION, DISSOLUTION OR WINDING-UP
4.3.1 DISTRIBUTION OF REMAINING PROPERTY: In the event of a
distribution of the property and assets of the Corporation among
its shareholders in connection with the liquidation, dissolution
or winding-up of the Corporation, whether voluntary or
involuntary, or any other distribution of the property and assets
of the Corporation among its shareholders for the purpose of
winding up its affairs, a holder of Class B Special Shares shall
be entitled to receive out of the Remaining Property, before any
amount is paid or distributed to the holders of the Common Shares
or Class C Special Shares, an amount equal to the aggregate Class
B Redemption Price of the Class B Special Shares held by such
holder on the date of distribution. After payment to a holder of
Class B Special Shares of the amounts payable to such holder, as
such, under this paragraph 4.3.1, such holder shall not be
entitled to share in any further distribution of Remaining
Property.
4.3.2 METHOD OF PAYMENT: The amount payable under paragraph 4.3.1 in
respect of any Class B Special Share held by a particular holder
may be satisfied by the delivery of a cheque of the Corporation
and the provisions of paragraph 4.5.3 shall apply MUTATIS
MUTANDIS to such payment.
4.4 REDEMPTION BY THE HOLDER
4.4.1 RIGHT/OBLIGATION TO REDEEM: The holders of Class B Special Shares
shall be entitled to require the Corporation to redeem at any
time, upon giving notice as hereinafter provided, all or any
number of the Class B Special Shares registered in the name of
such holders on the books of the Corporation. The holders of
Class B Special Shares exercising their option to have the
Corporation redeem, shall give notice to the Corporation setting
out the date on which the Corporation is to redeem the shares,
which date shall be not less than 10 days from the date of the
notice, and if the holders desire to have less than all the Class
B Special Shares registered in their names redeemed by the
Corporation, the number of the shares of the holders to be
redeemed. The date on which the redemption at the option of the
holders is to occur shall be the option redemption date. The
holders of any Class B Special Shares may, with the consent of
the Corporation, revoke such notice prior to the option
redemption date. Upon delivery to the Corporation of a share
certificate or certificates representing the Class B Special
Shares which the holders desire the Corporation to redeem (if any
such share certificates have been issued by the Corporation), the
Corporation shall on the option redemption date, to the extent
permitted by applicable law, redeem such Class B Special Shares
by paying to the holders the amount of the Redemption Price.
Upon payment of the Redemption Price of the Class B Special
Shares so redeemed by the Corporation, the holder thereof shall
not be entitled to exercise any of the rights of shareholders in
respect thereof.
4.5 REDEMPTION BY THE CORPORATION
4.5.1 RIGHT/OBLIGATION TO REDEEM: The Corporation shall, immediately
following an Acquisition, redeem all of the then outstanding
Class B Special Shares at the Redemption Price. The Corporation
shall not be required to give any notice of redemption in
connection therewith. If the redemption by the Corporation of
all of the then outstanding Class B Special Shares would be
contrary to applicable law, the Corporation shall redeem the
maximum number of Class B Special Shares (rounded to the next
lower multiple of 100 shares) which the Corporation is then
permitted to redeem, such redemption to be made on a pro rata
basis (disregarding fractions of shares) among all registered
holders of Class B Special Shares in accordance
Page A-50
<PAGE>
with the number of shares held by each of them, respectively.
From time to time thereafter, as soon as permitted by applicable
law, the Corporation shall redeem the maximum number of then
outstanding Class B Special Shares as would not be contrary to
applicable law, MUTATIS MUTANDIS, in accordance with the
foregoing provisions of this subsection.
4.5.2 REDEMPTION AND PAYMENT: Upon the redemption of Class B Special
Shares, provided that a holder of any such Class B Special Shares
shall have presented and surrendered to the Corporation the
Transmittal and Election Form and the certificates representing
all ATCOR Shares held by such holder which were converted into
Class B Special Shares, the Corporation shall pay or cause to be
paid to such holder the Redemption Price for each Class B Special
Share so redeemed. Without limitation, the Corporation shall be
deemed to have paid to such holder the Redemption Price for each
Class B Special Share so redeemed when a cheque representing such
amount has been mailed to the address of such holder as it
appeared on the applicable securities register of ATCOR when the
Amalgamation became effective or as it appears in the Transmittal
and Election Form, has been delivered to such holder, or has been
set aside for pick up in accordance with the delivery
instructions in the Transmittal and Election Form. The holder of
Class B Special Shares who has not so presented and surrendered
the certificates representing all ATCOR Shares held by such
holder which were so converted shall be entitled to receive, and
the Corporation shall pay or cause to be paid to such holder, the
Redemption Price for each Class B Special Share redeemed only
upon presentation and surrender by such holder to the Corporation
at its registered office of the certificates representing all
ATCOR Shares of such holder which have been converted into Class
B Special Shares. On and after the redemption of any such Class
B Special Shares, the holder thereof shall not be entitled to
exercise any of the rights of shareholders in respect thereof,
other than the right to receive payment, without interest, of the
Redemption Price as aforesaid or as provided in subsection 4.5.3
below, unless payment of the aforesaid Redemption Price shall not
be made in accordance with the foregoing provisions or as
provided in subsection 4.5.3 below, in which case the rights of
such shareholders shall remain unaffected.
4.5.3 RIGHT TO DEPOSIT REDEMPTION PRICE: The Corporation shall have the
right at any time in respect of a redemption of the Class B
Special Shares to deposit the Redemption Price for such of the
redeemed Class B Special Shares registered in the names of
shareholders who have not at the date of such deposit presented
and surrendered to the Corporation certificates representing all
of their ATCOR Shares which were so converted into Class B
Special Shares in a special account with a Canadian chartered
bank or trust company to be paid without interest to or to the
order of the respective holders of such Class B Special Shares
upon presentation and surrender by them respectively, to the
Corporation of their share certificates to be so presented and
surrendered. Any interest allowed on any such deposit shall
belong to the Corporation.
4.5.4 UNCLAIMED MONIES: Redemption monies that are represented by a
cheque which has not been presented to the Corporation's bankers
for payment or that otherwise remain unclaimed (including monies
held on deposit in a special account as provided for in
subsection 4.5.3 above) for a period of six years shall be
forfeited to the Corporation.
4.5.5 DISSENT: Notwithstanding anything to the contrary in the
foregoing, in the event a Dissenting Shareholder in respect of
ATCOR Shares has been paid the fair value of the ATCOR Shares
held by such Shareholder immediately prior to the Amalgamation
pursuant to Section 190 of the Act, such Dissenting Shareholder
shall have no right to receive the redemption price for the Class
B Special Shares into which such ATCOR Shares were converted
notwithstanding that the same have been redeemed, shall not be
entitled to exercise any of the rights of shareholders in respect
thereof, and the redemption monies for such Class B Special
Shares held on deposit in a special account as provided for in
subsection 4.5.3 above shall be forfeited to the Corporation.
4.5.6 REPLACEMENT SHARE CERTIFICATE: If less than all of a holder's
Class B Special Shares represented by any share certificate or
share certificates are redeemed pursuant to this subsection 4.5,
a new share certificate representing the balance of the Class B
Special Shares held by such holder shall be issued to such
holder,
Page A-51
<PAGE>
at the expense of the Corporation, on the later of the
applicable redemption date and the date of receipt by the
Corporation of the share certificate or share certificates
representing the shares to be redeemed.
4.6 VOTING RIGHTS
4.6.1 VOTING RIGHTS: Except as otherwise provided in the Act, the
Class B Special Shares shall be non-voting shares, and a holder
of Class B Special Shares, as such, shall not be entitled to
receive notice of, or to attend, meetings of shareholders of the
Corporation, and shall not be entitled to vote at such meetings.
ARTICLE 5
CLASS C SPECIAL SHARES
The Class C Special Shares shall have attached to them the following rights,
privileges, restrictions and conditions:
5.1 PRIORITIES
5.1.1 DISTRIBUTIONS OF THE REMAINING PROPERTY:
(a) The Class C Special Shares shall rank prior to the Common
Shares with respect to distributions of the Remaining
Property; and
(b) For so long as any of the Class C Special Shares are
outstanding, the Corporation shall not make any capital
distribution in respect of, or redeem, repurchase or
otherwise acquire, any Common Shares.
5.1.2 DIVIDENDS: For so long as any of the Class C Special Shares are
outstanding, the Corporation shall not pay or set aside for
payment, any dividends on the Common Shares.
5.2 DIVIDENDS
5.2.1 NON-ENTITLEMENT: The holders of Class C Special Shares, as such,
shall not be entitled to receive any dividends.
5.3 LIQUIDATION, DISSOLUTION OR WINDING-UP
5.3.1 DISTRIBUTION OF REMAINING PROPERTY: In the event of a
distribution of the property and assets of the Corporation among
its shareholders in connection with the liquidation, dissolution
or winding-up of the Corporation, whether voluntary or
involuntary, or any other distribution of the property and assets
of the Corporation among its shareholders for the purpose of
winding up its affairs, a holder of Class C Special Shares shall
be entitled to receive out of the Remaining Property, before any
amount is paid or distributed to the holders of the Common
Shares, an amount equal to the aggregate Redemption Price of the
Class C Special Shares held by such holder on the date of
distribution. After payment to a holder of Class C Special
Shares of the amounts payable to such holder, as such, under this
paragraph 5.3.1, such holder shall not be entitled to share in
any further distribution of Remaining Property.
5.3.2 METHOD OF PAYMENT: The amount payable under paragraph 5.3.1 in
respect of any Class C Special Share held by a particular holder
may be satisfied by the delivery of a cheque of the Corporation
and the provisions of paragraph 5.5.3 shall apply MUTATIS
MUTANDIS to such payment.
Page A-52
<PAGE>
5.4 REDEMPTION BY THE HOLDER
5.4.1 RIGHT/OBLIGATION TO REDEEM: The holders of Class C Special Shares
shall be entitled to require the Corporation to redeem at any
time, upon giving notice as hereinafter provided, all or any
number of the Class C Special Shares registered in the name of
such holders on the books of the Corporation. The holders of
Class C Special Shares exercising their option to have the
Corporation redeem, shall give notice to the Corporation setting
out the date on which the Corporation is to redeem the shares,
which date shall be not less than 10 days from the date of the
notice, and if the holders desire to have less than all the Class
C Special Shares registered in their names redeemed by the
Corporation, the number of the shares of the holders to be
redeemed. The date on which the redemption at the option of the
holders is to occur shall be the option redemption date. The
holders of any Class C Special Shares may, with the consent of
the Corporation, revoke such notice prior to the option
redemption date. Upon delivery to the Corporation of a share
certificate or certificates representing the Class C Special
Shares which the holders desire the Corporation to redeem (if any
such share certificates have been issued by the Corporation), the
Corporation shall on the option redemption date, to the extent
permitted by applicable law, redeem such Class C Special Shares
by paying to the holders the amount of the Redemption Price.
Upon payment of the Redemption Price of the Class C Special
Shares so redeemed by the Corporation, the holder thereof shall
not be entitled to exercise any of the rights of shareholders in
respect thereof.
5.5 REDEMPTION BY THE CORPORATION
5.5.1 RIGHT/OBLIGATION TO REDEEM: The Corporation may, following an
Acquisition, redeem all of the then outstanding Class C Special
Shares at the Redemption Price. The Corporation shall be
required to give not less than 5 days and not more than 30 days
notice in writing of the intention of the Corporation to redeem
the Class C Special Shares. Such notice shall be given by
posting the same in a postage paid envelope addressed to each
holder at the last address of such holder as it appears on the
applicable securities register of ATCOR when the Amalgamation
became effective or as it appears on the Transmittal and Election
Form. If the redemption by the Corporation of all of the then
outstanding Class C Special Shares would be contrary to
applicable law, the Corporation shall redeem the maximum number
of Class C Special Shares (rounded to the next lower multiple of
100 shares) which the Corporation is then permitted to redeem,
such redemption to be made on a pro rata basis (disregarding
fractions of shares) among all registered holders of Class C
Special Shares in accordance with the number of shares held by
each of them, respectively. From time to time thereafter, as
soon as permitted by applicable law, the Corporation shall redeem
the maximum number of then outstanding Class C Special Shares as
would not be contrary to applicable law, MUTATIS MUTANDIS, in
accordance with the foregoing provisions of this subsection.
5.5.2 REDEMPTION AND PAYMENT: Upon the redemption of Class C Special
Shares, provided that a holder of any such Class C Special Shares
shall have, prior to the date fixed for redemption, presented and
surrendered to the Corporation the certificates representing all
ATCOR Shares held by such holder which were converted into Class
C Special Shares, the Corporation shall pay or cause to be paid
to such holder the Redemption Price for each Class C Special
Share so redeemed. Without limitation, the Corporation shall be
deemed to have paid to such holder the Redemption Price for each
Class C Special Share so redeemed when a cheque representing such
amount has been mailed to the address of such holder as it
appeared on the applicable securities register of ATCOR when the
Amalgamation became effective or as it appears in the Transmittal
and Election Form, has been delivered to such holder, or has been
set aside for pick up in accordance with the delivery
instructions in the Transmittal and Election Form. The holder of
Class C Special Shares who has not so presented and surrendered
the certificates representing all ATCOR Shares held by such
holder which were so converted shall be entitled to receive, and
the Corporation shall pay or cause to be paid to such holder, the
Redemption Price for each Class C Special Share redeemed only
upon presentation and surrender by such holder to the Corporation
at its registered office of the certificates representing all
ATCOR Shares of such holder which have been converted into Class
C Special Shares. On and after the redemption of any such Class
C Special Shares, the holder thereof shall not be entitled to
exercise any of the rights of shareholders in respect thereof,
other than the
Page A-53
<PAGE>
right to receive payment, without interest, of the Redemption
Price as aforesaid or as provided in subsection 5.5.3 below,
unless payment of the aforesaid Redemption Price shall not
be made in accordance with the foregoing provisions or as
provided in subsection 5.5.3 below, in which case the rights
of such shareholders shall remain unaffected.
5.5.3 RIGHT TO DEPOSIT REDEMPTION PRICE: The Corporation shall have the
right at any time in respect of a redemption of the Class C
Special Shares to deposit the Redemption Price for such of the
redeemed Class C Special Shares registered in the names of
shareholders (including, without limitation, Dissenting
Shareholders in respect of ATCOR Shares) who have not at the date
of such deposit presented and surrendered to the Corporation
certificates representing all of their ATCOR Shares which were so
converted into Class C Special Shares in a special account with a
Canadian chartered bank or trust company to be paid without
interest to or to the order of the respective holders of such
Class C Special Shares upon presentation and surrender by them
respectively, to the Corporation of their share certificates to
be so presented and surrendered. Any interest allowed on any
such deposit shall belong to the Corporation.
5.5.4 UNCLAIMED MONIES: Redemption monies that are represented by a
cheque which has not been presented to the Corporation's bankers
for payment or that otherwise remain unclaimed (including monies
held on deposit in a special account as provided for in
subsection 5.5.3 above) for a period of six years shall be
forfeited to the Corporation.
5.5.5 DISSENT: Notwithstanding anything to the contrary in the
foregoing, in the event a Dissenting Shareholder in respect of
ATCOR Shares has been paid the fair value of the ATCOR Shares
held by such Shareholder immediately prior to the Amalgamation
pursuant to Section 190 of the Act, such Dissenting Shareholder
shall have no right to receive the redemption price for the Class
C Special Shares into which such ATCOR Shares were converted
notwithstanding that the same have been redeemed, shall not be
entitled to exercise any of the rights of shareholders in respect
thereof, and the redemption monies for such Class C Special
Shares held on deposit in a special account as provided for in
subsection 5.5.3 above shall be forfeited to the Corporation.
5.5.6 REPLACEMENT SHARE CERTIFICATE: If less than all of a holder's
Class C Special Shares represented by any share certificate or
share certificates are redeemed pursuant to this subsection 5.5,
a new share certificate representing the balance of the Class C
Special Shares held by such holder shall be issued to such
holder, at the expense of the Corporation, on the later of the
applicable redemption date and the date of receipt by the
Corporation of the share certificate or share certificates
representing the shares to be redeemed.
5.6 VOTING RIGHTS
5.6.1 VOTING RIGHTS: Except as otherwise provided in the Act, the
Class C Special Shares shall be non-voting shares, and a holder
of Class C Special Shares, as such, shall not be entitled to
receive notice of, or to attend, meetings of shareholders of the
Corporation, and shall not be entitled to vote at such meetings.
