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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
Commission File Number: 0-4597
FOREST OIL CORPORATION
(Exact name of registrant as specified in its charter)
State of incorporation: New York I.R.S. Employer Identification No. 25-0484900
1600 Broadway
Suite 2200
Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 303-812-1400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
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Common Stock, Par Value $.10 Per Share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[x] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $328,556,000 as of February 28, 1997 (based on
the last sale price of such stock as quoted on the NASDAQ National Market).
There were 32,557,469 shares of the registrant's Common Stock, Par Value
$.10 Per Share outstanding as of February 28, 1997.
Document incorporated by reference: Proxy Statement of Forest Oil
Corporation relative to the Annual Meeting of Shareholders to be held on May 14,
1997, which is incorporated into Part III of this Form 10-K.
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TABLE OF CONTENTS
Page No.
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PART I
Item 1. Business 1
Item 2. Properties 13
Item 3. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 4A. Executive Officers of Forest 20
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 22
Item 6. Selected Financial and Operating Data 24
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 26
Item 8. Financial Statements and Supplementary Data 36
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 36
PART III
Item 10. Directors and Executive Officers of the Registrant 78
Item 11. Executive Compensation 78
Item 12. Security Ownership of Certain Beneficial Owners and Management 78
Item 13. Certain Relationships and Related Transactions 78
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 78
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PART I
ITEM 1. BUSINESS
THE COMPANY
Forest Oil Corporation and its subsidiaries (Forest or the Company) are
engaged in the acquisition, exploration, development, production and
marketing of natural gas and crude oil in North America. The Company was
incorporated in New York in 1924, the successor to a company formed in 1916,
and has been a publicly held company since 1969. The Company is active in
several of the major exploration and producing areas in and offshore the
United States and in Canada.
Forest's principal reserves and producing properties are located in the Gulf
of Mexico, Texas, Oklahoma and Alberta, Canada. Approximately 60% of total
1996 production was in the United States and approximately 40% was in Canada.
The Company currently operates 45 offshore platforms in the Gulf of Mexico,
and 1996 production from this area accounted for approximately 42% of the
Company's reported production on an MCFE basis. (An MCF is one thousand
cubic feet of natural gas. MMCF is used to designate one million cubic feet
of natural gas and BCF refers to one billion cubic feet of natural gas. MCFE
means thousands of cubic feet of natural gas equivalents, using a conversion
ratio of one barrel of liquids to 6 MCF of natural gas. BCFE means billions
of cubic feet of natural gas equivalents. With respect to liquids, the term
BBL means one barrel of liquids whereas MBBLS is used to designate one
thousand barrels of liquids. The term liquids is used to describe oil,
condensate and natural gas liquids.)
The Company operates from production offices located in Lafayette, Louisiana;
Denver, Colorado; and Calgary, Alberta. Forest's corporate headquarters are
located in Denver, Colorado. On December 31, 1996 Forest had 243 employees,
of whom 179 were salaried and 64 were hourly.
OPERATING 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 acquisitions, exploration and development, while reducing
operating and financial risk. The Company intends to focus its activity
onshore and offshore in the Gulf Coast of the U.S. and in the Western
Sedimentary Basin both in the U.S. and in Canada. In recent years, the
Company has grown primarily by acquiring reserves with exploitation
potential, increasing production from existing fields and exploration of its
undeveloped acreage.
On January 31, 1996 Forest acquired ATCOR Resources Ltd. for approximately
$136,000,000, including acquisition costs of approximately $1,000,000. This
company, which has been renamed Canadian Forest Oil Ltd. (Canadian Forest),
is a Canadian corporation engaged in oil and gas exploration, production and
processing in western Canada. Estimated proved reserves acquired in the
Canadian Forest transaction were approximately 151 BCFE at an average
property acquisition cost of $.85 per MCFE ($.60 per MCFE net of related
deferred taxes). As part of the ATCOR acquisition, Forest separated ATCOR's
natural gas marketing operation from its exploration and production business
and renamed the marketing business Producers Marketing Ltd. (ProMark). In
addition to marketing Canadian Forest's own gas production, ProMark provides
a full range of gas marketing and management services to outside parties.
Other acquisitions by the Company during 1996 totaled 33 BCFE at an average
property acquisition cost of $.69 per MCFE.
During 1995, the Company's acquisitions totaled 44.0 BCFE at an average
property acquisition cost of $.61 per MCFE. These amounts represent
primarily the reserves of Saxon Petroleum Inc. (Saxon), a consolidated
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subsidiary of the Company in which the Company purchased a majority interest
on December 20, 1995. Saxon is an Alberta, Canada corporation engaged in oil
and gas exploration and production primarily in western Canada.
The Company had estimated proved reserves of 481 BCFE at December 31, 1996 of
which approximately 70% were natural gas reserves. This represents an
increase of 60% compared to estimated proved reserves of 301 BCFE at December
31, 1995 of which approximately 79% was natural gas.
Forest has dedicated an increased percentage of its capital expenditure
budget to exploration activities in 1997. The Company participates in
exploration activities through selective drilling for its own account, as
well as through farmout arrangements in certain circumstances. Forest was
successful at both 1996 federal offshore sales and at the March 1997 sale.
The Company acquired one block at the central (Louisiana) sale in April 1996
and five blocks at the western (Texas) sale in September 1996. The Company
was high bidder on eight blocks at the March 1997 central sale, although the
leases have not been formally awarded as of March 20, 1997. Forest has also
re-established its exploration effort in the Western Sedimentary Basin of the
U.S. and Canada.
Throughout the remainder of 1997, the Company also intends to continue to
pursue its strategy of acquiring additional reserves that satisfy its
investment criteria and are within the limits of its capital constraints.
Forest continues to evaluate potential acquisitions, as well as various types
of business combinations and joint ventures.
The Company's operating strategy also includes exploitation activities in the
areas of reservoir management and development drilling. Reservoir management
involves the effort to enhance value by a combination of reduced costs and
the use of techniques such as workovers to increase hydrocarbon recovery.
The Company engages in development drilling for additional reserves that
offset existing production with the objective of either increasing the
density in which wells are drilled or extending reservoirs. The Company
believes that it can increase production from, and otherwise enhance the
value of, existing fields by utilizing its technical expertise to undertake
selective workovers, recompletions and development drilling.
As a part of its operating strategy, the Company also conducts an ongoing
disposition program of its non-strategic assets. Assets with little value or
which are not consistent with the Company's ongoing operating strategy are
identified for sale or trade. During 1996, the Company disposed of
properties with estimated proved reserves of approximately 1.5 BCF of
natural gas and 628,000 barrels of oil for total net proceeds of $6,916,000.
In addition, Saxon received proceeds of approximately $10,959,000
representing the liquidation of its preferred shares in Archean Energy Ltd.
These shares, which were received through a series of transactions relating
to the 1992 sale of the Company's Canadian oil and gas properties, were
transferred to Saxon by Forest in 1995.
Prior to 1996, the Company was not able to exploit the full potential of its
acquisitions due to financial constraints resulting from its highly leveraged
capital structure and low natural gas prices. During 1995, the Company sold
equity securities to The Anschutz Corporation (Anschutz) for $45,000,000 and
restructured $62,400,000 of indebtedness to Joint Energy Development
Investments Limited Partnership (JEDI), a Delaware limited partnership the
general partner of which is an affiliate of Enron Corp. (Enron). In December
1995, the Company agreed to exchange 1,680,000 shares of common stock for
$22,400,000 of JEDI indebtedness and warrants to acquire Forest common stock.
In January 1996, the Company completed the purchase of Canadian Forest using
the proceeds of a common stock offering and approximately $8,300,000 of
borrowings under its bank credit facility. Forest also established a
$60,000,000 CDN credit facility secured by the oil and gas properties of
Canadian Forest. As a result of these transactions, the Company has improved
its financial flexibility significantly. The Company believes such improved
financial flexibility should allow Forest to exploit its expanded property
base more effectively. During the remainder of 1997, the Company intends to
expand its exploration effort as well as pursue its acquisition and
exploitation strategy. For further information concerning the Company's
acquisitions and operations, see Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations and the Consolidated
Financial Statements and Notes thereto.
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SALES AND MARKETS
Forest's U.S. production is generally sold at the wellhead to oil and natural
gas purchasing companies in the areas where it is produced. Crude oil and
condensate are typically sold at prices which are based upon posted field
prices. Natural gas in the U.S. is generally sold month to month on the spot
market. For the month of March 1997, approximately 94% of the Company's U.S.
natural gas was sold at the wellhead at spot market prices. The term "spot
market" as used herein refers to contracts with a term of six months or less
or contracts which call for a redetermination of sales prices every six
months or earlier. The remainder of the Company's U.S. natural gas was
committed to both interstate and intrastate natural gas pipeline companies,
primarily under volumetric production payment agreements and long-term
contracts. The Company believes that the loss of one or more of its current
natural gas spot purchasers should not have a material adverse effect on the
Company's business in the United States because any individual spot purchaser
could be readily replaced by another spot purchaser who would pay
approximately the same sales price.
In Canada, Canadian Forest's natural gas production is sold primarily through
the ProMark Netback Pool. The Netback Pool 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.
Under this netback arrangement, producers receive the blended market price
less related transportation and other direct costs. ProMark charges a
marketing fee for marketing and administering the gas supply pool.
Canadian Forest sold approximately 81% of its natural gas production through
the Netback Pool in 1996.
The Netback Pool gas sales in 1996 averaged 125 MMCF per day, of which
Canadian Forest supplied approximately 35 MMCF per day or 28%. Approximately
12% of the volumes sold in the Netback Pool in 1996 were sold at fixed prices
under long-term contracts. The loss of one or more of such long-term buyers
could have a material adverse effect on ProMark and Canadian Forest.
In addition to operating the Netback Pool, ProMark provides two other
marketing services for producers and purchasers of natural gas. ProMark
manages long-term gas supply contracts for its industrial customers by
providing full-service purchasing, accounting and gas nomination services for
these customers on a fee-for-services basis. ProMark also buys and sells gas
in its trading operation for terms as short as one day and as long as one to
two years. Profits generated by trading are derived from the spread between
the prices of gas purchased and sold. ProMark endeavors to offset its gas
purchase or sales commitments with other gas purchase or sales contracts,
thereby limiting its exposure to price risk. The Company is, however,
exposed to credit risk in that there exists the possibility that the
counterparties to agreements will fail to perform their contractual
obligations.
Substantially all of Forest's oil production in the U.S. and Canada is sold
under short-term contracts at prices which are based upon posted field
prices.
For information concerning sales to major customers, see Note 14 of Notes to
Consolidated Financial Statements.
OTHER FOREIGN OPERATIONS
Forest considers, from time to time, certain oil and gas opportunities in
other foreign countries. Foreign oil and natural gas operations are subject
to certain risks, such as nationalization, confiscation, terrorism,
renegotiation of existing contracts and currency fluctuations. Forest
monitors the political, regulatory and economic developments in any foreign
countries in which it operates.
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COMPETITION
The oil and natural gas industry is intensely competitive. Competition is
particularly intense in the acquisition of prospective oil and natural gas
properties and oil and gas reserves. Forest's competitive position depends
on its geological, geophysical and engineering expertise, on its financial
resources, its ability to develop its properties and its ability to select,
acquire and develop proved reserves. Forest competes with a substantial
number of other companies having larger technical staffs and greater
financial and operational resources. Many such companies not only engage in
the acquisition, exploration, development and production of oil and natural
gas reserves, but also carry on refining operations, generate electricity and
market refined products. The Company also competes with major and
independent oil and gas companies in the marketing and sale of oil and gas to
transporters, 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. 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 highly volatile. The
price of oil is generally dependent on world supply and demand, while the
price Forest receives for its natural gas is tied to the specific markets in
which such gas is sold. Declines in crude oil prices or natural gas prices
adversely impact Forest's activities. The Company's financial position and
resources may also adversely affect the Company's competitive position. Lack
of available funds or financing alternatives will prevent the Company from
executing its operating strategy and from deriving the expected benefits
therefrom. For further information concerning the Company's financial
position, see Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
ProMark also faces significant competition from other gas marketers, some of
whom are significantly larger in size and have greater financial resources
than ProMark, Canadian Forest or the Company.
REGULATION
UNITED STATES. 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, 636-B and
636-C (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
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those tolerances. Order 636 and subsequent FERC orders issued in individual
pipeline restructuring proceedings have been the subject of appeals, the
results of which have generally supported the FERC's open-access policy.
Last year, the United States Court of Appeals for the District of Columbia
Circuit largely upheld Order No. 636. Because further review of certain of
these orders is still possible and other appeals remain pending, it is
difficult to predict the ultimate impact of the orders on the Company and its
production efforts.
The FERC has announced several important transportation-related policy
statements and proposed rule changes, including the appropriate manner in
which interstate pipelines release capacity under Order No. 636 and, more
recently, the price which shippers can charge for their released capacity.
In addition, in 1995, FERC issued a policy statement on how interstate
natural gas pipelines can recover the costs of new pipeline facilities. In
January 1996, the FERC issued a policy statement and a request for comments
concerning alternatives to its traditional cost-of-service ratemaking
methodology. A number of pipelines have obtained FERC authorization to
charge negotiated rates as one such alternative. While any additional FERC
action on these matters would affect the Company only indirectly, these
policy statements and proposed rule changes are intended to further enhance
competition in natural gas markets. The Company cannot predict what action
the FERC will take on these matters, nor can it predict whether the FERC's
actions will achieve its stated goal of increasing competition in natural gas
markets. However, the Company does not believe that it will be treated
materially differently than other natural gas producers and markets with
which it competes.
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 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 or the OCS.
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 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. Under certain circumstances, the MMS may
require any Company operations on federal leases to be suspended or
terminated. Any such suspension or termination could materially and adversely
affect the Company's financial condition and operations.
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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 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.
The MMS has also issued a notice of proposed rulemaking in which it proposes
to amend its regulations governing the calculation of royalties and the
valuation of crude oil produced from federal leases. This proposed rule
would modify the valuation procedures for both arm's length and non-arm's
length crude oil transactions to decrease reliance on oil posted prices and
assign a value to crude oil that better reflects market value, establish a
new MMS form for collecting value differential data, and amend the valuation
procedure for the sale of federal royalty oil. The Company cannot predict
what action the MMS will take on this matter, nor can it predict at this
stage of the rulemaking proceeding how the Company might be affected by this
amendment to the MMS' 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 - UNITED STATES. As
originally enacted, the Oil Pollution Act of 1990 ("OPA") would have required
the Company to establish $150 million in financial responsibility to cover
oil spill related liabilities. Under recent amendments to the OPA, the
responsible person for an offshore facility located seaward of state waters,
including OCS facilities, will be required to provide evidence of financial
responsibility in the amount of $35 million. Although the financial
responsibility requirement for offshore facilities located landward of the
seaward boundary of state waters (including certain facilities in coastal
inland waters) is a lesser amount ($10 million), the Company currently has a
number of offshore facilities located beyond state waters and, thus, is
subject to the $35 million financial responsibility requirement. The amount
of financial responsibility may be increased, to a maximum of $150 million,
if the MMS determines that a greater amount is justified based on specific
risks posed by the operations. The Company expects that financial
responsibility could be established through insurance, guaranty, indemnity,
surety bond, letter of credit, qualification as a self insurer or a
combination thereof. The Company cannot predict the final form of any
financial responsibility rule that may be adopted by the MMS under OPA, but
in any event, the impact of the rule is not expected to be any more
burdensome to the Company than it will be to other similarly situated
companies involved in oil and gas exploration and production. The Company
currently satisfies similar requirements for its OCS leases under OCSLA.
CANADA. The oil and natural gas industry in Canada is subject to extensive
controls and regulations imposed by various levels of government. It is not
expected that any of these controls or regulations will affect the operations
of the Company in a manner materially different than they would affect other
oil and gas companies of similar size.
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In Canada, producers of oil negotiate sales contracts directly with oil
purchasers, with the result that the market determines the price of oil. The
price depends in part on oil quality, prices of competing fuels, distance to
market and the value of refined products. Oil exports may be made pursuant
to export contracts with terms not exceeding one year in the case of light
crude, and not exceeding two years in the case of heavy crude, provided that
an order approving any such export has been obtained from the National Energy
Board (NEB). Any oil export to be made pursuant to a contract of longer
duration requires an exporter to obtain an export license from the NEB and
the issue of such a license requires the approval of the Canadian federal
government.
In Canada, the price of natural gas sold in interprovincial and international
trade is determined by negotiation between buyers and sellers. Natural gas
exported from Canada is subject to regulation by the Government of Canada
through the NEB. Producers and exporters are free to negotiate prices and
other terms with purchasers, provided that the export contracts must continue
to meet certain criteria prescribed by the NEB. As is the case with oil,
natural gas exports for a term of less than two years must be made pursuant
to an NEB order, or, in the case of exports for a longer duration, pursuant
to an NEB license and Canadian federal government approval.
The provincial governments of Alberta, British Columbia and Saskatchewan also
regulate the volume of natural gas which may be removed from those provinces
for consumption elsewhere based on such factors as reserve availability,
transportation arrangements and market considerations.
On January 1, 1994 the North American Free Trade Agreement (NAFTA) among the
governments of Canada, the United States and Mexico became effective. NAFTA
carries forward most of the material energy terms contained in the
Canada-U.S. Free Trade Agreement. In the context of energy resources, Canada
continues to remain free to determine whether exports to the United States or
Mexico will be allowed provided that any export restrictions do not: (i)
reduce the proportion of energy resource exported relative to domestic use,
(ii) impose an export price higher than the domestic price, and (iii) disrupt
normal channels of supply. All three countries are prohibited from imposing
minimum export or import price requirements. NAFTA contemplates clearer
disciplines on regulators to ensure fair implementation of any regulatory
changes and to minimize disruption of contractual arrangements, which is
important for Canadian natural gas exports.
In addition to federal regulation, each province has legislation and
regulations which govern land tenure, royalties, production rates,
environmental protection and other matters. The royalty regime is a
significant factor in the profitability of oil and natural gas production.
Royalties payable on production from lands other than Crown lands are
determined by negotiations between the mineral owner and the lessee. Crown
royalties are determined by government regulation and are generally
calculated as a percentage of the value of the gross production, and the rate
of royalties payable generally depends in part on prescribed reference
prices, well productivity, geographical location, field discovery date and
the type or quality of the petroleum product produced.
From time to time the governments of Canada, Alberta, British Columbia and
Saskatchewan have established incentive programs which have included royalty
rate deductions, royalty holidays and tax credits for the purpose of
encouraging oil and natural gas exploration or enhanced recovery projects.
In Alberta, a producer of oil or natural gas is entitled to a credit against
the royalties payable to the Crown by virtue of the ARTC (Alberta royalty tax
credit) program. The ARTC program is based on a price sensitive formula, and
the ARTC rate varies between 75%, at prices for oil below $100 per cubic
meter, and 25%, at prices above $210 per cubic meter. The ARTC rate is
applied to a maximum of $2,000,000 of Alberta Crown royalties payable for
each producer or associated group of producers. Crown royalties on
production from producing properties acquired from corporations claiming
maximum entitlement to ARTC will generally not be eligible for ARTC. The
rate is established quarterly based on the average "par price", as determined
by the Alberta Department of Energy for the previous quarterly period.
Canadian Forest is eligible for ARTC credits only on eligible properties
acquired and wells drilled after the change of control.
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Oil and natural gas royalty holidays and reductions for specific wells reduce
the amount of Crown royalties paid by the Company to the provincial
governments. The ARTC program provides a rebate on Crown royalties paid in
respect of eligible producing properties.
ENVIRONMENTAL MATTERS. Extensive federal, state, provincial 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 or even
prohibit exploration or production activities in sensitive areas. In
addition, state laws often require some form of remedial action to prevent
pollution from former operations, such as closure of inactive pits and
plugging of abandoned wells. 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.
In Canada, the oil and natural gas industry is currently subject to
environmental regulation pursuant to provincial and federal legislation.
Environmental legislation provides for restrictions and prohibitions on
releases or emissions of various substances produced or utilized in
association with certain oil and gas industry operations. In addition,
legislation requires that well and facility sites be abandoned and reclaimed
to the satisfaction of provincial authorities. A breach of such legislation
may result in the imposition of fines and penalties.
Environmental legislation in Alberta has undergone a major revision and has
been consolidated into the ENVIRONMENTAL PROTECTION AND ENHANCEMENT ACT.
Under the new Act, environmental standards and compliance for releases,
clean-up and reporting are stricter. Also, the range of enforcement actions
available and the severity of penalties have been significantly increased.
These changes will have an incremental effect on the cost of conducting
operations in Alberta.
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
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<PAGE>
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.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
Certain of the statements set forth under "Item 1. - Business" and "Item 7
- -Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this Form 10-K, such as the statements regarding
planned capital expenditures and the availability of capital resources to
fund capital expenditures are forward-looking and are based upon the
Company's current belief as to the outcome and timing of such future events.
There are numerous risks and uncertainties that can affect the outcome and
timing of such events, including many factors beyond the control of the
Company. These factors include, but are not limited to, the matters
described below. Should one or more of these risks or uncertainties occur,
or should underlying assumptions prove incorrect, the Company's actual
results and plans for 1997 and beyond could differ materially from those
expressed in the forward-looking statements.
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 is subject to the following risk factors.
AVAILABILITY OF FINANCING. The Company has historically addressed its
long-term liquidity needs through the issuance of debt and equity securities,
when market conditions permit, and through the use of nonrecourse
production-based financing. The Company continues to examine alternative
sources of long-term capital, including bank borrowings or the issuance of
debt instruments, 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.
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 declines characteristic
of Gulf of Mexico reservoirs, where the Company has a significant portion of
its production, to the relatively slow declines 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.
VOLATILITY OF NATURAL GAS PRICES. 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 discover or
acquire proved reserves. Historically, the prices for oil and natural gas
have been quite volatile. The Company anticipates that such markets will
continue to be volatile over the next year. The Company is impacted more by
natural gas prices than by oil prices, because the majority of its production
is natural gas. At December 31, 1996 70% of the Company's estimated proved
reserves consisted of natural gas on an Mcfe basis. During 1996, 72% of the
Company's total production consisted of natural gas. The volatility of the
spot market for natural gas is due to factors beyond the Company's control,
including seasonality of demand which may cause the price received for spot
market natural gas to vary significantly between seasonal periods. Prices
are also affected by actions of state and local agencies, the United States
and foreign governments, and international cartels, all of
9
<PAGE>
which are beyond the Company's control. 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.
In order to attempt to minimize the product price volatility to which the
Company is subject, the Company, from time to time, enters into energy swap
agreements and other financial arrangements with third parties to attempt to
reduce the Company's short-term exposure to fluctuations in future oil and
natural gas prices. Long-term contracts entered into by the Netback Pool and
the volumetric production payment agreements that the Company has entered
into further minimize the price volatility to which the Company is subject.
For further information concerning market conditions, long-term contracts,
production payments and energy swap agreements, see Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Notes 5, 6, 12 and 13 of Notes to Consolidated Financial Statements.
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. 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. 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 1996 or 1995, 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. See Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 18 of Notes to Consolidated Financial Statements.
GAS MARKETING. The Company's operations include gas marketing as a result of
the Canadian Forest acquisition. ProMark'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 depends in large part
on the ability of the Company to assess and respond to changing market
conditions, including credit risk. Profitability of such natural gas
marketing operations also depends 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 conditions in
the gas marketing business could materially adversely affect the Company's
results of operations.
GAS PROCESSING. As a result of the Canadian Forest acquisition, the
Company's operations include processing of natural gas to extract various
natural gas liquids. Canadian Forest's gas processing operations primarily
consist of an interest in an ethane extraction plant located near Edmonton,
Alberta. 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. There can be no assurance
that the Company will be successful in contracting additional natural gas to
maintain optimal levels of throughput.
CREDIT RISK. ProMark buys and sells gas in its trading operation for terms
as short as one day and as long as one to two years. Profits generated by
trading are derived from the spread between the prices of gas purchased and
sold. ProMark endeavors to offset its gas purchase or sales commitments with
other gas purchase or sales contracts, thereby limiting its exposure to price
risk.
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<PAGE>
The Company is, however, exposed to credit risk in that there exists the
possibility that the counterparties to agreements will fail to perform their
contractual obligations.
CURRENCY RISK. Following the acquisition of Canadian Forest in January 1996,
a substantial portion of the Company's operations is located in Canada. The
expenses of such operations are payable in Canadian dollars and most of the
revenue derived from natural gas and oil sales is 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.
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, environmental hazards such as oil
spills, gas leaks, ruptures and discharges of toxic gases, 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, capsizing, collision, sinking and grounding of rigs and vessels
and adverse weather and sea conditions. These risks could result in
substantial losses to the Company due to personal injury or loss of life,
severe damage or destruction of property and equipment, pollution or other
environmental damage clean-up costs, regulatory investigation and penalties
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 and 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.
COMPETITION. The Company operates in a highly competitive environment. The
Company competes with major and independent oil and gas companies for the
acquisition of desirable oil and gas properties, as well as the equipment and
labor required to develop and operate such properties. The Company also
competes with major and independent oil and gas companies in the marketing
and sale of oil and natural gas to marketers and end-users. Many of these
competitors have financial and other resources substantially greater than
those of the Company.
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 drilling 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.
ACQUISITION RISKS. The Company's growth has been attributable in part to
acquisitions of producing properties. 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 preclosing 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.
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<PAGE>
MARKETABILITY OF OIL AND GAS PRODUCTION. 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.
SEASONALITY OF DEMAND FOR NATURAL GAS. Demand for natural gas is highly
seasonal, with demand generally higher in the colder winter months and in hot
summer months. To date, the Company generally has been able to sell all of
its available spot market natural gas at prevailing spot market prices; thus,
the volumes sold by the Company have not fluctuated materially with
seasonality. There is no assurance, however, that the Company will be able to
continue to achieve this result.
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.
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.
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<PAGE>
ITEM 2. PROPERTIES
Forest's principal reserves and producing properties are oil and gas
properties located in the Gulf of Mexico, Texas, Oklahoma and Alberta,
Canada.
RESERVES
Information regarding the Company's proved and proved developed oil and gas
reserves and the standardized measure of discounted future net cash flows and
changes therein is included in Note 18 of Notes to Consolidated Financial
Statements.
Since January 1, 1996 Forest has not filed any oil or natural gas reserve
estimates or included any such estimates in reports to any Federal or foreign
governmental authority or agency, other than the Securities and Exchange
Commission (SEC), the MMS and the Department of Energy (DOE). The reserve
estimate report filed with the MMS related solely to Forest's Gulf of Mexico
reserves. There were no differences between the reserve estimates included
in the MMS report, the SEC report, the DOE report and those included herein,
except for production and additions and deletions due to the difference in
the "as of" dates of such reserve estimates.
PRODUCTION
The following table shows net liquids and natural gas production for Forest
and its subsidiaries for the years ended December 31, 1996, 1995 and 1994:
Net Natural Gas and Liquids Production (1)(2)
---------------------------------------------
1996 1995 (3) 1994
---- ---- ----
United States:
Natural Gas (MMCF) 28,624 33,342 48,048
Liquids (MBBLS) 1,104 1,173 1,543
Canada:
Natural Gas (MMCF) 13,872 - -
Liquids (MBBLS) 1,645 - -
(1) Includes amounts delivered pursuant to volumetric production payments. See
Note 6 of Notes to Consolidated Financial Statements.
(2) Volumes reported for natural gas include immaterial amounts of sulfur
production on the basis that one long ton of sulfur is equivalent to 15 MCF
of natural gas. Liquids volumes include both oil and condensate and
natural gas liquids.
(3) Does not include any production relating to the acquisition of Saxon on
December 20, 1995 as the amounts involved were not significant.
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<PAGE>
AVERAGE SALES PRICES AND PRODUCTION COSTS PER UNIT OF PRODUCTION
The following table sets forth the average sales prices per MCF of natural
gas and per barrel of liquids and the average production cost per equivalent
unit of production for the years ended December 31, 1996, 1995 and 1994 for
Forest and its subsidiaries:
United States Canada (5)
--------------------------- ----------
1996 1995 1994 1996
------- ------ ------ -------
Average Sales Prices:
NATURAL GAS
Total production (MMCF)(1) 28,624 33,342 48,048 13,872
Sales price received (per MCF)(2) $ 2.36 1.65 1.86 1.41
Effects of energy swaps (per MCF) (3) (.23) .12 .04 (.04)
------ ------ ------ ------
Average sales price (per MCF)(2) $ 2.13 1.77 1.90 1.37
LIQUIDS:
Oil and Condensate:
Total production (MBBLS)(4) 964 1,121 1,482 1,308
Sales price received (per BBL) $ 20.03 16.36 14.97 20.64
Effects of energy swaps (per BBL)(3) (1.07) (.50) (.14) (1.82)
------ ------ ------ ------
Average sales price (per BBL) $ 18.96 15.86 14.83 18.82
Natural gas liquids:
Total production (MBBLS) 140 52 61 337
Average sales price (per BBL) $ 10.48 15.81 14.79 11.87
Total liquids production (MBBLS) 1,104 1,173 1,543 1,645
Average sales price (per BBL) $ 17.88 15.86 14.83 17.40
Average production cost (per MCFE)(6) $ .56 .56 .39 .52
(1) Total natural gas production includes scheduled deliveries under volumetric
production payments, net of royalties, of 3,168 MMCF, 9,120 MMCF, and
16,005 MMCF in 1996, 1995 and 1994, respectively. Natural gas delivered
pursuant to volumetric production payment agreements represented
approximately 7%, 27% and 33% of total natural gas production in 1996, 1995
and 1994, respectively. For further information concerning volumes and
prices recorded under volumetric production payments, see Notes 6 and 14 of
Notes to Consolidated Financial Statements.
(2) Amounts shown for 1995 exclude the effects of a gas contract settlement.
Including such amount, the sales price received and average sales price for
natural gas in 1995 were $1.78 and $1.90 per MCF, respectively. For
further information regarding the gas contract settlement, see Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Note 15 of Notes to Consolidated Financial Statements.
(3) Energy swaps were entered into to hedge the price of spot market volumes
against price fluctuations. Hedged natural gas volumes were 12,741 MMCF,
10,146 MMCF and 12,184 MMCF for the years ended December 31, 1996, 1995 and
1994, respectively. Hedged oil and condensate volumes were 895,600
barrels, 498,000 barrels and 370,000 barrels for 1996, 1995 and 1994,
respectively. The aggregate gains (losses) under energy swap agreements
were $(10,422,000), $3,536,000 and $1,810,000, respectively, for the years
ended December 31, 1996, 1995 and 1994.
(4) An immaterial amount of oil production is covered by scheduled deliveries
under volumetric production payments.
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<PAGE>
(5) Alberta's royalty program was restructured in 1994 and remained uncertain
throughout much of 1995 and 1996. Canadian production of natural gas
liquids for the year ended December 31, 1996 was reduced by 79,000 barrels
as a result of royalty adjustments, resulting in an increase in the
reported average sales price for natural gas liquids in Canada to $11.87
per barrel from $9.44 or by approximately 26%. The royalty adjustments did
not have a significant effect on reported volumes or average sales prices
for natural gas or oil and condensate. Canadian Forest continues to
receive additional information with respect to royalty calculations and
anticipates that revisions to such calculations will continue to occur
throughout 1997. The effects of future royalty adjustments cannot be
predicted at this time.
(6) Production costs were converted to common units of measure using a
conversion ratio of one barrel of oil to six MCF of natural gas and one
long ton of sulfur to 15 MCF of natural gas. Such production costs exclude
all depreciation, depletion and provision for impairment associated with
property and equipment.
PRODUCTIVE WELLS
The following summarizes total gross and net productive wells of the Company
and its subsidiaries at December 31, 1996:
Productive Wells (1)
------------------------
United States Canada
------------- ------
Gross (2)
Gas 278 379
Oil 180 566
----- -----
Totals (3) 458 945
----- -----
----- -----
Net (4)
Gas 100.7 127.0
Oil 118.5 225.9
----- -----
Totals 219.2 352.9
----- -----
----- -----
(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) Includes 27 dual completions in the United States and 20 dual completions
in Canada. Dual completions are counted as one well. If one completion is
an oil completion, the well is classified as an oil well.
(4) 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.
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<PAGE>
DEVELOPED AND UNDEVELOPED ACREAGE
Forest and its subsidiaries held acreage as set forth below at December 31,
1996 and 1995. A majority of the developed acreage is subject to mortgage
liens securing either the bank indebtedness or nonrecourse secured debt of
the Company and its subsidiaries. A portion of the developed acreage is also
subject to production payments. See Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations and Notes 5 and 6
of Notes to Consolidated Financial Statements.
Developed Acreage (1) Undeveloped Acreage (2)
--------------------- -----------------------
Gross (3) Net (4) Gross (3) Net (4)
--------- ------- --------- -------
United States:
Louisiana offshore 145,549 58,662 53,212 20,774
Oklahoma 63,334 21,710 7,504 1,396
Texas onshore 123,959 61,529 15,813 8,394
Texas offshore 45,382 22,694 40,347 31,694
Wyoming 8,517 4,484 51,076 21,343
Other 26,304 10,959 6,114 1,773
------- ------- ------- -------
413,045 180,038 174,066 85,374
Canada
Alberta 323,451 111,907 234,625 123,480
Other 61,301 41,191 283,124 43,731
------- ------- ------- -------
384,752 153,098 517,749 167,211
------- ------- ------- -------
Total acreage at
December 31, 1996 797,797 333,136 691,815 252,585
------- ------- ------- -------
------- ------- ------- -------
Total acreage at
December 31, 1995 496,480 211,615 172,354 83,006
------- ------- ------- -------
------- ------- ------- -------
(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 1996, the Company's gross and net developed acreage increased
approximately 61% and 57%, respectively, and gross and net undeveloped
acreage increased approximately 301% and 204%, respectively. The increases
were due primarily to the purchase of Canadian Forest.
Approximately 29% of the Company's total net undeveloped acreage is under
leases that have terms expiring in 1997, if not held by production, and
another approximately 8% of net undeveloped acreage will expire in 1998 if
not also held by production.
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DRILLING ACTIVITY
Forest and its subsidiaries owned interests in gross and net exploratory and
development wells for the years ended December 31, 1996, 1995 and 1994 as set
forth below. This information does not include wells drilled under farmout
agreements.
United States Canada
-------------------- ------
1996 1995 1994 1996
---- ---- ---- ----
Gross Exploratory Wells:
Dry (1) 4 3 2 4
Productive (2) 9 1 2 2
--- --- --- ----
13 4 4 6
--- --- --- ----
--- --- --- ----
Net Exploratory Wells:(3)
Dry (1) 2.0 1.3 2.0 2.9
Productive (2) 3.5 .3 1.3 1.4
--- --- --- ----
5.5 1.6 3.3 4.3
--- --- --- ----
--- --- --- ----
Gross Development Wells:
Dry (1) 3 - - 4
Productive (2) 15 6 5 70
--- --- --- ----
18 6 5 74
--- --- --- ----
--- --- --- ----
Net Development Wells:(3)
Dry (1) .5 - - .9
Productive (2) 1.9 .6 2.1 19.9
--- --- --- ----
2.4 .6 2.1 20.8
--- --- --- ----
--- --- --- ----
(1) A dry well (hole) is a well found to be incapable of producing either oil
or natural gas in sufficient quantities to justify completion as an oil or
natural gas well.
(2) Productive wells are producing wells and wells capable of production,
including wells that are shut-in.
(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.
FARMOUT AGREEMENTS
Under a farmout agreement, outside parties undertake exploration activities
using prospects owned by Forest. This enables the Company to participate in the
exploration prospects without incurring additional capital costs, although with
a substantially reduced ownership interest in each prospect.
In 1996, eleven development wells and one exploratory well were drilled in the
United States under farmout agreements. Nine of the development wells were
productive and two were dry holes. The exploratory well was a dry hole. In
Canada, twelve development wells and five exploratory wells were drilled in 1996
under farmout agreements. Ten of the development wells were productive and two
were dry holes. Three of the exploratory wells were productive and two were dry
holes.
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<PAGE>
PRESENT ACTIVITIES
At December 31, 1996 Forest and its subsidiaries had four development wells
that were in the process of being drilled. Two wells (both in Canada) were
determined to be productive in 1997 and two wells (one in the U.S. and one in
Canada) were determined to be dry holes. An additional development well was
being drilled in Canada under a farmout agreement. This well was
subsequently determined to be productive.
DELIVERY COMMITMENTS
At December 31, 1996 Forest and its subsidiaries were obligated to deliver,
or to make cash settlement with respect to, approximately 4 BCF of natural
gas under the terms of volumetric production payments. The delivery
commitments cover approximately 9% of the estimated net proved reserves of
natural gas attributable to the subject properties. The production payments
are nonrecourse to other properties owned by the Company. For further
information concerning the Company's volumetric production payment
agreements, see Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations and Notes 6 and 18 of Notes to
Consolidated Financial Statements. The Company is further obligated to
deliver approximately .6 BCF of natural gas under existing long-term
contracts in the U.S.
A significant portion of Canadian Forest's natural gas production is sold
through the ProMark Netback Pool. At December 31, 1996 the ProMark Netback
Pool had entered into fixed price contracts to sell approximately 10.7 BCF of
natural gas in 1997 at an average price of $1.66 per MCF and approximately
5.4 BCF of natural gas in 1998 at an average price of approximately $1.88 per
MCF. Canadian Forest is obligated to deliver approximately 25% of the volumes
of natural gas subject to these contracts.
18
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Royalty owners had filed two separate class action lawsuits against the
Company in the State District Court of Caddo County, Oklahoma. In each case
the plaintiff alleged unjust enrichment, breach of fiduciary duty,
constructive fraud and breach of contract. The claims in both suits were
based on the allegation that the Company underpaid royalties on the
consideration received pursuant to settlement agreements with ONEOK, Inc. in
1990 and 1992.
MODRALL V. FOREST OIL CORPORATION, Case No. CJ-95-67, was filed on March 24,
1995, and 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. MERCO OF OKLAHOMA, INC. V. FOREST OIL
CORPORATION, Case No. CJ-95-230, was filed on September 27, 1995. This suit
involves the 1990 ONEOK, Inc. settlement. The plaintiffs in both suits
sought actual damages in excess of $10,000, punitive damages in excess of
$10,000, an accounting, interest and costs. There had been no specific
determination of the amount in controversy in either case.
The plaintiffs alleged in both cases that they were entitled to share in all
value received by the Company under the aforesaid settlements, including
proceeds not attributable to actual gas production. As a result of a ruling
by the Oklahoma Supreme Court in a case involving similar issues, both of
these cases were dismissed without prejudice on September 12, 1996.
The Company entered into a Settlement Agreement and Release with El Paso
Natural Gas Company ("El Paso"), effective May 15, 1987, which was later
modified by a Partial Termination of Settlement Agreement and Release and Gas
Purchase Agreement, effective January 1, 1989. These agreements settled the
parties' disputes concerning take-or-pay deficiencies under eight gas
purchase contracts covering 16 wells located in Washita County, Oklahoma.
The Company received a demand letter dated November 22, 1995 from the same
attorney who represented Modrall and Merco, on behalf of a royalty owner in
one of the wells covered by the El Paso settlements. A class action petition
was filed January 19, 1996 in WRIGHT v. FOREST OIL CORPORATION, et al., Case
No. CJ-96-6 in the State District Court of Washita County, Oklahoma. Like
the plaintiffs in the MODRALL and MERCO cases, the plaintiff in this case
contended that Forest underpaid royalties on the consideration it received
under the El Paso settlement. He asserted claims for breach of contract,
unjust enrichment, breach of fiduciary duty, constructive fraud and bad faith
breach of contract, and sought an accounting and an unspecified amount of
actual and punitive damages, interest and costs. This case was also dismissed
without prejudice on September 12, 1996 for the same reasons as set forth
above.
A Petition for Rehearing asking the Oklahoma Supreme Court to reconsider its
ruling in the related case was denied.
The Company, in the ordinary course of business, is a party to various other
legal actions. In the opinion of management, none of these actions, or 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.
19
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 4A. EXECUTIVE OFFICERS OF FOREST
The following information with respect to the executive officers of Forest is
furnished pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
Years with
Name (A) Age Forest Office (B)
- ---------------- --- ---------- ----------
William L. Dorn* 48 25 Chairman of the Board and Chairman of the
Executive Committee. Chief Executive Officer
until December 1995. President until November
1993. Chairman of the Nominating Committee.
Robert S. Boswell* 47 11 President since November 1993 and Chief
Executive Officer since December 1995. Vice
President until November 1993 and Chief
Financial Officer until December 1995.
Member of the Executive Committee. Director
of C.E. Franklin Ltd. and Saxon Petroleum
Inc.
David H. Keyte 40 9 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. Chairman of the Company's
Employee Benefits Committee. Director of
Saxon Petroleum Inc.
Bulent A. Berilgen 48 12 Vice President and Chief Technical Officer
since May 1996. Prior thereto Vice President
of Operations from December 1993 to May 1996.
Prior thereto Vice President - Engineering
and Development since January 1992. Director
of Saxon Petroleum Inc.
Forest D. Dorn 42 19 Vice President-Gulf Coast Region since August
1996. Vice President from February 1991 and
General Business Manager from December 1993
to August 1996. Prior thereto General
Manager - Operations since January 1992.
20
<PAGE>
Years with
Name (A) Age Forest Office (B)
- ---------------- --- ---------- ----------
Neal A. Stanley 49 - Vice President - Western Region since August
1996. Prior thereto President of Teton Oil
and Gas Corporation.
V. Bruce Thompson 49 2 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 until
November 1993.
Kenton M. Scroggs 44 13 Vice President since December 1993 and prior
thereto Treasurer. Member of the Company's
Employee Benefits Committee.
Daniel L. McNamara 51 25 Secretary and Corporate Counsel. Member of
the Company's Employee Benefits Committee.
Joan C. Sonnen 43 7 Controller since December 1993. Prior
thereto Director of Financial Accounting and
Reporting.
____________
*Also a Director
(A) William L. Dorn and Forest D. Dorn are brothers.
(B) The term of office of each officer is one year from the date of his or her
election immediately following the last annual meeting of shareholders and
until the officer's respective successor has been elected and qualified or
until his or her earlier death, resignation or removal from office
whichever occurs first. Each of the named persons has held the office
indicated since the last annual meeting of shareholders, except as
otherwise indicated.
21
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
COMMON STOCK
Forest Oil Corporation has one class of common equity securities outstanding,
its Common Stock, par value $.10 per share (Common Stock). On January 5, 1996,
the Company's shareholders approved a reverse stock split of the Common Stock.
The reverse stock split resulted in the reclassification of each five shares of
Common Stock outstanding into one share.
On February 28, 1997 32,557,469 shares of Common Stock were held by 1,745
holders of record.
Forest's Common Stock is traded on the Nasdaq National Market. The high and
low intraday sales prices of the Common Stock for each quarterly period of
the years presented as reported by the Nasdaq National Market are listed in
the chart below. All of the following quotations have been adjusted to
reflect the 5 to 1 reverse stock split of the Common Stock that occurred on
January 8, 1996. There were no dividends on Common Stock in 1995, 1996 or in
the first quarter of 1997.
High Low
---- ---
1995
----
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
1996
----
First Quarter $ 16-1/2 $ 10-1/2
Second Quarter 13-5/8 11-1/4
Third Quarter 14-3/4 12-1/2
Fourth Quarter 17-7/8 12-3/8
1997
----
First Quarter (through
February 28) $ 19-3/8 $ 13-1/4
$.75 CONVERTIBLE PREFERRED STOCK
The Company called for redemption on February 28, 1997 all 2,877,673 shares
of its $.75 Convertible Preferred Stock. The redemption price was $10.00 per
share plus accumulated and unpaid dividends to and including the date of
redemption (for an aggregate redemption price of $10.06 per share). In lieu
of cash redemption, prior to the close of business on February 21, 1997 the
holders of the preferred shares had the right to convert each share into 0.7
share of Forest's Common Stock; 2,783,945 shares or 96.7% of the shares
outstanding were converted into Forest's Common Stock. The remaining 93,728
preferred shares that were not tendered for conversion were redeemed by
Forest at the redemption price of $10.06 per share (at a total cost to Forest
of $942,904). Lehman Brothers Inc. purchased 65,616 shares of Forest Oil
Common Stock to fund the cash requirement of the redemption in accordance
with the terms of its standby purchase agreement with Forest.
22
<PAGE>
DIVIDEND RESTRICTIONS
The only restrictions on Forest's present or future ability to pay dividends
are (i) the provisions of the New York Business Corporation Law (NYBCL), (ii)
certain restrictive provisions in the Indenture executed in connection with
Forest's 11 1/4% Senior Subordinated Notes due September 1, 2003, and (iii)
the Company's Second Amended and Restated Credit Agreement dated January 31,
1997 with The Chase Manhattan Bank (Chase), as agent for a group of banks
(the Credit Facility), under which the Company is restricted in amounts it
may pay as dividends (other than dividends payable in Common Stock). Under
these dividend restrictions, the Company was not prohibited from paying cash
dividends on its Common Stock as of March 15, 1997.
The Company has not paid dividends on its Common Stock during the past five
years and does not anticipate that it will do so in the foreseeable future.
The future payments of dividends, if any, on the Common Stock is within the
discretion of the Board of Directors and will depend on the Company's
earnings, capital requirements, financial condition and other relevant
factors. There is no assurance that Forest will pay any dividends. For
further information regarding the Company's equity securities and its ability
to pay dividends on its Common Stock, see Notes 5, 8 and 9 of Notes to
Consolidated Financial Statements.
RECENT SALES OF UNREGISTERED SECURITIES
On August 1, 1996 the Company issued 2,250,000 shares of Common Stock to
Anschutz pursuant to the exercise of an option at a price of $11.64 per
share. On November 5, 1996 the Company issued Anschutz 388,888 shares of
Common Stock pursuant to the exercise of a warrant at a price of $10.50 per
share. On November 5, 1996 the Company issued 2,000,000 shares of Common
Stock to JEDI for the extinguishment of approximately $43,000,000 of debt.
These transactions were exempt from registration under the Securities Act of
1933 (the 33 Act) pursuant to Section 4(2) of the 33 Act. On November 5,
1996 Anschutz also acquired 1,240,000 shares of Common Stock pursuant to the
conversion of 620,000 shares of the Company's Second Series Preferred Stock
in a transaction exempt from registration pursuant to Section 3(a)(9) of the
33 Act.
23
<PAGE>
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
The following table sets forth selected data regarding the Company on a
historical basis as of and for each of the years in the five-year period
ended December 31, 1996. This data should be read in conjunction with Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and Notes thereto.
<TABLE>
Years Ended December 31,
-----------------------------------------------------
1996 1995 1994 (1) 1993 1992 (2)
---- ---- -------- ---- -------
(In Thousands Except per Share Amounts and Volumes)
<S> <C> <C> <C> <C> <C>
FINANCIAL DATA
Revenue:
Marketing and processing $187,374 - - - -
Oil and gas sales 128,713 82,275 114,541 102,883 99,239
Miscellaneous, net 1,387 181 1,406 2,265 13,947
-------- ------- ------- ------- -------
Total revenue $317,474 82,456 115,947 105,148 113,186
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Earnings (loss) before income
taxes, cumulative effects of
changes in accounting principles
and extraordinary items $ 6,590 (18,003) (67,844) (10,705) 11,286
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Net earnings (loss) $ 3,305 (17,996) (81,843) (21,213) 7,298
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Weighted average number of common
shares outstanding 27,163 7,360 5,619 4,399 2,755
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Net earnings (loss) attributable to
common stock $ 1,147 (20,156) (84,004) (23,463) 4,950
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Primary earnings (loss) per share: (3)
Earnings (loss) attributable to common
stock before cumulative effects
of changes in accounting principles
and extraordinary items $ (.04) (2.74) (12.46) (2.64) 1.80
Cumulative effect of changes in
accounting principles - - (2.49) (.26) -
Extraordinary items .08 - - (2.44) -
-------- ------- ------- ------- -------
Net earnings (loss) attributable to
common stock $.04 (2.74) (14.95) (5.34) 1.80
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Total assets $563,458 321,043 324,832 426,755 378,532
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Long-term debt $168,859 193,879 207,054 194,307 168,321
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Other long-term liabilities $ 53,560 27,139 28,166 27,053 15,285
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Deferred revenue $ 7,591 15,137 35,908 67,228 67,066
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Shareholders' equity $242,443 44,297 6,086 88,156 59,881
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
</TABLE>
24
<PAGE>
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA (CONTINUED)
<TABLE>
Years Ended December 31,
-----------------------------------------------------
1996 1995 1994 (1) 1993 1992 (2)
---- ---- -------- ---- -------
(In Thousands Except per Share Amounts and Volumes)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Annual production (4):
Gas (MMCF) 42,496 33,342 48,048 41,114 29,174
Liquids (MBBLS) 2,749 1,173 1,543 1,493 1,450
Average price received (4):
Gas (per MCF) (5) $ 1.89 1.77 1.90 1.88 1.70
Liquids (per Barrel) $ 17.59 15.86 14.83 16.97 18.14
Capital expenditures, net of asset sales $234,556 44,913 29,839 168,169 81,695
Proved Reserves (4) (6):
Gas (MMCF) 337,250 238,128 246,996 273,382 194,655
Liquids (MBBLS) 24,014 10,541 7,532 8,198 7,560
Standardized measure of discounted
future net cash flows relating to
proved oil and gas reserves (6) $559,869 256,917 207,549 262,176 190,971
Total discounted future net cash flows
relating to proved oil and gas reserves,
including amounts attributable to
volumetric production payments (6) $562,995 265,393 230,149 299,053 227,009
</TABLE>
- -------------------
(1) Effective January 1, 1994 the Company changed its method of accounting for
oil and gas sales from the sales method to the entitlements method. See
Note 1 of Notes to Consolidated Financial Statements.
(2) Financial data for the year ended December 31, 1992 include the effects of
a gas contract settlement, which increased total revenue by $37,541,000 and
net earnings by $24,043,000 or $8.73 per share. The average price received
for natural gas for the year ended December 31, 1992 excludes the effects
of the settlement.
(3) 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.
(4) Includes amounts attributable to required deliveries under volumetric
production payments. See Notes 6 and 18 of Notes to Consolidated Financial
Statements.
(5) Amounts shown for 1995 exclude the effects of a gas contract settlement.
Including such amount, the average sales price for 1995 was $1.90 per MCF.
For further information regarding the gas contract settlement, see Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Note 15 of Notes to Consolidated Financial Statements.
(6) The 1996 and 1995 amounts include 100% of the reserves owned by Saxon, a
consolidated subsidiary in which the Company holds a majority interest.
See Note 2 of Notes to Consolidated Financial Statements.
25
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto.
RESULTS OF OPERATIONS
NET EARNINGS (LOSS). Net earnings for 1996 were $3,305,000 compared to a net
loss of $17,996,000 in 1995. Earnings for the 1996 period include an
extraordinary gain on extinguishment of debt of $2,166,000. The improved
earnings from continuing operations in 1996 were attributable primarily to
increased natural gas and liquids prices as well as increased natural gas and
liquids production as a result of the acquisitions of Saxon Petroleum Inc.
(Saxon) and Canadian Forest Oil Ltd. (Canadian Forest), which were completed
in December 1995 and January 1996, respectively, and to the contribution made by
Forest's Canadian marketing and processing subsidiary (ProMark), which was
also acquired in January 1996. The net loss for 1995 was $17,996,000
compared to a net loss of $81,843,000 in 1994. The 1995 loss was primarily
due to decreased oil and natural gas volumes and lower natural gas prices,
offset by $4,263,000 of income associated with a gas contract settlement.
The 1994 loss included 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 relating to the change in the method of accounting for
oil and gas sales from the sales method to the entitlements method. See
"Accounting Policies".
REVENUE. Total revenue increased 285% to $317,474,000 in 1996 from
$82,456,000 in 1995 and decreased 29% in 1995 from $115,947,000 in 1994. The
significant increase in total revenue in 1996 is due primarily to the
acquisitions of ProMark, Canadian Forest and Saxon.
Marketing and processing revenue attributable to the marketing activities of
ProMark subsequent to its purchase on January 31, 1996 was $187,374,000. For
the eleven months ended December 31, 1996 ProMark marketed approximately 851
MMCF of natural gas per day.
Oil and gas sales revenue increased to $128,713,000 in 1996 from $82,275,000
in 1995, or by approximately 56%. Oil and gas sales in 1995 included
$4,263,000 of income associated with a gas contract settlement with Columbia
Gas Transmission ("Columbia"). The Company had entered into gas sales
contracts with Columbia which were rejected by Columbia in connection with
its bankruptcy proceedings. The income related to the settlement with
Columbia represented approximately 5% of total oil and gas sales in 1995.
Natural gas and liquids volumes increased 27% and 134% in 1996, respectively,
primarily as a result of the Canadian acquisitions and new production from
the Company's offshore Gulf of Mexico platform at High Island 116, partially
offset by anticipated production declines in the United States. The average
sales price received for natural gas in 1996 increased 7% compared to 1995,
exclusive of the effects of income associated with the gas contract
settlement. The average sales price received for liquids production in 1996
increased 11% compared to 1995.
Oil and gas sales revenue decreased to $82,275,000 in 1995 from $114,541,000 in
1994, or by approximately 28%. In 1995, natural gas and oil production volumes
were down 31% and 24%, respectively, compared to 1994. These decreases resulted
primarily from limited capital expenditures in 1994 and 1995 that did not allow
the Company to replace existing production through acquisitions and drilling.
The average sales price for natural gas in 1995 decreased 7% compared to 1994,
exclusive of the effects of the income associated with the gas contract
settlement. The average sales price for oil in 1995 increased 7% compared to
1994.
Oil and gas sales to Enron and certain of its affiliates (Enron Affiliates),
the Company's largest customer, represented approximately 25% of oil and gas
sales in 1996, compared to 38% in 1995 and 51% in 1994. The decreases during
these periods are attributable primarily to the decreases in delivery
requirements pursuant to volumetric production payments. In addition, the
Company's spot market sales to Enron Affiliates increased to approximately 11
BCFE in 1996 from approximately 8 BCFE in 1995 as a result of higher
production volumes available for sale. Spot market sales to Enron Affiliates
in 1994 were approximately 16 BCFE.
26
<PAGE>
The production volumes and average sales prices for the years ended December
31, 1996, 1995 and 1994 for Forest and its subsidiaries were as follows:
Years Ended December 31,
----------------------------
1996 (5) 1995 1994
-------- ---- ----
NATURAL GAS
Total production (MMCF)(1) 42,496 33,342 48,048
Sales price received (per MCF)(2) $ 2.06 1.65 1.86
Effects of energy swaps (per MCF)(3) (.17) .12 .04
------ ------ ------
Average sales price (per MCF)(2) $ 1.89 1.77 1.90
LIQUIDS
Oil and condensate:
Total production (MBBLS)(4) 2,272 1,121 1,482
Sales price received (per BBL) $20.38 16.36 14.97
Effects of energy swaps (per BBL)(3) (1.50) (.50) (.14)
------ ------ ------
Average sales price (per BBL) $18.88 15.86 14.83
Natural gas liquids:
Total production (MBBLS) 477 52 61
Average sales price (per BBL) $11.46 15.81 14.79
Total liquids production (MBBLS) 2,749 1,173 1,543
Average sales price (per BBL) $17.59 15.86 14.83
- -------------------
(1) Total natural gas production includes scheduled deliveries under volumetric
production payments, net of royalties, of 3,168 MMCF, 9,120 MMCF and 16,005
MMCF in 1996, 1995 and 1994, respectively. Natural gas delivered pursuant
to volumetric production payment agreements represented approximately 7%,
27% and 33% of total natural gas production in 1996, 1995 and 1994,
respectively. For further information concerning volumes and prices
recorded under volumetric production payments, see Notes 6 and 18 of Notes
to Consolidated Financial Statements.
(2) Amounts shown for 1995 exclude the effects of a gas contract settlement.
Including such amount, the sales price received and average sales price for
natural gas in 1995 were $1.78 and $1.90 per MCF, respectively. For
further information regarding the gas contract settlement, see Note 15 of
Notes to Consolidated Financial Statements.
(3) Energy swaps were entered into to hedge the price of spot market volumes
against price fluctuation. Hedged natural gas volumes were 12,741 MMCF,
10,146 MMCF and 12,184 MMCF for the years ended December 31, 1996, 1995 and
1994, respectively. Hedged oil and condensate volumes were 895,600
barrels, 498,000 barrels and 370,000 barrels for the years ended December
31, 1996, 1995 and 1994, respectively. The aggregate gains (losses) under
energy swap agreements were $(10,422,000), $3,536,000 and $1,810,000,
respectively, for the years ended December 31, 1996, 1995 and 1994.
(4) An immaterial amount of oil production is covered by scheduled deliveries
under volumetric production payments.
(5) Alberta's royalty program was restructured in 1994 and remained uncertain
throughout much of 1995 and 1996. Production of natural gas liquids for
the year ended December 31, 1996 was reduced by 79,000 barrels as a result
of royalty adjustments, resulting in an increase in the reported average
sales price for natural gas liquids to $11.46 per barrel from $9.70 or by
approximately 18%. The royalty adjustments did not have a significant
effect in reported volumes or average sales prices for natural gas or oil
and condensate. Canadian Forest continues to receive additional
information with respect to royalty calculations and anticipates that
revisions to such calculations will continue to occur throughout 1997. The
effects of future royalty adjustments cannot be predicted at this time.
Miscellaneous net revenue of $1,387,000 in 1996 included the reversal of a
$1,136,000 liability for royalties on the proceeds from the gas contract
settlement with Columbia. Miscellaneous net revenue was $181,000 in 1995.
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
27
<PAGE>
royalty dispute and a payment of deferred maintenance costs of a real
estate complex formerly used for general business purposes.
MARKETING AND PROCESSING EXPENSE. In 1996, marketing and processing expense
of $178,706,000 was recorded which relates primarily to the marketing
activities of ProMark subsequent to its purchase on January 31, 1996.
OIL AND GAS PRODUCTION EXPENSE. Oil and gas production expense increased 43%
to $32,199,000 in 1996 from $22,463,000 in 1995 due primarily to production
expense associated with the newly-acquired Canadian properties. On an MCFE
basis, production expense was $.55 per MCFE in 1996 compared to $.56 in 1995.
Oil and gas production expense increased slightly to $22,463,000 in 1995
from $22,384,000 in 1994. On an MCFE basis, however, production expense
increased to $.56 per MCFE in 1995 from $.39 per MCFE in 1994. The increased
cost per MCFE from 1994 to 1995 is directly attributable to fixed components
of oil and gas production expense being allocated over a smaller production
base.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
increased 50% to $13,623,000 in 1996 compared to $9,081,000 in 1995 due
primarily to the effect of Canadian acquisitions. General and administrative
expense decreased 19% to $9,081,000 in 1995 compared to $11,166,000 in 1994
due primarily to a reduction in the size of the Company's workforce on March
1, 1995. The capitalization rate was approximately 36% in 1996 compared to
43% in 1995 and 40% in 1994. Changes in the capitalization rate result from
changes in the percentage of employees' time spent working directly on
exploration and development projects.
Total overhead costs (capitalized and expensed general and administrative
costs) were $21,396,000 in 1996, $15,857,000 in 1995 and $18,719,000 in 1994.
Total overhead costs were approximately 35% higher in 1996 compared to 1995
due primarily to the addition of the Canadian operations, which increased
Forest's salaried workforce to 179 at December 31, 1996 compared to 115 at
December 31, 1995. Total overhead costs were approximately 15% lower in 1995
than in 1994. The Company's salaried workforce in the United States was 115
at December 31, 1995 compared to 143 at December 31, 1994. The decreases in
total overhead costs and personnel in 1995 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:
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
Overhead costs capitalized $ 7,773 6,776 7,553
General and administrative costs expensed (1) 13,623 9,081 11,166
------- ------ ------
Total overhead costs $21,396 15,857 18,719
------- ------ ------
------- ------ ------
(1) Includes $2,555,000 in 1996 related to marketing and processing operations.
INTEREST EXPENSE. Interest expense of $23,307,000 in 1996 decreased
$2,016,000 or 8% compared to 1995 due primarily to the restructuring and
extinguishment of the nonrecourse secured loan and lower effective interest
on the dollar denominated production payment. Interest expense of
$25,323,000 in 1995 decreased $1,450,000 or 5% compared to 1994 due primarily
to lower effective interest rates related to the nonrecourse secured loan and
the dollar denominated production payment.