Page A-54
<PAGE>
SECOND RESTRUCTURE AGREEMENT
BETWEEN
JOINT ENERGY DEVELOPMENT INVESTMENTS LIMITED PARTNERSHIP
AND
FOREST OIL CORPORATION
DECEMBER 29, 1995
<PAGE>
TABLE OF CONTENTS
ARTICLE I
INTRODUCTION AND DEFINITIONS
Section 1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Definitions. . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
SECOND RESTRUCTURE TRANSACTION
Section 2.1 Transaction. . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.2 Hart-Scott-Rodino Act Filing . . . . . . . . . . . . . . . 5
Section 2.3 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.4 Simultaneous Closing.. . . . . . . . . . . . . . . . . . . 5
Section 2.5 JEDI Conditions to Closing . . . . . . . . . . . . . . . . 5
Section 2.6 Company Conditions to Closing. . . . . . . . . . . . . . . 8
Section 2.7 Additional Conditions to Closing . . . . . . . . . . . . . 9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF JEDI
Section 3.1 Organization; Authority. . . . . . . . . . . . . . . . . . 9
Section 3.2 Execution and Delivery; Enforceability . . . . . . . . . . 9
Section 3.3 Approvals and Consents . . . . . . . . . . . . . . . . . .10
Section 3.4 No Violations. . . . . . . . . . . . . . . . . . . . . . .10
Section 3.5 Purchase for Investment. . . . . . . . . . . . . . . . . .10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 4.1 Organization and Existence . . . . . . . . . . . . . . . .10
Section 4.2 Capitalization . . . . . . . . . . . . . . . . . . . . . .11
Section 4.4 Authority and Approval . . . . . . . . . . . . . . . . . .13
Section 4.5 No Conflict. . . . . . . . . . . . . . . . . . . . . . . .13
Section 4.6 SEC Documents. . . . . . . . . . . . . . . . . . . . . . .14
-i-
<PAGE>
ARTICLE V
ADDITIONAL COVENANTS OF THE PARTIES
Section 5.1 Notification . . . . . . . . . . . . . . . . . . . . . . .14
Section 5.2 Public Statements. . . . . . . . . . . . . . . . . . . . .15
Section 5.3 Confidentiality. . . . . . . . . . . . . . . . . . . . . .15
Section 5.4 Further Assurances . . . . . . . . . . . . . . . . . . . .15
Section 5.5 Expenses . . . . . . . . . . . . . . . . . . . . . . . . .15
Section 5.6 Adjustments to Shares. . . . . . . . . . . . . . . . . . .16
Section 5.7 Suspension of Non-Compliance . . . . . . . . . . . . . . .16
ARTICLE VI
INDEMNIFICATION
Section 6.1 Indemnification. . . . . . . . . . . . . . . . . . . . . .17
Section 6.2 Indemnification Procedures . . . . . . . . . . . . . . . .18
Section 6.3 Appeal . . . . . . . . . . . . . . . . . . . . . . . . . .19
Section 6.4 Contribution . . . . . . . . . . . . . . . . . . . . . . .19
Section 6.5 No Limitation on Other Rights of Recovery. . . . . . . . .20
ARTICLE VII
TERMINATION
Section 7.1 Termination Events . . . . . . . . . . . . . . . . . . . .20
Section 7.2 Limitation on Termination. . . . . . . . . . . . . . . . .20
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . .21
Section 8.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . .21
Section 8.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . .22
Section 8.4 No Waivers; Rights Cumulative. . . . . . . . . . . . . . .22
Section 8.5 Remedies . . . . . . . . . . . . . . . . . . . . . . . . .22
Section 8.6 Amendments, Etc. . . . . . . . . . . . . . . . . . . . . .22
Section 8.7 Entire Agreement . . . . . . . . . . . . . . . . . . . . .23
Section 8.8 Binding Effect and Assignment. . . . . . . . . . . . . . .23
Section 8.9 Severability . . . . . . . . . . . . . . . . . . . . . . .23
Section 8.10 Headings; Schedules. . . . . . . . . . . . . . . . . . . .23
-ii-
<PAGE>
EXHIBITS
Exhibit A Form of JEDI Shareholders Agreement
Exhibit B Form of Third Amendment to Loan Agreement
Exhibit C Form of Legends for Stock Certificates
Exhibit D Form of Amendment No. 1 to JEDI Registration Rights Agreement
-iii-
<PAGE>
SECOND RESTRUCTURE AGREEMENT
This Second Restructure Agreement (the "Agreement") is made and entered
into as of December 29, 1995, between Joint Energy Development Investments
Limited Partnership, a Delaware limited partnership ("JEDI"), and Forest Oil
Corporation, a New York corporation (the "Company"), which agree as follows:
ARTICLE I
INTRODUCTION AND DEFINITIONS
SECTION 1.1 INTRODUCTION. JEDI and the Company are parties to a Loan
Agreement dated December 28, 1993, as amended by First Amendment to Loan
Agreement dated as of December 28, 1993, and Second Amendment to Loan Agreement
dated July 27, 1995 (the "Loan Agreement"), and a Restructure Agreement dated
May 17, 1995 (the "First Restructure Agreement"). The Company and JEDI desire
to exchange the Tranche B Loan (as defined in the Loan Agreement) and JEDI's
interest in the Tranche B Warrants (as defined below) for the Shares (as
defined below) on the terms and subject to the conditions specified in this
Agreement.
SECTION 1.2 DEFINITIONS. The following terms shall have the respective
meanings set forth below when used in this Agreement:
"ACTION" against a person means any written claim, or any action, suit,
investigation, complaint or other proceeding pending against or affecting the
person or its property, whether civil or criminal, in law or equity or before
any arbitrator or governmental body.
"ACTS" means, collectively, the Securities Act, the Exchange Act and the
securities laws (including any rules and regulations thereunder) of any state.
"AGREEMENT" shall have the meaning ascribed to it in the first paragraph
hereof, and shall include all schedules and exhibits hereto.
"ANSCHUTZ" means The Anschutz Corporation, a Kansas corporation.
"ANSCHUTZ REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement dated as of May 17, 1995 between Anschutz and the Company.
"ANSCHUTZ SHAREHOLDERS AGREEMENT" means the Shareholders Agreement dated
as of July 27, 1995 between Anschutz and the Company.
"CLOSING" has the meaning ascribed to it in Section 2.1 hereof.
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"CLOSING DATE" has the meaning ascribed to it in Section 2.1 hereof.
"COMMON STOCK" means the common stock, par value $0.10 per share, of the
Company, together with the associated Rights.
"COMPANY" has the meaning ascribed to it in the first paragraph hereof.
"CREDIT AGREEMENT" means the Amended and Restated Credit Agreement dated
as of August 31, 1995 between The Chase Manhattan Bank (National Association),
as Agent, the banks party thereto and the Company.
"EMPLOYEE OPTIONS" has the meaning ascribed to it in Section 4.2(b).
"EQUITY SECURITIES" of the Company means the capital stock of the Company
and all other securities convertible into or exchangeable or exercisable for
any shares of its capital stock, all rights to subscribe for or to purchase,
all options for the purchase of, and all calls, commitments or claims of any
character relating to, any shares of its capital stock and any securities
convertible into or exchangeable or exercisable for any of the foregoing.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the related rules, regulations and published interpretations thereunder.
"EXISTING WARRANTS" has the meaning ascribed to it in Section 4.2(b).
"FIRST RESTRUCTURE AGREEMENT" has the meaning ascribed to it in the first
paragraph hereof.
"GOVERNMENTAL BODY" means any agency, bureau, commission, court,
department, official, political subdivision, tribunal or other instrumentality
of any government, whether federal, state, county or local, domestic or foreign.
"HART-SCOTT-RODINO ACT" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the related rules, regulations and
published interpretations thereunder.
"INDEMNIFIED PERSON" has the meaning ascribed to it in Section 6.1 hereof.
"INDENTURE" means the indenture dated as of September 8, 1993 between the
Company and Shawmut Bank Connecticut, N.A., under which the Subordinated Notes
were issued.
"JEDI" has the meaning ascribed to it in the first paragraph hereof.
"JEDI/ANSCHUTZ OPTION" means the JEDI/Anschutz Option dated July 27, 1995
to purchase the shares of Common Stock issuable upon exercise of the Tranche B
Warrants, executed by JEDI in favor of Anschutz.
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"JEDI REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement dated as of July 27, 1995 between JEDI and the Company.
"JEDI SHAREHOLDERS AGREEMENT" means the Shareholders Agreement between
JEDI and the Company, substantially in the form attached as Exhibit A hereto.
"JUNIOR PREFERRED STOCK" has the meaning ascribed to it in Section 4.2(a).
"LOAN AGREEMENT" has the meaning ascribed to it in Section 1.1 hereof.
"LOSS" means any cost, damage, disbursement, expense, liability,
judgment, loss, deficiency, obligation, penalty or settlement of any kind or
nature, whether foreseeable or unforeseeable, including, but not limited to,
interest or other carrying costs, penalties, legal, accounting and other
professional, expert witness and consultant fees and expenses incurred in the
investigation, collection, prosecution and defense of claims and amounts paid
in settlement, that may be imposed on or otherwise incurred or suffered by the
specified person.
"NASDAQ/NMS" means the NASDAQ National Market System.
"NOTICE" has the meaning ascribed to it in Section 8.2 hereof for the
purposes of that section.
"REGULATION" means (i) any applicable law, rule, regulation, judgment,
decree, ruling, order, award, injunction, recommendation or other official
action of any Governmental Body and (ii) any official change in the
interpretation or administration of any of the foregoing by the Governmental
Body or by any other Governmental Body or other person responsible for the
interpretation or administration of any of the foregoing.
"RIGHTS" means the rights distributed to holders of shares of Common
Stock pursuant to the Rights Agreement.
"RIGHTS AGREEMENT" means the Rights Agreement dated October 14, 1993, as
amended by Amendment No. 1 dated July 27, 1995, between the Company and Mellon
Securities Trust Company, as Rights Agent.
"RIGHTS PREFERRED STOCK" has the meaning ascribed to it in Section 4.2(a).
"SEC" means the United States Securities and Exchange Commission.
"SECOND SERIES CONVERTIBLE PREFERRED STOCK" has the meaning ascribed to
it in Section 4.2(a).
"SECURITIES ACT" means the Securities Act of 1993, as amended, and the
related rules, regulations and published interpretations thereunder.
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"SENIOR PREFERRED STOCK" has the meaning ascribed to it in Section 4.2(a).
"$.75 CONVERTIBLE PREFERRED STOCK" has the meaning ascribed to it in
Section 4.2(a).
"SHARES" has the meaning ascribed to it in Section 2.1(c).
"SUBSIDIARY" of a person means (i) any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such person or (ii) a
partnership in which the person or a Subsidiary of the person is, at the date
of determination, a general or limited partner of such partnership, but only if
the person or its Subsidiary is entitled to receive more than fifty percent of
the assets of such partnership upon its dissolution.
"SUBORDINATED NOTES" means the outstanding 11-1/4% Senior Subordinated
Notes due 2003 of the Company issued under the Indenture.
"THIRD AMENDMENT" means the Third Amendment to the Loan Agreement, which
amendment shall be in substantially the form attached hereto as Exhibit B.
"TRANCHE B WARRANTS" means the Warrants to purchase 11,250,000 shares of
Common Stock (as the number of shares may be adjusted pursuant to the terms of
the Tranche B Warrants).
"TRANSACTION" means the transaction contemplated by Section 2.1 of this
Agreement.
"TRANSACTION DOCUMENTS" means this Agreement, the Third Amendment,
Amendment No. 1 to the JEDI Registration Rights Agreement, the JEDI
Shareholders Agreement and all other documents and instruments executed
pursuant thereto.
ARTICLE II
SECOND RESTRUCTURE TRANSACTION
SECTION 2.1 TRANSACTION. The Company and JEDI agree that, subject to
satisfaction or waiver of the conditions set forth below, the following events
(collectively, the "Transaction") shall occur on the Closing Date:
(a) The Company and JEDI will execute and deliver to each other
the Third Amendment and all other documents or instruments contemplated
therein as being executed on the Closing Date (including exhibits to the
Third Amendment), each of such documents and instruments to be acceptable
to the Company and JEDI in form and substance.
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(b) JEDI will assign the Tranche B Warrants and its rights and
obligations under the JEDI/Anschutz Option to the Company pursuant to an
assignment acceptable to the Company in form and substance.
(c) The Company will issue and deliver to JEDI a certificate(s)
with respect to 8,400,000 shares of Common Stock (subject to adjustment
in accordance with Section 5.6) (the "Shares") in such denominations as
JEDI may request, which certificate(s) and any certificate(s) issued in
exchange therefor or upon transfer, except certificates issued in
connection with a sale registered under the Securities Act, shall bear
the legends set forth on Exhibit C hereto.
(d) The Company and JEDI will execute and deliver to each other
Amendment No. 1 to the JEDI Registration Rights Agreement, which
amendment shall be substantially in the form attached hereto as Exhibit D.
(e) The Company and JEDI will execute and deliver to each other
the JEDI Shareholders Agreement.
SECTION 2.2 HART-SCOTT-RODINO ACT FILING. As soon as practicable
following the execution hereof, the Company and JEDI shall make all necessary
filings and, subject to Section 5.5, pay any applicable fees which the
Hart-Scott-Rodino Act may require with respect to the Transaction.
SECTION 2.3 CLOSING. Subject to the satisfaction of the conditions
precedent set forth in Sections 2.5, 2.6 and 2.7 below, the closing of the
Transaction (the "Closing") shall be held at the offices of Enron Capital &
Trade Resources Corp., 1200 17th Street, Suite 2750, Denver, Colorado, at 10
a.m., Denver, Colorado time, on the business day following the date on which
the Closing shall be permitted to occur without violation of the
Hart-Scott-Rodino Act, or at such other place, date and time as may be mutually
agreed in writing by the Company and JEDI; PROVIDED, HOWEVER, that if all of
the conditions to Closing set forth in Sections 2.5, 2.6 and 2.7 below have not
been satisfied or waived by such date or any mutually agreeable later date for
Closing, the party whose condition has not been satisfied or waived shall have
the right to extend the date of Closing for successive periods of up to five
days each, or for such longer period to which the parties may agree in writing,
but in no event beyond any date on which this Agreement is terminated pursuant
to Section 7.1. The Closing also may occur at such other place, date and time
as the Company and JEDI may agree. The date on which the Closing occurs shall
be referred to herein as the "Closing Date."
SECTION 2.4 SIMULTANEOUS CLOSING. All events specified in Section 2.1
shall be deemed to occur simultaneously and no event shall be deemed to occur
unless and until all such events shall have occurred.
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SECTION 2.5 JEDI CONDITIONS TO CLOSING. The obligation of JEDI to
consummate the transactions contemplated hereunder is subject, at the option of
JEDI, to satisfaction or waiver of the following conditions (each of which is
deemed to be material) at or before the Closing:
(a) Each of the actions specified in Section 2.1 above shall
have been taken.
(b) The Company shall have taken all action required, if any, to
cause the Shares to be qualified for inclusion in the NASDAQ/NMS, and
shall give such notice as may be required to the National Association of
Securities Dealers, Inc. with respect to the Transaction.
(c) Anschutz shall have consented to the actions contemplated by
Section 2.1(b) and delivered all documents necessary to effect such
consent(s) and to release JEDI from all obligations under the Tranche B
Warrants and the JEDI/Anschutz Option, which documents shall be
acceptable to JEDI in form and substance.
(d) The Company and Anschutz shall have acknowledged in writing
to JEDI that the JEDI Registration Rights Agreement, as amended by
Amendment No. 1 thereto, continues to constitute the "Other Registration
Rights Agreement" for purposes of the Anschutz Registration Rights
Agreement.
(e) The Company and Anschutz shall have entered into an amendment
to the Anschutz Shareholders Agreement to amend lines 5 and 6 of Section
3.1(a) thereof to delete the phrase "(other than Equity Securities of the
Company owned by Purchaser, any of its Affiliates or any such Group)" and
substitute in its place the phrase "(other than Equity Securities of the
Company owned by JEDI, Purchaser, any of their respective Affiliates or
any Group of which any such entity is a member)".
(f) After giving effect to the waiver contemplated by Section
5.7, no Default (as defined in the Loan Agreement) shall have occurred
and be continuing nor shall any Default (as defined in the Loan
Agreement) occur by virtue of the execution and delivery of the Third
Amendment.
(g) The Company shall have paid to or on behalf of JEDI all
amounts payable pursuant to Section 5.5 below.
(h) Except as disclosed in the SEC Documents filed with the
Commission prior to the date hereof, since September 30, 1995, there
shall have occurred no event which could have a Material Adverse Effect
(as defined in the Loan Agreement) on the Company and its Subsidiaries
taken as a whole.
(i) JEDI shall have received the following legal opinions dated
as of the Closing Date:
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(1) a legal opinion from the law firm of Holme Roberts &
Owen L.L.C. that is in substantially the same form as the opinion
dated July 27, 1995, that was issued by such firm to JEDI in
connection with the closing of the transactions contemplated by
the First Restructure Agreement, with such changes as may be
necessary to cause such opinion to cover the Third Amendment;
(2) a legal opinion from the law firm of Vinson & Elkins
L.L.P. that is in substantially the same form as the opinion dated
July 27, 1995, that was issued by such firm to JEDI in connection
with the closing of the transactions contemplated by the First
Restructure Agreement, except that (A) for purposes of such
opinion, the term "Amendment Documents" shall include this
Agreement, the Third Amendment, Amendment No. 1 to the JEDI
Registration Rights Agreement, the JEDI Shareholders Agreement and
the Shares, and (B) such opinion shall cover the matters set forth
in such prior opinion as opinion numbers 1, 2, 3, 4, 5, 7, 8, 10
(with the term "Tranche B Warrants" to be replaced with the term
"Shares" and other appropriate adjustments made to reflect such
change), 12 and 13 as they relate to the Transaction and (C) such
opinion shall contain exceptions, qualifications and assumptions
similar to those contained in such prior opinion, as appropriate;
and
(3) a legal opinion from Daniel L. McNamara, corporate
counsel for the Company, that is in substantially the same form as
the opinion of such counsel dated July 27, 1995, that JEDI was
expressly authorized to rely upon in connection with the closing of
the transactions contemplated by the First Restructure Agreement,
with such changes as may be necessary to cause such opinion to be
addressed to JEDI and cover the Transaction.
(j) Except as contemplated by this Agreement, (i) the
representations and warranties of the Company contained herein shall be
true and correct in all material respects as of the Closing Date, with
the same force and effect as though made at such time, and (ii) the
Company shall have performed in all material respects all obligations
required of it by the terms of this Agreement to have been performed as
of the Closing Date.
(k) JEDI shall have received a certificate in form and substance
satisfactory to JEDI from each of (a) the Secretary or Assistant
Secretary of the Company to the effect that, (i) the Board of Directors
of the Company has taken all actions necessary with respect to the
Transaction and the issuance of the Shares and (ii) except as set forth
thereon or attached thereto there have been no amendments to the
Company's Articles of Incorporation, as amended, or Bylaws, as amended,
since July 27, 1995, and none are contemplated; and (b) the President or
any Vice President of the Company to the effect that, (i) the
representations and warranties of the Company contained herein are true
and correct in all material respects as of the Closing Date, with the
same force and effect as though made at such time, and (ii) the Company
has performed in all material respects all obligations required of it by
the terms of this Agreement to have been performed as of the Closing
Date.
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SECTION 2.6 COMPANY CONDITIONS TO CLOSING. The obligation of the
Company to consummate the Transaction is subject, at the option of the
Company, to satisfaction or waiver of the following conditions (each of which
is deemed to be material) at or before Closing:
(a) Each of the actions specified in Section 2.1 above shall
have been taken.
(b) Except as contemplated by this Agreement, (i) the
representations and warranties of JEDI contained herein shall be true
and correct in all material respects as of the Closing Date, with the
same force and effect as though made at such time, and (ii) JEDI shall
have performed in all material respects all obligations required of it
by the terms of this Agreement to have been performed as of the Closing
Date.
(c) The Company shall have received from the general partner of
JEDI a certificate in form and substance satisfactory to the Company to
the effect that (i) all actions necessary to be taken by JEDI with
respect to the Transaction have been authorized by its general partner
and limited partner, (ii) the representations and warranties of JEDI
contained herein are true and correct in all material respects as of the
Closing Date, with the same force and effect as though made at such
time, and (iii) JEDI has performed in all material respects all
obligations required of it by the terms of this Agreement to have been
performed as of the Closing Date.
(d) Anschutz shall have consented to the actions contemplated by
Section 2.1(b) and delivered all documents necessary to effect such
consent(s), which documents shall be acceptable to the Company in form
and substance.
(e) Anschutz shall have acknowledged in writing to JEDI that the
JEDI Registration Rights Agreement, as amended by Amendment No. 1
thereto, continues to constitute the "the Other Registration Rights
Agreement" for purposes of the Anschutz Registration Rights Agreement.
(f) Anschutz shall have entered into an amendment to the
Anschutz Shareholders Agreement to amend lines 5 and 6 of Section 3.1(a)
thereof to delete the phrase "(other than Equity Securities of the
Company owned by Purchaser, and of its Affiliates or any such Group)"
and substitute in its place the phrase "(other than Equity Securities of
the Company owned by JEDI, Purchaser, any of their respective Affiliates
or any Group of which any such entity is a member)".
(g) Except for events affecting the oil and gas industry
generally, including, but not limited to, the market prices of the
Company's products, no event shall have occurred since the date hereof
that has had a material adverse effect on the value of the Mortgaged
Properties taken as a whole (as defined in the Loan Agreement).
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SECTION 2.7. ADDITIONAL CONDITIONS TO CLOSING. In addition to those set
forth above, the obligations of JEDI and the Company to consummate the
Transaction shall be subject to satisfaction of the following conditions,
which may be waived only by the consent of both parties:
(a) The consummation of the Transaction shall not violate the
Hart-Scott-Rodino Act.
(b) There shall not be in effect any Regulation that makes it
illegal for JEDI or the Company to perform at Closing each of their
respective obligations under this Agreement or any Transaction Document
or that enjoins JEDI or the Company from performing such obligations.
(c) As of the Closing Date, no Action shall be pending or
threatened (i) wherein an unfavorable judgment, decree or order could
prevent, make unlawful or materially affect the consummation of the
transactions contemplated by this Agreement or (ii) which if adversely
determined would have a Material Adverse Effect (as defined in the Loan
Agreement) on the Company and its Subsidiaries taken as a whole.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF JEDI
JEDI hereby represents and warrants to the Company as follows:
SECTION 3.1 ORGANIZATION; AUTHORITY. JEDI is a limited partnership duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority under its Partnership
Agreement and under the laws of the State of Delaware to execute, deliver and
perform its obligations under this Agreement and each of the Transaction
Documents to which it is a party and to execute, deliver and perform its
obligations under all other agreements and instruments executed and delivered
by JEDI pursuant to or in connection with this Agreement or any of the
Transaction Documents.
SECTION 3.2 EXECUTION AND DELIVERY; ENFORCEABILITY. JEDI has taken all
partnership action necessary to authorize the due execution and delivery of
this Agreement and the Transaction Documents and the performance of its
obligations hereunder and thereunder. This Agreement has been, and upon
execution and delivery, each other Transaction Document to which JEDI is a
party shall be, duly executed and delivered by JEDI, and shall constitute the
legal, valid and binding obligation of JEDI, enforceable against JEDI in
accordance with its terms, except to the extent that enforceability may be
subject to applicable bankruptcy, insolvency, fraudulent conveyance, moratorium
and other similar laws affecting generally the enforcement of creditors' rights
and by general principles of equity.
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SECTION 3.3 APPROVALS AND CONSENTS. Except as may be required by the
Acts or the Hart-Scott-Rodino Act, no consent or approval is required in
connection with JEDI's execution and delivery of this Agreement or any of the
Transaction Documents and the performance of its obligations hereunder or
thereunder.
SECTION 3.4 NO VIOLATIONS. The execution and delivery by JEDI of this
Agreement and each of the Transaction Documents to which it is a party and the
performance of its obligations hereunder and thereunder will not cause a breach
or violation of, or a default or event of default under, any provision of (i)
the Partnership Agreement of Joint Energy Development Investments Limited
Partnership dated June 29, 1993, as amended, or its Certificate of Limited
Partnership, or any agreement, contract or arrangement, whether written or
oral, to which JEDI is a party or by which JEDI is bound; (ii) any law, rule or
regulation of any Governmental Body applicable to JEDI; or (iii) any decree,
order, injunction or other decision of any court, arbitrator, or Governmental
Body with jurisdiction over JEDI, the violation of which would have an adverse
effect on its ability to perform its obligations hereunder.
SECTION 3.5 PURCHASE FOR INVESTMENT. JEDI acknowledges that (i) the
Shares will be issued and sold pursuant hereto in reliance upon the exemption
afforded by Section 4(2) of the Securities Act; (ii) it is acquiring the Shares
for investment and without any view toward distribution of any of the Shares to
any other person in violation of the Securities Act; (iii) it will not sell or
otherwise dispose of the Shares except in compliance with the registration
requirements under the Securities Act and applicable state securities laws or
available exemptions therefrom; and (iv) before any sale or any disposition of
the Shares which is not registered under the Securities Act or effected
pursuant to Rule 144 under the Securities Act (unless the Company shall have
been advised by counsel that such sale does not meet the requirements of Rule
144), it will deliver to the Company an opinion of counsel reasonably
satisfactory to the Company to the effect that such registration is unnecessary.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to JEDI as follows:
SECTION 4.1 ORGANIZATION AND EXISTENCE. The Company is duly
incorporated, validly existing and in good standing under the laws of the State
of New York. The Company has full corporate power and authority to own and
hold the properties and assets it now owns and holds and to carry on its
businesses as and where such properties are now owned or held and such business
is now conducted. The Company is duly licensed or qualified to do business as
a foreign corporation and is in good standing in each jurisdiction in which the
character of the properties and assets now owned or held by it or the nature of
the business now conducted by it requires it to be so licensed
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or qualified and where the failure so to qualify might reasonably be expected
to affect materially and adversely the business, financial condition or results
of operations of the Company.
SECTION 4.2 CAPITALIZATION. As of the date of this Agreement (unless
another date is specified),
(a) The authorized capital stock of the Company consists, as of
December 21, 1995, of 210,000,000 shares of stock, of which (i) 200,000,000
shares are Common Stock and (ii) 10,000,000 shares are preferred stock, par
value $.01 per share, consisting of (A) a class of 7,350,000 shares of
preferred stock (the "SENIOR PREFERRED STOCK"), of which up to (x) 5,444,425
shares may be issued in a series designated as "$.75 Convertible Preferred
Stock" (the "$.75 CONVERTIBLE PREFERRED STOCK") and (y) 620,000 shares are
authorized to be issued in a series designated as "Second Series Convertible
Preferred Stock" (the "SECOND SERIES CONVERTIBLE PREFERRED STOCK"), and (B) a
class of 2,650,000 shares of preferred stock (the "JUNIOR PREFERRED STOCK"), of
which up to 1,000,000 shares may be issued in a series designated "First Series
Junior Preferred Stock" (the "RIGHTS PREFERRED STOCK"). The Company has
submitted a proposal to its shareholders to effect a reverse stock split of its
outstanding Common Stock. The proposal would cause each share of Common Stock
to be converted into one-fifth of a share of Common Stock. The proposal is
scheduled for consideration at a special meeting of shareholders to be held on
January 5, 1996. The authorized number of shares of Common Stock, however,
will not change.
(b) With respect to the Common Stock, as of December 21, 1995,
there are, (i) 53,289,960 shares of Common Stock issued and outstanding; (ii)
3,059,000 shares of Common Stock reserved for issuance upon exercise of
outstanding stock options issued by the Company to current and former employees
of the Company and its subsidiaries (the "EMPLOYEE OPTIONS"); (iii) 10,080,606
shares of Common Stock reserved for issuance upon conversion of the $.75
Convertible Preferred Stock, (iv) 1,244,715 shares of Common Stock reserved for
issuance upon exercise of warrants at an exercise price of $3.00 per share
issued under the Warrant Agreement dated as of December 31, 1991, between the
Company and Mellon Securities Trust Company, as Warrant Agent, successor to The
Chase Manhattan Bank (National Association) (the "EXISTING WARRANTS"); (v)
11,250,000 shares of Common Stock reserved for issuance upon exercise of the
Tranche B Warrants at an exercise price of $2.00 per share; (vi) 19,444,444
shares of Common Stock reserved for issuance upon exercise of the Tranche A
Warrants at an exercise price of $2.10 per share; (vii) 6,200,000 shares of
Common Stock reserved for issuance upon conversion of the 620,000 shares of
Second Series Convertible Preferred Stock.
(c) With respect to preferred stock and warrants of the Company,
as of December 21, 1995, there are (i) 2,880,173 shares of $.75 Convertible
Preferred Stock issued and outstanding; (ii) 532,900 shares of Rights Preferred
Stock reserved for issuance upon the exercise of the Rights, none of which are
issued or outstanding; (iii) 620,000 shares of Second Series Convertible
Preferred Stock issued and outstanding; (iv) 1,244,715 Existing Warrants issued
and outstanding, each of which, upon exercise, entitles the holder thereof to
purchase one share of Common Stock at a price of $3.00 per share; (v)
19,444,444 Tranche A Warrants, each of which, upon exercise, entitles
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Anschutz to purchase one share of Common Stock at a price of $2.10 per share;
and (vi) 11,250,000 Tranche B Warrants, each of which, upon exercise, entitles
the holder thereof to purchase one share of Common Stock at a price of $2.00
per share.
(d) Except as set forth above and except as provided in the
Transaction Documents, no Equity Securities of the Company are issued, reserved
for issuance or outstanding.
(e) All outstanding shares of capital stock of the Company are,
and all shares which may be issued pursuant to the exercise of the Employee
Options or the Existing Warrants, the conversion of the $.75 Convertible
Preferred Stock or the Second Series Convertible Preferred Stock, the Tranche A
Warrants or the Tranche B Warrants, as the case may be, will be, when issued,
duly authorized, validly issued, fully paid and nonassessable and are not
subject to preemptive rights.
(f) Except with respect to the outstanding shares of Common
Stock, the Employee Options, the Existing Warrants, the $.75 Convertible
Preferred Stock, the Second Series Convertible Preferred Stock, the Rights, the
Tranche A Warrants, the Tranche B Warrants and the JEDI/Anschutz Option, there
are no outstanding bonds, debentures, notes or other indebtedness or other
securities of the Company having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
shareholders of the Company may vote.
(g) Except as provided in the Transaction Documents and with
respect to the Employee Options, the Existing Warrants, the $.75 Convertible
Preferred Stock, the Rights, the Second Series Convertible Preferred Stock, the
Tranche B Warrants and the Anschutz Shareholders Agreement, there is no
agreement or arrangement restricting the voting or transfer of the Equity
Securities of the Company;
(h) Except as provided in the Transaction Documents and with
respect to the Employee Options, the Existing Warrants, the $.75 Convertible
Preferred Stock, the Rights, the Second Series Convertible Preferred Stock, the
Tranche B Warrants, the Tranche A Warrants and the JEDI/Anschutz Option, there
are no outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which the Company is a
party or by which it is bound obligating the Company to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of capital stock or
other Equity Securities of the Company or obligating the Company to issue,
grant, extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking.
(i) Except with respect to the Rights and the obligations of the
Company under this Agreement, there are no outstanding contractual obligations,
commitments, understandings or arrangements of the Company to repurchase,
redeem or otherwise acquire, require or make any payment in respect of any
shares of Equity Securities of the Company.
(j) Except with respect to statutory restrictions of general
application and the provisions of the $.75 Convertible Preferred Stock, the
Second Series Convertible Preferred Stock,
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the Indenture, the Subordinated Notes and the Credit Agreement, there are no
legal, contractual or other restrictions on the payment of dividends or other
distributions or amounts on or in respect of any of the Equity Securities of
the Company.
(k) Except as contemplated by the JEDI and Anschutz Registration
Rights Agreements, there are no agreements or arrangements to which the Company
or any of its Subsidiaries is a party pursuant to which the Company is or could
be required to register shares of Common Stock or other securities under the
Securities Act.