DEPRECIATION AND DEPLETION EXPENSE. Depreciation and depletion expense
increased 45% to $63,068,000 in 1996 from $43,592,000 in 1995 due to the
increase in production, offset by a decrease in the depletion rate per unit
of production. The depletion rate decreased to $1.01 per MCFE in 1996
compared to $1.06 per MCFE in 1995, resulting from the addition of lower cost
Canadian production, partially offset by higher anticipated future costs in
the United States due to expected increased costs for services. Depreciation
and depletion expense decreased 33%
28
<PAGE>
to $43,592,000 in 1995 from $65,468,000 in 1994 due to decreased production,
as well as a decrease in the depletion rate per unit of production. The
depletion rate decreased to $1.06 per MCFE for United States production in
1995 compared to $1.13 in 1994 due to writedowns of the Company's oil and gas
properties taken in the third and fourth quarters of 1994.
At December 31, 1996 the Company had undeveloped properties with a cost basis
of approximately $30,046,000 in the U.S. and $13,870,000 in Canada which were
excluded from depletion compared to $28,380,000 in the U.S. at December 31,
1995 and $30,441,000 in the U.S. at December 31, 1994. The increase in 1996
compared to 1995 is due primarily to the acquisition of undeveloped
properties in the Canadian Forest purchase.
IMPAIRMENT OF OIL AND GAS PROPERTIES. The Company was not required to record
a writedown of the carrying value of its oil and gas properties in 1996 or
1995. 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 average Gulf Coast spot price received by the Company for natural gas
decreased from $3.89 per MCF at December 31, 1996 to approximately $1.80 per
MCF at March 1, 1997. The West Central Texas Intermediate price for crude oil
decreased from $23.75 per barrel at December 31, 1996 to approximately $18.00
per barrel at March 1, 1997. The average spot price received for Canadian
natural gas production decreased from $2.76 per MMBTU at December 31, 1996 to
approximately $1.82 per MMBTU at March 1, 1997. The Canadian spot price
received for crude oil decreased from $25.92 per barrel at December 31, 1996
to approximately $20.30 per barrel at March 1, 1997.
Writedowns of the full cost pools in the United States and Canada may be
required if the depressed price environment persists, 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.
ACCOUNTING POLICIES. 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.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets to Be Disposed Of" (SFAS No. 121). Oil and gas properties
accounted for under the full cost method of accounting are excluded from the
scope of SFAS No. 121, but will continue to be subject to the ceiling test
limitation. SFAS No. 121 requires that impairment losses be recorded on
other long-lived assets used in operations when indicators of impairment are
present and either the undiscounted future cash flows estimated to be
generated by those assets or the fair market value are less than the assets'
carrying amount. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted SFAS No. 121
effective January 1, 1996. The adoption of SFAS No. 121 had no effect on the
Company's financial statements.
29
<PAGE>
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation" (SFAS No. 123), was issued by the Financial Accounting
Standards Board in October 1995. SFAS No. 123 establishes financial
accounting and reporting standards for stock-based employee compensation
plans as well as transactions in which an entity issues its equity
instruments to acquire goods or services from non-employees. The Company
adopted SFAS No. 123 effective January 1, 1996, and will continue to use the
measurement method prescribed by APB Opinion 25, as permitted under SFAS No.
123. The Company has included the pro forma disclosures required by SFAS No.
123 in Note 9 of Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically addressed its long-term liquidity needs through
the issuance of debt and equity securities, when market conditions permit,
and through the use of nonrecourse production-based financing.
In 1995, the Company completed a series of transactions with Anschutz and
JEDI. For total consideration of $45,000,000, the Company issued to Anschutz
3,760,000 shares of Common Stock, 620,000 shares of a new series of
convertible preferred stock and a warrant that entitled Anschutz to purchase
3,888,888 shares of Common Stock for $10.50 (the A Warrant). The Company
restructured JEDI's existing loan, which had a principal balance of
approximately $62,368,000 before unamortized discount of $4,984,000, into two
tranches: a $40,000,000 tranche and an approximately $22,400,000 tranche. In
consideration for the loan restructuring JEDI received a warrant to purchase
2,250,000 shares of Common Stock at $10.00 per share (the B Warrant). JEDI
granted an option to Anschutz (the Anschutz Option) to purchase from JEDI
shares purchased pursuant to the B Warrant at an escalating price ranging from
$10.00 to $15.50 per share. In December 1995, JEDI exchanged the $22,400,000
tranche and the B Warrant for 1,680,000 shares of Common Stock. In connection
with this exchange, the Company assumed JEDI's obligations under the Anschutz
Option. Under the Anschutz Option, the Company was then obligated to issue
shares directly to Anschutz that previously would have been issued to JEDI
pursuant to the B Warrant.
30
<PAGE>
In 1996, the Company completed additional transactions that improved its
financial position considerably. On January 31, 1996 the Company and Saxon
sold 13,200,000 shares of common stock for $11.00 per share in a public
offering (the 1996 Public Offering). Of this amount, 1,060,000 shares were
sold by Saxon and 12,140,000 shares were sold by Forest. The net proceeds to
Forest from the issuance of the shares totaled approximately $125,000,000
after deducting issuance costs and underwriting fees and were used, along with
an additional approximately $8,300,000 drawn under the Company's Credit
Facility to complete the purchase of Canadian Forest and ProMark. The net
proceeds to Saxon of approximately $11,000,000 were used to reduce its bank
debt.
On August 1, 1996 Anschutz exercised the Anschutz Option to purchase
2,250,000 shares of common stock for $26,200,000 or approximately $11.64 per
share. Proceeds received by Forest were used primarily to fund a portion of
1996 capital expenditures.
On November 5, 1996 the Company exchanged 2,000,000 shares of common stock
plus approximately $13,500,000 in cash to extinguish approximately
$43,000,000 of nonrecourse secured debt owed to JEDI. The JEDI debt bore
interest at 12-1/2% per annum. In connection with this transaction, Anschutz
acquired 1,628,888 shares of common stock by exercising a portion of the A
Warrant to purchase 388,888 shares of common stock at $10.50 per share and by
converting 620,000 shares of Forest's Second Series Preferred Stock into
1,240,000 shares of common stock. The fair value of the shares of common
stock issued to JEDI was estimated based on the quoted market price of the
common stock at the date of the transaction, less a discount of 7-1/2% to
reflect the lock-up agreement with JEDI that limited JEDI's ability to
transfer the shares before May 31, 1997, the size of the block of shares to
be issued and the estimated brokerage fees on the ultimate disposition of the
shares. The fair value of the common stock issued and the cash paid to JEDI,
including related expenses of the transaction, was less than the carrying
amount of the debt extinguished. Accordingly, the Company recorded an
extraordinary gain on extinguishment of debt in the fourth quarter of 1996 of
approximately $2,166,000.
On November 14, 1996 the Company filed a shelf registration with the
Securities and Exchange Commission to issue up to $250,000,000 in one or more
forms of debt or equity securities. Except as otherwise provided in an
applicable prospectus supplement, the net proceeds from the sale of the
securities will be used for the acquisition of oil and gas properties,
capital expenditures, the repayment of subordinated debentures or other debt,
repayments of borrowings under revolving credit agreements, or for other
general corporate purposes.
31
<PAGE>
On February 7, 1997 the Company called for redemption all 2,877,673 shares of
its $.75 Convertible Preferred Stock. This conversion eliminated all
outstanding preferred stock from Forest's capital structure. In response to
its call for redemption, 2,783,945 shares or 96.7% of the shares outstanding
were tendered for conversion into common stock on or before the February 21,
1996 deadline. The remaining 93,728 preferred shares that were not tendered
for conversion were redeemed by the Company at the redemption price of $10.06
per share (at a total cost of $942,904) on February 28, 1997. Lehman
Brothers Inc. purchased 65,616 shares of the Company's common stock to fund
the cash requirement of the redemption in accordance with the terms of its
standby purchase agreement with Forest. Redemption of the $.75 Convertible
Preferred Stock eliminates approximately $2,200,000 of annual preferred
dividend payments.
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
capital, including bank borrowings, the issuance of debt instruments, the
sale of common stock, preferred stock or other equity securities of the
Company, the issuance of net profits interests, sales of non-strategic
assets, 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.
CASH FLOW. Historically, one of the Company's primary sources of capital has
been net cash provided by operating activities (operating cash flow). The
following summary table reflects comparative cash flow data for the Company
for the years ended December 31, 1996, 1995 and 1994.
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
Net cash provided (used) by operating
activities $ 67,815 (3,062) 42,441
Net cash used by investing activities (226,867) (17,219) (32,307)
Net cash provided (used) by financing
activities 164,500 20,698 (14,126)
Net cash provided by operating activities increased to $67,815,000 in 1996
compared to a net use of cash for operating activities of $3,062,000 in 1995,
due to higher natural gas and liquids prices, increased natural gas and
liquids production as a result of the Saxon and Canadian Forest acquisitions
and the contribution made by ProMark and an increase in accounts payable
during 1996. The Company used $226,867,000 for investing activities in 1996
compared to $17,219,000 in 1995. The increase is due primarily to the use of
funds to acquire Canadian Forest and higher capital expenditures. Cash
provided by financing activities was $164,500,000 in 1996 compared to
$20,698,000 in 1995. The increase is due primarily to the net proceeds
received from the 1996 Public Offering and the exercise by Anschutz of
options and warrants.
32
<PAGE>
CAPITAL EXPENDITURES. The Company's expenditures for property acquisition,
exploration and development for the past three years were as follows:
Years Ended December 31,
----------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
Property acquisition costs (1):
Proved properties $140,875 26,487 9,553
Undeveloped properties 18,080 320 209
-------- ------ -----
158,955 26,807 9,762
Exploration costs:
Direct costs 40,831 11,528 15,229
Overhead capitalized 2,608 1,211 464
-------- ------ -----
43,439 12,739 15,693
Development costs:
Direct costs 36,559 7,633 10,000
Overhead capitalized 5,165 5,565 7,089
-------- ------ -----
41,724 13,198 17,089
-------- ------ -----
$244,118 52,744 42,544
-------- ------ -----
-------- ------ -----
(1) 1996 amounts consist primarily of the allocation of purchase price to the
oil and gas properties acquired in the purchase of Canadian Forest. 1995
amounts consist primarily of the allocation of purchase price to the oil
and gas properties acquired in the purchase of Saxon.
The Company's 1997 budgeted direct expenditures for exploration and
development are approximately $64,000,000 and $61,000,000, respectively.
Capitalized overhead in 1997 is expected to be approximately $8,000,000. The
Company expects to be able to meet its 1997 capital expenditure financing
requirements using cash flows generated by operations, sales of non-strategic
assets and borrowings under existing lines of credit. However, 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 or accesses additional sources of
capital. 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.
In addition, while the Company intends to continue a strategy of acquiring
reserves that meet its investment criteria, no assurance can be given that the
Company can locate or finance any property acquisitions.
PENDING ACQUISITION:
On March 4, 1997 Saxon announced an offer to purchase all of the issued and
outstanding Class A shares of Truax Resources Corporation (Truax). Truax
shareholders may elect to receive either $2.06 CDN or two Saxon shares for
each Truax share tendered, subject to certain minimum and maximum aggregate
amounts of Saxon shares. The value of the offer is approximately $38,000,000
CDN. The offer expires April 8, 1997 and is subject to a minimum of
two-thirds of the outstanding Class A shares of Truax being tendered and the
receipt of necessary regulatory approvals. Truax has recommended that its
shareholders do not tender shares pursuant to the Saxon offer. Assuming that
the tender offer is successful, Forest currently intends to exercise its
rights under its equity participation agreement with Saxon to purchase
additional shares to maintain its majority ownership position in Saxon.
33
<PAGE>
DISPOSITIONS OF NON-STRATEGIC ASSETS. As a part of its operating strategy, the
Company also conducts an ongoing disposition program of its non-strategic
assets. Assets with little value or which are not consistent with the Company's
ongoing operating strategy are identified for sale or trade. During 1996, the
Company disposed of properties with estimated proved reserves of approximately
1.5 BCF of natural gas and 628,000 barrels of oil for total net proceeds of
$6,916,000. In addition, Saxon received proceeds of approximately $10,959,000
representing the liquidation of its preferred shares in Archean Energy
Ltd. These shares, which were received through a series of transactions
relating to the 1992 sale of the Company's Canadian oil and gas properties,
were transferred to Saxon by Forest in 1995.
In 1995, the Company disposed of properties with estimated proved reserves of
approximately 2.4 BCF of natural gas and 6,000 barrels of oil for total net
proceeds of $8,715,000.
BANK CREDIT FACILITIES. Under the Credit Facility with Chase, as amended,
the Company may borrow up to $60,000,000 for working capital and/or general
corporate purposes. The borrowing base is subject to formal redeterminations
semi-annually, but may be changed at the banks' discretion at any time.
The Credit Facility is secured by a lien on, and a security interest in, a
majority of the Company's U.S. proved oil and gas properties and related
assets (subject to prior security interests granted to holders of volumetric
production payment agreements) and a pledge of accounts receivable. The
maturity date of the Credit Facility is January 31, 2000. Under the terms of
the Credit Facility, the Company is subject to certain covenants and
financial tests, including restrictions or requirements with respect to
working capital, cash flow, additional debt, liens, asset sales, investments,
mergers, cash dividends and reporting responsibilities. At December 31, 1996
the outstanding balance under this facility was $26,400,000. The Company has
also used the facility for a $1,500,000 letter of credit.
On February 8, 1996 a newly-formed Canadian subsidiary of Forest entered into
a credit agreement (the Canadian Credit Facility) with The Chase Manhattan
Bank of Canada for the benefit of Canadian Forest and ProMark. The borrowing
base under the Canadian Credit Facility is $60,000,000 CDN. The borrowing
base is subject to formal redeterminations semi-annually, but may be changed
by the bank at its discretion at any time. The maturity date of the Canadian
Credit Facility is February 7, 1999. The Canadian Credit Facility is
indirectly secured by substantially all the assets of Canadian Forest. Funds
drawn under the Canadian Credit Facility can be used for general corporate
purposes. Under the terms of the Canadian Credit Facility, the three
Canadian subsidiaries are subject to certain covenants and financial tests,
including restrictions or requirements with respect to working capital, cash
flow, additional debt, liens, asset sales, investments, mergers, cash
dividends and reporting responsibilities. At December 31, 1996 the
outstanding balance under this facility was $32,500,000 (US). The Company
has also used this facility for a letter of credit in the amount of
$3,081,000 CDN.
In addition to the credit facilities described above, Saxon has a revolving
credit facility with a borrowing base of $20,000,000 CDN. The loan is
subject to semi-annual review and has demand features; however, repayments
are not required provided that borrowings are not in excess of the borrowing
base and Saxon complies with other existing covenants. At December 31, 1996
there were no outstanding borrowings under this facility.
At February 28, 1997 the amount outstanding under the Credit Facility was
$34,600,000, the amount outstanding under the Canadian Credit Facility was
$33,622,000 and the amount outstanding under the Saxon revolving credit
facility was $7,821,000.
WORKING CAPITAL. The Company had a working capital deficit of approximately
$12,649,000 at December 31, 1996 compared to a deficit of approximately
$9,181,000 at December 31, 1995. The increase in the deficit is attributable
primarily to an increase in accounts payable related to exploration and
development activities.
The Company generally reports a working capital deficit at the end of a period.
The working capital deficit is principally the result of accounts payable for
capitalized exploration and development costs. Settlement of these payables is
funded by cash flow from the Company's operations or, if necessary, by drawdowns
on the Company's
34
<PAGE>
long-term bank credit facilities. For cash management purposes, drawdowns on
the credit facilities are not made until the due dates of the payables.
At December 31, 1996 the Company had available borrowing capacity of
approximately $60,000,000 under its long-term bank credit facilities. The
Company's available credit at December 31, 1996 was adequate to fund the
working capital deficit at that date.
LONG-TERM SALES CONTRACTS. A significant portion of Canadian Forest's
natural gas production is sold through the ProMark Netback Pool. At December
31, 1996 the ProMark Netback Pool had entered into fixed price contracts to
sell approximately 10.7 BCF of natural gas in 1997 at an average price of
$1.66 CDN per MCF and approximately 5.4 BCF of natural gas in 1998 at an average
price of approximately $1.88 CDN per MCF. Canadian Forest is obligated to
deliver approximately 25% of the volumes of natural gas subject to these
contracts.
HEDGING PROGRAM. In addition to the volumes of natural gas and oil sold
under long-term sales contracts and dedicated to volumetric production
payments, the Company also uses energy swaps and other financial agreements
to hedge against the effects of fluctuations in the sales prices for oil and
natural gas produced. In a typical swap agreement, the Company receives the
difference between a fixed price per unit of production and a price based on
an agreed upon third-party index if the index price is lower. If the index
price is higher, the Company pays the difference. The Company's current
swaps are settled on a monthly basis. At December 31, 1996 the Company had
natural gas swaps and collars for an aggregate of approximately 27.0 BBTU
(billion British Thermal Units) per day of natural gas during 1997 at fixed
prices ranging from $1.159 per MMBTU (million British Thermal Units) on an
Alberta Energy Company "C" (AECO "C") basis to $2.728 per MMBTU on a New York
Mercantile Exchange (NYMEX) basis and an aggregate of approximately 3.2 BBTU
per day of natural gas during 1998 at fixed prices ranging from $1.159 (AECO
"C" basis) to $2.540 (NYMEX basis) per MMBTU. The weighted average hedged
price for natural gas under such agreements is $2.15 and $2.18 per MMBTU in
1997 and 1998, respectively. Subsequent to December 31, 1996 the Company
entered into a collar to hedge 7.0 BBTU of natural gas per day from April
1997 to September 1997. The floor and ceiling price of the collar are $2.10
and $2.50 per MMBTU (NYMEX basis), respectively. At December 31, 1996 the
Company had oil swaps for an aggregate of 1,964 barrels per day of oil during
1997 at fixed prices ranging from $17.90 to $21.05 (NYMEX basis). The
weighted average hedged price for oil under such agreements is $19.77 per
barrel. Subsequent to December 31, 1996, the Company entered into an oil
swap to hedge 200 barrels of oil per day from February 1997 to July 1997 at a
fixed price of $23.67 per barrel (NYMEX basis). The Company also entered into
a 1998 oil swap to hedge 247 barrels per day from January 1998 to December 1998
at a fixed price of $20.00 per barrel (NYMEX basis). For further information on
the Company's outstanding energy swaps, see Note 13 of Notes to Consolidated
Financial Statements.
35
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information concerning this Item begins on the following page.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
36
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Forest Oil Corporation:
We have audited the accompanying consolidated balance sheets of Forest Oil
Corporation and subsidiaries as of December 31, 1996 and 1995, 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, 1996.
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, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 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.
KPMG PEAT MARWICK LLP
Denver, Colorado
February 12, 1997
37
<PAGE>
FOREST OIL CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-----------------
1996 1995
---- ----
(In Thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 8,626 3,287
Accounts receivable 55,462 17,395
Other current assets 4,996 2,557
-------- -------
Total current assets 69,084 23,239
Net property and equipment, at cost, full cost
method (Notes 5 and 6) 458,242 277,599
Investment in affiliate (Note 4) - 11,301
Goodwill and other intangible assets, net 29,439 -
Other assets 6,693 8,904
-------- -------
$563,458 321,043
-------- -------
-------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 4,682 2,055
Current portion of long-term debt (Note 5) 2,091 2,263
Accounts payable 64,811 17,456
Accrued interest 4,584 4,029
Other current liabilities 5,565 6,617
-------- -------
Total current liabilities 81,733 32,420
Long-term debt (Notes 3 and 5) 168,859 193,879
Other liabilities 19,844 27,139
Deferred revenue (Note 6) 7,591 15,137
Deferred income taxes 33,716 -
Commitments and contingencies (Notes 10, 12 and 13)
Minority interest (Note 2) 9,272 8,171
Shareholders' equity (Notes 2, 3, 5, 8 and 9):
Preferred stock 15,827 24,359
Common stock, 30,541,105 shares in
1996 (10,660,291 shares in 1995) 3,053 1,066
Capital surplus 438,556 241,241
Common shares to be issued in debt restructuring - 6,073
Accumulated deficit (214,190) (217,495)
Foreign currency translation (803) (1,407)
Treasury stock, at cost, none in 1996 and
1,060,000 shares in 1995 - (9,540)
-------- -------
Total shareholders' equity 242,443 44,297
-------- -------
$563,458 321,043
-------- -------
-------- -------
See accompanying Notes to Consolidated Financial Statements
38
<PAGE>
FOREST OIL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- ------- -------
(In Thousands Except Per Share Amounts)
Revenue:
Marketing and processing $187,374 - -
Oil and gas sales:
Gas 80,111 59,084 91,309
Gas contract settlement (Note 15) - 4,263 -
Oil, condensate and natural gas
liquids 48,602 18,928 23,232
-------- ------- -------
Total oil and gas sales 128,713 82,275 114,541
Miscellaneous, net 1,387 181 1,406
-------- ------- -------
Total revenue 317,474 82,456 115,947
Expenses:
Marketing and processing 178,706 - -
Oil and gas production 32,199 22,463 22,384
General and administrative 13,623 9,081 11,166
Interest 23,307 25,323 26,773
Depreciation and depletion 63,068 43,592 65,468
Minority interest in loss of
subsidiary (19) - -
Provision for impairment of oil
and gas properties - - 58,000
-------- ------- -------
Total expenses 310,884 100,459 183,791
-------- ------- -------
Earnings (loss) before income taxes,
cumulative effect of change in
accounting principle and extraordinary
item 6,590 (18,003) (67,844)
Income tax expense (benefit) (Note 7):
Current 3,943 (7) 9
Deferred 1,508 - -
-------- ------- -------
5,451 (7) 9
-------- ------- -------
Earnings (loss) before cumulative
effect of change in accounting principle
and extraordinary item 1,139 (17,996) (67,853)
Cumulative effect of change in accounting
principle for oil and gas sales (Note 1) - - (13,990)
-------- ------- -------
Earnings (loss) before extraordinary
item 1,139 (17,996) (81,843)
Extraordinary item - gain on
extinguishment of debt (Note 3) 2,166 - -
-------- ------- -------
Net earnings (loss) $3,305 (17,996) (81,843)
-------- ------- -------
-------- ------- -------
Weighted average number of common
shares outstanding 27,163 7,360 5,619
-------- ------- -------
-------- ------- -------
Earnings (loss) attributable to
common stock $ 1,147 (20,156) (84,004)
-------- ------- -------
-------- ------- -------
Primary and fully diluted earnings
(loss) per common share:
Loss attributable to common stock
before cumulative effect of change
in accounting principle and
extraordinary item $ (.04) (2.74) (12.46)
Cumulative effect of change in
accounting principle - - (2.49)
-------- ------- -------
Loss attributable to common stock
before extraordinary item (.04) (2.74) (14.95)
Extraordinary item - gain on
extinguishment of debt .08 - -
-------- ------- -------
Earnings (loss) attributable
to common stock $ .04 (2.74) (14.95)
-------- ------- -------
-------- ------- -------
See accompanying Notes to Consolidated Financial Statments
39
<PAGE>
FOREST OIL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
COMMON
SHARES TO BE ACCUMU- FOREIGN
PREFERRED COMMON CAPITAL ISSUED IN DEBT LATED CURRENCY TREASURY
STOCK STOCK SURPLUS RESTRUCTURING DEFICIT TRANSLATION STOCK
--------- ------ ------- -------------- ------- ----------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1993 $ 15,845 565 195,977 - (117,656) (785) (5,790)
Net loss - - - - (81,843) - -
Exercise of employee stock options (Note 9) - 1 104 - - - -
$.75 Convertible Preferred Stock
dividends paid in cash (Note 8) - - (2,161) - - - -
Treasury stock contributed to the Retire-
ment Savings Plan and other (Note 10) - - (1,583) - - - 3,964
Foreign currency translation - - - - - (552) -
------- ------- -------- ----- --------- ------- -------
Balance December 31, 1994 15,845 566 192,337 - (199,499) (1,337) (1,826)
Net loss - - - - (17,996) - -
Issuance of Common Stock to
Anschutz (Note 3) - 376 27,796 - - - -
Issuance of Second Series Convertible
Preferred Stock to Anschutz (Notes 3 and 8) 8,518 - - - - - -
Issuance of warrants to Anschutz (Notes 3 and 9) - - 8,310 - - - -
Issuance of warrants to JEDI (Note 3) - - 12,117 - - - -
Costs associated with equity issued to
Anschutz and JEDI (Note 3) - - (3,940) - - - -
Common Stock issued in acquisition of
Saxon (Notes 2 and 9) - 106 9,434 - - - (9,540)
Common Stock issued and treasury
stock contributed to the Retirement
Savings Plan (Note 10) - 2 (1,425) - - - 1,826
$.75 Convertible Preferred Stock
dividends paid in cash (Note 8) - - (540) - - - -
$.75 Convertible Preferred Stock dividends
paid in Common Stock (Note 8) - 16 (16) - - - -
Conversion of $.75 Convertible Preferred
Stock to Common Stock (Note 8) (4) - 4 - - - -
Common shares to be issued in JEDI
Exchange (Note 3) - - - 6,073 - - -
Unfunded pension liability (Note 10) - - (2,836) - - - -
Foreign currency translation - - - - - (70) -
------- ------- -------- ----- --------- ------- -------
Balance December 31, 1995 24,359 1,066 241,241 6,073 (217,495) (1,407) (9,540)
NET EARNINGS - - - - 3,305 - -
ISSUANCE OF COMMON STOCK, NET OF OFFERING
COSTS AND MINORITY INTEREST EFFECT OF
$706,000 (NOTE 9) - 1,214 124,613 - - - 9,540
COMMON SHARES ISSUED IN JEDI
EXCHANGE (NOTE 3) - 168 5,905 (6,073) - - -
EXERCISE OF ANSCHUTZ OPTION (NOTES 3 AND 9) - 225 25,962 - - - -
EXERCISE OF ANSCHUTZ A WARRANT (NOTES 3 AND 9) - 39 4,044 - - - -
ISSUANCE OF COMMON STOCK TO JEDI (NOTE 3) - 200 26,736 - - - -
EXERCISE OF PUBLIC WARRANTS (NOTE 9) - 2 334 - - - -
CONVERSION OF SECOND SERIES PREFERRED
STOCK TO COMMON STOCK (NOTE 8) (8,518) 124 8,394 - - - -
EXERCISE OF EMPLOYEE STOCK OPTIONS (NOTE 9) - 3 398 - - - -
COMMON STOCK ISSUED AND TREASURY
STOCK CONTRIBUTED TO THE RETIREMENT
SAVINGS PLAN AND OTHER (NOTE 10) - 3 398 - - - -
$.75 CONVERTIBLE PREFERRED STOCK DIVIDENDS
PAID IN CASH (NOTE 8) - - (1,619) - - - -
$.75 CONVERTIBLE PREFERRED STOCK DIVIDENDS
PAID IN COMMON STOCK (NOTE 8) - 9 (9) - - - -
CONVERSION OF $.75 CONVERTIBLE PREFERRED
STOCK TO COMMON STOCK (NOTE 8) (14) - 14 - - - -
UNFUNDED PENSION LIABILITY (NOTE 10) - - 2,145 - - - -
FOREIGN CURRENCY TRANSLATION - - - - - 604 -
------- ------- -------- ----- --------- ------- -------
BALANCE DECEMBER 31, 1996 $ 15,827 3,053 438,556 - (214,190) (803) -
------- ------- -------- ----- --------- ------- -------
------- ------- -------- ----- --------- ------- -------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
40
<PAGE>
FOREST OIL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
YEARS ENDED DECEMBER 31,
1996 1995 1994
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Earnings (loss) before cumulative effect of change in
accounting principle and extraordinary item $ 1,139 (17,996) (67,853)
Adjustments to reconcile loss before cumulative effect of
change in accounting principle and extraordinary item
to net cash provided (used) by operating activities:
Depreciation and depletion 63,068 43,592 65,468
Amortization of deferred debt costs 1,253 1,015 1,029
Provision for impairment of oil and gas properties - - 58,000
Deferred income tax expense 1,508 - -
Interest added to principal 3,059 574 2,205
Minority interest in net loss of subsidiary (19) - -
Other, net 792 1,714 2,033
(Increase) decrease in accounts receivable (17,441) 4,285 4,839
(Increase) decrease in other current assets (921) (152) 1,078
Increase (decrease) in accounts payable 19,417 (11,458) 4,021
Increase (decrease) in accrued interest and other
current liabilities 3,506 (3,865) 2,941
Proceeds from volumetric production payments - - 4,353
Amortization of deferred revenue (7,546) (20,771) (35,673)
-------- ------- --------
Net cash provided (used) by operating activities 67,815 (3,062) 42,441
Cash flows from investing activities:
Acquisition of subsidiaries:
Current assets (22,304) (1,437) -
Property and equipment (144,099) (26,530) -
Goodwill and other intangible assets (31,163) - -
Current liabilities 23,562 2,139 -
Long-term debt 701 16,183 -
Other liabilities 1,376 - -
Deferred taxes 35,575 353 -
Minority interest - 8,171 -
-------- ------- --------
Cash paid for acquisitions of subsidiaries (136,352) (1,121) -
Capital expenditures for property and equipment (108,332) (27,098) (42,780)
Proceeds from sales of assets 17,875 8,715 12,941
Increase (decrease) in other assets, net (58) 2,285 (2,468)
-------- ------- --------
Net cash used by investing activities (226,867) (17,219) (32,307)
Cash flows from financing activities:
Proceeds from bank borrowings 194,018 82,600 31,500
Repayments of bank borrowings (176,641) (91,800) (23,500)
Proceeds from nonrecourse secured loan - - 1,400
Repayments of nonrecourse secured loan (13,881) (1,143) -
Repayments of production payment obligation (3,622) (2,316) (2,771)
Redemptions and repurchases of subordinated debentures
and secured notes - - (7,171)
Proceeds from common stock offering, net of offering
costs 136,073 - -
Proceeds from exercise of warrants and options 31,945 - 105
Proceeds from capital stock and warrants issued, net - 41,060 -
Payment of preferred stock dividends (1,079) (540) (2,161)
Debt issuance costs (3) (491) (772)
Increase (decrease) in cash overdraft 2,627 (2,390) 551
Decrease in other liabilities, net (4,937) (4,282) (11,307)
-------- ------- --------
Net cash provided (used) by financing activities 164,500 20,698 (14,126)
Effect of exchange rate changes on cash (109) 1 (88)
-------- ------- --------
Net increase (decrease) in cash and cash equivalents 5,339 418 (4,080)
Cash and cash equivalents at beginning of year 3,287 2,869 6,949
-------- ------- --------
Cash and cash equivalents at end of year $ 8,626 3,287 2,869
-------- ------- --------
-------- ------- --------
Cash paid during the year for:
Interest $ 15,040 22,138 23,989
-------- ------- --------
-------- ------- --------
Income taxes $ 3,428 - 9
-------- ------- --------
-------- ------- --------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
41
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- -------------------------------------------------------------------------------
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION - Forest Oil Corporation
is engaged in the acquisition, exploration, development, production and
marketing of natural gas and crude oil in North America. The Company was
incorporated in New York in 1924, the successor to a company formed in 1916, and
has been publicly held since 1969. The Company is active in several of the
major exploration and producing areas in and offshore the United States and in
Canada.
The consolidated financial statements include the accounts of Forest Oil
Corporation and its consolidated subsidiaries (Forest or the Company).
Significant intercompany balances and transactions are eliminated. The Company
generally consolidates all subsidiaries in which it controls over 50% of the
voting interests. Entities in which the Company does not have a direct or
indirect majority voting interest are generally accounted for using the equity
method.
In the course of preparing the consolidated financial statements, management
makes various assumptions and estimates to determine the reported amounts of
assets, liabilities, revenue and expenses, and in the disclosures of commitments
and contingencies. Changes in these assumptions and estimates will occur as a
result of the passage of time and the occurrence of future events and,
accordingly, actual results could differ from amounts estimated.
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
was effective on January 8, 1996.
CASH EQUIVALENTS - For purposes of the statements of cash flows, the Company
considers all debt instruments with original maturities of three months or less
to be cash equivalents.
PROPERTY AND EQUIPMENT - The Company uses the full cost method of accounting for
oil and gas properties. Separate cost centers are maintained for each country
in which the Company has operations. During 1996, the Company's oil and gas
operations were conducted in the United States and in Canada. During 1995 and
1994, the Company's oil and gas operations were conducted solely 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 applicable to each cost center
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, 1996, 1995 and 1994, there were undeveloped property costs of
$30,046,000, $28,380,000 and $30,441,000, respectively, which were not being
depleted in the United States and costs of $13,870,000 which were not being
depleted in Canada. Of the undeveloped costs in the United States not being
depleted at December 31, 1996, approximately 46% were incurred in 1996, 9% in
1995, 3% in 1994, 40% in 1993 and 2% in 1992. All of the undeveloped properties
in Canada not being depleted at December 31, 1996 were acquired in 1996.
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 thousand cubic
feet (MCF) of natural gas. Depletion per unit of production (MCFE) for each of
the Company's cost centers was as follows:
United States Canada
------------- ------
1994 $1.13 -
1995 1.06 -
1996 1.12 .85
42
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
- -------------------------------------------------------------------------------
Pursuant to full cost accounting rules, capitalized costs less related
accumulated depletion and deferred income taxes for each cost center 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 the United States in 1994.
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.
Net property and equipment at December 31 consists of the following:
1996 1995
---- ----
(In Thousands)
Oil and gas properties $1,457,212 1,216,027
Buildings, transportation and
other equipment 10,993 10,502
---------- ---------
1,468,205 1,226,529
Less accumulated depreciation,
depletion and valuation allowance 1,009,963 948,930
---------- ---------
$ 458,242 277,599
---------- ---------
---------- ---------
GOODWILL AND OTHER INTANGIBLE ASSETS - Goodwill and other intangible assets
recorded in the acquisition of the Company's gas marketing subsidiary consist of
the following at December 31, 1996:
1996
----
(In Thousands)
Goodwill $16,728
Gas marketing contracts 14,594
-------
31,322
Less accumulated amortization 1,883
-------
$29,439
-------
-------
Goodwill is being amortized on a straight line basis over twenty years. The
amount attributed to the value of gas marketing contracts acquired is being
amortized on a straight line basis over the average life of such contracts of
twelve years.
GAS MARKETING - The Company's gas marketing subsidiary, ProMark, enters into
fixed price agreements to purchase and sell natural gas. ProMark's general
strategy for this business is to enter into offsetting purchase and sales
contracts. Net open positions relating to these contracts do occur, but have
not been significant to date. Revenue from the sale of the gas is recorded
as marketing revenue and the cost of the gas sold is recorded as marketing
expense.
ProMark also provides natural gas marketing aggregation services for third
parties. Fees earned for such services are recorded as marketing revenue as
the services are performed.
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.
43
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
- -------------------------------------------------------------------------------
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 of December 31, 1996 the Company had produced approximately 2.6 BCF more than
its entitled share of production. The estimated value of this imbalance of
approximately $4,355,000 is included in the accompanying consolidated balance
sheet as a short-term liability of $1,650,000 and a long-term liability of
$2,705,000.
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. These
instruments are accounted for as hedges when the instrument is designated as a
hedge of the related production and there exists a high degree of correlation
between the fair value of the instrument and the fair value of the hedged
production. The degree of correlation is assessed periodically. Gains and
losses related to these hedging transactions are recognized as adjustments to
therevenue recorded for the related production. Costs associated with the
purchase of certain hedging instruments are deferred and amortized against
revenue related to the hedged production.
INCOME TAXES - The Company uses the asset and liability method of accounting for
income taxes which 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 - The functional currency of the Company's Canadian
operations is the Canadian dollar. Assets and liabilities related to the
Company's Canadian operations are generally translated at current exchange
rates, and related translation adjustments are reported as a component of
shareholders' equity. Income statement accounts are translated at the average
rates during the period.
EARNINGS (LOSS) PER SHARE - Primary earnings (loss) per share is computed by
dividing net earnings (loss) attributable to common stock by the weighted
average number of common shares and common share equivalents outstanding during
each period, excluding treasury shares. Net earnings (loss) attributable to
common stock represents net earnings (loss) less preferred stock dividend
requirements of $2,158,000 in 1996, $2,160,000 in 1995 and $2,161,000 in 1994.
Common share equivalents include, when applicable, dilutive stock options and
warrants using the treasury stock method.
Fully diluted earnings (loss) per share is computed assuming, in addition to the
above, (i) that convertible preferred stock was converted at the beginning of
each period or date of issuance, if later, and (ii) any additional dilutive
effect of stock options and warrants. The effects of these assumptions were
anti-dilutive in 1996, 1995 and 1994.
RECLASSIFICATIONS - Certain amounts in prior years' financial statements have
been reclassified to conform to the 1996 financial statement presentation.
44
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(2) ACQUISITIONS:
- -------------------------------------------------------------------------------
During 1995, the Company completed acquisitions totaling $26,807,000. The most
significant of these was the purchase on December 20, 1995 of a 56% economic
(49% voting) interest in Saxon Petroleum Inc. (Saxon) for approximately
$22,000,000. Saxon is a Canadian exploration and production company with
headquarters in Calgary, Alberta and operations concentrated in western Alberta.
In the transaction, Forest received from Saxon 40,800,000 voting common shares,
12,300,000 nonvoting common shares, 15,500,000 convertible preferred shares and
warrants to purchase 5,300,000 common shares. The preferred shares and the
nonvoting common shares of Saxon are convertible into voting common shares at
any time. In exchange, Forest transferred to Saxon its preferred shares of
Archean Energy, Ltd., issued to Saxon 1,060,000 common shares of Forest and paid
Saxon $1,500,000 CDN. The preferred shares of Archean Energy, Ltd. were
recorded at their historical carrying value of $11,301,000. The Forest common
shares issued to Saxon were recorded at their estimated fair value determined by
reference to the quoted market price of the shares immediately preceding the
announcement of the acquisition.
Since Forest has majority voting control over Saxon as a result of the voting
common shares that it owns and proxies that it holds, it has accounted for Saxon
as a consolidated subsidiary from the date of its acquisition. The Company did
not record any production or results of operations of Saxon for the period from
December 20 to December 31, 1995 as the results of operations for such period
were not significant.
The Forest common shares held by Saxon were recorded as treasury stock on
Forest's consolidated balance sheet at December 31, 1995. In January 1996,
Saxon sold these shares in a public offering of Forest Common Stock and used the
proceeds to reduce its bank debt.
In September 1996, the preferred shares of Archean were redeemed for cash at
their approximate carrying value.
Subsequent to December 31, 1996 Forest converted its preferred shares of
Saxon into 27,192,983 nonvoting common shares and purchased 3,158,142 voting
common shares and 2,380,608 nonvoting common shares of Saxon pursuant to an
equity participation agreement. These transactions increased Forest's
economic interest in Saxon to 66%.
On January 31, 1996 the Company completed the acquisition of ATCOR Resources
Ltd. of Calgary, Alberta for approximately $136,000,000, including acquisition
costs of approximately $1,000,000. The purchase was funded by the net proceeds
of a Common Stock offering and approximately $8,300,000 drawn under the
Company's bank credit facility. The exploration and production business of
ATCOR was renamed Canadian Forest Oil Ltd. (Canadian Forest). Canadian Forest's
principal reserves and producing properties are located in Alberta and British
Columbia, Canada. As part of the Canadian Forest acquisition, Forest also
acquired ATCOR's natural gas marketing business which was renamed Producers
Marketing Ltd. (ProMark).
45
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(2) ACQUISITIONS (CONTINUED):
- -------------------------------------------------------------------------------
The consolidated balance sheet of Forest includes the accounts of Saxon and
Canadian Forest at December 31, 1996. The consolidated statements of operations
include the results of operations of Saxon effective January 1, 1996 and the
results of operations of Canadian Forest effective February 1, 1996. The
following unaudited pro forma consolidated statements of operations information
assumes that the Common Stock offering and the acquisitions of Saxon and
Canadian Forest occurred as of January 1, 1995:
Pro Forma Year Ended December 31,
---------------------------------
1996 1995
---- ----
(In Thousands Excluding Per Share Amounts)
Revenue:
Marketing and processing $ 200,715 139,444
Oil and gas sales 132,423 129,326
Miscellaneous, net 1,387 132
--------- -------
Total revenue $ 334,525 268,902
--------- -------
--------- -------
Earnings (loss) before income taxes,
and extraordinary item $ 7,512 (9,680)
--------- -------
--------- -------
Net earnings (loss) $ 3,687 (15,972)
--------- -------
--------- -------
Primary earnings (loss) per share $ .06 (.81)
--------- --------
--------- --------
Fully diluted earnings (loss) per share $ .05 (.81)
--------- --------
--------- --------
(3) ANSCHUTZ AND JEDI TRANSACTIONS:
- -----------------------------------------------------------------------------
During 1995 and 1996, 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. (Enron).
Pursuant to a purchase agreement between the Company and Anschutz, Anschutz
Purchased 3,760,000 shares of the Company's Common Stock and 620,000 shares of a
new series of preferred stock which were convertible into 1,240,000 additional
shares of Common Stock for a total consideration of $45,000,000. The preferred
stock had a liquidation preference of $18.00 per share and received dividends
ratably with the Common Stock. In addition, Anschutz received a warrant that
entitled it to purchase 3,888,888 shares of the Company's Common Stock for
$10.50 per share (the A Warrant). The A Warrant was scheduled to expire July
27, 1998.
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 the shares issued
were recorded at the carrying amount of the loan ($9,900,000). At the second
closing, Anschutz purchased an additional 2,660,000 shares of Common Stock, the
convertible preferred stock and the A Warrant for $35,100,000. The total
proceeds received by the Company at the second closing were allocated based on
the relative fair market values of the Common Stock ($18,272,000), convertible
preferred stock ($8,518,000) and the A Warrant ($8,310,000) issued. The Company
also entered into a shareholders agreement with Anschutz pursuant to which
Anschutz agreed to certain voting, acquisition, and transfer limitations
regarding its shares of Common Stock for five years after the second closing.
46
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(3) ANSCHUTZ AND JEDI TRANSACTIONS (CONTINUED):
- -------------------------------------------------------------------------------
At the second closing on July 27, 1995, Forest and JEDI restructured JEDI'S
existing loan which had a principal balance 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 bore interest at the rate of 12.5% per annum and was due and
payable in full on December 31, 2000; and an approximately $22,400,000
tranche, which did not bear interest and was 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 a
warrant (the B Warrant) that entitled it to purchase 2,250,000 shares of the
Company's Common Stock for $10.00 per share. The B Warrant was recorded at
its estimated fair value. The fair value of the B Warrant was estimated to
be approximately $12,100,000, representing the amount determined using the
Black-Scholes Option Pricing Model, based on the market value of the stock at
the date of the transaction, less a discount of 10% to reflect the size of
the block of shares to be issued and the estimated brokerage fees on the
ultimate disposition of the shares.
Also at the second closing, JEDI granted an option to Anschutz (the Anschutz
Option), pursuant to which Anschutz was entitled to purchase from JEDI up to
2,250,000 shares of the Company's Common Stock at a purchase price per share
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 Anschutz Option was
scheduled to terminate on July 27, 1998. JEDI was to satisfy its obligations
under the Anschutz Option by exercising the B Warrant. The Company also
agreed to use the proceeds from the exercise of the A Warrant to pay
principal and interest on the $40,000,000 tranche of the JEDI loan.
As a result of the loan restructuring and the issuance of the B Warrant, the
Company reduced the recorded amount of the related liability to approximately
$45,493,000. No gain or loss was recorded on the loan restructuring since
the estimated fair value of the restructured loan and the B Warrant was
approximately equal to the original loan balance.
In December 1995, JEDI exchanged the $22,400,000 tranche and the B Warrant
for 1,680,000 shares of Common Stock (the JEDI Exchange). The fair value of
the 1,680,000 shares of Common Stock was estimated to be $15,400,000 based on
the quoted market price of the Common Stock at the date of the transaction,
less a discount of 35% to reflect the shareholder agreement with JEDI that
limited JEDI's ability to vote the shares or to transfer the shares before
July 27, 1998, the size of the block of stock and the estimated brokerage
fees on the ultimate disposition of the shares. No gain or loss was recorded
on the exchange since the estimated fair value of the Common Stock issued
less the estimated fair value of the B warrant reacquired was approximately
equal to the carrying amount of the $22,400,000 tranche.
Pursuant to the JEDI Exchange, the Company assumed JEDI's obligations under
the Anschutz Option. Under the Anschutz Option, the Company was then
obligated to issue shares directly to Anschutz that previously would have
been issued to JEDI pursuant to the B Warrant.
On August 1, 1996 the Anschutz Corporation exercised the Anschutz Option to
purchase 2,250,000 shares of Common Stock for $26,200,000 or approximately
$11.64 per share. Proceeds received by Forest were used primarily to fund a
portion of 1996 capital expenditures.
On November 5, 1996 the Company exchanged 2,000,000 shares of Common Stock
plus approximately $13,500,000 cash to extinguish approximately $43,000,000
of nonrecourse secured debt then owed to JEDI. In connection with this
transaction, Anschutz acquired 1,628,888 shares of Common Stock by exercising
a portion of the A Warrant to purchase 388,888 shares of Common Stock at
$10.50 per share and by converting 620,000 shares of Forest's Second Series
Preferred Stock into 1,240,000 shares of Common Stock. The term of the
remaining 3,500,000 warrants held by Anschutz was extended to July 27, 1999.
The fair value of the shares of Common Stock issued to JEDI was estimated
based on the quoted market price of the Common Stock at the date of the
transaction, less a discount of 7-1/2% to reflect the lock-up agreement with
JEDI that limited JEDI's ability to transfer the shares before May 31, 1997,
the size of the block of shares to be issued and the estimated brokerage fees
on the ultimate disposition of the shares. The fair value of the Common
Stock issued and the cash paid to JEDI, including
47
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(3) ANSCHUTZ AND JEDI TRANSACTIONS (CONTINUED):
- -------------------------------------------------------------------------------
related expenses of the transaction, was less than the carrying amount of the
debt extinguished. Accordingly, the Company recorded an extraordinary gain on
extinguishment of debt in the fourth quarter of 1996 of approximately
$2,166,000.
(4) INVESTMENT IN AFFILIATE:
- -------------------------------------------------------------------------------
In 1992, the Company 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.). In the transaction, the Company received cash of
approximately $28,000,000 CDN ($22,400,000 U.S.), net of expenses, and provided
financing in the aggregate principal amount of $22,000,000 CDN ($17,600,000
U.S.). On June 24, 1994 CanEagle sold a significant portion of its oil and gas
properties to a third party. In conjunction with this transaction, the Company
received $6,124,000 CDN ($4,400,000 U.S.) and exchanged its investment in
CanEagle for shares of preferred stock of a newly formed entity, Archean Energy,
Ltd. (Archean). The Company accounted for the proceeds from the 1992 and 1994
transactions as reductions in the carrying value of its investment in CanEagle.
The preferred shares of Archean were recorded at an amount equal to the
remaining carrying value of the Company's investment in CanEagle.
The Company accounted for its investment in Archean (and CanEagle prior to June
24, 1994) in a manner analagous to equity accounting. Losses were recognized to
the extent that losses were attributable to the Company's interest. Earnings
were recognized only if realization was assured. Under this method, no earnings
or losses were recognized in 1996, 1995 or 1994.
In December 1995, in connection with the Saxon acquisition, the Company
transferred its Archean preferred stock to Saxon and the Company continued to
account for the investment in Archean at its historical carrying value. In
September 1996, the preferred shares of Archean were redeemed for cash at their
approximate carrying value.
(5) LONG-TERM DEBT:
- -------------------------------------------------------------------------------
Long-term debt at December 31 consists of the following:
1996 1995
---- ----
Credit facility $ 26,400 23,800
Canadian Forest credit facility 32,500 -
Saxon credit facility - 16,437
Nonrecourse secured loan - 40,322
Production payment obligation 12,596 16,218
11-1/4% Senior Subordinated Notes 99,421 99,365
-------- --------
170,917 196,142
Less current portion (2,058) (2,263)
-------- --------
Long-term debt $168,859 193,879
-------- --------
-------- --------
CREDIT FACILITY:
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, as amended, the Company may borrow up to $60,000,000 for working
capital and/or general corporate purposes. Advances under this facility bear
interest at rates ranging from the banks' prime rate to prime plus 3/4% or,
alternatively, the London interbank offered rate (LIBOR) plus 1.0% to LIBOR plus
1 3/4% depending on the ratio of debt to total capitalization for the Company.
The borrowing base is subject to formal redetermination semi-annually, but may
be changed at the banks' discretion at any time.
48
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(5) LONG-TERM DEBT (CONTINUED):
- -------------------------------------------------------------------------------
The Credit Facility is secured by a lien on, and a security interest in, a
majority of the Company's domestic proved oil and gas properties and related
assets (subject to prior security interests granted to holders of volumetric
production payment agreements) and a pledge of accounts receivable. The
maturity date of the Credit Facility is January 31, 2000. Under the terms of
the Credit Facility, the Company is subject to certain covenants and financial
tests, including restrictions or requirements with respect to working capital,
cash flow, additional debt, liens, asset sales, investments, mergers, cash
dividends on capital stock and reporting responsibilities. At December 31, 1996
notes payable of $26,400,000 were outstanding under the Credit Facility with
interest at rates ranging from 7.00% to 8.75% per annum. The Company has also
used the Credit Facility for a $1,500,000 letter of credit.
CANADIAN FOREST CREDIT FACILITY:
On February 8, 1996 a newly-formed Canadian subsidiary of Forest entered into a
credit agreement (the Canadian Credit Facility) with The Chase Manhattan Bank of
Canada for the benefit of Canadian Forest and ProMark. The borrowing base under
the Canadian Credit Facility is $60,000,000 CDN. The borrowing base is subject
to formal redeterminations semi-annually, but may be changed by the bank at its
discretion at any time. The maturity date of the Canadian Credit Facility is
February 7, 1999. The Canadian Credit Facility is indirectly secured by
substantially all the assets of Canadian Forest. Funds drawn under the Canadian
Credit Facility can be used for general corporate purposes. Under the terms of
the Canadian Credit Facility, the three Canadian subsidiaries are subject to
certain covenants and financial tests including restrictions or requirements
with respect to working capital, cash flow, additional debt, liens, asset sales,
investments, mergers, cash dividends and reporting responsibilities. At
December 31, 1996 the outstanding balance under this facility was $32,500,000
(US) with interest at rates ranging from 7.25% to 7.3125% per annum. Canadian
Forest has entered into interest rate swaps which fix the interest rate on
approximately $22,000,000 of long-term debt at 10.055% to 10.55% with terms
expiring in 1998. The Company has also used this facility for a letter of
credit in the amount of $3,081,000 CDN.
SAXON CREDIT FACILITY:
Saxon has a revolving credit facility with a borrowing base of $20,000,000 CDN.
The loan is subject to semi-annual review and has demand features; however,
repayments are not required provided that borrowings are not in excess of the
borrowing base and Saxon complies with other existing covenants. At December
31, 1996 there was no outstanding balance under this facility.
NONRECOURSE SECURED LOAN:
On December 30, 1993, the Company entered into a nonrecourse secured loan
agreement with JEDI. the terms of the JEDI loan were restructured in 1995 as
described in Note 3. Under the terms of the restructured JEDI loan, the Company
was required to make payments based on the net proceeds, as defined, from
certain subject properties. Payments under the JEDI loan were due monthly and
were equal to 90% of total net operating income from the secured properties,
reduced by 80% of allowable capital expenditures, as defined. On November 5,
1996 the Company exchanged 2,000,000 shares of Common Stock plus approximately
$13,500,000 cash to extinguish the remaining balance of the nonrecourse secured
debt owed to JEDI of approximately $43,000,000. See Note 3.
PRODUCTION PAYMENT OBLIGATION:
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 of 15.5%. At December 31, 1996
the remaining principal amount was $16,981,000 and the recorded liability was
$12,596,000. 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 located in the United States, 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 1997 payments will reduce the recorded liability
by approximately $2,058,000, which amount is included in current liabilities,
increase the recorded liability by
49
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(5) LONG-TERM DEBT (CONTINUED):
- -------------------------------------------------------------------------------
approximately $1,022,000 in 1998, and reduce the recorded liability by $975,000
in 1999, $2,433,000 in 2000 and $2,038,000 in 2001. Properties to which
approximately 3% of the Company's estimated proved reserves are attributable, on
an mcfe basis, are dedicated to this production payment financing.
11-1/4% SENIOR SUBORDINATED NOTES:
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 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 1,
2000 and at 100% thereafter.
Under the terms of the Senior Subordinated Notes, the Company must meet
certain tests before it is able to pay cash dividends 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 Subordinated 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.
(6) DEFERRED REVENUE:
- --------------------------------------------------------------------------------
From April 1991 through July 1994, the Company entered into various volumetric
production payments with entities affiliated with Enron for net proceeds of
$139,058,000. Under the terms of these production payments, the Company was
required to deliver 80.1 BCF of natural gas and 770,000 barrels of oil over
periods ranging from three to eight 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 under the production payments were recorded as deferred
revenue. Volumes associated with amortization of deferred revenue for the
years ended December 31, 1996, 1995 and 1994 were as follows:
Net sales volumes
attributable to production
Volumes delivered (1) payment deliveries (2)
----------------------------- --------------------------
Natural Gas Oil Natural Gas Oil
(MMCF) (MBBLS) (MMCF) (MBBLS)
----------- ------- --------- -------
1996 3,721 87 3,168 74
1995 11,045 173 9,120 145
1994 19,985 218 16,005 182
(1) Amounts settled in cash in lieu of volumes were $1,641,000, $2,433,000 and
$5,742,000 for the years ended December 31, 1996, 1995, and 1994,
respectively.
(2) Represents volumes required to be delivered to Enron affiliates net of
estimated royalty volumes.
50
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(6) DEFERRED REVENUE (CONTINUED):
- --------------------------------------------------------------------------------
Future amortization of deferred revenue, based on the scheduled deliveries under
the production payment agreements, is as follows:
<TABLE>
Net sales volumes
Volumes required to be attributable to production
delivered to Enron payment deliveries (1)
Annual -------------------- ------------------------
Amortization Natural Gas Natural Gas
------------ (MMCF) (MMCF)
(In Thousands) ----------- -----------
<S> <C> <C> <C>
1997 $ 2,439 1,410 1,008
1998 1,592 892 637
1999 1,352 757 541
Thereafter 2,208 1,237 884
------- ----- -----
$ 7,591 4,296 3,070
------- ----- -----
------- ----- -----
</TABLE>
(1) Represents volumes required to be delivered to Enron net of estimated
royalty volumes.
(7) INCOME TAXES:
- --------------------------------------------------------------------------------
The income tax expense (benefit) is different from amounts computed by applying
the statutory Federal income tax rate for the following reasons:
<TABLE>
1996 1995 1994
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Tax expense (benefit) at 35% of income (loss)
before income taxes, cumulative effects of
changes in accounting principles and
extraordinary item $ 2,300 (6,367) (23,749)
Change in the valuation allowance for deferred
tax assets attributable to income (loss)
before income taxes, cumulative effects
of changes in accounting principles and
extraordinary item (367) 5,732 23,220
Canadian earnings taxed at higher effective rate 1,068 - -
Canadian Crown payments (net of
Alberta Royalty Tax Credit) not deductible
For tax purposes 2,799 - -
Canadian resource allowance (3,005) - -
Non-deductible depletion and amortization 1,694 - -
Expiration of tax carryforwards 643 535 455
Other 319 93 83
------- ---- ----
Total income tax expense (benefit) $ 5,451 (7) 9
------- ---- ----
------- ---- ----
</TABLE>
51
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(7) INCOME TAXES (CONTINUED):
- -------------------------------------------------------------------------------
Deferred income taxes generally result from recognizing income and expenses at
different times for financial and tax reporting. In the U.S., differences
result in part from capitalization of certain development, exploration and other
costs under the full cost method of accounting, recording proceeds from the sale
of properties in the full cost pool, and the provision for impairment of oil and
gas properties for financial accounting purposes. In Canada, differences result
in part from accelerated cost recovery of oil and gas capital expenditures for
tax purposes.
The components of the net deferred tax liability at December 31, 1996 and 1995
are as follows:
1996 1995
---- ----
(In Thousands)
Deferred tax assets:
Allowance for doubtful accounts $ 296 283
Accrual for retirement benefits 1,128 1,223
Accrual for medical benefits 2,220 2,220
Accrual for sales recorded on the entitlement
method 1,499 2,920
Accrual for interest rates swaps 509 -
Net operating loss carryforward 46,828 39,264
Depletion carryforward 6,958 6,958
Investment tax credit carryforward 2,576 3,219
Alternative minimum tax credit carryforward 2,187 2,187
Other 613 243
--------- --------
Total gross deferred tax assets 64,814 58,517
Less valuation allowance (43,999) (45,124)
--------- --------
Net deferred tax assets 20,815 13,393
Deferred tax liabilities:
Property and equipment (48,475) (13,393)
Deferred income on long term contracts (6,014) -
Other (42) -
--------- --------
Total gross deferred tax liabilities (54,531) (13,393)
--------- --------
Net deferred tax liability $(33,716) -
--------- --------
--------- --------
The net change in the total valuation allowance for the year ended December
31, 1996 was a decrease of $1,125,000, which includes a decrease in the
valuation allowance of $758,000 attributable to the extraordinary gain.
52
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(7) INCOME TAXES (CONTINUED):
- --------------------------------------------------------------------------------
The Alternative Minimum Tax (AMT) credit carryforward available to reduce
future U.S. Federal regular taxes aggregated $2,187,000 at December 31, 1996.
this amount may be carried forward indefinitely. U.S. Federal regular and
amt net operating loss carryforwards at December 31, 1996 were $133,795,000
and $130,142,000, respectively, and will expire in the years indicated below:
Regular AMT
------- ---
(In Thousands)
2000 $ 3,590 4,975
2005 8,307 -
2008 28,999 31,799
2009 22,817 22,964
2010 45,736 46,058
2011 24,346 24,346
-------- --------
$133,795 130,142
-------- --------
-------- --------
AMT net operating loss carryforwards can be used to offset 90% of AMT income
in future years.
Investment tax credit carryforwards available to reduce future U.S. Federal
income taxes aggregated $2,576,000 at December 31, 1996 and expire at
various dates through the year 2001. Percentage depletion carryforwards
available to reduce future U.S. Federal taxable income aggregated $19,879,000
at December 31, 1996. This amount may be carried forward indefinitely.
Canadian tax pools available to reduce future Canadian Federal income taxes
aggregated approximately $78,000,000 at December 31, 1996. These tax pool
balances are deductible on a declining balance basis ranging from ten to one
hundred percent of the balance annually. These amounts may be carried forward
indefinitely.
The availability of some of these U.S. Federal tax attributes to reduce
current and future U.S. 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 limited due to the occurrence
of an "ownership change" within the meaning of Section 382 of the Internal
Revenue Code resulting from the Anschutz transaction in 1995 and the public
stock issuance in 1996. under the general provisions of Section 382 of the
code, the Company's net operating loss carryforwards will be subject to an
annual limitation as to their use of approximately $5,700,000. Even though
the Company is limited in its ability to use the net operating loss
carryovers under these 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 their
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 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 these provisions.
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
be able to use any significant portion of its investment tax credit
carryforwards before they expire.
53
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(8) PREFERRED STOCK:
- -------------------------------------------------------------------------------
$.75 CONVERTIBLE PREFERRED STOCK:
The Company had 10,000,000 shares of $.75 Convertible Preferred Stock
authorized, par value $.01 per share, of which there were 2,877,673 shares
outstanding at December 31, 1996 and 2,880,173 shares outstanding at December
31, 1995, with an aggregate liquidation preference of $28,776,730 at December
31, 1996 and $28,801,730 at December 31, 1995. This stock was 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 1996, 2,500 shares of $.75 Convertible
Preferred Stock were converted into 1,750 shares of Common Stock; during 1995,
800 shares of $.75 Convertible Preferred Stock were converted into 560 shares of
Common Stock; there were no conversions in 1994. The $.75 Convertible Preferred
Stock was redeemable, in whole or in part, at the option of the Company, after
July 1, 1996 at $10.00 per share plus accumulated and unpaid dividends.
Cumulative annual dividends of $.75 per share were payable quarterly, in
arrears, on the first day of February, May, August and November, when and as
declared. Until December 31, 1993, the Company was required to pay such
dividends in shares of Common Stock. After such date, dividends could 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 was prohibited from
paying cash dividends on its $.75 Convertible Preferred Stock from the February
1, 1995 dividend through the March 8, 1996 dividend due to restrictions
contained in the Credit Facility with its lending banks. After such date,
dividends could be paid in cash or at the Company's election, in shares of
Common Stock or in a combination of cash and Common Stock. Under the terms of
the $.75 Convertible Preferred Stock, Common Stock delivered in payment of
dividends was valued for dividend payment purposes at between 75% and 90%,
depending 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 were in
arrears, no dividends or distributions, except for dividends paid in shares of
Common Stock, could be paid or declared on the Common Stock, nor could any
shares of Common Stock be acquired by the Company.
The Company called for redemption on February 28, 1997 all 2,877,673 shares of
its $.75 Convertible Preferred Stock. The redemption price was $10.00 per share
plus accumulated and unpaid dividends to and including the date of redemption
(for an aggregate redemption price of $10.06 per share). In lieu of cash
redemption, prior to the close of business on February 21, 1997 the holders of
the preferred shares had the right to convert each share into 0.7 share of
Forest's Common Stock. As of February 21, 1997 2,783,945 shares or 96.7% of
the shares outstanding were tendered for conversion into Common Stock. The
remaining 93,728 shares that were not tendered for conversion were redeemed by
the Company at the redemption price of $10.06 per share on February 28, 1997.
SECOND SERIES PREFERRED STOCK:
At December 31, 1995 the Company had 620,000 shares of Second Series Preferred
Stock authorized, par value $.01 per share, of which there were 620,000 shares
outstanding, with an aggregate liquidation preference of $11,160,000. Each
share of Second Series Preferred Stock (1) was convertible into 2 shares of
Common Stock, (2) had no right to vote, (3) had the right to receive dividends
on the dates and in the form that dividends were payable on the Common Stock,
and (4) had 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, had the right to receive distributions on the
dates and in the form that distributions are payable on the Common Stock. On
November 5, 1996 all 620,000 shares of the Company's Second Series Preferred
Stock were converted into 1,240,000 shares of Common Stock.
(9) COMMON STOCK:
COMMON STOCK:
The Company has 200,000,000 shares of Common Stock authorized, par value $.10
per share. On January 5, 1996 a 5-to-1 reverse stock split was approved by the
Company's shareholders. The reverse split became effective on January 8, 1996.
unless otherwise indicated, all share amounts have been adjusted to give effect
to the 5-to-1 reverse stock split.
54
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(9) COMMON STOCK (CONTINUED):
- -------------------------------------------------------------------------------
On January 31, 1996 13,200,000 shares of Common Stock were sold for $11.00 per
share in a public offering. Of this amount 1,060,000 shares were sold by Saxon
and 12,140,000 were sold by Forest. The net proceeds to Forest and Saxon from
the issuance of shares totaled approximately $136,000,000 after deducting
issuance costs and underwriting fees.
In October 1993, the Board of Directors adopted a shareholders' rights plan (the
Plan) and entered into the rights agreement. The Company paid a dividend
distribution of one Preferred Share Purchase Right (the Rights) 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. 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 Warrant
and the Anschutz option. The amendment to the Rights Agreement did not exempt
other shares of Common Stock acquired by Anschutz or JEDI from the provisions of
the Rights Agreement.
WARRANTS:
At December 31, 1995 the Company had outstanding 1,244,715 warrants to purchase
shares of its Common Stock (the public warrants). Each Public Warrant entitled
the holder to purchase one-fifth share of Common Stock at a price of $3.00 and
was noncallable. During 1996, 112,185 warrants were exercised to purchase
22,437 shares of Common Stock. On October 1, 1996 the remaining Public Warrants
expired.
In December 1995, the Company assumed JEDI's obligations under the Anschutz
Option. On August 1, 1996 Anschutz exercised the Anschutz Option for
$26,200,000 or approximately $11.64 per share and Anschutz received 2,250,000
shares of Common Stock.
At December 31, 1996 the Company has outstanding the A Warrant that is held by
Anschutz. At that date, the A Warrant entitled the holder to purchase 3,500,000
shares of Common Stock at a price of $10.50 per share. The Warrant expires on
July 27, 1999. On November 5, 1996 Anschutz exercised a portion of the
A Warrant and purchased 388,888 shares of Common Stock at $10.50 per share.
STOCK OPTIONS:
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 each grant anniversary date thereafter.
55
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(9) COMMON STOCK (CONTINUED):
- -------------------------------------------------------------------------------
The following table summarizes the activity in the Company's stock-based
compensation plan for the years ended December 31, 1994, 1995 and 1996:
Weighted
Average Number of
Number of Exercise Shares
Shares Price Exercisable
--------- -------- -----------
Outstanding at December 31, 1993 610,800 $ 19.99 155,320
Granted at fair value 62,000 25.00
Exercised (7,000) 15.00
Cancelled (7,000) 25.00
--------- --------
Outstanding at December 31, 1994 658,800 20.46 372,080
Cancelled (30,800) 20.52
--------- --------
Outstanding at December 31, 1995 628,000 20.46 461,200
Granted at fair value 1,383,900 12.74
Exercised (35,120) 11.42
Cancelled (515,200) 20.47
--------- --------
Outstanding at December 31, 1996 1,461,580 $ 13.37 362,460
--------- --------
--------- --------
The fair value of each option granted in 1996 was estimated using the
Black-Scholes option pricing model with the following assumptions: expected
option life of 5 years; risk free interest rates ranging from 5.261% to
6.022%; estimated volatility of 59.95%; and dividend yield of zero percent.
The weighted average fair market value of options granted during 1996 was
estimated to be $7.22 per share based on these assumptions.
56
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(9) COMMON STOCK (CONTINUED):
- --------------------------------------------------------------------------------
The following table summarizes information about options outstanding at
December 31, 1996:
Options Outstanding Options Excercisable
---------------------------------- ---------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number of Contractual Exercise Number of Exercise
Exercise Price Shares Life Price Shares Price
-------------- --------- ----------- -------- --------- ---------
$11.25-12.63 666,080 9.23 $11.53 107,360 $11.59
$14.00-15.00 737,500 9.45 14.17 197,100 14.34
$25.00 58,000 5.75 25.00 58,000 25.00
------------ --------- ---- ------ ------- ------
$11.25-25.00 1,461,580 9.20 $13.37 362,460 $15.23
------------ --------- ---- ------ ------- ------
------------ --------- ---- ------ ------- ------
The Company applies APB Opinion 25 and related Interpretations in accounting
for its plans. Accordingly, no compensation cost is recognized for options
granted at a price equal to the fair market value of the common stock. Had
compensation cost for the Company's stock-based compensation plan been
determined using the fair value of the options at the grant date, the
Company's net income for the year ended December 31, 1996 would have been
$2,230,000 and net earnings per share would have been less than $.01 per
share. There were no stock options granted in 1995; accordingly, no
compensation cost would have been recognized in that year.
(10) EMPLOYEE BENEFITS
- --------------------------------------------------------------------------------
PENSION PLANS:
The Company has a qualified defined benefit pension plan which covers its
U.S. employees (Pension Plan). The Pension Plan has been curtailed and 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. No contribution was made to
the Plan in 1996, 1995 or 1994.
The following table sets forth the Pension Plan's funded status and amounts
recognized in the Company's consolidated financial statements at December 31:
1996 1995
-------- --------
(In Thousands)
Actuarial present value of accumulated
benefit obligation (all benefits are vested) $(25,959) $(27,485)
-------- --------
-------- --------
Projected benefit obligation for service
rendered to date $(25,959) $(27,485)
Plan assets at fair market value, consisting
primarily of listed stocks, bonds and other
fixed income obligations 24,897 24,270
-------- --------
Unfunded pension liability (1,062) (3,215)
Unrecognized net loss from past experience
different from that assumed and effects
of changes in assumptions 2,012 4,133
-------- --------
Pension asset recognized in the balance sheet $ 950 $ 918
-------- --------
-------- --------
57
<PAGE>
FORREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(10) EMPLOYEE BENEFITS (CONTINUED):
- --------------------------------------------------------------------------------
For 1996, the discount rate used in determining the actuarial present value of
the projected benefit obligation was 7.75% and the expected long-term rate of
return on assets was 9%. For 1995, the discount rate used in determining the
actuarial present value of the projected benefit obligation was 7.25% and the
expected long-term rate of return on assets was 9%. 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%.
The components of net pension expense (benefit) for the years ended December 31,
1996, 1995 and 1994 are as follows:
1996 1995 1994
------- ------- -------
(In Thousands)
Net pension expense (benefit) included the
following components:
Interest cost on projected benefit
obligation $ 1,926 $ 2,049 $ 1,976
Actual return on plan assets (3,056) (3,243) (245)
Net amortization and deferral 1,098 1,234 (1,955)
------- ------- -------
Net pension expense (benefit) $ (32) $ 40 $ (224)
------- ------- -------
------- ------- -------
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 Pension Plan. At December 31, 1996 the
projected benefit obligation under this plan totaled $604,000, which amount
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 changes in the discount rate for
the Pension Plan and the supplementary retirement plan, the Company records
corresponding changes in the liability and capital surplus. In 1994, the
Company reduced the liability representing the unfunded pension liability by
approximately $1,570,000, with a corresponding increase in capital surplus.
In 1995, the Company increased the unfunded pension liability by
approximately $2,836,000, with a corresponding decrease in capital surplus.
In 1996, the Company reduced the unfunded pension liability by approximately
$2,145,000, with a corresponding increase in capital surplus.
Canadian Forest's employees are members of a non-contributory defined benefit
pension plan (Canadian Pension Plan). The benefits under the Canadian
Pension Plan are based on years of service, the employee's average annual
compensation during the highest consecutive sixty month period of pensionable
service and the employee's age at retirement. Canadian Forest's contribution
to the Canadian Pension Plan was $47,000 in 1996.
58
<PAGE>
FORREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(10) EMPLOYEE BENEFITS (CONTINUED):
- --------------------------------------------------------------------------------
The following table sets forth the Canadian Pension Plan's funded status and
amounts recognized in the Company's consolidated financial statements at
December 31:
1996
--------------
(In Thousands)
Actuarial present value of accumulated benefit obligation
(all benefits are vested) $(4,119)
-------
-------
Projected benefit obligation for service rendered to date $(4,119)
Plan assets at fair market value, consisting primarily of
listed stocks, bonds and other fixed income obligations 4,922
-------
Pension surplus 803
Unrecognized net gain from past experience different from
that assumed and effects of changes in assumptions (915)
-------
Pension liability recognized in the balance sheet $ (112)
-------
-------
For 1996, the discount rate used in determining the actuarial present value
of the projected benefit obligation was 7% and the expected long-term rate
of return on assets was 7%.
The components of net pension expense for the year ended December 31 is as
follows:
1996
--------------
(In Thousands)
Net pension expense included the
following components:
Interest cost on projected benefit obligation $ 456
Actual return on plan assets (310)
Net amortization and deferral (69)
-------
Net pension expense $ 77
-------
-------
RETIREMENT SAVINGS PLANS:
The Company sponsors a qualified tax deferred savings plan in accordance with
the provisions of Section 401(k) of the Internal Revenue Code for its U.S.
employees. 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 the first six months of 1995 and in 1994,
Company contributions were made using treasury stock. In the last six months
of 1995 and in the first nine months of 1996, Company contributions were made
by issuing authorized but unissued shares of Common Stock. In the last three
months of 1996, Company contributions were made in cash. The expense
associated with the Company's contribution was $399,000 in 1996, $423,000 in
1995 and $516,000 in 1994.
Canadian Forest also provides a savings plan which is available to all of
its employees. Employees may contribute up to 4% of their salary, subject to
certain limitations, with Canadian Forest matching the employee contribution
in full. Certain limitations are in effect with respect to withdrawals from
the plan. Canadian Forest's contribution to the plan was $95,000 in 1996.
59
<PAGE>
FORREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(10) EMPLOYEE BENEFITS (CONTINUED):
- --------------------------------------------------------------------------------
EXECUTIVE RETIREMENT AGREEMENTS:
The Company entered into agreements in December 1990 (the Agreements) with
certain former 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 also continued 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.
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 Agreements for the other six
Retirees provide for supplemental retirement payments totaling approximately
$970,000 per year through 1998 and approximately $770,000 per year in 1999
and 2000.
The $2,881,000 present value of the amounts due under the agreements,
discounted at 13%, is included in other current and long-term liabilities.
LIFE INSURANCE:
The Company provides life insurance benefits for certain key employees and
retirees under split dollar life insurance plans. the premiums for the life
insurance policies were $921,000, $921,000 and $916,000 in 1996, 1995 and
1994, respectively, including $831,000 in each of the years 1996, 1995 and
1994 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.
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 following table sets forth the status of the postretirement benefit plan
and the amounts recognized in the Company's consolidated financial statements
at December 31:
1996 1995
------ ------
(In Thousands)
Retired participants $4,522 $4,803
Active participants fully eligible for benefits 256 201
Other active participants 1,101 1,026
------ ------
Accumulated postretirement benefit obligation (APBO) 5,879 6,030
Plan assets at fair market value - -
------ ------
APBO in excess of plan assets 5,879 6,030
Unrecognized loss (166) (595)
------ ------
Accrued postretirement benefit liability $5,713 $5,435
------ ------
------ ------
The discount rates used in determining the actuarial present value of the
APBO at December 31, 1996, 1995 and 1994 were 7.75%, 7.25% and 9%,
respectively.
60
<PAGE>
FORREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(10) EMPLOYEE BENEFITS (CONTINUED):
- --------------------------------------------------------------------------------
The components of postretirement benefit expense for the years ended December
31, 1996, 1995 and 1994 are as follows:
1996 1995 1994
---- ---- ----
(In Thousands)
Service cost $131 $ 83 $103
Interest cost on APBO 418 421 407
---- ---- ----
Postretirement benefit cost $549 $504 $510
---- ---- ----
---- ---- ----
For 1996, a 1% increase in health care cost trends would have increased the
APBO by $723,000 and the service and interest cost by $84,000.
(11) RELATED PARTY TRANSACTIONS:
- --------------------------------------------------------------------------------
Prior to 1995, 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.
John F. Dorn resigned as an executive officer and director of the Company in
1993. The Company agreed to pay Mr. Dorn his salary at the time of his
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. In March 1994, the Company
sold certain non-strategic oil and gas properties to an entity controlled by
Mr. 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.
(12) COMMITMENTS AND CONTINGENCIES:
- --------------------------------------------------------------------------------
Future rental payments for office facilities and equipment under the
remaining terms of noncancelable leases are $1,810,000, $1,810,000,
$1,773,000, $1,615,000 and $1,090,000 for the years ending December 31, 1997
through 2001, respectively.
Net rental payments applicable to exploration and development activities and
capitalized in the oil and gas property accounts aggregated $1,050,000 in
1996, $972,000 in 1995 and $851,000 in 1994. Net rental payments charged to
expense amounted to $3,336,000 in 1996, $3,529,000 in 1995 and $3,512,000 in
1994. Rental payments include the short-term lease of vehicles. None of the
leases are accounted for as capital leases.
A significant portion of Canadian Forest's natural gas production is sold
through the ProMark Netback Pool. At December 31, 1996 the ProMark Netback
Pool had entered into fixed price contracts to sell approximately 10.7 BCF of
natural gas in 1997 at an average price of $1.66 per MCF and approximately
5.4 BCF of natural gas in 1998 at an average price of approximately $1.88 per
MCF. Canadian Forest is obligated to deliver approximately 25% of the volumes
of natural gas subject to these contracts.
As part of ProMark's gas marketing activities, ProMark has entered into fixed
price contracts to purchase and to resell natural gas through 1998. ProMark
has commitments to purchase and commitments to resell approximately 300,000
MCF per day through October 31, 1997 and approximately 35,000 MCF per day
thereafter through October 31, 1998. The Company could be exposed to loss in
the event that a counterparty to these agreements failed to perform in
accordance with the terms of the agreements.
61
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(12) COMMITMENTS AND CONTINGENCIES (CONTINUED):
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:
ENERGY SWAPS AND COLLARS: In order to hedge against the effects on the
Company's future oil and gas production 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, 1996, 1995 and 1994, the
Company's gains (losses) under its swap agreements were $(10,422,000),
$3,536,000 and $1,810,000, respectively. The Company also enters into collar
agreements with third parties that are accounted for as hedges. A collar
agreement is similar to a swap agreement, except that the Company receives the
difference between the floor price and the index price only if the index price
is below the floor price, and the Company pays the difference between the
ceiling price and the index price only if the index price is above the ceiling
price.
The following table indicates outstanding energy swaps at December 31, 1996:
<TABLE>
Product Volume Fixed Price Duration
--------------- ------------------------ ----------------- ------------
<S> <C> <C> <C>
Natural Gas 441 TO 5,761 MMBTU/day $2.300 to $2.535 1/97 - 12/99
Natural Gas 100 TO 250 MMBTU/day $2.2505 to $3.003 1/97 - 12/02
Natural Gas 5,000 MMBTU/day $1.9225 1/97 - 12/97
Natural Gas 3,000 MMBTU/day $2.42 1/97 - 12/97
Natural Gas 10,000 MMBTU/day $2.728 1/97 - 2/97
Natural Gas (1) 1,200 to 1,500 MMBTU/day $1.159 (2) 1/97 -6/98
Oil 250 BBLS/day $18.85 1/97 - 12/97
Oil 332 BBLS/day $17.90 1/97 - 6/97
Oil 250 BBLS/day $20.05 1/97 - 12/97
Oil 250 BBLS/day $21.05 1/97 - 12/97
Oil (1) 350 BBLS/day $18.65 1/97 - 12/97
Oil (1) 350 BBLS/day $20.05 1/97 - 12/97
Oil (1) 350 BBLS/day $21.04 1/97 - 12/97
</TABLE>
(1) Energy swaps related to the oil and gas operations of Canadian Forest and
Saxon.
(2) Based on Alberta Energy Company "C" (AECO "C", U.S. $) basis. All other
swaps are settled on the basis of New York Mercantile Exchange (NYMEX)
prices.
Subsequent to December 31, 1996 the Company entered into two additional oil
swaps. The first oil swap hedges 200 barrels of oil per day from February
1997 to July 1997 at a fixed price of $23.67 per barrel (NYMEX basis). The
second oil swap hedges 247 barrels of oil per day from January 1998 to
December 1998 at a fixed price of $20.00 per barrel (NYMEX basis).
The Company also uses basis swaps in connection with energy swaps to fix the
differential between the NYMEX price and the index price at which the hedged gas
is to be sold. At December 31, 1996 there are six basis swaps in place through
April 1998, for a weighted average volume of 22,000 MMBTU/day. Subsequent to
December 31, 1996 the Company entered into six additional basis swaps through
December 1997, for a weighted average volume of 18,000 MMBTU/day.
62
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(13) FINANCIAL INSTRUMENTS (CONTINUED):
At December 31, 1996 the Company has an outstanding collar to hedge 10,000
MMBTU of natural gas per day from January 1997 through December 1997. The
floor and ceiling price of the collar are $2.00 and $2.37 per MMBTU (NYMEX
basis), respectively. Subsequent to December 31, 1996 the Company entered
into a collar to hedge 7,000 MMBTU of gas per day from April 1997 to September
1997. The floor and ceiling price of the collar are $2.10 and $2.50 per MMBTU
(NYMEX basis), respectively.
At December 31, 1996 the Company has an outstanding call which covers 10,000
MMBTU of natural gas per day from Janary 1997 to December 1997. In this
arrangement, the Company has effectively set a ceiling price of $2.00 per
MMBTU (NYMEX basis) in exchange for a premium of $.086 per MMBTU.
The Company is exposed to off-balance-sheet risks associated with swap or collar
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 or collar
agreements.
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, 1996:
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE:
The carrying amount of these instruments approximates fair value due to their
short maturity.
PRODUCTION PAYMENT OBLIGATION:
The fair value of the Company's production payment obligation has been estimated
as approximately $11,188,000 by discounting the projected future cash payments
required under the agreement by 9.7%.
SENIOR SUBORDINATED NOTES:
The fair value of the Company's 11 1/4% Senior Subordinated Notes was
approximately $107,500,000, based upon quoted market prices of the Notes.
INTEREST RATE SWAP AGREEMENTS:
The fair value of the Company's interest rate swap agreements was a loss of
approximately $1,751,000, of which approximately $1,168,000 has been recorded as
a liability at December 31, 1996.
ENERGY SWAP AGREEMENTS:
The fair value of the Company's energy swap agreements was a loss of
approximately $5,615,000, based upon the estimated net amount the Company would
have to pay to terminate the agreements.
BASIS SWAP AGREEMENTS:
The fair value of the Company's basis swap agreements was a gain of
approximately $173,000, based upon the estimated net amount the Company would
receive to terminate the agreements.
ENERGY COLLAR AGREEMENTS:
The fair value of the Company's energy collar agreements was a loss of
approximately $109,000, based upon the estimated net amount the Company would
have to pay to terminate the agreements.
63
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(14) MAJOR CUSTOMERS:
The Company's sales to individual customers which exceeded 10% of the Company's
total revenue in 1995 and 1994 (exclusive of the effects of energy swaps and
hedges) are shown below. No single customer accounted for more than 10% of
total revenue in 1996.
1995 1994
------- ------
(In Thousands)
Enron Affiliates $30,916 58,805
Chevron USA Production Company 11,893 12,829
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
$6,272,000, $17,217,000 and $29,046,000 represent sales recorded for deliveries
under volumetric production payments in the years ended December 31, 1996, 1995
and 1994, respectively.
(15) GAS CONTRACT SETTLEMENT:
The Company had gas sales contracts with Columbia Gas Transmission (Columbia)
which were rejected by Columbia in 1991 in connection with its bankruptcy
proceedings. The Company had a secured claim of approximately $1,600,000
relating to Columbia's failure to pay the contract price for a period of time
prior to the rejection of the contracts. This amount was recorded as natural
gas sales when the gas was delivered in 1991. The Company also had an unsecured
claim relating to the rejection of the gas purchase contracts.
The Company established a reserve of approximately $750,000 against the secured
portion of the bankruptcy claim in 1991. This reserve was reversed in 1994 when
it became apparent that the amount the Company would receive in the Columbia
settlement would exceed the amount of the secured claim. The reversal of the
reserve was recorded as miscellaneous revenue in 1994.
In 1995, the creditors reached agreement with Columbia regarding settlement of
the various claims. The Company recorded approximately $4,263,000 of revenue as
a result of the settlement. This amount represents the Company's portion of the
settlement amount related to its unsecured claim, net of a provision for
royalties payable.
64
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(16) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C> <C>
1996
- ----
REVENUE $60,870 79,544 83,969 93,091
------- ------ ------ ------
------- ------ ------ ------
EARNINGS FROM OPERATIONS $20,010 18,743 23,058 29,748
------- ------ ------ ------
------- ------ ------ ------
EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM $ (386) (2,901) 879 3,547
------- ------ ------ ------
------- ------ ------ ------
NET EARNINGS (LOSS) $ (386) (2,901) 879 5,713
------- ------ ------ ------
------- ------ ------ ------
NET EARNINGS (LOSS) ATTRIBUTABLE TO COMMON STOCK $ (926) (3,441) 340 5,174
------- ------ ------ ------
------- ------ ------ ------
PRIMARY AND FULLY DILUTED LOSS PER SHARE BEFORE
EXTRAORDINARY ITEM $ (.04) (.14) .01 .10
------- ------ ------ ------
------- ------ ------ ------
PRIMARY AND FULLY DILUTED LOSS PER SHARE $ (.04) (.14) .01 .17
------- ------ ------ ------
------- ------ ------ ------
1995
- ----
Revenue $22,361 20,550 17,617 21,928
------- ------ ------ ------
------- ------ ------ ------
Earnings from operations $14,900 12,740 10,177 12,914
------- ------ ------ ------
------- ------ ------ ------
Net loss $(3,144) (4,815) (6,574) (3,463)
------- ------ ------ ------
------- ------ ------ ------
Net loss attributable to common stock $(3,684) (5,355) (7,114) (4,003)
------- ------ ------ ------
------- ------ ------ ------
Primary and fully diluted loss per share $ (.65) (.94) (.84) (.42)
------- ------ ------ ------
------- ------ ------ ------
</TABLE>
65
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(17) BUSINESS AND GEOGRAPHICAL SEGMENTS:
- ------------------------------------------------------------------------------
The Company operates in geographic segments in the United States and Canada, and
in two business segments as follows:
UNITED
STATES CANADA TOTAL
------ ------ -----
(IN THOUSANDS)
1996
- ----
GAS MARKETING AND PROCESSING:
REVENUE $ 927 186,447 187,374
--------- ------- -------
--------- ------- -------
DEPRECIATION AND DEPLETION EXPENSE $ - 2,263 2,263
--------- ------- -------
--------- ------- -------
OPERATING PROFIT $ 927 5,478 6,405
--------- ------- -------
--------- ------- -------
IDENTIFIABLE ASSETS $ - 54,215 54,215
--------- ------- -------
--------- ------- -------
CAPITAL EXPENDITURES $ - 6,183 6,183
--------- ------- -------
--------- ------- -------
OIL AND GAS OPERATIONS:
REVENUE $ 80,811 47,902 128,713
--------- ------- -------
--------- ------- -------
DEPRECIATION AND DEPLETION EXPENSE $ 39,880 20,925 60,805
--------- ------- -------
--------- ------- -------
OPERATING PROFIT $ 21,142 14,567 35,709
--------- ------- -------
--------- ------- -------
IDENTIFIABLE ASSETS $ 326,399 182,844 509,243
--------- ------- -------
--------- ------- -------
CAPITAL EXPENDITURES $ 74,734 169,384 244,118
--------- ------- -------
--------- ------- -------
In 1995 and 1994, the Company's only business segment was oil and gas
operations, which were conducted entirely in the United States.
66
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(18) 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.
(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, 1996, 1995 and 1994:
UNITED
STATES CANADA TOTAL
------- ------ -----
(In Thousands)
1996
- ----
PROPERTY ACQUISITION COSTS (UNDEVELOPED
LEASES AND PROVED PROPERTIES) $ 16,122 142,833 (1) 158,955
EXPLORATION COSTS 36,696 6,743 43,439
DEVELOPMENT COSTS 21,916 19,808 41,724
-------- ------- -------
TOTAL $ 74,734 169,384 244,118
-------- ------- -------
-------- ------- -------
1995
- ----
Property acquisition costs (undeveloped
leases and proved properties) $ 844 25,963 (2) 26,807
Exploration costs 12,739 - 12,739
Development costs 13,198 - 13,198
-------- ------- -------
Total $ 26,781 25,963 52,744
-------- ------- -------
-------- ------- -------
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
-------- ------- -------
-------- ------- -------
(1) Consists primarily of the oil and gas properties acquired in the purchase
of Canadian Forest.
(2) Consists of the oil and gas properties acquired in the purchase of Saxon.
(B) AGGREGATE CAPITALIZED COSTS - The aggregate capitalized costs relating to
oil and gas activities as of December 31 for the years indicated are as
follows:
<TABLE>
1996 1995 1994
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Costs related to proved properties $ 1,381,289 1,169,636 1,109,158
Costs related to unproved properties:
Costs subject to depletion 32,007 18,011 32,288
Costs not subject to depletion 43,916 28,380 30,441
----------- --------- ---------
1,457,212 1,216,027 1,171,887
Less accumulated depletion and valuation allowance 1,001,604 941,482 895,335
----------- --------- ---------
$ 455,608 274,545 276,552
----------- --------- ---------
----------- --------- ---------
</TABLE>
67
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(18) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED) (CONTINUED):
- ------------------------------------------------------------------------------
(C) RESULTS OF OPERATIONS FROM PRODUCING ACTIVITIES - Results of operations
from producing activities for the years ended December 31, 1996, 1995 and 1994
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>
UNITED
STATES CANADA TOTAL
------ ------ -----
(IN THOUSANDS)
<S> <C> <C> <C>
1996
- ----
OIL AND GAS SALES $ 80,811 47,902 128,713
PRODUCTION EXPENSE 19,789 12,410 32,199
DEPLETION EXPENSE 39,331 20,297 59,628
INCOME TAX EXPENSE - 6,864 6,864
--------- ------ -------
59,120 39,571 98,691
--------- ------ -------
RESULTS OF OPERATIONS FROM PRODUCING ACTIVITIES $ 21,691 8,331 30,022
--------- ------ -------
--------- ------ -------
1995
- ----
Oil and gas sales $ 82,275 - 82,275
Production expense 22,463 - 22,463
Depletion expense 42,973 - 42,973
--------- ------ -------
65,436 - 65,436
--------- ------ -------
Results of operations from producing activities $ 16,839 - 16,839
--------- ------ -------
--------- ------ -------
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
--------- ------ -------
145,267 - 145,267
--------- ------ -------
Results of operations from producing activities $ (30,726) - (30,726)
--------- ------ -------
--------- ------ -------
</TABLE>
(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 1994, 1995 and 1996 follows. The Canadian reserves at December 31,
1996 and 1995 include 100% of the reserves owned by Saxon, a consolidated
subsidiary in which the Company holds a majority interest.
Proved oil and gas reserves are the estimated quantities of crude oil, natural
gas and natural gas liquids which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions; i.e., prices and
costs as of the date the estimate is made. Prices include consideration of
changes in existing prices provided only by contractual arrangement, including
energy swap agreements (see Note 13), but not on escalations based on future
conditions.
68
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(18) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED) (CONTINUED):
- ------------------------------------------------------------------------------
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 excludes,
for each of the years presented, those quantities attributable to future
deliveries required under volumetric production payments (see Note 6). 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.
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 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.
69
<PAGE>
FORREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(18) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED) (CONTINUED):
<TABLE>
LIQUIDS GAS
------------------------- -------------------------------
(MBBLS) (MMCF)
UNITED UNITED
STATES CANADA TOTAL STATES CANADA TOTAL
------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
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
----- ------ ------ ------- ------- -------
----- ------ ------ ------- ------- -------
Balance at December 31, 1994 7,313 - 7,313 231,638 - 231,638
Revisions of previous estimates (227) - (227) 2,398 - 2,398
Extensions and discoveries 18 - 18 6,861 - 6,861
Production (1,028) - (1,028) (24,222) - (24,222)
Sales of reserves in place (6) - (6) (2,438) - (2,438)
Purchases of reserves in place 59 4,338 4,397 1,435 16,218 17,653
----- ------ ------ ------- ------- -------
Balance at December 31, 1995 6,129 4,338 10,467 215,672 16,218 231,890
Volumes attributable to volumetric
production payments 74 - 74 6,238 - 6,238
----- ------ ------ ------- ------- -------
Balance at December 31, 1995, including
volumes attributable to volumetric
production payments 6,203 4,338 10,541 221,910 16,218 238,128
----- ------ ------ ------- ------- -------
----- ------ ------ ------- ------- -------
BALANCE AT DECEMBER 31, 1995 6,129 4,338 10,467 215,672 16,218 231,890
REVISIONS OF PREVIOUS ESTIMATES 335 (431) (96) (4,989) (3,446) (8,435)
EXTENSIONS AND DISCOVERIES 357 4,440 4,797 32,507 7,779 40,286
PRODUCTION (1,030) (1,645) (2,675) (25,456) (13,872) (39,328)
SALES OF RESERVES IN PLACE (16) (612) (628) (1,132) (326) (1,458)
PURCHASES OF RESERVES IN PLACE 23 12,126 12,149 14,653 96,572 111,225
----- ------ ------ ------- ------- -------
BALANCE AT DECEMBER 31, 1996 5,798 18,216 24,014 231,255 102,925 334,180
ADDITIONAL DISCLOSURES:
VOLUMES ATTRIBUTABLE TO VOLUMETRIC
PRODUCTION PAYMENTS - - - 3,070 - 3,070
----- ------ ------ ------- ------- -------
BALANCE AT DECEMBER 31, 1996, INCLUDING
VOLUMES ATTRIBUTABLE TO VOLUMETRIC
PRODUCTION PAYMENTS 5,798 18,216 24,014 234,325 102,925 337,250
----- ------ ------ ------- ------- -------
----- ------ ------ ------- ------- -------
</TABLE>
70
<PAGE>
FORREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(18) 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>
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, 1993 6,377 - 6,377 187,534 - 187,534
December 31, 1994 6,775 - 6,775 179,574 - 179,574
December 31, 1995 5,678 3,188 8,866 156,471 14,184 170,655
DECEMBER 31, 1996 5,311 13,260 18,571 165,629 70,856 236,485
</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>
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, 1993 6,778 - 6,778 216,820 - 216,820
December 31, 1994 6,994 - 6,994 194,932 - 194,932
December 31, 1995 5,752 3,188 8,940 162,709 14,184 176,893
DECEMBER 31, 1996 5,311 13,260 18,571 168,699 70,856 239,555
</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. At December 31, 1996 and 1995,
the Canadian amounts include 100% of amounts attributable to the reserves owned
by Saxon, a consolidated subsidiary in which the Company holds a majority
interest. 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. Future oil and gas sales also
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% in
the United States and a combined Federal and Provincial rate of 44.62% in
Canada. 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.
The Company's presentation of the standardized measure of discounted future net
cash flows and changes therein excludes, 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
71
<PAGE>
FORREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(18) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED) (CONTINUED):
- -------------------------------------------------------------------------------
(E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (CONTINUED)
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.
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>
DECEMBER 31, 1996
-----------------------------------
UNITED
STATES CANADA TOTAL
------ ------ -----
(In Thousands)
<S> <C> <C> <C>
Future oil and gas sales $ 964,943 580,563 1,545,506
Future production and development costs (258,866) (168,136) (427,002)
--------- -------- ---------)
Future net revenue 706,077 412,427 1,118,504
10% annual discount for estimated timing of cash flows (250,527) (165,788) (416,315)
--------- -------- ---------
Present value of future net cash flows before income taxes 455,550 246,639 702,189
Present value of future income tax expense (71,339) (70,981) (142,320)
--------- -------- ---------
Standardized measure of discounted future net cash flows 384,211 175,658 559,869
Additional disclosures:
Amounts attributable to volumetric production payments 3,126 - 3,126
--------- -------- ---------
Total discounted future net cash flows, including amounts
attributable to volumetric production payments $ 387,337 175,658 562,995
--------- -------- ---------
--------- -------- ---------
</TABLE>
Undiscounted future income tax expense was $134,835,000 in the United States and
$127,833,000 in Canada at December 31, 1996.
72
<PAGE>
FORREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(18) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED) (CONTINUED):
- -------------------------------------------------------------------------------
(E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (CONTINUED)
<TABLE>
DECEMBER 31, 1995
-----------------------------------
UNITED
STATES CANADA TOTAL
------ ------ -----
(In Thousands)
<S> <C> <C> <C>
Future oil and gas sales $ 554,609 93,021 647,630
Future production and development costs (195,399) (43,060) (238,459)
--------- -------- ---------
Future net revenue 359,210 49,961 409,171
10% annual discount for estimated timing of cash flows (122,528) (19,108) (141,636)
--------- -------- ---------
Present value of future net cash flows before income taxes 236,682 30,853 267,535
Present value of future income tax expense (8,855) (1,763) (10,618)
--------- -------- ---------
Standardized measure of discounted future net cash flows 227,827 29,090 256,917
--------- -------- ---------
Additional disclosures:
Amounts attributable to volumetric production payments 8,476 - 8,476
Total discounted future net cash flows, including
amounts attributable to volumetric production payments $ 236,303 29,090 265,393
--------- -------- ---------
--------- -------- ---------
</TABLE>
Undiscounted future income tax expense was $22,316,000 in the United States and
$2,924,000 in Canada at December 31, 1995.
73
<PAGE>
FORREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(18) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED) (CONTINUED):
- -----------------------------------------------------------------------------
(E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (CONTINUED)
<TABLE>
DECEMBER 31, 1994
-----------------------------------
UNITED
STATES CANADA TOTAL
------ ------ -----
(In Thousands)
<S> <C> <C> <C>
Future oil and gas sales $ 502,186 - 502,186
Future production and development costs (193,376) - (193,376)
--------- -------- ---------
Future net revenue 308,810 - 308,810
10% annual discount for estimated timing of cash flows (100,480) - (100,480)
--------- -------- ---------
Present value of future net cash flows before income taxes 208,330 - 208,330
Present value of future income tax expense (781) - (781)
--------- -------- ---------
Standardized measure of discounted future net cash flows 207,549 - 207,549
Additional disclosures:
Amounts attributable to volumetric production payments 22,600 - 22,600
--------- -------- ---------
Total discounted future net cash flows, including amounts
attributable to volumetric production payments $ 230,149 - 230,149
--------- -------- ---------
--------- -------- ---------
</TABLE>
Undiscounted future income tax expense was $1,348,000 at December 31, 1994.
74
<PAGE>
FORREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(18) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED) (CONTINUED):
- -------------------------------------------------------------------------------
(E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (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. At December 31, 1996 and 1995, the Canadian amounts include 100%
of the reserves owned by Saxon, a consolidated subsidiary in which the Company
holds a majority interest.
<TABLE>
DECEMBER 31, 1996
-----------------------------------
UNITED
STATES CANADA TOTAL
------ ------ -----
(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 $227,827 29,090 256,917
Changes resulting from:
Sales of oil and gas, net of production costs (56,768) (35,492) (92,260)
Net changes in prices and future production costs 169,975 96,547 266,522
Net changes in future development costs (14,192) (8,256) (22,448)
Extensions, discoveries and improved recovery 60,423 37,491 97,914
Previously estimated development costs incurred
during the period 19,734 18,939 38,673
Revisions of previous quantity estimates (4,396) (8,054) (12,450)
Sales of reserves in place (2,405) (3,993) (6,398)
Purchases of reserves in place 21,948 115,518 137,466
Accretion of discount on reserves at beginning of
year before income taxes 24,549 3,085 27,634
Net change in income taxes (62,484) (69,217) (131,701)
-------- -------- --------
Standardized measure of discounted future net cash
flows relating to proved oil and gas reserves,
at end of year 384,211 175,658 559,869
Additional disclosures:
Amounts attributable to volumetric production payments 3,126 - 3,126
-------- -------- --------
Total discounted future net cash flows relating to proved
oil and gas reserves, including amounts attributable to
volumetric production payments, at end of year $387,337 175,658 562,995
-------- -------- --------
-------- -------- --------
</TABLE>
The computation of the standardized measure of discounted future net cash
flows relating to proved oil and gas reserves at December 31, 1996 was based
on average natural gas prices of approximately $3.50 per MCF in the U.S. and
approximately $2.10 per MCF in Canada and on average liquids prices of
approximately $26.25 per barrel in the U.S. and approximately $19.10 per
barrel in Canada. During March 1997, the Company was receiving an average
natural gas price of approximately $1.90 per MCF in the U.S. and
approximately $1.70 per MCF in Canada and was receiving average liquids
prices of approximately $19.20 per barrel in the U.S. and approximately
$17.00 per barrel in Canada. Had the lower March 1997 prices been used, the
Company's standardized measure of discounted future net cash flows relating
to proved oil and gas reserves at December 31, 1996 would have been
significantly reduced.
75
<PAGE>
FORREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(18) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED) (CONTINUED):
- ------------------------------------------------------------------------------
(E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (CONTINUED)
<TABLE>
DECEMBER 31, 1995
-----------------------------------
UNITED
STATES CANADA TOTAL
------ ------ -----
(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 $207,549 - 207,549
Changes resulting from:
Sales of oil and gas, net of production costs (48,090) - (48,090)
Net changes in prices and future production costs 43,991 - 43,991
Net changes in future development costs (3,392) - (3,392)
Extensions, discoveries and improved recovery 7,231 - 7,231
Previously estimated development costs incurred
during the period 7,633 - 7,633
Revisions of previous quantity estimates 127 - 127
Sales of reserves in place (3,114) - (3,114)
Purchases of reserves in place 865 30,853 31,718
Accretion of discount on reserves at beginning of year before
income taxes 23,102 - 23,102
Net change in income taxes (8,075) (1,763) (9,838)
-------- ------- --------
Standardized measure of discounted future net cash flows relating
to proved oil and gas reserves, at end of year 227,827 29,090 256,917
-------- ------- --------
Additional disclosures:
Amounts attributable to volumetric production payments 8,476 - 8,476
-------- ------- --------
Total discounted future net cash flows relating to proved
oil and gas reserves, including amounts attributable to
volumetric production payments, at end of year $236,303 29,090 265,393
-------- ------- --------
-------- ------- --------
</TABLE>
76
<PAGE>
FORREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(18) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED) (CONTINUED):
- -----------------------------------------------------------------------------
(E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (CONTINUED)
DECEMBER 31,
1994
--------------
(In Thousands)
Standardized measure of discounted future net cash
flows relating to proved oil and gas reserves, at
beginning of year $262,176
Changes resulting from:
Sales of oil and gas, net of production costs (69,607)
Net changes in prices and future production costs (80,526)
Net changes in future development costs 7,432
Extensions, discoveries and improved recovery 10,817
Previously estimated development costs incurred during
the period 10,000
Revisions of previous quantity estimates 16,840
Sales of reserves in place (10,630)
Purchases of reserves in place 8,467
Accretion of discount on reserves at beginning of
year before income taxes 32,334
Net change in income taxes 20,246
--------
Standardized measure of discounted future net cash
flows relating to proved oil and gas reserves, at
end of year 207,549
Additional disclosures:
Amounts attributable to volumetric production payments 22,600
--------
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
--------
--------
77
<PAGE>
PART III
For information concerning Item 10 - Directors and Executive Officers
of the Registrant, Item 11 - Executive Compensation, Item 12 - Security
Ownership of Certain Beneficial Owners and Management and Item 13 - Certain
Relationships and Related Transactions, see the definitive Proxy Statement
of Forest Oil Corporation relative to the Annual Meeting of Shareholders
to be held on May 14, 1997 which will be filed with the Securities and
Exchange Commission, which information is incorporated herein by reference.
For information concerning Item 10 - Executive Officers of Registrant, see
Part I - Item 4A.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Financial Statements
1. Independent Auditors' Report
2. Consolidated Balance Sheets - December 31, 1996 and 1995
3. Consolidated Statements of Operations - Years ended
December 31, 1996, 1995 and 1994
4. Consolidated Statements of Shareholders' Equity - Years
ended December 31, 1996, 1995 and 1994
5. Consolidated Statements of Cash Flows - Years ended
December 31, 1996, 1995 and 1994
6. Notes to Consolidated Financial Statements - Years
ended December 31, 1996, 1995 and 1994
(2) Financial Statement Schedules
All schedules have been omitted because the information is
either not required or is set forth in the financial statements
or the notes thereto.
(3) Exhibits - Forest shall, upon written request to Daniel L.
McNamara, Corporate Secretary of Forest, addressed to Forest
Oil Corporation, 1600 Broadway, Suite 2200, Denver, CO 80202,
provide copies of each of the following Exhibits:
Exhibit 3(i) Restated Certificate of Incorporation of Forest Oil Corporation
dated October 14, 1993, incorporated herein by reference to Exhibit 3(i) to
Form 10-Q for Forest Oil Corporation for the quarter ended September 30, 1993
(File No. 0-4597).
Exhibit 3(i)(a) Certificate of Amendment of the Restated Certificate of
Incorporation dated as of July 20, 1995, 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 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).
78
<PAGE>
Exhibit 3(i)(c) Certificate of Amendment of the Restated Certificate of
Incorporation dated as of January 5, 1996, incorporated herein by reference
to Exhibit 3(i)(c) to Forest Oil Corporation's Registration Statement on Form
S-2 (File No. 33-64949).
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 First Supplemental Indenture dated as of February 8, 1996
among Forest Oil Corporation, 611852 Saskatchewan Ltd. and Fleet National
Bank of Connecticut (formerly known as Shawmut Bank, Connecticut, National
Association, which was formerly known as The Connecticut Bank), incorporated
herein by reference to Exhibit 4.2 to Form 10-K for Forest Oil Corporation
for the year ended December 31, 1995 (File No. 0-4597).
Exhibit 4.3 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 4.4 Second Amended and Restated Credit Agreement dated as of
January 31, 1997 between Forest Oil Corporation and Subsidiary Guarantors and
The Chase Manhattan Bank, as agent.
Exhibit 4.5 Deed of Trust, Mortgage, Security Agreement, Assignment of
Production, Financing Statement (Personal Property Including Hydrocarbons),
and Fixture Filing dated as of December 1, 1993, incorporated herein by
reference to Exhibit 4.6 to Form 10-K for Forest Oil Corporation for the year
ended December 31, 1993 (File No. 0-4597).
Exhibit 4.6 Amendment No. 1 dated as of June 3, 1994 to the Deed of
Trust, Mortgage, Security Agreement, Assignment of Production, Financing
Statement (Personal Property including Hydrocarbons) and Fixture Filing dated
as of December 1, 1993 between Forest Oil Corporation and The Chase Manhattan
Bank
79
<PAGE>
(National Association), as agent, incorporated herein by reference to Exhibit
4.9 of Form 10-K for Forest Oil Corporation for the year ended December 31,
1994 (File No. 0-4597).
Exhibit 4.7 Amendment No. 2 dated as of August 31, 1995 to the Deed of
Trust, Mortgage, Security Agreement, Assignment of Production, Financing
Statement (Personal Property including Hydrocarbons) and Fixture Filing dated
as of December 1, 1993 between Forest Oil Corporation and The Chase Manhattan
Bank (National Association), as agent, incorporated herein by reference to
Exhibit 4.14 to Form 10-K for Forest Oil Corporation for the year ended
December 31, 1995 (File No. 0-4597).
*Exhibit 4.8 Amendment No. 2 dated as of January 31, 1997 to the Deed
of Trust, Mortgage, Security Agreement, Assignment of Production, Financing
Statement (Personal Property including Hydrocarbons) and Fixture Filing dated
as of June 3, 1994 between Forest Oil Corporation and The Chase Manhattan
Bank, as agent.
*Exhibit 4.9 Amendment No. 3 dated as of January 31, 1997 to the Deed
of Trust, Mortgage, Security Agreement, Assignment of Production, Financing
Statement (Personal Property including Hydrocarbons) and Fixture Filing dated
as of December 1, 1993 between Forest Oil Corporation and The Chase Manhattan
Bank, as agent.
Exhibit 4.10 Deed of Trust, Mortgage, Security Agreement, Assignment of
Production, Financing Statement (Personal Property including Hydrocarbons)
and Fixture Filing dated as of June 3, 1994 between Forest Oil Corporation
and The Chase Manhattan Bank (National Association), as agent, incorporated
herein by reference to Exhibit 4.9 of Form 10-K for Forest Oil Corporation
for the year ended December 31, 1994 (File No. 0-4597).
Exhibit 4.11 Amendment No. 1 dated as of August 31, 1995 to Deed of
Trust, Mortgage, Security Agreement, Assignment of Production, Financing
Statement (Personal Property Including Hydrocarbons), and Fixture Filing
dated June 3, 1994, incorporated herein by reference to Exhibit 4.16 on Form
10-K for Forest Oil Corporation for the year ended December 31, 1995 (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 4.13 Amendment No. 1 dated as of July 27, 1995 to Rights
Agreement dated as of October 14, 1993 between Forest Oil Corporation and
Mellon Securities Trust Company, incorporated herein by reference to Exhibit
99.5 of Form 8-K for Forest Oil Corporation dated October 11, 1995 (File No.
0-4597).
Exhibit 10.1 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 10.2 Form of non-qualified Executive Deferred Compensation
Agreement, incorporated herein by reference to Exhibit 10.3 to Form 10-Q for
Forest Oil Corporation for the years ended December 31, 1990 (File No.
0-4597).
Exhibit 10.3 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 10.4 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 10.5 Forest Oil Corporation Stock Incentive Plan and Option
Agreement, incorporated herein by reference to Exhibit 4.1 to Form S-8 for
Forest Oil Corporation dated June 7, 1996 (File No. 0-4597).
Exhibit 10.6 Letter Agreement with Richard B. Dorn relating to a
revision to Exhibit 10.5, 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).
80
<PAGE>
Exhibit 10.7 Form of Executive Severance Agreement, incorporated herein
by reference to Exhibit 10.9 to Form 10-K for Forest Oil Corporation for the
year ended December 31, 1993 (File No. 0-4597).
Exhibit 10.8 Shareholders Agreement dated as of July 27, 1995 between
Forest Oil Corporation and The Anschutz Corporation incorporated herein by
reference to Exhibit 99.7 to Form 8-K for Forest Oil Corporation dated
October 11, 1995 (File No. 0-4597).
Exhibit 10.9 Tranche A Warrant to Purchase 3,888,888 shares of Common
Stock issued to The Anschutz Corporation dated July 27, 1995 incorporated
herein by reference to Exhibit 99.6 to Form 8-K for Forest Oil Corporation
dated October 11, 1995 (File No. 0-4597).
Exhibit 10.10 Shareholders Agreement dated as of January 24, 1996
between Forest Oil Corporation and Joint Energy Development Investments
Limited Partnership, incorporated herein by reference to Exhibit 10.12 to
Form 10-K for Forest Oil Corporation for the year ended December 31, 1995
(File No. 0-4597).
*Exhibit 11 Computation of Earnings Per Share of Common Stock. Forest
Oil Corporation and Subsidiaries.
*Exhibit 21 List of Subsidiaries of the Registrant.
*Exhibit 23 Consent of KPMG Peat Marwick LLP
*Exhibit 24 Powers of Attorney of the following Officers and
Directors: Philip F. Anschutz, Robert S. Boswell, William L. Britton, Richard
J. Callahan, Cortlandt S. Dietler, William L. Dorn, Jordan L. Haines, David
H. Keyte, James H. Lee, Craig D. Slater, Joan C. Sonnen, Drake S. Tempest,
Michael B. Yanney.
*Exhibit 27 Financial Data Schedule
- --------------------
* filed herewith.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed by Forest during the last
quarter of 1996:
Date of Report Item Reported Financial Statements Filed
-------------- ------------- --------------------------
October 30, 1996 Item 5 None
November 15, 1996 Item 5 None
81
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
FOREST OIL CORPORATION
(Registrant)
Date: March 27, 1997 By: /s/ Daniel L. McNamara
-------------------------
Daniel L. McNamara
Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
Robert S. Boswell* President and Chief Executive March 27, 1997
(Robert S. Boswell) Officer (Principal Executive
Officer)
David H. Keyte* Vice President and Chief March 27, 1997
(David H. Keyte) Financial Officer (Principal
Financial Officer)
Joan C. Sonnen* Controller March 27, 1997
(Joan C. Sonnen) (Chief Accounting Officer)
Philip F. Anschutz* Directors of the Registrant March 27, 1997
(Philip F. Anschutz)
Robert S. Boswell*
(Robert S. Boswell)
William L. Britton*
(William L. Britton)
Richard J. Callahan*
(Richard J. Callahan)
Cortland S. Dietler*
(Cortland S. Dietler)
William L. Dorn*
(William L. Dorn)
Jordan L. Haines*
(Jordan L. Haines)
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 March 27, 1997
--------------------------------
Daniel L. McNamara
(as attorney-in-fact for
each of the persons indicated)
82
<PAGE>
EXHIBIT 4.4
EXECUTION COPY
================================================================================
FOREST OIL CORPORATION
and
SUBSIDIARY GUARANTORS
----------------------------
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
Dated as of January 31, 1997
----------------------------
THE CHASE MANHATTAN BANK,
as Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
THIS TABLE OF CONTENTS IS NOT PART OF THE AGREEMENT TO WHICH IT IS
ATTACHED BUT IS INSERTED FOR CONVENIENCE OF REFERENCE ONLY.
<TABLE>
Page
----
<S> <C> <C>
Section 1. Definitions and Accounting Matters . . . . . . . . . . . . . . . . . . 1
1.01 Certain Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Accounting Terms and Determinations. . . . . . . . . . . . . . . . . . . . . 23
1.03 Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
1.04 Types of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
1.05 Designation of Subsidiaries as Restricted or Unrestricted
Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
1.06 References to Subsidiaries, Restricted Subsidiaries and
Unrestricted Subsidiaries in Connection with Calculations
of Certain Financial Ratios . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2. Commitments, Loans, Notes and Prepayments. . . . . . . . . . . . . . . 27
2.01 Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.02 Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.03 Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.04 Changes of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.05 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.06 Lending Offices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.07 Several Obligations; Remedies Independent. . . . . . . . . . . . . . . . . . 33
2.08 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.09 Optional Prepayments and Conversions or Continuations
of Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.10 Mandatory Prepayments and Reductions of Commitments. . . . . . . . . . . . . 35
Section 3. Payments of Principal and Interest . . . . . . . . . . . . . . . . . . 36
3.01 Repayment of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3.02 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 4. Payments; Pro Rata Treatment; Computations; Etc. . . . . . . . . . . . 37
4.01 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.02 Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.03 Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(i)
<PAGE>
Page
----
4.04 Minimum Amounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.05 Certain Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.06 Non-Receipt of Funds by the Agent. . . . . . . . . . . . . . . . . . . . . . 40
4.07 Sharing of Payments, Etc.. . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 5. Yield Protection, Etc. . . . . . . . . . . . . . . . . . . . . . . . . 42
5.01 Additional Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.02 Limitation on Types of Loans . . . . . . . . . . . . . . . . . . . . . . . . 45
5.03 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.04 Treatment of Affected Loans. . . . . . . . . . . . . . . . . . . . . . . . . 45
5.05 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.06 Additional Costs in Respect of Letters of Credit . . . . . . . . . . . . . . 47
Section 6. Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.01 Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.02 Obligations Unconditional. . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.03 Reinstatement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.04 Subrogation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.05 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.06 Continuing Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.07 Instrument for the Payment of Money. . . . . . . . . . . . . . . . . . . . . 49
6.08 Rights of Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.09 General Limitation on Guarantee Obligations. . . . . . . . . . . . . . . . . 50
Section 7. Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.01 Conditions to Effectiveness. . . . . . . . . . . . . . . . . . . . . . . . . 50
7.02 Initial and Subsequent Extensions of Credit. . . . . . . . . . . . . . . . . 53
Section 8. Representations and Warranties . . . . . . . . . . . . . . . . . . . . 54
8.01 Corporate Existence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.02 Financial Condition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.03 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
8.04 No Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
8.05 Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
8.06 Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(ii)
<PAGE>
Page
----
8.07 Use of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
8.08 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
8.09 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
8.10 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
8.11 Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . 56
8.12 Material Agreements and Liens. . . . . . . . . . . . . . . . . . . . . . . . 56
8.13 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
8.14 Subsidiaries, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
8.15 True and Complete Disclosure . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 9. Covenants of the Obligors. . . . . . . . . . . . . . . . . . . . . . . 60
9.01 Financial Statements Etc . . . . . . . . . . . . . . . . . . . . . . . . . . 60
9.02 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
9.03 Existence, Etc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
9.04 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
9.05 Prohibition of Fundamental Changes . . . . . . . . . . . . . . . . . . . . . 64
9.06 Limitation on Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
9.07 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
9.08 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
9.09 Dividend Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
9.10 Interest Coverage Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . 71
9.11 Working Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
9.12 Lines of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
9.13 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . 71
9.14 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
9.15 Certain Obligations Respecting Subsidiaries. . . . . . . . . . . . . . . . . 72
9.16 Additional Subsidiary Guarantors. . . . . . . . . . . . . . . . . . . . . . 72
9.17 Modifications and Payments of Subordinated Indebtedness
and Production Payments Indebtedness. . . . . . . . . . . . . . . . . . . . 73
9.18 Mortgages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
9.19 Unrestricted Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . 73
9.20 Pledges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 10. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 11. The Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
11.01 Appointment, Powers and Immunities. . . . . . . . . . . . . . . . . . . . . 77
(iii)
<PAGE>
Page
----
11.02 Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
11.03 Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
11.04 Rights as a Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
11.05 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
11.06 Non-Reliance on Agent and Other Banks . . . . . . . . . . . . . . . . . . . 79
11.07 Failure to Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
11.08 Resignation or Removal of Agent . . . . . . . . . . . . . . . . . . . . . . 80
11.09 Consents under Other Basic Documents. . . . . . . . . . . . . . . . . . . . 80
11.10 Collateral Sub-Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 12. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
12.01 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
12.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
12.03 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
12.04 Amendments, Etc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
12.05 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . 83
12.06 Assignments and Participations. . . . . . . . . . . . . . . . . . . . . . . 83
12.07 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
12.08 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
12.09 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
12.10 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
12.11 Governing Law; Submission to Jurisdiction . . . . . . . . . . . . . . . . . 86
12.12 Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
12.13 Treatment of Certain Information. . . . . . . . . . . . . . . . . . . . . . 87
</TABLE>
(iv)
<PAGE>
SCHEDULE I - Material Agreements and Liens
SCHEDULE II - Hazardous Materials
SCHEDULE III - Subsidiaries and Investments
EXHIBIT A - Form of Note
EXHIBIT B - Form of Security Agreement
EXHIBIT C-1 - Form of Opinion of Counsel to
the Obligors
EXHIBIT C-2 - Form of Opinion of Corporate
Counsel of the Obligors
EXHIBIT D - Form of Opinion of Special
Counsel to Chase
EXHIBIT E - Form of Mortgage
EXHIBIT F - Form of Pledge Agreement
EXHIBIT G - Form of Confidentiality Agreement
(v)
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT dated as of January 31, 1997,
between: FOREST OIL CORPORATION, a corporation duly organized and validly
existing under the laws of the State of New York (the "COMPANY"); each of the
Subsidiaries of the Company that becomes a guarantor pursuant to Section 9.16
hereof (individually, a "SUBSIDIARY GUARANTOR" and, collectively, the
"SUBSIDIARY GUARANTORS" and, together with the Company, the "OBLIGORS"); each of
the lenders that is a signatory hereto identified under the caption "BANKS" on
the signature pages hereto or which, pursuant to Section 12.06(b) hereof, shall
become a "Bank" hereunder (individually, a "BANK" and, collectively, the
"BANKS"); and THE CHASE MANHATTAN BANK, a New York bank, as agent for the Banks
(in such capacity, together with its successors in such capacity, the "AGENT").
The Company, the Existing Banks (as defined below) and the Agent are
parties to an Amended and Restated Credit Agreement dated as of August 31, 1995
(as heretofore modified and supplemented and in effect on the date of this
Agreement, (the "ORIGINAL CREDIT AGREEMENT")). The parties hereto wish to amend
and restate the Original Credit Agreement in its entirety, all on the terms and
conditions hereinafter set forth.
Each of the Obligors has requested the Banks to make loans to the
Company in an aggregate principal amount not exceeding $100,000,000 at any one
time outstanding to provide working capital and for other general corporate
purposes of the Company and each of its Subsidiaries. The Company and the
Subsidiary Guarantors are engaged as an integrated group in the O&G Business (as
hereinafter defined) and in related businesses, and in furnishing the required
supplies, services, equipment, credit and other facilities for such integrated
operation. The integrated operation requires financing on such a basis that
credit supplied to the Company be made available from time to time to the
Subsidiary Guarantors, as required for the continued successful operation of the
Obligors, separately, and the integrated operation as a whole. Each of the
Obligors expects to derive benefit, directly or indirectly, from the loans so
made to the Company, both in its separate capacity and as a member of the
integrated group, since the successful operation of each of the Obligors is
dependent on the continued successful performance of the functions of the
integrated group as a whole.
Accordingly, the parties hereto agree to amend and restate the
Original Credit Agreement so that, amended and restated, it reads in its
entirety as provided herein.
Section 1. DEFINITIONS AND ACCOUNTING MATTERS.
1.01 CERTAIN DEFINED TERMS. As used herein, the following terms
shall have the following meanings (all terms defined in this Section 1.01 or in
other provisions of this Agreement in the singular to have the same meanings
when used in the plural and VICE VERSA):
"ADMINISTRATIVE QUESTIONNAIRE" shall mean an administrative
questionnaire in a form supplied by the Administrative Agent.
"AFFILIATE" shall mean any Person that directly or indirectly
controls, or is under common control with, or is controlled by, the Company and,
if such Person is an individual, any member of the immediate family (including
parents, spouse, children and siblings) of such individual and any trust whose
principal beneficiary is such individual or one or more members
<PAGE>
-2-
of such immediate family and any Person who is controlled by any such member
or trust. As used in this definition, "CONTROL" (including, with its
correlative meanings, "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") shall
mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities
or partnership or other ownership interests, by contract or otherwise),
PROVIDED that, in any event, any Person that owns directly or indirectly
securities having 10% or more of the voting power for the election of
directors or other governing body of a corporation or 10% or more of the
partnership or other ownership interests of any other Person (other than as a
limited partner of such other Person) will be deemed to control such
corporation or other Person. Notwithstanding the foregoing, (a) no
individual shall be an Affiliate solely by reason of his or her being a
director, officer or employee of the Company or any of its Subsidiaries and
(b) none of the Restricted Subsidiaries of the Company shall be, for purposes
of this definition, Affiliates of the Company.
"ANSCHUTZ" shall mean The Anschutz Corporation, a Kansas corporation.
"APPLICABLE COMMITMENT FEE RATE" shall mean the percentage per annum
set forth opposite the applicable range of Funded Indebtedness to Total
Capitalization in Schedule Y below, PROVIDED that the "Applicable Commitment Fee
Rate" shall be increased or reduced, as applicable, on the date the Funded
Indebtedness to Total Capitalization ratio of the Company and its Restricted
Subsidiaries shifts from one range to another.