(l) Equity Securities of the Company that were issued and
reacquired by the Company were so reacquired (and, if reissued, so reissued) in
compliance with all applicable Regulations, and the Company has no liability
with respect to the reacquisition or reissuance of the Equity Securities.
SECTION 4.3 ISSUANCE OF SHARES. The Shares to be issued hereunder will
be issued free and clear of all liens, charges, pledges and other encumbrances
and free from any prior or preferential rights or other rights to acquire the
Shares. As of the Closing, the Shares will constitute validly issued, fully
paid and non-assessable shares of Common Stock. No shareholder of the Company
or any other person has any preemptive rights with respect to the issuance of
the Shares.
SECTION 4.4 AUTHORITY AND APPROVAL. The Company has the corporate power
and authority to execute and deliver this Agreement and each of the Transaction
Documents to which it is a party, to consummate the transactions contemplated
hereby and thereby and to perform all the terms and conditions hereof and
thereof. The execution and delivery by the Company of this Agreement and each
of the Transaction Documents to which it is a party, the performance by the
Company of all the terms and conditions hereof and thereof and the consummation
of the transactions contemplated hereby and thereby have been duly authorized
and approved by the Board of Directors of the Company and no approval of the
shareholders of the Company is required in connection with the consummation of
the transactions contemplated hereby or thereby. This Agreement constitutes
and each Transaction Document shall, upon its execution, constitute the valid
and binding obligation of the Company enforceable in accordance with its
respective terms, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
enforcement of creditors' rights generally and by general principles of equity
(whether applied in a proceeding at law or in equity).
SECTION 4.5 NO CONFLICT. Except for the filings under the
Hart-Scott-Rodino Act contemplated in Section 2.2, this Agreement and each of
the Transaction Documents to which it is a party and the execution and delivery
hereof and thereof by the Company do not, and the fulfillment and compliance
with the terms and conditions hereof and thereof and the consummation of the
transactions contemplated hereby and thereby will not, (i) conflict with any
of, or require the consent of any person or entity under, the terms, conditions
or provisions of the charter documents or bylaws or equivalent governing
instruments of the Company or any of its Subsidiaries; (ii) violate any
provision of, or require any consent, authorization or approval under, any law
or administrative
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regulation or any judicial, administrative or arbitration order, award,
judgment, writ, injunction or decree applicable to the Company or any of its
Subsidiaries; (iii) conflict with, result in a breach of, constitute a default
under (whether with notice or the lapse of time or both), or accelerate or
permit the acceleration of the performance required by, or, except for the
consent of Anschutz and such consents as may be required under the Credit
Agreement, require any consent, authorization or approval under, any indenture,
mortgage or lien, or any agreement, contract, commitment or instrument to which
the Company or any of its Subsidiaries is a party or by which it is bound or to
which any property of the Company or any of its Subsidiaries is subject; or
(iv) result in the creation of any lien, charge or encumbrance on the assets of
the Company or any of its Subsidiaries under any such indenture, mortgage,
lien, lease, agreement or instrument.
SECTION 4.6 SEC DOCUMENTS. The Company has filed with the SEC all
reports, schedules, forms, statements and other documents required to be filed
by the Company with the SEC since December 31, 1994 and has delivered or made
available to JEDI all reports, schedules, forms, statements and other documents
filed by the Company with the SEC since such date (collectively, and in each
case including all exhibits and schedules thereto and documents incorporated by
reference therein, the "SEC DOCUMENTS"). As of their respective dates, except
to the extent revised or superseded by a subsequent filing with the SEC prior
to the date hereof, the SEC Documents, and any other reports, schedules, forms,
statements and other documents filed by the Company with the SEC after the date
hereof, complied or will comply in all material respects with the requirements
of the Securities Act or the Exchange Act, as the case may be, and none of the
SEC Documents (including any and all financial statements included therein) as
of such dates contained or will contain any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The consolidated financial statements of
the Company included in all SEC Documents, and any other reports, schedules,
forms, statements and other documents filed by the Company with the SEC after
the date hereof, including any amendments thereto, comply or will comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the Securities and Exchange Commission with
respect thereto.
ARTICLE V
ADDITIONAL COVENANTS OF THE PARTIES
SECTION 5.1 NOTIFICATION. Until the Closing, the Company or JEDI, as
the case may be, shall give prompt notice to the other party of (i) the
occurrence, or failure to occur, of any event that would be likely to cause any
of the notifying party's representation or warranty which is contained herein
or in any Transaction Document to which it is a party to be untrue or
inaccurate in any material respect at any time from the date of this Agreement
to the Closing Date and (ii) any failure of the notifying party to perform or
otherwise comply with, in any material respect, any covenant, condition or
agreement to be performed or complied with by it under this Agreement or any
Transaction Document to which it is a party. This covenant of notification
shall not limit the right
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of the other party under Article II above to require as a condition precedent
to the performance of its obligations under this Agreement the accuracy in all
material respects of the representations and warranties on the Closing Date,
and performance in all material respects of the covenants of the notifying
party made in this Agreement or in any Transaction Document and to receive an
unqualified certificate with respect to the same.
SECTION 5.2 PUBLIC STATEMENTS. Until the Closing, the Company and JEDI
shall consult with each other and no party shall issue any press release or
written statement with respect to the Transaction without the consent of the
other party, unless the party desiring to make such press release or written
statement, after seeking such consent from the other party (which shall not be
unreasonably withheld), obtains advice from legal counsel that a press release
or written statement is required by applicable law.
SECTION 5.3 CONFIDENTIALITY. Information disclosed by any party or its
representatives to any other party or its representatives, whether before or
after the execution of this Agreement, shall be kept confidential by the other
party and its representatives if the information was or is designated in
writing as confidential and except in each case to the extent that (i) the
information was known by the recipient when received or the information is or
hereafter becomes lawfully obtainable from other sources, (ii) upon the advice
of counsel, the disclosing party determines that disclosure to a Governmental
Body having jurisdiction over such party is necessary or appropriate, (iii)
upon the advice of counsel disclosure is required by applicable laws or
regulations (in each of clause (ii) and (iii), after providing written notice
of the proposed disclosure and the stated reason requiring such disclosure) or
(iv) the duty as to confidentiality is waived in writing by the other party.
SECTION 5.4 FURTHER ASSURANCES. Until the Closing and indefinitely
thereafter, promptly upon request by any other party, each party shall correct
any defect or error in the execution or acknowledgment of any Transaction
Document and execute, acknowledge and deliver such other documents and
instruments as the requesting party may require from time to time in order (i)
to carry out more effectively the purposes of this Agreement and each
Transaction Document, (ii) to enable the requesting party to exercise and
enforce its rights and remedies and collect any payments and proceeds under
this Agreement and any Transaction Document and (iii) to better transfer,
preserve, protect and confirm to the requesting party the rights granted or now
or hereafter intended to be granted to the requesting party under this
Agreement and any Transaction Document or under each other instrument executed
in connection with this Agreement and any Transaction Document.
SECTION 5.5 EXPENSES. Regardless of whether this Agreement is
terminated in accordance with Article VII or whether the transactions
contemplated by this Agreement are consummated:
(a) At Closing or within five business days following the
termination of this Agreement, as applicable, the Company shall pay up
to $25,000 to JEDI to cover a portion of JEDI's legal and other
professional fees in accordance with the letter agreement dated as of
December 19, 1995, and delivered in connection herewith; and
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(b) Contemporaneously with the filing by JEDI of any filing
required by the Hart-Scott-Rodino Act, the Company shall pay the filing
fees required pursuant to the Hart-Scott-Rodino Act.
(c) Except as provided in clauses (a) and (b) of this Section
5.5 and notwithstanding anything to the contrary contained in any other
agreements between the Company and JEDI, each party shall bear its own
costs and expenses incurred in connection with the evaluation and
consummation of the Transaction and the negotiation, execution and
delivery of any documents in connection therewith.
SECTION 5.6 ADJUSTMENTS TO SHARES; ISSUANCES.
(a) Except as provided to the contrary in the following sentence,
the number of Shares to be received by JEDI hereunder shall be adjusted in the
event of any change in, or with respect to, the Common Stock by reason of the
issuance of any stock or other non-cash dividends, extraordinary cash
dividends, split-ups, mergers, recapitalizations, combinations, subdivisions,
conversions, exchanges of shares or the like on or before the Closing
(including, but not limited to, the proposed one-for-five reverse stock split)
such that, in each case JEDI shall receive at the Closing the number of shares
of Common Stock as if the Closing had occurred immediately prior to such event,
or the record date therefor, as applicable. Notwithstanding anything in this
Agreement or in any other Transaction Document to the contrary, no such
adjustments shall be required with respect to the issuance of shares of Common
Stock pursuant to the underwritten offering of up to 69 million shares
currently contemplated by the Company, the conversion of shares of $.75
Convertible Preferred Stock, the exercise of Employee Options or Existing
Warrants outstanding as of the date of this Agreement, the payment of regular
dividends on the $.75 Convertible Preferred Stock in stock or cash in
accordance with the terms thereof and the issuance of shares of Common Stock
pursuant to the Section 401(k) plan sponsored by the Company in accordance with
the terms thereof.
(b) No adjustment made pursuant to this Section 5.6 shall
constitute or be deemed a waiver by JEDI of any breach of any of the
representations, warranties or obligations of the Company contained in this
Agreement.
(c) Except with respect to issuances resulting from the actions
specifically set forth in the last sentence of paragraph (a) of this Section
5.6, prior to Closing and without the prior written consent of JEDI, the
Company will not issue, or enter into any agreement which would require it to
issue, any of its Equity Securities.
SECTION 5.7 SUSPENSION OF NON-COMPLIANCE. JEDI acknowledges that the
Company may not be in compliance with the requirements of the Loan Agreement
with respect to the status of the Company's title to that certain oil and gas
lease from El Peyote Mineral Trust dated as of May 24, 1994 (as amended, the
"Subject Lease"). JEDI agrees that until the earlier of the Closing Date and
the date on which this Agreement is terminated, JEDI will not enforce any
rights it may have against the Company or the Mortgaged Properties (as defined
in the Loan Agreement) with respect to any
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event of non-compliance under the Loan Agreement that relates solely to the
status of the Company's title to the Subject Lease. If Closing does not
occur, then the suspension provided for herein shall terminate and JEDI shall
have all of its rights set forth in the Loan Agreement. Except as expressly
provided herein, JEDI does not waive any of its rights with respect to such
noncompliance. If Closing occurs, JEDI hereby waives any rights it may have
against the Company (including, without limitation, the right to assert that
an Event of Default (as such term is defined in the Loan Agreement) has
occurred and the right to exercise any remedies under the Loan Agreement as a
result thereof) and releases the Company from any liability with respect to
any non-compliance under the Loan Agreement resulting solely from the status
of the Company's title to the Subject Lease; in exchange therefor, if Closing
occurs, the Company hereby agrees that on or before July 1, 1996, the Company
shall either (a) (i) obtain, on terms no less favorable to the Company in any
material respect than those contained in the Subject Lease, oil and gas
leasehold interests ("Replacement Leases") covering the acreage and depths
which were previously covered by the Subject Lease and pledged to JEDI
pursuant to the Security Instruments (as defined in the Loan Agreement) but
that, as of the Closing Date, are no longer subject to (A) the Subject Lease
or (B) leasehold interests constituting Mortgaged Properties and (ii) execute
and deliver to JEDI such Security Instruments as may be necessary or that are
reasonably requested by JEDI to grant JEDI a first priority perfected lien in
the Replacement Leases, subject only to the Permitted Encumbrances described
in Exhibit A to that certain Deed of Trust, Assignment of Production, Security
Agreement and Financing Statement dated as of December 28, 1993, between the
Company and JEDI, as amended, or (b) prepay the principal amount of the Loan
(as defined in the Loan Agreement) outstanding under the Loan Agreement in an
amount to be mutually agreed upon by both parties. In connection with any
prepayment made pursuant to this Section 5.7, the Company shall also pay the
accrued but unpaid interest on the outstanding principal amount of the Loan
being prepaid to the date of prepayment.
ARTICLE VI
INDEMNIFICATION
SECTION 6.1 INDEMNIFICATION. The Company shall indemnify and defend (i)
JEDI, (ii) each partner of JEDI, (iii) each "controlling person" (within the
meaning of Section 20 of the Exchange Act) of JEDI and each of its partners
and (iv) the shareholders, directors, officers, employees, agents and
affiliates of each of the foregoing (each referred to herein as an
"indemnified person"), and shall hold each indemnified person harmless from,
any and all Losses in any way relating to or arising out of any of the
following:
(a) any breach of the representations, warranties, covenants or
agreements of the Company contained in this Agreement or any Transaction
Document; and
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(b) any Action brought against such indemnified person to the
extent the Action arises out of or is attributable to the Transaction,
excluding however any Action that is asserted by (i) one or more
indemnified persons, (ii) any person having a contractual or other
relationship with one or more of such indemnified persons, which
contractual or other relationship serves as the basis upon which such
person has standing to bring such Action or (iii) any Governmental Body
in the exercise of its regulatory authority over the business and
affairs of such indemnified person.
The Company shall have no obligation under this Section to JEDI or any
other person indemnified under this Section 6.1 with respect to any of the
foregoing arising primarily out of the gross negligence or willful misconduct
of JEDI or the other indemnified person, as the case may be, as determined by
a final judgment of a court of competent jurisdiction. Notwithstanding
anything herein or in any Transaction Document to the contrary, the terms and
provisions of such documents, including the indemnification provisions set
forth in this Article VI, shall not limit or otherwise affect in any way the
terms of Section 6.03 of the Loan Agreement.
SECTION 6.2 INDEMNIFICATION PROCEDURES. If any Action indemnifiable
under this Article VI shall be brought, asserted or threatened against any
person indemnified under this Article VI, the indemnified person shall
promptly notify the indemnifying person. A failure to notify the indemnifying
person timely or at all shall reduce the liabilities and obligations of the
indemnifying person under this Article VI only to the extent the indemnifying
person actually shall be prejudiced by the failure. The indemnifying person
shall assume the defense of the Action, including the employment of counsel
satisfactory to the indemnified person and the payment of all related fees and
expenses, but the indemnified person may employ separate counsel in the Action
and participate in the defense of the Action at its own expense. The
indemnified person, however, may by written notice to the indemnifying person
assume the defense of the Action, including the employment of counsel, at the
expense of the indemnifying person (except that the indemnifying person shall
not be liable for the fees and expense of more than one such separate counsel
with respect to the Action) if:
(a) the indemnifying person fails to take one or more of the
following acts without a delay that reasonably could be expected to be
prejudicial to the interests of the indemnified person: (i) acknowledge in
writing to the indemnified person the liability of the indemnifying person to
the indemnified person under this Article VI with respect to the Action, (ii)
assume the defense, (iii) post an indemnity or similar bond (in form and
substance satisfactory to the indemnified person) in an amount equal to the
full amount for which the indemnified person may be liable as a result of the
Action (including penalties and interest) or provide other evidence
satisfactory to the indemnified person of the ability of the indemnifying
person to pay that amount in full or (D) employ counsel reasonably
satisfactory to the indemnified person; or
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(b) the persons against whom the Action shall have been brought,
asserted or threatened (including any impleaded parties) include both the
indemnified person and the indemnifying person and the indemnified person is
advised by counsel that there may be one or more legal defenses available to
the indemnified person that are different from or in addition to those
available to the indemnifying person; or
(c) the indemnified person reasonably believes that the Action
or an unfavorable resolution of the Action may materially and adversely affect
the business, properties, operations, prospects or condition (financial or
otherwise) of the indemnified person and its affiliates other than as a result
of the payment of money damages.
If the indemnified person has assumed the defense of the Action pursuant
to any of the conditions stated above, then the indemnifying person shall not
have the right to assume the defense of the Action on behalf of the
indemnified person and the indemnified person shall have the right to control
the defense, compromise or settlement of any Action indemnifiable under this
Article on behalf of and for the account and risk of the indemnifying person.
The indemnifying person shall be bound by the result of the defense of any
Action, whether the defense shall have been assumed by the indemnifying
person or by the indemnified person, and shall indemnify the indemnified
person against, and hold the indemnified person harmless from, any Loss in
any way relating to or allegedly arising in connection with the matter or
matters which shall be the basis of the Action or otherwise connected to the
Action, except that the indemnifying person shall not be liable for the
payment of the amount of money damages provided in a settlement of any Action
indemnifiable under this Article defended by the indemnified person pursuant
to the second or third conditions stated above that shall have been effected
without the written consent of the indemnifying person, which consent shall
not be unreasonably withheld.