SCHEDULE Y
Ratio of Funded Indebtedness Applicable Commitment
to Total Capitalization Fee Rate (bps per annum)
----------------------- ------------------------
0 - .400:1.00 30.0
.401:1.00 to .600:1.00 35.0
.601:1.00 to .700:1.00 37.5
.701:1.00 and greater 50.0
"APPLICABLE LENDING OFFICE" shall mean, for each Bank and for each
Type of Loan, the "Lending Office" of such Bank (or of an affiliate of such
Bank) designated for such Type of Loan in the Administrative Questionnaire of
such Bank or such other office of such Bank (or of an affiliate of such Bank) as
such Bank may from time to time specify to the Agent and the Company as the
office by which its Loans of such Type are to be made and maintained.
<PAGE>
-3-
"APPLICABLE MARGIN" shall mean, with respect to each Type of Loan for
any period during which the outstanding Loans and Letters of Credit Liabilities
under this Agreement are within the range specified under the "Ratio of Funded
Indebtedness to Total Capitalization" in Schedule X below, the percentage per
annum set forth opposite the range under such Type of Loan in such Schedule X,
PROVIDED that the "Applicable Margin" shall be increased or reduced, as
applicable, on the date the Funded Indebtedness to Total Capitalization ratio of
the Company and its Restricted Subsidiaries shifts from one range to another.
SCHEDULE X
Applicable Margin (bps)
Ratio of Funded Indebtedness -----------------------
to Total Capitalization Base Rate Loans Eurodollar Loans
----------------------- --------------- ----------------
0 - .400:1.00 0 100.0
.401:1.00 to .600:1.00 25.0 125.0
.601:1.00 to .700:1.00 50.0 150.0
.701:1.00 and greater 75.0 175.0
"BANKRUPTCY CODE" shall mean the Federal Bankruptcy Code of 1978, as
amended from time to time.
"BANKS" shall mean (a) on the date hereof, the Banks having
Commitments as indicated on the signature pages hereof and (b) thereafter, the
Banks from time to time holding Loans and (if the same have not expired or been
terminated) Commitments after giving effect to any assignments thereof permitted
by Section 12.06 hereof.
"BASE RATE" shall mean, for any day, a rate per annum equal to the
higher of (a) the Federal Funds Effective Rate for such day plus 1/2 of 1% and
(b) the Prime Rate for such day. Each change in any interest rate provided for
herein based upon the Base Rate resulting from a change in the Base Rate shall
take effect at the time of such change in the Base Rate.
"BASE RATE LOANS" shall mean Loans that bear interest at rates based
upon the Base Rate.
"BASIC DOCUMENTS" shall mean, collectively, this Agreement, the Notes,
the Letter of Credit Documents and the Security Documents.
"BORROWING BASE" has the meaning given to such term in Section 1.03
hereof.
<PAGE>
-4-
"BORROWING BASE DEFICIENCY" has the meaning given to such term in
Section 2.10(a) hereof.
"BUSINESS DAY" shall mean (a) any day on which commercial banks are
not authorized or required to close in New York City and (b) if such day relates
to a borrowing of, a payment or prepayment of principal of or interest on, a
Conversion of or into, or an Interest Period for, a Eurodollar Loan or a notice
by the Company with respect to any such borrowing, payment, prepayment,
Conversion or Interest Period, any day on which dealings in Dollar deposits are
carried out in the London interbank market.
"CANADIAN FOREST OIL" shall mean Canadian Forest Oil Ltd., an Alberta
corporation.
"CANADIAN FOREST OIL CREDIT AGREEMENT" shall mean the Amended and
Restated Credit Agreement dated as of July 17, 1996 among Canadian Forest Oil,
the Subsidiaries of Canadian Forest Oil that may become Subsidiary Borrowers
thereunder and Funding Co., as the same may be modified and supplemented and in
effect from time to time.
"CAPITAL EXPENDITURES" shall mean, for any period, expenditures
(including, without limitation, the aggregate amount of Capital Lease
Obligations incurred during such period) made by the Company or any of its
Restricted Subsidiaries in connection with the acquisition and exploitation of,
or the exploration for or development or production of, hydrocarbon reserves or
to acquire or construct fixed assets, plant and equipment (including renewals,
improvements and replacements, but excluding repairs) during such period
computed in accordance with GAAP.
"CAPITAL LEASE OBLIGATIONS" shall mean, for any Person, all
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) Property to the extent such
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP, and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"CAPITAL STOCK" shall mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
corporate stock or partnership interests and any and all warrants, options and
rights with respect thereto (whether or not currently exercisable), including
each class of common stock and preferred stock of such Person.
"CASH FLOW" shall mean, for any period, for the Company and the
Restricted Subsidiaries (determined on a consolidated basis without duplication
in accordance with GAAP), the sum of the following: the total sales revenue
from natural gas, oil and other hydrocarbon
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products for such period PLUS cash dividend payments, if any, by an
Unrestricted Subsidiary to the Company or a Restricted Subsidiary in an
aggregate amount in excess of the aggregate amount of the Investments in such
Unrestricted Subsidiary by the Company and the Restricted Subsidiaries during
such period PLUS the total Net Cash Payments (excluding the fair market value
of non-cash consideration) received by the Company and its Restricted
Subsidiaries during such period PLUS the total cash proceeds received by the
Company as a result of any Equity Issuance (other than Disqualified Stock of
the Company) that has been utilized to repay any Indebtedness (to the extent
permitted pursuant to the terms of this Agreement) of the Company PLUS the
total cash proceeds received from any Disposition, including any Disposition
of Unrestricted Properties to the extent the proceeds of such Disposition are
applied during such period in satisfaction of the obligations described in
clause (b) of this definition PLUS the net proceeds received from the
issuance of any Debt to the extent such net proceeds are applied during such
period in satisfaction of the obligations described in clause (b) of this
definition MINUS (a) the revenue attributable to Volumetric Production
Payments for such period, (b) the amounts paid in satisfaction of obligations
under Dollar-Denominated Production Payments for such period, (c) oil and gas
production expenses for such period and (d) total overhead costs paid or
required to be paid in cash during such period (whether or not capitalized,
but net of credits related to such expenses).
"CASUALTY EVENT" shall mean, with respect to any Property of any
Person, any loss of or damage to, or any condemnation or other taking of, such
Property for which such Person or any of its Subsidiaries receives insurance
proceeds, or proceeds of a condemnation award or other compensation.
"CHANGE OF CONTROL" shall mean any event or series of events by which:
(i) any "Person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) (other than Anschutz) is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act) of 40% or more of the
total voting power of the Voting Stock of the Company; (ii) the Company
consolidates with or merges or amalgamates with or into another Person or
conveys, transfers, or leases all or substantially all of its assets to any
other Person, or any Person consolidates with, or merges or amalgamates with or
into the Company, in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company is changed into or exchanged for cash,
securities or other property, other than any such transaction where (a) the
outstanding Voting Stock of the Company is changed into or exchanged for Voting
Stock of the surviving corporation which is not Disqualified Stock and (b) the
holders of the Voting Stock of the Company immediately prior to such transaction
own, directly or indirectly, not less than a majority of the Voting Stock of the
surviving corporation immediately after such transaction; (iii) the shareholders
of the Company approve any plan of liquidation or dissolution of the Company; or
(iv) during any period of 12 consecutive months, individuals who at the
beginning of such period constituted the board of directors of the Company (or
whose nomination for election by the shareholders of the Company was approved by
a vote of not less than a majority of the directors of the Company then still in
office who were either directors at the beginning of such
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period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the board of
directors of the Company then in office.
"CHASE" shall mean The Chase Manhattan Bank.
"CLOSING DATE" shall mean December 1, 1993, the date upon which the
initial extension of credit was made hereunder.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"COLLATERAL ACCOUNT" shall have the meaning assigned to such term in
Section 4.01 of the Security Agreement.
"COMMITMENT" shall mean, for each Bank, the obligation of such Bank to
make Loans in an aggregate principal amount up to but not exceeding (a) in the
case of a Bank that is a party to this Agreement as of the date hereof, the
amount set opposite the name of such Bank on the signature pages hereof under
the caption "Commitment" or (b) in the case of any other Bank, the aggregate
amount of the Commitments of other Banks acquired by it pursuant to Section
12.06(b) hereof (in each case, as the same may be reduced from time to time
pursuant to Section 2.04 hereof or increased or reduced from time to time
pursuant to said Section 12.06(b)).
"COMMITMENT PERCENTAGE" shall mean, with respect to any Bank, the
ratio of the amount of the Commitment of such Bank to the aggregate amount of
the Commitments of all of the Banks.
"COMMITMENT TERMINATION DATE" shall mean January 31, 2000.
"COMMODITY HEDGING AGREEMENT" shall mean, for any Person, an agreement
or arrangement between such Person and one or more financial institutions or
other entities providing for the transfer or mitigation of risks of fluctuations
in prices of hydrocarbons, either generally or under specific circumstances.
"CONSOLIDATED SUBSIDIARY" shall mean, for any Person, each Subsidiary
of such Person (whether now existing or hereafter created or acquired) the
financial statements of which are (or should have been) consolidated with the
financial statements of such Person in accordance with GAAP.
"CONTINUE", "CONTINUATION" and "CONTINUED" shall refer to the
continuation pursuant to Section 2.09 hereof of a Eurodollar Loan from one
Interest Period to the next Interest Period.
<PAGE>
-7-
"CONVERT", "CONVERSION" and "CONVERTED" shall refer to a conversion
pursuant to Section 2.09 hereof of one Type of Loans into another Type of Loans,
which may be accompanied by the transfer by a Bank (at its sole discretion) of a
Loan from one Applicable Lending Office to another.
"DEFICIENCY NOTICE" shall have the meaning assigned to such term in
Section 2.10 hereof.
"DEFAULT" shall mean an Event of Default or an event that with notice
or lapse of time or both would become an Event of Default.
"DETERMINATION DATE" shall mean (a) each May 1 and October 15 of each
year prior to the Commitment Termination Date and (b) 45 days after each other
date, if any, on which a Reserve Evaluation Report is delivered to the Agent as
contemplated hereby.
"DETERMINATION PERIOD" shall mean each period commencing on a
Determination Date and ending on the day next preceding the next succeeding
Determination Date.
"DISPOSITION" shall mean any sale, assignment, transfer or other
disposition of any Property (whether now owned or hereafter acquired) by the
Company or any of its Restricted Subsidiaries to any Person (other than by any
such Restricted Subsidiary to the Company or any other Restricted Subsidiary, or
by the Company to a Restricted Subsidiary), excluding any sale, assignment,
transfer or other disposition of (i) any Property sold or disposed of in the
ordinary course of business and on ordinary business terms and (ii) any
Unrestricted Properties.
"DISQUALIFIED STOCK" means any Capital Stock of the Company or any
Restricted Subsidiary of the Company which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable), or upon
the happening of any event or with the passage of time, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the Commitment Termination Date or which is exchangeable or convertible
into debt securities of the Company or any Restricted Subsidiary of the Company,
except to the extent that such exchange or conversion rights cannot be exercised
prior to the Commitment Termination Date.
"DIVIDEND PAYMENT" shall mean dividends (in cash, Property or
obligations) on, or other payments or distributions on account of, or the
setting apart of money for a sinking or other analogous fund for, or the
purchase, redemption, retirement or other acquisition of, any shares of any
class of stock of the Company or any of its Restricted Subsidiaries or of any
warrants, options or other rights to acquire the same (or to make any payments
to any Person, such as "phantom stock" payments, where the amount thereof is
calculated with reference to the fair market or equity value of the Company or
any of its Restricted Subsidiaries), but excluding dividends payable solely in
shares of common stock of the Company.
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"DOLLAR-DENOMINATED PRODUCTION PAYMENTS" shall mean production payment
obligations of the Company or any of its Restricted Subsidiaries which are
payable from a specified share of proceeds received from production from
specific Properties, together with all undertakings and obligations in
connection therewith.
"DOLLARS" and "$" shall mean lawful money of the United States of
America.
"ENVIRONMENTAL CLAIM" shall mean, with respect to any Person, (a) any
written or oral notice, claim, demand or other communication (collectively, a
"CLAIM") by any other Person alleging or asserting such Person's liability for
investigatory costs, cleanup costs, governmental response costs, damages to
natural resources or other Property, personal injuries, fines or penalties
arising out of, based on or resulting from (i) the presence, or Release into the
environment, of any Hazardous Material at any location, whether or not owned by
such Person, or (ii) circumstances forming the basis of any violation, or
alleged violation, of any Environmental Law. The term "Environmental Claim"
shall include, without limitation, any claim by any governmental authority for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Law, and any claim by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from the presence of Hazardous Materials or arising
from alleged injury or threat of injury to health, safety or the environment.
"ENVIRONMENTAL LAWS" shall mean any and all present and future
Federal, state, local and foreign laws, rules or regulations, and any orders or
decrees, in each case as now or hereafter in effect, relating to the regulation
or protection of human health, safety or the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals or toxic or hazardous substances or wastes into the indoor or outdoor
environment, including, without limitation, ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or toxic or
hazardous substances or wastes.
"EQUITY ISSUANCE" shall mean (a) any issuance or sale by the Company
or any of its Restricted Subsidiaries after the date of this Agreement of
(i) any of its Capital Stock, (ii) any warrants or options exercisable in
respect of its Capital Stock or (iii) any other security or instrument
representing an equity interest (or the right to obtain any equity interest) in
the Company or any of its Restricted Subsidiaries or (b) the receipt by the
Company or any of its Restricted Subsidiaries after the date of this Agreement
of any capital contribution (whether or not evidenced by any equity security
issued by the recipient of such contribution); PROVIDED that Equity Issuance
shall not include (x) any such issuance or sale by any Restricted Subsidiary of
the Company to the Company or any other Wholly Owned Subsidiary of the Company
which is a Restricted Subsidiary, (y) any capital contribution by the Company or
any Wholly Owned Subsidiary of the Company which is a Restricted Subsidiary to
any other Restricted Subsidiary
<PAGE>
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of the Company or (z) any warrants or options issued to directors, officers
or employees of the Company and its Restricted Subsidiaries pursuant to any
employee benefit plans, incentive plans or similar programs established in
the ordinary course of business.
"EQUITY RIGHTS" shall mean, with respect to any Person, any
outstanding subscriptions, options, warrants, commitments, preemptive rights or
agreements of any kind (including, without limitation, any stockholders' or
voting trust agreements) for the issuance, sale, registration or voting of, or
outstanding securities convertible into, any additional shares of Capital Stock
of any class, or partnership or other ownership interests of any type in, such
Person.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA AFFILIATE" shall mean any corporation or trade or business that
is a member of any group of organizations (a) described in Section 414(b) or (c)
of the Code of which the Company is a member and (b) solely for purposes of
potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of
the Code and the lien created under Section 302(f) of ERISA and Section 412(n)
of the Code, described in Section 414(m) or (o) of the Code of which the Company
is a member.
"EURODOLLAR BASE RATE" shall mean, with respect to any Eurodollar Loan
for any Interest Period therefor, the rate per annum quoted by Chase at
approximately 11:00 a.m. London time (or as soon thereafter as practicable) on
the date two Business Days prior to the first day of such Interest Period for
the offering by Chase to leading banks in the London interbank market of Dollar
deposits having a term comparable to such Interest Period and in amounts
comparable to the principal amount of the Eurodollar Loan to be made by Chase
for such Interest Period. If Chase is not participating in any Eurodollar Loan
during any Interest Period therefor, the Eurodollar Base Rate for such Loan for
such Interest Period shall be determined by reference to the amount of the Loan
that Chase would have made or had outstanding had it been participating in such
Loan during such Interest Period.
"EURODOLLAR LOANS" shall mean Loans the interest rates on which are
determined on the basis of rates referred to in the definition of "Eurodollar
Base Rate" in this Section 1.01.
"EURODOLLAR RATE" shall mean, for any Eurodollar Loan for any Interest
Period therefor, a rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) determined by the Agent to be equal to the Eurodollar Base Rate for
such Loan for such Interest Period divided by 1 minus the Reserve Requirement
for such Loan for such Interest Period.
"EVENT OF DEFAULT" shall have the meaning assigned to such term in
Section 10 hereof.
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"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the SEC thereunder.
"EXISTING BANKS" shall mean the financial institutions party to the
Original Credit Agreement.
"FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any day, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, PROVIDED that (a) if the day for which such rate is to
be determined is not a Business Day, the Federal Funds Effective Rate for such
day shall be such rate on such transactions on the next preceding Business Day
as so published on the next succeeding Business Day and (b) if such rate is not
so published for any Business Day, the Federal Funds Effective Rate for such
Business Day shall be the average rate charged to Chase on such Business Day on
such transactions as determined by the Agent.
"FUNDED INDEBTEDNESS" shall mean, for the Company and its Restricted
Subsidiaries, as of the date of determination, all Indebtedness of such Persons
(on a consolidated basis) as of the date of the Company's most recent financial
statements (other than in respect of performance or surety bonds and other
obligations of a similar nature incurred in the ordinary course of business of
such Persons) which by its terms matures more than one year after such date of
determination and any such Indebtedness maturing within one year from the date
of determination which is renewable or extendable at the option of the obligor
to a date more than one year from the date of determination and plus the net
increase or minus the net decrease (for the period from the date of the
Company's most recent financial statements to the date of determination) in the
amount of outstanding Loans and the Letter of Credit Liabilities.
"FUNDING CO." shall mean 611852 Saskatchewan Ltd., a corporation
organized under the laws of Saskatchewan.
"FUNDING CREDIT AGREEMENT" shall mean the Amended and Restated Credit
Agreement dated as of July 17, 1996 among Funding Co., the lenders party thereto
and The Chase Manhattan Bank of Canada, as administrative agent, as the same may
be modified and supplemented from time to time.
"FUTURE NET REVENUES" shall mean, for any period, the future gross
revenues attributable to all or a part (as specified herein) of Proved Reserves
constituting part of the Mortgaged Properties for such period less the sum for
such period of all projected Operating Expenses and Capital Expenditures with
respect thereto, as set forth in the related Reserve Evaluation Report, and less
(without duplication) all amounts projected to be applied to the
<PAGE>
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discharge of any Production Payment and to the unearned balance of any
advance payment received under any contract to be performed relating to such
Proved Reserves.
"GAAP" shall mean generally accepted accounting principles applied on
a basis consistent with those which, in accordance with the last sentence of
Section 1.02(a) hereof, are to be used in making the calculations for purposes
of determining compliance with this Agreement.
"GOVERNMENT AUTHORITY" shall mean any federal, state, municipal,
local, territorial, or other governmental subdivision, department, commission,
board, bureau, agency, regulatory authority, instrumentality, judicial or
administrative body, domestic or foreign.
"GUARANTEE" shall mean a guarantee, an endorsement, a contingent
agreement to purchase or to furnish funds for the payment or maintenance of, or
otherwise to be or become contingently liable under or with respect to, the
Indebtedness, other obligations, net worth, working capital or earnings of any
Person or any production or revenues generated by (or any capital or other
expenditures incurred in connection with the acquisition and exploitation of,
exploration for, development of or production from) any hydrocarbon reserves, or
a guarantee of the payment of dividends or other distributions upon the stock or
equity interests of any Person, or an agreement to purchase, sell or lease (as
lessee or lessor) Property, products, materials, supplies or services primarily
for the purpose of enabling a debtor to make payment of such debtor's
obligations or an agreement to assure a creditor against loss, and including,
without limitation, causing a bank, surety company or other financial
institution or similar entity to issue a letter of credit, surety bond or other
similar instrument for the benefit of another Person, but excluding endorsements
for collection or deposit in the ordinary course of business. The terms
"GUARANTEE" and "GUARANTEED" used as a verb shall have a correlative meaning.
"HAZARDOUS MATERIAL" shall mean, collectively, (a) any petroleum or
petroleum products, flammable explosives, radioactive materials, asbestos in any
form that is or could become friable, urea formaldehyde foam insulation, and
transformers or other equipment that contain dielectric fluid containing
polychlorinated biphenyls (PCB's), (b) any chemicals or other materials or
substances which are now or hereafter become defined as or included in the
definition of "hazardous substances", "hazardous wastes", "hazardous materials",
"extremely hazardous wastes", "restricted hazardous wastes", "toxic substances",
"toxic pollutants", "contaminants", "pollutants" or words of similar import
under any Environmental Law and (c) any other chemical or other material or
substance, exposure to which is now or hereafter prohibited, limited or
regulated under any Environmental Law.
"HYDROCARBON PROPERTIES" shall mean interests which one or more of the
Obligors have from time to time in hydrocarbon reserves from which hydrocarbons
may be severed or extracted in commercially feasible quantities which
hydrocarbon reserves have been given value by the Banks in determining the
Borrowing Base.
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"INDEBTEDNESS" shall mean, for any Person: (a) obligations created,
issued or incurred by such Person for borrowed money (whether by loan, the
issuance and sale of debt securities or the sale of Property to another Person
subject to an understanding or agreement, contingent or otherwise, to purchase
or repurchase the same or similar Property from such Person); (b) obligations of
such Person to pay the deferred purchase or acquisition price of Property or
services, other than trade accounts payable (other than for borrowed money)
arising, and accrued expenses incurred, in the ordinary course of business so
long as such trade accounts payable are payable within 90 days of the date the
respective goods are delivered or the respective services are rendered; (c)
obligations of others secured by a Lien on the Property of such Person, whether
or not the respective obligations so secured has been assumed by such Person;
(d) obligations of such Person in respect of letters of credit, surety bonds or
similar instruments issued or accepted by banks, surety companies and other
financial institutions for account of such Person; (e) Capital Lease Obligations
of such Person; (f) obligations of such Person in respect of obligations of the
types specified in other clauses of this definition as a general partner or
joint venturer of any partnership or joint venture (other than in respect of
obligations incurred in the ordinary course of business); (g) upon the failure
of such Person to perform or fulfill any warranties or guaranties of, or similar
obligations relating to, production or payment contained in any Non-Recourse
Debt, the maximum amount of the obligation of such Person in respect of such
warranties, guaranties or similar obligations; (h) the unearned balance of any
advance payment received by such Person under any contract to be performed in
excess of $250,000 in the aggregate (other than as provided in clause (i)
below); (i) the unearned balance of any advance payment received by such Person
under any contract to be performed in excess of $2,000,000 in the aggregate
resulting from transactions in the ordinary course of such Person's business;
and (j) Indebtedness of others Guaranteed by such Person.
"INDEPENDENT PETROLEUM ENGINEER" shall mean (a) Ryder Scott Company
Petroleum Engineers or (b) such other firm of independent petroleum engineers
expert in the matters required to be performed in connection with the
preparation and delivery of a Reserve Evaluation Report and satisfactory to the
Majority Banks.
"INTEREST COVERAGE RATIO" shall mean, for any period, the ratio of (a)
Cash Flow for such period to (b) Interest Expense for such period.
"INTEREST EXPENSE" shall mean, for any period, interest expense for
the Company and the Restricted Subsidiaries for such period (determined on a
consolidated basis without duplication in accordance with GAAP) including,
without limitation, the following: all interest in respect of Indebtedness
accrued or capitalized during such period (whether or not actually paid during
such period) (other than interest paid in common stock of the Company) and the
net amounts payable (or minus the net amounts receivable) under Interest Rate
Protection Agreements of such Persons accrued during such period (whether or not
actually paid or received during such period), but excluding the non-cash
amortization of deferred debt issuance costs and original issue discount for
such period and the interest expense attributable to Dollar-
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Denominated Production Payments of the Company in existence on the Closing
Date for such period.
"INTEREST PERIOD" shall mean, with respect to any Eurodollar Loan,
each period commencing on the date such Eurodollar Loan is made or Converted
from a Base Rate Loan or the last day of the next preceding Interest Period for
such Loan and ending on the numerically corresponding day in the first, second,
third or sixth calendar month thereafter, as the applicable Borrower may select
as provided in Section 4.05 hereof, except that each Interest Period that
commences on the last Business Day of a calendar month (or on any day for which
there is no numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Business Day of the appropriate subsequent calendar
month. Notwithstanding the foregoing: (i) if any Interest Period would
otherwise end after the Commitment Termination Date, such Interest Period shall
end on the Commitment Termination Date; (ii) each Interest Period that would
otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day (or, if such next succeeding Business Day falls in the
next succeeding calendar month, on the next preceding Business Day); and
(iii) notwithstanding clause (i) above, no Interest Period shall have a duration
of less than one month and, if the Interest Period for any Eurodollar Loan would
otherwise be a shorter period, such Loan shall not be available as a Eurodollar
Loan hereunder for such period.
"INTEREST RATE PROTECTION AGREEMENT" shall mean, for any Person, an
interest rate swap, cap or collar agreement or similar arrangement between such
Person and one or more financial institutions or other entities providing for
the transfer or mitigation of interest risks, either generally or under specific
contingencies.
"INVESTMENT" shall mean, for any Person: (a) the acquisition (whether
for cash, Property, services or securities or otherwise) of capital stock,
bonds, notes, debentures, partnership or other ownership interests or other
securities of any other Person or any agreement to make any such acquisition
(including, without limitation, any "short sale" or any sale of any securities
at a time when such securities are not owned by the Person entering into such
short sale); (b) the making of any deposit with, or advance, loan or other
extension of credit to, any other Person (including the purchase of Property
from another Person subject to an understanding or agreement, contingent or
otherwise, to resell such Property to such Person, but excluding any such
advance, loan or extension of credit having a term not exceeding 90 days
representing the purchase price of inventory or supplies sold by such Person in
the ordinary course of business); (c) the entering into of any Guarantee of, or
other contingent obligation with respect to, Indebtedness or other liability of
any other Person and (without duplication) any amount committed to be advanced,
lent or extended to such Person; or (d) the entering into of any Interest Rate
Protection Agreement or Commodity Hedging Agreement.
"ISSUING BANK" shall mean Chase, as the issuer of Letters of Credit
under Section 2.03 hereof, together with its successors and assigns in such
capacity.
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"LETTER OF CREDIT" shall have the meaning assigned to such term in
Section 2.03 hereof.
"LETTER OF CREDIT DOCUMENTS" shall mean, with respect to any Letter of
Credit, collectively, any application therefor and any other agreements,
instruments, guarantees or other documents (whether general in application or
applicable only to such Letter of Credit) governing or providing for (a) the
rights and obligations of the parties concerned or at risk with respect to such
Letter of Credit or (b) any collateral security for any of such obligations,
each as the same may be modified and supplemented and in effect from time to
time.
"LETTER OF CREDIT INTEREST" shall mean, for each Bank, such Bank's
participation interest (or, in the case of the Issuing Bank, the Issuing Bank's
retained interest) in the Issuing Bank's liability under Letters of Credit and
such Bank's rights and interests in Reimbursement Obligations and fees, interest
and other amounts payable in connection with Letters of Credit and Reimbursement
Obligations.
"LETTER OF CREDIT LIABILITY" shall mean, without duplication, at any
time and in respect of any Letter of Credit, the sum of (a) the undrawn face
amount of such Letter of Credit PLUS (b) the aggregate unpaid principal amount
of all Reimbursement Obligations of the Company at such time due and payable in
respect of all drawings made under such Letter of Credit. For purposes of this
Agreement, a Bank (other than the Issuing Bank) shall be deemed to hold a Letter
of Credit Liability in an amount equal to its participation interest in the
related Letter of Credit under Section 2.03 hereof, and the Issuing Bank shall
be deemed to hold a Letter of Credit Liability in an amount equal to its
retained interest in the related Letter of Credit after giving effect to the
acquisition by the Banks other than the Issuing Bank of their participation
interests under said Section 2.03.
"LIEN" shall mean, with respect to any Property, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
Property (including any Production Payments, advance payment or similar
arrangements with respect to minerals in place). For purposes of this Agreement
and the other Basic Documents, a Person shall be deemed to own subject to a Lien
any Property that it has acquired or holds subject to the interest of a vendor
or lessor under any conditional sale agreement, capital lease or other title
retention agreement (other than an operating lease) relating to such Property.
"LOANS" shall mean the loans provided for by Section 2.01(a) hereof.
"MAJORITY BANKS" shall mean Banks having at least 66-2/3% of the
aggregate amount of the Commitments, or if the Commitments shall have been
terminated, Banks holding at least 66-2/3% of the sum of the aggregate unpaid
principal amount of the Loans and the Letter of Credit Liabilities in respect of
the Commitments.
<PAGE>
-15-
"MARGIN STOCK" shall mean "margin stock" within the meaning of
Regulations U and X.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on
(a) the Property, business, operations, financial condition, prospects,
liabilities or capitalization of the Company and its Restricted Subsidiaries
taken as a whole, (b) the ability of any Obligor to perform its obligations
under any of the Basic Documents to which it is a party, (c) the validity or
enforceability of any of the Basic Documents, (d) the rights and remedies of the
Banks and the Agent under any of the Basic Documents or (e) the timely payment
of the principal of or interest on the Loans or the Reimbursement Obligations or
other amounts payable in connection therewith.
"MORTGAGE(S)" shall mean, collectively, one or more Mortgages, Deeds
of Trust, Assignments of Rents, Security Agreements and Fixture Filings or
similar documents executed by the Company in favor of the Agent and Mary Jo
Woodford, as Trustee, for the benefit of the Agent and the Banks, in each case
substantially in the form of Exhibit E hereto and covering the respective
Mortgaged Properties and leasehold interest identified in any Exhibit or
Schedule thereto, as the same shall be modified and supplemented and in effect
from time to time.
"MORTGAGE AMENDMENTS" shall mean the amendments to the Mortgages
executed by the Company in connection with this Agreement.
"MORTGAGED PROPERTIES" shall mean Hydrocarbon Properties which are
subject to the Liens created hereunder and under the Security Documents.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan defined as such
in Section 3(37) of ERISA to which contributions have been made by the Company
or any ERISA Affiliate and which is covered by Title IV of ERISA.
"NET AVAILABLE PROCEEDS" shall mean:
(a) in the case of any Disposition by the Company or a Restricted
Subsidiary, the amount of Net Cash Payments received in connection with
such Disposition; PROVIDED that if 20% or less of the total value of such
Net Cash Payments consists of non-cash consideration, and if such non-cash
consideration is subjected to the Lien of the Security Documents within 90
days after its receipt by the Company or a Restricted Subsidiary, the
amount of such Net Cash Payments received shall be deemed to equal the
amount of all cash payments received in connection with such Disposition;
(b) in the case of any Casualty Event with respect to any Property of
the Company or any of its Restricted Subsidiaries, the aggregate amount of
proceeds of insurance, condemnation awards and other compensation received
by the Company and
<PAGE>
-16-
its Restricted Subsidiaries in respect of such Casualty Event net of
(i) reasonable expenses incurred by the Company and its Restricted
Subsidiaries in connection therewith and (ii) contractually required
repayments of Indebtedness to the extent secured by a Lien on such
Property and any income and transfer taxes payable by the Company or any of
its Restricted Subsidiaries in respect of such Casualty Event; and
(c) in the case of any Equity Issuance, the aggregate amount of all
cash received by the Company and its Restricted Subsidiaries in respect of
such Equity Issuance net of commissions, discounts and other transaction
costs incurred by the Company and its Restricted Subsidiaries in connection
therewith.
"NET CASH PAYMENTS" shall mean, with respect to any Disposition, the
aggregate amount of all cash payments, and the fair market value of any non-cash
consideration, received by the Company and its Restricted Subsidiaries directly
or indirectly in connection with such Disposition; PROVIDED that (a) Net Cash
Payments shall be net of (i) the amount of any legal, title and recording tax
expenses, commissions and other fees and expenses paid by the Company and its
Restricted Subsidiaries in connection with such Disposition and (ii) any
Federal, state and local income or other taxes estimated to be payable by the
Company and its Restricted Subsidiaries as a result of such Disposition (but
only to the extent that (x) such estimated taxes are in fact paid to the
relevant Federal, state or local governmental authority within three months of
date of such Disposition or placed in escrow for the payment of such taxes or
(y) the amount of such estimated taxes is less than $2,000,000 and the payment
of such taxes is being contested in good faith and by appropriate proceedings),
(b) Net Cash Payments shall not include any cash payment (or portion thereof)
received in any fiscal year of the Company in respect of such Disposition to the
extent that such cash payment (or portion thereof), together with all cash
payments with respect to other Dispositions theretofore received in such fiscal
year, does not exceed $1,000,000 and (c) Net Cash Payments shall be net of any
repayments by the Company or any of its Restricted Subsidiaries of Indebtedness
to the extent that (i) such Indebtedness is secured by a Lien on the Property
that is the subject of such Disposition and (ii) such Indebtedness is to be
repaid as a condition to the Disposition of such Property.
"NEW WHOLLY-OWNED SUBSIDIARY" shall have the meaning assigned to such
term in Section 9.08 hereof.
"NON-RECOURSE DEBT" shall mean any Indebtedness of any Unrestricted
Subsidiary, in each case in respect of which the sole recourse of the holder or
holders thereof (except to the extent approved by the Majority Banks) is to such
Unrestricted Subsidiary and/or one or more of its Subsidiaries (which is an
Unrestricted Subsidiary) and/or any other Person (other than the Company and/or
any Restricted Subsidiary) and the terms and conditions of the non-recourse
provisions of which are reasonably acceptable to the Majority Banks; PROVIDED
that the existence in any document executed by any such Unrestricted Subsidiary,
in connection with such Non-Recourse Debt (the "SUBJECT DEBT") of a provision
which provides for recourse to the
<PAGE>
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Properties or assets of the Company, or any Restricted Subsidiary generally
by reason of gross negligence or willful misconduct of such Unrestricted
Subsidiary, will not cause the Subject Debt to be excluded from the
definition of "Non-Recourse Debt" prior to the time that a claim is made
against the Company or such Restricted Subsidiary, as the case may be,
alleging the gross negligence or willful misconduct of such Unrestricted
Subsidiary (it being understood that immediately upon any such claim being
made against the Company or such Restricted Subsidiary the amount of such
claim shall cease to be Non-Recourse Debt).
"NOTES" shall mean the promissory notes provided for by Section 2.08
hereof and all promissory notes delivered in substitution or exchange therefor,
in each case as the same shall be modified and supplemented and in effect from
time to time.
"O&G BUSINESS" shall mean the lines of business referred to in Section
9.12 hereof.
"OPERATING EXPENSES" shall mean, for any period, the sum of the
following for the Company and its Restricted Subsidiaries (determined on a
consolidated basis in accordance with GAAP) to the extent accrued or paid during
such period (without duplication): (i) lease operating expenses; (ii) Taxes;
(iii) general and administrative and other overhead expenditures; and (iv) all
other expenses paid or accrued.
"ORIGINAL FEE LETTER" shall mean the letter agreement dated December
1, 1993 between the Agent and the Company.
"ORIGINAL NOTES" shall mean the promissory notes delivered pursuant to
the Original Credit Agreement.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"PERMITTED INVESTMENTS" shall mean: (a) direct obligations of the
United States of America, or of any agency thereof, or obligations guaranteed as
to principal and interest by the United States of America, or of any agency
thereof, in either case maturing not more than 90 days from the date of
acquisition thereof; (b) certificates of deposit issued by any bank or trust
company organized under the laws of the United States of America or any state
thereof and having capital, surplus and undivided profits of at least
$500,000,000, maturing not more than 90 days from the date of acquisition
thereof; (c) commercial paper rated A-1 or better or P-1 by Standard & Poor's
Rating Group or Moody's Investors Services, Inc., respectively, maturing not
more than 90 days from the date of acquisition thereof; and (d) commercial paper
rated A-2 or better (but less than A-1) or P-2 or better (but less than P-1) by
Standard and Poor's Rating Group or Moody's Investors Services, Inc.
respectively, maturing not more than 30 days from the date of acquisition
thereof.
<PAGE>
-18-
"PERSON" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, trust, unincorporated organization or
government (or any agency, instrumentality or political subdivision thereof).
"PLAN" shall mean an employee benefit or other plan established or
maintained by the Company or any ERISA Affiliate and that is covered by Title IV
of ERISA, other than a Multiemployer Plan.
"PLEDGE AGREEMENT" shall mean the Pledge Agreement substantially in
the form of Exhibit F hereto between any Obligor required to execute a Pledge
Agreement at any time after the date hereof and the Agent, as the same shall be
modified and supplemented and in effect from time to time.
"POST-DEFAULT RATE" shall mean, in respect of any principal of any
Loan, any Reimbursement Obligation or any other amount under this Agreement, any
Note or any other Basic Document that is not paid when due (whether at stated
maturity, by acceleration, by optional or mandatory prepayment or otherwise), a
rate per annum during the period from and including the due date to but
excluding the date on which such amount is paid in full equal to 2% PLUS the
Base Rate as in effect from time to time PLUS the Applicable Margin for Base
Rate Loans (PROVIDED that, if the amount so in default is principal of a
Eurodollar Loan and the due date thereof is a day other than the last day of the
Interest Period therefor, the "Post-Default Rate" for such principal shall be,
for the period from and including such due date to but excluding the last day of
the Interest Period, 2% PLUS the interest rate for such Loan as provided in
Section 3.02(b) hereof and, thereafter, the rate provided for above in this
definition).
"PRESENT VALUE OF RESERVES" shall mean, on any date, estimated net
cash flow expressed in Dollars (after development expenses and production taxes)
in respect of Proved Reserves attributable to Hydrocarbon Properties calculated
in accordance with the Agent's risk factors and product pricing models in effect
from time to time and discounted to present value at a discount rate acceptable
to the Majority Banks from time to time for Proved Reserves.
"PRIME RATE" shall mean the rate of interest per annum publicly
announced from time to time by Chase as its prime rate in effect at its
principal office in New York City.
"PRODUCERS MARKETING" shall mean Producers Marketing Ltd., a Canadian
corporation.
"PRODUCTION PAYMENTS" shall mean, collectively, Dollar-Denominated
Production Payments and Volumetric Production Payments.
"PROPERTY" shall mean any right or interest in or to property of any
kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
<PAGE>
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"PROVED RESERVES" shall mean reserves (to the extent of the net
interest of the Company and its Restricted Subsidiaries therein) comprised of
quantities of hydrocarbons that geologic and engineering data demonstrate with
reasonable certainty to be recoverable in the future from known reservoirs under
existing conditions, PROVIDED that such reserves are recoverable from
(a) existing wells, whether from completion intervals currently open and
producing to market, or completion intervals currently open but not currently
producing or zones behind casing of existing wells, or (b) new wells on
undrilled acreage. Proved Reserves on undrilled acreage shall be limited to
those drilling units offsetting productive units that are reasonably certain to
be productive when drilled. Other undrilled units may also be credited with
Proved Reserves where continuity of production from existing productive
formations can be demonstrated with reasonable certainty. For purposes of
determining whether any Hydrocarbon Properties of any Obligor (other than
Hydrocarbon Properties that have been acquired by such Obligor since the date of
the most recent Reserve Evaluation Report or other internal reserve reports
prepared by the Company, all of which shall be considered Proved Reserves)
contain Proved Reserves, the Banks and the Obligors agree that the most recent
Reserve Evaluation Report or other internal reserve reports prepared by the
Company shall be determinative.
"QUARTERLY DATES" shall mean the last day of March, June, September
and December in each year, the first of which shall be the first such day after
the date of this Agreement; PROVIDED that if any such day is not a Business Day,
then such Quarterly Date shall be the next preceding Business Day.
"REGULATION A", "REGULATION D", "REGULATION G", "REGULATION T",
"REGULATION U" AND REGULATION X" shall mean, respectively, Regulations A, D, G,
T, U and X of the Board of Governors of the Federal Reserve System (or any
successor), as the same may be modified and supplemented and in effect from time
to time.
"REGULATORY CHANGE" shall mean, with respect to any Bank, any change
after the date of this Agreement in Federal, state or foreign law or regulations
(including, without limitation, Regulation D) or the adoption or making after
such date of any interpretation, directive or request applying to a class of
banks including such Bank of or under any Federal, state or foreign law or
regulations (whether or not having the force of law and whether or not failure
to comply therewith would be unlawful) by any court or governmental or monetary
authority charged with the interpretation or administration thereof.
"REIMBURSEMENT OBLIGATIONS" shall mean, at any time, the obligations
of the Company then outstanding, or which may thereafter arise in respect of all
Letters of Credit then outstanding, to reimburse amounts paid by the Issuing
Bank in respect of any drawings under a Letter of Credit.
"RELEASE" shall mean any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor
<PAGE>
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environment, including, without limitation, the movement of Hazardous
Materials through ambient air, soil, surface water, ground water, wetlands,
land or subsurface strata.
"REPORT DELIVERY DATE" shall mean, with respect to any Reserve
Evaluation Report, 45 days prior to the applicable Determination Date.
"RESERVE EVALUATION REPORT" shall mean an unsuperceded report that
(a) is (i) prepared, in the case of the report required to be delivered by the
Company pursuant to Section 9.01(f) hereof in connection with the Determination
Date occurring on May 1 of each year, by the Independent Petroleum Engineer on
the basis of assumptions and projections which the Company believes in good
faith to be reasonable or, in the case of the report required to be delivered by
the Company pursuant to Section 9.01(f) hereof in connection with each other
Determination Date, by the Independent Petroleum Engineer on the basis of the
most recently delivered Reserve Evaluation Report delivered in connection with
the Determination Date occurring on May 1 of each year as adjusted for reserve
additions and production from the date of such report, each as acceptable to the
Independent Petroleum Engineer and (ii) satisfactory in form and substance to
the Majority Banks (including as to assumptions) and (b)(x) is prepared on the
basis of findings and material data as of a date not more than 60 days prior to
the effective date of such report, in the case of a report prepared by the
Company and (y) not more than 90 days prior to the effective date of such
report, in the case of a report prepared by the Independent Petroleum Engineer,
(i) identifies the Hydrocarbon Properties covered thereby, (ii) identifies (in
the case of any report prepared by the Company) the Mortgaged Properties,
(iii) as to each of the Hydrocarbon Properties, sets forth (A) the Proved
Reserves attributable to such Hydrocarbon Property, (B) the total amount of such
Proved Reserves attributable to such Hydrocarbon Property that, in the opinion
of the preparer of such report, the Company and its Restricted Subsidiaries have
the right to produce for their own account in the current and each succeeding
calendar year, (C) a projection of the rate of production and the Future Net
Revenues of the Company and its Restricted Subsidiaries (including as additional
information the data and assumptions used to determine such Future Net Revenues)
from such Proved Reserves for the current and each succeeding calendar year, (D)
the quantity and type of hydrocarbons recoverable from such Proved Reserves in
the current and each succeeding calendar year, (E) an estimate of the projected
revenues and expenses attributable to such Proved Reserves in the current and
each succeeding calendar year, and (F) any reports or evaluations prepared by
the Company regarding the expediency of any change in methods of treatment or
operation of all or any wells drilled to produce any of such Proved Reserves
that are producing or capable of producing hydrocarbons, any new drilling or
development, any method of secondary recovery by repressuring or otherwise, or
any other action with respect to such Proved Reserves, the decision as to which
may increase or reduce the quantity of hydrocarbons ultimately recoverable, or
the rate of production thereof and (c) reconciles (i) the total amount of Proved
Reserves attributable to each Hydrocarbon Property and (ii) any material changes
in Operating Expenses or Capital Expenditures contained in such Reserve
Evaluation Report with the information contained in the immediately preceding
Reserve Evaluation Report, if any.
<PAGE>
-21-
"RESERVE REQUIREMENT" shall mean, for any Interest Period for any
Eurodollar Loan, the average maximum rate at which reserves (including, without
limitation, any marginal, supplemental or emergency reserves) are required to be
maintained during such Interest Period under Regulation D by member banks of the
Federal Reserve System in New York City with deposits exceeding one billion
Dollars against "Eurocurrency liabilities" (as such term is used in Regulation
D). Without limiting the effect of the foregoing, the Reserve Requirement shall
include any other reserves required to be maintained by such member banks by
reason of any Regulatory Change with respect to (i) any category of liabilities
that includes deposits by reference to which the Eurodollar Base Rate is to be
determined as provided in the definition of "Eurodollar Base Rate" in this
Section 1.01 or (ii) any category of extensions of credit or other assets that
includes Eurodollar Loans.
"RESTRICTED SUBSIDIARY" shall mean any Subsidiary of the Company other
than an Unrestricted Subsidiary.
"SECOND AMENDMENT FEE LETTER" shall mean the letter agreement dated
January 31, 1997 between the Agent and the Company.
"SECURITY AGREEMENT" shall mean an Amended and Restated Security
Agreement substantially in the form of Exhibit B hereto between the Obligors and
the Agent, as the same shall be modified and supplemented and in effect from
time to time.
"SECURITY DOCUMENTS" shall mean, collectively, the Security Agreement,
the Pledge Agreement, the Mortgages and all Uniform Commercial Code financing
statements required by this Agreement, the Security Agreement, the Pledge
Agreement or the Mortgages to be filed with respect to the security interests in
personal Property and fixtures created pursuant to the Security Agreement, the
Pledge Agreement or the Mortgages.
"SENIOR SUBORDINATED DEBT" shall mean the Indebtedness of the Company
in respect of the 11 1/4% Senior Subordinated Notes of the Company due September
1, 2003 issued pursuant to the Senior Subordinated Debt Documents.
"SENIOR SUBORDINATED DEBT DOCUMENTS" shall mean all documents and
agreements executed and delivered in connection with the original issuance of
the Senior Subordinated Debt, including the Indenture dated as of September 8,
1993 between the Company and Shawmut Bank Connecticut, National Association, as
trustee, as the same shall, subject to Section 9.17 hereof, be modified and
supplemented and in effect from time to time.
"SUBORDINATED INDEBTEDNESS" shall mean, collectively, (a) the Senior
Subordinated Debt, and (b) any other Indebtedness of any of the Obligors
outstanding on the date hereof (i) for which any Obligor is directly and
primarily liable, (ii) in respect of which none of the Company's other
Restricted Subsidiaries is contingently or otherwise obligated and (iii) which
is subordi-
<PAGE>
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nated to the obligations of the respective Obligors to pay principal of and
interest on the Loans, Reimbursement Obligations and Notes hereunder, and any
extensions on renewals thereof, but excluding any increases in the outstanding
amount thereof, on terms, and pursuant to documentation containing other terms
(including interest, amortization, covenants and events of default), in form
and substance satisfactory to the Majority Banks.
"SUBSIDIARY" shall mean, for any Person, any corporation, partnership
or other entity of which at least a majority of the securities or other
ownership interests having by the terms thereof ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
of such corporation, partnership or other entity (irrespective of whether or not
at the time securities or other ownership interests of any other class or
classes of such corporation, partnership or other entity shall have or might
have voting power by reason of the happening of any contingency) is at the time
directly or indirectly owned or controlled by such Person or one or more
Subsidiaries of such Person or by such Person and one or more Subsidiaries of
such Person. "WHOLLY OWNED SUBSIDIARY" shall mean any such corporation,
partnership or other entity of which all of the equity securities or other
ownership interests (other than, in the case of a corporation, directors'
qualifying shares) are so owned or controlled.
"TANGIBLE NET WORTH" shall mean, as at any date for any Person, the
sum for such Person (determined on a consolidated basis without duplication in
accordance with GAAP as of the date of its most recent financial statement) and
plus any increase occurring during the period from the date of the Company's
most recent financial statements to the date of determination as a result of any
Equity Issuance by the Company, of the following:
(a) the amount of capital stock, PLUS
(b) the amount of surplus and retained earnings (or, in the case of a
surplus or retained earnings deficit, MINUS the amount of such deficit),
MINUS
(c) the sum of the following: cost of treasury shares and the book
value of all assets which should be classified as intangibles (without
duplication of deductions in respect of items already deducted in arriving
at surplus and retained earnings) but in any event including goodwill
(other than goodwill reflected on the financial statements of Canadian
Forest Oil), minority interests, research and development costs,
trademarks, trade names, copyrights, patents and franchises, unamortized
debt discount and expense, all accounting reserves; PLUS
(d) the amount of noncash writedowns of long-lived assets in
compliance with GAAP guidelines or Securities and Exchange Commissions
rules or regulations.
"TAXES" shall mean all taxes, levies, imposts, stamp taxes, duties,
charges to tax, fees, deductions, withholdings, royalties, charges, compulsory
loans or restrictions or conditions
<PAGE>
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resulting in a charge which are imposed, levied, collected, withheld or
assessed by any political subdivision or taxing authority as of the date of
this Agreement or at any time in the future together with interest thereon and
penalties with respect thereto, if any, and any payments of principal,
interest, charges, fees or other amounts made on or in respect thereof,
including without limitation production and severance taxes and windfall
profit taxes, and "TAX" and "TAXATION" shall be construed accordingly provided
that "TAXES" shall exclude taxes imposed on or measured by the overall net
income of a Person.
"3189503" shall mean 3189503 Canada Ltd., a Canadian Corporation.
"TOTAL CAPITALIZATION" shall mean, for any Person, as of the date of
determination, the sum of the Tangible Net Worth of such Person (or, in the case
of the Company, the Tangible Net Worth of the Company and its Restricted
Subsidiaries) as of such date of determination PLUS the Funded Indebtedness of
such Person (or, in the case of the Company, the Funded Indebtedness of the
Company and its Restricted Subsidiaries) as of such date of determination.
"TYPE" shall have the meaning assigned to such term in Section 1.04
hereof.
"UNRESTRICTED PROPERTIES" shall mean the Hydrocarbon Properties of the
Company and its Restricted Subsidiaries that (A) are (i) not Mortgaged
Properties and (ii) that do not contain Proved Reserves and (B) are encumbered
by Dollar-Denominated Production Payments in existence on the Closing Date.
"UNRESTRICTED SUBSIDIARY" shall mean such Subsidiaries of the Company
(other than Subsidiary Guarantors) as may be designated by the Company as
"Unrestricted Subsidiaries" as provided in Section 1.05 hereof.
"VOLUMETRIC PRODUCTION PAYMENTS" shall mean production payment
obligations of the Company or any of its Subsidiaries which are payable from a
specified share of production from specific Properties, together with all
undertakings and obligations in connection therewith.
"VOTING STOCK" means, with respect to any Person, securities of any
class or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or only so long as no senior class of stock has voting
power by reason of any contingency) to vote in the election of members of the
Board of Directors or other governing body of such Person.
1.02 ACCOUNTING TERMS AND DETERMINATIONS.
(a) Except as otherwise expressly provided herein, all accounting
terms used herein shall be interpreted, and all financial statements and
certificates and reports as to financial matters required to be delivered to the
Banks hereunder shall (unless otherwise disclosed to the Banks in writing at the
time of delivery thereof in the manner described in subsection (b) below)
<PAGE>
-24-
be prepared, in accordance with GAAP applied on a basis consistent with those
used in the preparation of the latest financial statements furnished to the
Banks hereunder (which, prior to the delivery of the first financial
statements under Section 9.01 hereof, shall mean the audited financial
statements as at December 31, 1995 referred to in Section 8.02 hereof). All
calculations made for the purposes of determining compliance with this
Agreement shall (except as otherwise expressly provided herein) be made by
application of GAAP applied on a basis consistent with those used in the
preparation of the latest annual or quarterly financial statements furnished
to the Banks pursuant to Section 9.01 hereof (or, prior to the delivery of the
first financial statements under Section 9.01 hereof, used in the preparation
of the audited financial statements as at December 31, 1995 referred to in
Section 8.02 hereof) unless (i) the Company objects to the Banks in writing to
determining such compliance on such basis at the time of delivery of such
financial statements to the Banks or (ii) the Majority Banks shall object to
the Company (through the Agent) in writing to so determining such compliance
within 30 days after such delivery of such financial statements, in either of
which events such calculations shall be made on a basis consistent with those
used in the preparation of the latest financial statements as to which such
objection shall not have been made (which, if objection is made in respect of
the first financial statements delivered under Section 9.01 hereof, shall mean
the financial statements referred to in Section 8.02 hereof).
(b) At the reasonable request of the Majority Banks the Company shall
deliver to the Banks (i) a description in reasonable detail of any material
variation between the application of accounting principles employed in the
preparation of such statement and the application of accounting principles
employed in the preparation of the next preceding annual or quarterly financial
statements as to which no objection has been made in accordance with the last
sentence of subsection (a) above and (ii) reasonable estimates of the difference
between such statements arising as a consequence thereof.
(c) None of the Company and its Subsidiaries will change the last day
of their respective fiscal years from December 31 of each year, or the last days
of the first three fiscal quarters in each of its fiscal years from March 31,
June 30 and September 30 of each year, respectively.
1.03 BORROWING BASE.
(a) RESERVE EVALUATION REPORTS. The Company has furnished to the
Agent and the Banks a reserve report as of July 1, 1996, which report shall be
deemed to be the initial Reserve Evaluation Report. On or before each Report
Delivery Date, the Company shall furnish to the Agent and the Banks an updated
Reserve Evaluation Report.
(b) BORROWING BASE. During the period commencing on the date hereof
and ending on such date the first redetermination of the Borrowing Base becomes
effective as provided below in this Section 1.03(b), the Borrowing Base shall be
$60,000,000 (subject to any
<PAGE>
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adjustments and redeterminations provided for by Sections 1.03(c), 1.03(d) and
1.03(e) hereof) which amount has been determined on the basis of the initial
Reserve Evaluation Report referred to in the first sentence of Section 1.03(a)
hereof (with such adjustments to the rates, factors, values, estimates,
assumptions and computations set forth in such Reserve Evaluation Report as
are acceptable to the Majority Banks). As promptly as reasonably practicable
after its receipt of each Reserve Evaluation Report furnished to it pursuant
to the second sentence of Section 1.03(a) hereof, the Agent (in consultation
with the Majority Banks) shall endeavor to redetermine the Borrowing Base on
the basis of such Reserve Evaluation Report in the manner provided in this
clause (b), notify the Banks of such redetermination and, if such
redetermination is approved by each of the Banks (in the case of an increase
in the Borrowing Base) or by the Majority Banks (in the case of (i) a decrease
in the Borrowing Base or (ii) no change in the Borrowing Base), as applicable,
notify the Company of the Borrowing Base as so redetermined and such
redetermined Borrowing Base shall become effective on the Determination Date
next following each Report Delivery Date (or, if later, on the date notified
by the Agent to the Company) and shall remain effective until again
redetermined as provided in this Section 1.03(b) (subject to any adjustments
and redeterminations provided for by Sections 1.03(c), 1.03(d) and 1.03(e)
hereof). The determination by the Agent and each of the Banks or the Majority
Banks, as the case may be, of the Borrowing Base for any Determination Period
shall be made on the basis of parameters which may include the Present Value
of Reserves attributable to Hydrocarbon Properties included in the Mortgaged
Properties as set forth in the Reserve Evaluation Report for such
Determination Period, subject, however, to such adjustments as the Agent, with
the concurrence of each of the Banks or the Majority Banks, as the case may
be, may make in its and their sole discretion to the rates, factors, values,
estimates, assumptions and computations set forth in such Reserve Evaluation
Report and any other relevant information or factors, including without
limitation, any additional Indebtedness or other obligations that may be
incurred by the Company and its Subsidiaries that the Majority Banks may deem
appropriate.
(c) MATERIAL CHANGE. The Company agrees to notify the Agent promptly
of any material change of which the Company or any of its Restricted
Subsidiaries is aware which reduces or may result in a reduction of the
Borrowing Base by more than 10%. Promptly upon receipt of such notice, the
Agent (in consultation with the Banks) shall endeavor to adjust the Borrowing
Base pursuant to the procedures set forth in Section 1.03(b) hereof.
(d) REDETERMINATION. If so requested by the Majority Banks or the
Company at any time, the Agent shall, as promptly as reasonably practicable
after the receipt of such request, endeavor to redetermine (in consultation with
the Company and the Banks) the Borrowing Base as then in effect on the basis of
the then most recent Reserve Evaluation Report (subject, however, to such
additional adjustments to the rates, factors, values, estimates, assumptions and
computations as set forth therein as the Agent, with the concurrence of the
Majority Banks, may determine to be appropriate) and any other relevant
information and factors, including, without limitation, any additional
Indebtedness or other obligations that have been or are reasonably anticipated
to be incurred by the Company and its Restricted Subsidiaries
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and any Hydrocarbon Properties acquired by the Company and its Restricted
Subsidiaries which are not subject to any Lien other than Liens created
hereunder or under the Security Documents, Liens permitted by Section 9.06
hereof, that the Majority Banks may deem appropriate and otherwise as provided
in Section 1.03(b) hereof, PROVIDED that no Hydrocarbon Properties acquired by
any Subsidiary of the Company after the date hereof shall be included in the
calculation of the Borrowing Base unless such Subsidiary is a Subsidiary
Guarantor under this Agreement. As promptly as reasonably practical following
its redetermination of the Borrowing Base the Agent shall notify the Banks of
such redetermination and, if such redetermination is approved by each of the
Banks (in the case of an increase in the Borrowing Base) or by the Majority
Banks (in the case of a decrease in the Borrowing Base), as applicable, notify
the Company of the Borrowing Base as so redetermined and such redetermined
Borrowing Base shall become effective immediately upon delivery to the Company
of such notice of redetermination.
(e) DETERMINATIONS, ETC. All determinations and redeterminations and
adjustments by the Agent provided for above in this Section 1.03 or in the
definition of "Present Value of Reserves" in Section 1.01 (and any
determinations and decisions by the Majority Banks in connection therewith,
including any thereof approving or disapproving a proposed redetermination or
redetermination by the Agent or effecting any adjustment to any element included
in a Reserve Evaluation Report or the determination or redetermination of the
Borrowing Base) shall be made on a reasonable basis, in good faith and in a
manner reasonably consistent with the basis on which the initial Borrowing Base
was determined to be acceptable to the Banks (but after giving effect to changes
in facts and circumstance occurring after the date of such initial determination
including, but not limited to, reserves and production, operating expenses and
economic assumptions with respect to price of hydrocarbons and inflation), and
any such determination, redetermination or adjustment shall consider any other
relevant information or factors, including without limitation, any additional
Indebtedness or other obligations that may be incurred by the Company and its
Restricted Subsidiaries that the Majority Banks may deem appropriate, PROVIDED
that no Hydrocarbon Properties acquired by any Subsidiary of the Company after
the date hereof shall be included in the calculation of the Borrowing Base
unless such Subsidiary is a Subsidiary Guarantor under this Agreement.
1.04 TYPES OF LOANS. Loans hereunder are distinguished by "Type".
The "Type" of a Loan refers to whether such Loan is a Base Rate Loan or a
Eurodollar Loan, each of which constitutes a Type.
1.05 DESIGNATION OF SUBSIDIARIES AS RESTRICTED OR UNRESTRICTED
SUBSIDIARIES. The Company may, but only with the approval of the Majority
Banks, designate (by notice to the Agent which shall promptly notify the Banks)
a Restricted Subsidiary by delivery of a new Schedule III hereto (other than a
Subsidiary Guarantor) to be an Unrestricted Subsidiary or an Unrestricted
Subsidiary to be a Restricted Subsidiary; PROVIDED that the Company may, without
such approval, designate (by notice to the Agent which shall promptly notify the
Banks) a
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corporation or other entity that is formed or acquired as a direct or indirect
Subsidiary of the Company after the date hereof (no part of the business or
assets of which was owned by the Company or a Restricted Subsidiary prior to
the date of such formation or acquisition) to be an Unrestricted Subsidiary on
or prior to the date of such formation or acquisition if, after giving effect
thereto, the Company would be in compliance with its obligations with respect
to such Subsidiary as an Unrestricted Subsidiary under Section 9.19 hereof and
no other Default shall have occurred and be continuing.
1.06 REFERENCES TO SUBSIDIARIES, RESTRICTED SUBSIDIARIES AND
UNRESTRICTED SUBSIDIARIES IN CONNECTION WITH CALCULATIONS OF CERTAIN FINANCIAL
RATIOS. References (whether in the singular or the plural) to Subsidiaries,
Restricted Subsidiaries and Unrestricted Subsidiaries in the definitions of
"Cash Flow" and "Interest Expense" in Section 1.01 hereof shall, for purposes of
calculating Cash Flow or Interest Expense (as the case may be) for a period or
part of a period ending prior to the date of this Agreement, be deemed to refer
to corporations or other entities that would have been "Subsidiaries",
"Restricted Subsidiaries" or "Unrestricted Subsidiaries" (as the case may be)
had this Agreement been in effect on the first day of such period.
Section 2. COMMITMENTS, LOANS, NOTES AND PREPAYMENTS.
2.01 LOANS.
(a) Each Bank severally agrees, in accordance with the terms and
conditions of this Agreement, to make one or more loans to the Company in
Dollars during the period from and including the Closing Date to and including
the Commitment Termination Date, in an aggregate amount up to but not exceeding
the lesser of (x) the Commitment of such Bank and (y) an amount equal to such
Bank's Commitment Percentage multiplied by the Borrowing Base determined
pursuant to the immediately preceding Reserve Evaluation Report; PROVIDED that
(i) in no event shall the aggregate principal amount of all Loans, together with
the aggregate amount of all Letter of Credit Liabilities, exceed the lesser of
(x) the aggregate amount of the Commitments as in effect from time to time any
(y) the Borrowing Base determined pursuant to the immediately preceding Reserve
Evaluation Report and (ii) the Company may not borrow Loans or obtain Letters of
Credit under this Agreement at any time while a Borrowing Base Deficiency
exists. The aggregate of the Commitments of the Banks on the date hereof is
$100,000,000.
(b) Subject to the terms and conditions of this Agreement, during the
period from and including the Closing Date to but not including the Commitment
Termination Date, the Company may borrow, repay and reborrow the Loans by means
of Base Rate Loans and Eurodollar Loans, and may Convert Loans of one Type into
Loans of another Type (as provided in Section 2.08 hereof) or Continue Loans of
one Type as Loans of the same Type (as provided
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in Section 2.08 hereof); PROVIDED that no more than three separate Interest
Periods in respect of Eurodollar Loans may be outstanding at any one time.
(c) Notwithstanding any provision of this Section 2.01 to the
contrary, the aggregate amount of Letter of Credit Liabilities outstanding under
this Agreement shall not at any time exceed the least of (i) $10,000,000, (ii)
the aggregate of the Commitments and (iii) the Borrowing Base.
(d) On the date this Agreement becomes effective:
(i) The Company shall pay all accrued and unpaid commitment fees
and letter of credit fronting fees outstanding under the Original
Credit Agreement for the account of each "Bank" under the
Original Credit Agreement;
(ii) each "Eurodollar Loan" outstanding under the Original Credit
Agreement shall be deemed a Eurodollar Loan hereunder in the
amount, with the same rate of interest and maturity date as such
"Eurodollar Loan" under the Original Credit Agreement, and the
obligations of the Company with respect to such "Eurodollar
Loan," including accrued and unpaid interest shall be deemed
carried forward hereunder (and, as such, such Eurodollar Loans
may not be allocated ratably among the Banks), and the execution
and delivery of this Agreement and the extension of such Loans
hereunder shall not entitle any "Bank" under the Original Credit
Agreement to seek compensation pursuant to Section 5.05 hereof or
thereof;
(iii) each "Base Rate Loan" under the Original Credit
Agreement shall be deemed to be repaid with the proceeds of a new
Base Rate Loan under this Agreement;
(iv) each "Letter of Credit" under the Original Credit Agreement
shall be deemed to be issued pursuant to the terms hereof without
payment of any additional issuance or amendment fees; and
(v) the Original Credit Agreement and the commitments thereunder
shall be superseded by this Agreement and such commitments shall
terminate.
2.02 BORROWINGS. The Company shall give the Agent (which shall
promptly notify the Banks) notice of each borrowing hereunder as provided in
Section 4.05 hereof. Not later than 1:00 p.m. New York time on the date
specified for each borrowing hereunder, each
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Bank shall make available the amount of the Loan or Loans to be made by it on
such date to the Agent, at an account specified by the Agent maintained by the
Agent with Chase, in immediately available funds, for account of the Company.
The amount so received by the Agent shall, subject to the terms and conditions
of this Agreement, be made available to the Company by depositing the same, in
immediately available funds, in an account of the Company maintained with
Chase in New York, New York, designated by the Company. At the time of each
such notice of borrowing hereunder the Company shall deliver a certificate of
the Chief Financial Officer, the Treasurer or an Assistant Treasurer of the
Company which certificate shall indicate the ratio of Funded Indebtedness to
Total Capitalization of the Company and its Restricted Subsidiaries after
giving effect to such borrowing and shall show, in reasonable detail, the
calculations used to derive such ratio.
2.03 LETTERS OF CREDIT. Subject to the terms and conditions of this
Agreement, the Commitments may be utilized, upon the request of the Company, in
addition to the Loans provided for by Section 2.01(a) hereof, for the issuance
by the Issuing Bank of letters of credit (collectively, "LETTERS OF CREDIT") for
account of the Company and its Restricted Subsidiaries, PROVIDED that in no
event shall (i) the aggregate amount of all Letter of Credit Liabilities,
together with the aggregate principal amount of the Loans, exceed the lesser of
(A) the aggregate of the Commitments and (B) the Borrowing Base as determined
pursuant to the immediately preceding Reserve Evaluation Report, (ii) the
outstanding aggregate amount of all Letter of Credit Liabilities exceed
$10,000,000 and (iii) the expiration date of any Letter of Credit extend beyond
the earlier of the Commitment Termination Date and the date 12 months following
the issuance of such Letter of Credit. The following additional provisions
shall apply to Letters of Credit:
(a) The Company shall give the Agent at least three Business Days'
irrevocable prior notice (effective upon receipt) specifying the Business
Day (which shall be no later than 30 days preceding the Commitment
Termination Date) each Letter of Credit is to be issued and the account
party or parties therefor and describing in reasonable detail the proposed
terms of such Letter of Credit (including the beneficiary thereof) and the
nature of the transactions or obligations proposed to be supported thereby
(including whether such Letter of Credit is to be a commercial letter of
credit or a standby letter of credit). Upon receipt of any such notice,
the Agent shall advise the Issuing Bank of the contents thereof.
(b) On each day during the period commencing with the issuance by the
Issuing Bank of any Letter of Credit and until such Letter of Credit shall
have expired or been terminated, the Commitment of each Bank shall be
deemed to be utilized for all purposes of this Agreement in an amount equal
to such Bank's Commitment Percentage of the then undrawn face amount of
such Letter of Credit. Each Bank (other than the Issuing Bank) agrees
that, upon the issuance of any Letter of Credit hereunder, it shall
automatically acquire a participation in the Issuing Bank's liability under
such Letter of Credit in an
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amount equal to such Bank's applicable Commitment Percentage of such
liability, and each such Bank (other than the Issuing Bank) thereby shall
absolutely, unconditionally and irrevocably assume, as primary obligor and
not as surety, and shall be unconditionally obligated to the Issuing Bank
to pay and discharge when due, its Commitment Percentage of the Issuing
Bank's liability under such Letter of Credit.
(c) Upon receipt from the beneficiary of any Letter of Credit of any
demand for payment under such Letter of Credit, the Issuing Bank shall
promptly notify the Company (through the Agent) of the amount to be paid by
the Issuing Bank as a result of such demand and the date on which payment
is to be made by the Issuing Bank to such beneficiary in respect of such
demand. Notwithstanding the identity of the account party of any Letter of
Credit, the Company agrees to pay and reimburse the Agent for account of
the Issuing Bank for the amount of each demand for payment under such
Letter of Credit at or prior to the date on which payment is to be made by
the Issuing Bank to the beneficiary thereunder, without presentment,
demand, protest or other formalities of any kind.
(d) Forthwith upon its receipt of a notice referred to in
clause (c) of this Section 2.03, the Company shall advise the Agent whether
or not the Company intends to borrow hereunder to finance its obligations
to reimburse the Issuing Bank for the amount of the related demand for
payment and, if it does, submit a notice of such borrowing as provided in
Section 4.05 hereof. In the event that the Company fails to so advise the
Agent, or if the Company fails to reimburse the Issuing Bank for a demand
for payment under a Letter of Credit by the date of such payment, the Agent
shall give each Bank prompt notice of the amount of the demand for payment,
specifying such Bank's Commitment Percentage of the amount of the related
demand for payment.
(e) Each Bank (other than the Issuing Bank) shall pay to the Agent
for the account of the Issuing Bank at an account specified by the Issuing
Bank maintained by the Issuing Bank at Chase in New York, New York in
Dollars and in immediately available funds, the amount of such Bank's
Commitment Percentage of any payment under a Letter of Credit upon notice
by the Issuing Bank (through the Agent) to such Bank requesting such
payment and specifying such amount. Each Bank's obligation to make such
payments to the Agent for account of the Issuing Bank under this
clause (e), and the Issuing Bank's right to receive the same, shall be
absolute and unconditional and shall not be affected by any circumstance
whatsoever, including, without limitation, (i) the failure of any other
Bank to make its payment under this clause (e), the financial condition of
the Company and the other Obligors (or any other account party), the
existence of any Default or (ii) the termination of the Commitments. Each
such payment to the Issuing Bank shall be made without any offset,
abatement, withholding or reduction whatsoever. If any Bank shall default
in its obligation to make any such payment to the Agent for account of the
Issuing Bank, for so long as such default shall
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continue the Agent shall at the request of the Issuing Bank withhold from
any payments received by the Agent under this Agreement or any Note for
account of such Bank the amount so in default and the Agent shall pay the
same to the Issuing Bank in satisfaction of such defaulted obligation.
(f) Upon the making of each payment by a Bank to the Issuing Bank
pursuant to clause (e) above in respect of any Letter of Credit, such Bank
shall, automatically and without any further action on the part of the
Agent, the Issuing Bank or such Bank, acquire (i) a participation in an
amount equal to such payment in the Reimbursement Obligation owing to the
Issuing Bank by the Company hereunder and under the Letter of Credit
Documents relating to such Letter of Credit and (ii) a participation in a
percentage equal to such Bank's Commitment Percentage of its Commitment in
any interest or other amounts payable by the Company hereunder and under
such Letter of Credit Documents in respect of such Reimbursement Obligation
(other than the commissions, charges, costs and expenses payable to the
Issuing Bank pursuant to clause (g) of this Section 2.03). Upon receipt by
the Issuing Bank from or for account of the Company of any payment in
respect of any Reimbursement Obligation or any such interest or other
amount (including by way of setoff or application of proceeds of any
collateral security) the Issuing Bank shall promptly pay to the Agent for
account of each Bank, such Bank's Commitment Percentage of its Commitment
of such payment, each such payment by the Issuing Bank to be made in the
same money and funds in which received by the Issuing Bank. In the event
any payment received by the Issuing Bank and so paid to the Banks hereunder
is rescinded or must otherwise be returned by the Issuing Bank, each Bank
shall, upon the request of the Issuing Bank (through the Agent), repay to
the Issuing Bank (through the Agent) the amount of such payment paid to
such Bank, with interest at the rate specified in clause (j) of this
Section 2.03.
(g) The Company agrees to pay to the Agent for account of the Issuing
Bank in respect of each Letter of Credit issued to the Company or any of
its Subsidiaries an issuance fee in an amount equal to the Applicable
Margin for Eurodollar Loans per annum of the daily average undrawn face
amount of such Letter of Credit for the period from and including the date
of issuance of such Letter of Credit to and including the date such Letter
of Credit is drawn in full, expires or is terminated (such fee to be
non-refundable, to be paid in arrears on each Quarterly Date and on the
Commitment Termination Date and to be calculated, for any day, after giving
effect to any payments made under such Letter of Credit on such day). The
Issuing Bank shall pay to the Agent for account of each Bank (other than
the Issuing Bank), from time to time at reasonable intervals (but in any
event at least quarterly), but only to the extent actually received from
the Company, an amount equal to such Bank's Commitment Percentage of all
such fees in respect of each Letter of Credit (including any such fee in
respect of any period of any renewal or extension thereof). In addition,
the Company agrees to pay to the Agent for account of the Issuing Bank on
the issuance date, a fronting fee in respect of each Letter
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of Credit in an amount equal to the greater of (i) $1,000 and (ii) 1/2 of
1% of the face amount of such Letter of Credit plus all commissions,
charges, costs and expenses in the amounts customarily charged by the
Issuing Bank from time to time in like circumstances with respect to the
issuance of each Letter of Credit and drawings and other transactions
relating thereto.
(h) Promptly following the end of each calendar month, the Issuing
Bank shall deliver (through the Agent) to each Bank and the Company notice
describing the aggregate amount of all Letters of Credit outstanding at the
end of such month. Upon the request of any Bank from time to time, the
Issuing Bank shall deliver any other information in its possession
reasonably requested by such Bank with respect to each Letter of Credit
then outstanding.
(i) The issuance by the Issuing Bank of each Letter of Credit shall,
in addition to the conditions precedent set forth in Section 7 hereof, be
subject to the conditions precedent that (i) such Letter of Credit shall be
in such form, contain such terms and support such transactions as shall be
satisfactory to the Issuing Bank consistent with its then current practices
and procedures with respect to letters of credit of the same type and
(ii) the Company shall have executed and delivered such applications,
agreements and other instruments relating to such Letter of Credit as the
Issuing Bank shall have reasonably requested consistent with its then
current practices and procedures with respect to letters of credit of the
same type, PROVIDED that in the event of any conflict between any such
application, agreement or other instrument and the provisions of this
Agreement or any Security Document, the provisions of this Agreement and
the Security Documents shall control.
(j) To the extent that any Bank fails to pay any amount required to
be paid pursuant to clause (e) or (f) of this Section 2.03 on the due date
therefor, such Bank shall pay interest to the Issuing Bank (through the
Agent) on such amount from and including such due date to but excluding the
date such payment is made (i) during the period from and including such due
date to but excluding the date three Business Days thereafter, at a rate
per annum equal to the Federal Funds Effective Rate (as in effect from time
to time) and (ii) thereafter, at a rate per annum equal to the Base Rate
(as in effect from time to time) plus 2%.
(k) The issuance by the Issuing Bank of any modification or
supplement to any Letter of Credit hereunder shall be subject to the same
conditions applicable under this Section 2.03 to the issuance of new
Letters of Credit, and no such modification or supplement shall be issued
hereunder unless either (x) the respective Letter of Credit affected
thereby would have complied with such conditions had it originally been
issued hereunder in such modified or supplemented form or (y) each Bank
shall have consented thereto.
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The Company hereby indemnifies and holds harmless each Bank and the Agent from
and against any and all claims and damages, losses, liabilities, costs or
expenses which such Bank or the Agent may incur (or which may be claimed against
such Bank or the Agent by any Person whatsoever) by reason of or in connection
with the execution and delivery or transfer of or payment or refusal to pay by
the Issuing Bank under any Letter of Credit; PROVIDED that the Company shall not
be required to indemnify any Bank or the Agent for any claims, damages, losses,
liabilities, costs or expenses to the extent caused by (x) the willful
misconduct or gross negligence of the Issuing Bank in determining whether a
request presented under any Letter of Credit complied with the terms of such
Letter of Credit or (y) in the case of the Issuing Bank, such Bank's failure to
pay under any Letter of Credit after the presentation to it of a request
strictly complying with the terms and conditions of such Letter of Credit.
Nothing in this Section 2.03 is intended to limit the other obligations of the
Company, any Bank or the Agent under this Agreement.
2.04 CHANGES OF COMMITMENTS.
(a) The aggregate amount of the Commitments shall be automatically
reduced to zero on the Commitment Termination Date.
(b) The Company shall have the right at any time or from time to time
(i) so long as no Loans or Letter of Credit Liabilities are outstanding, to
terminate the Commitments and (ii) to reduce the aggregate unused amount of the
Commitments (for which purpose use of the Commitments shall be deemed to include
the aggregate amount of Letter of Credit Liabilities); PROVIDED that (x) the
Company shall give notice of each such termination or reduction as provided in
Section 4.05 hereof and (y) each partial reduction shall be in an aggregate
amount at least equal to $1,000,000 or in multiples of $500,000 in excess
thereof.
(c) The Commitments once terminated or reduced may not be reinstated.
2.05 COMMITMENT FEE. The Company shall pay to the Agent for account
of each Bank a commitment fee on the daily average unused amount of the
difference, if any, between (x) each Bank's outstanding Loans and (y) an amount
equal to such Bank's Commitment Percentage multiplied by the Borrowing Base
determined pursuant to the immediately preceding Reserve Evaluation Report (the
"AVAILABLE BORROWING AMOUNT") (for which purpose the aggregate amount of any
Letter of Credit Liabilities shall be deemed to be a pro rata use of each Bank's
Available Borrowing Amount) for the period from and including the date of this
Agreement to but not including the earlier of the date such Bank's Commitment is
terminated and the Commitment Termination Date, at the Applicable Commitment Fee
Rate. Accrued commitment fees shall be payable on each Quarterly Date and on
the earlier of the date the Commitments are terminated and the Commitment
Termination Date.
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2.06 LENDING OFFICES. The Loans of each Type made by each Bank shall
be made and maintained at such Bank's Applicable Lending Office for Loans of
such Type.
2.07 SEVERAL OBLIGATIONS; REMEDIES INDEPENDENT. The failure of any
Bank to make any Loan to be made by it on the date specified therefor shall not
relieve any other Bank of its obligation to make its Loan on such date, but
neither any Bank nor the Agent shall be responsible for the failure of any other
Bank to make a Loan to be made by such other Bank, and no Bank shall have any
obligation to the Agent or any other Bank for the failure by such Bank to make
any Loan required to be made by such Bank. The amounts payable by the Company
at any time hereunder and under the Notes to each Bank shall be a separate and
independent debt and each Bank shall be entitled to protect and enforce its
rights arising out of this Agreement and the Notes, and it shall not be
necessary for any other Bank or the Agent to consent to, or be joined as an
additional party in, any proceedings for such purposes.
2.08 NOTES.
(a) The Loans made by each Bank shall be evidenced by a single
promissory note of the Company substantially in the form of Exhibit A hereto,
dated the date hereof, payable to such Bank in a principal amount equal to the
amount of its Commitment as originally in effect and otherwise duly completed.
(b) The date, amount, Type, interest rate and duration of Interest
Period (if applicable) of each Loan made by each Bank to the Company, and each
payment made on account of the principal thereof, shall be recorded by such Bank
on its books and, prior to any transfer of the Note evidencing the Loans held by
it, endorsed by such Bank on the schedule attached to such Note or any
continuation thereof; PROVIDED that the failure of such Bank to make any such
recordation or endorsement shall not affect the obligations of the Company to
make a payment when due of any amount owing hereunder or under such Note in
respect of the Loans evidenced by such Note.
(c) No Bank shall be entitled to have its Notes subdivided, by
exchange for promissory notes of lesser denominations or otherwise, except in
connection with a permitted assignment of all or any portion of such Bank's
Commitment, Loans and Note pursuant to Section 12.06(b) hereof.
2.09 OPTIONAL PREPAYMENTS AND CONVERSIONS OR CONTINUATIONS OF LOANS.
Subject to Section 4.04 hereof, the Company shall have the right to prepay
Loans, or to Convert Loans of one Type into Loans of another Type or Continue
Loans of one Type as Loans of the same Type, at any time or from time to time,
PROVIDED that: (a) the Company shall give the Agent notice of each such
prepayment, Conversion or Continuation as provided in Section 4.05 hereof (and,
upon the date specified in any such notice of prepayment, the amount to be
prepaid shall become due and payable hereunder); and (b) Eurodollar Loans may be
prepaid or Converted only on the last
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day of an Interest Period for such Loans. Notwithstanding the foregoing, and
without limiting the rights and remedies of the Banks under Section 10
hereof, in the event that any Event of Default shall have occurred and be
continuing, the Agent may (and at the request of the Majority Banks shall) by
notice to the Company suspend the right of the Company to Convert any Loan
into a Eurodollar Loan, or to Continue any Loan as a Eurodollar Loan, in
which event all Loans shall be Converted (on the last day(s) of the
respective Interest Periods therefor) or Continued, as the case may be, as
Base Rate Loans.
2.10 MANDATORY PREPAYMENTS AND REDUCTIONS OF COMMITMENTS.
(a) BORROWING BASE. The Agent shall notify the Company (in a
"DEFICIENCY NOTICE") any time the Borrowing Base as then in effect is less than
the aggregate principal amount of the Loans and Letter of Credit Liabilities
outstanding at such time (the amount of such difference being called herein the
"BORROWING BASE DEFICIENCY") and within 30 days after the date of the Deficiency
Notice the Company shall notify the Agent of the Company's intentions with
respect to compliance with the procedures set forth in this Section 2.10(a). As
specified in such notice from the Company, the Company shall (within 90 days
after the date of the Deficiency Notice) (i) prepay (in accordance with the
procedures of this Agreement) the outstanding principal of the Loans and, if all
of the Loans have been prepaid and a Borrowing Base Deficiency still exists,
provide cover for Letter of Credit Liabilities in an amount equal to such
Deficiency as specified in clause (e) below and/or (ii) add to the Hydrocarbon
Properties (each such additional Property to have a Present Value of Reserves at
least equal to $1,000,000) having a loan value, as determined by the Majority
Banks, in an amount sufficient so that the aggregate amount of such prepayments
and the loan value of such additional Properties shall equal or exceed the
Borrowing Base Deficiency. The Company shall, within 120 days of receipt of
notice from the Agent that the Properties to be added to the Borrowing Base are
acceptable to the Majority Banks, subject such Properties to the Lien of the
Mortgages pursuant to documentation and otherwise in a manner satisfactory to
the Majority Banks.
(b) CASUALTY EVENTS. Upon the date 30 days following the receipt by
the Company or any of its Restricted Subsidiaries of the proceeds of insurance,
condemnation award or other compensation in respect of any Casualty Event
affecting any Hydrocarbon Property other than Unrestricted Properties of any
Restricted Subsidiary, the Company shall prepay the Loans (and/or provide cover
for Letter of Credit Liabilities as specified in clause (e) below), and the
Commitments shall be subject to automatic reduction, in an aggregate amount, if
any, equal to 100% of the Net Available Proceeds of such Casualty Event not
theretofore applied to the repair or replacement of such Hydrocarbon Property,
or such lesser amount as is specified in a written notice from the Majority
Banks, such prepayment and reduction to be effected in each case in the manner
and to the extent specified in clause (d) of this Section 2.10. Nothing in this
clause (b) shall be deemed to limit any obligation of the Company and any of its
Restricted Subsidiaries pursuant to any of the Security Documents to remit to a
collateral or similar account (including, without limitation, the Collateral
Account) maintained by the Agent pursuant to any
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of the Security Documents the proceeds of insurance, condemnation award or
other compensation received in respect of any Casualty Event.
(c) SALE OF ASSETS. Without limiting the obligation of the Obligors
to obtain the consent of the Majority Banks pursuant to Section 9.05 hereof to
any Disposition not otherwise permitted hereunder, no later than five Business
Days prior to the occurrence of any Disposition, the Company, on behalf of the
applicable Obligor will deliver to the Banks a statement, certified by the chief
financial officer or treasurer of the Company, in form and detail satisfactory
to the Agent, of the amount of the Net Available Proceeds of such Disposition
and, to the extent such Net Available Proceeds (when taken together with the Net
Available Proceeds of all prior Dispositions as to which a prepayment has not
yet been made under this Section 2.10(c)) shall exceed $2,000,000, the Company
shall prepay the Loans (and/or provide cover for Letter of Credit Liabilities as
specified in clause (e) below), and the Borrowing Base shall be subject to
automatic reduction, in an aggregate amount equal to 100% of the Net Available
Proceeds of such Disposition, or such lesser amount as is specified in a written
notice from the Majority Banks (together with 100%, or such lesser amount as is
specified in a written notice from the Majority Banks, of the Net Available
Proceeds of all prior Dispositions as to which a prepayment has not yet been
made under this Section 2.10(c)), such prepayment and reduction to be effected
in each case in the manner and to the extent specified in clause (d) of this
Section 2.10. Notwithstanding the forgoing, the Company shall not be required
to prepay the Loans (and/or provide cover for the Letter of Credit Liabilities
pursuant to Section 2.10(e) hereof), and the Borrowing Base shall not be subject
to automatic reduction upon any sale of Property, other than any Hydrocarbon
Property, pursuant to Section 9.05 hereof.
(d) APPLICATION. Prepayments and reductions of Commitments or the
Borrowing Base, as the case may be, described in the above clauses of this
Section 2.10 shall be effected as follows: the Commitments or the Borrowing
Base, as the case may be, shall be automatically reduced by an amount equal to
the amount specified in such clauses (and to the extent that, after giving
effect to such reduction, the aggregate principal amount of the Loans, together
with the aggregate amount of all Letter of Credit Liabilities, would exceed the
Commitments or the Borrowing Base, as applicable, the Company shall first,
prepay the Loans and second, provide cover for Letter of Credit Liabilities with
respect to the Commitments or the Borrowing Base, as applicable, as specified in
clause (e) below, in an aggregate amount equal to such excess).
(e) COVER FOR LETTER OF CREDIT LIABILITIES. In the event that the
Company shall be required pursuant to this Section 2.10, or pursuant to Section
3.01 or 5.07(c) hereof, to provide cover for Letter of Credit Liabilities, the
Company shall effect the same by paying to the Agent immediately available funds
in an amount equal to the required amount, which funds shall be retained by the
Agent in the Collateral Account (as provided in Section 4.04 of the Security
Agreement as collateral security in the first instance for the Letter of Credit
Liabilities) until such time as the Letters of Credit shall have been terminated
and all of the Letter of Credit Liabilities have been paid in full.
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Section 3. PAYMENTS OF PRINCIPAL AND INTEREST.
3.01 REPAYMENT OF LOANS. The Company hereby promises to pay to the
Agent for the account of each Bank the entire outstanding principal amount of
such Bank's Loans, and each Loan shall mature, on the Commitment Termination
Date. In addition, if following any reduction in the Commitments, the aggregate
principal amount of the Loans, together with the aggregate amount of all Letter
of Credit Liabilities shall exceed the Commitments, the Company shall first,
prepay Loans and second, provide cover for Letter of Credit Liabilities with
respect to the Commitments as specified in Section 2.10(e) above, in an
aggregate amount equal to such excess.
3.02 INTEREST. The Company hereby promises to pay to the Agent for
the account of each Bank interest on the unpaid principal amount of each Loan
made by such Bank for the period from and including the date of such Loan to but
excluding the date such Loan shall be paid in full, at the following rates per
annum:
(a) during such periods as such Loan is a Base Rate Loan, the Base
Rate (as in effect from time to time) PLUS the Applicable Margin, and
(b) during such periods as such Loan is a Eurodollar Loan, for each
Interest Period relating thereto, the Eurodollar Rate for such Loan for
such Interest Period PLUS the Applicable Margin.
Notwithstanding the foregoing, the Company hereby promises to pay to the Agent
for account of each Bank interest at the applicable Post-Default Rate on any
principal of any Loan made by such Bank, on any Reimbursement Obligation held by
such Bank and on any other amount payable by the Company hereunder or under the
Note held by such Bank to or for account of such Bank, which shall not be paid
in full when due (whether at stated maturity, by acceleration, by mandatory
prepayment or otherwise), for the period from and including the due date thereof
to but excluding the date the same is paid in full. Accrued interest on each
Loan shall be payable (i) in the case of a Base Rate Loan, quarterly on the
Quarterly Dates, (ii) in the case of a Eurodollar Loan, on the last day of each
Interest Period therefor and (iii) in the case of any Loan, upon the payment or
prepayment thereof or the Conversion of such Loan to a Loan of another Type (but
only on the principal amount so paid, prepaid or Converted), except that
interest payable at the Post-Default Rate shall be payable from time to time on
demand. Promptly after the determination of any interest rate provided for
herein or any change therein, the Agent shall give notice thereof to the Banks
to which such interest is payable and to the Company.
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Section 4. PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
4.01 PAYMENTS.
(a) Except to the extent otherwise provided herein, all payments of
principal, interest, Reimbursement Obligations and other amounts to be made by
the Company under this Agreement and the Notes, and, except to the extent
otherwise provided therein, all payments to be made by the Obligors under any
other Basic Document, shall be made in Dollars, in immediately available funds,
without deduction, set-off or counterclaim, to the Agent at an account in New
York, New York specified by the Agent, not later than 1:00 p.m. New York time on
the date on which such payment shall become due (each such payment made after
such time on such due date to be deemed to have been made on the next succeeding
Business Day).
(b) Any Bank for whose account any such payment is to be made may
(but shall not be obligated to) debit the amount of any such payment that is not
made by such time to any ordinary deposit account of the Company with such Bank
(with notice to the Company and the Agent).
(c) The Company shall, at the time of making each payment under this
Agreement or any Note for the account of any Bank, specify to the Agent (which
shall so notify the intended recipient(s) thereof) the Loans, Reimbursement
Obligations or other amounts payable by the Company hereunder to which such
payment is to be applied (and in the event that the Company fail to so specify,
or if an Event of Default has occurred and is continuing, the Agent may
distribute such payment to the Banks for application in such manner as it or the
Majority Banks, subject to Section 4.02 hereof, may determine to be
appropriate).
(d) Except to the extent otherwise provided in the last sentence of
Section 2.03(e) hereof, each payment received by the Agent under this Agreement
or any Note for account of any Bank shall be paid by the Agent promptly to such
Bank, in immediately available funds, for account of such Bank's Applicable
Lending Office for the Loan or other obligation in respect of which such payment
is made.
(e) If the due date of any payment under this Agreement or any Note
would otherwise fall on a day that is not a Business Day, such date shall be
extended to the next succeeding Business Day, and interest shall be payable for
any principal so extended for the period of such extension.
4.02 PRO RATA TREATMENT. Except to the extent otherwise provided
herein: (a) each borrowing of Loans from the Banks under Section 2.01 hereof
shall be made from the Banks, each payment of commitment fee under Section 2.05
hereof in respect of Commitments shall be made for account of the Banks, and
each termination or reduction of the amount of the Commitments under
Section 2.04 hereof shall be applied to the respective Commitments of the
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Banks, pro rata according to the amounts of their respective Commitments; (b)
the making, Conversion and Continuation of Loans of a particular Type (other
than Conversions provided for by Section 5.04 hereof) shall be made pro rata
among the Banks according to the amounts of their respective Commitments (in
the case of the making of Loans) or their respective Loans (in the case of
Conversions and Continuations of Loans) and the then current Interest Period
for each Eurodollar Loan shall be coterminous; (c) each payment or prepayment
of principal of Loans by the Company shall be made for the account of the
Banks pro rata in accordance with the respective unpaid principal amounts of
the Loans held by them; PROVIDED that if immediately prior to giving effect
to any such payment in respect of any Loans the outstanding principal amount
of the Loans shall not be held by the Banks pro rata in accordance with their
respective Commitments in effect at the time such Loans were made (whether by
reason of a failure of a Bank to make a Loan hereunder in the circumstances
described in the last paragraph of Section 12.04 hereof or otherwise), then
such payment shall be applied to the Loans in such manner as shall result, as
nearly as is practicable, in the outstanding principal amount of the Loans
being held by the Banks pro rata in accordance with their respective
Commitments; and (d) each payment of interest on Loans by the Company shall
be made for account of the Banks pro rata in accordance with the amounts of
interest on such Loans then due and payable to the respective Banks.
4.03 COMPUTATIONS. Interest on Eurodollar Loans and commitment fee
and letter of credit fees shall be computed on the basis of a year of 360 days
and actual days elapsed (including the first day but excluding the last day)
occurring in the period for which payable and interest on Base Rate Loans and
Reimbursement Obligations shall be computed on the basis of a year of 365 or 366
days, as the case may be, and actual days elapsed (including the first day but
excluding the last day) occurring in the period for which payable.
Notwithstanding the foregoing, for each day that the Base Rate is calculated by
reference to the Federal Funds Effective Rate, interest on Base Rate Loans and
Reimbursement Obligations shall be computed on the basis of a year of 360 days
and actual days elapsed.
4.04 MINIMUM AMOUNTS. Except for mandatory prepayments made pursuant
to Section 2.10 hereof and Conversions or prepayments made pursuant to
Section 5.04 hereof, each borrowing, Conversion and partial prepayment of
principal of Loans shall be in an aggregate amount at least equal to $500,000 or
in multiples of $100,000 in excess thereof (borrowings, Conversions or
prepayments of or into Loans of different Types or, in the case of Eurodollar
Loans, having different Interest Periods at the same time hereunder to be deemed
separate borrowings, Conversions and prepayments for purposes of the foregoing,
one for each Type or Interest Period).
4.05 CERTAIN NOTICES. Notices by the Company to the Agent of
terminations or reductions of the Commitments and of borrowings, Conversions,
Continuations and optional prepayments of Loans, of Types of Loans and of the
duration of Interest Periods shall be irrevocable and shall be effective only if
received by the Agent not later than 11:00 a.m. New
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York time on the number of Business Days prior to the date of the relevant
termination, reduction, borrowing, Conversion, Continuation or prepayment or
the first day of such Interest Period specified below:
Number of
Business
Notice Days Prior
------ ----------
Termination or reduction 2
of Commitments
Borrowing or prepayment of 1
Base Rate Loans
Borrowing or prepayment of, 3
Conversions of or into,
Continuations as, or duration
of Interest Period for,
Eurodollar Loans
Each such notice of termination or reduction shall specify the amount of the
Commitments to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation or optional prepayment shall specify the Loans to be
borrowed, Converted, Continued or prepaid and the amount (subject to
Section 4.04 hereof) and Type of each Loan to be borrowed, Converted, Continued
or prepaid and the date of borrowing, Conversion, Continuation or optional
prepayment (which shall be a Business Day). Each such notice of the duration of
an Interest Period shall specify the Loans to which such Interest Period is to
relate. The Agent shall promptly notify the Banks of the contents of each such
notice. In the event that the Company fails to select the Type of Loan, or the
duration of any Interest Period for any Eurodollar Loan, within the time period
and otherwise as provided in this Section 4.05, such Loan (if outstanding as a
Eurodollar Loan) will be automatically Converted into a Base Rate Loan on the
last day of the then current Interest Period for such Loan or (if outstanding as
a Base Rate Loan) will remain as, or (if not then outstanding) will be made as,
a Base Rate Loan.
4.06 NON-RECEIPT OF FUNDS BY THE AGENT. Unless the Agent shall have
been notified by a Bank or the Company (the "PAYOR") prior to the date on which
the Payor is to make payment to the Agent of (in the case of a Bank) the
proceeds of a Loan to be made by such Bank, or a participation in a Letter of
Credit drawing to be acquired by such Bank, hereunder or (in the case of the
Company) a payment to the Agent for account of one or more of the Banks
hereunder (such payment being herein called the "REQUIRED PAYMENT"), which
notice shall be effective upon receipt, that the Payor does not intend to make
the Required Payment to the Agent, the Agent may assume that the Required
Payment has been made and may, in reliance upon such
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assumption (but shall not be required to), make the amount thereof available
to the intended recipient(s) on such date; and, if the Payor has not in fact
made the Required Payment to the Agent, the recipient(s) of such payment
shall, on demand, repay to the Agent the amount so made available together
with interest thereon in respect of each day during the period commencing on
the date (the "ADVANCE DATE") such amount was so made available by the Agent
until the date the Agent recovers such amount at a rate per annum equal to
the Federal Funds Effective Rate for such day and, if such recipient(s) shall
fail promptly to make such payment, the Agent shall be entitled to recover
such amount, on demand, from the Payor, together with interest as aforesaid,
PROVIDED that if neither the recipient(s) nor the Payor shall return the
Required Payment to the Agent within three Business Days of the Advance Date,
then, retroactively to the Advance Date, the Payor and the recipient(s) shall
each be obligated to pay interest on the Required Payment as follows:
(i) if the Required Payment shall represent a payment to be made by
the Company to the Banks, the Company and the recipient(s) shall each be
obligated retroactively to the Advance Date to pay interest in respect of
the Required Payment at the Post-Default Rate (and, in case the
recipient(s) shall return the Required Payment to the Agent, without
limiting the obligation of the Company under Section 3.02 hereof to pay
interest to such recipient(s) at the Post-Default Rate in respect of the
Required Payment) and
(ii) if the Required Payment shall represent proceeds of a loan to be
made by a Bank to the Company, the Payor and the Company shall each be
obligated retroactively to the Advance Date to pay interest in respect of
the Required Payment at the rate of interest provided for such Required
Payment pursuant to Section 3.02 hereof (and, in case the Company shall
return the Required Payment to the Agent, without limiting any claim the
Company may have against the Payor in respect of the Required Payment);
PROVIDED that the Agent shall only be entitled to retain interest in respect of
a Required Payment pursuant to clause (i) or (ii) above from either the Payor or
the recipient.
4.07 SHARING OF PAYMENTS, ETC.
(a) Each of the Obligors agrees that, in addition to (and without
limitation of) any right of set-off, banker's lien or counterclaim a Bank may
otherwise have, each Bank shall be entitled, at its option, to offset balances
held by it for account of such Obligor at any of its offices, in Dollars or in
any other currency, against any principal of or interest on any of such Bank's
Loans, Reimbursement Obligations or any other amount payable to such Bank
hereunder, that is not paid when due (regardless of whether such balances are
then due to the Company), in which case it shall promptly notify such Obligor
(through the Company) and the Agent thereof, PROVIDED that such Bank's failure
to give such notice shall not affect the validity thereof.
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(b) If any Bank shall obtain from any Obligor payment of any
principal of or interest on any Loan or Letter of Credit Liability owing to it
or payment of any other amount under this Agreement or any other Basic Document
through the exercise of any right of set-off, banker's lien or counterclaim or
similar right or otherwise (other than from the Agent as provided herein), and,
as a result of such payment, such Bank shall have received a greater percentage
of the principal of or interest on the Loans or Letter of Credit Liabilities or
such other amounts then due hereunder or thereunder by such Obligor to such Bank
than the percentage received by any other Bank, it shall promptly purchase from
such other Banks participations in (or, if and to the extent specified by such
Bank, direct interests in) the Loans or Letter of Credit Liabilities or such
other amounts, respectively, owing to such other Banks (or in interest due
thereon, as the case may be) in such amounts, and make such other adjustments
from time to time as shall be equitable, to the end that all the Banks shall
share the benefit of such excess payment (net of any expenses that may be
incurred by such Bank in obtaining or preserving such excess payment) pro rata
in accordance with the unpaid principal of and/or interest on the Loans or
Letter of Credit Liabilities or such other amounts, respectively, owing to each
of the Banks, PROVIDED that if at the time of such payment the outstanding
principal amount of the Loans shall not be held by the Banks pro rata in
accordance with their respective Commitments in effect at the time such Loans
were made (whether by reason of a failure of a Bank to make a Loan hereunder in
the circumstances described in the last paragraph of Section 12.04 hereof or
otherwise), then such purchases of participations and/or direct interests shall
be made in such manner as will result, as nearly as is practicable, in the
outstanding principal amount of the Loans being held by the Banks pro rata
according to the amounts of such Commitments. To such end all the Banks shall
make appropriate adjustments among themselves (by the resale of participations
sold or otherwise) if such payment is rescinded or must otherwise be restored.
(c) The Obligors agree that any Bank so purchasing such a
participation (or direct interest) may exercise all rights of set-off, banker's
lien, counterclaim or similar rights with respect to such participation as fully
as if such Bank were a direct holder of Loans or other amounts (as the case may
be) owing to such Bank in the amount of such participation.
(d) Nothing contained herein shall require any Bank to exercise any
such right or shall affect the right of any Bank to exercise, and retain the
benefits of exercising, any such right with respect to any other indebtedness or
obligation of any Obligor. If, under any applicable bankruptcy, insolvency or
other similar law, any Bank receives a secured claim in lieu of a set-off to
which this Section 4.07 applies, such Bank shall, to the extent practicable,
exercise its rights in respect of such secured claim in a manner consistent with
the rights of the Banks entitled under this Section 4.07 to share in the
benefits of any recovery on such secured claim.
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Section 5. YIELD PROTECTION, ETC.
5.01 ADDITIONAL COSTS.
(a) The Company shall pay directly to each Bank from time to time
such amounts as such Bank may determine to be necessary to compensate such Bank
for any costs that such Bank determines are attributable to its making or
maintaining of any Eurodollar Loans or its obligation to make any Eurodollar
Loans hereunder, or any reduction in any amount receivable by such Bank
hereunder in respect of any of such Loans or such obligation (such increases in
costs and reductions in amounts receivable being herein called "ADDITIONAL
COSTS"), resulting from any Regulatory Change that:
(i) changes the basis of taxation of any amounts payable to such
Bank under this Agreement or its Notes in respect of any of such Loans
(other than taxes imposed on or measured by the overall net income of such
Bank or of its Applicable Lending Office for any of such Loans by the
jurisdiction in which such Bank has its principal office or such Applicable
Lending Office); or
(ii) imposes or modifies any reserve, special deposit or similar
requirements (other than the Reserve Requirement utilized in the
determination of the Eurodollar Rate for such Loan) relating to any
extensions of credit or other assets of, or any deposits with or other
liabilities of, such Bank (including, without limitation, any of such Loans
or any deposits referred to in the definition of "Eurodollar Base Rate" in
Section 1.01 hereof), or any commitment of such Bank (including, without
limitation, either of the Commitments of such Bank hereunder); or
(iii) imposes any other condition affecting this Agreement or its
Note (or any of such extensions of credit or liabilities) or its
Commitments.
If any Bank requests compensation from the Company under this Section 5.01(a),
the Company may, by notice to such Bank (with a copy to the Agent), suspend the
obligation of such Bank thereafter to make or Continue Eurodollar Loans, or to
Convert Prime Rate Loans into Eurodollar Loans, until the Regulatory Change
giving rise to such request ceases to be in effect (in which case the provisions
of Section 5.04 hereof shall be applicable), PROVIDED that such suspension shall
not affect the right of such Bank to receive the compensation so requested.
(b) Without limiting the effect of the provisions of paragraph (a) of
this Section 5.01, in the event that, by reason of any Regulatory Change, any
Bank either (i) incurs Additional Costs based on or measured by the excess above
a specified level of the amount of a category of deposits or other liabilities
of such Bank that includes deposits by reference to which the interest rate on
Eurodollar Loans is determined as provided in this Agreement or a category of
extensions of credit or other assets of such Bank that includes Eurodollar Loans
or
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(ii) becomes subject to restrictions on the amount of such a category of
liabilities or assets that it may hold, then, if such Bank so elects by
notice to the Company (with a copy to the Agent), the obligation of such Bank
to make or Continue, or to Convert Base Rate Loans into, Eurodollar Loans
hereunder shall be suspended until such Regulatory Change ceases to be in
effect (in which case the provisions of Section 5.04 hereof shall be
applicable).
(c) Without limiting the effect of the foregoing provisions of this
Section 5.01 (but without duplication), the Company shall pay directly to each
Bank from time to time on request such amounts as such Bank may determine to be
necessary to compensate such Bank (or, without duplication, the bank holding
company of which such Bank is a subsidiary) for any costs that it determines are
attributable to the maintenance by such Bank (or any Applicable Lending Office
or such bank holding company), pursuant to any law or regulation or any
interpretation, directive or request (whether or not having the force of law and
whether or not failure to comply therewith would be unlawful) of any court or
governmental or monetary authority (i) following any Regulatory Change or
(ii) implementing any risk-based capital guideline or other requirement (whether
or not having the force of law and whether or not the failure to comply
therewith would be unlawful) heretofore or hereafter issued by any government or
governmental or supervisory authority implementing at the national level the
Basel Accord (including, without limitation, the Final Risk-Based Capital
Guidelines of the Board of Governors of the Federal Reserve System (12 C.F.R.
Part 208, Appendix A; 12 C.F.R. Part 225, Appendix A) and the Final Risk-Based
Capital Guidelines of the Office of the Comptroller of the Currency (12 C.F.R.
Part 3, Appendix A)), of capital in respect of its Commitment or Loans (such
compensation to include, without limitation, an amount equal to any reduction of
the rate of return on assets or equity of such Bank (or any Applicable Lending
Office or such bank holding company) to a level below that which such Bank (or
any Applicable Lending Office or such bank holding company) could have achieved
but for such law, regulation, interpretation, directive or request). For
purposes of this Section 5.01(c) and Section 5.06 hereof, "BASEL ACCORD" shall
mean the proposals for risk-based capital framework described by the Basel
Committee on Banking Regulations and Supervisory Practices in its paper entitled
"International Convergence of Capital Measurement and Capital Standards" dated
July 1988, as amended, modified and supplemented and in effect from time to time
or any replacement thereof.
(d) Each Bank shall notify the Company of any event occurring after
the date of this Agreement entitling such Bank to compensation under
paragraph (a) or (c) of this Section 5.01 as promptly as practicable, but in any
event within 45 days, after such Bank obtains actual knowledge thereof; PROVIDED
that (i) if any Bank fails to give such notice within 45 days after it obtains
actual knowledge of such an event, such Bank shall, with respect to compensation
payable pursuant to this Section 5.01 in respect of any costs resulting from
such event, only be entitled to payment under this Section 5.01 for costs
incurred from and after the date 45 days prior to the date that such Bank does
give such notice and (ii) each Bank will designate a different Applicable
Lending Office for the Loans of such Bank affected by such event if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in
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the sole opinion of such Bank, be disadvantageous to such Bank, except that
such Bank shall have no obligation to designate an Applicable Lending Office
located in the United States of America. Each Bank will furnish to the
Company a certificate setting forth the basis and amount of each request by
such Bank for compensation under paragraph (a) or (c) of this Section 5.01.
Determinations and allocations by any Bank for purposes of this Section 5.01
of the effect of any Regulatory Change pursuant to paragraph (a) or (b) of
this Section 5.01, or of the effect of capital maintained pursuant to
paragraph (c) of this Section 5.01, on its costs or rate of return of
maintaining Loans or its obligation to make Loans, or on amounts receivable
by it in respect of Loans, and of the amounts required to compensate such
Bank under this Section 5.01, shall be conclusive, PROVIDED that such
determinations and allocations are made on a reasonable basis.
5.02 LIMITATION ON TYPES OF LOANS. Anything herein to the contrary
notwithstanding, if, on or prior to the determination of any Eurodollar Base
Rate for any Interest Period:
(a) the Agent determines, which determination shall be conclusive,
that quotations of interest rates for the relevant deposits referred to in
the definition of "Eurodollar Base Rate" in Section 1.01 hereof are not
being provided in the relevant amounts or for the relevant maturities for
purposes of determining rates of interest for Eurodollar Loans as provided
herein; or
(b) the Majority Banks determine, which determination shall be
conclusive, and notify the Agent that the relevant rates of interest
referred to in the definition of "Eurodollar Base Rate" in Section 1.01
hereof upon the basis of which the rate of interest for Eurodollar Loans
for such Interest Period is to be determined are not likely to be adequate
to cover the cost to such Banks of making or maintaining Eurodollar Loans
for such Interest Period;
then the Agent shall give the Company and each Bank prompt notice thereof and,
so long as such condition remains in effect, the Banks shall be under no
obligation to make additional Eurodollar Loans, to Continue Eurodollar Loans or
to Convert Base Rate Loans into Eurodollar Loans, and the Company shall, on the
last day(s) of the then current Interest Period(s) for the outstanding
Eurodollar Loans, either prepay such Loans or Convert such Loans into Base Rate
Loans in accordance with Section 2.09 hereof.
5.03 ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Bank or its Applicable
Lending Office to honor its obligation to make or maintain Eurodollar Loans
hereunder, then such Bank shall promptly notify the Company thereof (with a copy
to the Agent) and such Bank's obligation to make or Continue, or to Convert
Loans of any other Type into, Eurodollar Loans shall be suspended until such
time as such Bank may again make and maintain Eurodollar Loans (in which case
the provisions of Section 5.04 hereof shall be applicable).
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5.04 TREATMENT OF AFFECTED LOANS. If the obligation of any Bank to
make Eurodollar Loans or to Continue, or to Convert Base Rate Loans into,
Eurodollar Loans shall be suspended pursuant to Section 5.01 or 5.03 hereof,
such Bank's Eurodollar Loans shall be automatically Converted into Base Rate
Loans on the last day(s) of the then current Interest Period(s) for Eurodollar
Loans (or, in the case of a Conversion required by Section 5.01(b) or 5.03
hereof, on such earlier date as such Bank may specify to the Company with a copy
to the Agent) and, unless and until such Bank gives notice as provided below
that the circumstances specified in Section 5.01 or 5.03 hereof that gave rise
to such Conversion no longer exist:
(a) to the extent that such Bank's Eurodollar Loans have been so
Converted, all payments and prepayments of principal that would otherwise
be applied to such Bank's Eurodollar Loans shall be applied instead to its
Base Rate Loans; and
(b) all Loans that would otherwise be made or Continued by such Bank
as Eurodollar Loans shall be made or Continued instead as Base Rate Loans,
and all Base Rate Loans of such Bank that would otherwise be Converted into
Eurodollar Loans shall remain as Base Rate Loans.
If such Bank gives notice to the Company with a copy to the Agent that the
circumstances specified in Section 5.01 or 5.03 hereof that gave rise to the
Conversion of such Bank's Eurodollar Loans pursuant to this Section 5.04 no
longer exist (which such Bank agrees to do promptly upon such circumstances
ceasing to exist) at a time when Eurodollar Loans made by other Banks are
outstanding, such Bank's Base Rate Loans shall be automatically Converted, on
the first day(s) of the next succeeding Interest Period(s) for such outstanding
Eurodollar Loans, to the extent necessary so that, after giving effect thereto,
all Loans held by the Banks holding Eurodollar Loans and by such Bank are held
pro rata (as to principal amounts, Types and Interest Periods) in accordance
with their respective Commitments.
5.05 COMPENSATION. The Company shall pay to the Agent for the
account of each Bank, upon the request of such Bank through the Agent, such
amount or amounts as shall be sufficient (in the reasonable opinion of such
Bank) to compensate it for any loss, cost or expense that such Bank determines
is attributable to:
(a) any payment, mandatory or optional prepayment or Conversion of a
Eurodollar Loan made by such Bank for any reason (including, without
limitation, the acceleration of the Loans pursuant to Section 10 hereof) on
a date other than the last day of an Interest Period for such Loan; or
(b) any failure by the Company for any reason (including, without
limitation, the failure of any of the conditions precedent specified in
Section 7 hereof to be satisfied) to borrow a Eurodollar Loan from such
Bank on the date for such borrowing specified in the relevant notice of
borrowing given pursuant to Section 2.02 hereof.
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Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
that otherwise would have accrued on the principal amount so paid, prepaid or
Converted or not borrowed for the period from the date of such payment,
prepayment, Conversion or failure to borrow to the last day of the then current
Interest Period for such Loan (or, in the case of a failure to borrow, the
Interest Period for such Loan that would have commenced on the date specified
for such borrowing) at the applicable rate of interest for such Loan provided
for herein over (ii) the amount of interest that otherwise would have accrued on
such principal amount at a rate per annum equal to the interest component of the
amount such Bank would have bid in the London interbank market for Dollar
deposits of leading banks in amounts comparable to such principal amount and
with maturities comparable to such period (as reasonably determined by such
Bank).
5.06 ADDITIONAL COSTS IN RESPECT OF LETTERS OF CREDIT. Without
limiting the obligations of the Company under Section 5.01 hereof (but without
duplication), if as a result of any Regulatory Change or any risk-based capital
guideline or other requirement heretofore or hereafter issued by any government
or governmental or supervisory authority implementing at the national level the
Basel Accord there shall be imposed, modified or deemed applicable any tax,
reserve, special deposit, capital adequacy or similar requirement against or
with respect to or measured by reference to Letters of Credit issued or to be
issued hereunder and the result shall be to increase the cost to any Bank or
Banks of issuing (or purchasing participations in) or maintaining its obligation
hereunder to issue (or purchase participations in) any Letter of Credit
hereunder or reduce any amount receivable by any Bank hereunder in respect of
any Letter of Credit (which increases in cost, or reductions in amount
receivable, shall be the result of such Bank's or Banks' reasonable allocation
of the aggregate of such increases or reductions resulting from such event),
then, upon demand by such Bank or Banks (through the Agent), the Company shall
pay immediately to the Agent for account of such Bank or Banks, from time to
time as specified by such Bank or Banks (through the Agent), such additional
amounts as shall be sufficient to compensate such Bank or Banks (through the
Agent) for such increased costs or reductions in amount. A statement as to such
increased costs or reductions in amount incurred by any such Bank or Banks,
submitted by such Bank or Banks to the Company shall be conclusive in the
absence of manifest error as to the amount thereof.
Section 6. GUARANTEE.
6.01 GUARANTEE. The Subsidiary Guarantors hereby jointly and
severally guarantee to each Bank and the Agent and their respective successors
and assigns the prompt payment in full when due (whether at stated maturity, by
acceleration or otherwise) of the principal of and interest on the Loans made by
the Banks to, and the Notes held by each Bank of, the Company and all other
amounts from time to time owing to the Banks or the Agent by the Company under
this Agreement, under the Notes and under any Commodity Hedging Agreements and
Interest Rate Protection Agreements to which the Company is a party and by any
Obligor under any of the other Basic Documents or under any agreement in respect
of a
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Commodity Hedging Agreement or Interest Rate Protection Agreement to which
such Obligor is a party, in each case strictly in accordance with the terms
thereof (such obligations being herein collectively called the "GUARANTEED
OBLIGATIONS"). The Subsidiary Guarantors hereby further jointly and
severally agree that if the Company shall fail to pay in full when due
(whether at stated maturity, by acceleration or otherwise) any of the
Guaranteed Obligations, the Subsidiary Guarantors will promptly pay the same,
without any demand or notice whatsoever, and that in the case of any
extension of time of payment or renewal of any of the Guaranteed Obligations,
the same will be promptly paid in full when due (whether at extended
maturity, by acceleration or otherwise) in accordance with the terms of such
extension or renewal.
6.02 OBLIGATIONS UNCONDITIONAL. The obligations of the Subsidiary
Guarantors under Section 6.01 hereof are absolute and unconditional, joint and
several, irrespective of the value, genuineness, validity, regularity or
enforceability of the obligations of the Company under this Agreement, the Notes
or any other agreement or instrument referred to herein or therein, or any
substitution, release or exchange of any other guarantee of or security for any
of the Guaranteed Obligations, and, to the fullest extent permitted by
applicable law, irrespective of any other circumstance whatsoever which might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor, it being the intent of this Section 6.02 that the obligations of the
Subsidiary Guarantors hereunder shall be absolute and unconditional, joint and
several, under any and all circumstances. Without limiting the generality of
the foregoing, it is agreed that the occurrence of any one or more of the
following shall not alter or impair the liability of the Subsidiary Guarantors
hereunder which shall remain absolute and unconditional as described above:
(i) at any time or from time to time, without notice to the
Subsidiary Guarantors, the time for any performance of or compliance with
any of the Guaranteed Obligations shall be extended, or such performance or
compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions of this
Agreement or the Notes or any other agreement or instrument referred to
herein or therein shall be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under this Agreement
or the Notes or any other agreement or instrument referred to herein or
therein shall be waived or any other guarantee of any of the Guaranteed
Obligations or any security therefor shall be released or exchanged in
whole or in part or otherwise dealt with; or
(iv) any Lien granted to, or in favor of, the Agent or any Bank or
Banks as security for any of the Guaranteed Obligations shall fail to be
perfected.
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Each of the Subsidiary Guarantors hereby expressly waive diligence, presentment,
demand of payment, protest and all notices whatsoever, and any requirement that
the Agent or any Bank exhaust any right, power or remedy or proceed against the
Company and the other Subsidiary Guarantors under this Agreement or the Notes or
any other agreement or instrument referred to herein or therein, or against any
other Person under any other guarantee of, or security for, any of the
Guaranteed Obligations. Each Subsidiary Guarantor agrees that its obligations
pursuant to this Section 6 shall not be affected by any assignment or
participation entered into by any Bank pursuant to Section 12.06 hereof.
6.03 REINSTATEMENT. The obligations of the Subsidiary Guarantors
under this Section 6 shall be automatically reinstated if and to the extent that
for any reason any payment by or on behalf of the Company in respect of the
Guaranteed Obligations is rescinded or must be otherwise restored by any holder
of any of the Guaranteed Obligations, whether as a result of any proceedings in
bankruptcy or reorganization or otherwise and the Subsidiary Guarantors jointly
and severally agree that they will indemnify the Agent and each Bank on demand
for all reasonable costs and expenses (including, without limitation, fees of
counsel) incurred by the Agent or such Bank in connection with such rescission
or restoration, including any such costs and expenses incurred in defending
against any claim alleging that such payment constituted a preference,
fraudulent transfer or similar payment under any bankruptcy, insolvency or
similar law.
6.04 SUBROGATION. Until all Loans and Letter of Credit Liabilities
have been paid in full and the Commitments have been terminated, each Subsidiary
Guarantor hereby waives all rights of subrogation or contribution, whether
arising by contract or operation of law (including, without limitation, any such
right arising under the Bankruptcy Code) or otherwise by reason of any payment
by it pursuant to the provisions of this Section 6.
6.05 REMEDIES. The Subsidiary Guarantors jointly and severally agree
that, as between the Subsidiary Guarantors and the Banks, the obligations of the
Company under this Agreement and the Notes may be declared to be forthwith due
and payable as provided in Section 10 hereof (and shall be deemed to have become
automatically due and payable in the circumstances provided in said Section 10)
for purposes of Section 6.01 hereof notwithstanding any stay, injunction or
other prohibition preventing such declaration (or such obligations from becoming
automatically due and payable) as against the Company and that, in the event of
such declaration (or such obligations being deemed to have become automatically
due and payable), such obligations (whether or not due and payable by the
Company) shall forthwith become due and payable by the Subsidiary Guarantors for
purposes of said Section 6.01.
6.06 CONTINUING GUARANTEE. The guarantee in this Section 6 is a
continuing guarantee, and shall apply to all Guaranteed Obligations whenever
arising.
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6.07 INSTRUMENT FOR THE PAYMENT OF MONEY. Each Subsidiary Guarantor
hereby acknowledges that the guarantee in this Section 6 constitutes an
instrument for the payment of money, and consents and agrees that any Bank or
the Agent, at its sole option, in the event of a dispute by such Subsidiary
Guarantor in the payment of any moneys due hereunder, shall have the right to
bring motion-action under New York CPLR Section 3213.
6.08 RIGHTS OF CONTRIBUTION. The Subsidiary Guarantors hereby agree,
as between themselves, that if any Subsidiary Guarantor shall become an Excess
Funding Guarantor (as defined below) by reason of the payment by such Subsidiary
Guarantor of any Guaranteed Obligations, each other Subsidiary Guarantor shall,
on demand of such Excess Funding Guarantor (but subject to the next sentence),
pay to such Excess Funding Guarantor an amount equal to such Subsidiary
Guarantor's Pro Rata Share (as defined below and determined, for this purpose,
without reference to the Properties, debts and liabilities of such Excess
Funding Guarantor) of the Excess Payment (as defined below) in respect of such
Guaranteed Obligations. The payment obligation of a Subsidiary Guarantor to any
Excess Funding Guarantor under this Section 6.08 shall be subordinate and
subject in right of payment to the prior payment in full of the obligations of
such Subsidiary Guarantor under the other provisions of this Section 6 and such
Excess Funding Guarantor shall not exercise any right or remedy with respect to
such excess until payment and satisfaction in full of all of such obligations.
For purposes of this Section 6.08, (i) "EXCESS FUNDING GUARANTOR"
shall mean, in respect of any Guaranteed Obligations, a Subsidiary Guarantor
that has paid an amount in excess of its Pro Rata Share of such Guaranteed
Obligations, (ii) "EXCESS PAYMENT" shall mean, in respect of any Guaranteed
Obligations, the amount paid by an Excess Funding Guarantor in excess of its Pro
Rata Share of such Guaranteed Obligations and (iii) "PRO RATA SHARE" shall mean,
for any Subsidiary Guarantor, the ratio (expressed as a percentage) of (x) the
amount by which the aggregate present fair saleable value of all Properties of
such Subsidiary Guarantor (excluding any shares of stock of any other Subsidiary
Guarantor) exceeds the amount of all the debts and liabilities of such
Subsidiary Guarantor (including contingent, subordinated, unmatured and
unliquidated liabilities, but excluding the obligations of such Subsidiary
Guarantor hereunder and any obligations of any other Subsidiary Guarantor that
have been Guaranteed by such Subsidiary Guarantor) to (y) the amount by which
the aggregate fair saleable value of all Properties of all of the Subsidiary
Guarantors exceeds the amount of all the debts and liabilities (including
contingent, subordinated, unmatured and unliquidated liabilities, but excluding
the obligations of the Company and the Subsidiary Guarantors hereunder and under
the other Loan Documents) of all of the Subsidiary Guarantors, determined (A)
with respect to any Subsidiary Guarantor that is a party hereto on the date of
this Agreement, as of the date of this Agreement, and (B) with respect to any
other Subsidiary Guarantor, as of the date such Subsidiary Guarantor becomes a
Subsidiary Guarantor hereunder.
6.09 GENERAL LIMITATION ON GUARANTEE OBLIGATIONS. In any action or
proceeding involving any state corporate law, or any state or Federal
bankruptcy, insolvency, reorganization
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or other law affecting the rights of creditors generally, if the obligations
of any Subsidiary Guarantor under Section 6.01 hereof would otherwise, taking
into account the provisions of Section 6.08 hereof, be held or determined to
be void, invalid or unenforceable, or subordinated to the claims of any other
creditors, on account of the amount of its liability under said Section 6.01,
then, notwithstanding any other provision hereof to the contrary, the amount
of such liability shall, without any further action by such Subsidiary
Guarantor, any Bank, the Agent or any other Person, be automatically limited
and reduced to the highest amount that is valid and enforceable and not
subordinated to the claims of other creditors as determined in such action or
proceeding.