SECTION 6.3 APPEAL. Notwithstanding anything in this Article VI to the
contrary, if, in connection with an Action indemnifiable under this Article, a
Governmental Body or authority of competent jurisdiction or other person
having authority or jurisdiction over a matter or matters related to the
Action shall have rendered, entered or granted a binding judgment, decision,
ruling, order or award with respect to the matter or matters providing for the
payment of money damages or the claimant and the indemnifying party shall have
agreed to settle the Action for an amount of money damages without reservation
of any rights or defenses against the indemnified person, and if the
indemnified person elects to appeal the judgment, decision, ruling, order or
award or declines to agree to the proposed settlement, as the case may be,
then the indemnified person may continue to defend the Action, free of any
participation by the indemnifying person, but the amount of any ultimate
liability under this Article VI with respect to Losses related to or allegedly
arising in connection with the matter or matters that shall have been
comprehended by the judgment, decision,
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ruling, order or award or by the proposed settlement, as the case may be,
shall then be limited to the amount of the judgment, decision, ruling, order
or award or the amount of the proposed settlement, as the case may be, plus
the other indemnified Losses of the indemnified person relating to the matter
or matters through the date of its election to appeal or its rejection of the
proposed settlement, as the case may be.
SECTION 6.4 CONTRIBUTION. If the indemnification provided for in this
Article VI is unavailable to an indemnified person (other than by reason of
exceptions provided in this Article VI), or is insufficient to hold harmless
an indemnified person in respect of any Loss, then the indemnifying person, in
lieu of indemnifying the indemnified person, shall contribute to the amount
paid or payable by the indemnified person as a result of the Loss in the
proportion that is appropriate to reflect the relative fault of the
indemnifying person on the one part and of the indemnified person on the other
part in connection with the events or circumstances which resulted in the Loss
as well as any other relevant equitable considerations. The relative fault of
the indemnifying person on the one part and of the indemnified person on the
other part shall be determined by reference to, among other things, those
persons' relative intent, knowledge, access to information and opportunity to
correct or prevent the events or circumstances resulting in the Loss. The
amount of any Loss suffered, incurred or paid by any person shall be deemed to
include all expenses incurred or paid by the person in connection with
investigating or defending any action, including, but not limited to, the fees
and expenses of counsel.
SECTION 6.5 NO LIMITATION ON OTHER RIGHTS OF RECOVERY. The
indemnification set forth in this Article VI shall be in addition to any other
obligations or liabilities of any indemnifying person to an indemnified person
at common law or otherwise. The provisions of this Article VI shall not
eliminate or otherwise limit the right of any indemnified person or any other
person to seek to recover contribution, damages or otherwise enforce its
rights against the indemnifying person or any other person without regard to
the provisions of this Article VI. JEDI and the Company further agree that if
at any time all or any part of any indemnification payment hereunder is or
must be rescinded or returned to the person making such indemnity payment for
any reason whatsoever (including, without limitation, the insolvency,
bankruptcy or reorganization of any person) the indemnification obligations of
the person making such payment shall be reinstated with respect to such
payment so rescinded or returned as though such payment had never been made or
received.
ARTICLE VII
TERMINATION
SECTION 7.1 TERMINATION EVENTS. This Agreement may be terminated as
follows:
(a) Upon the mutual written consent of each of the parties
hereto; or
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(b) By either of the parties hereto upon written notice to the
other party if the Transaction shall not have been consummated by
February 29, 1996.
SECTION 7.2 LIMITATION ON TERMINATION. Except with respect to Section
6.1 above regarding indemnification and Section 5.5 regarding payment of
certain of JEDI's expenses, each of which shall survive in accordance with
their terms, upon termination of this Agreement, the parties hereto shall have
no further rights and obligations hereunder; PROVIDED, HOWEVER, termination of
this Agreement shall not release, or be construed as releasing, either party
hereto from any liability or damage to the other party hereto arising out of
the breaching party's willful and material breach of the warranties and
representations made by it, or willful and material failure in performance of
any its covenants, agreements, duties or obligations arising hereunder or
under any of the Transaction Documents.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 SURVIVAL. Except as otherwise specifically provided herein
or in any Transaction Document, and notwithstanding any investigation or
notice to the contrary or any waiver by any other party of a related condition
precedent to the performance by the other party of an obligation hereunder or
under a Transaction Document, (i) each representation, warranty or covenant of
each party made pursuant to this Agreement or any Transaction Document shall
survive the Closing and remain in full force and effect until the last day of
the eighteenth calendar month following the calendar month in which the
Closing occurs and (ii) each party may assert or commence an Action against
the other party with respect to the breach of any such representation,
warranty or covenant on or before such date (but not thereafter) and may
maintain any such action thereafter.
SECTION 8.2 NOTICES. Any notice, request, instruction, correspondence
or other document to be given under this Agreement by either party hereto
(each, a "Notice" for purposes of this Section 8.2) shall be in writing and
(i) delivered in person or by courier service requiring acknowledgment of
receipt of delivery; (ii) mailed by certified mail, postage prepaid and return
receipt requested; (iii) or sent by telecopier, if appropriate. All Notices
shall be sent to the address for each party set forth below, as the same may
be amended from time to time upon proper Notice given by either party hereto:
If to JEDI: Joint Energy Development Investments
Limited Partnership
c/o Enron Capital Corp.
1400 Smith Street
Houston, Texas 77002
Attention: Keith Power/Brenda McGee
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Room 2940
Telecopier: (713) 646-3602
with a copy to: Enron Capital & Trade Resources Corp.
1200 17th Street, Suite 2750
Denver, Colorado 80202
Attention: Mr. Clifford Hickey
Telecopier: (303) 534-2205
Enron Capital & Trade Resources Corp.
1400 Smith Street, 38th Floor
Houston, Texas 77002
Attention: Mr. Lance Schuler
Telecopier: (713) 646-3393
If to the Company:Forest Oil Corporation
1600 Broadway, Suite 2200
Denver, Colorado 80202
Attention: Corporate Secretary
Telecopier: (303) 812-1602
Notice given by personal delivery, courier service or mail shall be effective
upon actual receipt. Notice given by telecopier shall be confirmed by
appropriate answer back and shall be effective upon actual receipt if received
during the recipient's normal business hours, or at the beginning of the
recipient's next business day after receipt if not received during the
recipient's normal business hours. All Notices by telecopier shall be
confirmed promptly after transmission in writing by personal delivery, courier
service or certified mail in the manners provided above. Any procedural
modification pertaining to the delivery of Notice may be made in the same
manner as any other amendment to this Agreement.
SECTION 8.3 GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Colorado,
notwithstanding principles of conflicts of law.
SECTION 8.4 NO WAIVERS; RIGHTS CUMULATIVE. Unless expressly provided to
the contrary (i) no failure or delay by any party in exercising any right,
power or privilege hereunder or under any Transaction Document shall operate
as a waiver of any such right, power or privilege; and (ii) a single or
partial exercise of any right, power or privilege shall not preclude any other
or further exercise of the right, power or privilege or the exercise of any
other right, power or privilege. The rights and remedies provided in this
Agreement and the Transaction Documents shall be cumulative and not exclusive
of any rights or remedies provided by law.
SECTION 8.5 REMEDIES. With respect to disputes between the parties as
to the validity of a party's refusal to perform its obligations hereunder on
the grounds that a condition to its obligations
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hereunder has not been satisfied, and provided that the party asserting the
failure of such condition is acting in good faith, neither party shall be
liable to the other for any lost or prospective profits or any other special,
consequential, incidental or indirect losses or damages in connection
therewith. With respect to all other disputes arising between the parties,
each party shall be entitled to seek such remedies, damages and other relief
as may be available under applicable law.
SECTION 8.6 AMENDMENTS, ETC. No amendment, modification, termination,
or waiver of any provision of this Agreement or any Transaction Document (or
any schedule or exhibit hereto or thereto), and no consent by any party to a
departure from any provision of this Agreement or such Transaction Document,
shall be effective unless it shall be in writing and signed and delivered by
the other party(ies) to this Agreement or the Transaction Document as the case
may be, and then it shall be effective only in the specific instance and for
the specific purpose for which it is given.
SECTION 8.7 ENTIRE AGREEMENT. This Agreement, together with any
schedules and exhibits attached hereto, and any documents delivered pursuant
hereto, including the Transaction Documents and the letter agreement dated
December 19, 1995 referenced in Section 5.5, shall constitute the entire
agreement among the parties hereto pertaining to the Transaction and, except
for the First Restructure Agreement, supersedes all prior agreements,
understandings, negotiations and discussions of the parties, whether oral or
written.
SECTION 8.8 BINDING EFFECT AND ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective permitted successors and assigns. Neither this Agreement nor any
of the rights, benefits or obligations hereunder shall be assigned, conveyed,
transferred or otherwise disposed of, by operation of law or otherwise, by any
party hereto without the prior written consent of the other party; PROVIDED,
HOWEVER, that notwithstanding the foregoing, JEDI may assign, convey or
transfer any or all of its rights, privileges and obligations hereunder (i) to
any direct or indirect affiliate of JEDI organized under the laws of any of
the United States, (ii) any entity managed by Enron Corp. or one of its
affiliates or for which Enron Corp. or one of its affiliates acts as
administrative agent, or (iii) to any financial institution financing or
refinancing the transactions contemplated by this Agreement. Any assignment,
conveyance, transfer or other disposition made or attempted in violation of
this Section 8.8 shall be void and of no effect.
SECTION 8.9 SEVERABILITY. If a minor or immaterial provision of this
Agreement (I.E., one that does not affect the essential nature of, or
consideration for, the arrangement among the parties reflected hereby) is
declared by a court of competent jurisdiction to be invalid, illegal or
unenforceable, such declaration shall not affect the validity or
enforceability of the remaining provisions of this Agreement, which shall
continue in full force and effect. In such event, however, the parties shall
negotiate in good faith to replace such invalid, illegal or unenforceable
provision with a valid, legal and enforceable provision that places each party
in substantially the same position it would have been in had such original
provision been valid, legal and enforceable. If any one or more of the
provisions contained in Article VI of this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement, and this Agreement shall be reformed and
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construed as if such invalid, illegal or unenforceable provisions had never
been contained in this Agreement and such provisions shall be reformed so
that they would be valid, legal and enforceable to the maximum extent
permitted by law.
SECTION 8.10 HEADINGS; SCHEDULES. The headings of the several Articles
and Sections of this Agreement are inserted for convenience of reference only
and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement. The exhibits and schedules referred to
herein and attached hereto are incorporated in this Agreement by this
reference.
SECTION 8.11 MULTIPLE COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original for all
purposes, but all of which together shall constitute one and the same
instrument.
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IN WITNESS WHEREOF, the parties execute this Agreement effective as of
the date first set forth above.
JOINT ENERGY DEVELOPMENT INVESTMENTS
LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its General Partner
By: Enron Capital Corp., its
General Partner
By: /s/ Clifford P. Hickey
--------------------------------
Clifford P. Hickey
Vice President
FOREST OIL CORPORATION
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
<PAGE>
EXHIBIT A
SHAREHOLDERS AGREEMENT
THIS SHAREHOLDERS AGREEMENT (the "Agreement") dated as of ___________,
1996 is between FOREST OIL CORPORATION, a New York corporation (the "Company"),
and JOINT ENERGY DEVELOPMENT INVESTMENTS LIMITED PARTNERSHIP, a Delaware limited
partnership ("JEDI").
RECITALS
A. The parties have entered into the Second Restructure Agreement
(the "Second Restructure Agreement") dated as of December ___, 1995.
B. Pursuant to the Second Restructure Agreement, JEDI has acquired
[** insert number at Closing**] (the "JEDI Shares") of the Company's common
stock, par value $.10 per share, together with the associated Rights (as defined
in the Second Restructure Agreement) (the "Common Stock").
AGREEMENT
The parties agree as follows:
ARTICLE I
DEFINITIONS
The following terms have the following meanings:
"Action" against a person means an action, suit, investigation,
complaint or other proceeding, whether civil or criminal, in law or equity or
before any arbitrator or Governmental Body, pending against or affecting the
person or its property.
<PAGE>
"Affiliate" of a person means any other person (i) that directly or
indirectly controls, is controlled by or is under common control with, the
person or any of its Subsidiaries, (ii) that directly or indirectly beneficially
owns or holds 5% or more of any class of voting stock of the person or any of
its Subsidiaries or (iii) 5% or more of the voting stock of which is directly or
indirectly beneficially owned or held by the person or any of its Subsidiaries.
The term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a person,
whether through the ownership of voting securities, by contract or otherwise;
PROVIDED that in relation to JEDI, "Affiliate" shall not include any Affiliate
of Enron Corp. that is not wholly owned, directly or indirectly, by Enron Corp.,
unless such Affiliate (a) beneficially owns any of the JEDI Shares or (b) is a
member of a Group in which any person that beneficially owns any of the JEDI
Shares is a member or (ii) the California Public Employees Retirement System.
"Anschutz" means The Anschutz Corporation, a Kansas corporation.
"Anschutz Shareholders Agreement" means the Shareholders Agreement
entered into between the Company and Anschutz dated May 17, 1995.
"beneficial ownership" has the meaning assigned to that term under
Section 13(d) of the Exchange Act, unless otherwise specified herein.
"Board of Directors" means the board of directors of the Company, from
time to time.
"Business Combination Transaction" means a merger, consolidation or
similar transaction and each transaction that constitutes a "Change of Control"
within the meaning of the Indenture dated as of September 8, 1993 between the
Company and Shawmut Bank Connecticut, N.A. (giving effect to other terms and
provisions of such indenture that are directly or indirectly incorporated or
referenced by the definition therein of "Change of Control").
"Common Stock" has the meaning ascribed to it in Paragraph B of the
Recitals hereof.
"Equity Securities" of a person means the capital stock of such person
and all other securities convertible into or exchangeable or exercisable for any
shares of its capital stock, all rights to subscribe for or to purchase, all
options for the purchase of, and all calls, commitments, or claims of any
character relating to any shares of its capital stock and any securities
convertible into or exchangeable or exercisable for any of the foregoing.
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"Excess JEDI Shares" means, at any time of determination and with
respect to the matter subject to the vote or consent for which the Excess JEDI
Shares are then being determined, (i) the Equity Securities of the Company owned
by any of JEDI and its Affiliates and the Groups in which any of them may be
members that may then be voted or with respect to which consent may then be
given, in each case with respect to such matter less (ii) the Non-Restricted
Shares.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the related rules and regulations.
"Governmental Body" means any agency, bureau, commission, court,
department, official, political subdivision, tribunal or other instrumentality
of any government, whether federal, state, county or local, domestic or foreign.
"Group" has the meaning given such term in Section 13(d)(3) of the
Exchange Act.
"Independent Director" means any director who is not and has not been
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 of any Affiliate of such
beneficial owner.
"JEDI Registration Rights Agreement" means the Registration Rights
Agreement dated July 27, 1995 between JEDI and the Company, as amended the date
hereof.
"JEDI Designee" shall have the meaning ascribed to it in Section
2.1(a).
"JEDI Shares" has the meaning set forth in Paragraph B of the Recitals
hereof.
"Material Adverse Change" means any of (i) the average price for a
share of Common Stock over a period of thirty trading days being less than or
equal to $1.75, such number being subject to adjustment for any stock or other
non-cash dividends, split-ups, mergers, recapitalizations, combinations,
subdivisions, conversions, exchanges of shares or the like; or (ii) (a) any
downgrading by any "nationally recognized statistical rating organization" (as
that term is defined by the SEC for purposes of Rule 436(g)(2) under the
Securities Act of 1933, as amended) in the rating accorded to any debt security
of the Company by two or more ratings (including the relative standings within a
major rating category) (x) below the rating existing as of the date hereof or
(y) if not issued as of the date hereof, below the rating accorded thereto at
the time of its initial issuance, or (b) any such downgrading which results in
any debt security being accorded a rating of CCC or below by Standard & Poor's
Ratings Group, a division of McGraw-Hill, Inc., or a rating of Caa or below by
Moody's Investors Service, Inc. or their respective equivalents by any other
such nationally recognized statistical rating organization.