Section 7. CONDITIONS PRECEDENT.
7.01 CONDITIONS TO EFFECTIVENESS. The effectiveness of this Second
Amended and Restated Credit Agreement is subject to the receipt by the Agent of
the following documents and evidence, each of which shall be satisfactory to the
Agent (and to the extent specified below, to the Majority Banks) in form and
substance:
(a) CORPORATE DOCUMENTS. The following documents, each certified as
indicated below:
(i) for each Obligor, a copy of the charter, as amended and in
effect, of such Obligor certified as of a recent date by the Secretary
of State of its jurisdiction of incorporation, and a certificate from
such Secretary of State dated as of a recent date as to the good
standing of and charter documents filed by such Obligor;
(ii) for each Obligor, a certificate of the Secretary or an
Assistant Secretary of such Obligor, dated the date hereof and
certifying (A) that the by-laws of such Obligor have not been amended
since January 1, 1997, (B) that attached thereto is a true and
complete copy of resolutions duly adopted by the board of directors of
such Obligor authorizing the execution, delivery and performance of
such of the Basic Documents to which such Obligor is or is intended to
be a party and the extensions of credit hereunder, and that such
resolutions have not been modified, rescinded or amended and are in
full force and effect, (C) that the charter of such Obligor has not
been amended since January 1, 1997, and (D) as to the incumbency and
specimen signature of each officer of such Obligor executing such of
the Basic Documents to which such Obligor is intended to be a party
and each other document to be delivered by such Obligor from time to
time in connection therewith (and the Agent and each Bank may
conclusively rely on such certificate until it receives notice in
writing from such Obligor); and
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(iii) for each Obligor, a certificate of another officer of such
Obligor as to the incumbency and specimen signature of the Secretary
or Assistant Secretary, as the case may be, of such Obligor.
(b) OFFICER'S CERTIFICATE. A certificate of a senior officer of the
Company, dated the date hereof, to the effect set forth in the first
sentence of Section 7.02 hereof.
(c) OPINION OF COUNSEL TO THE OBLIGORS. An opinion, dated the date
hereof, of Vinson & Elkins L.L.P., Counsel of each of the Obligors,
substantially in the form of Exhibit C hereto and covering such other
matters as the Agent or any Bank may reasonably request (and each Obligor
hereby instructs such counsel to deliver such opinion to the Banks and the
Agent).
(d) OPINION OF SPECIAL COUNSEL TO CHASE. An opinion, dated the date
hereof, of Milbank, Tweed, Hadley & McCloy, special counsel to Chase,
substantially in the form of Exhibit D hereto.
(e) NOTES. The Notes, duly completed and executed in exchange for
the Original Notes.
(f) SECURITY AGREEMENT. The Security Agreement, duly executed and
delivered by the Obligors and the Agent. In addition, the Company and the
Subsidiary Guarantors shall have taken such other action (including,
without limitation, delivering to the Agent, for filing, appropriately
completed and duly executed copies of Uniform Commercial Code financing
statements) as the Agent shall have requested in order to perfect the
security interests created pursuant to the Security Agreement.
(g) PLEDGE AGREEMENT. The Pledge Agreement, duly executed and
delivered by each of the Obligors, if any, required by the Majority Banks
to execute and deliver the Pledge Agreement and the certificates identified
in Section 3 thereof, accompanied by undated stock powers executed in
blank. In addition, each of such Obligors, if any, shall have taken such
other action (including, without limitation, delivering to the Agent, for
filing, appropriately completed and duly executed copies of Uniform
Commercial Code financing statements) as the Agent shall have requested in
order to perfect the security interests created pursuant to the Pledge
Agreement.
(h) MORTGAGES. The Mortgage Amendments covering the Hydrocarbon
Properties of the Company and its Restricted Subsidiaries located in
Louisiana, Oklahoma, Texas (other than Mortgages in respect of the
Company's interest in the Loma Vieja field) and Wyoming, in each case duly
executed and delivered by the Company in recordable form (in such number of
copies as the Agent shall have requested).
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(i) INSURANCE. A certificate of an officer of the Company as to the
existence of all insurance required to be maintained by the Obligors
pursuant to Section 9.04 hereof.
(j) OPINION OF LOCAL COUNSEL. A favorable opinion from each of
Liskow & Lewis, Conner & Winters and Vinson & Elkins L.L.P., special
counsel to the Banks in each of Louisiana, Oklahoma and Texas,
respectively, dated the date hereof, for each such state and with respect
to the properties covered by the Mortgages and located in such respective
states, as to the following:
(i) Compliance with all applicable state laws, including all
applicable recording, filing and registration laws, of the Mortgages,
the Mortgage Amendments and the Notes, and the form and manner of the
authorization, execution, acknowledgment and delivery of each thereof;
(ii) the legal, valid and binding nature of the Mortgages, the
Mortgage Amendments and the Notes, and the enforceability thereof in
accordance with their respective terms;
(iii) the fact that, the Mortgages, as amended by the Mortgage
Amendments, constitute a legal, valid and effective mortgage lien upon
the mortgaged properties as security for the Indebtedness referred to
therein;
(iv) the absence of any requirement for any authorization or
approval by any public regulatory body or authority, with regard to
the valid execution and delivery of, and the validity, legality and
effectiveness of, the Mortgages, the Mortgage Amendments and the
Notes;
(v) as to all recording, filing and registration procedures as
shall be necessary under applicable state laws to constitute the
Mortgages, as amended by the Mortgage Amendments, a mortgage, pledge
and financing statement in accordance with the terms thereof and the
intention of the parties thereto, and as to the necessity of any
periodic or other rerecording or refiling of the Mortgages, or any
other instrument in order to maintain the lien of the Mortgages; and
(vi) as to such state or local mortgage recording taxes, stamp
taxes, or other fees, taxes or governmental charges as shall be
required to be paid in connection with the execution, delivery, filing
for record or recording of the Mortgages and the Notes.
(k) OTHER DOCUMENTS. Such other documents as the Agent or any Bank
or special New York counsel to Chase may reasonably request.
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The obligation of the Banks to make their initial extension of credit hereunder
is also subject to the payment by the Company of such fees as the Company shall
have agreed to pay or deliver to any Bank or the Agent in connection herewith,
including, without limitation, the fees set forth in the Amendment Fee Letter
and the Original Fee Letter, the reasonable fees and expenses of Milbank, Tweed,
Hadley & McCloy, special New York counsel to Chase in connection with the
negotiation, preparation, execution and delivery of this Agreement and the Notes
and the other Basic Documents and the extensions of credit hereunder (to the
extent that statements for such fees and expenses have been delivered to the
Company).
7.02 INITIAL AND SUBSEQUENT EXTENSIONS OF CREDIT.
The obligation of the Banks to make any Loans or otherwise extend
credit to the Company upon the occasion of each borrowing or other extension of
credit hereunder (including the initial extension of credit) is subject to the
further conditions precedent that, (x) both immediately prior to the making of
such Loans or other extension of credit and also after giving effect thereto and
to the intended use thereof: (i) no Default shall have occurred and be
continuing; (ii) the representations and warranties made by the Company in
Section 8 hereof, and by each Obligor in each of the other Basic Documents to
which it is a party, shall be true and complete on and as of the date of the
making of such Loans or other extension of credit with the same force and effect
as if made on and as of such date (or, if any such representation or warranty is
expressly stated to have been made as of a specific date, as of such specific
date); and (iii) the aggregate principal amount of Loans and Letter of Credit
Liabilities shall not exceed the Borrowing Base as determined pursuant to
Section 1.03 hereof and (y) if the outstanding Loans and Letter of Credit
Liabilities exceed or, with the extension of credit then being requested by the
Company will exceed $50,000,000, the Company shall have delivered a certificate
from the Chief Financial Officer, Treasurer or an Assistant Treasurer stating
that (A) all of the obligations under the Basic Documents are "Senior Debt" (as
defined in the Senior Subordinated Debt Documents) for the purposes of the
Senior Subordinated Debt Documents and (B) the obligations under the Basic
Documents (including the extension credit to be made on the date of such
certificate) are permitted to be incurred (as defined in the Senior Subordinated
Debt Documents) by the Company and its Subsidiaries under the Senior
Subordinated Debt Documents and providing the calculations necessary to support
the statement made pursuant to this clause (B). Each notice of borrowing or
request for the issuance of a Letter of Credit by the Company hereunder shall
constitute a certification by the Company to the effect set forth in the
preceding sentence (both as of the date of such notice or request and, unless
the Company otherwise notifies the Agent prior to the date of such borrowing or
issuance, as of the date of such borrowing or issuance).
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Section 8. REPRESENTATIONS AND WARRANTIES. The Company and the
Subsidiary Guarantors represent and warrant to the Banks that:
8.01 CORPORATE EXISTENCE. The Company and each Subsidiary Guarantor:
(a) is a corporation, partnership or other entity duly incorporated, validly
existing and in good standing under the laws of the jurisdiction of its
organization; (b) has all requisite corporate power, and has all material
governmental licenses, authorizations, consents and approvals necessary to own
its assets and carry on its business as now being or as proposed to be
conducted; and (c) is qualified to do business and is in good standing in all
jurisdictions in which the nature of the business conducted by it makes such
qualification necessary and where failure so to qualify could have a Material
Adverse Effect.
8.02 FINANCIAL CONDITION. The Company has heretofore furnished to
each of the Banks the consolidated balance sheet of the Company and its
Consolidated Subsidiaries as at December 31, 1995 and the related consolidated
statements of income, retained earnings and cash flow of the Company and its
Consolidated Subsidiaries for the fiscal year ended on said date, with the
opinion thereon of KPMG Peat Marwick. All such financial statements are
complete and correct and fairly present the consolidated financial condition of
the Company and its Consolidated Subsidiaries as at said date and the
consolidated results of operations for the fiscal year ended on said date, all
in accordance with GAAP. Neither the Company nor any of its Subsidiaries has on
the date hereof any material contingent liabilities, liabilities for taxes,
unusual forward or long-term commitments or unrealized or anticipated losses
from any unfavorable commitments, except as referred to or reflected or provided
for in said balance sheets as at said date. Since December 31, 1995 there has
been no material adverse change in the consolidated financial condition,
operations, business or prospects taken as a whole of the Company and its
Consolidated Subsidiaries from that set forth in said financial statements as at
said date.
8.03 LITIGATION. Except as disclosed to the Banks in writing prior
to the date of this Agreement, there are no legal or arbitral proceedings, or
any proceedings by or before any governmental or regulatory authority or agency,
now pending or (to the knowledge of the Company or any of its Subsidiaries)
threatened against the Company or any of its Subsidiaries which, if adversely
determined could have a Material Adverse Effect.
8.04 NO BREACH. None of the execution and delivery of this Agreement
and the Notes and the other Basic Documents, the consummation of the
transactions herein and therein contemplated or compliance with the terms and
provisions hereof and thereof will conflict with or result in a breach of, or
require any consent under, the charter or by-laws of any Obligor, or any
applicable law or regulation, or any order, writ, injunction or decree of any
court or governmental authority or agency, or any agreement or instrument to
which the Company or any of its Restricted Subsidiaries is a party or by which
any of them or any of their Property is bound or to which any of them is
subject, or constitute a default under any such agreement or
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instrument, or (except for the Liens created pursuant to the Security
Documents) result in the creation or imposition of any Lien upon any Property
of the Company or any of its Restricted Subsidiaries pursuant to the terms of
any such agreement or instrument.
8.05 ACTION. Each Obligor has all necessary corporate power,
authority and legal right to execute, deliver and perform its obligations under
each of the Basic Documents to which it is or is intended to be a party; the
execution, delivery and performance by each Obligor of each of the Basic
Documents to which it is or is intended to be a party have been duly authorized
by all necessary corporate action on its part (including, without limitation,
any required shareholder approvals); and this Agreement has been duly and
validly executed and delivered by each Obligor and constitutes, and each of the
Notes and the other Basic Documents to which it is a party when executed and
delivered by such Obligor (in the case of the Notes, for value) will constitute,
its legal, valid and binding obligation, enforceable against each Obligor in
accordance with its terms, except as such enforceability may be limited by
(a) bankruptcy, insolvency, reorganization, moratorium or similar laws of
general applicability affecting the enforcement of creditors' rights and (b) the
application of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
8.06 APPROVALS. No authorizations, approvals or consents of, and no
filings or registrations with, any governmental or regulatory authority or
agency, or any securities exchange, are necessary for the execution, delivery or
performance by any Obligor of the Basic Documents to which it is a party or for
the legality, validity or enforceability hereof or thereof, except for filings
and recordings in respect of the Liens created pursuant to the Security
Documents.
8.07 USE OF CREDIT. Neither the Company nor any of its Subsidiaries
is engaged principally, or as one of its important activities, in the business
of extending credit for the purpose, whether immediate, incidental or ultimate,
of buying or carrying Margin Stock, and no part of the proceeds of any extension
of credit hereunder will be used to buy or carry any Margin Stock.
8.08 ERISA. Each Plan, and, to the knowledge of the Company, each
Multiemployer Plan, is in compliance in all material respects with, and has been
administered in all material respects in compliance with, the applicable
provisions of ERISA, the Code and any other Federal or State law, except where
non-compliance will not have a Material Adverse Effect and no event or condition
has occurred and is continuing as to which the Company would be under an
obligation to furnish a report to the Banks under Section 9.01(e) hereof.
8.09 TAXES. The Company and its U.S. Subsidiaries are members of an
affiliated group of corporations filing consolidated returns for Federal income
tax purposes, of which the Company is the "common parent" (within the meaning of
Section 1504 of the Code) of such group. The Company and its Subsidiaries have
filed either directly or indirectly through the
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Company all Federal income tax returns and all other material tax returns
that are required to be filed by them and have paid either directly or
indirectly through the Company all taxes due pursuant to such returns or
pursuant to any assessment received by the Company or any of its
Subsidiaries. The charges, accruals and reserves on the books of the Company
and its Subsidiaries in respect of taxes and other governmental charges are,
in the opinion of the Company, adequate. Except as disclosed to the Banks in
writing, the Company has not given or been requested to give a waiver of the
statute of limitations relating to the payment of Federal, state, local and
foreign taxes or other impositions.
8.10 INVESTMENT COMPANY ACT. Neither the Company nor any of its
Subsidiaries is an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
8.11 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Company nor any
of its Subsidiaries is a "holding company", or an "affiliate" of a "holding
company" or a "subsidiary company" of a "holding company", within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
8.12 MATERIAL AGREEMENTS AND LIENS.
(a) Part A of Schedule I hereto is a complete and correct list, as of
the date of this Agreement, of each credit agreement, loan agreement, indenture,
purchase agreement, guarantee, letter of credit or other arrangement providing
for or otherwise relating to any Indebtedness or any extension of credit (or
commitment for any extension of credit) to, or guarantee by, the Company or any
of its Restricted Subsidiaries the aggregate principal or face amount of which
equals or exceeds (or may equal or exceed) $1,000,000, and the aggregate
principal or face amount outstanding or that may become outstanding under each
such arrangement is correctly described in Part A of said Schedule I.
(b) Part B of Schedule I hereto is a complete and correct list, as of
the date of this Agreement, of each Lien securing Indebtedness of any Person the
aggregate principal or face amount of which equals or exceeds (or may equal or
exceed) $1,000,000 and covering any Property of the Company or any of its
Restricted Subsidiaries, and the aggregate Indebtedness secured (or which may be
secured) by each such Lien and the Property covered by each such Lien is
correctly described in Part B of said Schedule I.
8.13 ENVIRONMENTAL MATTERS. Each of the Company and its Subsidiaries
has obtained all environmental, health and safety permits, licenses and other
authorizations required under all Environmental Laws to carry on its business as
now being or as proposed to be conducted, except to the extent failure to have
any such permit, license or authorization would not have a Material Adverse
Effect. Each of such permits, licenses and authorizations is in full force and
effect and each of the Company and its Subsidiaries is in compliance with the
terms
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and conditions thereof, and is also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any applicable Environmental Law or in
any regulation, code, plan, order, decree, judgment, injunction, notice or
demand letter issued, entered, promulgated or approved thereunder, except to
the extent failure to comply therewith would not have a Material Adverse
Effect.
In addition, except as set forth in Schedule II hereto:
(a) No notice, notification, demand, request for information,
citation, summons or order has been issued, no complaint has been filed, no
penalty has been assessed and no investigation or review is pending or
threatened by any governmental or other entity with respect to any alleged
failure by the Company or any of its Subsidiaries to have any
environmental, health or safety permit, license or other authorization
required under any Environmental Law in connection with the conduct of the
business of the Company or any of its Subsidiaries or with respect to any
generation, treatment, storage, recycling, transportation, discharge or
disposal, or any Release of any Hazardous Materials generated by the
Company or any of its Subsidiaries.
(b) Neither the Company nor any of its Subsidiaries owns, operates or
leases a treatment, storage or disposal facility requiring a permit under
the Resource Conservation and Recovery Act of 1976, as amended, or under
any comparable state or local statute; and
(i) to the knowledge of the Company after due inquiry, no
polychlorinated biphenyls (PCB's) are or have been present at any site
or facility now or previously owned, operated or leased by the Company
or any of its Subsidiaries;
(ii) to the knowledge of the Company after due inquiry, no
asbestos or asbestos-containing materials is or has been present at
any site or facility now or previously owned, operated or leased by
the Company or any of its Subsidiaries;
(iii) to the knowledge of the Company after due inquiry, there are
no underground storage tanks or surface impoundments for Hazardous
Materials, active or abandoned, at any site or facility now or
previously owned, operated or leased by the Company or any of its
Subsidiaries;
(iv) to the knowledge of the Company after due inquiry, no
Hazardous Materials have been Released at, on or under any site or
facility now or previously owned, operated or leased by the Company or
any of its Subsidiaries in a reportable quantity established by
statute, ordinance, rule, regulation or order; and
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(v) to the knowledge of the Company after due inquiry, no
Hazardous Materials have been otherwise Released at, on or under any
site or facility now or previously owned, operated or leased by the
Company or any of its Subsidiaries that would have a Material Adverse
Effect.
(c) Neither the Company nor any of its Subsidiaries has transported
or arranged for the transportation of any Hazardous Material to any
location that is listed on the National Priorities List ("NPL") under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), listed for possible inclusion on the NPL by
the Environmental Protection Agency in the Comprehensive Environmental
Response and Liability Information System, as provided for by 40 C.F.R.
Section 300.5 ("CERCLIS"), or on any similar state or local list or that
is the subject of Federal, state or local enforcement actions or other
investigations that may lead to Environmental Claims against the Company or
any of its Subsidiaries.
(d) No Hazardous Material generated by the Company or any of its
Subsidiaries has been recycled, treated, stored, disposed of or Released by
the Company or any of its Subsidiaries at any location other than those
listed in Schedule II hereto.
(e) No oral or written notification of a Release of a Hazardous
Material has been filed by or on behalf of the Company or any of its
Subsidiaries and no site or facility now or previously owned, operated or
leased by the Company or any of its Subsidiaries is listed or proposed for
listing on the NPL, CERCLIS or any similar state list of sites requiring
investigation or clean-up.
(f) No Liens have arisen under or pursuant to any Environmental Laws
on any site or facility owned, operated or leased by the Company or any of
its Subsidiaries, and no government action has been taken or is in process
that could subject any such site or facility to such Liens and neither the
Company nor any of its Subsidiaries would be required to place any notice
or restriction relating to the presence of Hazardous Materials at any site
or facility owned by it in any deed to the real property on which such site
or facility is located.
(g) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by or that are in the possession
of the Company or any of its Subsidiaries in relation to any site or
facility now or previously owned, operated or leased by the Company or any
of its Subsidiaries which have not been made available to the Banks.
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8.14 SUBSIDIARIES, ETC.
(a) Set forth in Part A of Schedule III hereto is a complete and
correct list, as of the date of this Agreement, of all of the Subsidiaries of
the Company, together with, for each such Subsidiary, (i) the jurisdiction of
organization of such Subsidiary, (ii) each Person holding ownership interests in
such Subsidiary, (iii) the nature of the ownership interests held by each such
Person and the percentage of ownership of such Subsidiary represented by such
ownership interests and (iv) indicating whether each such Subsidiary is a
Restricted Subsidiary or an Unrestricted Subsidiary. Except as disclosed in
Part A of Schedule III hereto, (x) each of the Company and its Subsidiaries
owns, free and clear of Liens (other than Liens created pursuant to the Security
Documents), and has the unencumbered right to vote, all outstanding ownership
interests in each Person shown to be held by it in Part A of Schedule III
hereto, (y) all of the issued and outstanding capital stock of each such Person
organized as a corporation is validly issued, fully paid and nonassessable and
(z) there are no outstanding Equity Rights with respect to such Person.
(b) Set forth in Part B of Schedule III hereto is a complete and
correct list, as of the date of this Agreement, of all Investments (other than
Investments disclosed in Part A of said Schedule III hereto and other than
Permitted Investments) held by the Company or any of its Subsidiaries in any
Person and, for each such Investment, (x) the identity of the Person or Persons
holding such Investment and (y) the nature of such Investment. Except as
disclosed in Part B of Schedule III hereto, each of the Company and its
Subsidiaries owns, free and clear of all Liens (other than Liens created
pursuant to the Security Documents), all such Investments.
(c) None of the Restricted Subsidiaries of the Company, other than
Forest I Development Company, is, on the date of this Agreement, subject to any
indenture, agreement, instrument or other arrangement of the type described in
the last sentence of 9.15 hereof.
8.15 TRUE AND COMPLETE DISCLOSURE. The information, reports,
financial statements, exhibits and schedules furnished in writing by or on
behalf of the Obligors to the Agent or any Bank in connection with the
negotiation, preparation or delivery of this Agreement and the other Basic
Documents or included herein or therein or delivered pursuant hereto or thereto,
when taken as a whole do not contain any untrue statement of material fact or
omit to state any material fact necessary to make the statements herein or
therein, in light of the circumstances under which they were made, not
misleading. All written information furnished after the date hereof by the
Obligors to the Agent and the Banks in connection with this Agreement and the
other Basic Documents and the transactions contemplated hereby and thereby will
be true, complete and accurate in every material respect, or (in the case of
projections) based on reasonable estimates, on the date as of which such
information is stated or certified. There is no fact known to any Obligor that
could have a Material Adverse Effect that has not been disclosed herein, in the
other Basic Documents or in a report, financial statement, exhibit,
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schedule, disclosure letter or other writing furnished to the Banks for use
in connection with the transactions contemplated hereby or thereby.
Section 9. COVENANTS OF THE OBLIGORS. Each Obligor covenants and
agrees with the Banks and the Agent that, so long as any Commitment, Loan or
Letter of Credit Liability is outstanding and until payment in full of all
amounts payable by the Company hereunder:
9.01 FINANCIAL STATEMENTS ETC. The Company shall (for itself and on
behalf of each of the other Obligors) deliver to the Agent and each of the
Banks:
(a) as soon as available and in any event within 60 days after the
end of each quarterly fiscal period of each fiscal year of the Company,
consolidated and, if prepared, or if the Company has designated any
Subsidiary an Unrestricted Subsidiary, consolidating statements of income,
retained earnings and cash flow of the Company and its Consolidated
Subsidiaries for such period and for the period from the beginning of the
respective fiscal year to the end of such period, and the related
consolidated and, if prepared, or if the Company has designated any
Subsidiary an Unrestricted Subsidiary, consolidating balance sheets of the
Company and its Consolidated Subsidiaries as at the end of such period,
setting forth in each case in comparative form the corresponding
consolidated and, if prepared, or if the Company has designated any
Subsidiary an Unrestricted Subsidiary, consolidating figures for the
corresponding period in the preceding fiscal year, accompanied by a
certificate of a senior financial officer of the Company, which certificate
shall state that said consolidated financial statements fairly present the
consolidated financial condition and results of operations of the Company
and its Consolidated Subsidiaries, and said consolidating financial
statements are materially correct and reconcile to the consolidated
financial statements of the Company and its Consolidated Subsidiaries, and
that such consolidated financial statements have been prepared in
accordance with GAAP, as at the end of, and for, such period (subject to
normal year-end audit adjustments);
(b) as soon as available and in any event within 100 days after the
end of each fiscal year of the Company, consolidated and, if prepared,
consolidating statements of income, retained earnings and cash flow of the
Company and its Consolidated Subsidiaries for such fiscal year and the
related consolidated and, if prepared, or if the Company has designated any
Subsidiary an Unrestricted Subsidiary, consolidating balance sheets of the
Company and its Consolidated Subsidiaries as at the end of such fiscal
year, setting forth in each case in comparative form the corresponding
consolidated and consolidating figures for the preceding fiscal year, and
accompanied (i) in the case of said consolidated statements and balance
sheet of the Company, by an opinion thereon of independent certified public
accountants of recognized national standing, which opinion shall state that
said consolidated financial statements fairly present the consolidated
financial condition and results of operations of the Company and its
Consolidated
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Subsidiaries as at the end of, and for, such fiscal year in accordance
with generally accepted accounting principles, and (ii) in the case of
said consolidating statements and balance sheet, by a certificate of a
senior financial officer of the Company, which certificate shall state
that said consolidating financial statements are materially correct and
reconcile to the consolidated financial statements of the Company and its
Consolidated Subsidiaries, and that such consolidated financial
statements have been prepared in accordance with GAAP, as at the end of,
and for, such fiscal year;
(c) promptly upon their becoming available, copies of all
registration statements and regular periodic reports, if any, which the
Company shall have filed with the Securities and Exchange Commission (or
any governmental agency substituted therefor) or any national securities
exchange;
(d) promptly upon the mailing thereof to the shareholders of the
Company generally or to holders of Subordinated Indebtedness generally,
copies of all financial statements, reports and proxy statements so mailed;
(e) as soon as possible, and in any event within ten days after the
Company knows or has reason to believe that any of the events or conditions
specified below with respect to any Plan or Multiemployer Plan has occurred
or exists, a statement signed by a senior financial officer of the Company
setting forth details respecting such event or condition and the action, if
any, that the Company or its ERISA Affiliate proposes to take with respect
thereto (and a copy of any report or notice required to be filed with or
given to PBGC by the Company or an ERISA Affiliate with respect to such
event or condition):
(i) any reportable event, as defined in Section 4043(b) of ERISA
and the regulations issued thereunder, with respect to a Plan, as to
which PBGC has not by regulation waived the requirement of
Section 4043(a) of ERISA that it be notified within 30 days of the
occurrence of such event (PROVIDED that a failure to meet the minimum
funding standard of Section 412 of the Code or Section 302 of ERISA,
including, without limitation, the failure to make on or before its
due date a required installment under Section 412(m) of the Code or
Section 302(e) of ERISA, shall be a reportable event regardless of the
issuance of any waivers in accordance with Section 412(d) of the
Code); and any request for a waiver under Section 412(d) of the Code
for any Plan;
(ii) the distribution under Section 4041(c) of ERISA of a notice
of intent to terminate any Plan or any action taken by the Company or
an ERISA Affiliate to terminate any Plan (other than in connection
with a standard termination under Section 4041(b) of ERISA);
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(iii) the institution by PBGC of proceedings under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to
administer, any Plan, or the receipt by the Company or any ERISA
Affiliate of a notice from a Multiemployer Plan that such action has
been taken by PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a Multiemployer Plan
by the Company or any ERISA Affiliate that results in liability under
Section 4201 or 4204 of ERISA (including the obligation to satisfy
secondary liability as a result of a purchaser default) or the receipt
by the Company or any ERISA Affiliate of notice from a Multiemployer
Plan that it is in reorganization or insolvency pursuant to
Section 4241 or 4245 of ERISA or that it intends to terminate or has
terminated under Section 4041A of ERISA;
(v) the institution of a proceeding by a fiduciary of any
Multiemployer Plan against the Company or any ERISA Affiliate to
enforce Section 515 of ERISA, which proceeding is not dismissed within
30 days; and
(vi) the adoption of an amendment to any Plan that, pursuant to
Section 401(a)(29) of the Code or Section 307 of ERISA, would result
in the loss of tax-exempt status of the trust of which such Plan is a
part if the Company or an ERISA Affiliate fails to timely provide
security to the Plan in accordance with the provisions of said
Sections;
(f) on or before each Report Delivery Date, a Reserve Evaluation
Report;
(g) promptly after the Company or any of its Restricted Subsidiaries
knows or has reason to believe that any Default has occurred, a notice of
such Default describing the same in reasonable detail and, together with
such notice or as soon thereafter as possible, a description of the action
that the Company or any of its Restricted Subsidiaries has taken or
proposes to take with respect thereto;
(h) within ten days after the Company or any of its Restricted
Subsidiaries receives notice of any change in the schedule of payment or
delivery of any Production Payment to which the Company or such Restricted
Subsidiary is a party, the Company shall give the Agent notice of such
change, together with an explanation of the reason for such change;
(i) at the time of the receipt by the Company or any Restricted
Subsidiary of the net proceeds of any Equity Issuance, the Company shall
deliver a certificate of the Chief Financial Officer, Treasurer or
Assistant Treasurer of the Company which certificate shall indicate the
ratio of Funded Indebtedness to Total Capitalization of the
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Company and its Restricted Subsidiaries after giving effect to the receipt
of the net proceeds of such Equity Issuance and shall show, in reasonable
detail, the calculations used to derive such ratio; and
(j) from time to time such other information regarding the financial
condition, operations, business, prospects or Properties of the Company or
any of its Subsidiaries (including, without limitation, any Plan or
Multiemployer Plan and any reports or other information required to be
filed under ERISA) as any Bank or the Agent may reasonably request.
The Company will furnish to each Bank, at the time it furnishes each set of
financial statements pursuant to paragraph (a) or (b) above, a certificate of a
senior financial officer of the Company (i) to the effect that no Default has
occurred and is continuing (or, if any Default has occurred and is continuing,
describing the same in reasonable detail and describing the action that the
Company has taken or proposes to take with respect thereto) and (ii) setting
forth in reasonable detail the computations necessary to determine whether the
Company is in compliance with Sections 9.06(k), 9.07(a)(v) and (a)(vi), 9.08(g),
9.09, 9.10, 9.11 and 9.16 hereof as of the end of the respective quarterly
fiscal period or fiscal year, which computations in respect of Sections 9.09,
9.10, 9.11 and 9.16 shall be in accordance with GAAP.
9.02 LITIGATION. The Company will promptly give to each Bank notice
of all legal or arbitral proceedings, and of all proceedings by or before any
governmental or regulatory authority or agency, and any material development in
respect of such legal or other proceedings, affecting the Company or any of its
Subsidiaries, except proceedings which, if adversely determined, would not have
a Material Adverse Effect. Without limiting the generality of the foregoing,
the Company will give to each Bank notice of the assertion of any Environmental
Claim by any Person against, or with respect to the activities of, the Company
or any of its Subsidiaries and notice of any alleged violation of or
non-compliance with any Environmental Laws or any permits, licenses or
authorizations, other than any Environmental Claim or alleged violation which,
if adversely determined, would not have a Material Adverse Effect.
9.03 EXISTENCE, ETC. The Company will, and will cause each of its
Restricted Subsidiaries to:
(a) preserve and maintain its legal existence and all of its material
rights, privileges, licenses and franchises (PROVIDED that nothing in this
Section 9.03 shall prohibit any transaction expressly permitted under
Section 9.05 hereof);
(b) comply with the requirements of all applicable laws, rules,
regulations and orders of governmental or regulatory authorities if failure
to comply with such requirements could have a Material Adverse Effect;
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(c) pay and discharge all taxes, assessments and governmental charges
or levies imposed on it or on its income or profits or on any of its
Property prior to the date on which penalties attach thereto, except for
any such tax, assessment, charge or levy the payment of which is being
contested in good faith and by proper proceedings and against which
adequate reserves are being maintained;
(d) maintain all of its Properties used or useful in its business in
good working order and condition, ordinary wear and tear excepted;
(e) keep adequate records and books of account, in which complete
entries will be made in accordance with generally accepted accounting
principles consistently applied; and
(f) permit representatives of any Bank or the Agent, at their own
risk during normal business hours, to examine, copy and make extracts from
its books and records, to inspect any of its Properties, and to discuss its
business and affairs with its officers, all to the extent reasonably
requested by such Bank or the Agent (as the case may be).
9.04 INSURANCE. The Company will, and will cause each of its
Restricted Subsidiaries (including without limitation the Subsidiary Guarantors)
to, keep insured by financially sound and reputable insurers all Property of a
character usually insured by corporations engaged in the same or similar
business similarly situated against loss or damage of the kinds and in the
amounts customarily insured against by such corporations and carry such other
insurance as is usually carried by such corporations or as is required by law.
9.05 PROHIBITION OF FUNDAMENTAL CHANGES. The Company will not, and
will not permit any of its Restricted Subsidiaries to, enter into any
transaction of merger or consolidation or amalgamation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution). The Company will
not, and will not permit any of its Restricted Subsidiaries to, acquire any
business or Property from, or capital stock of, or be a party to any acquisition
of, any Person except for purchases of inventory and other Property to be sold
or used in the ordinary course of business and Investments permitted under
Section 9.08 hereof. The Company will not, and will not permit any of its
Restricted Subsidiaries to, convey, sell, lease, transfer or otherwise dispose
of, in one transaction or a series of transactions, all or a substantial part of
its business or Property, whether now owned or hereafter acquired including,
without limitation, receivables and leasehold interests, but excluding
(i) obsolete or worn-out Property, tools or equipment no longer used or useful
in its business so long as the amount thereof sold in any single fiscal year by
the Company and its Subsidiaries shall not have a fair market value in excess of
$1,000,000, (ii) any hydrocarbons produced or sold in the ordinary course of
business and on ordinary business terms (excluding, with respect to Properties
of the Company or any Restricted Subsidiary existing on the date hereof, and
with respect to any Mortgaged Property, Production Payments or any other sale or
lease of interests in hydrocarbons in the ground other than Production Payments
entered
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into by the Company or any of its Restricted Subsidiaries prior to the date
hereof), (iii) on and after the date hereof, other Properties of the Company
and its Restricted Subsidiaries (other than Mortgaged Properties and
Unrestricted Properties) provided that the aggregate fair market value of
such other Properties conveyed, sold, leased, transferred or otherwise
disposed of on or after the date hereof shall not exceed $5,000,000 during
any Determination Period, provided, further, that such conveyance, sale,
lease, transfer or other disposition shall not include any Accounts or
Inventory (each as defined in the Security Agreement) of the Company or any
of its Restricted Subsidiaries other than Accounts or Inventory (x)
incidental to the sale of Hydrocarbon Properties and (y) created or produced
from such Hydrocarbon Properties on or after the effective date of any such
conveyance, sale, lease, transfer or other disposition of such Hydrocarbon
Properties, (iv) the expiration of leases covering hydrocarbon producing
properties and (v) Unrestricted Properties. Notwithstanding the foregoing
provisions of this Section 9.05:
(a) any Restricted Subsidiary of the Company may be merged or
consolidated with or into: (i) the Company if the Company shall be the
continuing or surviving corporation or (ii) any other such Restricted
Subsidiary; PROVIDED that if any such transaction shall be between a
Subsidiary Guarantor and a Restricted Subsidiary not a Subsidiary
Guarantor, and such Subsidiary Guarantor is not the continuing or surviving
corporation, then the continuing or surviving corporation shall have
assumed all of the obligations of such Subsidiary Guarantor hereunder;
(b) any Restricted Subsidiary of the Company may sell, lease,
transfer or otherwise dispose of any or all of its Property (upon voluntary
liquidation or otherwise) to the Company or a Wholly Owned Subsidiary of
the Company which is a Restricted Subsidiary; PROVIDED that if any such
sale is by a Subsidiary Guarantor to a Restricted Subsidiary of the Company
not a Subsidiary Guarantor, then such Restricted Subsidiary shall have
assumed all of the obligations of such Subsidiary Guarantor hereunder; and
(c) the Company or any Restricted Subsidiary of the Company may merge
or consolidate with any other Person if (i) in the case of a merger or
consolidation of the Company, the Company is the surviving corporation and,
in any other case, the surviving corporation is a Wholly Owned Subsidiary
of the Company which is a Restricted Subsidiary and (ii) after giving
effect thereto no Default would exist hereunder.
9.06 LIMITATION ON LIENS. The Company will not, nor will it permit
any of its Restricted Subsidiaries to, create, incur, assume or suffer to exist
any Lien upon any of their Property, whether now owned or hereafter acquired,
except:
(a) Liens created pursuant to the Security Documents;
(b) Liens in existence on the date hereof and listed in Part B of
Schedule I hereto (excluding, however, following the making of the initial
Loans hereunder, Liens securing
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Indebtedness to be repaid with the proceeds of such Loans, if any, indicated
on said Schedule I);
(c) Liens imposed by any governmental authority for taxes,
assessments, charges or levies not yet due or which are being contested in
good faith and by appropriate proceedings if, unless the amount thereof is
not material with respect to it or its financial condition, adequate
reserves with respect thereto are maintained on the books of the Company or
the affected Subsidiaries, as the case may be, in accordance with GAAP;
(d) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business which are
not overdue for a period of more than 45 days or which are being contested
in good faith and by appropriate proceedings and Liens securing judgments
(but only to the extent, for an amount and for a period not resulting in an
Event of Default under Section 10(h) hereof);
(e) pledges or deposits under worker's compensation, unemployment
insurance and other social security or similar legislation;
(f) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety,
stay, appeal and indemnity bonds, performance bonds and other obligations
of a like nature incurred in the ordinary course of business;
(g) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and encumbrances
consisting of zoning restrictions, easements, licenses, restrictions on the
use of Property or minor imperfections in title thereto which, in the
aggregate, are not material in amount, and which do not in any case
materially detract from the value of the Property subject thereto or
interfere with the ordinary conduct of the business of the Company or any
of its Restricted Subsidiaries;
(h) Liens on Property of any corporation which becomes a Restricted
Subsidiary of the Company after the date of this Agreement, PROVIDED that
such Liens are in existence at the time such corporation becomes a
Restricted Subsidiary of the Company and were not created in anticipation
thereof;
(i) Liens upon real and/or tangible personal Property acquired after
the date hereof (by purchase, construction or otherwise) by the Company or
any of its Restricted Subsidiaries, each of which Liens either (A) existed
on such Property before the time of its acquisition and was not created in
anticipation thereof, or (B) was created solely for the purpose of securing
Indebtedness representing, or incurred to finance, refinance or refund, the
cost (including the cost of construction) of such Property; PROVIDED that
(x) no
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such Lien shall extend to or cover any Property of the Company or a
Restricted Subsidiary other than the Property so acquired and improvements
thereon; and (y) the principal amount of Indebtedness secured by any such
Lien shall at no time exceed 80% of the fair market value (as determined in
good faith by a senior financial officer of the Company) of such Property
at the time it was acquired (by purchase, construction or otherwise);
PROVIDED that the obligations of the Company or any Restricted Subsidiary
of the Company in respect of Capital Lease Obligations under a capital
lease of Property other than Hydrocarbon Property entered into in the
ordinary course of business may be secured by a Lien on the Property
subject to such capital lease;
(j) Liens for farm-in, farm-out, joint operating, area of mutual
interest agreements or similar agreements entered into by the Company and
its Restricted Subsidiaries in the ordinary course of business which the
Company or such Restricted Subsidiary determines in good faith to be
necessary for or advantageous to the economic development of their
Properties; PROVIDED any farm-out agreements covering any Mortgaged
Property shall require the prior written consent of the Majority Banks;
(k) additional Liens upon real and/or personal Property created after
the date hereof, PROVIDED that the aggregate Indebtedness secured thereby
and incurred on and after the date hereof shall not exceed $2,500,000 in
the aggregate at any one time outstanding;
(l) Liens created pursuant to any Commodity Hedging Agreement or
Interest Rate Protection Agreement (i) with any Bank or any Affiliate of
such Bank, or (ii) with any other Person, PROVIDED that the aggregate
Indebtedness secured by all such Liens permitted by this clause (ii) shall
not exceed $5,000,000 in the aggregate at any one time outstanding and no
such Liens shall extend to any Mortgaged Properties;
(m) Liens securing obligations of a Restricted Subsidiary of the
Company to the Company or to any Restricted Subsidiary or any obligations
of the Company to a Restricted Subsidiary provided that such Liens are not
(i) on Mortgaged Properties existing on the date hereof or (ii) on
Mortgaged Properties acquired after the date hereof that are not subject to
any Lien prior to the Lien of the Mortgage; and
(n) any extension, renewal or replacement of the foregoing, PROVIDED
that the Liens permitted hereunder shall not be spread to cover any
additional Indebtedness or Property (other than a substitution of like
Property).
9.07 INDEBTEDNESS. (a) The Company will not, and will not permit any
of its Restricted Subsidiaries to, create, incur or suffer to exist any
Indebtedness except:
(i) Indebtedness to the Agent and the Banks hereunder;
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(ii) Indebtedness outstanding on the date hereof and listed in
Part A of Schedule I hereto (excluding, however, following the making of
the initial Loans hereunder, the Indebtedness to be repaid with the
proceeds of such Loans, if any, indicated on said Schedule I);
(iii) Subordinated Indebtedness;
(iv) Indebtedness of Restricted Subsidiaries of the Company to
the Company or to other Restricted Subsidiaries of the Company;
(v) Indebtedness of the Company and its Subsidiaries secured by
Liens permitted by Section 9.06(j) hereof up to but not exceeding $500,000
at any one time outstanding;
(vi) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate amount up to but not exceeding $5,000,000 at
any one time outstanding; and
(vii) Indebtedness ("REFINANCING INDEBTEDNESS") issued in
exchange for or the proceeds of which are used to repay, refund, refinance
or discharge or otherwise retire any Indebtedness ("REFINANCED
INDEBTEDNESS") specified in clause (ii) above, such Refinancing
Indebtedness not to exceed the principal amount of, accelerate the maturity
of, or increase the interest rate applicable to, the Refinanced
Indebtedness outstanding on the date of the issuance of the Refinancing
Indebtedness; provided that the Company and its Restricted Subsidiaries may
not refinance any Production Payment outstanding on the date hereof with
any Production Payment of the Company or any Restricted Subsidiary.
(b) The Company will not permit any of its Unrestricted Subsidiaries
to create, incur or suffer to exist any Indebtedness except Non-Recourse Debt.
9.08 INVESTMENTS. The Company will not, and will not permit any of
its Restricted Subsidiaries to, make or permit to remain outstanding any
Investments except:
(a) Investments outstanding on the date hereof and identified in
Schedule III Part B hereto (excluding Investments in Unrestricted
Subsidiaries);
(b) operating deposit accounts with banks;
(c) Permitted Investments;
(d) Investments by the Company and its Restricted Subsidiaries in
capital stock of Restricted Subsidiaries to the extent outstanding on the
date of the financial statements
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of the Company and its Consolidated Subsidiaries referred to in Section
8.02 hereof and advances by the Company and its Restricted Subsidiaries
to Restricted Subsidiaries of the Company in the ordinary course of business
or pursuant to Section 6.08 hereof;
(e) Investments in the Capital Stock of any Wholly-Owned Subsidiary
of the Company formed or acquired by the Company or any of its other
Wholly-Owned Subsidiaries (other than Unrestricted Subsidiaries, 3189503,
Canadian Forest Oil and Funding Co.) after the date hereof (a "NEW WHOLLY-
OWNED SUBSIDIARY"), provided that (i) such New Wholly-Owned Subsidiary is
maintained as a separate Subsidiary of the Company (unless the Majority
Banks consent to the merger of such New Wholly-Owned Subsidiary into the
Company or into another Wholly-Owned Subsidiary of the Company, except that
no such consent shall be required to merge such New Wholly-Owned Subsidiary
into another Wholly-Owned Subsidiary of the Company established solely for
the purpose of facilitating the acquisition of such New Wholly-Owned
Subsidiary (which Wholly-Owned Subsidiary, following such merger, shall
have no assets other than the assets of such New Wholly-Owned Subsidiary)),
(ii) such New Wholly-Owned Subsidiary is engaged principally in the
business of the acquisition and exploitation of, exploration for and/or
development, production, processing, marketing, gathering and sales of oil,
gas or other hydrocarbons, (iii) immediately following the consummation of
each such Investment, such New Wholly-Owned Subsidiary shall have no
Indebtedness other than Non-Recourse Debt (provided such Indebtedness may
have full recourse to the assets of such Wholly-Owned Subsidiary or any
Unrestricted Subsidiary) and, if applicable, Indebtedness hereunder and
(iv) the Company complies with Section 9.16 hereof with respect to such New
Wholly-Owned Subsidiary immediately following the consummation of such
Investment by the Company;
(f) Commodity Hedging Agreements and Interest Rate Protection
Agreements entered into by the Company and its Restricted Subsidiaries in
the ordinary course of business substantially as conducted on the date
hereof and not for speculation purposes;
(g) additional Investments up to but not exceeding $30,000,000 (or
the equivalent) in the aggregate PLUS the net cash proceeds of any Equity
Issuance which is applied simultaneously or substantially simultaneously
for an Investment, including, without limitation, Investments in
Unrestricted Subsidiaries; PROVIDED that any cash dividends received by the
Company or any Restricted Subsidiary from an Unrestricted Subsidiary, up to
the amount of the Investments in such Unrestricted Subsidiary, shall reduce
PRO TANTO the aggregate amount of the Investments in such Unrestricted
Subsidiary for purposes of calculating compliance with such $30,000,000
limitation; and
(h) undivided fractional interests in hydrocarbon reserves.
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9.09 DIVIDEND PAYMENTS. The Company will not, nor will it permit any
of its Restricted Subsidiaries to, declare or make any Dividend Payment at any
time; PROVIDED that (i) any Wholly-Owned Subsidiaries of the Company may declare
and make Dividend Payments to the Company and (ii) the Company or any Restricted
Subsidiary may declare and make Dividend Payments in cash, subject to the
satisfaction of each of the following conditions on the date of such Dividend
Payment and after giving effect thereto:
(i) no Default shall have occurred and be continuing or shall occur
as a result of the making of such Dividend Payment; and
(ii) immediately after giving effect to such Dividend Payment, the
aggregate amount of Dividend Payments made during the period commencing on
the date hereof through and including the date of such Dividend Payment
shall not exceed an amount equal to the sum of (A) 50% of consolidated net
income of the Company and its Consolidated Subsidiaries for the period
commencing on January 1, 1997 through and including the last day of the
fiscal quarter most recently ended prior to the date of such Dividend
Payment (the "TRACKING PERIOD") (treated for these purposes as a single
accounting period), or 100% of consolidated net losses of the Company and
its Consolidated Subsidiaries for the Tracking Period (treated for these
purposes as a single accounting period), PLUS 50% of the net cash proceeds
received by the Company during the Tracking Period from any Person other
than a Subsidiary of the Company as a result of the issuance or sale of
Capital Stock (other than Disqualified Capital Stock) of the Company
(reduced by 100% of the amount of such net cash proceeds used or intended
to be used to prepay, redeem or retire any Subordinated Indebtedness
pursuant to Section 9.17 hereof); PROVIDED that no more than 10% of such
net cash proceeds may be used to make any Dividend Payment during any
fiscal year of the Company and (B) $10,000,000; provided that in no event
will the amount determined pursuant to clause (A) hereof be less than zero.
For the purpose of this paragraph 9.09(ii), consolidated net income or loss
of the Company and its Consolidated Subsidiaries shall exclude the
following non-cash items (provided that the same shall be included when
they become cash items): (i) any impairment of Properties for accounting
purposes under a ceiling test adjustment, (ii) any extraordinary item or
(iii) any gain or loss attributable to a change in accounting method which,
at the time of recognition in the financial statements of the Company and
its Restricted Subsidiaries is not a cash item. To the extent future cash
payments are made or received with respect to a change in accounting method
and such payment is not otherwise included in the computation of
consolidated net income or loss for such period, consolidated net income or
loss shall be reduced or increased by the amount of such cash payment or
receipt.
9.10 INTEREST COVERAGE RATIO. The Company will not permit the
Interest Coverage Ratio for any period of four complete consecutive fiscal
quarters (treated for this
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purpose as a single accounting period) following March 31, 1996, to be less
than 2.0 to 1.0 as of the end of any fiscal quarter of the Company.
9.11 WORKING CAPITAL. The Company will not permit the current assets
of the Company and its Restricted Subsidiaries (determined on a consolidated
basis in accordance with GAAP) to be equal to or less than the current
liabilities of the Company and its Restricted Subsidiaries (so determined). For
purposes hereof, the terms "CURRENT ASSETS" and "CURRENT LIABILITIES" shall have
the respective meanings assigned to them by GAAP, PROVIDED that in any event
there shall be (i) included in current assets the aggregate amount of the unused
Commitments (but only to the extent such unused Commitments could then be
utilized as provided in Section 7.02 hereof), (ii) excluded from current
liabilities all Indebtedness hereunder, (iii) excluded from current liabilities
all Production Payments and (iv) excluded from current liabilities the current
portion of any gas balancing liabilities.
9.12 LINES OF BUSINESS. The Company will not, and will not permit
any of its Restricted Subsidiaries to, engage to any substantial extent in any
line or lines of business activity other than the business of the acquisition,
exploration, development, production, processing, marketing, gathering and sale
of hydrocarbons.
9.13 TRANSACTIONS WITH AFFILIATES. Except as expressly permitted by
this Agreement, the Company will not, and will not permit any Restricted
Subsidiaries to, directly or indirectly: (a) make any Investment in an
Affiliate; (b) transfer, sell, lease, assign or otherwise dispose of any
Property to an Affiliate; (c) merge into or consolidate with or purchase or
acquire Property from an Affiliate; or (d) enter into any other transaction
directly or indirectly with or for the benefit of an Affiliate (including,
without limitation, guarantees and assumptions of obligations of an Affiliate);
PROVIDED that (x) any Affiliate who is an individual may serve as a director,
officer or employee of any of the Company and its Subsidiaries and receive
reasonable compensation for his or her services in such capacity and (y) any of
the Company and its Restricted Subsidiaries may enter into transactions with
Affiliates (other than extensions of credit to Affiliates) providing for the
leasing of Property, the rendering or receipt of services or the purchase or
sale of inventory and other Property in the ordinary course of business if the
monetary or business consideration arising therefrom would be substantially as
advantageous to the Company and its Restricted Subsidiaries as the monetary or
business consideration which would obtain in a comparable transaction with a
Person not an Affiliate.
9.14 USE OF PROCEEDS. The Company will use the proceeds of the Loans
hereunder and will use Letters of Credit issued hereunder solely for general
corporate purposes (in compliance with all applicable legal and regulatory
requirements); PROVIDED that neither the Agent nor any Bank shall have any
responsibility as to the use of any of such proceeds.
9.15 CERTAIN OBLIGATIONS RESPECTING SUBSIDIARIES. The Company will,
and will cause each of its Restricted Subsidiaries to, take such action from
time to time as shall be
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necessary to ensure that the Company and each of its Restricted Subsidiaries
at all times own (subject only to the Lien of the Pledge Agreement) at least
the same percentage of the issued and outstanding shares of each class of
stock of each of such Restricted Subsidiaries the stock of which is subject
to the Lien of the Pledge Agreement as is owned on the date hereof or, in the
case of New Wholly-Owned Subsidiaries created or acquired after the date
hereof (other than Funding Co., 3189503, Canadian Forest Oil, and any
Wholly-Owned Subsidiaries of such Persons), the stock of which are required
to be subject to the Lien of the Pledge Agreement, 100% of each class of
stock of each of such Subsidiaries (each of the Subsidiaries referred to
above being herein called, a "PLEDGED SUBSIDIARY"). Without limiting the
generality of the foregoing, none of the Company and its Restricted
Subsidiaries will sell, transfer or otherwise dispose of any shares of stock
in any Pledged Subsidiary owned by it, nor permit any Pledged Subsidiary to
issue any shares of stock of any class whatsoever to any Person (other than
to the Company or another Obligor). In the event that any such additional
shares of stock are issued by any Pledged Subsidiary, the respective Obligor
agrees forthwith to deliver to the Agent pursuant to the Pledge Agreement the
certificates evidencing such shares of stock, accompanied by undated stock
powers executed in blank and shall take such other action as the Agent shall
request to perfect the security interest created therein pursuant to the
Pledge Agreement. The Company will not and will not permit any of its
Restricted Subsidiaries to enter into any indenture, agreement, instrument or
other arrangement (other than the Indenture included in the Senior
Subordinated Debt Documents as initially in effect, the Funding Credit
Agreement as initially in effect and the other Loan Documents (as defined
therein) and the Canadian Forest Oil Credit Agreement as initially in effect
and the other Loan Documents (as defined therein)) that, directly or
indirectly, prohibits or restrains, or has the effect of prohibiting or
restraining, or imposes materially adverse conditions upon, the incurrence or
payment of Indebtedness of the Company and its Restricted Subsidiaries, the
granting of Liens, the declaration or payment of dividends, the making of
loans, advances or Investments or the sale, assignment, transfer or other
disposition of Property.
9.16 ADDITIONAL SUBSIDIARY GUARANTORS. The Company will take such
action, and will cause each of its Subsidiaries to take such action, including
without limitation the action specified below in this Section 9.16 from time to
time as shall be necessary to ensure that (i) each of such Subsidiaries (other
than (i) Unrestricted Subsidiaries, (ii) Forest I Development Company, (iii)
Funding Co., (iv) 3189503, (v) Canadian Forest Oil, and (vi) any Wholly-Owned
Subsidiaries of the Persons set forth in clauses (iii) through (v)) with
Tangible Net Worth of more than 5% of the Tangible Net Worth of the Company and
its Consolidated Subsidiaries determined on a consolidated basis in accordance
with GAAP is a Subsidiary Guarantor hereunder and (ii) all Subsidiaries that
Guarantee the Company's obligations in respect of the Senior Subordinated
Indebtedness, other than Funding Co., are Subsidiary Guarantors and in each
case, thereby, "OBLIGORS" hereunder. Each Subsidiary of the Company that is
required to become a Subsidiary Guarantor after the date hereof shall execute
such instruments and agreements, in form and substance satisfactory to, and as
required by, the Agent to acknowledge
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that such Subsidiary has all of the obligations of a Subsidiary Guarantor
pursuant to this Agreement.
9.17 MODIFICATIONS AND PAYMENTS OF SUBORDINATED INDEBTEDNESS AND
PRODUCTION PAYMENTS INDEBTEDNESS. The Company will not, and will not permit any
of its Restricted Subsidiaries to, (a) agree to any amendment, supplement or
other modification of any of the Senior Subordinated Debt Documents or any other
documents providing for or evidencing any Subordinated Indebtedness or
Production Payments or (b) pay, prepay, redeem, retire, purchase or otherwise
acquire for value, or defease, any Subordinated Indebtedness or Production
Payments except for (subject to the subordination provisions, if applicable,
relating thereto) regularly scheduled payments of principal thereof and interest
thereon or regularly scheduled redemptions thereof on the respective dates on
which such payments or redemptions are required to be made; PROVIDED that the
Company may (if no Default has occurred and is continuing or will result
therefrom) (i) apply the net cash proceeds received by the Company from any
Person other than a Subsidiary of the Company as a result of an Equity Issuance
to prepay, redeem or retire any Subordinated Indebtedness or Production
Payments; and (ii) refinance such Senior Subordinated Debt provided that (w) the
subordination for such Indebtedness remain unchanged; (x) the interest rate
applicable to such Indebtedness is not increased; (y) the final maturity of such
Indebtedness is not accelerated and (z) the covenants and other provisions
thereof are not modified in any respect determined by the Majority Banks to be
materially adverse to the Company, any such Restricted Subsidiary or the Banks.
9.18 MORTGAGES. (a) The Company will file or cause to be delivered
to the Agent not later than 30 days following the date hereof, Mortgages over
the Company's interest in the Hydrocarbon Properties of the Loma Vieja field in
Texas.
(b) The Company will at the time each Reserve Evaluation Report is
delivered cause the Mortgaged Properties to constitute not less than 80% of the
Hydrocarbon Properties PROVIDED THAT, if such Mortgage Properties constitute
less than 80% of the Hydrocarbon Properties, the Company will within 30 days of
the date of delivery to the Agent of such Reserve Evaluation Report cause the
Mortgaged Properties to constitute not less than 80% of the Hydrocarbon
Properties.
9.19 UNRESTRICTED SUBSIDIARIES. The Company:
(a) will cause the management, business and affairs of each of the
Company and its Subsidiaries to be conducted in such a manner (including,
without limitation, by keeping separate books of account, furnishing separate
financial statements of Unrestricted Subsidiaries to creditors and potential
creditors thereof and by not permitting Properties of the Company and its
respective Subsidiaries to be commingled) so that each Unrestricted Subsidiary
that is a corporation will be treated as a corporate entity separate and
distinct from the Company and the Restricted Subsidiaries;
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(b) will not, and will not permit any of the Restricted Subsidiaries
to, incur, assume, Guarantee or be or become liable for any Indebtedness or
other obligations of any of the Unrestricted Subsidiaries; and
(c) will not permit any Unrestricted Subsidiary to hold any capital
stock of or other ownership interest in, or any Indebtedness of, any Restricted
Subsidiary.
9.20 PLEDGES. The Company anticipates acquiring certain pipeline
assets in the Republic of Italy. Promptly upon acquiring such assets the
Company shall pledge pursuant to a pledge agreement in the form of Exhibit F
hereto, all the stock of any US Subsidiary which owns directly or indirectly all
or any portion of such assets.
Section 10. EVENTS OF DEFAULT. If one or more of the following
events (herein called "EVENTS OF DEFAULT") shall occur and be continuing:
(a) The Company shall default in the payment when due (whether at
stated maturity or upon mandatory or optional prepayment) of any principal
of or interest on any Loan or any Reimbursement Obligation, any fee or any
other amount payable by it hereunder or under any other Basic Document; or
(b) The Company or any of its Restricted Subsidiaries shall default
in the payment when due of any principal of or interest on any of its other
Indebtedness aggregating $500,000 or more, or in the payment when due of
$100,000 or more under any Interest Rate Protection Agreement or Commodity
Hedging Agreement; or any event specified in any note, agreement, indenture
or other document evidencing or relating to any such Indebtedness or any
event specified in any Interest Rate Protection Agreement or Commodity
Hedging Agreement shall occur if the effect of such event is to cause, or
(with the giving of any notice or the lapse of time or both) to permit the
holder or holders of such Indebtedness (or a trustee or agent on behalf of
such holder or holders) to cause, such Indebtedness to become due, or to be
prepaid in full (whether by redemption, purchase, offer to purchase or
otherwise), prior to its stated maturity or to have the interest rate
thereon reset to a level so that securities evidencing such Indebtedness
trade at a level specified in relation to the par value thereof or, in the
case of an Interest Rate Protection Agreement or Commodity Hedging
Agreement, to permit the payments owing under such Interest Rate Protection
Agreement or Commodity Hedging Agreement to be liquidated;
(c) Any representation, warranty or certification made or deemed made
herein or in any other Basic Document (or in any modification or supplement
hereto or thereto) by any Obligor, or any certificate furnished to any Bank
or the Agent pursuant to the provisions hereof or thereof, shall prove to
have been false or misleading as of the time made or furnished in any
material respect; or
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(d) The Company shall default in the performance of any of its
obligations under any of Sections 9.01(g), 9.05, 9.06, 9.07, 9.08, 9.09,
9.10, 9.11, 9.12, 9.14, 9.15, 9.17 or 9.18 hereof or any Obligor shall
default in the performance of any of its obligations under Section 4.02
or 5.02 of the Security Agreement; or any Obligor shall default in the
performance of any of its other obligations in this Agreement or any other
Basic Document and such default shall continue unremedied for a period of
30 days after notice thereof to the Company by the Agent or any Bank
(through the Agent); or
(e) The Company or any of its Restricted Subsidiaries shall admit in
writing its inability to, or be generally unable to, pay its debts as such
debts become due; or
(f) The Company or any of its Restricted Subsidiaries shall (i) apply
for or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee, examiner or liquidator of itself or of all or
a substantial part of its Property, (ii) make a general assignment for the
benefit of its creditors, (iii) commence a voluntary case under the
Bankruptcy Code, (iv) file a petition seeking to take advantage of any
other law relating to bankruptcy, insolvency, reorganization, liquidation,
dissolution, arrangement or winding-up, or composition or readjustment of
debts, (v) fail to controvert in a timely and appropriate manner, or
acquiesce in writing to, any petition filed against it in an involuntary
case under the Bankruptcy Code or (vi) take any corporate action for the
purpose of effecting any of the foregoing; or
(g) A proceeding or case shall be commenced, without the application
or consent of the Company or any of its Restricted Subsidiaries, in any
court of competent jurisdiction, seeking (i) its reorganization,
liquidation, dissolution, arrangement or winding-up, or the composition or
readjustment of its debts, (ii) the appointment of a receiver, custodian,
trustee, examiner, liquidator or the like of the Company or such Restricted
Subsidiary or of all or any substantial part of its Property, or
(iii) similar relief in respect of the Company or such Restricted
Subsidiary under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts, and such
proceeding or case shall continue undismissed, or an order, judgment or
decree approving or ordering any of the foregoing shall be entered and
continue unstayed and in effect, for a period of 60 or more days; or an
order for relief against the Company or such Restricted Subsidiary shall be
entered in an involuntary case under the Bankruptcy Code; or
(h) A final judgment or judgments for the payment of money in excess
of $1,000,000 in the aggregate (exclusive of judgment amounts fully covered
by insurance where the insurer(s) has or have admitted liability in respect
of the full amount of such judgment(s) in excess of $1,000,000 and in
respect of which the Majority Banks believe such insurer(s) has or have the
financial ability to satisfy the full amount of such judgment(s)) shall be
rendered by a one or more courts, administrative tribunals or other
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bodies having jurisdiction against the Company or any of its Restricted
Subsidiaries and the same shall not be discharged (or provision shall not
be made for such discharge), or a stay of execution thereof shall not be
procured, within 60 days from the date of entry thereof and the Company or
the relevant Restricted Subsidiary shall not, within said period of 60
days, or such longer period during which execution of the same shall have
been stayed, appeal therefrom and cause the execution thereof to be stayed
during such appeal; or
(i) An event or condition specified in Section 9.01(e) hereof shall
occur or exist with respect to any Plan or Multiemployer Plan and, as a
result of such event or condition, together with all other such events or
conditions, the Company or any ERISA Affiliate shall incur or in the
opinion of the Majority Banks shall be reasonably likely to incur a
liability to a Plan, a Multiemployer Plan or PBGC (or any combination of
the foregoing) which would constitute, in the determination of the Majority
Banks, a Material Adverse Effect; or
(j) Any Governmental Authority shall assert claims against the
Company or any of its Subsidiaries, or any other Person shall commence any
proceeding against the Company or any of its Subsidiaries before any court,
administrative tribunal or other body having jurisdiction over the Company
or any of its Subsidiaries, in either such case based on or arising from
the generation, storage, transport, handling or disposal of Hazardous
Materials by the Company or any of its Subsidiaries or Affiliates, or any
predecessor in interest of the Company or any of its Subsidiaries or
Affiliates, or relating to any site or facility owned, operated or leased
by the Company or any of its Subsidiaries or Affiliates, which claims or
liabilities (insofar as they are payable by the Company or any of its
Subsidiaries but after deducting any portion thereof which is reasonably
expected to be paid by other creditworthy Persons jointly and severally
liable therefor), and the amount thereof is, singly or in the aggregate,
reasonably anticipated to have a Material Adverse Effect and such claim is
not withdrawn or such proceeding is not withdrawn or dismissed, as the case
may be, within 45 days after the assertion or commencement thereof, as
applicable; or
(k) A Change of Control; or
(l) Except for expiration in accordance with its terms, any of the
Security Documents shall be terminated or shall cease to be in full force
and effect, for whatever reason;
THEREUPON: (1) in the case of an Event of Default other than one referred to in
clause (f) or (g) of this Section 10 with respect to any Obligor, the Agent may
and, upon request of the Majority Banks, shall, by notice to the Company,
terminate the Commitments and/or declare the principal amount then outstanding
of, and the accrued interest on, the Loans, the Reimbursement
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Obligations and all other amounts payable by the Obligors hereunder and under
the Notes (including, without limitation, any amounts payable under Section
5.05 or 5.06 hereof) to be forthwith due and payable, whereupon such amounts
shall be immediately due and payable without presentment, demand, protest or
other formalities of any kind, all of which are hereby expressly waived by
each Obligor; and (2) in the case of the occurrence of an Event of Default
referred to in clause (f) or (g) of this Section 10 with respect to any
Obligor, the Commitments shall automatically be terminated and the principal
amount then outstanding of, and the accrued interest on, the Loans, the
Reimbursement Obligations and all other amounts payable by the Obligors
hereunder and under the Notes (including, without limitation, any amounts
payable under Section 5.05 or 5.06 hereof) shall automatically become
immediately due and payable without presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by each
Obligor.
In addition, upon the occurrence and during the continuance of any
Event of Default (if the Agent has declared the principal amount then
outstanding of, and accrued interest on, the Loans and all other amounts payable
by the Company hereunder and under the Notes to be due and payable), the Company
agrees that it shall, if requested by the Agent or the Majority Banks through
the Agent (and, in the case of any Event of Default referred to in clause (f)
or (g) of this Section 10 with respect to the Company, forthwith, without any
demand or the taking of any other action by the Agent or such Banks) provide
cover for the Letter of Credit Liabilities by paying to the Agent immediately
available funds in an amount equal to the then aggregate undrawn face amount of
all Letters of Credit, which funds shall be held by the Agent in the Collateral
Account as collateral security in the first instance for the Letter of Credit
Liabilities and be subject to withdrawal only as therein provided.
Section 11. THE AGENT.
11.01 APPOINTMENT, POWERS AND IMMUNITIES. Each Bank hereby
irrevocably appoints and authorizes the Agent to act as its agent hereunder and
under the other Basic Documents with such powers as are specifically delegated
to the Agent by the terms of this Agreement and of the other Basic Documents,
together with such other powers as are reasonably incidental thereto. The Agent
(which term as used in this sentence and in Section 11.05 and the first sentence
of Section 11.06 hereof shall include reference to its affiliates and its own
and its affiliates' officers, directors, employees and agents): (a) shall have
no duties or responsibilities except those expressly set forth in this Agreement
and in the other Basic Documents, and shall not by reason of this Agreement or
any other Basic Document be a trustee for any Bank; (b) shall not be responsible
to the Banks for any recitals, statements, representations or warranties
contained in this Agreement or in any other Basic Document, or in any
certificate or other document referred to or provided for in, or received by any
of them under, this Agreement or any other Basic Document, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of any
collateral security provided for by any of the Security Documents, or of this
Agreement, any Note or any other Basic Document or any other document referred
to or
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provided for herein or therein, or for any failure by the Company or any
other Person to perform any of its obligations hereunder or thereunder; (c)
shall not be required to initiate or conduct any litigation or collection
proceedings hereunder or under any other Basic Document; and (d) shall not be
responsible for any action taken or omitted to be taken by it hereunder or
under any other Basic Document or under any other document or instrument
referred to or provided for herein or therein or in connection herewith or
therewith, except for its own gross negligence or willful misconduct. The
Agent may employ agents and attorneys-in-fact and shall not be responsible
for the negligence or misconduct of any such agents or attorneys-in-fact
selected by it in good faith. The Agent may deem and treat the payee of any
Note as the holder thereof for all purposes hereof unless and until a notice
of the assignment or transfer thereof shall have been filed with the Agent,
together with the consent of the Company to such assignment or transfer (to
the extent provided in Section 12.06(b) hereof).
11.02 RELIANCE BY AGENT. The Agent shall be entitled to rely upon
any certification, notice or other communication (including, without limitation,
any thereof by telephone, telecopy, telex, telegram or cable) believed by it to
be genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Agent. As to any
matters not expressly provided for by this Agreement or any other Basic
Document, the Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder or thereunder in accordance with instructions
given by the Majority Banks, and such instructions of the Majority Banks and any
action taken or failure to act pursuant thereto shall be binding on all of the
Banks.
11.03 DEFAULTS. The Agent shall not be deemed to have knowledge or
notice of the occurrence of a Default (other than the non-payment of principal
of or interest on Loans, Reimbursement Obligations or of commitment fees) unless
the Agent has received notice from a Bank or the Company specifying such Default
and stating that such notice is a "Notice of Default". In the event that the
Agent receives such a notice of the occurrence of a Default, the Agent shall
give prompt notice thereof to the Banks (and shall give each Bank prompt notice
of each such non-payment). The Agent shall (subject to Section 11.07 hereof)
take such action with respect to such Default as shall be directed by the
Majority Banks, PROVIDED that, unless and until the Agent shall have received
such directions, the Agent may (but shall not be obligated to) take such action,
or refrain from taking such action, with respect to such Default as it shall
deem advisable in the best interest of the Banks except to the extent that this
Agreement expressly requires that such action be taken, or not be taken, only
with the consent or upon the authorization of the Majority Banks or all of the
Banks.
11.04 RIGHTS AS A BANK. With respect to its Commitment and the Loans
made by it, Chase (and any successor acting as Agent) in its capacity as a Bank
hereunder shall have the same rights and powers hereunder as any other Bank and
may exercise the same as though it were not acting as the Agent, and the term
"Bank" or "Banks" shall, unless the context otherwise
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indicates, include the Agent in its individual capacity. Chase (and any
successor acting as Agent) and its affiliates may (without having to account
therefor to any Bank) accept deposits from, lend money to, make investments
in and generally engage in any kind of banking, trust or other business with
the Obligors (and any of their Subsidiaries or Affiliates) as if it were not
acting as the Agent, and Chase and its affiliates may accept fees and other
consideration from the Obligors for services in connection with this
Agreement or otherwise without having to account for the same to the Banks.
11.05 INDEMNIFICATION. The Banks agree to indemnify the Agent (to
the extent not reimbursed under Sections 12.03 and 12.07 hereof, but without
limiting the obligations of the Company under said Sections 12.03 and 12.07, and
including in any event any payments under any indemnity that the Agent is
required to issue to any bank referred to in Section 4.02 of the Security
Agreement to which remittances in respect of Accounts, as defined therein, are
to be made) ratably in accordance with the aggregate principal amount of the
Loans and Reimbursement Obligations held by the Banks (or, if no Loans or
Reimbursement Obligations are at the time outstanding, ratably in accordance
with their respective Commitments or, if no Loans, Reimbursement Obligations or
Commitments are at the time outstanding or in effect, ratably in accordance with
their respective Commitments as most recently in effect), for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind and nature whatsoever that may be
imposed on, incurred by or asserted against the Agent (including by any Bank)
arising out of or by reason of any investigation in or in any way relating to or
arising out of this Agreement or any other Basic Document or any other documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby (including, without limitation, the costs and
expenses that the Company is obligated to pay under Sections 12.03 and 12.07
hereof, and including also any payments under any indemnity that the Agent is
required to issue to any bank referred to in Section 4.02 of the Security
Agreement to which remittances in respect of Accounts, as defined therein, are
to be made, but excluding, unless a Default has occurred and is continuing,
normal administrative costs and expenses incident to the performance of its
agency duties hereunder) or the enforcement of any of the terms hereof or
thereof or of any such other documents, PROVIDED that no Bank shall be liable
for any of the foregoing to the extent they arise from the gross negligence or
willful misconduct of the party to be indemnified.
11.06 NON-RELIANCE ON AGENT AND OTHER BANKS. Each Bank agrees that
it has, independently and without reliance on the Agent or any other Bank, and
based on such documents and information as it has deemed appropriate, made its
own credit analysis of the Company and its Subsidiaries and decision to enter
into this Agreement and that it will, independently and without reliance upon
the Agent or any other Bank, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under this Agreement. The Agent shall
not be required to keep itself informed as to the performance or observance by
any Obligor of this Agreement or any of the other Basic Documents or any other
document referred to or provided
<PAGE>
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for herein or therein or to inspect the Properties or books of the Company or
any of its Subsidiaries. Except for notices, reports and other documents and
information expressly required to be furnished to the Banks by the Agent
hereunder, the Agent shall not have any duty or responsibility to provide any
Bank with any credit or other information concerning the affairs, financial
condition or business of the Company or any of its Subsidiaries (or any of
their Affiliates) that may come into the possession of the Agent or any of
its affiliates.
11.07 FAILURE TO ACT. Except for action expressly required of the
Agent hereunder and under the other Basic Documents, the Agent shall in all
cases be fully justified in failing or refusing to act hereunder and thereunder
unless it shall receive further assurances to its satisfaction from the Banks of
their indemnification obligations under Section 11.05 hereof against any and all
liability and expense that may be incurred by it by reason of taking or
continuing to take any such action.
11.08 RESIGNATION OR REMOVAL OF AGENT. Subject to the appointment
and acceptance of a successor Agent as provided below, the Agent may resign at
any time by giving notice thereof to the Banks and the Company, and the Agent
may be removed at any time with or without cause by the Majority Banks. Upon
any such resignation or removal, the Majority Banks shall have the right to
appoint a successor Agent. If no successor Agent shall have been so appointed
by the Majority Banks and shall have accepted such appointment within 30 days
after the retiring Agent's giving of notice of resignation or the Majority
Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of
the Banks, appoint a successor Agent, that shall be a bank which has an office
in New York, New York with a combined capital and surplus of at least
$1,000,000,000. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation or removal hereunder as
Agent, the provisions of this Section 11 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as the Agent.
11.09 CONSENTS UNDER OTHER BASIC DOCUMENTS. The Agent may, with the
prior consent of the Majority Banks (but not otherwise), consent to any
modification, supplement or waiver under any of the Basic Documents other than
this Agreement, PROVIDED that, without the prior consent of each Bank, the Agent
shall not (except as provided herein or in the Security Documents) release any
collateral or otherwise terminate any Lien under any Basic Document providing
for collateral security, or agree to additional obligations being secured by
such collateral security (unless the Lien for such additional obligations shall
be junior to the Lien in favor of the other obligations secured by such Basic
Document), except that no such consent shall be required, and the Agent is
hereby authorized, to release any Lien covering Property which is the subject of
a disposition of Property permitted hereunder.
<PAGE>
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Notwithstanding any provision of this Agreement to the contrary, the
Agent shall, in connection with any disposition by an Obligor of any Properties,
other than Mortgaged Properties, to the extent such Properties are disposed of
in accordance with the limitations set forth in Section 9.05(iii) hereof,
release such Properties from the Lien of each of the Security Documents, without
the consent of any Bank, upon the receipt by the Agent of a certificate from the
Obligor seeking such release which certificate shall state (i) that no Default
or Event of Default has occurred and is continuing and (ii) that the disposition
of such Property in the manner contemplated by such Obligor is permitted
pursuant to the terms of this Agreement provided that such release shall not
extend to (A) any equipment located on, proceeds from sale of, or production of
hydrocarbons from, such Hydrocarbon Properties that are retained by the Company
after any farmout or similar agreement and (B) any Inventory or Equipment (as
defined in the Security Agreement) that is the subject of such farmout or
similar agreement (the "FARMOUT INTEREST") and that is or may be utilized for
the exploration, production or marketing of Hydrocarbons attributable to (x) the
Farmout Interest and (y) other properties of the Company that are (i) Mortgaged
Properties or (ii) described in the Security Documents and intended to be
Mortgaged Properties.
11.10 COLLATERAL SUB-AGENTS. Each Bank by its execution and delivery
of this Agreement agrees, as contemplated by Section 4.03 of the Security
Agreement, that, in the event it shall hold any Permitted Investments referred
to therein, such Permitted Investments shall be held in the name and under the
control of such Bank, and such Bank shall hold such Permitted Investments as a
collateral sub-agent for the Agent thereunder. The Company by its execution and
delivery of this Agreement hereby consents to the foregoing.
Section 12. MISCELLANEOUS.
12.01 WAIVER. No failure on the part of the Agent or any Bank to
exercise and no delay in exercising, and no course of dealing with respect to,
any right, power or privilege under this Agreement or any Note shall operate as
a waiver thereof, nor shall any single or partial exercise of any right, power
or privilege under this Agreement or any Note preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
12.02 NOTICES. All notices, requests and other communications
provided for herein and under the Security Documents (including, without
limitation, any modifications of, or waivers or consents under, this Agreement)
shall be given or made by telecopy or other writing and telecopied, mailed or
delivered to the intended recipient:
(a) in the case of the Company or any Subsidiary Guarantor, at the
"Address for Notices" specified below the name of the Company on the
signature pages hereof;
<PAGE>
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(b) in the case of the Agent, at the "Address for Notices" specified
below its name on the signature pages hereof; and
(c) in the case of any Bank, at its address (or telecopy number) set
forth in its Administrative Questionnaire;
or, as to any party, at such other address as shall be designated by such party
in a notice to the Company and the Agent given in accordance with this
Section 12.02. Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when transmitted by
telecopier (and receipt is electronically confirmed), personally delivered or,
in the case of a mailed notice, upon receipt, in each case given or addressed as
aforesaid.
12.03 EXPENSES. The Company hereby agrees to pay or reimburse each
of the Banks and the Agent for paying: (a) all reasonable out-of-pocket costs
and expenses of the Agent (including, without limitation, the reasonable fees
and expenses of (i) Milbank, Tweed, Hadley & McCloy, special New York counsel to
Chase and (ii) each of the special counsel to the Banks set forth in Section
7.01(j) hereof), in connection with (i) the negotiation, preparation, execution
and delivery of this Agreement and the other Basic Documents and the extensions
of credit hereunder and (ii) any modification, supplement or waiver of any of
the terms of this Agreement or any of the other Basic Documents; (b) all
reasonable out-of-pocket costs and expenses of the Banks and the Agent
(including, without limitation, reasonable counsels' fees) in connection with
(i) any Default and any enforcement or collection proceedings resulting
therefrom or in connection with the negotiation of any restructuring or
"work-out" (whether or not consummated), or the obligations of the Company
hereunder and (ii) the enforcement of this Section 12.03 or Section 12.07; and
(c) all transfer, stamp, documentary or other similar taxes, assessments or
charges levied by any governmental or revenue authority in respect of this
Agreement or any of the other Basic Documents or any other document referred to
herein or therein and all costs, expenses, taxes, assessments and other charges
incurred in connection with any filing, registration, recording or perfection of
any security interest contemplated by any Basic Document or any other document
referred to therein.
12.04 AMENDMENTS, ETC. Except as otherwise expressly provided in
this Agreement, any provision of this Agreement may be modified or supplemented
only by an instrument in writing signed by the Obligors, the Agent and the
Majority Banks, or by the Obligors and the Agent acting with the consent of the
Majority Banks, and any provision of this Agreement may be waived by the
Majority Banks or by the Agent acting with the consent of the Majority Banks;
PROVIDED that: no modification, supplement or waiver shall, unless by an
instrument signed by all of the Banks or by the Agent acting with the consent of
all of the Banks whose rights or interests are affected thereby: (i) increase,
or extend the term of any of the Commitments, or extend the time or waive any
requirement for the reduction or termination of any of the Commitments,
(ii) extend the date fixed for the payment of principal of or interest on the
Loans, the Reimbursement Obligations or any fee hereunder, (iii) reduce the
amount of any
<PAGE>
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such payment of principal, (iv) reduce the rate at which interest is payable
thereon or any fee is payable hereunder, (v) alter the rights or obligations
of the Company to prepay Loans, (vi) alter the terms of this Section 12.04 or
(vii) modify the definition of the term "Majority Banks" or modify in any
other manner the number or percentage of the Banks required to make any
determinations or waive any rights hereunder or to modify any provision
hereof, any modification or supplement of this Agreement that increases any
of the obligations or reduces or impairs any of the rights of, or otherwise
adversely affects the interests of, the Agent or the Issuing Bank under this
Agreement or any of the other Basic Documents shall require the consent of
the Agent or the Issuing Bank (as the case may be).
Anything in this Agreement to the contrary notwithstanding, if:
(x) at a time when the conditions precedent set forth in Section 7
hereof to any Loans or other extension of credit hereunder are, in the
opinion of the Majority Banks satisfied, any Bank shall fail to fulfill its
obligations to make the Loan to be made by it; or
(y) any Bank shall fail to pay to the Agent for the account of the
Issuing Bank the amount of such Bank's Commitment Percentage of the
Commitments of any payment under a Letter of Credit pursuant to Section
2.04(e) hereof;
then, for so long as such failure shall continue, such Bank shall (unless the
Majority Banks, determined as if such Bank were not a "Bank" hereunder, shall
otherwise consent in writing) be deemed for all purposes relating to amendments,
modifications, waivers or consents under this Agreement or any of the other
Basic Documents (including, without limitation, under this Section 12.04 and
under Section 11.09 hereof) to have no Loans, Letter of Credit Liabilities or
Commitments, shall not be treated as a "Bank" hereunder when performing the
computation of Majority Banks and shall have no rights under the preceding
paragraph of this Section 12.04 or under Section 11.09 hereof; provided that any
action taken by the other Banks with respect to the matters referred to in the
preceding paragraph shall not be effective as against such Bank.
12.05 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
12.06 ASSIGNMENTS AND PARTICIPATIONS.
(a) No Obligor may assign any of its rights or obligations hereunder
or under the Notes without the prior consent of the Majority Banks and the
Agent.
(b) Each Bank may assign any of its Loans, its Note, its Commitment,
and its Letter of Credit Interest (but only with the consent of, in the case of
an outstanding Commitment, the Company and the Agent and, in the case of a
Commitment or a Letter of Credit Interest, the
<PAGE>
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Issuing Bank (which consent, in the case of the Company, shall not be
unreasonably withheld)); PROVIDED that (i) no such consent by the Company or
the Agent or the Issuing Bank, if applicable, shall be required in the case
of any assignment to another Bank; (ii) any such partial assignment shall be
in an amount at least equal to $3,000,000; and (iii) each such assignment by
a Bank of any of its Loans, Notes, Commitments or Letter of Credit Interests
shall be made in such manner so that the same portion of its Loans, Notes,
Commitments and Letter of Credit Interests is assigned to the respective
assignee. Upon execution and delivery by the assignee to Company, the Agent
and the Issuing Bank of an instrument in writing pursuant to which such
assignee agrees to become a "Bank" hereunder (if not already a Bank) having
the Commitments, Loans, and, if applicable, Letter of Credit Interests
specified in such instrument, and upon the consent thereto by the Company,
the Agent and the Issuing Bank, to the extent required above, the assignee
shall have, to the extent of such assignment (unless otherwise provided in
such assignment with the consent of the Company, the Agent and the Issuing
Bank), the obligations, rights and benefits of a Bank hereunder holding the
Commitments, Loans and, if applicable, Letter of Credit Interests (or
portions thereof) assigned to it (in addition to the Commitments, Loans and
Letter of Credit Interests, if any, theretofore held by such assignee) and
the assigning Bank shall, to the extent of such assignment, be released from
the Commitments (or portion thereof) so assigned. Upon each such assignment
the assigning Bank shall pay the Agent an assignment fee of $5,000.
(c) Each Bank may sell or agree to sell to one or more other Persons
a participation in not more than 75% of its rights and obligations under this
Agreement (including, without limitation, not more than 75% of its Commitment
and the Loans and/or Letter of Credit Interest held by it), in which event each
purchaser of a participation (a "PARTICIPANT") shall be entitled to the rights
and benefits of the provisions of Section 9.01(g) hereof with respect to its
participation in such Loans, Letter of Credit Interests and Commitments as if
(and the Company shall be directly obligated to such Participant under such
provisions as if) such Participant were a "Bank" for purposes of said Section,
but, except as otherwise provided in Section 4.07(c) hereof, shall not have any
other rights or benefits under this Agreement or any Note or any other Basic
Document (the Participant's rights against such Bank in respect of such
participation to be those set forth in the agreements executed by such Bank in
favor of the Participant). All amounts payable by the Company to any Bank under
Section 5 hereof in respect of Loans, Letter of Credit Interests held by it, and
its Commitment, shall be determined as if such Bank had not sold or agreed to
sell any participations in such Loans, Letter of Credit Interest and Commitment,
and as if such Bank were funding each of such Loans, Letter of Credit Interests
and Commitment in the same way that it is funding the portion of such Loans,
Letter of Credit Interests and Commitment in which no participations have been
sold. In no event shall a Bank that sells a participation agree with the
Participant to take or refrain from taking any action hereunder or under any
other Basic Document except that such Bank may agree with the Participant that
it will not, without the consent of the Participant, agree to any of the
following (to the extent the rights or interest of the Participant are adversely
affected thereby): (i) increase or extend the term, or extend the time or waive
any requirement for the reduction or termination, of such Bank's Commitment,
<PAGE>
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(ii) extend the date fixed for the payment of principal of or interest on the
related Loan or Loans, Reimbursement Obligations or any portion of any fee
hereunder payable to the Participant, (iii) reduce the amount of any such
payment of principal, (iv) reduce the rate at which interest is payable thereon,
or any fee hereunder payable to the Participant, to a level below the rate at
which the Participant is entitled to receive such interest or fee, (v) alter the
rights or obligations of the Company to prepay the related Loans or (vi) consent
to any other modification, supplement or waiver hereof or of any of the other
Basic Documents to the extent that the same, under Section 11.09 or 12.04
hereof, requires the consent of each Bank.
(d) In addition to the assignments and participations permitted under
the foregoing provisions of this Section 12.06, including, without limitation,
Section 12.06(c) hereof, any Bank may assign and pledge all or any portion of
its Loans and its Notes to any Federal Reserve Bank as collateral security
pursuant to Regulation A and any Operating Circular issued by such Federal
Reserve Bank. No such assignment shall release the assigning Bank from its
obligations hereunder.
(e) A Bank may furnish any information concerning the Company or any
of its Subsidiaries in the possession of such Bank from time to time to
assignees and participants (including prospective assignees and participants),
subject, however, to the provisions of Section 12.13(b) hereof.
(f) Anything in this Section 12.06 to the contrary notwithstanding,
no Bank may assign or participate any interest in any Loan or Reimbursement
Obligation held by it hereunder to the Obligors or any of their Affiliates or
Subsidiaries without the prior written consent of each Bank.
12.07 INDEMNIFICATION. The Company hereby agrees (i) to indemnify
the Agent and each Bank and their respective directors, officers, employees,
attorneys and agents from, and hold each of them harmless against, any and all
losses, liabilities, claims, damages or expenses incurred by any of them
(including, without limitation, any and all losses, liabilities, claims, damages
or expenses incurred by the Agent to any Bank, whether or not the Agent or any
Bank is a party thereto) arising out of or by reason of any investigation or
litigation or other proceedings (including any threatened investigation or
litigation or other proceedings) relating to the extensions of credit hereunder
or any actual or proposed use by the Company or any of its Subsidiaries of the
proceeds of any of the extensions of credit hereunder, including, without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation or litigation or other proceedings (but
excluding any such losses, liabilities, claims, damages or expenses incurred by
reason of the gross negligence or willful misconduct of the Person to be
indemnified) and (ii) not to assert any claim against the Agent, any Bank, any
of their affiliates, or any of their respective directors, officers, employees,
attorneys and agents, on any theory of liability, for special, indirect,
consequential or punitive damages arising out of or otherwise relating to any of
the transactions contemplated herein or in any other Basic
<PAGE>
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Document; PROVIDED that the Company may enforce the obligations, if
applicable, of the Banks hereunder. Without limiting the generality of the
foregoing, the Company will (x) indemnify the Agent for any payments that the
Agent is required to make under any indemnity issued to any bank referred to
in Section 4.02 of the Security Agreement to which remittances in respect to
Accounts, as defined therein, are to be made and (y) indemnify the Agent and
each Bank from, and hold the Agent and each Bank harmless against, any
losses, liabilities, claims, damages or expenses described in the preceding
sentence (but excluding, as provided in the preceding sentence, any loss,
liability, claim, damage or expense incurred by reason of the gross
negligence or willful misconduct of the Person to be indemnified) arising
under any Environmental Law as a result of the past, present or future
operations of the Company or any of its Subsidiaries (or any predecessor in
interest to the Company or any of its Subsidiaries), or the past, present or
future condition of any site or facility owned, operated or leased by the
Company or any of its Subsidiaries (or any such predecessor in interest), or
any Release or threatened Release of any Hazardous Materials from any such
site or facility, including any such Release or threatened Release which
shall occur during any period when the Agent or any Bank shall be in
possession of any such site or facility following the exercise by the Agent
or any Bank of any of its rights and remedies hereunder or under any of the
Security Documents.
12.08 SURVIVAL. The obligations of the Company under Sections 5.01,
5.05, 5.06, 5.07, 12.03 and 12.07 hereof, the obligations of the Subsidiary
Guarantors under Section 6.03 hereof and the obligations of the Banks under
Section 11.05 hereof shall survive the repayment of the Loans and Reimbursement
Obligations and the termination of the Commitments. In addition, each
representation and warranty made, or deemed to be made by a notice of any
extension of credit (whether by means of a Loan or a Letter of Credit), herein
or pursuant hereto shall survive the making of such representation and warranty,
and no Bank shall be deemed to have waived, by reason of making any extension of
credit hereunder (whether by means of a Loan or a Letter of Credit), any Default
which may arise by reason of such representation or warranty proving to have
been false or misleading, notwithstanding that such Bank or the Agent may have
had notice or knowledge or reason to believe that such representation or
warranty was false or misleading at the time such extension of credit was made.
12.09 CAPTIONS. The table of contents and captions and section
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this
Agreement.
12.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
12.11 GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement and
the Notes shall be governed by, and construed in accordance with, the law of the
State of New York. Each Obligor hereby submits to the nonexclusive jurisdiction
of the United States District Court
<PAGE>
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for the Southern District of New York and of any New York state court sitting
in New York City for the purposes of all legal proceedings arising out of or
relating to this Agreement or the transactions contemplated hereby. Each
Obligor irrevocably waives, to the fullest extent permitted by applicable
law, any objection which it may now or hereafter have to the laying of the
venue of any such proceeding brought in such a court and any claim that any
such proceeding brought in such a court has been brought in an inconvenient
forum.
12.12 WAIVER OF JURY TRIAL. EACH OF THE OBLIGORS, THE AGENT AND THE
BANKS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
12.13 TREATMENT OF CERTAIN INFORMATION.
(a) The Company acknowledges that from time to time financial
advisory, investment banking and other services may be offered or provided to
the Company or one or more of its Subsidiaries (in connection with this
Agreement or otherwise) by any Bank or by one or more subsidiaries or affiliates
of such Bank and the Company, subject to Section 12.13(b) hereof, hereby
authorizes each Bank to share any information delivered to such Bank by the
Company and its Subsidiaries pursuant to this Agreement, or in connection with
the decision of such Bank to enter into this Agreement, to any such subsidiary
or affiliate.
(b) Each Bank and the Agent agrees (on behalf of itself and each of
its affiliates, directors, officers, employees and representatives) to use
reasonable precautions to keep confidential, in accordance with their customary
procedures for handling confidential information of the same nature and in
accordance with safe and sound banking practices, any non-public information
supplied by the Company or any of its Subsidiaries pursuant to this Agreement
which is identified by such Person as being confidential at the time the same is
delivered to such Bank or the Agent, PROVIDED that nothing herein shall limit
the disclosure of any such information (i) to the extent required by statute,
rule, regulation or judicial process, (ii) to counsel for any of the Banks or
the Agent, (iii) to bank examiners, auditors or accountants, (iv) to the Agent
or any other Bank, (v) in connection with any litigation to which any one or
more of the Banks or the Agent is a party, (vi) to a subsidiary or affiliate of
such Bank as provided in clause (a) above (provided that neither the Agent nor
any Bank shall disclose any non-public information delivered by the Company or
any of its Subsidiaries pursuant to this Agreement to any subsidiary or
affiliate of the Agent or any such Bank, as the case may be, which is generally
engaged in the securities business other than in connection with (x) Commodity
Hedging Agreements or Interest Rate Protection Agreements permitted pursuant to
Section 9.08(f) hereof or (y) the syndication or participation of the
Commitments, Loans or Letter of Credit Interests under this Agreement, without
the prior written consent of the Company) or (vii) to any assignee or
participant (or
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prospective assignee or participant) so long as such assignee or participant
(or prospective assignee or participant) first executes and delivers to the
respective Bank a Confidentiality Agreement substantially in the form of
Exhibit G hereto.
<PAGE>
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
FOREST OIL CORPORATION
By /s/ Kenton M. Scroggs
---------------------------
Title: V.P.
Address for Notices:
1600 Broadway
Suite 2200
Denver, Colorado 80202
Attention: Kenton Scroggs
Telecopier No.: (303) 812-1602
Telephone No.: (303) 812-1414
<PAGE>
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BANKS
Commitment: $30,000,000 THE CHASE MANHATTAN BANK
By
---------------------------
Title: Managing Director
<PAGE>
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Commitment: $30,000,000 CHRISTIANIA BANK OG KREDITKASSE
By /s/ Carl-Petter Svendsen
----------------------------
Title: First Vice President
By /s/ Peter M. Dodge
----------------------------
Title: First Vice President
<PAGE>
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Commitment: $20,000,000 CREDIT LYONNAIS NEW YORK BRANCH
By /s/ Pascal Poupelle
----------------------------
Title: Senior Vice President
<PAGE>
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Commitment: $20,000,000 BANK OF MONTREAL
By /s/ Robert L. Roberts
-----------------------------
Title: Director,
U.S. Corporate Banking
<PAGE>
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THE CHASE MANHATTAN BANK,
as Agent
By
----------------------------
Title: Managing Director
Address for Notices to
Chase as Agent:
The Chase Manhattan Bank
One Chase Manhattan Plaza,
Eighth Floor
New York, New York 10081
Attention: Agency Services, Sandra Miklave
Telecopier No.: (212) 552-5658
Telephone No.: (212) 552-7953
<PAGE>
SCHEDULE I
MATERIAL AGREEMENTS AND LIENS
(Sections 8.12 and 9.07(b))
SCHEDULE I TO CREDIT AGREEMENT
<PAGE>
SCHEDULE II
HAZARDOUS MATERIALS
(Section 8.13)
SCHEDULE II TO CREDIT AGREEMENT
<PAGE>
SCHEDULE III
SUBSIDIARIES AND INVESTMENTS
(Sections 8.15 and 9.08(a))
SCHEDULE III TO CREDIT AGREEMENT
<PAGE>
EXHIBIT 4.8
AMENDMENT NO. 2 TO DEED OF TRUST, MORTGAGE, SECURITY
AGREEMENT, ASSIGNMENT OF PRODUCTION, FINANCING STATEMENT
(PERSONAL PROPERTY INCLUDING HYDROCARBONS),
AND FIXTURE FILING
THIS AMENDMENT NO. 2 TO DEED OF TRUST, MORTGAGE, SECURITY AGREEMENT,
ASSIGNMENT OF PRODUCTION, FINANCING STATEMENT (PERSONAL PROPERTY INCLUDING
HYDROCARBONS) AND FIXTURE FILING (this "AMENDMENT") is entered into as of
January 31, 1997 at 9:00 a.m., Mountain Time (the "EFFECTIVE DATE") by and
between FOREST OIL CORPORATION, a New York corporation with an address for
notice hereunder of 1500 Colorado National Building, 950 17th Street, Denver,
Colorado 80202 ("MORTGAGOR") to:
1. THE CHASE MANHATTAN BANK, with an address at One Chase Manhattan
Plaza, New York, New York 10081, as agent for each bank referred to
below (in such capacity, the "AGENT") (the Agent, together with its
successors in such capacity, is hereinafter referred to as the
"SECURED PARTY"), as to any and all portions of the Collateral EXCEPT
those portions of the Collateral which (i) are located in the State of
Texas or in offshore waters adjacent to the State of Texas and subject
to the laws of the State of Texas and (ii) constitute interests in or
to real property under the law of the State of Texas (the "DT
COLLATERAL"); and
2. Mary Jo Woodford, with an address at One Chase Manhattan Plaza,
New York, New York 10081, as trustee (successor to Richard F. Betz)
(in such capacity, together with her successors and assigns in such
capacity, the "TRUSTEE"), but only as to the DT Collateral.
A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT. IN CERTAIN STATES, A POWER
OF SALE MAY ALLOW THE SECURED PARTY TO TAKE THE COLLATERAL AND SELL IT WITHOUT
GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE MORTGAGOR UNDER THIS
INSTRUMENT.
<PAGE>
R E C I T A L S
A. Mortgagor, certain banks (collectively, the "ORIGINAL BANKS"),
and the Agent were parties to a Credit Agreement dated as of December 1, 1993
(as heretofore modified and supplemented and in effect on the date hereof (the
"ORIGINAL CREDIT AGREEMENT").
B. Mortgagor, certain banks (collectively, the "EXISTING BANKS"),
and the Agent amended and restated the Original Credit Agreement pursuant to an
Amended and Restated Credit Agreement dated as of August 31, 1995.
C. Mortgagor, certain banks (collectively, the "Banks") and the
Agent have agreed to further amend and restate the Original Credit Agreement
pursuant to a Second Amended and Restated Credit Agreement dated as of January
31, 1997 (the Original Credit Agreement as so amended and restated and as the
same may be further amended and restated and in effect from time to time, being
referred to herein as the "CREDIT AGREEMENT").
D. The Original Credit Agreement is secured by, among other things,
that certain Deed of Trust, Mortgage, Security Agreement, Assignment of
Production, Financing Statement (Personal Property Including Hydrocarbons), and
Fixture Filing dated as of June 3, 1994 from Mortgagor to Secured Party and
Trustee (as heretofore modified and supplemented, the "DEED OF TRUST").
E. The Deed of Trust was amended by Amendment No. 1 to Deed of
Trust, Mortgage, Security Agreement, Assignment of Production, Financing
Statement (Personal Property Including Hydrocarbons), and Fixture Filing dated
as of August 31, 1995. The Deed of Trust and Amendment No. 1 were duly recorded
as set forth on Schedule 1 attached hereto.
F. Mortgagor and Secured Party now desire to supplement Exhibit A to
the Deed of Trust to include therein certain additional properties to be subject
to the lien and security interest of the Deed of Trust.
G. Mortgagor and Secured Party now desire to further amend the Deed
of Trust to provide for the continuation of the mortgage lien and security
interest provided under the Deed of
2
<PAGE>
Trust by Mortgagor to the Secured Party, for the benefit of itself and the
Banks.
NOW, THEREFORE, in view of the foregoing, Mortgagor and Secured Party
do hereby agree as follows:
1. All capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the Deed of Trust.
2. All references in the Deed of Trust to "this Instrument", as
defined in the opening paragraph of the Deed of Trust shall mean the Deed of
Trust as amended hereby and as the same may from time to time be further amended
or supplemented.
3. The Deed of Trust is hereby amended: (i) by deleting Recital 1
in its entirety and substituting the following therefor:
"1. Pursuant to the terms of the Second Amended and Restated
Credit Agreement dated as of January 31, 1997 among Mortgagor, certain
banks (collectively, the "BANKS"), the Subsidiary Guarantors and the
Secured Party (as amended, supplemented and otherwise modified and in
effect from time to time, the "CREDIT AGREEMENT"), the Banks have
agreed to make loans from time to time under a revolving credit
facility to the Mortgagor the aggregate principal or stated amount of
which shall not exceed $100,000,000.00 at any one time (maturing
January 31, 2000), and issue or acquire participation interests in
letters of credit for account of Mortgagor the aggregate amount of the
liabilities of the Banks under which shall not exceed
$10,000,000.00.";
(ii) by deleting Section 1.01A in its entirety and substituting the
following therefore:
"A. Payment in full when due (whether as stated maturity, by
acceleration or otherwise) of the principal of and interest on
the Loans made by the Banks and all other amounts (including,
without limitation, Reimbursement Obligations) from time to time
owing to, and obligations to be performed
3
<PAGE>
in favor of, the Secured Party and the Banks by the Mortgagor
under the Credit Agreement, the Notes and under any of the other
Basic Documents (any reborrowings, future advances, readvances,
modifications, extensions, substitutions, exchanges and renewals
shall enjoy the same priority as the initial advances evidenced
by the Notes) and the obligations to be performed in favor of,
the Secured Party and the Banks by the Mortgagor under any
Commodity Hedging Agreements or Interest Rate Protection
Agreements (as those terms are defined in the Credit
Agreement)."; and
(iii) by deleting Recital 3.F in its entirety and substituting the
following therefore:
"F. all tenements, hereditaments, appurtenances and properties in any
way appertaining, belonging, affixed or incidental to the Lands,
Leases, rights, titles, interests and estates described or
referred to in paragraphs A, B, C, D and E above, which are now
owned or, except with respect to any additional undivided
interests as provided in paragraph E above, which may hereafter
be acquired (by operation of law or otherwise) by the Mortgagor,
including, without limitation, any and all property, real or
personal, equipment, improvements, fixtures and other property
now owned or hereafter acquired and situated upon, used, held for
use, or useful in connection with the operating, working or
development of any of the Leases or the lands covered thereby or
pooled or unitized therewith including, without limitation, any
and all of the Mortgagor's rights, titles and interests in oil
wells, gas wells, injection wells or other wells (including,
without limitation, the wells described in Exhibit A hereto) or
well equipment, buildings, structures, field separators, liquid
extraction plants, plant compressors, pumps, pumping units,
pipelines, sales and flow lines, gathering lines, field gathering
systems, salt water disposal facilities, tanks and tank
batteries, fixtures, valves,
4
<PAGE>
fittings, machinery and parts, engines, boilers, meters,
apparatus, equipment, appliances, tools, implements, cables,
wires towers, casing, tubing and rods, power, telephone and
telegraph lines (including without limitation all of the
foregoing constituting all or a portion of a production or
drilling platform located on Mortgaged Properties or used
or useful in the production of Hydrocarbons from Mortgaged
Property), surface leases, rights-of-way, easements,
servitudes and other surface rights situated upon, used, held
for use or useful in connection with the operation and development
of the Leases and the Lands covered thereby or pooled or unitized
therewith, together with all substitutions, replacements,
accessions and attachments to any and all of the foregoing
properties (the foregoing rights, interests and properties
described in paragraphs A, B, C, D, E and this paragraph F above,
and all rights, estates, powers and privileges appurtenant
thereto are referred to herein collectively as the "MORTGAGED
PROPERTIES" and, individually, as a "MORTGAGED PROPERTY")".
4. Mortgagor hereby confirms that pursuant to and subject to the
terms of the Deed of Trust, it has heretofore absolutely and unconditionally
granted, bargained, sold, assigned, transferred and conveyed the DT Collateral
to the Trustee and granted to the Secured Party a security interest in those
portions of the Collateral which (i) are located in the State of Texas or in
offshore waters adjacent to the State of Texas and subject to the laws of the
State of Texas and (ii) do not constitute DT Collateral.
5. Mortgagor hereby confirms that pursuant to and subject to the
Deed of Trust, it has heretofore absolutely and unconditionally granted,
bargained, sold, assigned, transferred, pledged, mortgaged, warranted and
conveyed to the Secured Party and granted the Secured Party a security interest
in all of the Collateral (except the DT Collateral), including, without
limitation, all severed and extracted Hydrocarbons and other minerals produced
from or attributable to the Mortgaged Property, including, without limitation,
all of the proceeds thereof.
5
<PAGE>
6. The parties hereto agree that Exhibit A to the Deed of Trust is
supplemented by adding thereto Exhibit A attached hereto. All references to
Exhibit A in the Deed of Trust shall hereafter refer to Exhibit A in the Deed of
Trust and Exhibit A attached hereto.
7. In order to more fully effectuate this Amendment and in order to
secure the performance of the Obligations and for and in consideration of the
Loans made, and the Letters of Credit issued, pursuant to the Credit Agreement,
the Mortgagor hereby:
A. GRANTS, BARGAINS, SELLS, ASSIGNS, TRANSFERS, PLEDGES,
MORTGAGES, WARRANTS and CONVEYS, and grants a security
interest in, the Supplemental Collateral other than the
Supplemental DT Collateral to the Secured Party WITH
POWER OF SALE pursuant to the Deed of Trust and this
Instrument and applicable law, for the benefit and
security of the Secured Party, subject to the rights of
the Secured Party under the assignment made in
PARAGRAPH D below;
B. GRANTS, BARGAINS, SELLS, ASSIGNS, TRANSFERS and CONVEYS
the Supplemental DT Collateral to the Trustee, IN
TRUST, WITH POWER OF SALE pursuant to the Deed of Trust
and this Instrument and applicable law, for the benefit
of the Secured Party; and
C. without limiting the grant in PARAGRAPH A above, grants
to the Secured Party a security interest in those
portions of the Supplemental Collateral which (i) are
located in the State of Texas and subject to the laws
of the State of Texas and (ii) do not constitute
Supplemental DT Collateral;
TO HAVE AND TO HOLD the Supplemental Collateral other
than the Supplemental DT Collateral unto the Secured
Party,
6
<PAGE>
its successors and assigns, forever, and TO HAVE AND TO HOLD
the Supplemental DT Collateral unto the Trustee, its
successors and assigns, forever, in trust, subject to all of
the terms, conditions, covenants and agreements herein set
forth, for the security and benefit of the Secured Party and
its successors and assigns as holders of the Obligations; and
D. UNCONDITIONALLY AND ABSOLUTELY ASSIGNS, CONVEYS, TRANSFERS and
SETS OVER to the Secured Party any and all of the Mortgagor's
rights in respect of the Supplemental Hydrocarbons, including,
without limitation, all severed and extracted Hydrocarbons and
other minerals produced from or attributable to the Mortgaged
Property, including, without limitation, all of the proceeds
thereof.
8. All of the properties, rights and interests described in clauses
A through G below are collectively called the "SUPPLEMENTAL COLLATERAL" except
for such portions of the Supplemental Collateral which (i) are located in the
State of Texas or in offshore waters adjacent to the State of Texas and subject
to the laws of the State of Texas and (ii) constitute interests in or to real
property under the law of the State of Texas, which are collectively called the
"DT SUPPLEMENTAL COLLATERAL":
A. All rights, titles and interests of the Mortgagor (but at a
minimum the undivided interests specified in Exhibit A attached hereto and
incorporated herein by this reference) in and to the oil and gas leases, the
oil, gas and mineral leases and other mineral properties or interests described
in Exhibit A hereto (collectively, the "SUPPLEMENTAL LEASES") and in the lands
and premises covered or affected thereby (the "SUPPLEMENTAL LANDS"), except the
rights, titles and interests of the Mortgagor expressly excluded in Exhibit A
hereto;
B. without limitation of the foregoing, all other right, title and
interest of the Mortgagor of whatever kind or character in and to the
Supplemental Leases and described in Exhibit A hereto, or lands which are
otherwise described in any
7
<PAGE>
of the Supplemental Leases or other instruments described in Exhibit A
hereto, even though such lands may be incorrectly described in, or omitted
from, Exhibit A hereto, except the rights, titles and interests of the
Mortgagor expressly excluded in Exhibit A hereto;
C. all rights, titles, interests and estates owned by the Mortgagor
in and to (i) the properties now or hereafter pooled or unitized with the
Supplemental Leases; (ii) all presently existing or future unitization,
communitization, pooling agreements, orders and/or declarations of pooled units
and the units created thereby (including, without limitation, all units created
under orders, regulations, rules or other official acts of any Federal, state or
other governmental body or agency having Jurisdiction and so called "working
interest units" created under operating agreements, surface use agreements,
support agreements or otherwise) which may affect all or any portion of the
Supplemental Leases including, without limitation, those units which may be
described or referred to in Exhibit A hereto; and (iii) all operating
agreements, farmout agreements, farmin agreements, development agreements,
participation agreements, area of mutual interest agreements, equipment leases,
purchase agreements, sale agreements, option agreements and other agreements
which cover, affect or otherwise relate to any of the Supplemental Leases or
Supplemental Lands or interests in the Supplemental Leases or Lands described or
referred to herein or in Exhibit A hereto or to the production, sale, purchase,
exchange, processing, handling, storing, transporting or marketing of the
Hydrocarbons (as defined in Section 6.02 hereof) produced from or attributable
to such Supplemental Leases or Supplemental Lands or interests therein;
D. any property that may from time to time hereafter, by delivery or
by writing of any kind, be subjected to the lien and security interest hereof by
the Mortgagor or by anyone on the Mortgagor's behalf; and the Secured Party on
behalf of the Banks is hereby authorized to receive the same at any time as
additional security hereunder;
E. all of the rights, titles and interests of every nature
whatsoever now owned by the Mortgagor (as the same may be enlarged by the
removal of any prior Encumbrance) in and to the Supplemental Lands, Supplemental
Leases, rights, titles, interests and estates and every part and parcel thereof,
8
<PAGE>
including, without limitation, the Supplemental Lands, Supplemental Leases,
rights, titles, interests and estates as the same may be enlarged by the
discharge of any payments out of production or by the removal of any charges or
Encumbrances (as defined in Section 2.02 of the Deed of Trust) to which any of
the Supplemental Lands, Supplemental Leases, rights, titles, interests or
estates are subject, or otherwise; together with any and all renewals and
extensions of any of the Supplemental Lands, Supplemental Leases, rights,
titles, interests or estates; all contracts and agreements supplemental to or
amendatory of or in substitution for the contracts and agreements described or
mentioned above; and any and all additional interests of any kind hereafter
acquired by the Mortgagor in and to such Supplemental Lands, Supplemental
Leases, rights, titles, interests and estates, excluding any additional
undivided interests in such Supplemental Lands, Supplemental Leases, rights,
titles, interests and estates, hereafter acquired by the Mortgagor;
F. all tenements, hereditaments, appurtenances and properties in any
way appertaining, belonging, affixed or incidental to the Supplemental Lands,
Supplemental Leases, rights, titles, interests and estates described or referred
to in paragraphs A, B, C, D and E above, which are now owned or, except with
respect to any additional undivided interests as provided in paragraph E above,
which may hereafter be acquired (by operation of law or otherwise) by the
Mortgagor, including, without limitation, any and all property, real or
personal, equipment, improvements, fixtures and other property now owned or
hereafter acquired and situated upon, used, held for use, or useful in
connection with the operating, working or development of any of the Supplemental
Leases or the lands covered thereby or pooled or unitized therewith including,
without limitation, any and all of the Mortgagor's rights, titles and interests
in oil wells, gas wells, injection wells or other wells (including, without
limitation, the wells described in Exhibit A hereto) or well equipment,
buildings, structures, field separators, liquid extraction plants, plant
compressors, pumps, pumping units, pipelines, sales and flow lines, gathering
lines, field gathering systems, salt water disposal facilities, tanks and tank
batteries, fixtures, valves, fittings, machinery and parts, engines, boilers,
meters, apparatus, equipment, appliances, tools, implements, cables, wires,
towers, casing, tubing and rods, power, telephone and telegraph lines (including
without limitation all of the foregoing constituting all or a portion of
9
<PAGE>
a production or drilling platform located on Mortgaged Properties or used or
useful in the production of Hydrocarbons from Mortgaged Property), surface
leases, rights-of-way, easements, servitudes and other surface rights
situated upon, used, held for use or useful in connection with the operation
and development of the Supplemental Leases and the Supplemental Lands covered
thereby or pooled or unitized therewith, together with all additions,
substitutions, replacements, accessions and attachments to any and all of the
foregoing properties (the foregoing rights, interests and properties
described in paragraphs A, B, C, D, E and this paragraph F above, and all
rights, estates, powers and privileges appurtenant thereto are referred to
herein collectively as the "SUPPLEMENTAL MORTGAGED PROPERTIES" and,
individually, as a "SUPPLEMENTAL MORTGAGED PROPERTY"); and
G. all rights, titles, interests and estates now owned by the
Mortgagor in and to all Hydrocarbons in and under and which may be produced from
or attributable to the Supplemental Leases and the Supplemental Lands or lands
pooled or unitized therewith including, without limitation, all natural gas in
tanks and all rents, issues, profits, proceeds (including without limitation,
any prepayment for production not taken or payments in lieu of production),
products, revenues and other income from or attributable to the Supplemental
Leases and the Supplemental Lands covered thereby or pooled or unitized
therewith which are subjected or required to be subjected to the liens and
security interests of this Instrument; and further including, without
limitation, any and all liens and security interests in the Hydrocarbons
securing payment of proceeds from the sale of Hydrocarbons.
9. The Deed of Trust as supplemented herein with respect to the
Supplemental Collateral is given and effected with a pact de non aliendo,
confession of judgment by Mortgagor and waivers of delay notice and
appraisement. Mortgagor acknowledges the Obligations secured hereby, whether
now existing or to arise hereafter, and confesses judgment thereon in favour of
Secured Party, if the Obligations are not paid when due.
10. The parties hereto hereby acknowledge and agree that except as
specifically amended, changed or modified hereby, the Deed of Trust shall remain
in full force and effect in accordance with its terms. None of the rights,
titles and
10
<PAGE>
interests existing and to exist under the Deed of Trust are hereby released,
diminished or impaired, and Mortgagor hereby reaffirms all agreements and
covenants and acknowledges and agrees that, except as previously disclosed by
Mortgagor under the Deed of Trust (except to the extent same relate to
Collateral that is no longer owned by Mortgagor and other than the
representation and warranty set forth in the first sentence of Section
2.02(c) of the Deed of Trust) are true and correct in all material respects
as of the date hereof. Mortgagor also represents and warrants to the Banks
that the current net overproduced position of the Mortgagor with respect to
Hydrocarbons produced from the Mortgaged Properties (expressed in volumetric
terms) is not materially greater than the overproduced position of the
Mortgagor with respect to the Mortgaged Properties as of August 31, 1995.
11. INSOFAR AS PERMITTED BY OTHERWISE APPLICABLE LAW, THIS AMENDMENT
SHALL BE CONSTRUED UNDER AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
(EXCLUDING CHOICE OF LAW AND CONFLICT OF LAW RULES). MORTGAGOR HEREBY
IRREVOCABLY SUBMITS ITSELF TO THE NONEXCLUSIVE JURISDICTION OF THE STATE AND
FEDERAL COURTS OF THE STATE OF NEW YORK AND EACH OTHER STATE WHERE THE
COLLATERAL IS LOCATED AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE
MADE UPON IT IN ANY LEGAL PROCEEDING RELATING TO THIS AMENDMENT, THE BASIC
DOCUMENTS OR THE OBLIGATIONS IN THE CASE OF A PROCEEDING IN ANY OF SUCH STATES,
BY SERVING THE SECRETARY OF STATE OF SUCH STATE IN ACCORDANCE WITH ANY
APPLICABLE PROVISIONS OF SUCH STATE'S LAW GOVERNING SERVICE OF PROCESS UPON
FOREIGN CORPORATIONS OR ENTITIES.
12. This Amendment may be executed in two or more counterparts, and
it shall not be necessary that the signatures of all parties hereto be contained
on any one counterpart hereof.
13. Mortgagor and the Agent acknowledge that the execution of the
Credit Agreement does not constitute a payment or prepayment of the Original
Credit Agreement, but constitutes an amendment, extension, increase, and
modification of the terms thereof.
14. For purposes of executory process under Louisiana law, the
Mortgagor declares that on this 3rd day of February, 1997, but effective for all
purposes as of the Effective Date, it has appeared in the presence of the
undersigned Notary Public and
11
<PAGE>
two witnesses and has executed this amendment through Forest Dorn its Vice
President, duly authorized pursuant to Resolutions of the Board of Directors
of the Mortgagor, a certified copy of which is annexed hereto as Exhibit "B".
15. Mortgagor acknowledges that none of the Obligations have been
presented to the undersigned Notary Public to be paraphed for identification
with this amendment.
16. Notwithstanding any reference herein to the Credit Agreement or
any other Basic Document, no third party shall be obligated to inquire as to
whether any term or condition set forth therein has occurred but shall be
entitled to rely upon the certificate of the Secured Party as to all events,
including but not limited to the occurrence of an Event of Default.
17. For purposes of executory process, the Mortgagor acknowledges and
agrees that the existence, amount, terms, and maturity of the Obligations, may
be proven by affidavit or verified petition, in accordance with Louisiana law as
now existing or hereafter enacted.
12
<PAGE>
THUS DONE AND PASSED on this day 3rd day of February, 1997, (the
"Effective Date") effective for all purposes as of the Effective Date, in my
presence and in the presence of the undersigned competent witnesses who hereunto
sign their names with Mortgagor and me, Notary, after reading of the whole.
MORTGAGOR:
FOREST OIL CORPORATION
By: /s/ FDD
---------------------------------
Name: Forest D. Dorn
Title: Vice President
ATTEST:
/s/ BEC
- ------------------------------------
Asst. Secretary Barbara E. Cheseboro
WITNESSES:
Richard W. Schelin
- -----------------------------------
Sandra W. Newth
- -----------------------------------
Michele M. Miller
------------------------------
Notary Public
S-1
<PAGE>
THUS DONE AND PASSED on this 5th day of February, 1997, (the
"Effective Date") effective for all purposes as of the Effective Date in my
presence and in the presence of the undersigned competent witnesses who hereunto
sign their names with the Agent and the Trustee and me, Notary, after reading of
the whole.
AGENT:
THE CHASE MANHATTAN BANK
By: /s/ Mary Jo Woodford
---------------------------------
Name: Mary Jo Woodford
Title: Vice President
ATTEST:
/s/ Jean E. Rugani
- -----------------------------------
Asst. Corporate Secretary
TRUSTEE:
By: /s/ Mary Jo Woodford
---------------------------------
Name: Mary Jo Woodford
Title: Vice President
WITNESSES:
/s/ Elvine Franzini
- -----------------------------------
/s/ Jennifer V. Rao
- -----------------------------------
/s/ Virginia Stank
------------------------------
Notary Public
S-2
<PAGE>
NOTARY'S CERTIFICATE
The undersigned Notary Public hereby certifies that attached hereto are
certified copies of Resolutions produced by the Mortgagor and attached by me to
this Amendment No. 3 to Deed of Trust, Mortgage, Security Agreement, Assignment
of Production, Financing Statement (Personal Property Including Hydrocarbons),
and Fixture Filing executed this 3rd day of February, 1997 and effective for
all purposes as of August 31, 1995.
/s/ Michele M. Miller
------------------------------
Notary Public
S-3
<PAGE>
ACKNOWLEDGEMENT
STATE OF COLORADO )
: ss.
CITY AND COUNTY OF DENVER )
BE IT REMEMBERED that I, the undersigned Notary Public duly qualified,
commissioned, sworn and acting in and for the county and state aforesaid, hereby
certify that, on __________, 1997 there personally appeared before me, the
following person, being the designated officer of the corporation set opposite
his name, and such corporation being a party to the foregoing Amendment:
Forest D. Dorn, the V.P. of Forest Oil Corporation,
This Amendment was acknowledged before me on this 3rd day of
February, 1997 by Forest D. Dorn, of Forest Oil Corporation, a New York
corporation, on behalf of said corporation.
LOUISIANA
Who being by me duly sworn, deposed and said that he is the designated
officer of said corporation described in and which executed the foregoing
Amendment, that he signed his name thereto by order of the Board of Directors of
said corporation, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed, in the capacity therein stated,
and as the free act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and official notarial
seal, in the County of Denver, State of Colorado, this 3rd day of
February, 1997.
/s/ Michele M. Miller
----------------------------------------
Notary Public, State of Colorado
----------------
Notary's Printed Name: Michele M. Miller
-----------------
My Commission expires: September 29, 2000
------------------
S-4
<PAGE>
S-5
<PAGE>
ACKNOWLEDGEMENT
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
BE IT REMEMBERED that I, the undersigned Notary Public duly qualified,
commissioned, sworn and acting in and for the county and state aforesaid, hereby
certify that, on February 5, 1997 there personally appeared before me, the
following person, being the designated officer of the banking association set
opposite his name, and such corporation being a party to the foregoing
Amendment:
Mary Jo Woodford, a V.P. of The Chase Manhattan Bank.
This Amendment was acknowledged before me on this 5th day of
February, 1997 by Mary Jo Woodford, of The Chase Manhattan Bank, on behalf
of said bank.
LOUISIANA
Who being by me duly sworn, deposed and said that he is the designated
officer of said bank described in and which executed the foregoing Amendment,
that he signed his name thereto by order of the Board of Directors of said bank,
and acknowledged to me that he executed the same for the purposes and
consideration therein expressed, in the capacity therein stated, and as the free
act and deed of said bank.
IN WITNESS WHEREOF, I have hereunto set my hand and official notarial
seal, in the County of New York, State of New York, this 5th day of February,
1997.
/s/ Virginia Stank
----------------------------------------
Notary Public, State of New York
----------------
Notary's Printed Name: Virginia Stank
----------------
My Commission expires: November 30, 1997
-----------------
S-6
<PAGE>
ACKNOWLEDGEMENT
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
BE IT REMEMBERED that I, the undersigned Notary Public duly qualified,
commissioned, sworn and acting in and for the county and state aforesaid, hereby
certify that, on February 5, 1997 there personally appeared before me, the
following person, being a party to the foregoing Amendment:
This Amendment was acknowledged before me on this 5th day of
February, 1997 by Mary Jo Woodford.
LOUISIANA
Who being by me duly sworn, deposed and said that he is the Trustee
described in the foregoing Amendment, that he signed his name thereto, and
acknowledged to me that he executed the same for the purposes and consideration
therein expressed, in the capacity therein stated, and as him free act and deed.