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"Non-Restricted Shares" means those shares of Common Stock, calculated
by multiplying (i) the number of Equity Securities of the Company owned by any
of JEDI and its Affiliates and the Groups in which any of them may be members
that may then be voted or with respect to which consent may then be given by
(ii) the quotient of (x) the number of Effective Equity Securities (as defined
in the Anschutz Shareholders Agreement) less the number of Excess Purchaser
Securities (as defined in the Anschutz Shareholders Agreement) divided by (y)
the sum of the number of Effective Equity Securities and the shares of Common
Stock issuable to Anschutz or its Affiliates or Groups upon conversion of the
shares of Second Series Convertible Preferred Stock owned by Anschutz; PROVIDED,
HOWEVER, that if the Excess Purchaser Securities is equal to zero, the Effective
Equity Securities shall be deemed to include such number of shares of Common
Stock issuable upon conversion of the shares of Second Series Convertible
Preferred Stock owned by Anschutz or its Affiliates or Groups, which when added
to the Effective Equity Securities would result in Anschutz and its Affiliates
and Groups having voting power at the time of determination equal to 19.99% of
the aggregate voting power of all Equity Securities of the Company then issued
and outstanding.
"Permitted Transfer Date" means the earlier to occur of (i) July 27,
1998 or (ii) the date on which Anschutz and its Affiliates or Groups shall have
sold 50% or more of the shares of Common Stock beneficially owned by Anschutz
and its Affiliates or Groups, which figure shall include shares of Common Stock
issuable pursuant to the Second Series Convertible Preferred Stock, the
JEDI/Anschutz Option and the Tranche A Warrants (as each such term is defined in
the Second Restructure Agreement), held by Anschutz and its Affiliates or Groups
on the date hereof, but excluding any shares of Common Stock issuable pursuant
to the JEDI/Anschutz Option or the Tranche A Warrants if such option or warrants
expires or is canceled or terminated during the period between the date hereof
and July 27, 1998.
"Related Transaction" means, with respect to any acquisition or
disposition, or deemed acquisition or disposition, of any securities, a
transaction that (i) has been disclosed in a document filed with the SEC with
respect to the Company (that is then available for inspection at the offices of
the SEC) or has been otherwise publicly announced and (ii) by its terms is
effective upon, or immediately before or after giving effect to, the occurrence
of such acquisition or disposition or deemed acquisition or disposition.
"Rights Agreement" has the meaning ascribed to it in the Second
Restructure Agreement.
"SEC" means the United States Securities and Exchange Commission.
"Second Restructure Agreement" has the meaning set forth in Paragraph
A of the Recitals hereof.
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"Section 16(b) Liability" means liability under Section 16(b) of the
Exchange Act with respect to or as a consequence, directly or indirectly, of
JEDI's or JEDI's Affiliate's acquisition (or deemed acquisition) or disposition
(or deemed disposition) of "beneficial ownership" of, or a "pecuniary interest"
or "indirect pecuniary interest" in, any of the JEDI Shares that shall have been
issued or otherwise created, acquired (or deemed to have been acquired) or
disposed of (or deemed to have been disposed of) by or pursuant to the Second
Restructure Agreement.
"Section 16(b) Matter" means each matter or series of matters
(including, without limitation, a proposed transaction or series of transactions
involving any stock or other non-cash dividend, split-up, reverse split-up,
reclassification, recapitalization, reorganization, combination, subdivision,
conversion, exchange of shares or Business Combination Transaction) which,
directly or indirectly, as a result of the taking of action with respect thereto
by the Company, its Board of Directors or shareholders or any Governmental Body
having jurisdiction thereover, or the conclusion of any such matter will or may,
directly or indirectly, whether taken alone or together with other facts or
events, result in Section 16(b) Liability; PROVIDED, HOWEVER, that a Section
16(b) Matter shall not include any of the foregoing matters that will or may,
directly or indirectly, result in Section 16(b) Liability with respect to or as
a consequence of the transfer by JEDI or any of its Affiliates of any JEDI
Shares in violation of the provisions of Section 3.2 or in transfers that would
violate the provisions of Section 3.2 but for clauses (a), (d) and (e) thereof
(collectively, "Excluded Transfers").
"Significant Transactions" means any one or more of the following:
(i) the approval of the annual budget of the Company and any
amendments thereto;
(ii) the incurrence of any indebtedness (excluding the
indebtedness represented by the Loan Agreement (as defined in the
Second Restructure Agreement)) by the Company or any Subsidiary in an
amount in excess of $20,000,000 in the aggregate, in a single
transaction or series of related transactions, or any amendment to
any material term of any agreement representing such indebtedness;
(iii) the issuance, redemption or repurchase of 20% of the
Equity Securities of the Company then outstanding, in one transaction
or a series of transactions, whether or not pursuant to a
recapitalization, reorganization, merger or consolidation of the
Company;
(iv) the sale, lease, exchange, transfer or other disposition,
directly or indirectly, of the Company's or any Subsidiary's assets,
in a single transaction or series of transactions, if such assets
constitute or would constitute Substantial Assets;
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the merger or consolidation of the Company or the adoption of a plan
of liquidation or dissolution of the Company; any motion by the
Company to commence any case, proceeding or other action (A) under any
existing or future law of any jurisdiction relating to bankruptcy,
insolvency, reorganization or relief of debtors seeking to have an
order for relief entered with respect to it, or seeking to adjudicate
it a bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other
relief with respect to it, or (B) seeking appointment of a receiver,
trustee, custodian or other similar official for it or for all or any
substantial part of its assets, or making a general assignment for the
benefit of its creditors; and
(v) any purchase, lease, exchange or other acquisition, directly
or indirectly, of assets (including securities) by the Company or any
Subsidiary, in a single transaction or series of related transactions,
if such assets constitute or would constitute Substantial Assets,
except purchases of equipment made in the ordinary course of
business.
"Subsidiary " of a person means (i) any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by the person or (ii) a
partnership in which the person or a Subsidiary of the person is, at the date
of determination, a general or limited partner of such partnership, but only if
the person or its Subsidiary is entitled to receive more than fifty percent of
the assets of such partnership upon its dissolution. For purpose of the
foregoing definition, an arrangement by which a person who owns an oil and gas
interest is subject to a joint operating agreement, processing agreement, net
profits interest, overriding royalty interest, farmout agreement, development
agreement, area of mutual interest agreement, joint bidding agreement,
unitization agreement, pooling arrangement or other similar agreement or
arrangement shall not, by reason of such agreement or arrangement alone, be
considered a Subsidiary. Unless the context otherwise requires, references to
one or more Subsidiaries shall be references to Subsidiaries of the Company.
"Substantial Assets" means assets having a fair market value that, or
assets to be acquired for a consideration that, equals or exceeds 10% of the
amount of the Consolidated Tangible Net Assets of the Company, as reflected on
the most recent audited consolidated balance sheet of the Company existing at
the time the Board makes the determination whether or not to approve, adopt or
authorize the Significant Transaction involved. The term "Consolidated Tangible
Net Assets" means, as of any date of determination, the amount of total assets
on a consolidated balance sheet of the Company, determined in accordance with
generally accepted accounting principles in
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the United States as in effect from time to time consistently applied ("GAAP"),
less the sum of the amounts of all intangible assets determined in accordance
with GAAP.
"Transaction Documents" has the meaning ascribed to it in the Second
Restructure Agreement.
ARTICLE A.
COMPANY COVENANTS
Section 2.1 BOARD OF DIRECTORS.
(a) At any time during the period of 90 days following the
occurrence of a Material Adverse Change, JEDI may, in writing, request that the
Company take all actions necessary (including, without limitation, the
amendment of the bylaws of the Company and other applicable agreements,
including the Anschutz Shareholders Agreement) to cause (1) the election as a
director of the Company of a person selected by JEDI who may lawfully serve as a
director and who shall be reasonably satisfactory to the Company (the "JEDI
Designee"), (2) if the JEDI Designee shall cease to be a director for any
reason, the filling of the vacancy resulting thereby with another JEDI Designee
and (3) the calling of meetings of the Board of Directors upon the written
request of the JEDI Designee. JEDI shall only be entitled to one JEDI Designee
at any given time. The term of the JEDI Designee shall be until the second
annual meeting of the Company's shareholders following the date of such Material
Adverse Change (which term may be extended by JEDI for consecutive periods of
one year each if a Material Adverse Change is in existence or continuing on the
date of such second annual meeting). Upon termination of this Agreement, the
Company may remove the JEDI Designee as a director.
(b) At any time during which a JEDI Designee is not serving as a
director of the Company, one individual who shall be designated from time to
time in writing by JEDI to the Company and who shall be reasonably satisfactory
to the Company (each such individual, during the period of such designation, a
"JEDI Observer") shall be entitled to (1) receive prior notice (at the time
given to members of the Board of Directors) of any meeting of the Board of
Directors of the Company at which the authorization or approval of a Significant
Transaction is proposed to be considered, (2) attend such portion of such
meeting at which such Significant Transaction shall be so considered and (3)
receive all written management reports relating to any Significant Transaction
that shall be considered for authorization and approval at such meeting;
PROVIDED, HOWEVER, that (x) JEDI and each JEDI Observer shall agree to keep
strictly confidential all information relating to the Company, whether or not
related to any Significant Transaction, that JEDI and such JEDI Observer shall
obtain in connection with the foregoing and shall acknowledge his, her or its
responsibilities
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under securities laws and other laws in connection therewith, (y) JEDI and each
such JEDI Observer shall not be entitled to receive any such notice, attend any
such meeting (or portion thereof) or receive such written management reports if
doing so could, in the judgment of the Company, violate any obligation or duty
(whether contractual, statutory, fiduciary or otherwise) to which the Company or
its officers, directors or employees were then subject (including, without
limitation, obligations of confidentiality) or otherwise subject the Company or
any of such persons to any liability or otherwise materially and adversely
affect the interests of the Company and (z) JEDI and each such JEDI Observer
shall not be entitled to attend such portion of such meeting if, in the judgment
of the Chairman of the Board of Directors or a majority of the directors of the
Company, such attendance would impair the due consideration by the Board of
Directors of any matter.
(c) If at any time when permitted to be appointed by JEDI
pursuant to Section 2.1(a) the JEDI Designee shall not be elected to the Board
of Directors by the shareholders of the Company (notwithstanding JEDI and its
Affiliates having voted all shares of Common Stock owned by them in favor of
such election) and the JEDI Designee shall not otherwise have been elected to
the Board of Directors before a date that is 10 days after the date of such vote
by the shareholders of the Company and, in any event, before any other material
action or matter is considered and resolved by the Board of Directors, the
provisions set forth in Article III shall thereafter be of no further force or
effect.
Section 2.2 EXCHANGE ACT SECTION 16(B).
(a) Without the prior written consent of JEDI, for a period of
six months from the date hereof, the Company shall take no action with respect
to a Section 16(b) Matter that will or may, directly or indirectly, whether
taken alone or together with other facts or events, result in JEDI or an
Affiliate of JEDI having Section 16(b) Liability, PROVIDED that the Company may
take any such action (1) with respect to a Section 16(b) Matter if there shall
have been entered a final judgment to the effect that JEDI and its Affiliates do
not and will not, directly or indirectly, have any Section 16(b) Liability,
which judgment shall not be subject to appeal and is RES JUDICATA as to all
matters that may give rise to Section 16(b) Liability in connection therewith,
or (2) that may, directly or indirectly, result in any such liability with
respect to or as a consequence of any Excluded Transfer.
(b) The Company may seek to determine by an Action brought
against JEDI in the United States District Court in the Southern District of New
York, or other jurisdiction approved by the Company and JEDI, the respective
rights and obligations of the parties under Section 2.2(a).
Section 2.3 RESTRICTIONS ON JEDI. Without the prior written
consent of JEDI, the Company shall not take or recommend to its shareholders any
action which would impose
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limitations on the legal rights to be enjoyed by JEDI or Affiliates of JEDI as a
shareholder of the Company, other than those imposed by the express terms of
this Agreement and the Transaction Documents including, without limitation, any
action which would impose or increase restrictions on JEDI or Affiliates of JEDI
(a) based upon the size of its security holdings, the business in which it is
engaged or other considerations applicable to it and not to security holders
generally, (b) by means of the issuance of or proposal to issue any other class
of securities having voting power disproportionately greater than the equity
investment in the Company represented by such securities or by charter or by-law
amendment or (c) by reducing by any means (including, without limitation, by
split-up, reverse split-up, reclassification, recapitalization, reorganization,
combination, redemption, repurchase, or cancellation of securities or rights or
by a Business Combination Transaction) the number of shares of Common Stock that
are then issued and outstanding or are then subject to issuance upon the
conversion of or exercise or exchange for any Equity Securities (including
securities exchangeable or convertible into Equity Securities) of the Company
then outstanding, excepting only (i) the reduction in such number of shares of
Common Stock then issued and outstanding or subject to issuance resulting from
the conversion of, exercise or exchange for, or cancellation, termination or
modification of, Equity Securities of the Company and adjustments in the number
of shares of Common Stock subject to issuance under the outstanding stock
options issued by the Company to current and former employees of the Company and
its Subsidiaries pursuant to which 3,059,000 shares of Common Stock are reserved
for issuance or under other Equity Securities of the Company, or (ii) the
reduction in the number of shares of Common Stock issued and outstanding as a
result of the one-for-five reverse stock split contemplated by the Company to be
approved by shareholders of the Company at a special meeting to be held January
5, 1996.
Section 2.4 ACCESS TO INFORMATION.
(a) The Company shall promptly furnish to JEDI all information
that is required by GAAP to enable JEDI to account for its investment in the
Company. To the extent reasonably requested by JEDI, the Company shall, and
shall cause its employees, independent public accountants and other
representatives to, provide information regarding the Company to, and otherwise
cooperate with, JEDI and the representatives of JEDI so as to enable JEDI to
prepare financial statements in accordance with GAAP.
(b) Upon reasonable notice, JEDI may from time to time request
that the Company (1) promptly disclose to JEDI the number of shares of Common
Stock issued and outstanding on a date not more than five days prior to the date
of such request and the number of shares of Common Stock subject to issuance
upon the conversion of or exercise or exchange for the Equity Securities of the
Company outstanding on such date and (2) give JEDI reasonable access to all
books and records of the Company, including its minute books.
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ARTICLE III
JEDI RESTRICTIONS
Section 3.1 VOTING RESTRICTIONS.
(a) In connection with each vote or written consent of the
holders of Common Stock, JEDI and its Affiliates shall vote, or consent with
respect to, and cause each of its Affiliates and each Group of which it is a
member, to vote or consent with respect to, all Excess JEDI Shares in respect of
the matters subject to such vote or consent in the same proportion that all
other Equity Securities of the Company (other than Equity Securities of the
Company owned by JEDI, Anschutz, any of their respective Affiliates or any Group
of which any such entity is a member) are voted or with respect to which such
consent is given by holders of such Equity Securities with respect to such
matter; PROVIDED, HOWEVER, that notwithstanding the foregoing, each of JEDI, its
Affiliates and such Groups at all times may vote, or consent with respect to,
Excess Purchaser Securities (1) for the election of the JEDI Designee, (2) as
JEDI, such Affiliate or such Group shall determine with respect to each Section
16(b) Matter with respect to which (A) any of JEDI and its Affiliates and the
respective Groups in which any of them may be members will have or may, directly
or indirectly, have Section 16(b) Liability and (B) there shall not have been
entered, as of the date such vote or consent shall be required to be given, a
final judgment to the effect that JEDI and its Affiliates and the respective
Groups in which any of them may be members do not and will not, directly or
indirectly, have any Section 16(b) Liability, which judgment shall not be
subject to appeal and is RES JUDICATA as to all matters that may give rise to
Section 16(b) Liability in connection therewith, and (3) as otherwise approved
by the Board of Directors of the Company, including a majority of Independent
Directors, with respect to the matter subject to such vote or consent.
(b) Notwithstanding anything contained in this Agreement, JEDI
and its Affiliates and the respective Groups in which any of them may be members
shall not be restricted in any manner whatsoever from voting, or consenting with
respect to, Equity Securities of the Company owned by any of them that are not
Excess JEDI Shares with respect to the matter subject to such vote or consent.
(c) The provisions of Section 3.1(a) shall terminate
contemporaneously with the termination of the restrictions contained in the
Anschutz Shareholders Agreement on the voting by Anschutz of its Excess
Purchaser Securities (as defined in the Anschutz Shareholders Agreement).