IN WITNESS WHEREOF, I have hereunto set my hand and official notarial
seal, in the County of New York, State of New York, this 5th day of February,
1997.
/s/ Virginia Stank
----------------------------------------
Notary Public, State of New York
----------------
Notary's Printed Name: Virginia Stank
----------------
My Commission expires: November 30, 1997
-----------------
S-7
<PAGE>
SCHEDULE 1
SCHEDULE OF RECORDING INFORMATION
FOREST OIL CORPORATION
and
THE CHASE MANHATTAN BANK
as Agent
1. Deed of Trust, Mortgage, Security Agreement, Assignment of Production,
Financing Statement (Personal Property Including Hydrocarbons), and Fixture
Filing dated June 3, 1994 executed by Forest Oil Corporation ("Forest") in
favor of Bettylou J. Robert, as Trustee, for the benefit of The Chase
Manhattan Bank, as Agent (all recording references are to the Real Property
Records):
RECORDED IN THE STATE OF TEXAS
COUNTY DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Brazoria 6/8/94 Recorded 6/8/94 as
#94-021547
Chambers 6/10/94 Recorded 6/10/94 as
Volume 94-240, Page 215
Fort Bend 6/21/94 Recorded 6/21/94 as
Volume 2668, Page 1568
Harris 6/7/94 Recorded 6/7/94 as
#P899134
Matagorda 6/8/94 Recorded 6/8/94 as
Volume 381, Page 505
Waller 6/8/94 Recorded 6/8/94 as
Volume 496, Page 88
<PAGE>
2. Financing Statement by Forest in connection with item #1 above and
filed as follows:
LOCATION DATE FILED FILING INFORMATION
-------- ---------- ------------------
Secretary of 6/7/94 Recorded 6/7/94 #110234
State of Texas
RECORDED IN THE STATE OF LOUISIANA
A. PARISH DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Cameron 6/7/94 Recorded 6/7/94 as
MOB 200, File No. 236409
St. Bernard 6/6/94 Recorded 6/6/94 as
MOB 732, page 71
Vermillion 6/6/94 Recorded 6/6/94 as
Entry No. 9405601
B. Mineral Management Service, Gulf of Mexico Region, June 6, 1994:
Lease Files:
OCS-G 1152, OCS-G 1153, OCS-G 1977, OCS-G 3393,
OCS-G 8645, OCS-G 10658 and OCS-G 13301
2. UCC-1 Financing Statement by Forest Oil Corporation as Debtor, and The
Chase Manhattan Bank, as Secured Party.
A. PARISH DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Orleans 6/6/94 Recorded 6/6/94 as
Instrument No. 36-84158
B. Mineral Management Service, Gulf of Mexico Region,
June 6, 1994:
Lease Files:
2
<PAGE>
OCS-G 1152, OCS-G 1153, OCS-G 1977, OCS-G 3393,
OCS-G 8645, OCS-G 10658 and OCS-G 13301
2. Amendment No. 1 to Deed of Trust, Mortgage, Security Agreement, Assignment
of Production, Financing Statement (Personal Property Including
Hydrocarbons), and Fixture Filing dated August 31,1995 executed by Forest
Oil Corporation ("Forest") in favor of Bettylou J. Robert, as Trustee, for
the benefit of The Chase Manhattan Bank, as Agent:
RECORDED IN THE STATE OF TEXAS
COUNTY DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Brazoria 9/27/95 Recorded 9/27/95 as #95-031806
Chambers 9/28/95 Recorded 9/29/95 in
Volume 95-277, Page 473
Fort Bend 10/20/95 Recorded 10/20/95 as
#9563356
Harris 9/27/95 Recorded 9/27/95 as
#R598435
Matagorda 9/27/95 Recorded 9/27/95 in
Volume 420, Page 664
Waller 9/28/95 Recorded 9/28/95 in
Volume 525, Page 32
RECORDED IN THE STATE OF LOUISIANA
A. PARISH DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Vermilion 9/19/95 MOB Entry No. 9509529
St. Bernard 9/19/95 Act No. 315858 MOB 773,
folio 105
3
<PAGE>
Cameron 9/19/95 File No. 242693 MOB 212
B. Minerals Management Service, Gulf of Mexico Region, September 19,
1995:
Lease Files:
OCS-G 1152, OCS-G 1153, OCS-G 1977, OCS-G 3393,
OCS-G 8645, OCS-G 10658, OCS-G 13301
4
<PAGE>
EXHIBIT A
5
<PAGE>
EXHIBIT B
RESOLUTIONS OF THE BOARD OF DIRECTORS
6
<PAGE>
EXHIBIT 4.9
AMENDMENT NO. 3 TO DEED OF TRUST, MORTGAGE, SECURITY
AGREEMENT, ASSIGNMENT OF PRODUCTION, FINANCING STATEMENT
(PERSONAL PROPERTY INCLUDING HYDROCARBONS),
AND FIXTURE FILING
THIS AMENDMENT NO. 3 TO DEED OF TRUST, MORTGAGE, SECURITY AGREEMENT,
ASSIGNMENT OF PRODUCTION, FINANCING STATEMENT (PERSONAL PROPERTY INCLUDING
HYDROCARBONS) AND FIXTURE FILING (this "AMENDMENT") is entered into as of
January 31, 1997 at 9:00 a.m., Mountain Time (the "EFFECTIVE DATE") by and
between FOREST OIL CORPORATION, a New York corporation with an address for
notice hereunder of 1500 Colorado National Building, 950 17th Street, Denver,
Colorado 80202 ("MORTGAGOR") to:
1. THE CHASE MANHATTAN BANK, with an address at One Chase Manhattan
Plaza, New York, New York 10081, as agent for each bank referred to
below (in such capacity, the "AGENT") (the Agent, together with its
successors in such capacity, is hereinafter referred to as the
"SECURED PARTY"), as to any and all portions of the Collateral EXCEPT
those portions of the Collateral which (i) are located in the State of
Texas or in offshore waters adjacent to the State of Texas and subject
to the laws of the State of Texas and (ii) constitute interests in or
to real property under the law of the State of Texas (the "DT
COLLATERAL"); and
2. Mary Jo Woodford, with an address at One Chase Manhattan Plaza,
New York, New York 10081, as trustee (successor to Ian G.P.
Schottlaender) (in such capacity, together with her successors and
assigns in such capacity, the "TRUSTEE"), but only as to the
DT Collateral.
A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT. IN CERTAIN STATES, A POWER
OF SALE MAY ALLOW THE SECURED PARTY TO TAKE THE COLLATERAL AND SELL IT WITHOUT
GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE MORTGAGOR UNDER THIS
INSTRUMENT.
<PAGE>
R E C I T A L S
A. Mortgagor, certain banks (collectively, the "ORIGINAL BANKS"),
and the Agent were parties to a Credit Agreement dated as of December 1, 1993
(as heretofore modified and supplemented and in effect on the date hereof (the
"ORIGINAL CREDIT AGREEMENT").
B. Mortgagor, certain banks (collectively, the "EXISTING BANKS"),
and the Agent amended and restated the Original Credit Agreement pursuant to an
Amended and Restated Credit Agreement dated as of August 31, 1995.
C. Mortgagor, certain banks (collectively, the "BANKS") and the
Agent have agreed to further amend and restate the Original Credit Agreement
pursuant to a Second Amended and Restated Credit Agreement dated as of January
31, 1997 (the Original Credit Agreement as so amended and restated and as the
same may be further amended and restated and in effect from time to time, being
referred to herein as the "CREDIT AGREEMENT").
D. The Original Credit Agreement is secured by, among other things,
that certain Deed of Trust, Mortgage, Security Agreement, Assignment of
Production, Financing Statement (Personal Property Including Hydrocarbons), and
Fixture Filing dated as of December 1, 1993 from Mortgagor to Secured Party and
Trustee (as heretofore modified and supplemented, the "DEED OF TRUST").
E. The Deed of Trust was amended by Amendment No. 1 to Deed of
Trust, Mortgage, Security Agreement, Assignment of Production, Financing
Statement (Personal Property Including Hydrocarbons), and Fixture Filing dated
as of June 3, 1994 and Amendment No. 2 to Deed of Trust, Mortgage, Security
Agreement, Assignment of Production, Financing Statement (Personal Property
Including Hydrocarbons), and Fixture Filing dated as of August 31, 1995. The
Deed of Trust, Amendment No. 1 and Amendment No. 2 were duly recorded as set
forth on Schedule 1 attached hereto.
F. Mortgagor and Secured Party now desire to supplement Exhibit A to
the Deed of Trust to include therein certain additional properties to be subject
to the lien and security interest of the Deed of Trust.
2
<PAGE>
G. Mortgagor and Secured Party now desire to further amend the Deed
of Trust to provide for the continuation of the mortgage lien and security
interest provided under the Deed of Trust by Mortgagor to the Secured Party, for
the benefit of itself and the Banks.
NOW, THEREFORE, in view of the foregoing, Mortgagor and Secured Party
do hereby agree as follows:
1. All capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the Deed of Trust.
2. All references in the Deed of Trust to "this Instrument", as
defined in the opening paragraph of the Deed of Trust shall mean the Deed of
Trust as amended hereby and as the same may from time to time be further amended
or supplemented.
3. The Deed of Trust is hereby amended: (i) by deleting Recital 1
in its entirety and substituting the following therefor:
"1. Pursuant to the terms of the Second Amended and Restated
Credit Agreement dated as of January 31, 1997 among Mortgagor, certain
banks (collectively, the "BANKS"), the Subsidiary Guarantors and the
Secured Party (as amended, supplemented and otherwise modified and in
effect from time to time, the "CREDIT AGREEMENT"), the Banks have
agreed to make loans from time to time under a revolving credit
facility to the Mortgagor the aggregate principal or stated amount of
which shall not exceed $100,000,000.00 at any one time (maturing
January 31, 2000), and issue or acquire participation interests in
letters of credit for account of Mortgagor the aggregate amount of the
liabilities of the Banks under which shall not exceed
$10,000,000.00."; and
(ii) by deleting Section 1.01A in its entirety and substituting the
following therefore:
"A. Payment in full when due (whether as stated maturity, by
acceleration or otherwise) of the principal of and interest on
the Loans made by the
3
<PAGE>
Banks and all other amounts (including, without limitation,
Reimbursement Obligations) from time to time owing to, and
obligations to be performed in favor of, the Secured Party and
the Banks by the Mortgagor under the Credit Agreement, the Notes
and under any of the other Basic Documents (any reborrowings,
future advances, readvances, modifications, extensions,
substitutions, exchanges and renewals shall enjoy the same
priority as the initial advances evidenced by the Notes) and
the obligations to be performed in favor of, the Secured Party
and the Banks by the Mortgagor under any Commodity Hedging
Agreements or Interest Rate Protection Agreements (as those terms
are defined in the Credit Agreement)."
(iii) by deleting Recital 3.F in its entirety and substituting the
following therefore:
"F. all tenements, hereditaments, appurtenances and properties in any
way appertaining, belonging, affixed or incidental to the Lands,
Leases, rights, titles, interests and estates described or
referred to in paragraphs A, B, C, D and E above, which are now
owned or, except with respect to any additional undivided
interests as provided in paragraph E above, which may hereafter
be acquired (by operation of law or otherwise) by the Mortgagor,
including, without limitation, any and all property, real or
personal, equipment, improvements, fixtures and other property
now owned or hereafter acquired and situated upon, used, held for
use, or useful in connection with the operating, working or
development of any of the Leases or the lands covered thereby or
pooled or unitized therewith including, without limitation, any
and all of the Mortgagor's rights, titles and interests in oil
wells, gas wells, injection wells or other wells (including,
without limitation, the wells described in Exhibit A hereto) or
well equipment, buildings, structures, field separators, liquid
extraction plants, plant compressors, pumps, pumping units,
pipelines,
4
<PAGE>
sales and flow lines, gathering lines, field gathering systems,
salt water disposal facilities, tanks and tank batteries,
fixtures, valves, fittings, machinery and parts, engines, boilers,
meters, apparatus, equipment, appliances, tools, implements,
cables, wires towers, casing, tubing and rods, power, telephone
and telegraph lines (including without limitation all of the
foregoing constituting all or a portion of a production or
drilling platform located on Mortgaged Properties or used or
useful in the production of Hydrocarbons from Mortgaged Property),
surface leases, rights-of-way, easements, servitudes and other
surface rights situated upon, used, held for use or useful in
connection with the operation and development of the Leases and
the Lands covered thereby or pooled or unitized therewith,
together with all additions, substitutions, replacements,
accessions and attachments to any and all of the foregoing
properties (the foregoing rights, interests and properties
described in paragraphs A, B, C, D, E and this paragraph F above,
and all rights, estates, powers and privileges appurtenant thereto
are referred to herein collectively as the "MORTGAGED PROPERTIES"
and, individually, as a "MORTGAGED PROPERTY")".
4. Mortgagor hereby confirms that pursuant to and subject to the
terms of the Deed of Trust, it has heretofore absolutely and unconditionally
granted, bargained, sold, assigned, transferred and conveyed the DT Collateral
to the Trustee and granted to the Secured Party a security interest in those
portions of the Collateral which (i) are located in the State of Texas or in
offshore waters adjacent to the State of Texas and subject to the laws of the
State of Texas and (ii) do not constitute DT Collateral.
5. Mortgagor hereby confirms that pursuant to and subject to the
Deed of Trust, it has heretofore absolutely and unconditionally granted,
bargained, sold, assigned, transferred, pledged, mortgaged, warranted and
conveyed to the Secured Party and granted the Secured Party a security interest
in all of the Collateral (except the DT Collateral), including, without
5
<PAGE>
limitation, all severed and extracted Hydrocarbons and other minerals produced
from or attributable to the Mortgaged Property, including, without limitation,
all of the proceeds thereof.
6. The parties hereto agree that Exhibit A to the Deed of Trust is
supplemented by adding thereto Exhibit A attached hereto. All references to
Exhibit A in the Deed of Trust shall hereafter refer to Exhibit A in the Deed of
Trust and Exhibit A attached hereto.
7. In order to more fully effectuate this Amendment and in order to
secure the performance of the Obligations and for and in consideration of the
Loans made, and the Letters of Credit issued, pursuant to the Credit Agreement,
the Mortgagor hereby:
A. GRANTS, BARGAINS, SELLS, ASSIGNS, TRANSFERS, PLEDGES,
MORTGAGES, WARRANTS and CONVEYS, and grants a security
interest in, the Supplemental Collateral other than the
Supplemental DT Collateral to the Secured Party WITH
POWER OF SALE pursuant to the Deed of Trust and this
Instrument and applicable law, for the benefit and
security of the Secured Party, subject to the rights of
the Secured Party under the assignment made in
PARAGRAPH D below;
B. GRANTS, BARGAINS, SELLS, ASSIGNS, TRANSFERS and CONVEYS
the Supplemental DT Collateral to the Trustee, IN
TRUST, WITH POWER OF SALE pursuant to the Deed of Trust
and this Instrument and applicable law, for the benefit
of the Secured Party; and
6
<PAGE>
C. without limiting the grant in PARAGRAPH A above, grants
to the Secured Party a security interest in those
portions of the Supplemental Collateral which (i) are
located in the State of Texas and subject to the laws
of the State of Texas and (ii) do not constitute
Supplemental DT Collateral;
TO HAVE AND TO HOLD the Supplemental Collateral other
than the Supplemental DT Collateral unto the Secured
Party, its successors and assigns, forever, and TO HAVE
AND TO HOLD the Supplemental DT Collateral unto the
Trustee, its successors and assigns, forever, in trust,
subject to all of the terms, conditions, covenants and
agreements herein set forth, for the security and
benefit of the Secured Party and its successors and
assigns as holders of the Obligations; and
D. UNCONDITIONALLY AND ABSOLUTELY ASSIGNS, CONVEYS, TRANSFERS and
SETS OVER to the Secured Party any and all of the Mortgagor's
rights in respect of the Supplemental Hydrocarbons, including,
without limitation, all severed and extracted Hydrocarbons and
other minerals produced from or attributable to the Mortgaged
Property, including, without limitation, all of the proceeds
thereof.
8. All of the properties, rights and interests described in clauses
A through G below are collectively called the
7
<PAGE>
"SUPPLEMENTAL COLLATERAL" except for such portions of the Supplemental
Collateral which (i) are located in the State of Texas or in offshore waters
adjacent to the State of Texas and subject to the laws of the State of Texas
and (ii) constitute interests in or to real property under the law of the
State of Texas, which are collectively called the "DT SUPPLEMENTAL
COLLATERAL":
A. All rights, titles and interests of the Mortgagor (but at a
minimum the undivided interests specified in Exhibit A attached hereto and
incorporated herein by this reference) in and to the oil and gas leases, the
oil, gas and mineral leases and other mineral properties or interests described
in Exhibit A hereto (collectively, the "SUPPLEMENTAL LEASES") and in the lands
and premises covered or affected thereby (the "SUPPLEMENTAL LANDS"), except the
rights, titles and interests of the Mortgagor expressly excluded in Exhibit A
hereto;
B. without limitation of the foregoing, all other right, title and
interest of the Mortgagor of whatever kind or character in and to the
Supplemental Leases and described in Exhibit A hereto, or lands which are
otherwise described in any of the Supplemental Leases or other instruments
described in Exhibit A hereto, even though such lands may be incorrectly
described in, or omitted from, Exhibit A hereto, except the rights, titles and
interests of the Mortgagor expressly excluded in Exhibit A hereto;
C. all rights, titles, interests and estates owned by the Mortgagor
in and to (i) the properties now or hereafter pooled or unitized with the
Supplemental Leases; (ii) all presently existing or future unitization,
communitization, pooling agreements, orders and/or declarations of pooled units
and the units created thereby (including, without limitation, all units created
under orders, regulations, rules or other official acts of any Federal, state or
other governmental body or agency having Jurisdiction and so called "working
interest units" created under operating agreements, surface use agreements,
support agreements or otherwise) which may affect all or any portion of the
Supplemental Leases including, without limitation, those units which may be
described or referred to in Exhibit A hereto; and (iii) all
8
<PAGE>
operating agreements, farmout agreements, farmin agreements, development
agreements, participation agreements, area of mutual interest agreements,
equipment leases, purchase agreements, sale agreements, option agreements and
other agreements which cover, affect or otherwise relate to any of the
Supplemental Leases or Supplemental Lands or interests in the Supplemental
Leases or Lands described or referred to herein or in Exhibit A hereto or to
the production, sale, purchase, exchange, processing, handling, storing,
transporting or marketing of the Hydrocarbons (as defined in Section 6.02
hereof) produced from or attributable to such Supplemental Leases or
Supplemental Lands or interests therein;
D. any property that may from time to time hereafter, by delivery or
by writing of any kind, be subjected to the lien and security interest hereof by
the Mortgagor or by anyone on the Mortgagor's behalf; and the Secured Party on
behalf of the Banks is hereby authorized to receive the same at any time as
additional security hereunder;
E. all of the rights, titles and interests of every nature
whatsoever now owned by the Mortgagor (as the same may be enlarged by the
removal of any prior Encumbrance) in and to the Supplemental Lands, Supplemental
Leases, rights, titles, interests and estates and every part and parcel thereof,
including, without limitation, the Supplemental Lands, Supplemental Leases,
rights, titles, interests and estates as the same may be enlarged by the
discharge of any payments out of production or by the removal of any charges or
Encumbrances (as defined in Section 2.02 of the Deed of Trust) to which any of
the Supplemental Lands, Supplemental Leases, rights, titles, interests or
estates are subject, or otherwise; together with any and all renewals and
extensions of any of the Supplemental Lands, Supplemental Leases, rights,
titles, interests or estates; all contracts and agreements supplemental to or
amendatory of or in substitution for the contracts and agreements described or
mentioned above; and any and all additional interests of any kind hereafter
acquired by the Mortgagor in and to such Supplemental Lands, Supplemental
Leases, rights, titles, interests and estates, excluding any additional
undivided interests in such Supplemental Lands, Supplemental Leases, rights,
titles, interests and estates, hereafter acquired by the Mortgagor;
9
<PAGE>
F. all tenements, hereditaments, appurtenances and properties in any
way appertaining, belonging, affixed or incidental to the Supplemental Lands,
Supplemental Leases, rights, titles, interests and estates described or referred
to in paragraphs A, B, C, D and E above, which are now owned or, except with
respect to any additional undivided interests as provided in paragraph E above,
which may hereafter be acquired (by operation of law or otherwise) by the
Mortgagor, including, without limitation, any and all property, real or
personal, equipment, improvements, fixtures and other property now owned or
hereafter acquired and situated upon, used, held for use, or useful in
connection with the operating, working or development of any of the Supplemental
Leases or the lands covered thereby or pooled or unitized therewith including,
without limitation, any and all of the Mortgagor's rights, titles and interests
in oil wells, gas wells, injection wells or other wells (including, without
limitation, the wells described in Exhibit A hereto) or well equipment,
buildings, structures, field separators, liquid extraction plants, plant
compressors, pumps, pumping units, pipelines, sales and flow lines, gathering
lines, field gathering systems, salt water disposal facilities, tanks and tank
batteries, fixtures, valves, fittings, machinery and parts, engines, boilers,
meters, apparatus, equipment, appliances, tools, implements, cables, wires,
towers, casing, tubing and rods, power, telephone and telegraph lines (including
without limitation all of the foregoing constituting all or a portion of a
production or drilling platform located on Mortgaged Properties or used or
useful in the production of Hydrocarbons from Mortgaged Property), surface
leases, rights-of-way, easements, servitudes and other surface rights situated
upon, used, held for use or useful in connection with the operation and
development of the Supplemental Leases and the Supplemental Lands covered
thereby or pooled or unitized therewith, together with all additions,
substitutions, replacements, accessions and attachments to any and all of the
foregoing properties (the foregoing rights, interests and properties described
in paragraphs A, B, C, D, E and this paragraph F above, and all rights, estates,
powers and privileges appurtenant thereto are referred to herein collectively as
the "SUPPLEMENTAL MORTGAGED PROPERTIES" and, individually, as a "SUPPLEMENTAL
MORTGAGED PROPERTY"); and
G. all rights, titles, interests and estates now owned by the
Mortgagor in and to all Hydrocarbons in and under and which
10
<PAGE>
may be produced from or attributable to the Supplemental Leases and the
Supplemental Lands or lands pooled or unitized therewith including, without
limitation, all natural gas in tanks and all rents, issues, profits, proceeds
(including without limitation, any prepayment for production not taken or
payments in lieu of production), products, revenues and other income from or
attributable to the Supplemental Leases and the Supplemental Lands covered
thereby or pooled or unitized therewith which are subjected or required to be
subjected to the liens and security interests of this Instrument; and further
including, without limitation, any and all liens and security interests in
the Hydrocarbons securing payment of proceeds from the sale of Hydrocarbons.
9. The Deed of Trust as supplemented herein with respect to the
Supplemental Collateral is given and affected with a pact de non aliendo,
confession of judgment by Mortgagor and waivers of delay notice and
appraisement. Mortgagor acknowledges the Obligations secured hereby, whether
now existing or to arise hereafter, and confesses judgment thereon in favor of
Secured Party, if the Obligations are not paid when due.
10. The parties hereto hereby acknowledge and agree that except as
specifically amended, changed or modified hereby, the Deed of Trust shall remain
in full force and effect in accordance with its terms. None of the rights,
titles and interests existing and to exist under the Deed of Trust are hereby
released, diminished or impaired, and Mortgagor hereby reaffirms all agreements
and covenants and acknowledges and agrees that, except as previously disclosed
by Mortgagor under the Deed of Trust (except to the extent same relate to
Collateral that is no longer owned by Mortgagor and other than the
representation and warranty set forth in the first sentence of Section 2.02(c)
of the Deed of Trust) are true and correct in all material respects as of the
date hereof. Mortgagor also represents and warrants to the Banks that the
current net overproduced position of the Mortgagor with respect to Hydrocarbons
produced from the Mortgaged Properties (expressed in volumetric terms) is not
materially greater than the overproduced position of the Mortgagor with respect
to the Mortgaged Properties as of August 31, 1995.
11. INSOFAR AS PERMITTED BY OTHERWISE APPLICABLE LAW, THIS AMENDMENT
SHALL BE CONSTRUED UNDER AND GOVERNED BY THE LAWS OF
11
<PAGE>
THE STATE OF NEW YORK (EXCLUDING CHOICE OF LAW AND CONFLICT OF LAW RULES).
MORTGAGOR HEREBY IRREVOCABLY SUBMITS ITSELF TO THE NONEXCLUSIVE JURISDICTION
OF THE STATE AND FEDERAL COURTS OF THE STATE OF NEW YORK AND EACH OTHER STATE
WHERE THE COLLATERAL IS LOCATED AND AGREES AND CONSENTS THAT SERVICE OF
PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING RELATING TO THIS
AMENDMENT, THE BASIC DOCUMENTS OR THE OBLIGATIONS IN THE CASE OF A PROCEEDING
IN ANY OF SUCH STATES, BY SERVING THE SECRETARY OF STATE OF SUCH STATE IN
ACCORDANCE WITH ANY APPLICABLE PROVISIONS OF SUCH STATE'S LAW GOVERNING
SERVICE OF PROCESS UPON FOREIGN CORPORATIONS OR ENTITIES.
12. This Amendment may be executed in two or more counterparts, and
it shall not be necessary that the signatures of all parties hereto be contained
on any one counterpart hereof.
13. Mortgagor and the Agent acknowledge that the execution of the
Credit Agreement does not constitute a payment or prepayment of the Original
Credit Agreement, but constitutes an amendment, extension, increase, and
modification of the terms thereof.
14. For purposes of executory process under Louisiana law, the
Mortgagor declares that on this 3rd day of February, 1997, but effective for all
purposes as of the Effective Date, it has appeared in the presence of the
undersigned Notary Public and two witnesses and has executed this amendment
through Forest Dorn its Vice President, duly authorized pursuant to Resolutions
of the Board of Directors of the Mortgagor, a certified copy of which is annexed
hereto as Exhibit "B".
15. Mortgagor acknowledges that none of the Obligations have been
presented to the undersigned Notary Public to be paraphed for identification
with this amendment.
16. Notwithstanding any reference herein to the Credit Agreement or
any other Basic Document, no third party shall be obligated to inquire as to
whether any term or condition set forth therein has occurred but shall be
entitled to rely upon the certificate of the Secured Party as to all events,
including but not limited to the occurrence of an Event of Default.
17. For purposes of executory process, the Mortgagor acknowledges and
agrees that the existence, amount, terms, and maturity of the Obligations, may
be proven by affidavit or verified
12
<PAGE>
petition, in accordance with Louisiana law as now existing or hereafter
enacted.
13
<PAGE>
THUS DONE AND PASSED on this day 3rd day of February, 1997, (the
"Effective Date") effective for all purposes as of the Effective Date, in my
presence and in the presence of the undersigned competent witnesses who hereunto
sign their names with Mortgagor and me, Notary, after reading of the whole.
MORTGAGOR:
FOREST OIL CORPORATION
By: /s/ FDD
----------------------------------
Name: Forest D. Dorn
Title: V.P.
ATTEST:
/s/ BEC
- -----------------------------------
Asst. Secretary Barbara E. Chesebro
WITNESSES:
/s/ Sandra W. Newth
- ------------------------------
/s/ Richard W. Schelin
- ------------------------------
/s/ Michele M. Miller
------------------------------
Notary Public
S-1
<PAGE>
THUS DONE AND PASSED on this 5th day of February, 1997, (the
"Effective Date") effective for all purposes as of the Effective Date in my
presence and in the presence of the undersigned competent witnesses who hereunto
sign their names with the Agent and the Trustee and me, Notary, after reading of
the whole.
AGENT:
THE CHASE MANHATTAN BANK
By: /s/ Mary Jo Woodford
------------------------------
Name: Mary Jo Woodford
Title: V.P.
ATTEST:
/s/ Jean E. Rugani
- ------------------------------
Asst. Corporate Secretary
TRUSTEE:
By: /s/ Mary Jo Woodford
------------------------------
Name: Mary Jo Woodford
Title: V.P.
WITNESSES:
/s/ Elvine Franzini
- ------------------------------
/s/ Jennifer V. Rao
- ------------------------------
/s/ Virginia Stank
------------------------------
Notary Public
S-2
<PAGE>
NOTARY'S CERTIFICATE
The undersigned Notary Public hereby certifies that attached hereto are
certified copies of Resolutions produced by the Mortgagor and attached by me to
this Amendment No. 3 to Deed of Trust, Mortgage, Security Agreement, Assignment
of Production, Financing Statement (Personal Property Including Hydrocarbons),
and Fixture Filing executed this 3rd day of February, 1997 and effective for
all purposes as of August 31, 1995.
/s/ Michele M. Miller
------------------------------
Notary Public
S-3
<PAGE>
ACKNOWLEDGEMENT
STATE OF COLORADO )
: ss.
CITY AND COUNTY OF DENVER )
BE IT REMEMBERED that I, the undersigned Notary Public duly qualified,
commissioned, sworn and acting in and for the county and state aforesaid, hereby
certify that, on __________, 1997 there personally appeared before me, the
following person, being the designated officer of the corporation set opposite
his name, and such corporation being a party to the foregoing Amendment:
Forest D. Dorn, the V.P. of Forest Oil
Corporation,
This Amendment was acknowledged before me on this 3rd day of
February, 1997 by Forest D. Dorn, of Forest Oil Corporation, a New York
corporation, on behalf of said corporation.
LOUISIANA
Who being by me duly sworn, deposed and said that he is the designated
officer of said corporation described in and which executed the foregoing
Amendment, that he signed his name thereto by order of the Board of Directors of
said corporation, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed, in the capacity therein stated,
and as the free act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and official notarial
seal, in the County of Denver, State of Colorado, this 3rd day of
February, 1997.
/s/ Michele M. Miller
-----------------------------------------
Notary Public, State of Colorado
-----------------
Notary's Printed Name: Michele M. Miller
-----------------
My Commission expires: September 29, 2000
------------------
S-4
<PAGE>
S-5
<PAGE>
ACKNOWLEDGEMENT
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
BE IT REMEMBERED that I, the undersigned Notary Public duly qualified,
commissioned, sworn and acting in and for the county and state aforesaid, hereby
certify that, on February 5, 1997 there personally appeared before me, the
following person, being the designated officer of the banking
association set opposite his name, and such corporation being a party to the
foregoing Amendment:
Mary Jo Woodford, a V.P. of The Chase Manhattan Bank.
This Amendment was acknowledged before me on this 5th day of
February, 1997 by Mary Jo Woodford, of The Chase Manhattan Bank, a
national banking association, on behalf of said national banking association.
LOUISIANA
Who being by me duly sworn, deposed and said that he is the designated
officer of said bank described in and which executed the foregoing Amendment,
that he signed his name thereto by order of the Board of Directors of said bank,
and acknowledged to me that he executed the same for the purposes and
consideration therein expressed, in the capacity therein stated, and as the free
act and deed of said bank.
IN WITNESS WHEREOF, I have hereunto set my hand and official notarial
seal, in the County of New York, State of New York, this 5th day of February,
1997.
/s/ Virginia Stank
----------------------------------------
Notary Public, State of New York
----------------
Notary's Printed Name: Virginia Stank
----------------
My Commission expires: November 30, 1997
-----------------
S-6
<PAGE>
ACKNOWLEDGEMENT
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
BE IT REMEMBERED that I, the undersigned Notary Public duly qualified,
commissioned, sworn and acting in and for the county and state aforesaid, hereby
certify that, on February 5, 1997 there personally appeared before me, the
following person, being a party to the foregoing Amendment:
This Amendment was acknowledged before me on this 5th day of
February, 1997 by Mary Jo Woodford.
LOUISIANA
Who being by me duly sworn, deposed and said that he is the Trustee
described in the foregoing Amendment, that he signed his name thereto, and
acknowledged to me that he executed the same for the purposes and consideration
therein expressed, in the capacity therein stated, and as him free act and deed.
IN WITNESS WHEREOF, I have hereunto set my hand and official notarial
seal, in the County of New York, State of New York, this 5th day of February,
1997.
/s/ Virginia Stank
----------------------------------------
Notary Public, State of New York
----------------
Notary's Printed Name: Virginia Stank
----------------
My Commission expires: November 30, 1997
-----------------
S-7
<PAGE>
Schedule 1
SCHEDULE OF RECORDING INFORMATION
FOREST OIL CORPORATION
and
THE CHASE MANHATTAN BANK
as Agent
1. Deed of Trust, Mortgage, Security Agreement, Assignment of Production,
Financing Statement (Personal Property Including Hydrocarbons), and Fixture
Filing dated December 1, 1993 executed by Forest Oil Corporation ("Forest")
in favor of Bettylou J. Robert, as Trustee, for the benefit of The Chase
Manhattan Bank, as Agent (all recording references are to the Real Property
Records):
RECORDED IN THE STATE OF TEXAS
COUNTY DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Aransas 12/8/93 Recorded 12/10/93 as
#192065
Brazoria 12/8/93 Recorded 12/8/93 as
#93-044178
Calhoun 12/8/93 Recorded 12/8/93 in
Volume 116, Page 73
Chambers 12/8/93 Recorded 12/10/93 in
Volume 93-225, Page 522
Galveston 12/16/93 Recorded 12/16/93 as
#9353245
Hidalgo 12/8/93 Recorded 12/8/93 as
#357731
Jefferson 12/8/93 Recorded 12/8/93 as
#93-41412
<PAGE>
Loving 12/8/93 Recorded 12/8/93 in
Volume 45, Page 688
Matagorda 12/8/93 Recorded 12/8/93 in
Volume 366, Page 787
Pecos 12/8/93 Recorded 12/8/93 in
Volume 272, Page 25
Reeves 12/8/93 Recorded 12/8/93 in
Volume 533, Page 315
Ward 12/8/93 Recorded 12/9/93 in
Volume 175, Page 524
RECORDED IN THE STATE OF OKLAHOMA
COUNTY DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Caddo 12/8/93 Recorded 12/8/93 as
No. 93 9150
Oklahoma 12/8/93 Recorded 12/8/93 as
No. 03908
Washita 12/8/93 Recorded 12/8/93 as
E-1333
RECORDED IN THE STATE OF WYOMING
COUNTY DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Natrona 12/8/93 Recorded 12/8/93 as
Instrument #535014
RECORDED IN THE STATE OF LOUISIANA
A. PARISH DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Iberia 12/7/93 Entry No. 93-8912
2
<PAGE>
MOB A-633, folio _____
Vermilion 12/7/93 Entry No. 9311419
MOB _____, folio _____
St. Mary 12/7/93 Entry No. 206,342
MOB 677, folio 650
Cameron 12/7/93 Entry No. 233834
MOB 197, folio _____
Plaquemines 12/7/93 MOB 231, folio 1
LaFourche 12/7/93 Entry No. 759883
MOB 657, folio _____
Terrebonne 12/7/93 Entry No. 927906
MOB 959, folio _____
Jefferson 12/8/93 Entry No. 9368844
MOB 3629, folio 248
B. Minerals Management Service
Gulf of Mexico Region
December 7, 1993
Lease Files:
OCS-G 0900, OCS-G 0986, OCS-G 0987, OCS-G 0991,
OCS-G 0992, OCS-G 0993, OCS-G 0994, OCS-G 0995,
OCS-G 0996, OCS-G -997, OCS-G 1216, OCS-G 1217,
OCS-G 1979, OCS-G 1980, OCS-G 1981, OCS-G 1982,
OCS-G 5517, OCS-G 5625, OCS-G 7793, OCS-G 8434,
OCS-G 8457, OCS-G 9627, OCS-G 9651, OCS-G 10742,
OCS-G 10785
C. Financing Statement executed by Forest in connection with item # 1 above
and filed as follows:
LOCATION DATE FILED FILING INFORMATION
-------- ---------- ------------------
3
<PAGE>
Secretary of 12/8/93 #230027
State of Texas
2. Amendment No. 1 to Deed of Trust, Mortgage, Security Agreement, Assignment
of Production, Financing Statement (Personal Property Including
Hydrocarbons), and Fixture Filing dated June 3, 1994 executed by Forest Oil
Corporation ("Forest") in favor of Bettylou J. Robert, as Trustee, for the
benefit of The Chase Manhattan Bank, as Agent:
RECORDED IN THE STATE OF TEXAS
COUNTY DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Aransas 6/9/94 Recorded 6/13/94 as #195102
Brazoria 6/8/94 Recorded 6/8/94 as #94-021546
Calhoun 6/8/94 Recorded 6/9/94 in Volume 125,
Page 905-915 #35684
Chambers 6/8/94 Recorded 6/10/94 in
Volume 94-240, Page 214
Galveston 6/22/94 Recorded 6/22/94 as #9428381
Hidalgo 6/14/94 Recorded 6/14/94 as #392138
Jefferson 6/8/94 Recorded 6/8/94 as #94-9418637
Loving 6/9/94 Recorded 6/9/94 in Volume 46,
Page 231
Matagorda 6/8/94 Recorded 6/8/94 in Volume 381,
Page 504
Pecos 6/9/94 Recorded 6/9/94 in Volume 274,
Page 231
Reeves 6/9/94 Recorded 6/10/94 in
Volume 538, Page 228
4
<PAGE>
Ward 6/23/94 Recorded 6/23/94 in
Volume 177, Page 41
RECORDED IN THE STATE OF LOUISIANA
A. COUNTY DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Cameron 6/7/94 Recorded 6/7/94
Entry No. 236410
MOB 200, folio _____
Iberia 6/6/94 Recorded 6/6/94
Entry No. 94-4017
MOB A-641, folio _____
Jefferson 6/6/94 Recorded 6/6/94
Entry No. 938445
MOB 980, folio _____
LaFourche 6/6/94 Recorded 6/6/94
Entry No. 767362
MOB 670, page 682
Plaquemines 6/7/94 Recorded 6/7/94
MOB 235, folio 1083
St. Mary 6/6/94 Recorded 6/6/94
Entry No. 208,538
MOB 687, folio _____
Terrebonne 6/6/94 Recorded 6/6/94
Entry No. 938445
MOB 980, folio _____
Vermilion 6/6/94 Recorded 6/6/94
Entry No. 9405602
MOB ____, folio _____
B. Minerals Management Service, Gulf of Mexico Region, June 6, 1994.
Lease Files:
5
<PAGE>
OCS-G 0900, OCS-G 0986, OCS-G 0987,
OCS-G 0991, OCS-G 0992, OCS-G 0993, OCS-G 0994,
OCS-G 0995, OCS-G 0996, OCS-G 0997, OCS-G 1216,
OCS-G 1217, OCS-G 1979, OCS-G 1980, OCS-G 1981,
OCS-G 1982, OCS-G 5517, OCS-G 5625, OCS-G 7793,
OCS-G 8434, OCS-G 8457, OCS-G 9627, OCS-G 9651,
OCS-G 10742, OCS-G 10785
To cover Texas Deed of Trust also filed in OCS-G 6178, 6156, 9086, 5171,
6048, 6069, 3738, 8553 and 12509.
2. UCC-1 Financing Statement by Forest Oil Corporation, as Debtor, and The
Chase Manhattan Bank, as Secured Party.
a. Orleans Parish, Louisiana
December 8, 1993
Under UCC Entry No. 36-79419.
b. Minerals Management Service
Gulf of Mexico Region
December 7, 1993
Lease Files:
OCS-G 0900, OCS-G 0986, OCS-G 0987,
OCS-G 0991, OCS-G 0992, OCS-G 0993, OCS-G 0994,
OCS-G 0995, OCS-G 0996, OCS-G 0997, OCS-G 1216,
OCS-G 1217, OCS-G 1979, OCS-G 1980, OCS-G 1981,
OCS-G 1982, OCS-G 5517, OCS-G 5625, OCS-G 7793,
OCS-G 8434, OCS-G 8457, OCS-G 9627, OCS-G 9651,
OCS-G 10742, OCS-G 10785
3. Amendment No. 2 to Deed of Trust, Mortgage, Security Agreement, Assignment
of Production, Financing Statement (Personal Property Including
Hydrocarbons), and Fixture Filing dated August 31, 1995 executed by Forest
Oil Corporation ("Forest") in favor of Ian G.P. Schottlaender, as Trustee,
for the benefit of The Chase Manhattan Bank, as Agent:
6
<PAGE>
RECORDED IN THE STATE OF TEXAS
COUNTY DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Arkansas 9/28/95 Recorded 9/28/95 as
#202631
Brazoria 9/27/95 Recorded 9/27/95 as
#95-031805
Calhoun 9/27/95 Recorded 9/27/95 in
Volume 149, Page 818
Chambers 9/28/95 Recorded 9/29/95 in
Volume 95-277, Page 484
Galveston 10/11/95 Recorded 10/11/95 as
#9539437
Hidalgo 9/29/95 Recorded 9/29/95 as
#477853
Jefferson 9/27/95 Recorded 9/27/95 as
#95-9528748
Loving 9/28/95 Recorded 9/28/95 in
Volume 48, Page 602
Matagorda 9/27/95 Recorded 9/27/95 in
Volume 420, Page 675
Pecos 9/28/95 Recorded 9/28/95 in
Volume 280, Page 450
Reeves 9/29/95 Recorded 9/29/95 in
Volume 554, Page 415
Ward 9/29/95 Recorded 9/29/95 in
Volume 181, Page 615
RECORDED IN THE STATE OF OKLAHOMA
7
<PAGE>
COUNTY DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Caddo 9/21/95 Recorded 9/21/95 in
Book 2006, Page 63-85
as #95-07098
Oklahoma 9/21/95 Recorded 9/21/95 No. 3098
Washita 9/22/95 Recorded 9/22/95 in
Book 826, Page 410-486
RECORDED IN THE STATE OF WYOMING
COUNTY DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Natrona 9/15/95 Recorded 9/15/95 as
Instrument #567140
Secretary of State 9/19/95 Recorded 9/18/95
Current document ID:
9526112 1CO4
RECORDED IN THE STATE OF LOUISIANA
COUNTY DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Cameron 9/19/95 File No: 242694
MOB 212
Iberia 9/19/95 Entry No: 95-7038
MOB A-665
LaFourche 9/19/95 Entry No: 787079
MOB 700, folio 23
Plaquemines 9/20/95 MOB 249, folio 856
St. Mary 9/19/95 Entry No. 214, 024
MOB 715
Terrebonne 9/19/95 Entry No. 962561
8
<PAGE>
MOB 1031, page 402
Vermilion 9/19/95 Entry No. 9509530
MOB 9509530
B. Minerals Management Service, Gulf of Mexico Region, October 10, 1995.
Lease Files:
OCS-G 0900, OCS-G 0986, OCS-G 0987, OCS-G 0991,
OCS-G 0992, OCS-G 0993, OCS-G 0994, OCS-G 0995,
OCS-G 0996, OCS-G 0997, OCS-G 1216, OCS-G 1217,
OCS-G 1979, OCS-G 1980, OCS-G 1981, OCS-G 1982,
OCS-G 5517, OCS-G 5625, OCS-G 7793, OCS-G 8434,
OCS-G 8457, OCS-G 9627, OCS-G 9651, OCS-G 10742,
OCS-G 10785, OCS-G 6178, OCS-G 6156, OCS-G 9086,
OCS-G 5171, OCS-G 6048, OCS-G 6069, OCS-G 3738,
OCS-G 8553, OCS-G 12509.
9
<PAGE>
EXHIBIT A
10
<PAGE>
EXHIBIT B
RESOLUTIONS OF THE BOARD OF DIRECTORS
11
<PAGE>
EXHIBIT 11
FOREST OIL CORPORATION AND CONSOLIDATED SUBSIDIARIES
CALCULATION OF EARNINGS (LOSS) PER SHARE OF COMMON STOCK
<TABLE>
Years Ended December 31,
--------------------------------
1996 1995 1994
------- ------- -------
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C>
Primary earnings (loss) per share:
Net earnings (loss) $ 3,305 (17,996) (81,843)
Less dividend requirements on $.75 Convertible
Preferred Stock (2,158) (2,160) (2,161)
------- ------- -------
Net earnings (loss) attributable to common stock
for primary earnings (loss) per share calculation $ 1,147 (20,156) (84,004)
------- ------- -------
------- ------- -------
Weighted average number of common
shares outstanding 25,062 7,360 5,619
Dilutive effect of:
Anschutz Warrants 818 - -
Anschutz Option 168 - -
Employee stock options 82 - -
Second Series Preferred Stock 1,033 - -
------- ------- -------
Weighted average number of common
shares outstanding, as adjusted 27,163 7,360 5,619
------- ------- -------
------- ------- -------
Primary earnings (loss) per share of common stock $ .04 (2.74) (14.95)
------- ------- -------
------- ------- -------
Fully diluted earnings (loss) per share:
Net earnings (loss) attributable to common stock, as above $ 1,147 (20,156) (84,004)
Add dividend requirements on $.75 Convertible Preferred Stock 2,158 2,160 2,161
------- ------- -------
Net earnings (loss) attributable to common stock for
fully diluted earnings (loss) per share calculation $ 3,305 (17,996) (81,843)
------- ------- -------
------- ------- -------
Weighted average number of common shares
outstanding 25,062 7,360 5,619
Dilutive effect of:
Anschutz Warrants 1,415 - -
Anschutz Option 148 - -
Employee stock options 376 - -
Second Series Preferred Stock 1,033 - -
$.75 Convertible Preferred Stock 2,014 2,017 2,017
------- ------- -------
Weighted average number of common shares
outstanding, as adjusted 30,048 9,377 7,636
------- ------- -------
------- ------- -------
Fully diluted earnings (loss) per share of common stock $ .11* (1.92)* (10.72)*
------- ------- -------
------- ------- -------
</TABLE>
* The fully diluted loss per share is not presented in the Company's financial
statements because the effects of assumed exercises and conversions were
anti-dilutive.
<PAGE>
EXHIBIT 21
FOREST OIL CORPORATION
List of Subsidiaries of the Registrant
Name of Subsidiary Jurisdiction in Which Organized
----------------------------- -------------------------------
Saxon Petroleum Inc. Alberta
Canadian Forest Oil, Ltd. Alberta
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
FOREST OIL CORPORATION
We consent to the incorporation by reference in (i) the Registration
Statements (Nos. 2-74151, 2-76946, 33-2748 and 33-59504) on Form S-8 of
Forest Oil Corporation - Retirement Savings Plan of Forest Oil Corporation,
(ii) the Registration Statement (No. 33-48440) on Form S-8 of Forest Oil
Corporation - 1992 Stock Option Plan of Forest Oil Corporation, and (iii) the
Registration Statements (Nos. 33-47477 and 33-47478) on Forms S-2 and S-3 of
Forest Oil Corporation - Common Stock issuable to Richard Dorn and resales
thereof, of our report dated February 11, 1997 relating to the consolidated
balance sheets of Forest Oil Corporation and subsidiaries as of December 31,
1996 and 1995, 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, 1996, which report appears in the December 31, 1996
annual report on Form 10-K of Forest Oil Corporation.
Our report on the consolidated financial statements refers to a change in the
method of accounting for oil and gas sales from the sales method to the
entitlements method effective January 1, 1994.
KPMG PEAT MARWICK LLP
Denver, Colorado
March 27, 1997
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara E.
Chesebro his true and lawful attorneys and agents (each with authority to act
alone), to do any and all acts and things and to execute any and all instruments
which said attorneys and agents deem necessary or advisable to enable the
Company to comply with the Securities Exchange Act of 1934, as amended, and any
rules, regulations, and requirements of the Securities and Exchange Commission
in respect thereof, in connection with the preparation and filing of the Form
10-K -- Annual Report for the year ended December 31, 1996 pursuant to Section
13 of the Securities Exchange Act of 1934, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer or
director, or both, of the Company to a Form 10-K -- Annual Report for the year
ended December 31, 1996, pursuant to Section 13 of the Securities Exchange Act
of 1934 or to any amendment thereto filed with the Securities and Exchange
Commission and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Form 10-K -- Annual Report or amendment; and the
undersigned does hereby ratify and confirm as his own act and deed all that said
attorneys and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 28th
day of February, 1997.
/s/ PHILIP F. ANSCHUTZ
----------------------------------
Philip F. Anschutz
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara E.
Chesebro his true and lawful attorneys and agents (each with authority to act
alone), to do any and all acts and things and to execute any and all instruments
which said attorneys and agents deem necessary or advisable to enable the
Company to comply with the Securities Exchange Act of 1934, as amended, and any
rules, regulations, and requirements of the Securities and Exchange Commission
in respect thereof, in connection with the preparation and filing of the Form
10-K -- Annual Report for the year ended December 31, 1996 pursuant to Section
13 of the Securities Exchange Act of 1934, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer or
director, or both, of the Company to a Form 10-K -- Annual Report for the year
ended December 31, 1996, pursuant to Section 13 of the Securities Exchange Act
of 1934 or to any amendment thereto filed with the Securities and Exchange
Commission and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Form 10-K -- Annual Report or amendment; and the
undersigned does hereby ratify and confirm as his own act and deed all that said
attorneys and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 28th
day of February, 1997.
/s/ ROBERT S. BOSWELL
----------------------------------
Robert S. Boswell
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara E.
Chesebro his true and lawful attorneys and agents (each with authority to act
alone), to do any and all acts and things and to execute any and all instruments
which said attorneys and agents deem necessary or advisable to enable the
Company to comply with the Securities Exchange Act of 1934, as amended, and any
rules, regulations, and requirements of the Securities and Exchange Commission
in respect thereof, in connection with the preparation and filing of the Form
10-K -- Annual Report for the year ended December 31, 1996 pursuant to Section
13 of the Securities Exchange Act of 1934, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer or
director, or both, of the Company to a Form 10-K -- Annual Report for the year
ended December 31, 1996, pursuant to Section 13 of the Securities Exchange Act
of 1934 or to any amendment thereto filed with the Securities and Exchange
Commission and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Form 10-K -- Annual Report or amendment; and the
undersigned does hereby ratify and confirm as his own act and deed all that said
attorneys and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 28th
day of February, 1997.
/s/ WILLIAM L. BRITTON
----------------------------------
William L. Britton
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara E.
Chesebro his true and lawful attorneys and agents (each with authority to act
alone), to do any and all acts and things and to execute any and all instruments
which said attorneys and agents deem necessary or advisable to enable the
Company to comply with the Securities Exchange Act of 1934, as amended, and any
rules, regulations, and requirements of the Securities and Exchange Commission
in respect thereof, in connection with the preparation and filing of the Form
10-K -- Annual Report for the year ended December 31, 1996 pursuant to Section
13 of the Securities Exchange Act of 1934, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer or
director, or both, of the Company to a Form 10-K -- Annual Report for the year
ended December 31, 1996, pursuant to Section 13 of the Securities Exchange Act
of 1934 or to any amendment thereto filed with the Securities and Exchange
Commission and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Form 10-K -- Annual Report or amendment; and the
undersigned does hereby ratify and confirm as his own act and deed all that said
attorneys and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 28th
day of February, 1997.
/s/ RICHARD J. CALLAHAN
----------------------------------
Richard J. Callahan
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara E.
Chesebro his true and lawful attorneys and agents (each with authority to act
alone), to do any and all acts and things and to execute any and all instruments
which said attorneys and agents deem necessary or advisable to enable the
Company to comply with the Securities Exchange Act of 1934, as amended, and any
rules, regulations, and requirements of the Securities and Exchange Commission
in respect thereof, in connection with the preparation and filing of the Form
10-K -- Annual Report for the year ended December 31, 1996 pursuant to Section
13 of the Securities Exchange Act of 1934, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer or
director, or both, of the Company to a Form 10-K -- Annual Report for the year
ended December 31, 1996, pursuant to Section 13 of the Securities Exchange Act
of 1934 or to any amendment thereto filed with the Securities and Exchange
Commission and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Form 10-K -- Annual Report or amendment; and the
undersigned does hereby ratify and confirm as his own act and deed all that said
attorneys and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 28th
day of February, 1997.
/s/ CORTLANDT S. DIETLER
----------------------------------
Cortlandt S. Dietler
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara E.
Chesebro his true and lawful attorneys and agents (each with authority to act
alone), to do any and all acts and things and to execute any and all instruments
which said attorneys and agents deem necessary or advisable to enable the
Company to comply with the Securities Exchange Act of 1934, as amended, and any
rules, regulations, and requirements of the Securities and Exchange Commission
in respect thereof, in connection with the preparation and filing of the Form
10-K -- Annual Report for the year ended December 31, 1996 pursuant to Section
13 of the Securities Exchange Act of 1934, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer or
director, or both, of the Company to a Form 10-K -- Annual Report for the year
ended December 31, 1996, pursuant to Section 13 of the Securities Exchange Act
of 1934 or to any amendment thereto filed with the Securities and Exchange
Commission and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Form 10-K -- Annual Report or amendment; and the
undersigned does hereby ratify and confirm as his own act and deed all that said
attorneys and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 28th
day of February, 1997.
/s/ WILLIAM L. DORN
----------------------------------
William L. Dorn
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara E.
Chesebro his true and lawful attorneys and agents (each with authority to act
alone), to do any and all acts and things and to execute any and all instruments
which said attorneys and agents deem necessary or advisable to enable the
Company to comply with the Securities Exchange Act of 1934, as amended, and any
rules, regulations, and requirements of the Securities and Exchange Commission
in respect thereof, in connection with the preparation and filing of the Form
10-K -- Annual Report for the year ended December 31, 1996 pursuant to Section
13 of the Securities Exchange Act of 1934, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer or
director, or both, of the Company to a Form 10-K -- Annual Report for the year
ended December 31, 1996, pursuant to Section 13 of the Securities Exchange Act
of 1934 or to any amendment thereto filed with the Securities and Exchange
Commission and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Form 10-K -- Annual Report or amendment; and the
undersigned does hereby ratify and confirm as his own act and deed all that said
attorneys and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 28th
day of February, 1997.
/s/ JORDAN L. HAINES
----------------------------------
Jordan L. Haines
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara E.
Chesebro his true and lawful attorneys and agents (each with authority to act
alone), to do any and all acts and things and to execute any and all instruments
which said attorneys and agents deem necessary or advisable to enable the
Company to comply with the Securities Exchange Act of 1934, as amended, and any
rules, regulations, and requirements of the Securities and Exchange Commission
in respect thereof, in connection with the preparation and filing of the Form
10-K -- Annual Report for the year ended December 31, 1996 pursuant to Section
13 of the Securities Exchange Act of 1934, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer or
director, or both, of the Company to a Form 10-K -- Annual Report for the year
ended December 31, 1996, pursuant to Section 13 of the Securities Exchange Act
of 1934 or to any amendment thereto filed with the Securities and Exchange
Commission and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Form 10-K -- Annual Report or amendment; and the
undersigned does hereby ratify and confirm as his own act and deed all that said
attorneys and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 28th
day of February, 1997.
/s/ DAVID H. KEYTE
----------------------------------
David H. Keyte
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara E.
Chesebro his true and lawful attorneys and agents (each with authority to act
alone), to do any and all acts and things and to execute any and all instruments
which said attorneys and agents deem necessary or advisable to enable the
Company to comply with the Securities Exchange Act of 1934, as amended, and any
rules, regulations, and requirements of the Securities and Exchange Commission
in respect thereof, in connection with the preparation and filing of the Form
10-K -- Annual Report for the year ended December 31, 1996 pursuant to Section
13 of the Securities Exchange Act of 1934, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer or
director, or both, of the Company to a Form 10-K -- Annual Report for the year
ended December 31, 1996, pursuant to Section 13 of the Securities Exchange Act
of 1934 or to any amendment thereto filed with the Securities and Exchange
Commission and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Form 10-K -- Annual Report or amendment; and the
undersigned does hereby ratify and confirm as his own act and deed all that said
attorneys and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 28th
day of February, 1997.
/s/ JAMES H. LEE
----------------------------------
James H. Lee
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara E.
Chesebro his true and lawful attorneys and agents (each with authority to act
alone), to do any and all acts and things and to execute any and all instruments
which said attorneys and agents deem necessary or advisable to enable the
Company to comply with the Securities Exchange Act of 1934, as amended, and any
rules, regulations, and requirements of the Securities and Exchange Commission
in respect thereof, in connection with the preparation and filing of the Form
10-K -- Annual Report for the year ended December 31, 1996 pursuant to Section
13 of the Securities Exchange Act of 1934, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer or
director, or both, of the Company to a Form 10-K -- Annual Report for the year
ended December 31, 1996, pursuant to Section 13 of the Securities Exchange Act
of 1934 or to any amendment thereto filed with the Securities and Exchange
Commission and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Form 10-K -- Annual Report or amendment; and the
undersigned does hereby ratify and confirm as his own act and deed all that said
attorneys and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 28th
day of February, 1997.
/s/ CRAIG D. SLATER
----------------------------------
Craig D. Slater
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara E.
Chesebro his true and lawful attorneys and agents (each with authority to act
alone), to do any and all acts and things and to execute any and all instruments
which said attorneys and agents deem necessary or advisable to enable the
Company to comply with the Securities Exchange Act of 1934, as amended, and any
rules, regulations, and requirements of the Securities and Exchange Commission
in respect thereof, in connection with the preparation and filing of the Form
10-K -- Annual Report for the year ended December 31, 1996 pursuant to Section
13 of the Securities Exchange Act of 1934, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer or
director, or both, of the Company to a Form 10-K -- Annual Report for the year
ended December 31, 1996, pursuant to Section 13 of the Securities Exchange Act
of 1934 or to any amendment thereto filed with the Securities and Exchange
Commission and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Form 10-K -- Annual Report or amendment; and the
undersigned does hereby ratify and confirm as his own act and deed all that said
attorneys and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 28th
day of February, 1997.
/s/ JOAN C. SONNEN
----------------------------------
Joan C. Sonnen
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara E.
Chesebro his true and lawful attorneys and agents (each with authority to act
alone), to do any and all acts and things and to execute any and all instruments
which said attorneys and agents deem necessary or advisable to enable the
Company to comply with the Securities Exchange Act of 1934, as amended, and any
rules, regulations, and requirements of the Securities and Exchange Commission
in respect thereof, in connection with the preparation and filing of the Form
10-K -- Annual Report for the year ended December 31, 1996 pursuant to Section
13 of the Securities Exchange Act of 1934, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer or
director, or both, of the Company to a Form 10-K -- Annual Report for the year
ended December 31, 1996, pursuant to Section 13 of the Securities Exchange Act
of 1934 or to any amendment thereto filed with the Securities and Exchange
Commission and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Form 10-K -- Annual Report or amendment; and the
undersigned does hereby ratify and confirm as his own act and deed all that said
attorneys and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 28th
day of February, 1997.
/s/ DRAKE S. TEMPEST
----------------------------------
Drake S. Tempest
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara E.
Chesebro his true and lawful attorneys and agents (each with authority to act
alone), to do any and all acts and things and to execute any and all instruments
which said attorneys and agents deem necessary or advisable to enable the
Company to comply with the Securities Exchange Act of 1934, as amended, and any
rules, regulations, and requirements of the Securities and Exchange Commission
in respect thereof, in connection with the preparation and filing of the Form
10-K -- Annual Report for the year ended December 31, 1996 pursuant to Section
13 of the Securities Exchange Act of 1934, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer or
director, or both, of the Company to a Form 10-K -- Annual Report for the year
ended December 31, 1996, pursuant to Section 13 of the Securities Exchange Act
of 1934 or to any amendment thereto filed with the Securities and Exchange
Commission and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Form 10-K -- Annual Report or amendment; and the
undersigned does hereby ratify and confirm as his own act and deed all that said
attorneys and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 28th
day of February, 1997.
/s/ MICHAEL B. YANNEY
----------------------------------
Michael B. Yanney
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDNESED CONSOLIDATED STATEMENTS OF INCOME AND CONDENSED CONSOLIDATED BALANCE
SHEETS ON PAGES 38 THROUGH 39 OF THE COMPANY'S FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,626
<SECURITIES> 0
<RECEIVABLES> 55,462
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 69,084
<PP&E> 1,468,205
<DEPRECIATION> 1,009,963
<TOTAL-ASSETS> 563,458
<CURRENT-LIABILITIES> 81,733
<BONDS> 168,859
0
15,827
<COMMON> 3,053
<OTHER-SE> 223,563
<TOTAL-LIABILITY-AND-EQUITY> 563,458
<SALES> 316,087
<TOTAL-REVENUES> 317,474
<CGS> 210,905
<TOTAL-COSTS> 224,528
<OTHER-EXPENSES> 63,068
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,307
<INCOME-PRETAX> 6,590
<INCOME-TAX> 5,451
<INCOME-CONTINUING> 1,139
<DISCONTINUED> 0
<EXTRAORDINARY> 2,166
<CHANGES> 0
<NET-INCOME> 3,305
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