Section 3.2 TRANSFER RESTRICTIONS. Unless otherwise permitted
under the JEDI Registration Rights Agreement to include Registrable Shares (as
defined in the JEDI Registration
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Rights Agreement) in an offering of the Company's Equity Securities, prior to
the Permitted Transfer Date JEDI shall not, and shall not cause or permit its
Affiliates to, transfer the beneficial ownership of any JEDI Shares, except in
one or more of the following transactions:
(a) each transfer approved by the Board of Directors, including
a majority of Independent Directors; and
(b) each transfer in a Business Combination Transaction approved
by the Board of Directors, including a majority of Independent Directors, or by
two-thirds of the shares of Common Stock voted with respect to the transaction
(in which the JEDI Shares are voted in accordance with the restrictions
contained in Section 3.1, if applicable); and
(c) each transfer pursuant to a tender or exchange offer for
outstanding Common Stock by any person other than JEDI, any of its Affiliates or
any Group including JEDI or any of its Affiliates (1) which the Board of
Directors, including a majority of the Independent Directors, does not oppose,
or (2) which the Board of Directors or a majority of Independent Directors
opposes if after completion of such tender or exchange offer securities not
tendered or exchanged may be treated less favorably than securities tendered;
PROVIDED that no tender, indication or arrangement to tender Common Stock may be
made in the case of the preceding clause (2) until forty-eight hours prior to
the expiration of any time after which securities tendered may be treated less
favorably than securities tendered prior thereto; and
(d) each bona fide pledge of or the granting of a security
interest in or any other mortgage, deed of trust, lien, hypothecation, charge,
deposit, arrangement, preference, priority, or encumbrance ("Lien") relating to
the JEDI Shares to secure a bona fide loan, guarantee or other financial
support, the foreclosure of such pledge or security interest or any Lien that
may be placed involuntarily upon any JEDI Shares, or the subsequent sale or
other disposition of such JEDI Shares by such lender or its agent, provided that
such lender is not a member of a Group with respect to Common Stock which Group
includes JEDI or Affiliates of JEDI; and
(e) each transfer of JEDI Shares to any Affiliate of JEDI, or a
bona fide pledge of or the granting of a security interest in or any other Lien
relating to such JEDI Shares to an Affiliate of JEDI, provided in each case that
such Affiliate shall expressly assume by written instrument satisfactory to the
Company and JEDI all of the obligations and restrictions contained in this
Agreement to which such JEDI Shares shall be subject immediately before such
transfer; and
(f) a transfer upon the liquidation or dissolution of the
Company or a transfer which is effected by operation of law.
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ARTICLE IV
TERMINATION
Section 4.1 TERMINATION. This Agreement shall terminate on the
earlier of (i) the date of termination of the Anschutz Shareholders Agreement
and (ii) the date on which JEDI has beneficial ownership of JEDI Shares
constituting less than 3% of the issued and outstanding shares of Common Stock.
ARTICLE V
MISCELLANEOUS
Section 5.1 LEGENDS. Certificates representing the JEDI Shares
shall bear the legends set forth in Exhibit C to the Second Restructure
Agreement; PROVIDED, HOWEVER, that after (a) the transfer of any JEDI Shares in
accordance with Section 3.2 or (b) the termination of this Agreement, the third
paragraph of such legend shall be removed with respect to such JEDI Shares and
all JEDI Shares, respectively.
Section 5.2 NOTICES. All notices, requests and other
communications given under this Agreement shall be in writing. Each
communication shall be given to such party at its address stated on the
signature pages of this Agreement or at any other address as such party may from
time to time specify in writing to the other party. Each communication shall be
effective (a) if given by telecopy, when the telecopy is transmitted to the
proper address and the receipt of the transmission is confirmed, (b) if given by
mail, 72 hours after the communication is deposited in the mails properly
addressed with first class postage prepaid, or (c) if given by any other means,
when delivered to the proper address and a written acknowledgment of delivery is
received.
Section 5.3 NO WAIVERS; REMEDIES; SPECIFIC PERFORMANCE.
(a) No failure or delay by either party in exercising any right,
power or privilege under this Agreement shall operate as a waiver of such right,
power or privilege. A single or partial exercise of any right, power or
privilege shall not preclude any other or further exercise of such right, power
or privilege or the exercise of any other right, power or privilege. The rights
and remedies provided in this Agreement shall be cumulative and not exclusive of
any rights or remedies available at law or in equity.
(b) In view of the uniqueness of the agreements contained in
this Agreement and the transactions contemplated hereby and the fact that each
party would not have an
A-12
<PAGE>
adequate remedy at law for money damages in the event that any obligation under
this Agreement is not performed in accordance with its terms, each party
therefore agrees that the other party to this Agreement shall be entitled to
specific enforcement of the terms of this Agreement in addition to any other
remedy to which either of them may be entitled, at law or in equity.
Section 5.4 AMENDMENTS, ETC. No amendment, modification,
termination, or waiver of any provision of this Agreement, and no consent to any
departure by a party from any provision of this Agreement, shall be effective
unless it shall be in writing and signed and delivered by the other party to
this Agreement, and then it shall be effective only in the specific instance and
for the specific purpose for which it is given.
Section 5.5 SUCCESSORS AND ASSIGNS.
(a) Except as expressly contemplated by this Agreement, no party
may assign its rights or delegate its obligations under this Agreement without
the prior written consent of the other party; PROVIDED that JEDI may assign its
rights and delegate its responsibilities under this Agreement (other than those
set forth in Article II) pursuant to Sections 3.2(d) or (e) without the consent
of the Company; provided, further, that the consent of the Company shall not be
unreasonably withheld with respect to an assignment and delegation of JEDI's
rights and obligations under Article II if all of the JEDI Shares then owned
are transferred pursuant to Section 3.2(e). Any assignment or delegation in
contravention of this Section 5.5 shall be void AB INITIO and shall not relieve
the delegating party of any of its obligations under this Agreement.
(b) The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties to this Agreement and their respective
permitted successors and assigns.
(c) Notwithstanding anything herein to the contrary, each
transferee of JEDI Shares transferred in one or more of the transactions
specified in any of clauses (a) through (f), inclusive, of Section 3.2 shall
acquire such JEDI Shares free and clear of any restrictions or obligations
contained in this Agreement.
Section 5.6 GOVERNING LAW . This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York. All
rights and obligations of the parties shall be in addition to and not in
limitation of those provided by applicable law.
Section 5.7 COUNTERPARTS; EFFECTIVENESS. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if all signatures were on the same instrument.
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<PAGE>
Section 5.8 SEVERABILITY OF PROVISIONS. Any provision of this
Agreement that is prohibited or unenforceable in any jurisdiction shall, as to
that jurisdiction, be ineffective to the extent of the prohibition or
unenforceability without invalidating the remaining provisions of this Agreement
or affecting the validity or enforceability of the provision in any other
jurisdiction.
Section 5.9 HEADINGS AND REFERENCES. Article and section headings
in this Agreement are included for the convenience of reference only and do not
constitute a part of this Agreement for any other purpose. References to parties
and articles and sections in this Agreement are references to the parties to or
the articles and sections of this Agreement, as the case may be, unless the
context shall require otherwise.
Section 5.10 ENTIRE AGREEMENT. Except for the Second Restructure
Agreement and the agreements referred to therein, this Agreement embodies the
entire agreement and understanding of the parties and supersedes all prior
agreements or understandings with respect to the subject matters of this
Agreement.
Section 5.11 SURVIVAL. Except as otherwise specifically provided in
this Agreement, each representation, warranty or covenant of each party
contained in this Agreement shall remain in full force and effect,
notwithstanding any investigation or notice to the contrary.
Section 5.12 WAIVER OF JURY TRIAL. Each party waives any right to a
trial by jury in any action to enforce or defend any right under this Agreement
or any amendment, instrument, document or agreement delivered, or which in the
future may be delivered, in connection with this Agreement and agrees that any
action shall be tried before a court and not before a jury.
Section 5.13 AFFILIATE. Nothing contained in this Agreement shall
cause JEDI to be or be deemed an "affiliate" of any of the Company and its
Subsidiaries within the meaning of Rule 13e-3 under the Exchange Act.
[The remainder of this page is intentionally left blank.]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Shareholders Agreement as of the date first written above.
FOREST OIL CORPORATION
By:
----------------------------------------------------
Name:
--------------------------------------------------
Title:
-------------------------------------------------
Address: 1600 Broadway
Suite 2200
Denver, Colorado 80202
Telecopy: (303) 812-1510
JOINT ENERGY DEVELOPMENT INVESTMENTS
LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its General Partner
By: Enron Capital Corp., its
General Partner
By:
------------------------------------------
Clifford P. Hickey
Vice President
Address: 1200 17th Street, Suite 2750
Denver, Colorado 80202
Telecopy: (303) 534-2205
with a copy to:
Joint Energy Development Investments
Limited Partnership
c/o Enron Capital Corp.
Attention: Keith Power/Brenda McGee
1400 Smith Street, Room 2940
Houston, Texas 77002
Telecopy: (713) 646-4485
Enron Capital & Trade Resources Corp.
Attention: Lance Schuler
1400 Smith Street, 38th Floor
Houston, Texas 77002
Telecopy: (713) 646-3393
<PAGE>
EXHIBIT B
THIRD AMENDMENT TO LOAN AGREEMENT
This Third Amendment to Loan Agreement (this "Amendment") is made and
entered into as of January __, 1996 ("Third Amendment Date"), by and between
FOREST OIL CORPORATION, a New York corporation, with principal offices at 1600
Broadway, Suite 2200, Denver, Colorado 80202 (the "Borrower"), and JOINT ENERGY
DEVELOPMENT INVESTMENTS LIMITED PARTNERSHIP, a Delaware limited partnership,
with offices at 1400 Smith Street, Houston, Texas 77002 (the "Lender").
WHEREAS, reference for all purposes is hereby made to that certain Loan
Agreement dated December 28, 1993, between the Borrower and the Lender, as
amended by the First Amendment to Loan Agreement dated as of December 28, 1993,
and the Second Amendment to Loan Agreement dated as of July 27, 1995 (as so
amended, the "Agreement");
WHEREAS, the Borrower and the Lender desire to amend the Agreement as
hereinafter set forth;
NOW, THEREFORE, for and in consideration of ten dollars ($10.00) and other
good and valuable consideration, the Borrower and the Lender hereby agree as
follows:
1. Borrower and Lender hereby acknowledge and agree to the following:
(a) As of even date herewith and prior to the consummation of the
transactions provided for herein, the Tranche B Loan had an outstanding
principal balance of $[22,368,185.88]. On even date herewith, Lender has
conveyed to Borrower the Tranche B Warrant and its rights and obligations under
the Anschutz Option and in exchange therefor Borrower has, in full repayment of
the outstanding principal balance due under the Tranche B Loan, issued to
Lender the Shares, all as contemplated by the Second Restructure Agreement. To
evidence the repayment of the Tranche B Loan, Lender shall make an appropriate
notation on the ledger forming a part of the Note or if no ledger is attached
to the Note, otherwise reflect the payment of the Tranche B Loan in its
records.
(b) As of the Third Amendment Date and after giving effect to this
Amendment, the Loan has an outstanding principal balance of $[____________]
together with accrued but unpaid interest thereon in the amount of $______.
(c) Lender hereby acknowledges that for purposes of the Agreement
(i) the Conveyance Expiration Date shall be deemed to have occurred; (ii) the
Anschutz Option shall be
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<PAGE>
deemed to have expired; and (iii) the Tranche B Loan shall be deemed to have
been fully repaid by Borrower.
2. All references within the Agreement to either "110%" or "115%" shall
be modified to read "125%".
3. Section 1.01 of the Agreement is amended by replacing or inserting
the following defined terms, as appropriate:
"PARTIAL RELEASE OF LIENS" shall mean an instrument or instruments in
recordable form pursuant to which Lender shall release the appropriate
interest in the Mortgaged Properties from the Liens granted pursuant to
the terms of the Security Instruments. Such instruments shall expressly
state that they are partial release of liens only and that such release
will not affect any other Liens securing the Mortgaged Properties or
release any other property from such Liens.
"SECOND RESTRUCTURE AGREEMENT" shall mean the Second Restructure
Agreement dated as of December __, 1995 by and between Borrower and
Lender, as the same may be amended from time to time.
"SHARES" shall have the meaning given such term in the Second
Restructure Agreement.
"WARRANTS" shall mean the Tranche A Warrant.
4. Section 2.02(c) of the Agreement is deleted.
5. Section 2.03(a) of the Agreement is amended in its entirety to read
as follows:
(a) With respect to any Capital Operation, if Borrower elects or is
required to submit an AFE to Lender pursuant to the terms of this Agreement,
such AFE shall set forth among other things, the estimated commencement date,
the proposed depth, the objective zone or zones to be tested, the surface and
bottom hole locations, applicable details regarding directional drilling, the
equipment to be used and the estimated costs of the operation, and such other
information as Lender reasonably may request.
6. Section 2.03(c) of the Agreement is amended in its entirety to read
as follows:
(c) With respect to any AFEs submitted pursuant to the terms of
Sections 2.02(b), 2.03(b), 2.18, 2.20, and as provided in Footnote 1 to Exhibit
I, Lender shall have ten (10) Business Days (48 hours if the rig is on location
and Borrower notifies Lender of such circumstance at the time the AFE or
Supplemental AFE is submitted for approval, or sixty (60) Business Days if the
AFE involves the construction of a platform and/or facilities either as a part
of the well proposal or
B-2
<PAGE>
as a separate proposal) after receipt of such AFE and all other information
requested by Lender within which to approve the proposed AFE and the related
operation. Failure of Lender to notify Borrower in writing within such period
of time of such approval shall be deemed disapproval of the proposed AFE and
the related operation. If, however, Lender notifies Borrower in writing prior
to the expiration of such period that it consents to Borrower's AFE, Lender
shall be deemed to have consented to the commencement and completion by
Borrower of such operation pursuant to such AFE. In addition, if within 60
days after Borrower's receipt from Lender of a consent as provided for pursuant
to the terms of this Section 2.03 Borrower has not commenced the operation
covered by such consent, such consent shall be void; provided, however,
Borrower may resubmit the applicable AFE and operation to Lender for its
approval.
7. Section 2.03(d) of the Agreement is amended in its entirety to read
as follows:
(d) If at any time Lender elects not to consent or is deemed to have
elected not to consent to a Capital Operation and the related AFE submitted by
Borrower pursuant to Section 2.02(b) or 2.03(b), then Borrower shall have the
following options: (x) Borrower may elect not to perform such Capital
Operation, and if such Capital Operation is a Scheduled Capital Operation,
Borrower's obligation to complete such Scheduled Capital Operation shall
terminate and Exhibit J to this Agreement shall be revised as provided for in
Section 2.17; or (y) Borrower may complete at its sole cost and expense the
operation provided for in such AFE ("Excluded Operation") pursuant to the terms
of this Section 2.03(d) and the zone or zones targeted in such Capital
Operation (as specified in the AFE) shall be released from the Liens granted to
Lender pursuant to the Security Instruments. To obtain such a release, the
Borrower must commence the operation proposed in the rejected AFE within 60
days after the first to occur of the date on which Borrower received written
notice of Lender's election not to consent or the date on which Lender is
deemed to have elected not to consent to the applicable Capital Operation. For
purposes of all Scheduled Capital Operations providing for the drilling of a
well, such operation shall be deemed to have commenced on the date the well is
spudded, for purposes of all recompletion operations, such operation shall be
deemed to have commenced on the date the workover rig is on-site and operations
using such rig are underway, and for purposes of all other Capital Operations,
such operations shall be deemed to have commenced on the date on which on-site
operations with respect to such Capital Operation have commenced and costs in
excess of 10% of costs set out in the AFE have been incurred. Once the
Borrower has commenced a Capital Operation in accordance with the terms of the
immediately preceding sentence, Borrower shall so notify Lender and Lender
shall, within 10 Business Days following receipt of such notice, execute and
deliver to Borrower a Partial Release of Liens pursuant to which the Lender
releases only the zone or zones targeted pursuant to the terms of the AFE.
Notwithstanding the delivery of the Partial Release, Borrower shall thereafter
be obligated to conduct such operation as a reasonable and prudent operator.
8. Sections 2.08(d), (e) and (f) of the Agreement are hereby deleted.
9. Section 2.16 of the Agreement is hereby deleted.
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<PAGE>
10. Section 2.17(a) of the Agreement is hereby modified in its entirety
to read as follows:
(a) If Lender does not consent to an AFE with respect to a Scheduled
Capital Operation, or if an adjustment to Exhibit J is required pursuant to
Sections 2.18 or 2.20, then in any such case Borrower and Lender shall attempt
to mutually agree on an appropriate adjustment to the Scheduled Principal
Amount and the Required Trailing Twelve Month Cash Flow. If Borrower and
Lender are unable to agree on an appropriate adjustment to such amounts, then
the Scheduled Principal Amount and the Required Trailing Twelve Month Cash Flow
shall instead be adjusted as provided for on Attachment 1 to Exhibit J.
11. Section 2.18 of the Agreement is hereby modified in its entirety to
read as follows:
Section 2.18 COST OVERRUNS.
If Borrower anticipates incurring Overrun Expenses in connection with
any Capital Operation, Borrower shall have the right to submit a Supplemental
AFE ("Supplemental AFE") to Lender, which Supplemental AFE shall set forth the
estimated amount of the Overrun Expenses, a copy of the original AFE for such
operation, the status of the work on the operation including the depth drilled,
any objective zone or zones that have been tested, the expenses incurred, the
work remaining to be completed, the estimated costs necessary to complete such
work and such other information as Lender may reasonably request. Lender shall
respond to any such Supplemental AFE within the time period provided for in
Section 2.03(c). If Lender approves such Supplemental AFE then the costs set
forth in the Supplemental AFE shall be the only Overrun Expenses approved with
respect to such operation and such costs shall be used in calculating the
Approved Overrun Expenses. If Lender elects not to consent to the Supplemental
AFE or is deemed to have elected not to consent to the Supplemental AFE,
Borrower shall have the right to either (i) terminate its participation in the
operation covered by the Supplemental AFE or (ii) continue its participation in
such operation. If Borrower elects the option set forth in either clause (i)
or clause (ii) above, then Borrower's obligation to complete such operation
shall terminate and Exhibit J attached hereto shall be revised as provided for
in Section 2.17. If Borrower elects to continue with its participation as
provided for in clause (ii), then Borrower shall so notify Lender and within 10
Business Days thereafter (if the operations subject to the Supplemental AFE
have already been commenced as of the date of Borrower's notification), or
within 10 Business Days following commencement of the operations subject to the
Supplemental AFE, Lender shall execute and deliver to Borrower a Partial
Release of Liens releasing only the objective zone or zones designated in the
Supplemental AFE. Notwithstanding the delivery of the Partial Release,
Borrower shall thereafter be obligated to conduct such operation as a
reasonable and prudent operator. Borrower shall not have the right to propose
a Supplemental AFE with respect to Overrun Expenses incurred in connection with
any Scheduled Capital Operation if Borrower's share of the initial AFE
submitted to the working interest owners prior to the commencement of such
Scheduled Capital Operation was more than 125% of the Schedule I amount for
such operation and such initial AFE was not submitted to Lender prior to the
commencement of such operation pursuant to the terms of Section 2.02(b).
B-4
<PAGE>
12. Section 2.20 of the Agreement is hereby modified in its entirety to
read as follows:
Section 2.20 MANDATORY CAPITAL EXPENSES. From and after the Third
Amendment Date and subject to the terms of this Section 2.20, Borrower shall
maintain the leases described on Exhibit S attached hereto in full force and
effect. If Borrower determines at any time that in order to maintain any lease
described on Exhibit S it anticipates incurring expenses in excess of 125% of
the amount set forth on Exhibit S as the projected cost of extending or
renewing such lease for the time period specified on Exhibit S, then Borrower
shall have the right to submit a request for approval (a "Lease Extension AFE")
to Lender setting forth the amount of such excess. Borrower's Lease Extension
AFE shall include information relating to the consideration being requested by
the lessor and such other information as Lender may reasonably request. Lender
shall respond to any such request within the time period provided for in
Section 2.03(c) with respect to AFEs. If Lender consents to Borrower's Lease
Extension AFE, then Exhibit S shall be deemed modified to increase the
applicable amount set forth on Exhibit S by the excess amount approved by
Lender. If Lender elects not to consent to Borrower's request or is deemed to
have elected not to consent to such request, Borrower shall have the right to
either (i) allow the lease in question to terminate or (ii) make the payments
provided for in its request. If Borrower elects the option set forth in either
clause (i) or clause (ii) above, then Borrower's obligation with respect to
any Scheduled Capital Operations attributable to the lease in question shall
terminate and Exhibit J attached hereto shall be revised as provided for in
Section 2.17. If Borrower elects to extend the lease in question as provided
for in clause (ii), then provided Borrower pays to the lessor of such lease an
amount equal to or in excess of the amount set forth in the Lease Extension
AFE, Lender shall execute a Partial Release of Liens releasing the lease in
question. Such Partial Release of Liens shall be delivered by Lender to
Borrower within 10 Business Days after receiving evidence of Borrower's payment
of the amounts required to effect the extension.
13. Section 4.17 of this Agreement is amended in its entirety to read as
follows:
Section 4.17 CAPITAL EXPENDITURES. Subject to the terms of this
Section 4.17 and to Lender's approval rights as set forth in Section 2.02 and
2.03(a), Borrower agrees to make the capital expenditures involved in and to
drill, complete, and equip for production, or recomplete and rework, as the
case may be, each of the wells and to conduct each of the other Scheduled
Capital Operations and Prior Capital Operations described or referred to on
Exhibit I hereto. Borrower shall commence each Scheduled Capital Operation at
any time after the Third Amendment Date and no later than twelve (12) months
after the last day of, the month specified on Exhibit I with respect to such
Scheduled Capital Operation (such time period, with respect to a particular
Scheduled Operation being herein referred to as the "Window Period") and shall
thereafter conduct such operation as a reasonable and prudent operator. For
purposes of all Scheduled Capital Operations providing for the drilling of a
well, such operation shall be deemed to have commenced on the date the well is
spudded. Notwithstanding the foregoing or any other provision within this
Agreement to the contrary, Borrower shall not be required to commence a
Scheduled Capital Operation with respect to which (i) Borrower submits an AFE
pursuant to Section 2.02(b) and Lender does not consent thereto or is deemed to
have elected not to consent thereto; (ii) Lender elects not to or is
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<PAGE>
deemed to have elected not to consent to a Supplemental AFE with respect to
such operation pursuant to Section 2.18; (iii) Borrower's obligations have
terminated pursuant to Section 2.20; or (iv) Borrower provides evidence
satisfactory to the Lender that such operation is not reasonably necessary and
Lender has consented in writing to delay or elimination thereof.
14. Section 4.19 of the Agreement is hereby modified by deleting the
reference to "Sections 2.08(c), (d) and (e)" and inserting therefor the
following: "Section 2.08(c)".
15. Section 5.13 of the Agreement is hereby amended by deleting the two
references in such Section to "Sections 2.08(c) and (d)" and inserting therefor
"Section 2.08(c)".
16. The Borrower represents and warrants to the Lender that as of the
date of this Amendment:
(a) Each of the representations and warranties contained in (i)
Sections 3.01 through 3.04, 3.13 through 3.16, and 3.21 through 3.27 are true
and correct in all material respects;
(b) After giving effect to the amendments hereunder and the waiver
provided in Section 5.7 of the Second Restructure Agreement, there exists no
Default or Event of Default; and
(c) the Agreements described in Sections 3.18(a) and 3.18(b) (other
than the gas purchase agreement referenced in Section 3.18(a)) have not been
modified, terminated, assigned or pledged by Borrower, are in full force and
effect and Borrower, and to the best of Borrower's knowledge, no other party,
is in default in the performance of its obligations thereunder.
17. Except as amended and modified hereby, the Agreement, including,
without limitation, the terms and provisions of Section 6.03 thereof, shall
remain in full force and effect and the Borrower and the Lender hereby ratify,
adopt, and confirm the Agreement as hereby amended. The amendments to the
Agreement effected under this Amendment shall be effective as of the date of
this Amendment. The execution of this Amendment shall not waive, modify,
release or limit any of Lender's existing rights, claims or remedies.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the date first above written.
BORROWER:
FOREST OIL CORPORATION
By: ____________________________________________
Kenton M. Scroggs
Vice President
B-6
<PAGE>
LENDER:
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its general partner
By: Enron Capital Corp., its general
partner
By: ________________________________________
Clifford P. Hickey
Vice President
B-7
<PAGE>
EXHIBIT C
Legends for Stock Certificates
1. "The shares represented by this certificate have not been registered
under the Securities Act of 1933 and may not be offered, sold,
transferred or otherwise disposed of except in compliance with said
Act."
2. "The shares represented by this certificate are subject to the
restrictions contained in a Registration Rights Agreement dated as of
July 27, 1995, as amended, a copy of which is on file at the office of
the Secretary of the Company."
3. "The shares represented by this certificate are subject to the
restrictions contained in a Shareholders Agreement dated as of
__________, 1996, a copy of which is on file at the office of the
Secretary of the Company."
4. "This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in a Rights Agreement between Forest Oil
Corporation and Mellon Securities Trust Company, dated as of October 14,
1993 (the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the
principal executive offices of Forest Oil Corporation. Under certain
circumstances, as set forth in the Rights Agreement, those Rights will
be evidenced by separate certificates and will no longer be evidenced by
this certificate. Forest Oil Corporation will mail to the holder of
this certificate a copy of the Rights Agreement without charge after
receipt of a written request therefor. As described in the Rights
Agreement, Rights issued to or acquired by any Acquiring Person (as
defined in the Rights Agreement) shall, under certain circumstances,
become null and void."
<PAGE>
EXHIBIT D
AMENDMENT NO. 1 TO
REGISTRATION RIGHTS AGREEMENT
THIS AMENDMENT TO REGISTRATION RIGHTS AGREEMENT ("Amendment") dated
___________, 1996 is between FOREST OIL CORPORATION, a New York corporation
(the "Company"), and JOINT ENERGY DEVELOPMENT INVESTMENTS LIMITED
PARTNERSHIP, a Delaware limited partnership (the "Shareholder").
RECITALS
WHEREAS, the Company and the Shareholder entered into a Registration
Rights Agreement (the "Registration Rights Agreement") dated July 27, 1995
relating to registration rights granted by the Company to the Shareholder in
respect of certain Tranche B Warrant Shares.
WHEREAS, pursuant to the Second Restructure Agreement dated December __,
1995 between the Company and the Shareholder, the Tranche B Warrants shall,
on the closing of the Second Restructure Agreement, be exchanged for
8,400,000 shares of common stock of the Company, par value $.10 per share,
together with the associated Rights.
WHEREAS, the Company and the Shareholder wish to amend the Registration
Rights Agreement to take account of the exchange referred to above and to
make certain other amendments thereto.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration the adequacy and
sufficiency of which are hereby acknowledged by the parties, it is agreed as
follows:
1. The Registration Rights Agreement shall be amended as follows:
(a) In the Recitals, the last sentence of Paragraph A shall be deleted
and the following substituted therefor: "The 8,400,000 shares of the
Common Stock of the Company acquired pursuant to the Second
Restructure Agreement are referred to as the "Registrable Shares"."
(b) In Section 1(a), the phrase "Termination Date (as defined in the
JEDI/Anschutz Option)" shall be deleted and the following substituted
therefor: "Permitted Transfer Date (as defined in the Shareholders
Agreement dated ___________, 1996, between the Company and the
Shareholder)".
(c) In Section 1(b):
(i) The following clause shall be inserted at the beginning of the
first sentence of Section 1(b): "Subject to the provisions of
Section 1(b)(4),";
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<PAGE>
(ii) The following Section 1(b)(4) shall be inserted:
"(4) If prior to the Effective Date the Other Shareholder
requests inclusion or demands registration of any Other
Registrable Shares in an offering pursuant to its rights
under the Other Registration Rights Agreement, the
Shareholder shall be permitted to include in such offering
the same percentage of its Registrable Shares as the
percentage of Other Registrable Shares for which such
request has been made; provided that the percentage of
Other Registrable Shares shall be calculated based on the
number of shares of Common Stock of the Company owned by
the Other Shareholder, together with shares of Common
Stock issuable pursuant to any derivative security owned
by the Other Shareholder which is then in effect and
convertible into or exchangeable for, or which entitles
the Other Shareholder to purchase, Common Stock of the
Company. If the managing underwriter of such offering
advises the Company in writing that, in its opinion, the
number of securities requested to be included in the
registration is so great as would adversely affect the
offering, including the price as to which the Registrable
Shares can be sold, the Company will include in the
registration the maximum number of securities which it is
so advised can be sold without the adverse effect,
allocated in accordance with the priorities set forth in
Section 1(b)(2) or Section 1(b)(3), as the case may be."
2. Except as modified by the terms of this Amendment, the terms of the
Registration Rights Agreement shall continue in full force and effect.
Any reference in the Registration Rights Agreement to "this Agreement"
shall be deemed to include the amendments to the Registration Rights
Agreement effected by this Amendment.
3. This Amendment may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if all signatures
were on the same instrument.
4. This Amendment shall be governed by and construed in accordance with the
internal laws of the State of New York.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Amendment
as of the date first written above.
JOINT ENERGY DEVELOPMENT INVESTMENTS
LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its General Partner
By: Enron Capital Corp., its
General Partner
By:
----------------------------------------
Clifford P. Hickey
Vice President
FOREST OIL CORPORATION
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
D-3
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Forest Oil Corporation:
We consent to the use of our report dated March 30, 1995 relating to 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 incorporated by reference and included herein and to the reference to
our firm under the heading "Experts" in the Prospectus.
/s/ KPMG Peat Marwick LLP
Denver, Colorado
January 2, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated February 1, 1995 relating to 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 included herein and to the reference to our firm under the heading
"Experts" in the Prospectus.
/s/ Price Waterhouse
Calgary, Alberta
January 2, 1996
<PAGE>
[Ryder Scott Company Letterhead]
CONSENT
Board of Directors and Shareholders
Forest Oil Corporation:
We hereby consent to the use of our report dated January 1, 1996, with
respect to the United States oil and gas reserves, and the future net
revenues and net present value of such reserves as of December 31, 1995,
included as Appendix A to the Prospectus forming a part of the Registration
Statement on Form S-Z of Forest Oil Corporation, and to the reference to our
firm under the heading "Experts" in such prospectus.
/s/ Ryder Scott Company
Petroleum Engineers
Ryder Scott Company
Petroleum Engineers
Houston, Texas
January 2, 1996
<PAGE>
[Fekete Associates Inc. Letterhead]
CONSENT
BOARD OF DIRECTORS AND SHAREHOLDERS
FOREST OIL CORPORATION:
We hereby consent to the use of our report dated December 21, 1995,
evaluating the crude oil, natural gas and natural gas liquids reserves, and
the future net revenues and net present value of such reserves attributable
to the properties of Saxon Petroleum Inc. as at December 31, 1995 included as
Appendix B to the Prospectus forming a part of the Registration Statement on
Form S-2 of Forest Oil Corporation, and to the reference to our firm under
the heading "Experts" in such prospectus.
Fekete Associates Inc.
Oil and Gas Reservoirs Engineers
Calgary, Alberta PERMIT TO PRACTICE
FEKETE ASSOCIATES INC.
January 2, 1996
Signature /s/ Gary D. Metcalfe
--------------------
Date 95/12/27
-------------------------
PERMIT NUMBER: P 4676
The Association of Professional Engineers,
Geologists and Geophysicists of Alberta
<PAGE>
[McDaniel & Associates Consultants Ltd. Letterhead]
CONSENT
BOARD OF DIRECTORS AND SHAREHOLDERS
FOREST OIL CORPORATION:
We hereby consent to the use of our report dated December 22, 1995,
evaluating the crude oil, natural gas and natural gas liquids reserves and
the future net revenues and net present value of such reserves attributable
to the properties of ATCOR Resources Ltd, as at December 31, 1995, included
as Appendix C to the Prospectus forming a part of the Registration Statement
on Form S-2 of Forest Oil Corporation and to the reference to our firm under
the heading "Experts" in such prospectus.
MCDANIEL & ASSOCIATES CONSULTANTS LTD.
Oil and Gas Reservoir Engineers
/s/ R. E. Hughes
---------------------------------------
R. E. Hughes, P. Eng.
Vice Chairman
Calgary, Alberta
Dated: January 2, 1996
